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<SEC-DOCUMENT>0000912057-01-505762.txt : 20010402
<SEC-HEADER>0000912057-01-505762.hdr.sgml : 20010402
ACCESSION NUMBER: 0000912057-01-505762
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20001230
FILED AS OF DATE: 20010330

FILER:

COMPANY DATA:
COMPANY CONFORMED NAME: FOSSIL INC
CENTRAL INDEX KEY: 0000883569
STANDARD INDUSTRIAL CLASSIFICATION: WATCHES, CLOCKS, CLOCKWORK OPERATED DEVICES/PARTS [3873]
IRS NUMBER: 752018505
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231

FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-19848
FILM NUMBER: 1586899

BUSINESS ADDRESS:
STREET 1: 2280 NORTH GREENVILLE AVE
CITY: RICHARDSON
STATE: TX
ZIP: 75082
BUSINESS PHONE: 9722342525

MAIL ADDRESS:
STREET 1: 2280 N GREENVILLE
CITY: RICHARDSON
STATE: TX
ZIP: 75082
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>a2043105z10-k.txt
<DESCRIPTION>10-K
<TEXT>

<PAGE>

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 DECEMBER 30, 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 27, 2001, was $171,798,028. 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 27, 2001, 30,180,814 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, 2001, 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.

<PAGE>

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(R) 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(R) brands and FOSSIL brand apparel. In addition to developing its own
brands, the Company leverages its development and production expertise by
designing and manufacturing private label 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(R) , DKNY(R) and DIESEL(R).

The Company's products are sold to department stores and specialty
retail stores in over 80 countries worldwide through Company-owned foreign sales
subsidiaries and through a network of approximately 47 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 Company-owned and
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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<PAGE>

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 and
DIESEL lines generally compete 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,

-3-
<PAGE>

gloves, hats, hosiery and socks. The Company believes that one reason for the
growth in this line of business 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, and 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.

APPAREL

In 2000, the Company introduced a line of FOSSIL casual apparel that is
distributed exclusively through Company-owned retail stores and the Company's
website. Selling through Company-owned stores allows the Company to effectively
manage visual presentation, information feedback, inventory management and
operating returns. The apparel line is focused on the casual lifestyle of 16 to
24 year old consumers and consists primarily of jeans, tee shirts, and
sweatshirts featuring FOSSIL brand packaging and labeling. The suggested retail
selling price of the apparel line is comparable to that of major competitors
like American Eagle Outfitters and Gap. The Company has leveraged its existing
graphic and store design infrastructure to create a unique product packaging and
store concept that differentiates it from other competitors in order to create
higher perceived value for the products.

BUSINESS STRATEGY

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

o 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, innovative
treatments and details in its other accessories and through unique
product packaging for its apparel products.

o 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

-4-
<PAGE>

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.

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

o 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.

o 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.

o 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

o 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, DKNY and
DIESEL brand names pursuant to license agreements. 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.

-5-
<PAGE>

o EXPAND INTERNATIONAL BUSINESS. The Company has increased FOSSIL brand
advertising internationally to accelerate brand recognition. The
Company has also purchased former distributors and entered into joint
venture relationships to gain increased control over the brand and
instilled global-wide marketing efforts. The Company continues to
introduce its licensed-brand products into international markets, open
FOSSIL stores and develop new product lines.

o 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 73 retail and outlet
stores and plans to open in the United States an additional seven
retail stores and four outlet stores in 2001. In 2000, the Company
began offering FOSSIL brand apparel products at 14 Company-owned FOSSIL
retail stores in the United States. The Company intends to continue to
offer its watch and accessory products through additional
independently-owned, authorized FOSSIL retail stores in airports, on
cruise ships and in international markets.

o 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 allowing 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 FOSSIL brand apparel 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 2000, 1999
and 1998 accounted for approximately 71.7%, 76.5%, and 75.5%, respectively, of
the Company's gross sales.

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

SUGGESTED PRICE DISTRIBUTION
WATCH BRAND PRODUCT CATEGORIES POINT RANGE AVERAGE PRICE CHANNELS
----------- ------------------ --------------- ------------- --------

<S> <C> <C> <C> <C>
FOSSIL FOSSIL BLUE, F2, BIG TIC, $45 - 165 $69 Major dept. stores (Dayton
DEFENDER, ARKITEKT (formerly Hudson Corp., Dillard's,
Steel), Limited Edition and Federated/Macy's, May Dept.
Vintage Stores, Nordstrom, Inc. and
Saks), specialty retailers,
Internet, and Company-owned
stores
</TABLE>

-6-
<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
RELIC RELIC Wet, RELIC $35 - 125 $59 Major retailers (JCPenney,
Adjust-A-Link, RELIC Kohl's Department Stores,
Stainless Steel, Metal, Inc., and Sears)
Sport, Novelty, Pendant and
Pocket
</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:

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 - 395 $195 Worldwide Major department
bands, pocket stores, specialty
watches retailers, jewelry
stores and Emporio
Armani Boutiques

DKNY, DKNY Active, Men's, women's $75 - 195 $107 Worldwide Better department
DKNY Jeans & DONNA and children's stores, specialty
KARAN NEW YORK watches retailers, and Donna
Karan Retail Stores

DIESEL Wrist watches and $75 - 320 $100 Worldwide Better department
straps and table, stores, specialty
alarm, and wall retailers, and Diesel
clocks 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
provides 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, Felix the Cat
and I Love Lucy.

-7-
<PAGE>

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, and men's and
women's belts, small leather goods and sunglasses. 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 2000, 1999 and 1998
accounted for approximately 24.1%, 22.5% and 23.5%, respectively of the
Company's gross sales.

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

SUGGESTED PRICE
BRAND ACCESSORY CATEGORY POINT RANGE AVERAGE PRICE DISTRIBUTION CHANNEL
- ----- ------------------ ----------- ------------- --------------------
<S> <C> <C> <C> <C>
FOSSIL Sunglasses $25 - 65 $ 35 Major dept. stores
(Dayton Hudson
Handbags $35 - 148 $100 Corp., Dillard's,
Federated/Macy's,
Small Leather Goods $14 - 48 $ 32 May Dept. Stores,
Nordstrom, Inc. and
Belts $22 - 38 $ 28 Saks) and specialty
retailers

RELIC Sunglasses $20 $ 20 Major retailers
(Fred Meyer,
Handbags $26 - 36 $ 32 JCPenney, Kohl's
Department Stores,
Small Leather Goods $12 - 28 $ 20 Inc. and Sears)

Belts $12 - 20 $ 16
</TABLE>

APPAREL

In July 2000, the Company introduced a collection of FOSSIL brand
casual apparel and jeans. The casual wear collection is designed for both men
and women. The products' unique retro-Americana packaging captures the energy
and spirit of the FOSSIL brand. The FOSSIL apparel collection is offered through
approximately 14 Company-owned retail store locations in leading malls and
retail locations in the United States. The line is also available at the
Company's web site www.fossil.com.

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<PAGE>

SUGGESTED PRICE
BRAND APPAREL LINES POINT RANGE AVERAGE PRICE DISTRIBUTION CHANNEL
- ----- ------------- ----------- ------------- --------------------
<S> <C> <C> <C> <C>
FOSSIL Outerwear $36 - 248 $50 FOSSIL jeans wear
stores and Internet
Men's Tops $12 - 48 $32

Men's Bottoms $32 - 44 $40

Women's Tops $16 - 38 $28

Women's Bottoms $32 - 138 $40

T-shirts $16 - 44 $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 lines that would
complement its existing product.

DESIGN AND DEVELOPMENT

The Company's watch, accessory and apparel 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 retail performance of its products. The Company 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 and profit
margins for the products.

-9-
<PAGE>

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, straps
and bracelets for the Company's watches, and details and treatments in its other
accessories, and through unique product packaging for its apparel products. 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 consumers
through a variety of media, including catalog inserts, billboards, print media
and the Internet. 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 RELIC brand in certain national
fashion and consumer magazines such as TEEN, TWIST, MH18 AND MARIE CLAIRE. The
Company also periodically advertises in trade publications such as WOMEN'S WEAR
DAILY and DAILY NEWS RECORD.

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<PAGE>

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 watch and accessory products 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's apparel products are sold through
FOSSIL jeans wear stores and through the Company's website. 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 2000, 1999 and 1998, domestic
department stores accounted for approximately 59.8%, 58.8%, and 60.8% of the
Company's net sales, respectively. In addition, in the same periods, the
Company's 10 largest customers represented approximately 40%, 41%, and 47% of
net sales, respectively. No customer accounted for more than 10% of the
Company's net sales in fiscal years 2000, 1999 and 1998. 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 8.0%, 9.0%, and 10.0% of the Company's net sales in fiscal years
2000, 1999 and 1998, 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 2000, 1999 and 1998.

INTERNATIONAL SALES. The Company's products are sold to department
stores and specialty retail stores in over 80 countries worldwide through
Company-owned foreign sales subsidiaries and through a network of approximately
47 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 2000, 1999 and 1998, international and export
sales accounted for approximately 30%, 31%, and 29% 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 39 outlet stores at the end of fiscal year 2000.
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 four additional outlet stores in 2001.

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 32 retail stores in leading malls and retail locations throughout the
United States and two in the United Kingdom. These stores, which operate under
the FOSSIL name, carry a full assortment of FOSSIL merchandise which is
generally sold at the suggested retail price. The Company

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<PAGE>

intends to open two additional retail stores in 2001 offering accessories only.
During the fiscal years 2000, 1999 and 1998, Company Store sales accounted for
approximately 10%, 9%, and 9% of net sales, respectively.

In 2000, the Company began offering FOSSIL brand apparel through
specially designed Company-owned apparel stores. The Company currently operates
14 FOSSIL jeans wear stores in leading malls and retail locations throughout the
United States. The Company's apparel stores carry the full apparel line along
with an assortment of certain FOSSIL watch and accessory products. The Company
intends to open five additional apparel stores in 2001.

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, apparel and other
related products. These products are also available to consumers through
"storefronts" on America Online, Microsoft Network and Yahoo that are 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 launched a business-to-business site that allows 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 2000, the
Company had 86 in-house sales and customer service employees and 16 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 has and
should continue to facilitate the introduction of new products through its
existing distribution network.

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<PAGE>

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
returns. The allowances for product returns as of the end of fiscal years 2000,
1999 and 1998 were $21.2 million, $17.7 million, and $14.0 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 2000, the Company had unfilled customer orders of approximately $63.5
million compared to $41.4 million and $22.2 million for fiscal years 1999 and
1998, 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, bracelets 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 2000. 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 2000, four 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

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<PAGE>

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.

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, from three to four
months in the case of leather goods and from two to four months for apparel
items. 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 also leases a warehouse and distribution
center in Garland, Texas. The Company is planning to acquire a 500,000 square
foot warehouse and distribution facitlity in the Dallas, Texas area that will
allow it to centralize the facilities currently being utilized for such
purposes. This facility is scheduled for completion in late 2001 or early 2002.

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.

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<PAGE>

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 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
(1) 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.

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<PAGE>

INTELLECTUAL PROPERTY

TRADEMARKS. The Company has registered the FOSSIL and RELIC trademarks
for use on the Company's watches, leather goods, apparel 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 registered, the distinctive rectangular tins in
which the Company packages certain of its FOSSIL watch products.

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, sunglass
and apparel 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, accessories and apparel from abroad, domestic companies that
have established foreign manufacturing relationships and companies that produce
accessories and apparel 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.

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<PAGE>

EMPLOYEES

As of the end of fiscal year 2000, the Company (excluding the Company's
foreign subsidiaries) had 2,044 full-time employees, including 214 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 2000, the Company's foreign operating subsidiaries had 398 full-time
employees, including 49 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.

