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

FORM 10-Q

Commission file number: 0-19848

FOSSIL, INC.
(Exact name of registrant as specified in its charter)

        Indicate by check mark whether registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý    No o

        The number of shares of Registrant's common stock, outstanding as of November 15, 2002: 46,313,625

PART 1—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FOSSIL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

See notes to condensed consolidated financial statements.

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FOSSIL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
UNAUDITED
(In thousands, except per share amounts)

See notes to condensed consolidated financial statements.

2

FOSSIL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)

See notes to condensed consolidated financial statements.

3

FOSSIL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

1. FINANCIAL STATEMENT POLICIES

        Basis of Presentation.    The condensed consolidated financial statements include the accounts of Fossil, Inc., a Delaware corporation, and its wholly and majority-owned subsidiaries (the "Company"). The condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to present a fair statement of the Company's financial position as of October 5, 2002, and the results of operations for the thirteen-week periods ended October 5, 2002 and October 6, 2001, respectively and the thirty-nine week and forty-week periods ended October 5, 2002 and October 6, 2001, respectively. The additional week in the 2001 nine-month period did not have a material impact on comparability. All adjustments are of a normal, recurring nature. Reclassification of certain amounts for the thirteen-week and forty-week periods ended October 6, 2001, have been made to conform to the presentation for the thirteen-week and thirty-nine week periods ended October 5, 2002.

        These interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included in Form 10-K filed by the Company pursuant to the Securities Exchange Act of 1934 for the year ended January 5, 2002. Operating results for the thirteen-week and thirty-nine week periods ended October 5, 2002, are not necessarily indicative of the results to be achieved for the full year.

        The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. The Company has not made any changes in its critical accounting policies from those disclosed in its most recent annual report.

        Business.    The Company designs, develops, markets and distributes fashion watches and other accessories, principally under the "FOSSIL" and "RELIC" brands names. The Company's products are sold primarily through department stores and other major retailers, both domestically and in over 90 countries worldwide.

2. INVENTORIES

        Inventories consist of the following:

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3. FOREIGN CURRENCY HEDGING INSTRUMENTS

        The Company periodically enters into forward contracts principally to hedge the future payment of intercompany inventory transactions with its non-U.S. subsidiaries. At October 5, 2002, the Company had hedge contracts to sell 72.4 million Euro for approximately $66.3 million, expiring through December 2003 and 2.1 million British Pounds for approximately $3.2 million, expiring through February 2003. If the Company were to settle its Euro and British Pound based contracts at the reporting dates the net result would be a net loss of approximately $2.6 million, net of taxes, for the thirty-nine week period ended October 5, 2002. This unrealized loss is recognized in other comprehensive income under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."

        In implementing SFAS No. 133, as of December 31, 2000, the Company recognized a net unrealized loss of approximately $400,000 in other comprehensive income. The net decrease in fair value for the thirty-nine week period ended October 5, 2002, of approximately $2.6 million and the net increase in fair value for the forty-week period ended October 6, 2001 of $108,000 are included in other comprehensive income (loss).

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4. SEGMENT AND GEOGRAPHIC INFORMATION (In thousands)

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5. EARNINGS PER SHARE

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

6. ACQUISITIONS/SUBSEQUENT EVENTS

        In July 2002, Fossil Europe B.V., Ltd. ("Fossil B.V."), a wholly owned subsidiary of the Company, acquired 100% of the capital stock in the Company's Swiss distributor, No-Time AG, for a purchase price of approximately $3.8 million paid in cash. Fossil B.V. also acquired 100% of the capital stock for three stores in Switzerland from X-Time AG for a purchase price of approximately $10,000 paid in cash. These acquisitions were recorded as purchases and, in connection therewith, the Company recorded goodwill of approximately $2.0 million.

        On July 31, 2002, Fossil Canada Inc., a wholly owned subsidiary of the Company, acquired four full price FOSSIL retail stores in Canada that were previously operated under a license agreement with Comark Inc. for a purchase price of approximately $400,000. This acquisition was recorded as a purchase and no goodwill was recorded in connection with this transaction.

        The pro forma effects on operations of these two acquisitions, as if they had occurred at the beginning of the periods reported, are not significant.

