10-K

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

FORM 10-K

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 2, 2010
OR
o	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 (State or other jurisdiction of incorporation or organization)	75-2018505 (I.R.S. Employer Identification No.)
2280 N. Greenville Avenue Richardson, Texas (Address of principal executive offices)	75082 (Zip Code)

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

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

Title of each class	Name of each exchange on which registered
Common Stock, $0.01 par value	NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         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 ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer o Non-accelerated filer o
(Do not check if a
smaller reporting company) Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

         The aggregate market value of Common Stock, $0.01 par value per share (the "Common Stock"), held by non-affiliates of the registrant, based on the last sale price of the Common Stock as reported by the NASDAQ Global Select Market on July 4, 2009, was $1,011,655,893. 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 February 26, 2010, 66,964,224 shares of Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's proxy statement to be furnished to shareholders in connection with its 2010 Annual Meeting of Shareholders are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K.

FOSSIL, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 2, 2010
INDEX

		Page
PART I
Item 1.	Business		3
Item 1A.	Risk Factors		25
Item 1B.	Unresolved Staff Comments		38
Item 2.	Properties		38
Item 3.	Legal Proceedings		39
Item 4.	[Reserved]		40
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		40
Item 6.	Selected Financial Data		42
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations		43
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		62
Item 8.	Consolidated Financial Statements and Supplementary Data		64
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		103
Item 9A.	Controls and Procedures		103
Item 9B.	Other Information		106
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		106
Item 11.	Executive Compensation		106
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		106
Item 13.	Certain Relationships and Related Transactions, and Director Independence		106
Item 14.	Principal Accountant Fees and Services		106
PART IV
Item 15.	Exhibits and Financial Statement Schedules		107

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In this Form 10-K, references to "we," "our," and the "Company" refer to Fossil, Inc. and its subsidiaries on a consolidated basis.

PART I

Item 1.    Business

General

        We are a global design, marketing and distribution company that specializes in consumer fashion accessories. Our principal offerings include an extensive line of men's and women's fashion watches and jewelry sold under proprietary and licensed brands, handbags, small leather goods, belts, sunglasses, footwear, cold weather accessories and apparel. In the watch and jewelry product category, we have a diverse portfolio of globally recognized owned and licensed brand names under which our products are marketed. Our products are distributed globally through various distribution channels including wholesale in countries where we have a physical presence, direct to the consumer through our retail stores and commercial websites and through third-party distributors in countries where we do not maintain a physical presence. Our products are offered at varying price points to service the needs of our customers, whether they are value conscious or luxury oriented. Based on our extensive range of accessory products, brands, distribution channels and price points, we are able to target style-conscious consumers across a wide age spectrum on a global basis.

        Domestically, we sell our products through a diversified distribution network that includes department stores, specialty retail locations, specialty watch and jewelry stores, owned retail and factory outlet stores, mass market stores, owned and affiliate internet sites and through our FOSSIL® catalogs. Our broadly based wholesale customer base includes retailers such as Neiman Marcus, Nordstrom, Saks Fifth Avenue, Macy's, Dillard's, JCPenney, Kohl's, Sears, Wal-Mart and Target. We also sell our products in the United States (U.S.) through a network of company-owned stores, which included 127 retail stores located in premier retail sites and 74 outlet stores located in major outlet malls as of January 2, 2010. In addition, we offer an extensive collection of our FOSSIL brand products through our catalogs and at www.fossil.com, as well as proprietary and licensed watch and jewelry brands through other managed and affiliate websites.

        Internationally, our products are sold to department stores, specialty retail stores, and specialty watch and jewelry stores in over 100 countries worldwide through 23 company-owned foreign sales subsidiaries and through a network of 59 independent distributors. Our products are distributed in Africa, Asia, Australia, Europe, Central and South America, Canada, the Caribbean, Mexico, and the Middle East. Our products are offered on airlines, cruise ships, international company-owned websites and in international company-owned retail stores, which included 126 accessory retail stores, 11 multi-brand stores and 16 outlet stores in select international markets as of January 2, 2010. Our products are also sold through licensed and franchised FOSSIL retail stores and kiosks in certain international markets, as well as our websites in Australia, www.fossilaustralia.com.au, Germany, www.fossil.de, the United Kingdom, www.fossil.co.uk, and Singapore, www.fossilsingapore.com.sg.

        We are a Delaware corporation formed in 1991 and are the successor to a Texas corporation formed in 1984. In 1993, we completed an initial public offering of 13,972,500 shares of our common stock, as adjusted for four three-for-two stock splits to date. Domestically, we conduct a majority of our operations through Fossil Partners, L.P., a Texas limited partnership formed in 1994 of which we are the sole general partner. We also conduct operations domestically and in certain international markets through various owned subsidiaries. Our principal executive offices are located at 2280 N. Greenville Avenue, Richardson, Texas 75082, and our telephone number at such address is (972) 234-2525. Our European headquarters is located in Basel, Switzerland and our Far East headquarters is located in Hong Kong. Our common stock is traded on the NASDAQ Global Select Market under the trading symbol FOSL. We make available free of charge through our website at www.fossil.com our annual

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reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports. You may also obtain any materials we file with, or furnish to, the U.S. Securities and Exchange Commission (the "SEC") on its website at www.sec.gov.

Business segments

        Our operations and financial reporting are primarily divided into four distinct segments: (i) the U.S. wholesale segment; (ii) the European wholesale segment; (iii) the other international wholesale segment; and (iv) the direct to consumer segment, which includes our company-owned retail stores, our catalogs and e-commerce activities. Within the wholesale segments of our business, we generally sell to retailers in those countries in which we have a physical presence as well as to distributors in countries where we do not have a physical presence. Except to the extent that differences between operating segments are material to an understanding of our business taken as a whole, the description of our business in this report is presented on a consolidated basis. Corporate expenses include certain administrative, legal, accounting, technology support costs, equity compensation costs, payroll costs attributable to executive management and amounts related to intercompany eliminations are not allocated to the various segments. For financial information about our operating segments and geographic areas, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Part II, Item 7 and Note 16—Major Customer, Segment and Geographical Information to our Consolidated Financial Statements set forth in Part II, Item 8 of this Annual Report on Form 10-K.

Business strengths

        We believe that we have several business strengths which allow us to differentiate ourselves and achieve our key operating and financial goals. These business strengths include:

        Brand Strength.    We believe a brand's image, individuality, consistency and connection with its customers is paramount in building and sustaining the brand. We believe that our FOSSIL brand name is recognized on a global basis for vintage-inspired products for the aspirational individual. The FOSSIL brand has developed from its origin as a watch brand to encompass other accessory categories, including handbags, belts, small leather goods, jewelry, cold weather items, sunglasses, apparel and footwear. We believe the FOSSIL brand is one of our most valuable assets, serves as a foundational piece of our business and remains very marketable across product lines, geographic areas and distribution channels. Since our inception in 1984, we have continued to develop, acquire or license other nationally or internationally recognized brand names, such as ADIDAS®, BURBERRY®, DIESEL®, DKNY®, EMPORIO ARMANI®, MARC BY MARC JACOBS™, MICHELE®, MICHAEL Michael Kors®, RELIC® and ZODIAC®, in order to appeal to a wide range of consumers. Our industry is highly competitive and subject to changing preferences in style, taste and price points. The success of our business model depends upon offering a wide range of branded products that appeal to the various tastes and fashion preferences of our customers. We must also maintain the relevance of these products by continually anticipating customer needs and desires as they relate to both the brands and categories of product we offer. We have teams of designers and product specialists assigned to each of our brands. The objectives of these designers and brand specialists are to immerse themselves in their assigned brand and product area, identify their customers' preferences, interpret global fashion trends and develop style-right offerings to generate volume purchasing. By owning the vast majority of our global distribution, we are also able to create and execute consistent pricing strategies and brand image presentations that protect and enhance our proprietary brands and those of our licensors.

        Licensing Strength.    Since 1997, we have attracted highly recognized and respected brand names to license within our watch portfolio. We believe we attract such quality brands due to our ability to provide them with access to our global design, production, distribution and marketing infrastructure. As a result of our vertical integration, we, unlike many of our competitors, can offer an integrated solution

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to launch or increase an accessory category presence on a worldwide basis in a consistent, timely and focused manner. The majority of our licensing relationships are exclusive to us and the licensors, which substantially minimizes certain risks to the licensor associated with dealing with multiple licensees in different geographic regions. Additionally, in order to develop a broader relationship and maintain brand consistency across the accessory categories, we have broadened our infrastructure, allowing us to expand our licensing activities to products beyond the watch category, including our EMPORIO ARMANI, DKNY and DIESEL jewelry product lines.

        Breadth of Brands & Price Points.    Through the multiple brands we distribute, we have developed a broad spectrum of retail price points. Within our watch collections, retail price points vary from approximately $7 in the mass market channel up to retail price points of $2,395 in the luxury distribution channel. The breadth of our brands allows us to anchor a brand to a given price point range and distribution channel, thereby maintaining a consistent brand image while focusing on the quality/value relationship important to the customer and not diluting the brand through overlapping distribution channels. The breadth of price points allows us to cater to various age and income groups while continuing to participate in sales consistently, regardless of a shift in income or the price/value preferences of our customers.

        International Penetration.    Since our initial public offering in 1993, we have continued to extend our reach beyond the U.S. by forming and acquiring internationally-based subsidiaries, licensing and developing internationally recognized brands and investing in the growth of our business within many major countries of the world. For fiscal year 2009, 59.8% of our wholesale net sales and 53.9% of our total net sales were generated outside of the U.S.

        Breadth of Distribution Channels.    Our products are sold through multiple distribution channels including department stores, specialty retail stores, specialty watch and jewelry stores, mass market stores, sport stores, cruise ships, airlines, owned-retail, licensed and franchised FOSSIL stores, business to business, the internet and our catalogs. As we continue to expand our presence in existing distribution channels and add new distribution channels, as well as develop new product lines and expand our geographic reach, our revenues become less dependent on any one product, brand, distribution channel or geographic region. Our owned-retail, internet and catalog venues allow us to enhance the related brand image by offering a targeted message to the customer, showcasing the array of product availability, influencing the merchandising and presentation of the products and testing new product introductions.

        In-house Creative Team.    Since our inception, we have developed a talented pool of creative individuals who design our products, packaging, graphics, presentation displays and marketing materials, allowing us to deliver a unique and cohesive style and image for each of our brands. We believe our emphasis on constant innovation and distinctive design has made us a leader in the branded accessory category. The breadth of talent and vertical integration of our design teams allows us to minimize the need for and associated expense of outside creative talent and advertising agencies.

        International Sourcing.    The vast majority of our products are sourced internationally. Most watch product sourcing from Asia is coordinated through our Hong Kong subsidiary Fossil (East) Limited ("Fossil East"), which we acquired in 1993. During 2009, approximately 55% of our non-Swiss made watch production was assembled through wholly or majority owned factories. This vertical integration of our business allows for better flow of communication, consistent quality, product design protection and improved supply chain speed, while still allowing us to utilize non-owned production facilities for their unique capabilities and to cover production needs over internal capacities. Establishing our watch assembly facilities near the component manufacturers also allows us to operate a more efficient supply chain. We have also been successful in leveraging our jewelry production needs through our watch assembly factory infrastructure. Our other accessory and apparel products are purchased from third

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party manufacturers with whom we have long-standing relationships and we typically represent a meaningful portion of their businesses.

        Operating Cash Flow.    Our business model has historically generated strong operating cash flows, including $266.0 million in fiscal year 2009, and $506.9 million and $689.9 million over the past three years and five years, respectively. This strong cash flow has allowed us to operate at low debt levels while funding capital expenditures, owned retail store growth, product line expansions and common stock buy back programs.

        Information Systems.    Operating and managing a global public company requires sophisticated and reliable management information systems to assist in the planning, order processing, production and distribution functions and accounting of each relevant business. In 2003, we implemented a SAP Enterprise Resource Planning system and are continuing to roll this system out to our larger international subsidiaries. For many of our subsidiaries which do not currently demand the complexity of the SAP solution, we have implemented Microsoft's Dynamics Navision Enterprise Resource Planning System (Navision). Additionally, we upgraded our e-commerce platform to an IBM mainframe system, which will allow us to leverage the success of our U.S.-based web business across many of the countries where we currently distribute products. We have also implemented SAP's Retail Merchandise Planning and an SAP point-of-sale system to improve our ability to manage our growing owned-retail stores globally. We believe the implementation of these systems will allow us to gain better insight into our businesses in real-time on a global basis, assist us in meeting the needs of our customers in a professional and timely manner and provide a scalable infrastructure to accommodate further growth. Our company's products are principally distributed from two primary warehouses, one located in Texas, near our headquarters, and the other located in southern Germany. Both of these facilities utilize sophisticated automated material handling equipment and software designed to improve accuracy, speed and quality in our warehousing operations. We have also recently opened a regional warehouse in Hong Kong, near our regional headquarters. This warehouse will allow us to support our subsidiary operations located in Asia.

Growth Strategy

        In order to expand our global market share in a profitable manner, we continually establish and implement business initiatives that we believe will build brand equity, increase revenues and improve profitability. Our key operating and financial goals are as follows:

        Extend product categories of existing brands.    We frequently introduce new accessory product categories within our existing proprietary and licensed brands to further leverage our branded portfolio. For example, we introduced jewelry collections under the EMPORIO ARMANI, DKNY, DIESEL and FOSSIL brands after first establishing a market for the brands in watches. Additionally, we have leveraged the FOSSIL brand name with the introduction in 2007 of cold weather accessories such as hats, gloves and scarves, and, in 2009, men's and women's footwear.

        Introduce new brands.    We have introduced new brands through the development or acquisition of proprietary brands and licensing agreements related to recognizable global fashion brands to attract a wide range of consumers with differing tastes and lifestyles. For example, our current portfolio of proprietary and licensed watch brands allows us to compete for market share from the luxury branded market to the mass market level. In 2006, we licensed the ADIDAS brand to gain a greater market share of watches sold through sporting goods channels and to sports-minded consumers.

        Expand international business.    Since our initial public offering in 1993, international expansion has been a key driver in our long-term growth strategy. We have continued to increase our penetration of the international market by building brand name recognition, broadening the selection of merchandise through existing distribution channels by introducing new products or brands, extending product

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categories under our existing portfolio of brands, purchasing former distributors to gain increased control over international businesses, establishing owned, franchised or licensed retail stores and entering new geographic markets through owned subsidiary or distributor relationships. For example, in 2005, we acquired our distributors in Taiwan and Sweden, and in 2006, we acquired the assets of our distributor in Mexico and formed a distribution subsidiary in Shanghai, China. In 2007, we also formed distribution subsidiaries in India and Korea.

        Leverage existing infrastructure.    We have built our design, marketing, assembly and distribution infrastructure to allow us to manage and grow our businesses. As we continue to develop additional products and brands and seek additional businesses and products to complement our existing product lines, we believe we will be able to leverage our infrastructure and continue to increase the efficiency of our operations.

        Expand retail locations.    Historically, we have expanded our company-owned retail and outlet locations each year. Distribution through our company-owned retail stores has allowed us to raise awareness of the FOSSIL brand and showcase a broad assortment of FOSSIL branded products in a warm and inviting atmosphere. Our FOSSIL retail stores, combined with our FOSSIL branded catalogs and website, have continued to build brand equity, present a consistent brand image, influence the merchandising and presentation of our products at other retailers and have allowed us to test new product categories and designs. With the level of awareness we have achieved for the FOSSIL brand worldwide and the expansion of product categories offered under the brand, we have been able to accelerate our FOSSIL retail store growth. Of the 354 company-owned retail stores open as of January 2, 2010, 336 of these stores are FOSSIL branded stores. We plan to open approximately 50 additional FOSSIL branded stores in 2010, depending upon available retail locations and lease terms that meet our requirements. The majority of these new store openings will be our full-price accessory concept at locations outside of the U.S.