ITEM 2. PROPERTIES

COMPANY FACILITIES. As of the end of fiscal year 2000, the Company
owned or leased the following facilities in connection with its domestic and
international operations:

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
Garland, Texas Warehouse and distribution 117,328 Lease expiring in 2001
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, warehouse and distribution 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 2003
Chicago, Illinois General office and showroom 2,980 Lease expiring in 2001
Los Angeles, California General office and showroom 1,934 Lease expiring in 2005
</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 2000, the Company
had entered into 37 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 2011 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 6% 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 2000, the Company had entered into 41
such leases. The leases, including renewal options, expire at various times from
2001 to 2013, and provide for minimum annual rentals and for the payment of
additional rent based on a

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percentage of sales above specified net sales amounts ranging from 4% to 6%. 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
and in good operating condition. The Company is planning to acquire a 500,000
square foot warehouse and distribution facitlity in the Dallas, Texas area that
will allow it to centralize the facilities currently being utilized for such
purposes. This facility is scheduled for completion in late 2001 or early 2002.

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.

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 fiscal year 2000.

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 December 30, 2000 and January 1, 2000. 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.

HIGH LOW
---- ---
Fiscal year beginning January 2, 2000:
<S> <C> <C>
First Quarter $26.750 $15.813
Second Quarter 25.125 16.625
Third Quarter 20.500 11.563
Fourth Quarter 16.438 10.500

Fiscal year beginning January 3, 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
</TABLE>

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As of March 29, 2001, the Company estimates that there were
approximately 4,250 beneficial owners of the Company's Common Stock, represented
by approximately 136 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.

ITEM 6. SELECTED FINANCIAL DATA

The information appearing under "Financial Highlights" beginning on
page 5 of the Fossil, Inc. 2000 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. 2000 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 24, respectively, of the
Fossil, Inc. 2000 Annual Report is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The information appearing under "Financial Information" beginning on
page 24 of the Fossil, Inc. 2000 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

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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 24 of the Fossil, Inc. 2000 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).

3.5 Certificate of Amendment of the 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 1, 2000).

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<PAGE>

3.6 Amended and Restated Bylaws of Fossil, Inc. (incorporated by reference
to Exhibit 3.1 of the Company's Report on Form 10-Q for the quarterly
period ended September 30, 2000).

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).

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).

-21-
<PAGE>

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).

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).

-22-
<PAGE>

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)

10.31 First Amendment to Fourth Amended and Restated Loan Agreement dated
June 27, 2000 by and among Wells Fargo Bank Texas, National
Association, a national banking association formerly known as 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. (without exhibits) (incorporated by
reference to Exhibit 10.1 of the Company's Report on Form 10-Q for the
quarterly period ended July 1, 2000).

10.32 Joint Venture Agreement by and between Sucesores de A. Cadarso and
Fossil Europe B.V., dated as of July 27, 2000 (without exhibits)
(incorporated by reference to Exhibit 10.1 of the Company's Report on
Form 10-Q for the quarterly period ended September 30, 2000).

13(1) Fossil, Inc. 2000 Annual Report to Stockholders.

21.1(1) Subsidiaries of Fossil, Inc.

23.1(1) Consent of Independent Auditors.

- ----------
(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.

-23-
<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, 2001.

FOSSIL, INC.

/s/ Kosta Kartsotis
--------------------------------------------
KOSTA KARTSOTIS, PRESIDENT, CHIEF
EXECUTIVE OFFICER AND DIRECTOR

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.

SIGNATURE CAPACITY DATE

<S> <C> <C>
/s/ Tom Kartsotis Chairman of the Board and Director March 30, 2001
- ---------------------------------- (Principal Executive Officer)
TOM KARTSOTIS

/s/ Kosta N. Kartsotis President, Chief Executive Officer March 30, 2001
- ---------------------------------- and Director
KOSTA N. KARTSOTIS

/s/ Mike Kovar Senior Vice President and Chief March 30, 2001
- ---------------------------------- Financial Officer (Principal Financial
MIKE KOVAR and Accounting Officer)

/s/ Michael W. Barnes President, International and Special March 30, 2001
- ---------------------------------- Markets Division and Director
MICHAEL W. BARNES

/s/ Richard H. Gundy President, FOSSIL Watches and Stores March 30, 2001
- ---------------------------------- Division and Director
RICHARD H. GUNDY

/a/ Jal S. Shroff Director March 30, 2001
- ----------------------------------
JAL S. SHROFF

/s/ Kenneth W. Anderson Director March 30, 2001
- ----------------------------------
KENNETH W. ANDERSON

/s/ Alan J. Gold Director March 30, 2001
- ----------------------------------
ALAN J. GOLD

/s/ Michael Steinberg Director March 30, 2001
- ----------------------------------
MICHAEL STEINBERG

/s/ Donald J. Stone Director March 30, 2001
- ----------------------------------
DONALD J. STONE

/s/ Junichi Hattori Director March 30, 2001
- ----------------------------------
JUNICH HATTORI
</TABLE>

-24-
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Directors of Fossil, Inc.:

We have audited the consolidated financial statements of Fossil, Inc. and
subsidiaries as of December 30, 2000 and January 1, 2000 and for each of the
three years in the period ended December 30, 2000, and have issued our report
thereon dated February 19, 2001, which report expressed an unqualified opinion;
such consolidated financial statements and report are included in your 2000
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 19, 2001

S-1

<PAGE>

SCHEDULE II

FOSSIL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

Fiscal Years 1998, 1999, and 2000
(in thousands)

Additions
---------
Charged Deductions
Balance at (Credited) to ---------- Balance at
Beginning of Cost and Actual Returns End
Classification Period Expenses or Writeoffs of Period
- -------------- ------------ ------------- -------------- ----------

<S> <C> <C> <C> <C>
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)

Fiscal Year 2000:

Accounts receivable allowances:

Sales returns 17,700 26,513 (22,966) 21,247

Bad debts 7,957 3,005 (1,481) 9,481

Cash discounts 173 170 (159) 184

Inventory in transit for estimated
customer returns (9,463) (14,415) 11,609 (12,269)
</TABLE>

S-2
<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION

3.6 Amended and Restated Bylaws of Fossil, Inc. (incorporated by reference
to Exhibit 3.1 of the Company's Report on Form 10-Q for the quarterly
period ended September 30, 2000).

<PAGE>

EXHIBIT
NUMBER DESCRIPTION

reference to Exhibit 10.6 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).

<PAGE>

EXHIBIT
NUMBER DESCRIPTION

reference to Exhibit 10.45 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).

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).

10.26 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).

<PAGE>

EXHIBIT
NUMBER DESCRIPTION

Exhibit 10.1 of the Company's Report on Form 10-Q for the quarterly
period ended July 1, 2000).

13(1) Fossil, Inc. 2000 Annual Report to Stockholders.

21.1(1) Subsidiaries of Fossil, Inc.

23.1(1) Consent of Independent Auditors.

- ----------
(1) Filed herewith.
(2) Management contract or compensatory plan or arrangement.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>2
<FILENAME>a2043105zex-13.txt
<DESCRIPTION>EXHIBIT 13
<TEXT>

<PAGE>

Exhibit 13

APRIL 16, 2001 ANNUAL REPORT #8

FOSSIL

ANNUAL REPORT 2000

[ILLUSTRATION]

MANAGEMENT
DISCUSSION & ANALYSIS ... FOSSIL COMPANY OVERVIEW

- - Understanding the Fossil Brand. - A brief synopsis of all the products.
- - What's in store for the Company? - Fossil's long-term goal.

- ----- LOOK INSIDE FOR MORE! ----

<PAGE>

[ILLUSTRATION]

<PAGE>

*** SETTING THE STANDARD ***

[ILLUSTRATION]

A WATCH FOR EVERY OCCASION
DON'T MISS IT!

<PAGE>

[ILLUSTRATION]

<PAGE>

................... TABLE OF CONTENTS .....................

<TABLE>

<S> <C> <C>
PAGE 4 ........... COMPANY PROFILE

What kind of company is FOSSIL?
What kind of products does FOSSIL make?

5 ........... FINANCIAL HIGHLIGHTS

Numbers and more Numbers.

7 ........... LETTER TO STOCKHOLDERS

Highlights from 2000

8 ........... COMPANY OVERVIEW

Fossil Products, Other Products

11 .......... MANAGEMENT DISCUSSION AND ANALYSIS

The whole FOSSIL SHABANG!!!

24 .......... FINANCIAL INFORMATION

The numbers you have been wanting to see all year.

44 .......... CORPORATE INFORMATION

Who's Who?

</TABLE>

<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 80 countries around the
world, in addition to the Company's e-commerce website at www.fossil.com. The
Company also offers a line of FOSSIL brand apparel and jeans at 14 Company-owned
retail stores and over the Company's website.

[ILLUSTRATION]
THE COMPANY DIFFERENTIATES ITS PRODUCTS
FROM THOSE OF ITS COMPETITORS PRINCIPALLY
THROUGH INNOVATIONS IN FASHION DETAILS.

The Company differentiates its products from those of its competitors
principally through innovations in fashion details. These innovations include
variations in the treatment of watch dials, crystals, cases, straps and
bracelets for the Company's watches and innovative treatments and details in its
other accessories. An in-house creative services team coordinates product
design, packaging, advertising and in-store presentations to more effectively
and cohesively communicate to its target markets the themes and images
associated with its brands. Brand name development is further enhanced through
Company-owned stores as well as the Company's website.

Utilizing several wholly and majority-owned watch assembly facilities and
centralized distribution points enables the Company to reduce its inventory
risk, increase flexibility in meeting the delivery requirements of its customers
and maintain significant cost advantages compared to its competitors. To further
leverage the Company's infrastructure, including design, development and
production expertise, the Company has entered into license agreements to
manufacture, market and sell watches bearing internationally recognized brands
of other companies as well as design and develop private label products for some
of the most distinguished companies in the world.

[GRAPH - NET SALES] [GRAPH - OPERATING INCOME]

[GRAPH - NET INCOME] [GRAPH - STOCKHOLDERS' EQUITY]

4 FOSSIL ANNUAL REPORT 2000

<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

FISCAL YEAR 2000 1999 1998 1997 1996
IN THOUSANDS, EXCEPT PER SHARE DATA ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales .............................. $504,285 $418,762 $304,743 $244,798 $205,899
Gross profit ........................... 255,746 212,887 150,504 117,528 98,038
Operating income ....................... 93,821 87,449 55,370 34,610 24,373
Income before income taxes ............. 94,717 87,841 54,729 32,151 23,040
Net income ............................. 55,883 51,826 32,161 18,942 13,591
Basic earnings per share (1) ........... 1.76 1.63 1.04 0.63 0.46
Diluted earnings per share (1) ......... 1.71 1.55 0.99 0.61 0.45

Weighted average common shares
outstanding:
Basic shares (1) ................... 31,689 31,900 31,054 30,203 29,675
Diluted shares (1) ................. 32,675 33,428 32,586 31,250 30,101

Working capital ........................ $169,792 $155,198 $109,040 $ 70,603 $ 59,861
Total assets ........................... 307,591 269,364 194,078 139,570 118,978
Long-term debt ......................... -- -- -- -- 4,350
Stockholders' equity ................... 220,699 191,197 134,919 95,263 74,568
Return on average stockholders' equity.. 26.9% 32.2% 29.3% 23.1% 20.3%

</TABLE>

(1) All share and per share data has been adjusted to reflect three-for-two
stock splits effected in the form of a stock dividend paid August,17 1999 and
April 8, 1998.

STOCK INFORMATION

The Company's common stock prices are published daily in The Wall Street Journal
and other publications under the Nasdaq National Market Listing. The stock is
traded under the ticker symbol "FOSL." The following are the high and low sale
prices of the Company's stock per the Nasdaq National Market. All share data has
been adjusted to reflect the three-for-two stock split effected in the form of a
stock dividend paid on August 17, 1999. Stock prices have been adjusted in
certain cases to the nearest traded amount.