        On October 7, 2002, the Company acquired the remaining fifty percent (50%) of the outstanding shares of SFJ, Inc., a former joint venture with Seiko Instruments Inc., at no cost to the Company. The Company has renamed the business Fossil Japan and will begin to consolidate its financial results on a prospective basis.

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FOSSIL, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following is a discussion of the financial condition and results of operations of Fossil, Inc. and its wholly and majority-owned subsidiaries (the "Company") for the thirteen and thirty-nine week periods ended October 5, 2002 (the "Third Quarter" and "Year To Date Period," respectively), as compared to the thirteen and forty-week periods ended October 6, 2001 (the "Prior Year Quarter" and "Prior Year YTD Period," respectively). This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the related Notes attached hereto.

General

        Fossil is a design, development, marketing and distribution company that specializes in consumer products predicated on fashion and value. 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 watches, accessories and apparel. The Company's principal offerings include an extensive line of watches sold under the FOSSIL and RELIC brands as well as complementary lines of small leather goods, belts, handbags, sunglasses, jewelry and FOSSIL brand apparel. In addition to developing its own brands, the Company leverages its development and production expertise by designing and manufacturing licensed and private label products for some of the most prestigious companies in the world, including fashion designers, national retailers and entertainment companies. During 2001, the Company acquired certain businesses located in Switzerland that provide the necessary infrastructure to design, source and produce fine quality Swiss-made timepieces. The Company anticipates launching its initial Swiss watch offering in the fourth quarter of 2002.

        The Company's products are sold primarily to department stores and specialty retail stores in over 90 countries worldwide through Company-owned foreign sales subsidiaries, joint ventures and a network of more than 40 independent distributors. The Company's foreign operations, including distributors, 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 stores primarily located throughout the United States and in independently-owned, authorized FOSSIL retail stores and kiosks located in several major airports, on cruise ships and in certain international markets. The Company's successful expansion of its product lines worldwide and leveraging of its infrastructure have contributed to its increasing net sales and operating profits during the last five fiscal years.

Third Quarter and Year To Date Period Highlights

•

Worldwide sales of FOSSIL watches increased 17% and 16% during the Third Quarter and Year To Date Period, respectively.



•

RELIC accessory sales, that include handbags, small leather products and belts, increased 24% and 56% during the Third Quarter and Year To Date Period, respectively, despite launching this category in the Prior Year Quarter.



•

RELIC watch sales increased 24% during the Third Quarter, benefiting from expanded brand name visibility with further expansion of RELIC accessories.



•

Sales from the Company's European operations increased 41% and 42% during the Third Quarter and Year To Date Period, respectively.

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•

Sales from the Company's licensed watch lines surpassed $90 million during the Year To Date Period, a 36% increase over the Prior Year YTD Period.



•

Other International sales, that consist of export sales to distributors and sales from the Company's Far East operations, increased 27% to $19.2 million during the Third Quarter.



•

FOSSIL branded jewelry, initially launched in Germany in 2001, grew 76% to $9.5 million for the Year to Date Period.



•

The Company operated 102 retail locations consisting of 47 outlet, 37 accessory and 18 jeanswear stores at the end of the Third Quarter compared to 90 stores (43 outlet, 28 accessory and 19 jeanswear stores) at the end of the Prior Year Quarter. This retail store expansion and 4% comp increases generated sales growth of 23% and 24% during the Third Quarter and Year To Date Period, respectively.

Results of Operations

        The following table sets forth, for the periods indicated, (i) the percentages of the Company's net sales represented by certain line items from the Company's condensed consolidated statements of income and (ii) the percentage changes in these line items between the Third Quarter and the comparable period of the Prior Year Quarter.