Operating strategy

        Fashion orientation and design innovation.    We are able to market our products to consumers with differing tastes and lifestyles by offering a wide range of brands and product categories at varying price points. We attempt to stay abreast of emerging fashion and lifestyle trends affecting accessories and apparel, and we respond to these trends by making adjustments in our product lines several times each year. We differentiate our products from those of our competitors principally through innovations in fashion details, including variations in the treatment of dials, crystals, cases, straps and bracelets for our watches, and innovative treatments and details in our other accessories.

        Coordinated product promotion.    We coordinate in-house product design, packaging, advertising, our website and catalogs and in-store presentations to more effectively and cohesively communicate to our target markets the themes and images associated with our brands. For example, many of our watch products and certain of our accessory products are packaged in metal tins decorated with designs consistent with our marketing strategy and product image. In certain parts of the world, we market our non-watch fashion accessory lines through the same distribution channels as our watch lines, using similar in-store presentations, graphics and packaging.

        Captive suppliers.    The two entities that assemble or source the majority of our Asia watch production volume are majority-owned by us. In addition, although we do not have long-term contracts with our unrelated accessory manufacturers in the Far East, we maintain long-term relationships with several manufacturers. These relationships have developed due to the number of years that we have been conducting business with and visiting the same manufacturers and because of the small amount of turnover in the employees of our manufacturers. We believe that we are able to exert significant operational control with regard to our principal watch assemblers because of our level of ownership and long standing relationships. In addition, we believe that the relative size of our business with

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non-owned watch manufacturers and our accessory manufacturers gives us priority within their production schedules. Further, the manufacturers understand our quality standards, which allows us to produce quality products and reduce the delivery time to market, improving overall operating margins.

        Actively manage retail sales.    We manage the retail sales process with our wholesale customers by monitoring consumer purchases and retail inventory levels by product category and style, primarily through electronic data interchange, and by assisting our wholesale customers in the conception, development and implementation of their marketing programs. Through our merchandising unit, we work with retailers to ensure that our products are properly stocked and displayed in accordance with our visual standards. As a result, we believe, we enjoy close relationships with our principal wholesale customers, often allowing us to influence the mix, quantity and timing of their purchasing decisions.

        Centralized distribution.    We distribute substantially all of our products sold domestically and certain of our products sold in international markets from our warehouse and distribution centers located in Texas. In Europe, we distribute our products primarily through our warehouse and distribution center located in Germany. In Asia, we primarily distribute our products through distribution warehouses located in those countries where we maintain a physical presence. We believe our centralized distribution capabilities in the U.S. and Europe enable us to reduce inventory risk, increase flexibility in meeting the delivery requirements of our customers and maintain cost advantages as compared to our competitors. We have also recently opened a regional warehouse in Hong Kong, near our regional headquarters. This warehouse will allow us to support each of our subsidiary operations located in Asia.

Industry overview

Watch products

        We believe that the current market for watches generally can be divided into four segments. One segment of the market consists of fine watches characterized by internationally known brand names such as Audemars Piguet, Cartier, Omega, Patek Philippe, 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 almost exclusively 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 portion of our MICHELE line competes in this market. A second segment of the market consists of fine premium branded and designer watches produced in Switzerland and the Far East such as Gucci, Movado, Raymond Weil, Seiko, Tag Heuer and Tissot. These watches are sold at retail prices generally ranging from $300 to $3,000. Our BURBERRY, EMPORIO ARMANI, MARC BY MARC JACOBS, MICHELE and ZODIAC lines generally compete in this market segment. A third segment of the market consists of watches sold by mass marketers, which typically consist of digital and analog watches manufactured in the Far East. Well known brands in this segment include Armitron, Casio and Timex. Retail prices in this segment range from $7 to $74. We compete in this segment through our ALLUDE®, CHRISTIAN BENET®, CALLAWAY® and TROPHY® lines as well as through the design and production of private label watch products for Wal-Mart and Target.

        The fourth segment of the market consists of moderately priced watches characterized by contemporary fashion and well known fashion brand names. Moderately priced watches are typically produced in Japan, China or Hong Kong and are sold by department stores and specialty stores at retail prices ranging from $45 to $495. This market segment is targeted by us with our FOSSIL and RELIC lines and by our principal competitors, including the companies that market watches under the Anne Klein II, Guess?, Kenneth Cole and Swatch brand names, whose products attempt to reflect emerging fashion trends in accessories and apparel. Our DKNY, DIESEL, MARC BY MARC JACOBS and MICHAEL Michael Kors lines generally compete in this segment as well. We compete in the

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sports specialty area of this segment with our ADIDAS line of women's and men's sport timepieces. We believe that a number of consumers regard branded fashion watches, not only as time pieces, but also as fashion accessories, and that has historically resulted in consumers owning multiple watches that may differ significantly in terms of style, features and cost.

        Watches typically utilize either a mechanical or quartz-analog movement to maintain their time keeping function. Mechanical watches utilize intricate arrangements of wheels, jewels and winding and regulating mechanisms to keep time, while quartz-analog watches are precisely calibrated to the regular frequency of the vibration of a quartz crystal powered by a battery. Although quartz-analog movements typically maintain their time keeping functions more precisely than mechanical movements, mechanical movements are prized for their craftsmanship and are generally associated with high-end luxury timepieces.

Fashion accessories

        The fashion accessories market also includes an array of products such as small leather goods, handbags, belts, eyewear, neckwear, underwear, lounge wear, jewelry, gloves, hats, hosiery and socks. We believe that a number of consumers view accessories as fashion statements, and as a result, purchase 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 such fashion names as Louis Vuitton and Prada.

        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 our FOSSIL and RELIC brands. We currently offer small leather goods, handbags, belts, eyewear and cold weather apparel accessories for both men and women through department stores and specialty retailers in the moderate to upper-moderate price ranges. Our competitors in this market include companies such as Coach, Guess?, Nine West, Kenneth Cole and Liz Claiborne. In addition, we currently offer fashion jewelry sold under the DIESEL, DKNY, EMPORIO ARMANI and FOSSIL brands.

Apparel

        In 2000, we introduced a line of FOSSIL apparel that is distributed exclusively through company-owned retail stores, www.fossil.com and through our FOSSIL catalogs. Selling through company-owned distribution channels allows us to more effectively manage visual presentation, information feedback, inventory levels and operating returns. The apparel line is focused on the casual lifestyle of the savvy consumer who is youthful in their approach to life and is not tied to any one demographic or age. The apparel line consists primarily of jeans, tee shirts and vintage-inspired fashion apparel. The suggested retail selling price of the apparel line is comparable to that of major competitors like American Eagle Outfitters and J. Crew. We have leveraged our existing graphic and store design infrastructure to create a unique, inviting and welcoming environment rich in details of design, product and merchandising to appeal to the consumers' sense of discovery.

Footwear

        In late 2008, we launched our line of FOSSIL men's footwear through our FOSSIL website. In the spring of 2009, we launched the men's line into a select number of department store doors in the U.S. and Germany. In the fall of 2009, we launched our women's footwear line in select department stores, specialty stores, Company-owned retail stores and www.fossil.com. We currently offer a select assortment of each line through certain company-owned retail stores and select third-party retailers. Our footwear line consists of modern details and vintage inspiration crafted from full grain leather,

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nubuck and suede. The footwear line includes sport sneakers, authentic casuals and dress classics with a modern touch for men and fashionable flats, heels, wedges and boots for women. The competitors for our men's footwear line include Cole Haan, Johnson & Murphy, Lacoste and Kenneth Cole. The competitors for our women's footwear line include Frye, Coach and Lucky Brand.

Products

        We design, develop, market and distribute fashion accessories, including apparel, belts, handbags, jewelry, small leather goods, sunglasses, cold weather accessories and watches under proprietary and licensed brand names. The following table sets forth certain information with respect to the breakdown of our net sales and percentage of growth between proprietary, licensed and other brands within our wholesale and direct to consumer distribution channels for the fiscal years indicated. "Other" includes private label brands we manufacture or distribute as well as branded product we purchase for resale in certain of our retail stores.

		Fiscal Year Ended
		2009					2008					2007
		Dollars		% Growth			Dollars		% Growth			Dollars
Net sales (dollars in thousands)
Wholesale
	Proprietary	$	624.5		(9.5	)%	$	689.7		6.6	%	$	646.8
	Licensed		471.9		(5.7	)		500.2		10.4			453.2
	Other		75.6		(10.0	)		84.0		8.1			77.7
			1,172.0		(8.0	)		1,273.9		8.2			1,177.7
Direct to consumer
	Proprietary		314.3		23.4			254.7		23.9			205.5
	Licensed		50.5		20.2			42.0		7.7			39.0
	Other		11.3		(10.3	)		12.6		16.7			10.8
			376.1		21.6			309.3		21.2			255.3
Total
	Proprietary		938.8		(0.6	)		944.4		10.8			852.3
	Licensed		522.4		(3.7	)		542.2		10.2			492.2
	Other		86.9		(10.0	)		96.6		9.2			88.5
		$	1,548.1		(2.2	)%	$	1,583.2		10.5	%	$	1,433.0

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Watch products

        We offer an extensive line of fashion watches under our proprietary brands and, pursuant to license agreements, under some of the most prestigious brands in the world. Sales of watches for fiscal years 2009, 2008 and 2007 accounted for approximately 66.0%, 66.9% and 67.2%, respectively, of our consolidated net sales.

        Proprietary brands.    The following table sets forth information about some of our proprietary brand watches:

Brand	Suggested Price Point Range	Primary Distribution Channels
FOSSIL	$55 - 195	U.S. department stores (Macy's, Dillard's, Belk and Nordstrom), U.S. specialty retailers (the Buckle), better European department stores (Karstadt, Debenhams, Harrod's, House of Frazier and El Corte Ingles), better European specialty stores (H. Samuel, Christ, Earnest Jones and Goldsmith), Canadian department stores (Hudson Bay and Sears), Australian department stores (Myers and Grace Brothers), independently-owned watch and jewelry stores worldwide, www.fossil.com, our catalog and Fossil Stores Worldwide
MICHELE	$395 - 2,395	U.S. department stores (Neiman Marcus, Saks Fifth Avenue, Bloomingdales and Nordstrom), watch specialty stores, jewelry stores and www.michele.com
RELIC	$45 - 145	U.S. department stores (JCPenney, Kohl's and Sears)
ZODIAC	$150 - 895	U.S. department stores (Nordstrom), watch specialty stores, jewelry stores worldwide and www.zodiacwatches.com

        Licensed brands.    We have entered into multi-year, worldwide exclusive license agreements for the manufacture, distribution and sale of watches bearing the brand names of certain globally recognized

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fashion companies. The following table sets forth information with respect to certain of our licensed watch products:

Brand	Suggested Price Point Range	Expiration Date		Primary Distribution Channels
ADIDAS	$30 - 95		12/31/2012	Department stores, major sports stores, specialty retailers, jewelry stores and Adidas stores worldwide
BURBERRY	$295 - 995		12/31/2012	Department stores, specialty retailers, duty free stores worldwide and Burberry boutiques worldwide
DIESEL	$85 - 450		12/31/2010	Department stores, specialty retailers, Diesel boutiques worldwide and www.dieseltimeframes.com
DKNY	$65 - 275		12/31/2009	Department stores, jewelry stores, specialty retailers and DKNY boutiques worldwide
EMPORIO ARMANI	$145 - 545		12/31/2013	Department stores, specialty retailers, major jewelry and watch stores, Emporio Armani boutiques worldwide, duty free stores worldwide and www.emporioarmani.com
MARC BY MARC JACOBS	$125 - 500		12/31/2010	Department stores, specialty retailers and Marc by Marc Jacobs boutiques worldwide
MICHAEL Michael Kors	$95 - 495		12/31/2014	Department stores, specialty retailers, jewelry stores, duty free stores worldwide and Michael Kors boutiques nationwide

        The continuation of our material license agreements is important to the growth of our watch business. Sales of our licensed products amounted to 33.7% of our net sales for fiscal year 2009, with certain individual licensed brands accounting for a significant portion of our revenues. Our license for DKNY watches was scheduled to expire at the end of 2009. However, we have an agreement with DKNY to continue our line of DKNY watches while we negotiate a new long-term contract. In addition to licensing fashion brands, we have entered into a number of license agreements for the sale of watches bearing the intellectual property of select teams participating in the National Football League, National Collegiate Athletic Association and Major League Baseball. Under these agreements, we design and manufacture goods bearing the trademarks, trade names and logos of select teams and market these goods through our website and major department stores.

        Private label and other.    We design, market and arrange for the manufacture of watches and accessories on behalf of certain mass market retailers, companies and organizations as private label products or as premium and incentive items for use in various corporate events. Under these arrangements, we perform design and product development functions, as well as, act as a sourcing agent for our customers by contracting for and managing the manufacturing process, purchasing and inspecting the finished product and arranging for shipment. Participation in the private label and premium businesses provides us with certain advantages, including increased assembly volume, which may reduce the costs of assembling our other products, and the strengthening of business relationships

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with our manufacturing sources. These lines provide income to us while reducing inventory risks and certain other carrying costs. In certain countries, we have distribution rights for other brands not owned or licensed by us.

Fashion accessories

        In order to leverage our design and marketing expertise and our close relationships with our principal retail customers, primarily in the U.S. and Europe, we have developed a line of fashion accessories for both men and women, including handbags, belts, small leather goods, jewelry and sunglasses. We also offer a line of cold weather accessories including hats, gloves and scarves under the FOSSIL brand, as well as, a more aspirational, premium priced handbag collection under the FOSSIL FIFTY-FOUR® brand name. Our handbags are made of a variety of fine leathers and other materials that emphasize classic styles and incorporate a variety of creative designs. Our small leather goods are typically made of fine leathers or other man-made materials and include items such as mini-bags, coin purses, cosmetic bags and wallets. Our jewelry lines include earrings, necklaces, rings and bracelets marketed under the EMPORIO ARMANI, DIESEL, DKNY and FOSSIL brands. FOSSIL jewelry is offered in base metal, stainless steel or sterling silver with natural and synthetic materials. DIESEL brand jewelry generally is offered in sterling silver or stainless steel with natural and synthetic materials. EMPORIO ARMANI brand jewelry is generally made of sterling silver, semi-precious stones or 18K gold. Our DKNY brand jewelry is offered in primarily stainless steel with fashion accents. Our sunglass line features optical quality lenses in both plastic and metal frames, with classic and fashion styling. Our cold weather accessories are made of a variety of blends consisting of natural yarns such as cotton, wool, angora and alpaca, as well as, man-made blends including acrylic, viscose and nylon. We currently sell our fashion accessories through a number of our existing major department store and specialty retail store customers, as well as, our own retail stores, www.fossil.com, other internationally-owned websites and through our catalog operations. In the U.S. and certain international markets, we generally market our fashion accessory lines through the same distribution channels as our watches 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 our watch brands. Sales of our accessory lines for fiscal years 2009, 2008 and 2007 accounted for approximately 34.0%, 33.1% and 32.8%, respectively, of our net sales.