2000 1999
---- ----
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First quarter $ 26.750 $ 15.813 $ 23.667 $ 17.833
Second quarter 25.125 16.625 33.583 17.250
Third quarter 20.500 11.563 36.583 26.333
Fourth quarter 16.438 10.500 30.625 18.750

</TABLE>

[ILLUSTRATION]

FOSSIL ANNUAL REPORT 2000 5

<PAGE>

[ILLUSTRATION]

<PAGE>

LETTER TO THE STOCKHOLDERS
- --------------------------------------------------------------------------------

Dear Stockholders,

We are pleased to report that FOSSIL continued to deliver record setting
financial performance in 2000. While achieving one-half billion dollars in sales
at an enviable operating margin was satisfying, we view our mission as having
only just begun.

[ILLUSTRATION]

In 2000, FOSSIL brand products continued to appeal to youthful-minded consumers
who shop in upscale department, specialty and jewelry stores around the world.
During the year, we experienced nice growth and geographic diversification in an
already large FOSSIL watch business. We also were excited to see our less mature
FOSSIL branded accessories businesses grow rapidly. This growth reinforces our
belief that the business practices and branding strategies that were developed
for watches work well with other product classifications. In fact, it was a
tremendous year for the expansion of the FOSSIL brand around the world.

Some other highlights from 2000 include:

- - Our retail customers enjoyed increased business in FOSSIL products as
evidenced by their more rapid inventory turnover rate.

- - Our retail businesses expanded by leaps and bounds led by nice increases in
FOSSIL handbags and other leather goods.

- - We expanded our international business with additional distribution of FOSSIL
products, new joint venture relationships and increased sales of EMPORIO
ARMANI and DKNY licensed watches.

- - RELIC continued to further establish itself as a leading watch brand in
national department stores, demonstrating the potential for further growth,
both within watches and other product categories.

- - Our launch of DKNY and DIESEL watches further expanded our ability to capture
market share of watch businesses both domestically and internationally.

- - We introduced FOSSIL branded apparel in Company-owned stores and over our
website capitalizing on the strength of the FOSSIL brand.

- - We dramatically improved our capacity to handle further growth by investing
heavily in operating systems, management, web technology and a wide array of
other tools that will be necessary in the future.

- - We continued to improve our website, adding additional portals and achieving
nice internet sales growth in watches, accessories and apparel.

- - We successfully tested a number of new initiatives, including FOSSIL branded
jewelry in Germany, enabling us to continue pursuing new avenues for growth.

- - Our Special Markets group continued to expand as we increased our sales and
added to our base of associated distributors.

- - Our joint venture company, SII Marketing International, made great strides
during its first year establishing key relationships with mass market and
chain department store customers offering both licensed and owned-brand
watches.

[ILLUSTRATION]

The profitability, diversification and overall strength of our Company are
attributable to many things. Obviously, at the top of this list are the
incredible people from all over the world who have dedicated their professional
lives to this Company. Without their wellspring of energy, immense talent and
strong sense of teamwork, our quest for the next half billion dollars in sales
might seem daunting. Our ability to create and grow effective partnerships with
world class retailers, suppliers, licensors and other third parties continues
to contribute to the strength of our Company. For all these reasons, we believe
our Company is uniquely positioned to capture increased market share, earnings
per share and mind-share of a generation of consumers who have embraced, and
should continue to embrace, our brands and our products.

As always, we will do our best to deliver continued sales and earnings growth to
our stockholders while, at the same time, strategically building the necessary
infrastructure and pursuing new ideas that will provide future growth with a
level of profitability that is worthy of your investment in FOSSIL.

Sincerely,

/s/ Tom Kartsotis /s/ Kosta Kartsotis

Tom Kartsotis Kosta Kartsotis
Chairman of the Board President & Chief
Executive Officer

FOSSIL ANNUAL REPORT 2000 7

<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 2000, WHILE CONTINUING TO GAIN MOMENTUM IN SALES
OF NON-WATCH PRODUCTS AND INCREASED BRAND PRESENCE GLOBALLY.

FOSSIL
- --------------------------------------------------------------------------------
- PRODUCTS -

WATCHES:

The FOSSIL watch brand continued to build market share in department stores and
specialty stores in 2000, with FOSSIL BLUE, ARKITEKT (formerly STEEL) and F2
representing the core product offerings. The Company also launched the FOREVER
line under the F2 umbrella that is targeted at a younger female demographic.
During 2000, the Company began utilizing stainless steel cases and bracelets in
the FOSSIL BLUE and F2 collection, further enhancing the quality of the
line.

LEATHER GOODS AND SUNWEAR:

The leather division continued to exhibit strong sales growth in 2000 with sales
increases of over 40% for the second consecutive year. Handbags continued to be
the driver in this product category, gaining market share at retail and further
enhancing the visibility and sales of the other accessory categories. Sales were
also enhanced by the growth of the Company's RELIC brand leather goods. The
Company also offers an extensive line of FOSSIL brand sunwear. In 1999, the
Company introduced a line of FOSSIL optical frames.

- --------------------------------------------------------------------------------

[LOGO]

APPAREL:

In 2000, the Company introduced a line of FOSSIL brand apparel products. The
line consists of casual wear and jeans and is available at 14 FOSSIL retail
stores and over the Company's website at www.fossil.com.8

8 FOSSIL ANNUAL REPORT 2000

<PAGE>

OTHER PRODUCTS

RELIC PRODUCTS:

RELIC brand watches continued to gain market share in the leading national and
regional chain department stores and specialty stores in 2000 with sales growth
of over 30%. The success of RELIC watches and the increased brand recognition
has provided the opportunity to extend the RELIC brand to other categories of
fashion accessories including handbags, small leather goods and belts.

- --------------------------------------------------------------------------------

INTERNATIONAL SALES:

Increasing demand for FOSSIL products worldwide, coupled with the expansion of
the EMPORIO ARMANI licensed line and the introduction of DKNY, helped broaden
the Company's business around the world. The Company also introduced a line of
FOSSIL brand jewelry in Germany in 2000 that received a very favorable response
at retail. The FOSSIL brand is available in over 80 countries around the world
through the Company's subsidiary operations, joint ventures and a network of 47
independent distributors. International distribution continues to offer an
excellent growth opportunity for the Company in 2001.

- --------------------------------------------------------------------------------

LICENSED BRANDS:

The Company's licensed watch business continued to gain momentum with the
highly successful launch of the DKNY line in the spring of 2000 with sales
exceeding $32 million worldwide. Sales and distribution of EMPORIO ARMANI
OROLOGI, a line of watches featuring distinctive interpretations and retro and
modern designs, continued to grow worldwide. In 2000, the Company also
introduced a line of DIESEL brand watches pursuant to a worldwide license
agreement.

- -------------------------------------------------------------------------------

FOSSIL STORES:

The Company operated 18 accessory stores in the U.S. at the end of 2000 and
plans to add 2 new locations during 2001. The FOSSIL retail stores continue to
provide an exciting format in which to display the Company's increasing product
assortment and to convey the FOSSIL brand image. During 2000, the Company
opened two retail stores in the United Kingdom at Bluewater Mall and in Covent
Garden. In the third quarter, the Company opened the first of 14 jeans wear
stores and plans to add 5 new locations during 2001. These stores offer a line
of FOSSIL casual wear and jeans in addition to the Company's watches and
fashion accessories. The Company also operated 39 outlet stores coast-to-coast
at the end of 2000 and plans to add 4 new locations during 2001. The outlet
stores allow the Company to control the timely liquidation of discontinued
styles while maintaining the integrity of the FOSSIL brand.

- -------------------------------------------------------------------------------

PRIVATE LABEL AND PREMIUMS:

In addition to building its own brands, the Company also designs and
manufactures private label products for some of the most prestigious companies
in the world, including national retailers, entertainment companies and theme
restaurants. The Company continues to expand its core private label watch
business as well as integrate other product categories such as leather goods
and sunglasses. The Company utilizes its sourcing, design and development
expertise to support these comprehensive incentive programs. In addition, the
Company has established a joint venture company that is responsible for the
sales, marketing and distribution of watches to mass market retailers and chain
department stores offering both licensed and owned-brand watches.

9
<PAGE>

[ILLUSTRATION]

10
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------

THE COMPANY'S SUCCESSFUL EXPANSION OF ITS PRODUCT LINES WORLDWIDE AND
LEVERAGING OF ITS INFRASTRUCTURE HAVE CONTRIBUTED TO ITS INCREASING NET SALES
AND OPERATING PROFITS.

THE COMPANY IS A LEADER IN THE DESIGN, DEVELOPMENT, MARKETING AND DISTRIBUTION
OF CONTEMPORARY, HIGH QUALITY FASHION WATCHES, ACCESSORIES AND APPAREL.

The FOSSIL brand name was developed by the Company to convey a distinctive
fashion, quality and value message and a brand image reminiscent of "America in
the 1950s" that suggests a time of fun, fashion and humor.

Since its inception in 1984, the Company has grown from its original flagship
FOSSIL watch product into a Company offering a diversified range of accessories
and apparel. The Company's current product offerings include an extensive line
of fashion watches sold under the FOSSIL and RELIC brands, complementary lines
of small leather goods, belts, handbags, sunglasses and FOSSIL brand apparel.
In addition to developing its own brands, the Company leverages its development
and production expertise by designing and manufacturing private label and
licensed products for some of the most prestigious companies in the world,
including national retailers, entertainment companies and fashion designers.

The Company's products are sold primarily to department stores and specialty
retail stores in over 80 countries worldwide through Company-owned foreign
sales subsidiaries and through a network of 47 independent distributors. The
Company's foreign operations include a presence in Asia, Australia, Canada, the
Caribbean, Europe, Central and South America and the Middle East. In addition,
the Company's products are offered at Company-owned retail locations throughout
the United States, in Company-owned and independently-owned, authorized FOSSIL
retail stores in certain international markets and at retail locations in major
airports and on cruise ships. The Company's successful expansion of its product
lines worldwide and leveraging of its infrastructure have contributed to its
increasing net sales and operating profits.

COMPANY HIGHLIGHTS

OVERALL

- - For the past 18 consecutive quarters ended December 30, 2000, the Company has
achieved increased earnings per share in comparison to the previous year's
comparable periods.

- - Fiscal year 2000 marked the third consecutive year in which the Company's net
sales increased at a rate in excess of 20% over the comparable year.

- - The Company's international operations continued to grow as a result of the
acquisition of the Company's former U.K. distributor in September of 1999,
continued strong market penetration in Germany and further expansion of its
export business.

- - Net sales from the Company's international operations increased just under
20% over 1999. If not for the impact of a strong U.S. dollar against the
Euro, this increase would have been in excess of 30%.

- - During fiscal year 2000, the Company utilized approximately $29 million of
its cash balances to acquire over 2 million shares of its common stock
through open market purchases.

PRODUCTS

- - The Company's FOSSIL BLUE, ARKITEK (formerly STEEL) and F2 watch lines
continue to represent the majority of FOSSIL brand watch sales. With
significant decreases in the FOSSIL BIG TIC category during 2000, FOSSIL
BLUE, ARKITEK and F2 were the catalyst for continued net sales increases of
FOSSIL branded watches.

- - The Company introduced its FOREVER line of watches, an extension of its F2
line, that targets a younger female demographic. Additionally, the Company
will be further expanding its F2 line by introducing more contemporary styles
during 2001.

- - The Company continued to enhance its licensed product business with the
introduction and launch of its DKNY and DIESEL watch lines during 2000. DKNY,
launched in the spring, became one of the Company's most successful licensed
brand launches in terms of net sales, exceeding $32 million worldwide in its
first year.

- - RELIC brand watches, the Company-owned brand sold in leading national and
regional chain department stores and specialty stores, continued to gain
market share with net sales growing over 30% in 2000. The success of RELIC
watches and increasing brand name recognition continues to provide avenues of
growth for RELIC leather accessories as well.