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        Net Sales.    The following table sets forth certain components of the Company's consolidated net sales and the percentage relationship of the components to consolidated net sales for the periods indicated (in millions, except percentage data):

        Third Quarter sales from the Company's domestic watch business increased by 12.7%, primarily due to a 74.8% increase in sales of licensed watches, a 24.5% increase in RELIC watches and a 5.1% increase in FOSSIL watches. EMPORIO ARMANI, DKNY and DIESEL showed significant double digit increases. Domestic sales of the Company's accessory and sunglass businesses rose 9.4% over the Prior Year Quarter. Further market expansion of RELIC accessories and solid growth in FOSSIL handbags and women's small leathers contributed to the growth in this area. Total international sales rose 36.1% during the Third Quarter with particular strength in Europe, that increased 41%. Excluding the effects of a stronger Euro, sales in Europe increased 28% primarily as a result of sales growth in FOSSIL watches, licensed watches, FOSSIL jewelry and approximately $2.6 million of sales from businesses acquired over the last year. Other international sales increased 27% to $19.2 million during the Third Quarter. This increase was primarily a result of sales growth from the Company's Asian businesses and increases in export and duty free channels that were significantly affected post

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September 11^th last year. Net sales for the Year To Date Period rose 22.0% to $451 million compared to $369.6 million during the Prior Year YTD Period. This increase was a result of balanced growth in each major product category both domestically and abroad with the exception of the Company's domestic men's leather and sunglass businesses, which combined, represent approximately 5% of the Company's consolidated net sales.

        Gross Profit.    Gross profit margin improved by 110 basis points to 49.5% in the Third Quarter compared to 48.4% in the Prior Year Quarter. The increase in gross profit margin is primarily attributed to increases in international and licensed watch sales as a percentage of total sales. Both of these categories generally produce higher gross profit margins than the Company's historical consolidated gross profit margin. Gross profit margins also benefited from a lower mix of leather product sales that generally produce gross profit margins below the Company's historical consolidated gross profit margin. The stronger Euro during the Third Quarter resulted in no significant effect on gross profit margins as the Company had previously entered into forward contracts at rates below the average Euro rate for the Third Quarter. For the Year To Date Period, gross profit margin increased 40 basis points to 49.8% compared to 49.4% in the Prior Year YTD Period. This increase is primarily due to a higher mix of international sales and licensed watch sales. Management expects gross margins for the fourth quarter of 2002 to be higher than the prior year fourth quarter as the Company's international businesses and licensed watch sales continue to increase as a percentage of net sales.

        Operating Expenses.    Third Quarter operating expenses, as a percentage of net sales, rose to 35.4% compared to 34.9% in the Prior Year Quarter. The dollar and percentage increase in operating expenses reflect higher operating costs in Europe, primarily related to a stronger Euro and operating expenses from newly acquired businesses, and higher distribution costs, primarily related to depreciation and facility costs, from operating in multiple locations in the U.S. The Company expects to complete its transition of all U.S. distribution functions to its new facility by the end of January 2003. Additionally, provisions were recorded during the quarter for certain asset write-downs related to the Company's retail division. As a percentage of sales, advertising costs rose slightly in comparison to the same period last year. Operating expenses for the Year To Date Period increased to $166.0 million, or 22% from $136 million in the Prior Year YTD Period. For the Year To Date Period, operating expenses, as a percentage of net sales, remained relatively unchanged at 36.8% compared to 36.9% in the Prior Year YTD Period. On a comparative basis to the prior year quarter, management expects fourth quarter operating expenses, as a percentage of sales, to remain the same or slightly increase as a result of planned increases in advertising costs relating to the launch of its Swiss watch and EMPORIO ARMANI jewelry lines and additional advertising relating to FOSSIL watches worldwide.

        Operating Income.    Increased sales and improved gross profit margins, partially offset by higher operating expenses as a percentage of sales, enabled the Company's Third Quarter operating profit margin to rise by 60 basis points to 14.1% of sales compared to 13.5% in the Prior Year Quarter. Operating profit margin for the Year To Date Period improved to 13% of sales compared to 12.5% in the Prior Year YTD Period primarily due to an increase in gross profit margins.

        Other Income (Expense).    During the Third Quarter, other income (expense) increased favorably by approximately $400,000 over the Prior Year Quarter primarily due to reduced losses from joints ventures as a result of the Company's withdrawal from the SII Marketing, Inc. joint venture in the fourth quarter of 2001. During the Year To Date Period, other income (expense) increased unfavorably by approximately $500,000 compared to the Prior Year YTD Period. This unfavorable increase related to reductions in interest income primarily due to reductions in interest rates relating to the Company's investment activities and increases in minority interest expense. These unfavorable increases were offset by a reduction in losses associated with the Company's withdrawal from the SII Marketing, Inc. joint venture.