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        The following table sets forth information about our fashion accessories:

Brand	Accessory Category	Suggested Price Point Range	Primary Distribution Channel
FOSSIL	Handbags Small Leather Goods Belts Gifts Eyewear Cold Weather Footwear	$78 - 188 $20 - 50 $25 - 48 $15 - 100 $35 - 80 $24 - 48 $39 - 198	U.S. department stores (Dillard's, Macy's, Nordstrom and Belk), specialty retailers (the Buckle), European department stores (Karstadt, El Corte Ingles, Galeries Lafayette, Christ, Debenhams and House of Frazier), Company-owned stores, our catalogs and www.fossil.com
FIFTY-FOUR	Handbags	$195 - 295	U.S. department stores, company-owned stores, our catalogs and www.fossil.com
	Small Leather Goods	$95 - 110	Company-owned stores, our catalogs and www.fossil.com
FOSSIL	Jewelry Accessory Jewelry	$7 - 125 $22 - 95	Company-owned stores, department and jewelry stores (in each case, primarily in Europe as well as the U.S. and other select international markets), our catalogs and www.fossil.com
MICHELE	Hangbags Eyewear	$295 - 595 $118 - 148	Selective department stores and www.michele.com
DIESEL	Jewelry	$55 - 179	Department stores, domestic and international specialty retailers and Diesel retail stores worldwide
DKNY	Jewelry	$45 - 195	International department stores, specialty retailers, jewelry stores and DKNY boutiques
RELIC	Sunglasses Handbags Small Leather Goods Belts Cold Weather	$26 $28 - 60 $18 - 34 $18 - 26 $25 - 35	U.S. department stores (JCPenney, Kohl's and Sears)

Apparel

        The FOSSIL apparel collection is designed for both men and women and includes jeans, outerwear, fashion tops and bottoms and tee shirts. The products' unique vintage-inspired style, packaging and graphics capture the energy and spirit of the FOSSIL brand. As of January 2, 2010, the FOSSIL apparel collection is offered through 33 company-owned stores located in leading malls and retail locations in the U.S. The line is also available at www.fossil.com and through our catalogs.

Footwear

        In late 2008, we launched a men's footwear line, followed by a launch of a women's line in 2009. The footwear line includes sport court sneakers, authentic casuals, dress classics and boots with a modern touch for men and fashionable flats, heels, wedges, and boots for women.

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Licensed eyewear

        We are party to a license agreement with the Safilo Group for the manufacture, marketing and sale of optical frames under the FOSSIL and RELIC brands in the U.S. and Canada, which provides us royalty income based on a percentage of net sales and is subject to certain guaranteed minimum royalties.

Design and development

        We believe one of our key strengths is our internal creative team. Our watch, accessory and apparel products are created and developed by our in-house design staff primarily located in Germany, Hong Kong, Switzerland and the U.S. When developing product under our various licensed brands, we often coordinate our efforts with our licensors' design teams to provide for a more fluid design approval process and to fully incorporate the image of the respective brand into the product. Product design ideas are drawn from various sources and are reviewed and modified by the design staff to ensure consistency with our existing product offerings and the themes and images associated with our brands. Senior management is actively involved in the design process.

        In order to respond effectively to changing consumer preferences, we attempt to stay abreast of emerging lifestyle and fashion trends affecting accessories and apparel. In addition, we attempt to take advantage of the constant flow of information from our customers regarding the retail performance of our products. We review weekly sales reports provided by a substantial number of our 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. Our creative teams have access to our Company's product design archives and are kept up-to-date on all the various new components, hardware and materials that become available.

        We differentiate our products from those of our competitors principally by incorporating into our product designs innovations in fashion details, including variations in the treatment of dials, crystals, cases, straps and bracelets for our watches, and details and treatments in our other accessories. We also own and license proprietary technology or integrate our suppliers' technology for certain of our watch products. In certain instances, we believe that such innovations have allowed us to achieve significant improvements in consumer acceptance of our product offerings with only nominal increases in manufacturing costs. We believe that the substantial experience of our design staff will assist us in maintaining our current leadership position in the watch and handbag categories and in expanding the scope of our product offerings.

Marketing and promotion

        Our marketing strategy for each of our proprietary brands is to deliver a coordinated and consistent brand image to the consumer regardless of where the consumer may come in contact with the brand. This permeates from point of sale merchandise displays, print and media advertising, our websites, our catalogs, retail stores, and the product packaging to the product itself. We identify our advertising themes and coordinate our packaging, advertising and point of sale material around these themes. These themes are carefully coordinated in order to convey modern vintage styling and the aspirational viewpoint that we associate with our products. Our vintage-inspired tin packaging concept for many of our watch products and certain of our accessories is an example of these marketing themes. While our marketing themes typically change each year, the core image of the brand is designed to endure, only changing slightly to keep it fresh and relevant to our targeted consumer. For

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our licensed brands, we incorporate many of the same concepts but derive the themes generally from the licensors.

        We participate in cooperative advertising programs with our major retail customers, whereby we share 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, we attempt to differentiate the space used to sell our products from other areas of our customers' stores. We also promote the use of our shop-in-shop concept for watches, jewelry, handbags, small leather goods and watch and jewelry concessions, primarily in Asia and Europe. The shop-in-shop concept involves the use of dedicated space within a customer's store to create a brand "shop" featuring our products and visual displays. Concessions allow us to essentially operate all or a portion of the watch and jewelry department within our customers' stores, thereby permitting us to control merchandising, inventory levels, build-out and branding decisions and, more importantly, the interaction with the end consumer. We also provide our customers with a large number of preprinted customized advertising inserts and from time to time stage promotional events designed to focus public attention on our products.

        Our in-house advertising department designs, develops and implements all of the packaging, advertising, marketing and other promotional aspects of our products. The advertising staff uses computer-aided design techniques to generate the images presented on product packaging and other advertising materials. Senior management is involved in monitoring our advertising and promotional activities to ensure that themes and ideas are communicated in a cohesive manner to our target audience.

        We advertise, market and promote our products to consumers through a variety of media, including catalog inserts, billboards, print media, television, cinema and the internet. We distribute FOSSIL catalogs, which feature selected FOSSIL brand products and are produced by our in-house staff. The timing and scope of the distribution of these catalogs is determined by our management based on consumer response. We believe these catalogs are a cost-effective way of enhancing the FOSSIL brand and driving sales to our retail stores, websites and wholesale customers.

Sales and customers

        General.    Domestically, we sell our products in retail locations in the U.S. through a diversified distribution network that includes department stores, specialty retail locations, specialty watch and jewelry stores, mass market stores, the internet and through our catalogs. Our department store customers include Neiman Marcus, Belk, Saks Fifth Avenue, Bloomingdales, Nordstrom, Saks Fifth Avenue, Macy's, Dillard's, JCPenney, Kohl's and Sears. We maintain sales offices in several major cities across the U.S. staffed with sales associates to assist in managing our department and specialty store accounts and employ a nationwide staff of merchandise coordinators who work with the stores to ensure that our products are displayed appropriately. We also sell certain of our watch and accessory products at company-owned FOSSIL retail stores and outlet stores located throughout the U.S. and through our website at www.fossil.com. In addition, we sell certain of our proprietary and licensed watch products, as well as upscale watch brands of other companies, such as Citizen and Swiss Army, at our company-owned Watch Station retail stores in the U.S. Our apparel products are sold through select company-owned FOSSIL retail stores and through our website and catalogs. Our products are also sold through retail locations in major airports in the U.S. and on cruise ships.

        Our foreign operations include a presence in Africa, Asia, Australia, Europe, Central and South America, Canada, the Caribbean, Mexico and the Middle East. We maintain sales offices in Australia, Austria, Canada, China, Denmark, France, Germany, Hong Kong, India, Italy, Japan, Korea, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, Taiwan and the United Kingdom. Our European headquarters is located in Basel, Switzerland. Internationally, our

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products are sold to department stores and specialty retail stores in over 100 countries worldwide through 23 company-owned foreign sales subsidiaries, through a network of 59 independent distributors, through company-owned retail stores and websites and licensed or franchised authorized FOSSIL retail stores and kiosks in certain international markets. Foreign distributors generally purchase products from us at uniform prices established by us for all international sales and resell them to department stores and specialty retail stores. We generally receive payment from our foreign distributors in U.S. currency. We generally do not have long-term contracts with any of our retail customers. All transactions between us and our retail customers are conducted on the basis of purchase orders, which generally require payment of amounts due to us on a net 30 day basis for most of our U.S. based customers and up to 120 days for certain international customers. No customer accounted for 10% or more of our net sales in fiscal years 2009, 2008 or 2007.

        U.S. wholesale sales.    For fiscal years 2009, 2008 and 2007, U.S. wholesale sales accounted for approximately 30.4%, 29.9% and 32.2% of our net sales, respectively. In addition, in the same fiscal year periods, the aggregate sales to our 10 largest customers in the U.S. channel represented approximately 22.0%, 21.8% and 23.6% of total net sales, respectively.

        International wholesale sales.    During the fiscal years 2009, 2008 and 2007, international wholesale sales, including sales to third-party distributors, accounted for approximately 45.3%, 50.6% and 50.0% of net sales, respectively.

        Company-owned stores.    Our various retail store formats focus on creating emotional connections with our customer through an intense branding experience and personalized customer service. We strive to provide an inviting and welcoming environment for our customers that enhances our brand image and seeks brand loyalty by continually delivering innovative vintage-inspired products that meet our customers' tastes.

Accessory Stores

        In 1996, we commenced operations of full price FOSSIL accessory retail stores ("Accessory Stores") in the U.S. in order to broaden the recognition of the FOSSIL brand name. Accessory Stores carry a full assortment of FOSSIL watches and other accessories that are generally sold at the suggested retail price. We believe this store concept presents a key growth strategy for us on a worldwide basis. As of January 2, 2010, 126 of our 218 Accessory Stores were located outside of the U.S., mainly in Europe and Asia. During fiscal 2010, we believe approximately 31 to 36 of our planned Accessory Store openings will be in locations outside of the U.S. At the end of fiscal 2009, the average size of our Accessory Stores was 1,359 square feet, but each store can vary in size based on its geographic location. For example, our international-based stores are generally smaller in square footage than our U.S.-based stores due to smaller retail store configurations available in the market. The table below sets forth information about our Accessory Stores for the last five fiscal years:

Fiscal Year	Open At Beginning of Period		Opened During Period		Closed During Period		Open at End of Period		Total Gross Square Footage (in thousands)		Percentage Increase in Square Footage			Average Gross Square Footage Per Retail Store
2005		49		10		—		59		94.8		14.6	%		1,606
2006		59		18		4		73		107.6		13.5	%		1,473
2007		73		42		2		113		153.6		42.8	%		1,359
2008		113		79		1		191		258.6		68.4	%		1,354
2009		191		29		2		218		296.2		14.5	%		1,359

        Our current U.S. Accessory Stores operating model assumes a retail store size of approximately 1,200 to 1,600 square feet. Our targeted net investment to open a U.S. Accessory Store is approximately $451,000 which includes approximately $371,000 of build-out costs, net of landlord

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contributions, but including furniture and fixtures and $80,000 of initial inventory. Our current international Accessory Stores operating model assumes a retail store size of approximately 600 to 1,100 square feet. Our targeted net investment to open an international Accessory Store is approximately $479,000 which includes approximately $371,000 of build-out costs, net of landlord contributions, but including furniture and fixtures and $108,000 of initial inventory. Our targeted pre-tax margin, on a four-wall basis, for the first year is 15%. Our historical sales per square foot approximate $500 in our U.S. Accessory Stores and $729 in our European Accessory Stores.

Outlet Stores

        In 1995, we commenced operations of FOSSIL outlet stores at selected major outlet malls throughout the U.S. We opened our first FOSSIL outlet store outside the U.S. in 2005 and as of January 2, 2010 have 16 outlet stores outside of the U.S. These stores, which operate under the FOSSIL name, not only increase our brand awareness, but also enable us to liquidate excess inventory generally at significantly better prices than we would obtain through third party liquidators. We generally discount products in these stores from 25% to 75% off the suggested retail price.

        The table below sets forth information about our FOSSIL outlet stores during the last five fiscal years:

Fiscal Year	Open At Beginning of Period		Opened During Period		Closed During Period		Open at End of Period		Total Gross Square Footage (in thousands)		Percentage Increase in Square Footage			Average Gross Square Footage Per Retail Store
2005		60		13		1		72		193.4		17.2	%		2,686
2006		72		8		2		78		204.0		5.5	%		2,616
2007		78		4		2		80		206.2		1.0	%		2,577
2008		80		5		3		82		207.6		0.7	%		2,532
2009		82		12		4		90		212.5		2.4	%		2,361

Other Direct to Consumer

        In 2000, we began offering FOSSIL brand apparel through specially designed Company-owned apparel stores. As of January 2, 2010, we operated 33 FOSSIL apparel stores in leading malls and retail locations throughout the U.S. Our apparel stores carry the full apparel line along with an assortment of certain FOSSIL watch and accessory products and footwear. In 2004, we commenced operations of our first Modern Watch Co. retail store, in both full-price and outlet locations, through which we sell certain of our proprietary and licensed brand watches, as well as watches manufactured by other companies. In 2007, we acquired the Watch Station tradename from Sunglass Hut and subsequently rebranded all Modern Watch Co. stores. As of January 2, 2010, we operated eight Watch Station stores, seven located in the U.S., including two full-price stores, five outlets and one full-price store in Asia. As of January 2, 2010, we also operated 11 non-FOSSIL retail stores outside the U.S. under various names.

        During 2006, we entered into an agreement with the House of Fraser, a U.K.-based department store ("HOF"), which allows us to operate the watch department in certain HOF stores. Under this agreement, we own the inventory within the HOF store, provide the labor to operate the department and pay HOF a commission on the retail watch sales generated in the stores. As of January 2, 2010, we operated the watch department in 43 HOF stores, generating net sales of approximately $11 million during fiscal 2009. Although we include the net sales derived from the HOF stores in our direct to consumer segment, we do not include the number of locations associated with this arrangement in our retail store count.

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        Internet sales.    In November 1996, we established our first e-commerce website with the launch of www.fossil.com. In October 2007, we launched our first e-commerce site outside the U.S. in Germany. We now operate sites in the United Kingdom, Australia and Singapore as well. Each site features a full selection of geographically appropriate FOSSIL brand watches and sunglasses, and may also include leather goods, apparel and jewelry. Certain of our sites also provide customer service, company news and shareholder information. Our sites are continually updated to provide a fresh look and an easy-to-navigate interface that enhances the brand image, while allowing consumers a pleasing shopping experience or a preview of what they may find at their local store carrying the brand. Since its launch, the www.fossil.com website has been promoted consistently in support of online brand and direct sales goals. Online marketing efforts include: search/keyword marketing programs through major search partners including Google Affiliate Network, Yahoo! and MSN; online "storefront" relationships with websites such as America Online, Microsoft Network, Amazon and Yahoo!; regular e-mail communications sent using SilverPop to over one million registered consumers; product and promotional banners presented on affiliate sites through integration partners Commission Junction and Performics; and online brand initiatives in support of viral, sweepstakes and traditional brand initiatives. In support of certain seasonal initiatives, we have partnered with groups such as Tacoda, Bravo Network / Project Runway and Expedia. We have leveraged our e-commerce infrastructure by opening additional sites to support our licensed and owned brands, including www.michele.com, www.zodiacwatches.com, www.emporioarmaniwatches.com, and www.dieseltimeframes.com, as well as an international branding site located at http://global.fossil.com. We also leverage our e-commerce infrastructure to support a business-to-business site that allows U.S. corporate partners to access FOSSIL product assortments and catalogs.

        During fiscal years 2009, 2008 and 2007, our direct to consumer segment, which includes sales from Company-owned stores, catalogs and e-commerce businesses, accounted for approximately 24.3%, 19.5% and 17.8% of net sales, respectively.