- - During the fourth quarter, the Company announced the test of a line of FOSSIL
brand jewelry in Germany. This line was successfully tested in 230 doors over
the 2000 holiday season and is expected to rollout to several hundred
additional doors in the spring of 2001.

- - The Company continued to position itself as a leader in leather products,
with net sales of the Company's leather product category increasing over 40%
for the second consecutive year. Increases occurred across all product
categories and were further enhanced by the growth in RELIC branded products.

- - The Company believes its ability to continue to introduce new watch products
utilizing various technologies and metal treatments allows it to stay abreast
of fashion trends developing within the market. During 2000, the Company
began utilizing stainless steel cases and bracelets within its FOSSIL BLUE
and F2 lines that historically have incorporated brass componentry and
anticipates that by the end of 2001, most watches will incorporate stainless
steel componentry.

CONTINUED ON NEXT PAGE

FOSSIL ANNUAL REPORT 2000 11
<PAGE>

RETAIL LOCATION EXPANSION

- - The Company operated 20 FOSSIL retail accessory stores at the end of 2000
including two new stores that were opened in the U.K. during the fourth
quarter of 2000. The accessory stores, generally located in high volume,
international destination-type malls, allow the Company to test new product
introductions and enhance the FOSSIL brand name. The Company opened four and
eight accessory stores in 2000 and 1999, respectively.

- - During the second half of 2000, the Company launched FOSSIL brand apparel by
opening 14 new retail jeans wear stores. These stores are approximately twice
the size of the Company's accessory stores and combine the traditional
accessory offerings with casual wear and jeans wear.

- - The Company operated 39 FOSSIL outlet stores at the end of 2000. The Company
opened an additional six outlet stores in 2000 and five stores in 1999.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated: (i) the percentage of
the Company's net sales represented by certain line items from the Company's
consolidated statements of income and (ii) the percentage changes in these line
items between the years indicated.

<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
CHANGE CHANGE
FROM FROM
FISCAL YEAR 2000 1999 1999 1998 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>

Net sales............................. 100.0% 20.4% 100.0% 37.4% 100.0%
Cost of sales......................... 49.3 20.7 49.2 33.5 50.6
----- ----- -----
Gross profit.......................... 50.7 20.1 50.8 41.4 49.4
Operating expenses.................... 32.1 29.1 29.9 31.9 31.2
----- ----- -----
Operating income...................... 18.6 7.3 20.9 57.9 18.2
Interest expense...................... -- 9.4 -- (44.5) 0.1
Other income (expense)--net........... 0.2 101.2 0.1 218.5 (0.1)
----- ----- -----
Income before income taxes............ 18.8 7.8 21.0 60.5 18.0
Income taxes.......................... 7.7 7.8 8.6 59.6 7.4
----- ----- -----
Net income............................ 11.1% 7.8% 12.4% 61.1% 10.6%
----- ----- -----
</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 year indicated:

<TABLE>
<CAPTION>
AMOUNT IN MILLIONS PERCENT OF TOTAL
---------------------------------- ---------------------------------
Fiscal Year 2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
International:
Europe.................. $ 99.5 $ 86.7 $ 62.7 19.7% 20.7% 20.6%
Other................... 53.3 41.6 26.9 10.6 9.9 8.8
----- ----- ----- ----- ----- -----
Total international... 152.8 128.3 89.6 30.3 30.6 29.4

Domestic:
Watch products.......... 202.7 180.7 137.0 40.2% 43.2% 45.0%
Other products.......... 99.0 72.1 52.0 19.6 17.2 17.0
----- ----- ----- ----- ----- -----
Total................. 301.7 252.8 189.0 59.8 60.4 62.0
Stores.................. 49.8 37.7 26.1 9.9 9.0 8.6
----- ----- ----- ----- ----- -----
Total domestic........ 351.5 290.5 215.1 69.7 69.4 70.6
----- ----- ----- ----- ----- -----

Total net sales....... $ 504.3 $ 418.8 $ 304.7 100.0% 100.0% 100.0%
----- ----- ----- ----- ----- -----

12 CONTINUED ON PAGE FIFTEEN

</TABLE>
<PAGE>

[ILLUSTRATION]

13
<PAGE>

[ILLUSTRATION]

14
<PAGE>

THE MARCH 2000 LAUNCH AND CONTINUED ROLLOUT OF THE COMPANY'S LICENSED BRAND
LINE OF DKNY WATCHES, DOUBLE-DIGIT GROWTH OF THE COMPANY'S FOSSIL WATCH BRAND
AND CONTINUED MARKET PENETRATION OF THE COMPANY'S RELIC WATCH BRAND FUELED
WATCH SALES DURING THE YEAR. FISCAL 1999 COMPARED TO FISCAL 1998

FISCAL 2000 COMPARED TO FISCAL 1999

NET SALES. Net sales increases were primarily impacted by volume increases from
the Company's international and domestic watch sales, domestic leather product
sales and from an increase in the number of Company-owned retail stores over
the prior year. The March 2000 launch and continued rollout of the Company's
licensed brand line of DKNY watches, double-digit growth of the Company's
FOSSIL watch brand and continued market penetration of the Company's RELIC
watch brand fueled watch sales during the year. Increased sales volumes in the
Company's leather product offerings were led by continued growth in handbags,
women's small leather goods and men's belts. Additionally, continued expansion
of RELIC leather products contributed to the overall growth in the Company's
leather group. Expansion in both Company-owned retail and outlet stores,
including the opening of 14 jeans wear retail stores during the second half of
the year, and increases in same store sales in the Company's accessory stores
also positively impacted sales. Management believes that sales volume growth
will continue in 2001 with nearly all product lines and geographic regions
contributing as a result of continued expansion from new and existing product
lines.

GROSS PROFIT. Gross profit margins remained relatively stable at 50.7% for 2000
compared to 50.8% in 1999. Adversely effecting the Company's gross margins
throughout the year were foreign currency valuation changes relating to a
strong U.S. dollar against the Euro. The average Euro rate declined
approximately 13% from 1999 levels resulting in overall gross profit margins
being lower by slightly less than one percent. Gross profit margins were also
adversely effected by an increase in sales mix related to the Company's leather
products that generally carry lower gross profit margins than the Company's
consolidated average. Positively impacting gross profit margins were a higher
sales mix of licensed watches and retail sales from Company-owned stores as
well as internet sales, all of which generally carry higher gross profit
margins than the Company's consolidated average. Management anticipates 2001
gross profit margins to be equal to or slightly less than the levels achieved
in 2000.

OPERATING EXPENSE. Operating expense increases were a result of variable
expenses associated with increased sales volumes, costs associated with
expanding the Company's operating infrastructure and increased advertising
expenditures. As a percentage of net sales, operating expenses increased over
1999 levels by 2%. The infrastructure costs included higher payroll and
personnel-related expenses, store opening and operating expenses and warehouse
and distribution related expenses. Increased advertising expenditures were
primarily related to expansion of the Company's leather handbag fixturing
program at department stores, web-based advertising and additional internet
stores sights. As a majority of the infrastructure costs discussed above were
added in the second half of 2000, management believes operating expenses, as a
percentage of net sales, will increase during the first half of 2001 while
leveling off toward the back half of the year. As a result management expects
operating income as a percentage of net sales to decrease from the level
experienced in 2000.

OTHER INCOME (EXPENSE). Other income (expense) primarily reflects interest
income from cash investments, royalty income, minority interests in the
earnings (loss) of the Company's majority-owned subsidiaries and equity in the
earnings (loss) of its non-consolidated joint ventures. During 2000, other
income (expense) increased favorably as interest and royalty income earned
exceeded minority interest expense and equity in the losses of the Company's
joint ventures.

FISCAL 1999 COMPARED TO FISCAL 1998

NET SALES. Net sales growth resulted from sales volume increases across nearly
all the Company's product lines and worldwide sales regions. Watch sales were
fueled by increased market penetration in department and specialty stores of
the Company's three core FOSSIL brand assortments in addition to sales from its
Big Tic watch line. Watch sales were also slightly amplified during the first
half of 1999 from (a) refilling of certain retailer's watch inventories after a
very successful 1998 holiday season and (b) a $7.2 million international-based
sale of non-branded premium incentive watches. Increased sales volumes in the
Company's leather and eyewear product offerings were generated through market
share increases in existing locations as well as through new points of sale.
Company-owned retail store expansion in both the Company's retail and outlet
stores, as well as increases in same store sales, also positively impacted
sales.

GROSS PROFIT. Gross profit margins increased during 1999 primarily as a result
of an increase in the Company's sales mix of FOSSIL brand watches,
European-based sales, licensed designer brand watch sales and Company-owned
store sales. These sales categories generally result in higher gross profit
margins than the Company's consolidated average.

OPERATING EXPENSE. Operating expense increases were primarily to support
increased sales volumes. As a percentage of net sales, total selling, general
and administrative expenses decreased as a result of leveraging expenses
against higher net sales.

INCREASED SALES VOLUMES IN THE COMPANY'S LEATHER PRODUCT OFFERINGS WERE LED BY
CONTINUED GROWTH IN HANDBAGS, WOMEN'S SMALL LEATHER GOODS AND MEN'S
BELTS.

[ILLUSTRATION]

CONTINUED ON NEXT PAGE 15

<PAGE>

[ILLUSTRATION]

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

EFFECTS OF INFLATION

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

FOREIGN CURRENCY RISK

As a multinational enterprise, the Company is exposed to changes in foreign
currency exchange rates. The Company employs a variety of practices to manage
this market risk, including its operating and financing activities, and where
deemed appropriate, the use of derivative financial instruments. Forward
contracts have been utilized by the Company to mitigate foreign currency risk.
The Company's most significant foreign currency risk relates to the Euro,
British Pound and Japanese Yen. The Company uses derivative financial
instruments only for risk management purposes and does not use them for
speculation or for trading. There were no significant changes in how the
Company managed foreign currency transactional exposure during 2000 and
management does not anticipate any significant changes in such exposures or in
the strategies it employs to manage such exposure in the near future.

LIQUIDITY AND CAPITAL RESOURCES

The Company's business operations historically have not required substantial
cash needs during the first several months of its fiscal year. Generally,
starting in the second quarter the Company's cash needs begin to increase and
typically reach their peak in the September-November time frame. Cash flow
generated by the Company's operating activities has generally funded the
Company's cash requirements and capital expenditures. Cash generated from
operating activities exceeded $40 million and $61 million during 2000 and 1999,
respectively. Historically, the Company's primary capital requirements have
been for working capital, investing activities associated with the expansion of
its office and distribution facilities, international growth, systems
development and expansion of Company-owned stores.

During 2000, the Board of Directors authorized the Company to repurchase up to
2,500,000 shares of its common stock on the open market. Under this
authorization and a previous authorization, the Company purchased 2,039,400
shares at an aggregate cost of approximately $28.7 million. As of December 30,
2000 the Company had availability to repurchase up to approximately 700,000
additional shares pursuant to previous authorizations.

THE COMPANY'S FINANCIAL POSITION REMAINS EXTREMELY STRONG WITH WORKING CAPITAL
OF $169.8 MILLION AT THE END OF 2000.

16
<PAGE>

In addition to cash used for working capital purposes and the share buyback,
significant cash expenditures were utilized for investing activities, including
the cost associated with the construction of 23 Company-owned stores.
Management anticipates capital expenditure obligations associated with its
Company-owned stores to decrease during 2001 as fewer stores are planned to be
opened during the year. During 1999, cash used for investing activities were
primarily related to enhancements to the Company's computer systems to address
potential Year 2000 issues, the construction costs for additional Company-owned
stores and the construction of additional office space. Management believes
cash used for investing activities for 2001 may exceed 2000 levels as the
Company is planning to acquire a 500,000 square foot warehouse and distribution
facility that will allow it to centralize three facilities currently being
utilized for such purposes. The facility is scheduled for completion in late
2001 or early 2002 and the total cost for this facility and related equipment
and systems is expected to be approximately $25 million.