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        Provision For Income Taxes.    The Company's effective income tax rate decreased to 39% during the Third Quarter and Year To Date Period compared to 40% in the Prior Year Quarter and the Prior Year YTD Period to reflect the lower worldwide effective tax rate being achieved by the Company.

        Earnings Guidance.    Management expects fourth quarter sales to increase 15% to 20% compared to the prior year quarter. Although operating expenses as a percentage of sales are expected to meet or slightly exceed levels of the comparable prior year period due primarily to further advertising initiatives, the Company expects fourth quarter earnings to meet its previously targeted level of $0.48 per share, diluted.

        For 2003, management expects continued sales growth of 15% to 20% and operating income growth mirroring sales growth as the Company continues to invest in advertising, infrastructure and technology to promote its new business ventures. While these investments raise operating expenses in the short term, management believes these spending initiatives are necessary to support the long-term growth of these target product launches beyond their start-up phase.

Liquidity and Capital Resources

        The Company's general business operations historically have not required substantial cash needs during the first several months of its fiscal year. Generally, starting in the second quarter, the Company's cash needs begin to increase, typically reaching their peak in the September-November time frame. The Company's cash holdings and short-term marketable securities of $76 million at the end of the Third Quarter represented a $34 million, or 81%, increase from the Prior Year Quarter. Net cash generated from operating activities during the Year To Date Period of $32 million were used to finance capital expenditures and repay amounts outstanding under the Company's credit facility. Capital additions during the Year To Date Period of approximately $16 million included amounts associated with the Company's SAP implementation, equipment purchases related to the new U.S. distribution center, and new outlet and accessory store openings. Management projects additional capital expenditures in the $5 million range during the fourth quarter of 2002 with the majority of this amount related to further costs associated with the SAP implementation.

        Accounts receivable of $95.0 million represented a 17% increase over the $81.2 million for the Prior Year Quarter. Days sales outstanding decreased two days to 52 days compared to 54 days for the Prior Year Quarter. Inventory at the end of the Third Quarter was current and on-plan at $129.3 million, 7% above the October 6, 2001 inventory of $120.8 million, despite a 21% sales increase during the quarter.

        At the end of the Third Quarter, the Company had working capital of $213 million compared to working capital of $149 million and $163 million at the end of the Prior Year Quarter and fiscal 2001 year-end, respectively. The Company had no outstanding borrowings against its $40 million bank credit facility at the end of the Third Quarter. Management believes that cash flows from operations combined with existing cash on hand and amounts available under its credit facility will be sufficient to satisfy its working capital requirements for the foreseeable future.

Forward-Looking Statements

        Included within management's discussion of the Company's operating results, "forward-looking statements" were made within the meaning of the Private Securities Litigation Reform Act of 1995 regarding expectations for 2002 and 2003. The actual results may differ materially from those expressed by these forward-looking statements. Significant factors that could cause the Company's 2002 and 2003 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, an inability of management to control

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operating expenses in relation to net sales without damaging the long-term direction of the Company and the risks and uncertainties set forth in the Company's current report on Form 8-K dated March 30, 1999.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

        Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of Fossil's management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures was effective. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

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PART II—OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

99.1

Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



99.2

Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)

Reports on Form 8-K

No reports on Form 8-K were filed during the period covered by this Report.

14

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

15

        Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Kosta N. Kartsotis, certify that:

1)

I have reviewed this quarterly report on Form 10-Q of Fossil, Inc.;



2)

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;



3)

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;



4)

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and have:



a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report ("Evaluation Date"); and



c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5)

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons fulfilling the equivalent functions):



a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6)

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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        Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Mike L. Kovar, certify that:

1)

I have reviewed this quarterly report on Form 10-Q of Fossil, Inc.;



2)

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;



3)

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;



4)

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and have:



a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report ("Evaluation Date"); and



c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5)

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons fulfilling the equivalent functions):



a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6)

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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EXHIBIT INDEX

QuickLinks

ITEM 1. FINANCIAL STATEMENTS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Third Quarter and Year To Date Period Highlights
Results of Operations
Liquidity and Capital Resources
Forward-Looking Statements
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K