        Catalogs.    In fiscal 2009, we distributed approximately 10.0 million FOSSIL catalogs, an increase from 7.2 million in fiscal 2008. We typically distribute several versions of our catalog each year with a majority being distributed during our fourth quarter. We distribute our catalogs to a database of customers collected principally through our website, third-party mailing list and our company-owned stores in the U.S. We view our catalogs as a key communication and advertising tool for the brand, further enhancing and focusing the brand image, as well as, promoting sales across all of our distribution channels.

Facilitating our wholesale distribution

        We utilize an in-house sales staff and, to a lesser extent, independent sales representatives to promote the sale of our products to retail accounts. Our in-house sales personnel receive a salary and, in some cases, a commission based on a percentage of sales attributable to specified accounts. Independent sales representatives generally do not sell competing product lines and are under contracts with us that are generally terminable by either party upon 30 days prior notice. These independent contractors are compensated on a commission basis.

        We have developed an approach to managing the retail sales process that involves monitoring our customers' sales and inventories by product category and style, primarily through electronic data interchange. We review weekly selling and inventory information to ensure our products are properly stocked and replenished on a timely basis. We also assist many of our customers in the conception, development and implementation of their marketing programs. We place significant emphasis on the establishment of cooperative advertising programs with our major retail customers. We believe that management of the retail sales process has resulted in close relationships with our principal customers, often allowing us to influence the mix, quantity and timing of their purchasing decisions.

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        We believe that our sales approach has historically accounted for high retail turnover in our products, which can result in attractive profit margins for our retail customers. We believe that the resulting profit margins for our wholesale customers encourage them to devote greater selling space to our products within their stores. We are also able to work closely with buyers in determining the mix of products a store should carry. In addition, we believe that the buyers' familiarity with our sales approach has facilitated, and should continue to facilitate, the introduction of new products through our existing distribution network.

        We permit the return of damaged or defective products. In addition, although we have no obligation to do so, we accept limited amounts of product returns from our customers in other instances. Accordingly, we provide allowances for the estimated amount of product returns. The allowances for product returns as of the end of fiscal years 2009, 2008 and 2007 were $40.0 million, $42.2 million and $41.9 million, respectively. We have not historically experienced returns in excess of our aggregate allowances.

Backlog

        It is the practice of a substantial number of our 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 we believe 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 represents orders that we believe, based on industry practice and prior experience, will be confirmed in the ordinary course of business. Our 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. At the end of fiscal year 2009, we had unfilled customer orders of approximately $82.4 million compared to $58.9 million and $81.0 million for fiscal years 2008 and 2007, respectively.

Manufacturing

        During 2009, approximately 55% of the watches we procured from the Far East were assembled through our two majority-owned entities. The remaining 45% of the watches we procured from the Far East were assembled by approximately 40 unrelated factories located primarily in Hong Kong and China, which includes almost all the production and assembly of our digital and mass market watches. Production of approximately 63% of the jewelry products we sell is sourced from one of our majority-owned entities. The remaining 37% is manufactured by approximately 20 factories located primarily in China. Although we have no ownership interest in these unrelated watch and jewelry factories, Fossil East maintains oversight and control of the supply chain from design through final delivery of the finished product as it does with the related factories. We believe substantial ownership of the assembly factories that produce a majority of our fashion watches and jewelry is critical to our operating model, as we believe this allows us to keep our designs proprietary, control the size of our production runs and vertically manage our supply chain. All of our handbag, small leather goods, belts, sunglasses, footwear and apparel product production is outsourced. We believe that our policy of outsourcing the production of these product categories allows us flexibility in selecting our suppliers while avoiding significant capital expenditures, build-ups of work-in-process inventory and the costs of managing a substantial production work force. Our Swiss-made watches are assembled primarily in three third party factories within Switzerland.

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        The principal components used in the assembly of our watches are cases, crystals, dials, movements, hands, bracelets and straps. These components are obtained from a large number of suppliers located principally in China, Hong Kong, India, Italy, Japan, Korea, Switzerland, Taiwan and Thailand. The majority of the movements used in the assembly of our watches are supplied by five principal vendors. During fiscal 2009, one case and bracelet vendor was responsible for approximately 30% of our production of these components. No other single component supplier accounted for more than 10% of component supplies in fiscal year 2009. The principal materials used in the manufacture of our jewelry products are sterling silver, stainless steel, semi-precious stones, and natural and synthetic materials. These components are primarily obtained from the same factories that we use for our watches. Except for the one case and bracelet vendor, we do not believe that our business is materially dependent on any single component supplier.

        We believe that we have established and maintain close relationships with a number of component manufacturers and assembly operations primarily located in Hong Kong, China and Switzerland. In 2009, two separate watch assembly factories, that are majority-owned by us, each accounted for 10% or more of our watch production. The loss of any one of these factories could temporarily disrupt shipments of certain of our watches. However, as a result of the number of component manufacturers and assembly operations from which we purchase our components and finished watches, we believe that we could arrange for the assembly of watches from alternative sources within approximately 90 days on terms that are not materially different from those currently available to us. Accordingly, we do not believe that the loss of any single assembly operation would have a material adverse effect on our business. However, our future success will generally depend upon our ability to maintain close relationships with, or ownership of, our current watch assembly factories and suppliers and to develop long-term relationships with other suppliers that satisfy our requirements for price and production flexibility.

        Our products are assembled or 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 four months in the case of watches, leather goods, jewelry, eyewear and apparel. We believe that the close relationships, including ownership interests in some cases, we have established and maintain with our principal assembly or manufacturing sources constitute a significant competitive advantage and allow us to quickly and efficiently introduce innovative product designs and alter production in response to the retail performance of our products.

Quality control

        Our quality control program attempts to ensure that our products meet the standards established by our product development staff. Samples of products are inspected by us prior to the placement of orders with factories to ensure compliance with our specifications, and we typically inspect prototypes of each product before production runs commence. The operations of our factories located in Hong Kong and China are monitored on a periodic basis by Fossil East, and the operations of our factories located in Switzerland are monitored on a periodic basis by Montres Antima SA, one of our foreign operating subsidiaries. Substantially all of our watches, jewelry and certain of our other accessories are inspected by personnel of Fossil East or by the factory prior to shipment to us. Final inspections, on a sampling basis, occur when the products are received in our distribution centers. We believe that our policy of inspecting our products at the assembly/manufacturing facility, upon receipt at our distribution facilities and prior to shipment to our customers is important to maintain the quality, consistency and reputation of our products.

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Distribution

        Upon completion of assembly/manufacturing, the majority of our products are shipped to one of our warehousing and distribution centers in Texas or Germany, from which they are shipped to regional subsidiary warehouses or directly to customers in selected markets. Our centralized warehouse and distribution facilities in Texas and Germany allow us to maximize our inventory management and distribution capabilities and more readily meet the varying distribution requirements placed on us by our customers at a lower cost. Our facilities in Texas and Germany are equipped with automated material handling equipment operated by world-class software from SAP AG and Manhattan Associates. The automated equipment and operating systems, in conjunction with the continual manual sampling of our outgoing orders prior to shipment, are important in maintaining the quality, accuracy, speed and reputation of our products and distribution service.

        Our warehouse and distribution facilities in Texas operate in a special purpose sub-zone established by the U.S. Department of Commerce Foreign Trade Zone Board. As a result of the establishment of the sub-zone, the following economic and operational advantages are available to us: (i) we may not have to pay duty on imported merchandise until it leaves the sub-zone and enters the U.S. market, (ii) we may not have to pay any U.S. duty on merchandise if the imported merchandise is subsequently shipped to locations outside the U.S. and (iii) we do not have to pay local property tax on inventory located within the sub-zone.

Information technology systems

        General.    We believe that automation, reliable and scalable systems, accurate reporting and rapid flow of communication is essential to maintain our competitive position and support our key operating and financial goals. Therefore, we continue to invest in computer hardware, system application and telecommunication networks. Our information technology systems consist of a wide spectrum of financial, distribution, human resources, merchandising, planning, point of sale, supply chain and other solutions. Where possible and cost effective, we leverage our various systems on a global basis, which enhances the accuracy, timeliness and accessibility of the relevant data.

        Inventory control.    We maintain inventory control systems at our facilities that enable us to track each product from the time it is shipped from the factory through shipment to our customers. To facilitate this tracking, a significant number of products sold by us are pre-ticketed and bar coded prior to shipment to our wholesale customers. Our inventory control systems report shipping, sales and individual stock, keeping unit level inventory information. We manage the retail sales process by monitoring customer sales and inventory levels of our products by product category and style, primarily through electronic data interchange. We believe that our distribution capabilities enable us to reduce inventory risk and increase flexibility in responding to the delivery requirements of our customers. Our management believes that our electronic data interchange efforts will continue to grow in the future as customers focus further on increasing operating efficiencies. In addition, we maintain systems that are designed to track inventory movement through our company-owned stores. Detailed sales transaction records are accumulated on each store's point-of-sale system and polled by us.

        Enterprise resource planning.    We intend to continue implementing our enterprise resource planning system from SAP AG throughout certain of our subsidiary operations located in Europe. This software is installed on a single site platform located in our U.S. headquarters facility. The software currently supports the human resources, sales and distribution, inventory planning, retail merchandising and operational and financial reporting systems of our U.S. businesses and certain subsidiary operations in Europe. The financial, sales and distribution, inventory planning and reporting system implementations were principally completed in the U.S., Germany, France and Italy during 2003, 2004, 2005 and 2008, respectively. The human resources and retail systems were implemented for our operations in the U.S. during 2005 and 2007, respectively. We do not believe our subsidiary sales

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operations in the Far East are of a size to effectively benefit from our SAP software application. However, in 2009 we implemented our SAP financial, planning and warehouse management modules in Hong Kong to provide efficiencies to further support our supply chain associated with our local country operations, including our owned retail stores throughout Asia. We have implemented Navision as our standard system throughout most of our Far East distribution and manufacturing subsidiary operations. The Navision system supports many of the same functions as our SAP system on a local country level.

Warranty and repair

        Our FOSSIL watch products sold in the U.S. are covered by a limited warranty against defects in materials or workmanship for a period of 11 years from the date of purchase. RELIC watch products sold in the U.S. are covered by a comparable 12 year warranty while other watches sold in the U.S. are covered by a comparable two year limited warranty. Generally, all of our watch products sold in Canada, Europe and Asia are covered by a comparable two year limited warranty. The majority of our defective watch products returned by consumers are processed at our centralized repair facilities in Texas and France. We also maintain repair facilities at a majority of our subsidiaries, as well as, through our network of distributors to handle repairs which are minor in nature or are not convenient to one of our centralized repair facilities. In most cases, defective products under warranty are repaired by our personnel or distributors. We attempt to retain adequate levels of component parts to facilitate after-sales service of our watches, even after the discontinuance of specific styles. We have a component parts system that tracks the inventory of our various component replacement parts that can be utilized by our repair facilities for identifying stock levels and availability for procurement. Watch and non-watch products under warranty that cannot be repaired in a cost-effective manner are replaced by us at no cost to the customer.

Governmental regulations

        Imports and import restrictions.    Most of our products are assembled or manufactured overseas. As a result, the U.S. and countries in which our products are sourced or sold may from time to time modify existing or impose new quotas, duties (including antidumping or countervailing duties), tariffs or other restrictions in a manner that adversely affects us. For example, our products imported to the U.S. are subject to U.S. customs duties and, in the ordinary course of our business, we may from time to time be subject to claims by the U.S. Customs Service for duties and other charges. Factors that may influence the modification or imposition of these restrictions include the determination by the U.S. Trade Representative that a country has denied adequate intellectual property rights or fair and equitable market access to U.S. firms that rely on intellectual property, trade disputes between the U.S. 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 U.S. government. We cannot predict the effect, if any, these events would have on our operations, especially in light of the concentration of our assembly and manufacturing operations in Hong Kong and China.

        General.    Our sunglass products are subject to regulation by the U.S. Food and Drug Administration as medical devices, and certain of our dials and watch straps are subject to regulation by the U.S. Fish and Wildlife Service. In addition, we are subject to various state and federal regulations generally applicable to similar businesses.

Intellectual property

        Trademarks.    We use the FOSSIL, RELIC, MICHELE and ZODIAC trademarks, as well as, other trademarks on certain of our watches, leather goods, apparel and other fashion accessories in the U.S. and in a significant number of foreign countries. We have taken steps to establish or provide additional protection for our trademarks by registering or applying to register our trademarks for relevant classes of products in each country where our products are sold in addition to certain foreign countries where

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it is our intent to market our products in the future. Each trademark is renewable indefinitely, so long as we continue to use the mark in the applicable jurisdiction and make the appropriate filings when required. We aggressively protect our trademarks and trade dress and pursue infringement both domestically and internationally. We also pursue counterfeiters both domestically and internationally through leads generated internally, as well as, through business partners worldwide. In certain cases, we track serial numbers of our products or, we etch microscopic identification numbers on certain of our watches in order to identify potential customers who might be diverting product into a parallel market.

        Patents.    We continue to explore innovations in the design and assembly of our watch products and are involved in the development of technology enhanced watches. As a result, we have been granted, and have pending, various U.S. and international design and utility patents related to certain of our watch designs and features. We also have been granted, and have pending, various U.S. patents related to certain of our other products and technologies. The expiration date of our two material U.S. patents is April 12, 2019.

        License agreements.    A portion of our growth in sales and net income is, and is expected to continue to be, derived from the sales of products produced under licensing agreements with third parties. Under these license agreements, we generally have the right to produce, market and distribute certain products utilizing the brand names of other companies. Our major license agreements have various expiration dates between 2009 and 2014. Our license for DKNY watches was scheduled to expire at the end of 2009. However, we have an agreement with DKNY to continue our line of DKNY watches while we negotiate a new long-term contract.

Seasonality

        Although the majority of our products are not seasonal, our business is seasonal by nature. A significant portion of our net sales and operating income are generated during the third and fourth quarter of our fiscal year, which includes the "back to school" and Christmas season. Additionally, as our direct to consumer sales continue to increase as a percentage of our sales mix, it will benefit our sales and profitability in the fourth quarter, generally at the expense of the first and second quarter when it is more difficult to leverage direct to consumer segment expenses against direct to consumer segment sales. The amount of net sales and operating income generated during the fourth quarter also depends upon the anticipated level of retail sales during the Christmas season, as well as, general economic conditions and other factors beyond our control. In addition, the amount of net sales and operating income generated during the first quarter depends in part upon the actual level of retail sales during the Christmas season. Lower levels of inventory held by our wholesale customers at the end of the Christmas season may result in higher levels of restocking orders placed by them during the first quarter.

Competition

        The businesses in which we compete are highly competitive and fragmented. We believe that the current market for watches can be divided into four segments, ranging from lower price point watches that are typically distributed through mass market channels to luxury watches at higher price points that are typically distributed through fine watch departments of upscale department stores or upscale specialty watch and fine jewelry stores. Our watch business generally competes with a number of established manufacturers, importers and distributors in many of these segments, including, Armitron, Citizen, Gucci, Guess?, Kenneth Cole, LVMH Group, Movado, Raymond Weil, Seiko, Swatch, Swiss Army, TAG Heuer and Timex. In addition, our leather goods, sunglasses, jewelry and apparel businesses compete with a large number of established companies that have significantly greater experience than us in designing, developing, marketing and distributing such products. In all of our businesses, we compete with numerous manufacturers, importers and distributors who may have significantly greater financial, distribution, advertising and marketing resources than us. Our

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competitors include distributors that import watches, accessories and apparel from abroad, U.S. companies that have established foreign manufacturing relationships and companies that produce accessories and apparel domestically.