The Company's financial position remains extremely strong with working capital
of $169.8 million at the end of 2000 compared with $155.2 million at the end of
1999. The Company has net cash balances (defined as cash and cash equivalents
plus short-term investments less current notes payable) of $85.7 million at the
end of 2000 compared to $96.7 million at the end of 1999. If not for the $28.7
million used to acquire the Company's common stock during the year, net cash
balances would have grown to $114.4 million, an 18% increase above 1999 levels.
Short-term credit facilities totaling $43 million are available to the Company
for working capital needs and other general corporate purposes of which $5.1
million was outstanding at the end of 2000. The Company believes that
internally generated funds from operations, existing cash balances and its
short-term credit facility will be sufficient to satisfy its cash requirements.

FORWARD-LOOKING STATEMENTS

Included within management's discussion and analysis of the Company's operating
results and this annual report, "forward-looking statements" were made within
the meaning of the Private Securities Litigation Reform Act of 1995 regarding
expectations for fiscal 2001. The actual results may differ materially from
those expressed by these forward-looking statements. Significant factors that
could cause the Company's 2001 operating results to differ materially from
management's current expectations include, among other items, significant
changes in consumer spending patterns or preferences, competition in the
Company's product areas, international in comparison to domestic sales mix,
changes in foreign currency valuations in relation to the United States dollar,
principally the Euro, British Pound and Japanese Yen, an inability of
management to control operating expenses in relation to net sales without
damaging the long-term direction of the Company and the risks and uncertainties
set forth in the Company's current report on Form 8-K dated March 30, 1999.

[ILLUSTRATION]

17
<PAGE>

SELECTED QUARTERLY
FINANCIAL DATA

The table below sets forth selected quarterly financial information. The
information is derived from the unaudited consolidated financial statements of
the Company and includes, in the opinion of management, all normal and
recurring adjustments that management considers necessary for a fair statement
of results for such periods. The operating results for any quarter are not
necessarily indicative of results for any future period.

FISCAL YEAR 2000 1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C>
Net sales........................................ $103,569 $113,393 $128,064 $159,259
Gross profit..................................... 53,659 56,560 63,691 81,836
Operating expenses............................... 32,500 36,108 41,302 52,015
Operating income................................. 21,159 20,452 22,389 29,821
Income before income taxes....................... 21,405 20,249 22,845 30,218
Provision for income taxes....................... 8,777 8,301 9,367 12,389
Net income....................................... 12,628 11,948 13,478 17,829
Basic earnings per share......................... 0.39 0.37 0.42 0.59
Diluted earnings per share....................... 0.38 0.36 0.41 0.57
Gross profit as a percentage of net sales........ 51.8% 49.9% 49.7% 51.4%
Operating expenses as a percentage of net sales.. 31.4% 31.9% 32.2% 32.7%
Operating income as a percentage of net sales.... 20.4% 18.0% 17.5% 18.7%

FISCAL YEAR 1999 1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<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%

</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 30% of
the Company's annual operating income. The amount of net sales and operating
income generated during the first quarter is affected by the levels of
inventory held by retailers at the end of the Christmas season, as well as
general economic conditions and other factors beyond the Company's control. In
general, lower levels of inventory at the end of the Christmas season may have
a positive impact on the Company's net sales and operating income in the first
quarter as a result of higher levels of restocking orders placed by retailers.
Management currently believes that the Company's inventory levels at its major
customers at the end of the 2000 were not substantially above or below targeted
levels and therefore should not significantly impact retailers restocking
orders in the first quarter of 2001.

As the Company increases the number of Company-owned stores, it would generally
amplify the Company's seasonality by decreasing the Company's operating income
in the first half of the year while increasing operating income during the
second half of the year. In addition, new product line launches would generally
augment the sales levels in the quarter the product launch takes place. The
results of operations for a particular quarter may also vary due to a number of
factors, including retail, economic and monetary conditions, timing of orders
or holidays and the mix of products sold by the Company.

18 END OF MANAGEMENT DISCUSSION & ANALYSIS SECTION

<PAGE>

[CLASSIFIED PAGE]

<PAGE>

[ILLUSTRATION]

FOSSIL ART GALLERY

The extraordinary talent pool in Fossil's in-house design studio has created
the FOSSIL Annual Report since our first Annual Report in 1994. From the
first designer hired in 1988 until today, nearly one hundred professionals
have designed the watches, photographed the product, dreamed up the tins,
printed the posters, painted the murals and scanned the images; staying up
all night with tireless passion. Our award-winning studio is recognized
worldwide as one of the finest anywhere. This wealth of talent is at the
heart of FOSSIL.

<PAGE>

[ILLUSTRATION]

<PAGE>

[ILLUSTRATION]

<PAGE>

[ILLUSTRATION]

<PAGE>

FINANCIAL INFORMATION [LOGO]

INDEPENDENT AUDITORS' REPORT

TO THE DIRECTORS AND STOCKHOLDERS OF FOSSIL, INC.:

We have audited the accompanying consolidated balance sheets of Fossil, Inc.
and subsidiaries as of December 30, 2000 and January 1, 2000 and the related
consolidated statements of income and comprehensive income, stockholders'
equity and cash flows for each of the three years in the period ended
December 30, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Fossil, Inc. and subsidiaries at
December 30, 2000 and January 1, 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
30, 2000, in conformity with accounting principles generally accepted in the
United States of America.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
Dallas, Texas
February 19, 2001

REPORT OF MANAGEMENT

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

To help assure that financial information is reliable and that assets are
safeguarded, management maintains a system of internal controls and
procedures which it believes is effective in accomplishing these objectives.
These controls and procedures are designed to provide reasonable assurance,
at appropriate costs, that transactions are executed and recorded in
accordance with management's authorization. The consolidated financial
statements and related notes thereto have been audited by Deloitte & Touche
LLP, independent auditors. The accompanying auditors' report expresses an
independent professional opinion on the fairness of presentation of
management's financial statements.

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

/s/ Kosta Kartsotis

Kosta Kartsotis
President and
Chief Executive Officer

/s/ Mike Kovar

Mike Kovar
Senior Vice President,
Chief Financial Officer and Treasurer

24 FOSSIL ANNUAL REPORT 2000

<PAGE>

[ILLUSTRATION]

<PAGE>

CONSOLIDATED BALANCE SHEETS

DECEMBER 30, JANUARY 1,
2000 2000
---- ----
<S> <C> <C>
DOLLARS IN THOUSANDS
Assets
Current assets:
Cash and cash equivalents .................................. $ 79,501 $ 90,908
Short-term marketable investments .......................... 11,312 10,870
Accounts receivable-net .................................... 62,876 51,399
Inventories ................................................ 81,118 63,029
Deferred income tax benefits ............................... 7,779 6,769
Prepaid expenses and other current assets .................. 10,245 7,832
--------------------------
Total current assets .................................... 252,831 230,807

Investments in joint ventures .................................. 5,935 3,849
Property, plant and equipment-net .............................. 42,252 28,603

Intangible and other assets .................................... 6,573 6,105
--------------------------
Total assets ............................................ $ 307,591 $ 269,364
--------------------------

Liabilities and Stockholders' Equity
Current liabilities:

Notes payable .............................................. $ 5,107 $ 5,043
Accounts payable ........................................... 18,325 11,870
Accrued expenses:
Co-op advertising ....................................... 14,320 15,191
Compensation ............................................ 6,179 4,617
Other ................................................... 19,145 21,493
Income taxes payable ....................................... 19,964 17,395
--------------------------
Total current liabilities ............................... 83,040 75,609
--------------------------

Commitments (Note 10)
Minority interest in subsidiaries .............................. 3,852 2,558
Stockholders' equity:
Common stock, 30,136,824 and 32,107,270
shares issued, respectively ............................. 301 321
Additional paid-in capital ................................. 14,214 41,774
Retained earnings .......................................... 208,429 153,569
Accumulated other comprehensive loss ....................... (2,245) (3,259)
Treasury stock at cost, none and 59,572 shares, respectively -- (1,208)
--------------------------
Total stockholders' equity .............................. 220,699 191,197
--------------------------
Total liabilities and stockholders' equity .............. $ 307,591 $ 269,364
--------------------------

</TABLE>

See notes to consolidated financial statements

[ILLUSTRATION]

<PAGE>

[LOGO]

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FISCAL YEAR 2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Net sales .......................................................... $504,285 $418,762 $304,743
Cost of sales ...................................................... 248,539 205,875 154,239
-----------------------------------------------------
Gross profit ....................................................... 255,746 212,887 150,504
Operating expenses:
Selling and distribution ....................................... 123,407 95,349 71,720
General and administrative ..................................... 38,518 30,089 23,414
-----------------------------------------------------
Total operating expenses .................................... 161,925 125,438 95,134
-----------------------------------------------------
Operating income ................................................... 93,821 87,449 55,370
Interest expense ................................................... 128 117 211
Other income (expense)--net ........................................ 1,024 509 (430)
-----------------------------------------------------
Income before income taxes ......................................... 94,717 87,841 54,729
Provision for income taxes ......................................... 38,834 36,015 22,568
-----------------------------------------------------
Net income ..................................................... $ 55,883 $ 51,826 $ 32,161
-----------------------------------------------------

Other comprehensive income (loss):
Currency translation adjustment ................................ 827 (1,658) 1,181
Unrealized gain (loss) on marketable investments ............... 187 (564) --
-----------------------------------------------------
Total comprehensive income .................................. $ 56,897 $ 49,604 $ 33,342
-----------------------------------------------------

Earnings per share:
Basic .......................................................... $ 1.76 $ 1.63 $ 1.04
-----------------------------------------------------
Diluted ........................................................ $ 1.71 $ 1.55 $ 0.99
-----------------------------------------------------
Weighted average common shares outstanding:
Basic .......................................................... 31,689,036 31,900,024 31,054,041
-----------------------------------------------------
Diluted ........................................................ 32,674,604 33,428,153 32,586,096
-----------------------------------------------------

</TABLE>

See notes to consolidated financial statements

[ILLUSTRATION]

27
<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
COMMON STOCK ------------------------------
--------------------- ADDITIONAL CUMULATIVE UNREALIZED LOSS
PAR PAID-IN RETAINED TRANSLATION ON MARKETABLE
SHARES VALUE CAPITAL EARNINGS ADJUSTMENT INVESTMENTS
---------- ------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 3, 1998 ........... 20,308,503 $ 203 $ 26,021 $ 71,257 $ (2,218) --
Common stock issued upon
exercise of stock options ...... 408,588 4 2,877 -- -- --
Tax benefit derived from
exercise of stock options ...... -- -- 1,495 -- -- --
Secondary offering,
net of offering costs .......... 215,000 2 3,611 -- -- --
Purchase of treasury shares ........ -- -- -- -- -- --
Reissuance of treasury stock
upon exercise of stock options.. -- -- -- (560) -- --
Net income ......................... -- -- -- 32,161 -- --
Currency translation adjustment..... -- -- -- -- 1,181 --
Other .............................. -- -- 341 -- -- --
-------------------------------------------------------------------------
Balance, January 2, 1999 ........... 20,932,091 209 34,345 102,858 (1,037) --
Common stock issued upon
exercise of stock options ...... 709,133 7 3,632 -- -- --
Tax benefit derived from
exercise of stock options ...... -- -- 3,902 -- -- --
Purchase of treasury shares ........ -- -- -- -- -- --
Reissuance of treasury stock
upon exercise of stock options.. -- -- -- (1,115) -- --
Three-for-two-stock split .......... 10,466,046 105 (105) -- -- --
Net income ......................... -- -- -- 51,826 -- --
Unrealized loss on
marketable investments ......... -- -- -- -- -- (564)
Currency translation adjustment .... -- -- -- -- (1,658) --
-------------------------------------------------------------------------