        Although the level and nature of competition varies among our product categories and geographic regions, we believe that we compete on the basis of style, price, value, quality, brand name, advertising, marketing, distribution and customer service. We believe that our 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 our ability to compete. We also believe that our distinctive business model of owning the distribution in key markets and offering a globally recognized portfolio of proprietary and licensed brands allows for many competitive advantages over smaller, regional or local competitors. This "ownership of the market" allows us to bypass the local distributor's cost structure resulting in more competitively priced products while also generating higher product and operating margins.

        We consider 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 our experience that better department stores and other major retailers have been increasingly unwilling to source products from suppliers who are not well capitalized or do not have a demonstrated ability to deliver quality merchandise in a timely manner. There can be no assurance, however, that significant new competitors will not emerge in the future.

Employees

        As of the end of fiscal year 2009, we employed approximately 7,900 persons, including approximately 3,900 persons employed by our foreign operating subsidiaries.

        None of our domestic or foreign-based employees are represented by a trade union, however certain European-based employees are represented by work councils, consisting of certain of the current employees who negotiate with management on behalf of all the employees. We have never experienced a work stoppage and consider our working relationship with our employees and work councils to be good.

Item 1A.    Risk Factors

        The statements contained and incorporated by reference in this Annual Report on Form 10-K that are not historical facts, including, but not limited to, statements regarding our expected financial position, results of operations, business and financing plans found in 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 words "may", "believes", "expects", "plans", "intends", "anticipates" and similar expressions identify forward-looking statements. The actual results of the future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements.

        Our actual results may differ materially due to the risks and uncertainties discussed in this Annual Report on Form 10-K, including those discussed below. Accordingly, readers of this Annual Report on Form 10-K should consider these factors in evaluating, and are cautioned not to place undue reliance on, the forward-looking statements contained herein. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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Risk Factors Relating to Our Business

         The deterioration in the global economic environment, and resulting declines in consumer confidence and spending, could have an adverse effect on our operating results.

        The global economic environment has been challenging during the past fifteen months. Declining real estate values, reduced lending by banks, solvency concerns of major financial institutions, increases in unemployment levels and significant volatility in the global financial markets have negatively impacted the level of consumer spending for discretionary items. This has affected our business as it is dependent on consumer demand for our products. In many countries in which we distribute our products, we are experiencing a significant slowdown in customer traffic and a highly promotional environment. If the global macroeconomic environment continues to be weak or deteriorates further, there will likely be a negative effect on our revenues and earnings across most of our segments for fiscal year 2010 and potentially continuing into fiscal year 2011.

         The effects of economic cycles, terrorism, acts of war and retail industry conditions may adversely affect our business.

        Our business is subject to economic cycles and retail industry conditions. Purchases of discretionary fashion accessories, such as our watches, handbags, sunglasses and other products, tend to decline during recessionary periods when disposable income is low and consumers are hesitant to use available credit. In addition, acts of terrorism, acts of war and military action both in the U.S. and abroad can have a significant effect on economic conditions and may negatively affect our ability to procure our products from manufacturers for sale to our customers. Any significant declines in general economic conditions, public safety concerns or uncertainties regarding future economic prospects that affect consumer spending habits could have a material adverse effect on consumer purchases of our products.

         Our success depends upon our ability to anticipate and respond to changing fashion trends.

        Our success depends upon our ability to anticipate and respond to changing fashion trends and consumer preferences in a timely manner. The purchasing decisions of consumers are highly subjective and can be influenced by many factors, such as brand image, marketing programs and product design. Our success depends, in part, on our ability to anticipate, gauge and respond to these changing consumer preferences in a timely manner while preserving the authenticity and the quality of our brands. Although we attempt to stay abreast of emerging lifestyle and fashion trends affecting accessories and apparel, any failure by us to identify and respond to such trends could adversely affect consumer acceptance of our existing brand names and product lines, which in turn could adversely affect sales of our products. If we misjudge the market for our products, we may be faced with a significant amount of unsold finished goods inventory, which could adversely affect our results of operations.

         The loss of any of our license agreements, pursuant to which a number of our products are produced, may result in the loss of significant revenues and may adversely affect our business.

        A significant portion of our growth in sales and net income is, and is expected to continue to be, derived from the sales of products produced under license agreements with third parties. Under these license agreements, we generally have the right to produce, market and distribute certain products utilizing the brand names of other companies. We sell products under certain licensed brands, including, but not limited to, ADIDAS, EMPORIO ARMANI, BURBERRY, DIESEL, DKNY, MARC BY MARC JACOBS and MICHAEL Michael Kors. Sales of our licensed products amounted to 33.7% of our net sales for fiscal year 2009, with certain individual licensed brands accounting for a significant portion of our revenues. Our material license agreements have various expiration dates between 2009 and 2014. In addition, certain license agreements may require us to make minimum royalty payments,

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subject us to restrictive covenants or require us to comply with certain other obligations and may be terminated by the licensor if these or other conditions are not met or upon certain events. We may not be able to continue to meet our obligations or fulfill the conditions under these agreements in the future. In addition, we may be unable to renew our existing license agreements beyond the current term or obtain new license agreements to replace any lost license agreements on similar economic terms or at all. The failure by us to maintain or renew one or more of our existing material license agreements could result in a significant decrease in our sales and have a material adverse affect on our results of operations.

         Our success depends upon our ability to continue to develop innovative products.

        Our success also depends upon our ability to continue to develop innovative products in the respective markets in which we compete. If we are unable to successfully introduce new products, or if our competitors introduce superior products, customers may purchase increasing amounts of products from our competitors, which could adversely affect our sales and results of operations.

         Reduced lending by banks could have a negative impact on our customers, suppliers and business partners, which in turn could materially and adversely affect our results of operations and liquidity.

        The reduction in lending by banks is having a significant negative impact on businesses around the world. Although we believe that our cash provided by operations and available borrowing capacity under our U.S. Credit Facility will provide us with sufficient liquidity for the foreseeable future; the impact of reduced lending on our customers, business partners and suppliers cannot be predicted and may be quite severe. The inability of our manufacturers to ship our products could impair our ability to meet delivery date requirements. A disruption in the ability of our significant customers, distributors or licensees to access liquidity could cause serious disruptions or an overall deterioration of their businesses, which could lead to a significant reduction in their future orders of our products and the inability or failure on their part to meet their payment obligations to us, any of which could have a material adverse effect on our financial condition and results of operations and liquidity.

         Seasonality of our business may adversely affect our net sales and operating income.

        Our quarterly results of operations have fluctuated in the past and may continue to fluctuate as a result of a number of factors, including seasonal cycles, the timing of new product introductions, the timing of orders by our customers and the mix of product sales demand. Our business is seasonal by nature. A significant portion of our net sales and operating income are generated during the third and fourth quarters of our fiscal year, which includes the "back to school" and Christmas seasons. The amount of net sales and operating income generated during the fourth quarter depends upon the anticipated level of retail sales during the Christmas season, as well as, general economic conditions and other factors beyond our control. In addition, the amount of net sales and operating income generated during the first quarter depends in part upon the actual level of retail sales during the Christmas season. The seasonality of our business may adversely affect our net sales and operating income during the first and fourth quarter of our fiscal year.

         Our plan to significantly increase our store base may not be successful, and implementation of this plan may divert our operational, managerial and administrative resources, which could impact our competitive position.

        Each year, we have historically expanded our store base. During fiscal 2010, we intend to further expand our store base by opening approximately 50 new stores globally. Thereafter, in the near term, we plan to continue to expand our store base annually. The success of our business depends, in part, on our ability to open new stores and renew our existing store leases on terms that meet our financial

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targets. Our ability to open new stores on schedule or at all, to renew existing store leases on favorable terms or to operate them on a profitable basis will depend on various factors, including our ability to:

•

identify suitable markets for new stores and available store locations;

•

negotiate acceptable lease terms for new locations or renewal terms for existing locations;

•

manage and expand our infrastructure to accommodate growth;

•

hire and train qualified sales associates;

•

develop new merchandise and manage inventory effectively to meet the needs of new and existing stores on a timely basis;

•

foster current relationships and develop new relationships with vendors that are capable of supplying a greater volume of merchandise; and

•

avoid construction delays and cost overruns in connection with the build-out of new stores.

        Our plans to expand our store base may not be successful and the implementation of these plans may not result in an increase in our net sales even though they increase our costs. Additionally, implementing our plans to expand our store base will place increased demands on our operational, managerial and administrative resources. The increased demands of operating additional stores could cause us to operate less effectively, which could cause the performance of our existing stores and our wholesale operations to suffer materially. Any of these outcomes of our attempted expansion of our store base could have a material adverse effect on the amount of net sales we generate and on our financial condition and results of operations.

         We have key facilities in the U.S. and overseas, the loss or shut down of any of which could harm our business.

        Our administrative and distribution operations in the U.S. are conducted primarily from five separate facilities located in the Dallas, Texas area. Our operations internationally are conducted from various administrative, distribution and assembly facilities outside of the U.S., particularly in China, Germany, Hong Kong and Switzerland. The complete or temporary loss of use of all or part of these facilities could have a material adverse effect on our business.

        Our warehouse and distribution facilities in Dallas and Richardson, Texas are operated in a special purpose sub-zone established by the U.S. Department of Commerce Foreign Trade Zone Board. Although the sub-zone allows us certain tax advantages, the sub-zone is highly regulated by the U.S. Customs Service. This level of regulation may cause disruptions or delays in the distribution of our products out of these facilities. Under some circumstances, the U.S. Customs Service has the right to shut down the entire sub-zone and, therefore, our entire warehouse and distribution facilities. During the time that the sub-zone is shut down, we may be unable to adequately meet the supply requests of our customers and our company-owned retail stores, which could have an adverse effect on our sales, relationships with our customers, and results of operations, especially if the shut down were to occur during our third or fourth quarter.

         Our ability to grow our sales is dependent upon the implementation of our growth strategy, which we may not be able to achieve.

        Since our public offering in 1993, we have experienced substantial growth in net sales. Our ability to continue this growth is dependent on the successful implementation of our business strategy. This includes diversification of our product offerings, expansion of our company-owned accessory locations and possibly strategic acquisitions. If we are not successful in the expansion of our product offerings or our new products are not profitable or do not generate sales comparable to those of our existing

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businesses, our results of operations could be negatively impacted. Another element of our business strategy is to place increased emphasis on growth in selected international markets. If our brand names and products do not achieve a high degree of consumer acceptance in these markets, our net sales could be adversely affected.

        We also operate FOSSIL brand stores and other non-FOSSIL branded stores and have historically expanded our company-owned accessory and outlet locations to further strengthen our brand image. As of January 2, 2010, we operated 354 stores worldwide. The costs associated with leasehold improvements to current stores and the costs associated with opening new stores could materially increase our costs of operation.

         We have recently expanded and intend to further expand the scope of our product offerings and new products introduced by us may not achieve consumer acceptance comparable to that of our existing product lines.

        We have recently expanded and intend to further expand the scope of our product offerings. As is typical with new products, market acceptance of new designs and products is subject to uncertainty. In addition, we generally make decisions regarding product designs several months in advance of the time when consumer acceptance can be measured. If trends shift away from our products, or if we misjudge the market for our product lines, we may be faced with significant amounts of unsold inventory or other conditions which could have a material adverse effect on our financial condition and results of operations.

        The failure of new product designs or new product lines to gain market acceptance could also adversely affect our business and the image of our brands. Achieving market acceptance for new products may also require substantial marketing efforts and expenditures to generate consumer demand. These requirements could strain our management, financial and operational resources. If we do not continue to develop innovative products that provide better design and performance attributes than the products of our competitors and that are accepted by consumers, or if our future product lines misjudge consumer demands, we may lose consumer loyalty, which could result in a decline in our sales and market share.

         Our business could be harmed if we fail to maintain proper inventory levels.

        We maintain an inventory of selected products that we anticipate will be in high demand. We may be unable to sell the products we have ordered in advance from manufacturers or that we have in our inventory. Inventory levels in excess of customer demand may result in inventory write-downs or the sale of excess inventory at prices below our standard levels. These events could significantly harm our operating results and impair the image of our brands. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply quality products in a timely manner, we may experience inventory shortages, which might result in unfilled orders, negatively impact customer relationships, diminish brand loyalty and result in lost revenues, any of which could harm our business.

         Our license agreements may require minimum royalty commitments regardless of the level of product sales under these agreements.

        With respect to our license agreements, we have in the past experienced, and could again in the future experience, instances where minimum royalty commitments under these agreements exceeded royalties payable based upon our sales of such licensed products. We incurred royalty expense of approximately $73.9 million, $74.9 million and $60.7 million in fiscal years 2009, 2008 and 2007, respectively. We also have agreements in effect at the end of fiscal year 2009 which expire on various dates from December 2010 through December 2014 that require us to pay royalties ranging from 3% to 20% of defined net sales.

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         Fluctuations in the price, availability and quality of raw materials could cause delays and increase costs.

        Fluctuations in the price, availability and quality of the raw materials used in our products could have a material adverse effect on our cost of sales or ability to meet our customers' demands. The price and availability of such raw materials may fluctuate significantly, depending on many factors, including natural resources, increased freight costs, increased labor costs, especially in China, and weather conditions. In the future, we may not be able to pass on, all or a portion of, such higher raw materials prices to our customers.

         We rely on third-party manufacturers and problems with, or loss of, our suppliers or raw materials could harm our business and results of operations.

        All of our apparel, footwear, sunglasses, handbags, small leather goods and belts, cold weather accessories and certain of our watch and jewelry products are produced by independent manufacturers. We do not have long-term contracts with these manufacturers. In addition, we face the risk that these third-party manufacturers, with whom we contract to produce our products, may not produce and deliver our products on a timely basis, or at all. As a result, we cannot be certain that these manufacturers will continue to manufacture products for us or that we will not experience operational difficulties with our manufacturers, such as reductions in the availability of production capacity, errors in complying with product specifications, insufficient quality control, shortages of raw materials, failures to meet production deadlines or increases in manufacturing costs. The failure of any manufacturer to perform to our expectations could result in supply shortages for certain products and harm our business.

         Access to suppliers that are not Fossil subsidiaries is not guaranteed because we do not maintain long-term contracts but instead rely on long-standing business relationships, which may not continue in the future.

        The majority of our watch products are currently assembled to our specifications by our majority owned entities in China with the remainder assembled by unrelated entities. Certain of our other products are currently manufactured to our specifications by independent manufacturers in international locations, including, but not limited to, China and Hong Kong and to a lesser extent Italy, Korea, Mexico, Switzerland and Taiwan. We have no long-term contracts with these independent manufacturing sources and compete with other companies for production facilities. All transactions between us and our independent manufacturing sources are conducted on the basis of purchase orders. Our future success will depend upon our ability to maintain close relationships with our current suppliers and to develop long-term relationships with other suppliers that satisfy our requirements for price, quality and production flexibility. Our ability to establish new manufacturing relationships involves numerous uncertainties, including those relating to payment terms, costs of manufacturing, adequacy of manufacturing capacity, quality control and timeliness of delivery. Any failure by us to maintain long-term relationships with our current suppliers or to develop relationships with other suppliers could have a material adverse effect on our ability to manufacture and distribute our products.

         If an independent manufacturer or license partner of ours fails to use acceptable labor practices, our business could suffer.

        We have no control over the ultimate actions or labor practices of our independent manufacturers. The violation of labor or other laws by one of our independent manufacturers, or by one of our license partners, or the divergence of an independent manufacturer's or license partner's labor practices from those generally accepted as ethical in the U.S. or other countries in which the violation or divergence occurred, could interrupt or otherwise disrupt the shipment of finished products to us or damage our reputation. Any of these, in turn, could have a material adverse effect on our financial condition and

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results of operations. As a result, should one of our independent manufacturers or licensors be found in violation of state or international labor laws, we could suffer financial or other unforeseen consequences.

         We extend unsecured credit to our customers and are therefore vulnerable to any financial difficulties they may face.

        We sell our merchandise primarily to department stores and specialty retail stores worldwide. We extend credit based on an evaluation of each customer's financial condition, usually without requiring collateral. Should any of our larger customers experience financial difficulties, we could curtail business with such customers or assume more credit risk relating to such customers' receivables. Our inability to collect on our trade accounts receivable relating to such customers could have a material adverse effect on the amount of sales revenue that we receive and our financial condition and results of operations.

         We do not maintain long-term contracts with our customers and are unable to control their purchasing decisions.

        We do not maintain long-term purchasing contracts with our customers and therefore have no contractual leverage over their purchasing decisions. A decision by a major department store or other significant customer to decrease the amount of merchandise purchased from us or to cease carrying our products could have a material adverse effect on our net sales and operating strategy.

         Our direct to consumer business segment operates in the highly competitive specialty retail, e-commerce and catalog industry and the size and resources of some of our competitors are substantially greater than ours, which may allow them to compete more effectively.

        We face intense competition in the specialty retail, e-commerce and catalog industry. We compete primarily with specialty retailers, department stores, catalog retailers and internet businesses that engage in the retail sale of watches, accessories and apparel. We believe that the principal basis upon which we compete is the quality and design of merchandise and the quality of customer service. We also believe that price is an important factor in our customers' decision-making processes. Many of our competitors are, and many of our potential competitors may be, larger and have greater financial, marketing and other resources than we have and therefore may be able to adapt to changes in customer requirements more quickly, devote greater resources to the marketing and sale of their products and generate greater national brand recognition than we can. This intense competition and greater size and resources of some of our competitors could have a material adverse effect on the amount of net sales we generate and on our results of operations.

         We could be negatively impacted if we fail to successfully integrate the businesses we acquire.

        As part of our growth strategy, we have made certain acquisitions, domestically and internationally, including acquisitions of FOSSIL stores previously operated under license agreements, acquisitions of certain watch brands and acquisitions of independent distributors of our products. The integration of these and future acquisitions may not be successful or generate sales increases. When we have acquired businesses, we have acquired businesses that we believe could enhance our business opportunities and our growth prospects. All acquisitions involve risks that could materially adversely affect our business, financial condition and operating results. These risks include:

•

distraction of management from our business operations;

•

loss of key personnel and other employees;

•

costs, delays, and inefficiencies associated with integrating acquired operations and personnel;

•

the impairment of acquired assets and goodwill; and

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•

acquiring the contingent and other liabilities of the businesses we acquire.

        In addition, acquired businesses may not provide us with increased business opportunities, or result in the growth that we anticipate. Furthermore, integrating acquired operations is a complex, time-consuming and expensive process. Combining acquired operations with us may result in lower overall operating margins, greater stock price volatility and quarterly earnings fluctuations. Cultural incompatibilities, career uncertainties and other factors associated with such acquisitions may also result in the loss of employees. Failure to acquire and successfully integrate complementary practices, or failure to achieve the business synergies or other anticipated benefits, could materially adversely affect our business, our financial condition and results of operations.

         Our competitors are established companies that may have greater experience than us in a number of crucial areas, including design and distribution.

        There is intense competition in each of the businesses in which we compete. In all of our businesses, we compete with numerous manufacturers, importers and distributors who may have significantly greater financial, distribution, advertising and marketing resources than us. Our competitors include distributors that import watches, accessories and apparel from abroad, U.S. companies that have established foreign manufacturing relationships and companies that produce accessories and apparel domestically. Our results of operations and market position may be adversely affected by our competitors and their competitive pressures in the watch, fashion accessory and apparel industries.

         Our implementation of a new enterprise resource planning system could disrupt our computer system and divert management time.

        In 2003, we began implementing an enterprise resource planning system from SAP AG, a German software company. We implemented the new enterprise resource planning system in our U.S., Germany, France and Italy locations in 2003, 2004, 2005 and 2008, respectively. We intend to replace our existing enterprise resource planning systems and other principal financial systems in certain other subsidiaries located in Europe with software systems provided by SAP AG. We have implemented Navision as our standard system throughout most of our Far East distribution subsidiary operations. During 2007, we implemented this system in our principal Hong Kong office and China assembly facilities. Our current expansion plans may place significant strain on our management, working capital, financial and management control systems and staff. The failure to maintain or upgrade financial and management control systems, to recruit additional staff or to respond effectively to difficulties encountered during expansion could have a material adverse effect on our ability to respond to trends in our target markets, market our products and meet our customers' requirements. The sustained disruption or failure of our systems due to force majeure or as part of an upgrade, conversion or other systems maintenance could result in the same adverse effects.

         Changes in the mix of product sales demand could negatively impact our gross profit margins.

        Our gross profit margins are impacted by our sales mix. Sales from our direct to consumer segment and international and licensed watch businesses generally provide gross margins in excess of our historical consolidated gross profit margin, while accessory products generally provide gross profit margins below our historical consolidated gross profit margin. If future sales from our direct to consumer segment and international and licensed watch businesses do not increase at a faster rate than our U.S. accessory business, our gross profit margins may grow at a slower pace, cease to grow, or decrease relative to our historical consolidated gross profit margin. We also distribute private label product to the mass market channel at gross profit margins significantly lower than our historical consolidated gross profit margin. Future growth in this channel at rates in excess of our consolidated net sales growth rate could negatively impact our consolidated gross profit margins.

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         Our industry is subject to pricing pressures that may adversely impact our financial performance.

        We assemble or source many of our products offshore because they generally cost less to make overseas, due primarily to lower labor costs. Many of our competitors also source their product requirements offshore to achieve lower costs, possibly in locations with lower costs than our offshore operations, and those competitors may use these cost savings to reduce prices. To remain competitive, we must adjust our prices from time to time in response to these industry-wide pricing pressures. Our financial performance may be negatively affected by these pricing pressures if we are forced to reduce our prices and we cannot reduce our production costs or our production costs increase and we cannot increase our prices.

         The loss of our intellectual property rights may harm our business.

        Our trademarks, patents and other intellectual property rights are important to our success and competitive position. We are devoted to the establishment and protection of our trademarks, patents and other intellectual property rights in those countries where we believe it is important to our ability to sell our products. However, we cannot be certain that the actions we have taken will result in enforceable rights, will be adequate to protect our products in every country where we may want to sell our products, will be adequate to prevent imitation of our products by others or will be adequate to prevent others from seeking to prevent sales of our products as a violation of the trademarks, patents or other intellectual property rights of others. Additionally, we rely on the patent, trademark and other intellectual property laws of the U.S. and other countries to protect our proprietary rights. Even if we are successful in obtaining appropriate trademark, patent and other intellectual property rights, we may be unable to prevent third parties from using our intellectual property without our authorization, particularly in those countries where the laws do not protect our proprietary rights as fully as in the U.S. Because we sell our products internationally and are dependent on foreign manufacturing in China, we are significantly dependent on foreign countries to protect our intellectual property rights. The use of our intellectual property or similar intellectual property by others could reduce or eliminate any competitive advantage we have developed, causing us to lose sales or otherwise harm our business. Further, if it became necessary for us to resort to litigation to protect our intellectual property rights, any proceedings could be burdensome and costly and we may not prevail. The failure to obtain or maintain trademark, patent or other intellectual property rights could materially harm our business.

         Our products may infringe the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products.

        We cannot be certain that our products do not and will not infringe upon the intellectual property rights of others. We may be subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of the intellectual property rights of third parties by us or our customers in connection with their use of our products. Any such claims, whether or not meritorious, could result in costly litigation and divert the efforts of our personnel. Moreover, should we be found liable for infringement, we may be required to enter into licensing agreements (if available on acceptable terms or at all) or to pay damages and cease making or selling certain products. Moreover, we may need to redesign or rename some of our products to avoid future infringement liability. Any of the foregoing could cause us to incur significant costs and prevent us from manufacturing or selling our products.

         An increase in product returns could negatively impact our operating results.

        We accept limited returns and will request that a customer return a product if we feel the customer has an excess of any style that we have identified as being a poor performer for that customer or geographic location. We continually monitor returns and maintain a provision for estimated returns based upon historical experience and any specific issues identified. While returns have historically been

33

within our expectations and the provisions established, future return rates may differ from those experienced in the past. In the event that our products are performing poorly in the retail market and/or we experience product damages or defects at a rate significantly higher than our historical rate, the resulting credit returns could have an adverse impact on the operating results for the period or periods in which such returns occur.

         There are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected.

        We are subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002. These provisions provide for the identification of material weaknesses in internal control over financial reporting, which is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal controls and disclosure controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, in our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may be inadequate because of changes in conditions, such as growth of the company or increased transaction volume, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

        In addition, discovery and disclosure of a material weakness, by definition, could have a material adverse impact on our financial statements. Such an occurrence could discourage certain customers or suppliers from doing business with us, cause downgrades in our debt ratings leading to higher borrowing costs and affect how our stock trades. This could in turn negatively affect our ability to access public debt or equity markets for capital.

Factors Relating to Our International Operations

         Factors affecting international commerce and our international operations may seriously harm our financial condition.

        We generate a significant portion of our revenues from outside of the U.S., and we anticipate that revenue from our international operations could account for an increasingly larger portion of our net sales in the future. Our international operations are directly related to, and dependent on, the volume of international trade and foreign market conditions. International commerce and our international operations are subject to many risks, some of which are discussed in more detail below, including:

•

recessions in foreign economies;

•

the adoption and expansion of trade restrictions;

•

limitations on repatriation of earnings;

34

•

difficulties in protecting our intellectual property or enforcing our intellectual property rights under the laws of other countries;

•

longer receivables collection periods and greater difficulty in collecting accounts receivable;

•

difficulties in managing foreign operations;

•

social, political and economic instability;

•

unexpected changes in regulatory requirements;

•

our ability to finance foreign operations;

•

tariffs and other trade barriers; and

•

U.S. government licensing requirements for exports.

        The occurrence or consequences of any of these risks may restrict our ability to operate in the affected regions and decrease the profitability of our international operations, which may seriously harm our financial condition.

         Foreign currency fluctuations could adversely impact our financial condition.

        We generally purchase our products in U.S. dollars. However, we source a significant amount of our products overseas and, as such, the cost of these products may be affected by changes in the value of the currencies, including the Australian Dollar, British Pound, Canadian Dollar, Chinese Yuan, Danish Krone, Euro, Hong Kong Dollar, Indian Rupee, Japanese Yen, Korean Won, Malaysian Ringgit, Mexican Peso, Norwegian Kroner, Singapore Dollar, Swedish Krona, Swiss Franc and Taiwanese Dollar. Due to our dependence on manufacturing operations in China, changes in the value of the Chinese Yuan may have a material impact on our supply channels and manufacturing costs, including component and assembly costs. Changes in the currency exchange rates may also affect the relative prices at which we and our foreign competitors sell products in the same market. Although we utilize forward contracts to mitigate foreign currency risks (mostly relating to the Euro and the British Pound, Japanese Yen and Australian Dollar), if we are unsuccessful in mitigating these risks, foreign currency fluctuations may have a material adverse impact on our financial condition and results of operations.

         We depend on independent distributors to sell our products in certain international markets.

        Our products are sold in certain international markets through independent distributors. If a distributor fails to meet annual sales goals, it may be difficult and costly to locate an acceptable substitute distributor. If a change in our distributors becomes necessary, we may experience increased costs, as well as a substantial disruption in, and a resulting loss of, sales and profits.

         Because we are dependent on foreign manufacturing we are vulnerable to changes in economic and social conditions in Asia and disruptions in international travel and shipping.

        Because a substantial portion of our watches and certain of our handbags, sunglasses and other products are assembled or manufactured in China, our success will depend to a significant extent upon future economic and social conditions existing in China. If the factories in China were disrupted for any reason, we would need to arrange for the manufacture and shipment of products by alternative sources. Because the establishment of new manufacturing relationships involves numerous uncertainties, including those relating to payment terms, costs of manufacturing, adequacy of manufacturing capacity, quality control and timeliness of delivery, we are unable to predict whether such new relationships would be on terms that we regard as satisfactory. Any significant disruption in our relationships with our manufacturing sources located in China would have a material adverse effect on our ability to

35

manufacture and distribute our products. Restrictions on travel to and from this and other regions, similar to those imposed during the outbreak of Severe Acute Respiratory Syndrome in 2003, commonly known as SARS, and any delays or cancellations of customer orders or the manufacture or shipment of our products on account of SARS or other syndromes could have a material adverse effect on our ability to meet customer deadlines and timely distribute our products in order to match consumer tastes.

         Risks associated with foreign government regulations and U.S. trade policy may affect our foreign operations and sourcing.

        Our businesses are subject to risks generally associated with doing business abroad, such as foreign governmental regulation in the countries in which our manufacturing sources are located, primarily China. While we have not experienced any material issues with foreign governmental regulations that would impact our arrangements with our foreign manufacturing sources, we believe that this issue is of particular concern with regard to China due to the less mature nature of the Chinese market economy and the historical involvement of the Chinese government in industry. If regulation were to render the conduct of business in a particular country undesirable or impracticable, or if our current foreign manufacturing sources were for any other reason to cease doing business with us, such a development could have a material adverse effect on our product sales and on our supply, manufacturing and distribution channels.

        Our business is also subject to the risks associated with U.S. and foreign legislation and regulations relating to imports, including quotas, duties, tariffs or taxes, and other charges or restrictions on imports, which could adversely affect our operations and our ability to import products at current or increased levels. We cannot predict whether additional U.S. and foreign customs quotas, duties (including antidumping or countervailing duties), tariffs, taxes or other charges or restrictions, requirements as to where raw materials must be purchased, additional workplace regulations or other restrictions on our imports will be imposed upon the importation of our products in the future or adversely modified, or what effect such actions would have on our costs of operations. For example, our products imported to the U.S. are subject to U.S. customs duties and, in the ordinary course of our business we may from time to time be subject to claims by the U.S. Customs Service for duties and other charges. Factors that may influence the modification or imposition of these restrictions include the determination by the U.S. Trade Representative that a country has denied adequate intellectual property rights or fair and equitable market access to U.S. firms that rely on intellectual property, trade disputes between the U.S. 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 U.S. government. Future quotas, duties or tariffs may have a material adverse effect on our business, financial condition and results of operations. Future trade agreements could also provide our competitors with an advantage over us, or increase our costs, either of which could have a material adverse effect on our business, financial condition and results of operations and financial condition. Substantially all of our import operations are subject to:

•

quotas imposed by bilateral textile agreements between the countries where our apparel-producing facilities are located and foreign countries; and

•

customs duties imposed by the governments where our apparel-producing facilities are located on imported products, including raw materials.

        Our apparel business is also subject to the effects of international trade agreements and regulations such as the North American Free Trade Agreement, and the activities and regulations of the World Trade Organization, referred to as the WTO. Generally, such trade agreements benefit our apparel business by reducing or eliminating the duties and/or quotas assessed on products manufactured in a particular country. However, trade agreements can also impose requirements that

36

negatively impact our apparel business, such as limiting the countries from which we can purchase raw materials and setting quotas on products that may be imported into the U.S. from a particular country. In addition, the WTO may commence a new round of trade negotiations that liberalize textile trade. This increased competition could have a material adverse effect on our business, results of operations and financial condition.