Balance, January 1, 2000 ........... 32,107,270 321 41,774 153,569 (2,695) (564)
Common stock issued upon
exercise of stock options ...... 56,154 -- 384 -- -- --
Tax benefit derived from
exercise of stock options ...... -- -- 470 -- -- --
Purchase of treasury shares ........ -- -- -- -- -- --
Reissuance of treasury stock
upon exercise of stock options.. -- -- -- (1,023) -- --
Repurchase and retirement
of common stock ................ (2,026,600) (20) (28,414) -- -- --
Net income ......................... -- -- -- 55,883 -- --
Unrealized gain on
marketable investments ......... -- -- -- -- -- 187
Currency translation adjustment .... -- -- -- -- 827 --
-------------------------------------------------------------------------
Balance, December 30, 2000 ......... 30,136,824 $ 301 $ 14,214 $208,429 $ (1,868) $ (377)
-------------------------------------------------------------------------

<CAPTION>
TREASURY STOCK
----------------------- TOTAL
SHARE STOCKHOLDERS'
SHARES COST EQUITY
---------- --------- -------------
<S> <C> <C> <C>
Balance, January 3, 1998 ........... -- $ -- $ 95,263
Common stock issued upon
exercise of stock options ...... -- -- 2,881
Tax benefit derived from
exercise of stock options ...... -- -- 1,495
Secondary offering,
net of offering costs .......... -- -- 3,613
Purchase of treasury shares ........ (188,500) (2,647) (2,647)
Reissuance of treasury stock
upon exercise of stock options.. 84,821 1,191 631
Net income ......................... -- -- 32,161
Currency translation adjustment..... -- -- 1,181
Other .............................. -- -- 341
---------------------------------------
Balance, January 2, 1999 ........... (103,679) (1,456) 134,919
Common stock issued upon
exercise of stock options ...... -- -- 3,639
Tax benefit derived from
exercise of stock options ...... -- -- 3,902
Purchase of treasury shares ........ (90,500) (1,994) (1,994)
Reissuance of treasury stock
upon exercise of stock options.. 134,607 2,242 1,127
Three-for-two-stock split .......... -- -- --
Net income ......................... -- -- 51,826
Unrealized loss on
marketable investments ......... -- -- (564)
Currency translation adjustment .... -- -- (1,658)
---------------------------------------

Balance, January 1, 2000 ........... (59,572) (1,208) 191,197
Common stock issued upon
exercise of stock options ...... -- -- 384
Tax benefit derived from
exercise of stock options ...... -- -- 470
Purchase of treasury shares ........ (12,800) (268) (268)
Reissuance of treasury stock
upon exercise of stock options.. 72,372 1,476 453
Repurchase and retirement
of common stock ................ -- -- (28,434)
Net income ......................... -- -- 55,883
Unrealized gain on
marketable investments ......... -- -- 187
Currency translation adjustment .... -- -- 827
---------------------------------------
Balance, December 30, 2000 ......... $ -- -- $ 220,699
---------------------------------------
</TABLE>

See notes to consolidated financial statements

28
<PAGE>

[ILLUSTRATION]

29
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

FISCAL YEAR 2000 1999 1998
---------- ---------- ----------
DOLLARS IN THOUSANDS
Operating Activities:
<S> <C> <C> <C>
Net income ............................................. $ 55,883 $ 51,826 $ 32,161

Noncash items affecting net income:

Minority interest in subsidiaries .................. 1,786 1,484 1,004
Equity in losses of joint ventures ................. 381 151 --
Depreciation and amortization ...................... 6,436 5,889 4,395
Tax benefit derived from exercise of stock options.. 470 3,902 1,495

Loss on sale of fixed assets ....................... 420 19 84
Increase in allowance for doubtful accounts ........ 1,523 1,044 2,165
Increase in allowance for returns-net of related
inventory in transit ............................ 742 2,098 2,053
Deferred income tax benefits ....................... (1,010) (1,114) (1,151)

Changes in operating assets and liabilities:

Accounts receivable ................................ (15,983) (11,355) (13,899)
Inventories ........................................ (15,993) (3,014) (4,575)
Prepaid expenses and other current assets .......... (2,509) (4,733) (1,106)
Accounts payable ................................... 7,842 (5,056) 5,831
Accrued expenses ................................... (2,274) 13,544 7,675

Income taxes payable ............................... 2,574 6,909 4,983
---------- ---------- ----------
Net cash from operating activities ................. 40,288 61,594 41,115

Investing Activities:
Net assets acquired in business combination ........ -- (2,732) --
Additions to property, plant and equipment ......... (20,341) (10,568) (6,307)
Purchase of marketable investments ................. (442) (10,870) --
Investments in joint ventures ...................... (2,196) (4,000) --
Increase in intangible and other assets ............ (818) (1,505) (70)
---------- ---------- ----------
Net cash used in investing activities .............. (23,797) (29,675) (6,377)

Financing Activities:
Issuance of common or treasury stock:
Exercise of stock options ....................... 838 4,766 3,512
Secondary offering .............................. -- -- 3,613
Net purchase of treasury stock ..................... (268) (1,994) (2,647)
Acquisition and retirement of common stock ......... (27,806) -- --
Distribution of minority interest earnings ......... (492) (790) (390)
Increase (repayments) of notes payable-banks ....... 64 505 (3,325)
Other .............................................. -- -- 341
---------- ---------- ----------
Net cash (used in) from financing activities ....... (27,664) 2,487 1,104

Effect of exchange rate changes on cash
and cash equivalents ............................... (234) (761) 317
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents.... (11,407) 33,645 36,159
Cash and cash equivalents:
Beginning of year .................................. 90,908 57,263 21,104
---------- ---------- ----------
End of year ........................................ $ 79,501 $ 90,908 $ 57, 263
========== ========== ==========
</TABLE>

See notes to consolidated financial statements
30
<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). Significant intercompany balances and transactions are
eliminated in consolidation. The Company is a leader in the design, development,
marketing and distribution of contemporary, high quality fashion watches,
accessories and apparel. The Company's products are sold primarily through
department stores and other major retailers, both domestically and
internationally.

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

CASH EQUIVALENTS are considered all highly liquid investments with original
maturities at date of purchase of three months or less.

SHORT-TERM MARKETABLE INVESTMENTS consist of liquid investments with original
maturities exceeding three months and mutual fund investments. By policy, the
Company invests primarily in high-grade marketable securities. Securities of
$5.1 million and $4.7 million for fiscal year 2000 and 1999, respectively, are
classified as available for sale and stated at fair value, with unrealized
holding gains (losses) included in accumulated other comprehensive income (loss)
as a component of stockholders' equity. Securities of $6.2 million for both
fiscal years 2000 and 1999 are classified as held-to-maturity and are stated at
amortized cost.

ACCOUNTS RECEIVABLE are stated net of allowances of approximately $21.2 million
and $17.7 million for estimated customer returns and approximately $9.5 million
and $8.0 million for doubtful accounts at the close of fiscal year 2000 and
1999, respectively.

INVENTORIES are stated at the lower of average cost, including any applicable
duty and freight charges, or market.

PROPERTY, PLANT AND EQUIPMENT are stated at cost less accumulated depreciation
and amortization. Depreciation is provided using the straight-line method over
the estimated useful lives of the assets of three to ten years for equipment and
thirty years for buildings. Leasehold improvements are amortized over the
shorter of the lease term or the asset's useful life.

INTANGIBLE AND OTHER ASSETS include the cost in excess of tangible assets
acquired, noncompete agreements and trademarks,

31
<PAGE>

which are amortized using the straight-line method over the estimated useful
lives of generally twenty, three and five years, respectively.

CUMULATIVE TRANSLATION ADJUSTMENT is included in accumulated other comprehensive
income (loss) as a component of stockholders' equity and reflects the unrealized
adjustments resulting from translating the financial statements of foreign
subsidiaries. The functional currency of the Company's foreign subsidiaries is
the local currency of the country. Accordingly, assets and liabilities of the
foreign subsidiaries are translated to U.S. dollars at year-end exchange rates.
Income and expense items are translated at the average rates prevailing during
the year. Changes in exchange rates that affect cash flows and the related
receivables or payables are recognized as transaction gains and losses in the
determination of net income. The Company incurred net foreign currency
transaction losses of approximately $0.4 million, $1.2 million and $0.4 million
for fiscal years 2000, 1999 and 1998, respectively, which have been included in
other income (expense) - net.

FORWARD CONTACTS are entered into by the Company principally to hedge the
payment of intercompany inventory transactions with its non-U.S. subsidiaries.
Currency exchange gains or losses resulting from the translation of the related
accounts, along with the offsetting gains or losses from the hedge, are deferred
until the inventory is sold or the forward contract is completed. At December
30, 2000, the Company had hedge contracts to sell (i) $18.8 million Euro for
approximately $16.9 million, expiring through May 2001, and (ii) approximately
$0.3 million British Pounds for approximately $0.4 million, expiring through
January 2001. If the Company were to settle its Euro based contracts at fiscal
year-end 2000, the net result would be a loss of approximately $600,000.

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

ADVERTISING COSTS for in-store and media advertising as well as co-op
advertising, internet portal costs and promotional allowances are expensed as
incurred. Advertising expenses for fiscal years 2000, 1999 and 1998 were
approximately $32.3 million, $27.1 million and $17.0 million, respectively.

NEW ACCOUNTING STANDARDS. In June 1998, SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133")was issued which establishes new
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires the recognition of all derivatives as either assets or liabilities
in the statement of financial position and the measurement of those instruments
at fair value. This pronouncement requires such reporting effective beginning in
fiscal year 2001. The Company adopted SFAS 133 effective December 31, 2000. The
adoption of SFAS 133 did not have a significant impact on the financial
position, results of operations, or cash flows of the Company, because the
Company has limited its use of derivative instruments to the forward contracts
previously mentioned.

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

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

[ILLUSTRATION]

32
<PAGE>

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

FISCAL YEAR 2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Numerator:
Net income ...................................................... $ 55,883,000 $ 51,826,000 $ 32,161,000
------------ ------------ ------------
Denominator:
Basic EPS computation:
Weighted average common shares outstanding ...................... 32,177,358 21,462,121 20,747, 242
Three-for-two stock split effected August 1999 .................. -- 10,466,046 10,351, 347
Repurchase of common shares, net of treasury shares reissued .... (488,322) (28,143) (44,548)
------------ ------------ ------------
31,689,036 31,900,024 31,054,041
------------ ------------ ------------
Basic EPS .................................................... $ 1.76 $ 1.63 $ 1.04
------------ ------------ ------------

Diluted EPS computation:
Weighted average common shares outstanding ...................... 32,177,358 21,462,121 20,747,242
Stock option conversion ......................................... 985,568 1,528,129 1,021,370
Three-for-two stock split effected August 1999 .................. -- 10,466,046 10,862,032
Repurchase of common shares, net of treasury shares reissued .... (488,322) (28,143) (44,548)
------------ ------------ ------------
32,674,604 33,428,153 32,586,096
------------ ------------ ------------
Diluted EPS .................................................. $ 1.71 $ 1.55 $ 0.99
============ ============ ============
</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 1998 and 1999 amounts have been made to conform to
the 2000 presentation.

[ILLUSTRATION]
33
<PAGE>

[ILLUSTRATION]

2. ACQUISITIONS

In January 2000, Fossil (East) Limited, acquired 51% of the capital stock of
Design Time, Ltd from its minority stockholder in exchange for approximately
$153,000 in cash. This acquisition has been accounted for as a purchase and no
goodwill was recorded. Effective September 1999, Fossil U.K., Ltd. acquired
certain assets of Junghans U.K., Ltd. ("Junghans UK") for approximately $2.7
million in cash. Junghans UK was the Company's primary distributor in the United
Kingdom and Ireland. The acquisition was accounted for as a purchase and, in
connection therewith, the Company recorded goodwill of approximately $0.6
million.