Risks Relating to Our Common Stock

         Many factors may cause our net sales, operating results and cash flows to fluctuate and possibly decline, which may result in declines in our stock price.

        Our net sales, operating results and cash flows may fluctuate significantly because of a number of factors, many of which are outside of our control. These factors may include, but may not be limited to, the following:

•

fluctuations in market demand for our products;

•

increased competition and pricing pressures;

•

our ability to anticipate changing customer demands and preferences;

•

our failure to efficiently manage our inventory levels;

•

our inability to manage and maintain our debt obligations;

•

seasonality in our business;

•

changes in our, and our competitors', business strategy or pricing;

•

the successful expansion of our owned retail stores;

•

the timing of certain general and administrative expenses;

•

completing acquisitions and the costs of integrating acquired operations;

•

international currency fluctuations, operating challenges and trade regulations;

•

acts of terrorism or acts of war; and

•

government regulation.

        One or more of the foregoing factors, as well as any other risk factors discussed in this Annual Report on Form 10-K, may cause our operating expenses to be unexpectedly high or result in a decrease in our net sales during any given period. If these or any other variables or unknowns were to cause a shortfall in revenues or earnings, an increase in our operating costs or otherwise cause a failure to meet public market expectations, our stock price may decline and our business could be adversely affected.

         Two principal stockholders own a significant amount of our outstanding common stock.

        Mr. Kosta Kartsotis, our CEO, and Mr. Tom Kartsotis, the Chairman of our Board of Directors, each own a substantial amount of our common stock. As a result, they are in a position to significantly influence the outcome of elections of our directors, the adoption, amendment or repeal of our bylaws and any other actions requiring the vote or consent of our stockholders, and to otherwise influence our affairs.

        Because the interests of Messrs. Kartsotis may not coincide with the interests of other shareholders, Messrs. Kartsotis may influence the Company to enter into transactions or agreements that other shareholders would not approve or make decisions with which other shareholders may disagree.

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         Our organizational documents contain anti-takeover provisions that could discourage a proposal for a takeover.

        Our certificate of incorporation and bylaws, as well as the General Corporation Law of the State of Delaware, contain provisions that may have the effect of discouraging a proposal for a takeover. These include a provision in our certificate of incorporation authorizing the issuance of "blank check" preferred stock; the division of our Board of Directors into three classes to be elected on a staggered basis, one class each year; provisions in our bylaws establishing advance notice procedures with respect to certain stockholder proposals; and a provision stating that directors may be removed by the stockholders only for cause. Our bylaws may be amended by a vote of 80% of the Board of Directors, subject to repeal by a vote of 80% of the stockholders. In addition, Delaware law limits the ability of a Delaware corporation to engage in certain business combinations with interested stockholders. Finally, Messrs. Kartsotis have the ability, by virtue of their stock ownership, to significantly influence a vote regarding a change in control.

         Future sales of our common stock in the public market could adversely affect our stock price.

        Mr. Kosta Kartsotis and Mr. Tom Kartsotis each own a substantial amount of our common stock. The shares beneficially owned by Mr. Kosta Kartsotis and Mr. Tom Kartsotis may be sold in the open market in the future, subject to any volume restrictions and other limitations under the Securities Act of 1933 and Rule 144 thereunder. We may also decide to file a registration statement enabling Messrs. Kartsotis to sell additional shares. Any sales by Messrs. Kartsotis of substantial amounts of our common stock in the open market, or the availability of their shares for sale, could adversely affect the price of our common stock. The market price of our common stock could decline as a result of sales of substantial amounts of our common stock in the public market, or the perception that those sales could occur. These sales or the possibility that they may occur also could make it more difficult for us to raise funds in any equity offering in the future at a time and price that we deem appropriate.

Item 1B.    Unresolved Staff Comments

        None.

Item 2.    Properties

        Company Facilities.    As of the end of fiscal year 2009, we owned or leased the following material facilities in connection with our U.S. and international operations:

Location	Use	Square Footage		Owned / Leased
Dallas, Texas	Office, warehouse and distribution		517,500	Owned
Eggstätt, Germany	Office, warehouse and distribution		230,000	Owned
Richardson, Texas	Corporate headquarters		190,000	Owned
Richardson, Texas	Warehouse and distribution		138,000	Owned
Richardson, Texas	Office		131,541	Owned
Basel, Switzerland	European headquarters		36,113	Owned
Garland, Texas	Warehouse		150,000	Lease expiring in 2014
China	Manufacturing		110,231	Lease expiring in 2013
Hong Kong	Office, warehouse and distribution		102,517	Lease expiring in 2010
New York, New York	General office and showroom		26,552	Lease expiring in 2016

        We also lease certain other manufacturing and/or office, warehouse and/or distribution facilities in Atlanta, Georgia; Chicago, Illinois; Los Angeles, California; Miami, Florida; Australia; Austria; Canada; China; Denmark; France; Hong Kong; India; Italy; Japan; Korea; Malaysia; Mexico; the Netherlands; New Zealand; Norway; Singapore; Sweden; Switzerland; Taiwan and the United Kingdom.

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        U.S.-based Apparel Retail Store Facilities.    As of the end of fiscal year 2009, we had 33 lease agreements for retail space at prime locations in the U.S. for the sale of our apparel line and certain of our accessory products. The leases, including renewal options, expire at various times from 2010 to 2020. The leases provide for minimum annual rentals and, in certain cases, for the payment of additional rent when sales exceed specified net sales amounts. We are also required to pay our pro rata share of the common area maintenance costs, including real estate taxes, insurance, maintenance expenses and utilities.

        U.S.-based Accessory Retail Store Facilities.    As of the end of fiscal year 2009, we had 95 lease agreements for retail space at prime locations in the U.S. for the sale of our full assortment of accessory products and the operation of certain of our Watch Station stores. The leases, including renewal options, expire at various times from 2010 to 2020. The leases provide for minimum annual rentals and, in certain cases, for the payment of additional rent when sales exceed specified net sales amounts. We are also required to pay our pro rata share of the common area maintenance costs, including real estate taxes, insurance, maintenance expenses and utilities.

        U.S.-based Outlet Store Facilities.    We lease retail space at selected outlet centers throughout the U.S. for the sale of our products. As of the end of fiscal year 2009, we had 74 such leases. The leases, including renewal options, expire at various times from 2010 to 2020 and provide for minimum annual rentals and for the payment of additional rent based on a percentage of sales above specified net sales amounts. We are also required to pay our pro rata share of the common area maintenance costs at each outlet center, including real estate taxes, insurance, maintenance expenses and utilities.

        International Store Facilities.    As of the end of fiscal year 2009, we had 138 lease agreements for retail stores located outside the U.S., including leases for 12 stores that are scheduled to open in fiscal year 2010. The leases, including renewal options, expire at various times from 2010 to 2022. The leases provide for minimum annual rentals and, in certain cases, for the payment of additional rent when sales exceed specified net sales amounts. We are also required to pay our pro rata share of the common area maintenance costs, including real estate taxes, insurance, maintenance expenses and utilities.

        International Outlet Store Facilities.    We lease retail space at selected outlet centers located outside the U.S. for the sale of our products. As of the end of fiscal year 2009, we had 16 such leases. The leases, including renewal options, expire at various times from 2010 to 2020 and provide for minimum annual rentals and for the payment of additional rent based on a percentage of sales above specified net sales amounts. We are also required to pay our pro rata share of the common area maintenance costs at each outlet center, including real estate taxes, insurance, maintenance expenses and utilities.

        We believe that our material existing facilities are well maintained, in good operating condition, and are adequate for our needs.

Item 3.    Legal Proceedings

        Three shareholder derivative lawsuits have been filed in the United States District Court for the Northern District of Texas, Dallas Division, naming us as a nominal defendant and naming all of our then current directors and certain of our current and former officers and directors as defendants. The first suit, captioned City of Pontiac Policeman's and Fireman's Retirement System, derivatively on behalf of Fossil, Inc. v. Tom Kartsotis, Kosta N. Kartsotis, Michael L. Kovar, Michael W. Barnes, Mark D. Quick, Randy S. Kercho, Jal S. Shroff, Randy S. Hyne, Thomas R. Tunnel, Richard H. Gundy, Kenneth W. Anderson, Andrea Camerana, Alan J. Gold, Michael Steinberg, Donald J. Stone and Cadence Wang (Cause No. 3-06CV1672-P), was filed on September 13, 2006. The second suit, captioned Robert B. Minich, derivatively on behalf of Fossil, Inc. v. Tom Karstotis, Kosta N. Kartsotis, Michael L. Kovar, Michael W. Barnes, Mark D. Quick, Randy S. Kercho, Jal S. Shroff, Randy S. Hyne, Thomas R. Tunnel, Richard H. Gundy, Kenneth W. Anderson, Andrea Camerana, Alan J. Gold, Michael Steinberg, Donald J. Stone and

39

Cadence Wang (Cause No. 3-06CV1977-M), was filed on October 26, 2006. The third suit, captioned Robert Neel, derivatively on behalf of Fossil, Inc. v. Michael W. Barnes, Richard H. Gundy, Randy S. Kercho, Mark D. Quick, Tom Kartsotis, Kosta N. Kartsotis, Jal S. Shroff, T. R. Tunnell, Michael L. Kovar, Donald J. Stone, Kenneth W. Anderson, Alan J. Gold, Michael Steinberg, and Fossil, Inc. (Cause No. 3-06CV2264-G), was filed on December 8, 2006. The complaints allege purported violations of federal securities laws and state law claims for breach of fiduciary duty, abuse of control, constructive fraud, corporate waste, unjust enrichment and gross mismanagement in connection with certain stock option grants made by us. Plaintiffs seek (i) monetary damages for all losses and damages suffered as a result of the acts alleged in the complaint; (ii) for defendants to account for all damages caused by them and all profits and special benefits obtained as a result of the alleged unlawful conduct; (iii) actions to reform and improve Company corporate governance and internal control procedures; (iv) the ordering of the imposition of a constructive trust over the defendants' stock options and proceeds derived therefrom; and (v) punitive damages. The ultimate liability with respect to these claims cannot be determined at this time; however, we do not expect these matters to have a material impact on our financial position, operations or liquidity.

        There are no other legal proceedings to which we are a party or to which our properties are subject, other than routine litigation incident to our business, which is not material to our consolidated financial condition, cash flows or results of operations.

Item 4.    [Reserved]

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        General.    Our common stock is listed on the NASDAQ Global Select Market under the symbol "FOSL." The following table sets forth the range of quarterly high and low sales prices per share of our common stock on the NASDAQ Global Select Market for the fiscal years ended January 2, 2010 and January 3, 2009.

		High		Low
Fiscal year ended January 2, 2010:
	First quarter	$	17.87	$	11.00
	Second quarter		24.97		16.12
	Third quarter		30.00		21.09
	Fourth quarter		34.18		26.14
Fiscal year ended January 3, 2009:
	First quarter	$	38.24	$	28.18
	Second quarter		37.98		27.42
	Third quarter		32.96		22.26
	Fourth quarter		25.98		11.51

        As of February 26, 2010, there were 136 holders of record, although we believe that the number of beneficial owners is much higher.

        Cash Dividend Policy.    We did not pay any cash dividends in fiscal 2009, 2008 or 2007. We expect that we will retain all available earnings generated by our operations for the development and growth of our business. Any future determination as to a cash dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including our future earnings, capital requirements, financial condition, future prospects and such other factors as our Board of Directors may deem relevant.

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Common Stock Performance Graph

        The following performance graph compares the cumulative return of the common stock over the preceding five year periods with that of the broad market (CRSP Total Return Index of the NASDAQ Global Select Market (US)) and the NASDAQ Retail Trades Group. Each Index assumes $100 invested at December 31, 2004 and is calculated assuming quarterly reinvestment of dividends and quarterly weighting by market capitalization.

2009 COMPARATIVE TOTAL RETURNS
Fossil, Inc., NASDAQ Global Select Market and
NASDAQ Market Retail Trades Group
(Performance Results through 12/31/09)

	12/31/04		12/31/05		12/31/06		12/31/07		12/31/08		12/31/09
Fossil, Inc.		100.00		83.89		88.07		163.73		65.13		130.89
NASDAQ Global Select Market		100.00		102.13		112.19		121.68		58.64		84.28
NASDAQ Retail Trades		100.00		100.95		110.24		100.31		69.99		97.21

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

        On February 16, 2010, we announced that our Board of Directors had authorized us to repurchase up to $20,000,000 of our common stock. To date, we have not made any repurchases under this authorization. We may repurchase our common stock through open market purchases or privately negotiated transactions, all in accordance with the provisions of Rule 10b-18 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934.

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Item 6.    Selected Financial Data

        The following information should be read in conjunction with our consolidated financial statements and notes thereto contained in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

FINANCIAL HIGHLIGHTS

Fiscal Year		2009			2008			2007			2006			2005
		IN THOUSANDS, EXCEPT PER SHARE DATA
Net sales		$	1,548,093		$	1,583,242		$	1,432,984		$	1,213,965		$	1,043,120
Gross profit			844,850			851,151			742,031			608,919			535,140
Operating income			211,627			205,770			186,485			123,325			108,988
Income before taxes attributable to Fossil, Inc.			213,776			189,429			187,526			118,795			102,948
Net income attributable to Fossil, Inc.			139,188			138,097	(1)		123,261	(2)		77,582			75,670	(3)
Earnings per share:
	Basic		2.09			2.05	(1)		1.81	(2)		1.15			1.07	(3)
	Diluted		2.07			2.02	(1)		1.75	(2)		1.13			1.04	(3)
Weighted average common shares and common equivalent shares outstanding:
	Basic		66,684			67,525			68,213			67,177			70,476
	Diluted		67,153			68,323			70,333			68,817			72,424
Working capital		$	701,193		$	556,497		$	546,410		$	357,608		$	326,502
Total assets			1,276,483			1,087,296			1,122,628			852,597			745,142
Total long-term liabilities			62,791			74,964			66,432			22,914			35,628
Stockholders' equity attributable to Fossil, Inc.			962,781			802,144			771,662			602,201			526,317
Return on average stockholders' equity attributable to Fossil, Inc.			16.2	%		17.8	%		18.3	%		14.2	%		14.0	%

(1)

Includes $7.3 million in expenses, net of tax, related to the write-down of certain other than temporary investment, fixed asset and intangible asset impairments and a $20.8 million benefit in income tax expense related to the reduction of certain current and long-term tax liabilities in connection with completion of prior year income tax audits.

(2)

Includes $8.6 million in expenses, net of tax, relating to our voluntary evaluation of our accounting for equity-based compensation, including the appropriateness of accounting measurement dates used to determine the amounts of compensation charges and related tax effects which have been previously disclosed in filings with the SEC.

(3)

Includes a tax benefit of $12 million related to the repatriation of subsidiary earnings which were not considered permanently invested pursuant to the American Jobs Creation Act of 2004.

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FINANCIAL HIGHLIGHTS

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Summary

        We are a global design, marketing and distribution company that specializes in consumer fashion accessories. Our principal offerings include an extensive line of men's and women's fashion watches and jewelry, handbags, small leather goods, belts, sunglasses, cold weather accessories, footwear and apparel. In the watch and jewelry product category, we have a diverse portfolio of globally recognized owned and licensed brand names under which our products are marketed. Our products are distributed globally through various distribution channels including wholesale in countries where we have a physical presence, direct to the consumer through our retail stores and commercial websites and through third-party distributors in countries where we do not maintain a physical presence. Our products are offered at varying price points to service the needs of our customers, whether they are value conscious or luxury oriented. Based on our extensive range of accessory products, brands, distribution channels and price points, we are able to target style-conscious consumers across a wide age spectrum on a global basis.