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

3. INVESTMENTS IN JOINT VENTURES

During 1999, the Company acquired a 20% interest in SII Marketing International,
Inc. ("SMI"), and since that time has invested $6.0 million in this venture.
SMI, a joint venture between the Company and Seiko Instruments America, Inc, was
formed to design, market and distribute watches in the mass-market distribution
channel. The investment of $5.4 million and $3.8 million at fiscal year end 2000
and 1999, respectively, is carried on the equity basis, which approximates the
Company's equity in SMI's underlying net book value. The Company's equity in
SMI's net loss of $409,000 and $151,000 for fiscal 2000 and 1999, respectively,
is included in other income (expenses)-net. In connection with the formation of
the joint venture, the Company signed a multi-year Service Agreement with SMI to
perform certain marketing, design and merchandising functions. The compensation
the Company receives under the Service Agreement is based on a percentage of
SMI's net sales, subject to certain adjustments.

Effective August 31, 2000, the Company sold 50% of the equity of its former
wholly-owned subsidiary ("Fossil Spain") pursuant to a joint venture agreement
with Sucesores de A. Cadarso for the marketing, distribution and sale of the
Company's products in Spain. The Company has accounted for this investment of
$0.5 million at fiscal year end 2000 based upon the equity method from the
effective date of the transaction. The Company's equity in Fossil Spain's net
income was $28,000 for fiscal 2000 and is included in other income
(expense)-net.

<PAGE>

4. INVENTORIES

Inventories consist of the following:
FISCAL YEAR END 2000 1999
---- ----
<S> <C> <C>
IN THOUSANDS

Components and parts..................................................... $ 6,258 $ 5,568
Work-in-process.......................................................... 1,182 2,755
Finished merchandise on hand............................................. 48,113 38,595
Merchandise at Company stores............................................ 13,296 7,481
Merchandise in-transit from customer returns............................. 12,269 8,630
--------------------
$81,118 $63,029
--------------------

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:
<CAPTION>
FISCAL YEAR END 2000 1999
---- ----
<S> <C> <C>
IN THOUSANDS
Land..................................................................... $ 2,535 $ 2,535
Buildings................................................................ 11,132 11,459
Furniture and fixtures................................................... 26,794 16,843
Computer equipment and software.......................................... 11,883 9,521
Leasehold improvements................................................... 13,494 6,755
--------------------
65,838 47,113
Less accumulated depreciation and amortization........................... 23,586 18,510
--------------------
$42,252 $28,603
--------------------

6. INTANGIBLE AND OTHER ASSETS
Intangibles and other assets consist of the following:
<CAPTION>
FISCAL YEAR END 2000 1999
---- ----
<S> <C> <C>
IN THOUSANDS
Costs in excess of tangible net assets acquired.......................... $ 5,200 $ 5,200
Noncompete agreement..................................................... 475 475
Trademarks............................................................... 1,030 946
Deposits................................................................. 1,458 844
Cash surrender value of life insurance................................... 783 714
Other................................................................... 290 250
--------------------
9,236 8,429
Less accumulated amortization............................................ 2,663 2,324
--------------------
$ 6,573 $ 6,105
--------------------

</TABLE>

[ILLUSTRATION]

<PAGE>

7. DEBT

BANK: U.S.-BASED. In June 1997, the Company renewed its Short-term Revolving
Credit Facility with its primary bank ("U.S. Short-term Revolver") and amended
it to increase the funds available under the facility to $40 million, an
increase of $10 million over the previous facility, not subject to any borrowing
base calculation. The U.S. Short-term Revolver was also amended to eliminate
Japanese Yen currency borrowings and replace it with a stand-by letter of credit
for 640 million Japanese Yen (approximately $5.6 million) as collateral for
Company borrowings from any Japan-based bank. The Company has renewed the U.S.
Short-term Revolver each year since June 1998 and during 2000 negotiated a
reduction in the interest rate the Company pays on London Interbank Offered Rate
("LIBOR") based borrowings. All borrowings under the U.S. Short-term Revolver
accrue interest at the bank's prime rate less 0.5% or LIBOR plus 0.75% (LIBOR
plus 1.00% prior to June 29, 1999 respectively). The U.S. Short-term Revolver is
unsecured and requires the maintenance of net worth, quarterly income, working
capital and financial ratios. There were no borrowings under the U.S. Short-term
Revolver as of fiscal year end 2000 or 1999.

At fiscal year-end 2000 and 1999, the Company had outstanding letters of
credit of approximately $1.8 million and $4.7 million, respectively, to
vendors for the purchase of merchandise.

Banks: Foreign Based. Fossil GmbH has short-term credit facilities with two
Germany-based banks with combined borrowing capacity of 5,000,000 Deutsche Marks
(approximately $2.5 million as of fiscal year-end 2000). No borrowings were
outstanding under the combined credit facilities at the end of fiscal year 2000
or 1999.

Fossil Japan has a short-term credit facility with a Japan-based bank allowing
borrowings of up to 600 million Japanese Yen (approximately $5.2 million as of
fiscal year 2000). All outstanding borrowings under the facility bore interest
at the Euroyen rate (0.54% at December 29, 2000) plus 1%. In connection with the
financing agreement, Fossil Japan agreed to pay a quarterly fee of 0.5% per
annum on any undrawn portion of the loan. The facility is collateralized by a
stand-by letter of credit issued by the Company's primary U.S. bank. Japan-based
borrowings, in U.S. dollars, under the facilities were approximately $5.1
million and $5.0 million as of fiscal year-end 2000 and 1999, respectively.
Interest expense under these credit facilities was approximately $0.1 million in
each of the fiscal years ended 2000, 1999 and 1998.

8. OTHER INCOME (EXPENSE) - NET

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

FISCAL YEAR 2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
IN THOUSANDS

Interest income ...................................................................... $ 3,480 $ 2,650 $ 1,160

Minority interest in subsidiaries .................................................... (1,786) (1,484) (1,004)
Equity in losses of joint ventures ................................................... (381) (151) --
Currency loss ........................................................................ (412) (1,181) (427)

Royalty income ....................................................................... 770 353 45
Insurance proceeds above book value .................................................. -- 52 93
Other income (expense) ............................................................... (647) 270 (297)
-------------------------------------
$ 1,024 $ 509 $ (430)
-------------------------------------

</TABLE>

[ILLUSTRATION]
36

<PAGE>

[ILLUSTRATION]

9. INCOME TAXES

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

FISCAL YEAR END 2000 1999
---- ----
<S> <C> <C>
IN THOUSANDS
Deferred tax assets:

Bad debt allowance ..................................... $ 3,162 $ 2,534
Returns allowance ...................................... 6,537 5,646
263(A) capitalization of inventory ..................... 704 504
Miscellaneous tax asset items .......................... 1,060 1,178
Deferred tax liabilities:
In-transit returns inventory ........................... (3,685) (3,093)
-----------------------
Net current deferred tax benefits ........................ $ 7,778 $ 6,769
-----------------------

</TABLE>

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

FISCAL YEAR 2000 1999 1998
---- ---- ----
IN THOUSANDS
<S> <C> <C> <C>
Current provision:
United States ........................................ $21,229 $18,448 $10,278
Foreign .............................................. 18,145 14,779 11,946
Deferred provision - United States ...................... (1,010) (1,114) (1,151)
Tax equivalent related to exercise of stock options
(credited to additional paid-in capital) ............. 470 3,902 1,495
------------------------------------
Provision for income taxes .............................. $38,834 $36,015 $22,568
------------------------------------

</TABLE>

A reconciliation of income tax computed at the U.S. federal statutory income tax
rate of 35% to the provision for income taxes is as follows:

FISCAL YEAR 2000 1999 1998
IN THOUSANDS ---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate ................................... $33,151 $30,744 $19,155
State, net of federal tax benefit ....................... 736 975 364
Other ................................................... 4,947 4,296 3,049
------------------------------------
Provision for income taxes .............................. $38,834 $36,015 $22,568
------------------------------------

</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.

<PAGE>

10. COMMITMENTS

LICENSE AGREEMENTS. The Company has various license agreements to market watches
bearing certain trademarks owned by various entities. In accordance with these
agreements, the Company incurred royalty expense of approximately $5.0 million,
$3.8 million and $3.5 million in fiscal years 2000, 1999 and 1998, respectively.
These amounts are included in the Company's cost of sales and selling expenses.
The Company had several agreements in effect at the end of fiscal year 2000
which expire on various dates from March 2001 through December 2004 and require
the Company to pay royalties ranging from 5% to 15.5% of defined net sales.
Future minimum royalty commitments under such license agreements at the close of
fiscal year 2000 are as follows (amounts in thousands):

<TABLE>
<CAPTION>
<S> <C>
2001 .............................. $ 8,427
2002 .............................. 9,701
2003 .............................. 4,236
2004 .............................. 4,577
Thereafter ........................ --
-------
$26,941
-------

</TABLE>

LEASES. The Company leases its retail and outlet store facilities as well as
certain of its office facilities and equipment under non-cancelable operating
leases. Most of the retail store leases provide for contingent rental based on
operating results and require the payment of taxes, insurance and other costs
applicable to the property. Generally, these leases include renewal options for
various periods at stipulated rates. Rent expense under these agreements was
approximately $10.9 million, $6.8 million, and $5.1 million for fiscal years
2000, 1999 and 1998, respectively. Contingent rent expense has been minimal in
each of the last three fiscal years. Future minimum rental commitments under
such leases at the close of fiscal year 2000, are as follows (amounts in
thousands):

<TABLE>
<CAPTION>
<S> <C>
2001 .............................. $ 13,134
2002 .............................. 12,492
2003 .............................. 12,416
2004 .............................. 12,706
2005 .............................. 12,067
Thereafter ........................ 53,273
--------
$116,088
--------

</TABLE>

[ILLUSTRATION]
38

<PAGE>

[ILLUSTRATION]

11. STOCKHOLDERS' EQUITY AND BENEFIT PLANS

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

The Company has 100,000,000 shares of authorized Common Stock, with 30,136,824
and 32,047,698 shares outstanding at the close of fiscal year 2000 and 1999,
respectively. The Company has 1,000,000 shares of authorized $0.01 par value
preferred stock with none issued or outstanding. Rights, preferences and other
terms of preferred stock will be determined by the Board of Directors at the
time of issuance.

COMMON STOCK REPURCHASE PROGRAMS. On September 18, 2000, and on September 18,
1998, the Company's Board of Directors authorized management to repurchase up to
500,000 shares and 2.5 million shares, respectively, of the Company's Common
Stock in the open market or privately negotiated transactions (the "Repurchase
Programs"). During fiscal year 2000 and 1999, the Company repurchased 2,039,400
and 90,500 shares, respectively, of its common stock under the Repurchase
Programs at a cost of approximately $28.6 million and $2.0 million,
respectively. During fiscal years 2000 and 1999, 73,372 and 134,607 shares
respectively, of common stock repurchased were reissued in connection with the
Company's 1993 Long-Term Incentive Stock Option Plan ("Incentive Plan"). In
October 2000 the Company retired 2,026,600 shares of its Common Stock that
remained in treasury.

DEFERRED COMPENSATION AND SAVINGS PLANS. The Company has a savings plan in the
form of a defined contribution plan (the "401(k) plan") for substantially all
full-time employees of the Company. Employees are eligible to participate in the
401(k) plan after one year of service. The Company matches 50% of employee
contributions up to 3% of their compensation and 25% of the employee
contributions between 3% and 6% of their compensation. The Company also has the
right to make certain additional matching contributions not to exceed 15% of
employee compensation. The Company's Common Stock is one of several investment
alternatives available under the 401(k) plan. Matching contributions made by the
Company to the 401(k) plan totaled approximately $0.2 million for each of the
fiscal years 2000, 1999 and 1998.

In December 1998, the Company adopted the Fossil, Inc. and Affiliates Deferred
Compensation Plan (the "Deferred Plan"). Eligible participants may elect to
defer up to 50% of their salary pursuant to the terms and conditions of the
Deferred Plan. Eligible participants include certain officers and other highly
compensated employees designated by the Deferred Plan's administrative
committee. In addition, the Company may make employer contributions to
participants under the Deferred Plan from time to time. The Company made no
contributions to the Deferred Plan during the fiscal year 2000, while $0.5
million was contributed during the fiscal year 1999.

39
<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 2000, 1999
and 1998 was $8.97, $12.01 and $6.27, respectively.

NONEMPLOYEE DIRECTOR STOCK OPTION PLAN. An aggregate of 225,000 shares of Common
Stock were reserved for issuance pursuant to this nonqualified stock option
plan, adopted April 1993. During the first year an individual is elected as a
nonemployee director of the Company, they received a grant of 5,000 nonqualified
stock options. In addition, on the first day of each subsequent calendar year,
each non-employee director automatically received a grant of an additional 3,000
nonqualified stock options as long as the person is serving as a nonemployee
director. Pursuant to this plan, 50% of the options granted will become
exercisable on the first anniversary of the date of grant and in two additional
installments of 25% on the second and third anniversaries. The exercise prices
of options granted under this plan were not less than the fair market value of
the Common Stock at the date of grant. The weighted average fair value of the
stock options granted during fiscal years 2000, 1999 and 1998 was $10.06, $14.25
and $11.93, respectively.

The fair value of options granted under the Company's stock option plans during
fiscal years 2000, 1999 and 1998 were estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used: no dividend yield, expected volatility of approximately 63% to
66%, risk free interest rate of 4.75% to 6.00%, and expected life of 5 to 6
years. The following tables summarize the Company's stock option
activity:

INCENTIVE PLAN

EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICE EXERCISE PRICE EXERCISE PRICE AVAILABLE
PER SHARE PER SHARE OUTSTANDING PER SHARE EXERCISABLE FOR GRANT
--------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, Fiscal 1997 ............ $ 2.945 - $12.667 $ 4.782 2,497,140 $ 4.650 1,314,270 922,541
Granted ..................... $ 8.667 - $19.833 $ 10.078 633,461 -- -- (633,461)
Shares designated for grant
through the plan ......... -- -- -- -- -- 1,350,000
Exercised ................... $ 2.945 - $ 8.611 $ 4.701 (740,114) -- -- --
Canceled .................... $ 2.945 - $14.833 $ 7.509 (76,699) -- -- 76,699
Exercisable ................. $ 2.945 - $12.667 $ -- -- -- (173,819) --
----------- -------------------------

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

Balance, Fiscal 1999 ............ $ 2.945 - $33.187 $ 10.193 1,907,453 $ 5.831 940,808 1,226,534
Granted ..................... $ 11.187 - $25.000 $ 15.169 789,000 -- -- (789,000)
Exercised ................... $ 2.945 - $20.000 $ 7.204 (106,870) -- -- --
Canceled .................... $ 5.167 - $32.209 $ 16.812 (94,494) -- -- 94,494
Exercisable ................. $ 2.945 - $33.187 $ -- -- -- 300,027 --

----------- -------------------------
Balance, Fiscal 2000 ............ $ 2.945 - $33.187 $ 11.639 2,495,089 $ 7.344 1,240,835 532,028
----------- -------------------------

<PAGE>

NONEMPLOYEE DIRECTOR PLAN

EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICE EXERCISE PRICE EXERCISE PRICE AVAILABLE
PER SHARE PER SHARE OUTSTANDING PER SHARE EXERCISABLE FOR GRANT
--------- --------- ----------- --------- ----------- ---------
Balance, Fiscal 1997 ............ $ 3.333 - $11.111 $ 6.100 135,000 $ 5.212 99,562 78,187
Granted ..................... $ 19.167 $ 19.167 13,500 -- -- (13,500)
Exercised ................... $ -- $ -- -- -- -- --
Canceled .................... $ -- $ -- -- -- -- --
Exercisable ................. $ 3.333 - $11.111 $ -- -- -- 20,250 --
----------- -------------------------

Balance, Fiscal 1998 ............ $ 3.333 - $19.167 $ 7.288 148,500 $ 5.681 119,812 64,687
Granted ..................... $ 23.125 $ 23.125 9,000 -- -- (9,000)
Exercised ................... $ -- $ -- -- -- -- --
Canceled .................... $ -- $ -- -- -- -- --
Exercisable ................. $ 3.333 - $19.167 $ -- -- -- 16,874 --
----------- -------------------------

Balance, Fiscal 1999 ............ $ 3.333 - $23.125 $ 8.193 157,500 $ 6.560 136,686 55,687
Granted ..................... $ 14.375 - $19.625 $ 17.000 10,000 -- -- (10,000)
Exercised ................... $ 3.333 $ 3.333 (22,500) -- -- --
Canceled .................... $ -- $ -- -- -- -- --
Exercisable ................. $ 3.333 - $23.125 $ -- -- -- (22,500) --

----------- -------------------------
Balance, Fiscal 2000 ............ $ 3.333 - $23.125 $ 9.554 145,000 $ 7.195 114,186 45,687
----------- -------------------------

</TABLE>

Additional weighted average information
for options outstanding and exercisable as
of fiscal year end 2000:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE
RANGE OF EXERCISE AVERAGE EXERCISE
EXERCISE NUMBER OF PRICE REMAINING NUMBER OF PRICE
PRICE SHARES PER SHARE CONTRACTUAL LIFE SHARES PER SHARE
----- ------ --------- ---------------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Long-Term
Incentive Plan: ................. $ 2.945 - $ 5.950 804,689 $ 4.880 5.2 years 804,689 $ 4.880
$ 5.960 - $15.900 668,680 $ 10.124 7.6 years 327,848 $ 9.406
$ 15.910 - $33.187 1,021,720 $ 17.952 8.6 years 108,298 $ 19.412
--------- ---------
2,495,089 1,240,835 $ 7.344
--------- ---------

Nonemployee
Director Plan: .................. $ 3.333 - $ 5.950 51,750 $ 4.464 4.0 years 51,750 $ 4.464
$ 5.960 - $15.900 65,750 $ 8.964 5.7 years 55,686 $ 8.283
$ 15.910 - $23.125 27,500 $ 20.546 8.6 years 6,750 $ 19.167
--------- ---------
145,000 114,186 $7.19541
--------- ---------

</TABLE>

[ILLUSTRATION]

<PAGE>

[ILLUSTRATION]

The Company applies Accounting Principles Board Opinion No.25 and
related Interpretations in accounting for its stock option plans. No
compensation cost has been recognized for the Company's stock option plans
because the quoted market price of the Common Stock at the date of the grant was
not in excess of the amount an employee must pay to acquire the Common Stock.
SFAS No. 123, "Accounting for Stock-Based Compensation," issued by the Financial
Accounting Standards Board in 1995, prescribes a method to record compensation
cost for stock-based employee compensation plans at fair value. Pro forma
disclosures as if the Company had adopted the cost recognition requirements
under SFAS No.123 in fiscal years 2000, 1999 and 1998 are presented below.

FISCAL YEAR 2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA
Net income:
As reported ........................................... $55,883 $51,826 $32,161
Proforma .............................................. $53,018 $49,707 $30,048
Basic earnings per share:
As reported ........................................... $ 1.76 $ 1.63 $ 1.04
Proforma .............................................. $ 1.67 $ 1.56 $ 0.97
Diluted earnings per share:
As reported ........................................... $ 1.71 $ 1.55 $ 0.99
Proforma .............................................. $ 1.62 $ 1.49 $ 0.92

</TABLE>

12. SUPPLEMENTAL CASH FLOW INFORMATION

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

FISCAL YEAR 2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
IN THOUSANDS
Cash paid during the year for:
Interest............................................... $ 62 $ 402 $ 82
Income taxes........................................... $35,106 $27,532 $18,388

</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:

FISCAL YEAR 2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Customer A............................................... 8% 9% 10%

</TABLE>

The Company's majority owned facilities operate primarily in four geographic
regions. The Company operates in two distinct distribution channels, wholesale
and retail. In its wholesale operations it designs, develops, markets and
distributes fashion watches and other accessories, to department stores,
specialty shops, and independent retailers throughout the world. The Company's
store operations consist of the Company's outlet and mall-based retail stores
selling the Company's product directly to the consumer. Specific information
related to the Company's reportable segments and geographic areas are contained
in the following table. Intercompany sales of products between geographic areas
are referred to as inter-geographic items.

<PAGE>

FISCAL YEAR END 2000
OPERATING LONG-LIVED
NET SALES INCOME (LOSS) ASSETS TOTAL ASSETS
--------- ------------- ------ ------------
<C> <C> <C> <C>

IN THOUSANDS

United States-exclusive of Stores: ..... $ 28,269 $ 138,796
External customers .................. $ 301,767 $ 55,811 -- --
Intergeographic ..................... 73,270 -- -- --
Stores ................................. 49,803 (7,215) 18,135 39,978
Europe: ................................ 99,439 6,442 5,132 21,138
Far East: .............................. 3,052 106,375
External customers .................. 47,152 39,910 -- --
Intergeographic ..................... 189,651 -- -- --
Japan .................................. 6,124 (1,127) 172 1,304
Intergeographic items .................. (262,921) -- -- --
---------------------------------------------------------------
Consolidated ........................... $ 504,285 $ 93,821 $ 54,760 $ 307,591
---------------------------------------------------------------

FISCAL YEAR END 1999
United States-exclusive of Stores: ..... $ 24,554 $ 144,465
External customers .................. $ 252,816 $ 36,020 -- --
Intergeographic ..................... 34,700 -- -- --
Stores ................................. 37,797 4,361 8,294 24,818
Europe: ................................ 2,745 23,099
External customers .................. 86,714 17,793 -- --
Intergeographic ..................... 500 -- -- --
Far East: .............................. 2,687 74,469
External customers .................. 34,091 29,662 -- --
Intergeographic ..................... 140,800 -- -- --
Japan .................................. 7,516 (387) 277 2,513
Intergeographic items .................. (176,172) -- -- --
---------------------------------------------------------------
Consolidated ........................... $ 418,762 $ 87,449 $ 38,557 $ 269,364
---------------------------------------------------------------

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

</TABLE>

[ILLUSTRATION]

<PAGE>

CORPORATE INFORMATION

EXECUTIVE OFFICERS AND DIRECTORS

Tom Kartsotis Randy S. Kercho Kenneth W. Anderson
Chairman of the Board Executive Vice President Director

Kosta N. Kartsotis Mike L. Kovar Alan J. Gold
President, Senior Vice President, Director
Chief Executive Officer Chief Financial Officer
and Director and Treasurer

Michael W. Barnes Mark D. Quick Junichi Hattori
President, International and President, Director
Special Markets Division Fashion Accessories Division
and Director

Richard H. Gundy T. R. Tunnell Michael Steinberg
President, FOSSIL Watches Executive Vice President, Director
and Stores Division Chief Legal Officer and Secretary
and Director

Jal S. Shroff Donald J. Stone
Managing Director- Director
Fossil East and Director

CORPORATE INFORMATION

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

</TABLE>

INTERNET WEBSITE

The Company maintains a website at the worldwide internet address of
www.fossil.com. Certain product, event, investor relations and collector club
information concerning the Company is available at the site.

ANNUAL MEETING

The Annual Meeting of Stockholders will be held on Thursday, May 24, 2001, at
4:00 pm at the Company's headquarters, 2280 N. Greenville Ave., Richardson,
Texas.