        Domestically, we sell our products through a diversified distribution network that includes department stores, specialty retail locations, specialty watch and jewelry stores, owned retail and factory outlet stores, mass market stores and through our FOSSIL® catalogs and website. Our wholesale customer base includes, among others, Neiman Marcus, Nordstrom, Saks Fifth Avenue, Macy's, Dillard's, JCPenney, Kohl's, Sears, Wal-Mart and Target. We also sell our products in the U.S. through a network of company-owned stores that included 127 retail stores located in premier retail sites and 74 outlet stores located in major outlet malls as of January 2, 2010. In addition, we offer an extensive collection of our FOSSIL brand products through our catalogs and on our website, www.fossil.com, as well as proprietary and licensed watch and jewelry brands through other managed and affiliated websites.

        Internationally, our products are sold to department stores, specialty retail stores and specialty watch and jewelry stores in over 100 countries worldwide through 23 company-owned foreign sales subsidiaries and through a network of 59 independent distributors. During fiscal year 2009, approximately 8.2% of our net sales were generated from sales to independent distributors. Our products are distributed in Africa, Asia, Australia, Europe, Central and South America, Canada, the Caribbean, Mexico, and the Middle East. Our products are offered on airlines, cruise ships and in international company-owned retail stores, which included 126 accessory retail stores, 11 multi-brand stores and 16 outlet stores in select international markets as of January 2, 2010. Our products are also sold through licensed and franchised FOSSIL retail stores and kiosks in certain international markets. In addition, we offer an extensive collection of our FOSSIL brand products on our websites in Australia, www.fossilaustralia.com.au, Germany, www.fossil.de, the United Kingdom, www.fossil.co.uk, and Singapore, www.fossilsingapore.com.sg.

        Our business is subject to global economic cycles and retail industry conditions. Purchases of discretionary fashion accessories, such as our watches, handbags, sunglasses and other products, tend to decline during recessionary periods when disposable income is low and consumers are hesitant to use available credit. The global economic environment began to deteriorate in the second half of fiscal year 2008. The declining values in real estate, reduced credit lending by banks, solvency concerns of major financial institutions, increases in unemployment levels and significant declines and volatility in the global financial markets have negatively impacted the level of consumer spending for discretionary items. This has affected our business, as it is dependent on consumer demand for our products. In North America, beginning in the fourth quarter of 2008 and continuing through most of fiscal year 2009, we experienced a significant slowdown in customer traffic and a highly promotional environment. These same conditions spread to many international markets during 2009. While we have experienced a

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slight recovery in our North American market during the fourth quarter of 2009, if economic conditions do not improve in certain international markets, or if the North American markets slip back into a recession, our revenues and earnings for fiscal year 2010 could be negatively impacted.

        Future sales and earnings growth is also contingent upon our ability to anticipate and respond to changing fashion trends and consumer preferences in a timely manner while continuing to develop innovative products in the respective markets in which we compete. As is typical with new products, market acceptance of new designs and products we may introduce is subject to uncertainty. In addition, we generally make decisions regarding product designs several months in advance of the time when consumer acceptance can be measured.

        The majority of our products are sold at price points ranging from $50 to $500. Although the current economic environment continues to negatively impact consumer discretionary spending and, ultimately, our net sales, we believe that the price/value relationship and the differentiation and innovation of our products, in comparison to those of our competitors, will allow us to maintain or grow our market share in those markets in which we compete. Historically, during recessionary periods, the strength of our balance sheet, our strong operating cash flow and the relative size of our business with our wholesale customers, in comparison to that of our competitors, have allowed us to weather recessionary periods for longer periods of time and generally resulted in market share gains to us.

        Our international operations are subject to many risks, including foreign currency. Generally, the strengthening of the U.S. dollar against currencies of other countries in which we operate will reduce the translated amounts of sales and operating expenses of our subsidiaries, which results in a reduction of our consolidated operating income.

        This discussion should be read in conjunction with the consolidated financial statements and the related notes included therewith.

Critical Accounting Policies and Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us 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. On an on-going basis, we evaluate our estimates and judgments, including those related to product returns, allowance for bad debt, inventories, long-lived asset impairment, impairment of goodwill and trade names, income taxes, warranty cost, hedge accounting, litigation reserves and stock-based compensation. We base our estimates and judgments on historical experience and on various other factors that we believe are reasonable under the circumstances. Our estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies require the most significant estimates and judgments.

        Product Returns.    We accept limited returns and will request that a customer return a product if we feel the customer has an excess of any style that we have identified as being a poor performer for that customer or geographic location. We continually monitor returns and maintain a provision for estimated returns based upon historical experience and any specific issues identified. While returns have historically been within our expectations and the provisions established, future return rates may differ from those experienced in the past. In the event that our products are performing poorly in the retail market and/or we experience product damages or defects at a rate significantly higher than our historical rate, the resulting credit returns could have an adverse impact on the operating results for the period or periods in which such returns occur.

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        Bad Debt.    We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as determined by a review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues identified. While such credit losses have historically been within our expectations and the provisions established, future credit losses may differ from those experienced in the past.

        Inventories.    Inventories are stated at the lower of average cost, including any applicable duty and freight charges, or market. We reserve for estimated obsolescence or unmarketable inventory equal to the difference between the average cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, increased inventory reserves may be required.

        Long-lived Asset Impairment.    We test for asset impairment of property, plant and equipment and intangibles other than trade names whenever events or changes in circumstances indicate that the carrying value of an asset might not be recoverable from estimated future cash flows. We apply Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (now codified within Accounting Standards Codification ("ASC") 360 Property, Plant and Equipment ("ASC 360"), in order to determine whether or not an asset is impaired. When undiscounted cash flows estimated to be generated through the operations of our Company-owned full price retail stores are less than the carrying value of the underlying assets, impairment losses are recorded in selling and distribution expenses. Should actual results or market conditions differ from those anticipated, additional losses may be recorded. We recorded impairment losses of $2.5 million, $1.9 million and $0.2 million in fiscal years 2009, 2008 and 2007, respectively.

        Impairment of Goodwill and Trade Names.    We evaluate goodwill for impairment annually by comparing the fair value of the reporting unit to its recorded value. The fair value of our reporting units is estimated using market comparable information. Based on the analysis, if the estimated fair value of a reporting unit exceeds its recorded value, no impairment loss is recognized. We evaluate trade names annually by comparing the fair value of the asset to its recorded value. The fair value of the asset is estimated using discounted cash flow methodologies. In the fourth quarter of fiscal years 2009 and 2008, we performed the required annual impairment tests and determined that no goodwill impairment existed. We recorded impairment losses of $2.7 million in fiscal 2009 related to our ZODIAC® and OYZTERBAY® trade names and $7.9 million in fiscal 2008 related to our MICHELE® and ZODIAC trade names. No trade name impairment losses were recorded in 2007.

        Income Taxes.    We record valuation allowances against our deferred tax assets, when necessary, in accordance with SFAS No. 109, Accounting for Income Taxes (now codified within ASC 740, Income Taxes). Realization of deferred tax assets (such as net operating loss carryforwards) is dependent on future taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance against our deferred tax asset, increasing our income tax expense in the period such determination is made. In addition, we have not recorded U.S. income tax expense for foreign earnings that we have determined to be indefinitely reinvested. On an interim basis, we estimate what our effective tax rate will be for the full fiscal year. The estimated annual effective tax rate is then applied to the year-to-date pre-tax income excluding unusual or infrequently occurring items, to determine the year-to-date tax expense. The income tax effects of infrequent or unusual items are recognized in the interim period in which they occur. As the fiscal year progresses, we continually refine our estimate based upon actual events and earnings by jurisdiction during the year. This continual estimation process periodically results in a change to our expected effective tax rate for the fiscal year. When this occurs, we adjust the income tax provision during the

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quarter in which the change in estimate occurs so that the year-to-date provision equals the expected annual rate excluding the impact of infrequent or unusual items.

        Warranty Costs.    Our FOSSIL watch products sold in the U.S. are covered by a limited warranty against defects in materials or workmanship for a period of 11 years from the date of purchase. RELIC® watch products sold in the U.S. are covered by a comparable 12 year warranty while all other watch brands sold in the U.S. are covered by a comparable two year limited warranty. Generally, all of our watch products sold in Canada, Europe and Asia are covered by a comparable two year limited warranty. The Company determines its warranty liability using historical warranty repair experience. As changes in warranty costs are experienced, the warranty accrual is adjusted as necessary. The warranty liability recorded for fiscal years 2009, 2008 and 2007 was $6.4 million, $4.6 million and $3.5 million, respectively.

        Hedge Accounting.    We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations. We have entered into certain forward contracts to hedge the risk of foreign currency rate fluctuations. We have elected to apply the hedge accounting rules as required by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (now codified within ASC 815 Derivatives and Hedging), for these hedges. Our objective is to hedge the variability in forecasted cash flows due to the foreign currency risk primarily associated with certain anticipated inventory purchases. Changes in the fair value of forward contracts designated as cash flow hedges are recorded as a component of accumulated other comprehensive income within stockholders' equity, and are recognized in other income (expense)—net in the period which approximates the time the hedged merchandise inventory is sold.

        Litigation Reserves.    Estimated amounts for claims that are probable and can be reasonably estimated are recorded as liabilities in our consolidated balance sheet. The likelihood of a material change in these estimated reserves would be dependent on new claims as they may arise and the expected favorable or unfavorable outcome of each claim. As additional information becomes available, we assess the potential liability related to new claims and existing claims and revise estimates as appropriate. As new claims arise, revisions in estimates of the potential liability could materially impact the results of operations and financial position.

        Stock-Based Compensation.    We account for stock-based compensation in accordance with the fair value recognition provisions of SFAS No. 123(R), Share-Based Payment (now codified within ASC 718 Compensation—Stock Compensation). We utilize the Black-Scholes model, which requires the input of subjective assumptions. These assumptions include estimating (a) the length of time employees will retain their vested stock options before exercising them ("expected term"), (b) the volatility of the Company's common stock price over the expected term, and (c) the number of options that will be forfeited. Changes in these assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense amounts recognized on the consolidated statements of operations.

Newly Issued Accounting Standard Updates

        In February 2010, the Financial Accounting Standards Board, ("FASB") issued ASU 2010-9 Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements ("ASU 2010-9"). ASU 2010-9 amends disclosure requirements within Subtopic 855-10. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC's requirements. ASU 2010-9 is effective for interim and annual periods ending after June 15, 2010. We do not expect the adoption of ASU 2010-09 to have a material impact on our consolidated results of operations or financial position.

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        In January 2010, FASB issued Accounting Standard Update ("ASU") 2010-6 Improving Disclosures about Fair Measurements ("ASU 2010-6"). ASU 2010-6 provides amendments to subtopic 820-10 that require separate disclosure of significant transfers in and out of Level 1 and Level 2 fair value measurements and the presentation of separate information regarding purchases, sales, issuances and settlements for Level 3 fair value measurements. Additionally, ASU 2010-6 provides amendments to subtopic 820-10 that clarify existing disclosures about the level of disaggregation and inputs and valuation techniques. ASU 2010-6 is effective for financial statements issued for interim and annual periods ending after December 15, 2010. We do not expect the adoption of ASU 2010-06 to have a material impact on our consolidated results of operations or financial position.

        In January 2010, FASB issued ASU 2010-2 Consolidation (Topic 810) Accounting and Reporting for Decreases in Ownership of a Subsidiary—a Scope Clarification ("ASU 2010-2"). ASU 2010-2 addresses implementation issues related to the changes in ownership provisions in the Consolidation—Overall Subtopic (Subtopic 810-10) of the ASC, originally issued as FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. Subtopic 810-10 establishes the accounting and reporting guidance for noncontrolling interests and changes in ownership interests of a subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. ASU 2010-2 is effective for the Company starting January 3, 2010. We do not expect the adoption of ASU 2010-2 to have a material impact on our consolidated results of operations or financial position.

        In December 2009, FASB issued ASU 2009-17 Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities ("ASU 2009-17"). ASU 2009-17 amends the FASB ASC for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). The amendments in ASU 2009-17 replace the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. ASU 2009-17 also requires additional disclosures about an enterprise's involvement in variable interest entities. ASU 2009-17 is effective for the Company starting January 3, 2010. We do not expect the adoption of ASU 2009-17 to have a material impact on our consolidated results of operations or financial position.

        In December 2009, FASB issued ASU 2009-16 Transfers and Servicing (Topic 860) Accounting for Transfers of Financial Assets ("ASU 2009-16"). ASU 2009-16 amends the ASC for the issuance of FASB Statement No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140. The amendments in ASU 2009-16 eliminate the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. ASU 2009-16 is effective for the Company starting January 3, 2010. We do not expect the adoption of ASU 2009-16 to have a material impact on our consolidated results of operations or financial position.

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Newly Adopted Accounting Standard Codification

        In August 2009, FASB issued ASU 2009-5 Fair Value Measurements and Disclosures (Topic 820) Measuring Liabilities at Fair Value ("ASU 2009-5"). ASU 2009-5 amends Subtopic 820-10, Fair Value Measurements and Disclosures—Overall, related to the fair value measurement of liabilities. ASU 2009-5 clarifies that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value. ASU 2009-5 was effective for the Company for interim and annual periods ending after October 3, 2009. The adoption of ASU 2009-5 did not have a material impact on our consolidated results of operations or financial position.

        In August 2009, FASB issued ASU 2009-4 Accounting for Redeemable Equity Instruments—an Amendment to Section 480-10-S99 ("ASU 2009-4"). ASU 2009-4 represents an SEC update to Section 480-10-S99, Distinguishing Liabilities from Equity. The adoption of this guidance within ASU 2009-4 did not have a material impact on our consolidated results of operations or financial position.

        In June 2009, FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—A Replacement of FASB Statement No. 162, (now codified within ASC 105, Generally Accepted Accounting Principles ("ASC 105")). ASC 105 establishes the codification as the single source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. All guidance contained in the codification carries an equal level of authority. Following this statement, FASB will not issue new standards in the form of statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates, which will serve only to: (1) update the codification; (2) provide background information about the guidance; and (3) provide the bases for conclusions on the change(s) in the codification. ASC 105 was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The codification supersedes all existing non-SEC accounting and reporting standards. The adoption of ASC 105 did not have a material impact on our consolidated results of operations or financial position.

        In May 2009, FASB issued SFAS No. 165, Subsequent Events (now codified within ASC 855, Subsequent Events ("ASC 855")). This portion of ASC 855 establishes the general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 was effective for the Company on April 5, 2009. The adoption of ASC 855 did not have a material impact on our consolidated results of operations or financial position.

        In April 2009, FASB issued Staff Position ("FSP") No. 115-2 and FSP 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (now codified within ASC 320, Investments—Debt and Equity Securities ("ASC 320")). This portion of ASC 320 provides greater clarity about the credit and noncredit components of an other-than-temporary impairment event and more effectively communicates when an other-than-temporary impairment event has occurred. ASC 320 amends the other-than-temporary impairment model for debt securities. The impairment model for equity securities was not affected. Under ASC 320, an other-than-temporary impairment must be recognized through earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost basis. ASC 320 was effective for interim periods ending after June 15, 2009. The adoption of ASC 320 did not have a material impact on our consolidated results of operations or financial position.

        In April 2009, FASB issued FSP 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (now codified within ASC 820, Fair Value Measurements and Disclosures ("ASC 820")). This portion of ASC 820 provides guidelines for making fair value measurements more consistent and provides additional authoritative guidance in determining whether a market is active or inactive and whether a transaction is distressed. ASC 820 is applied to all assets and liabilities (i.e., financial and

48

non-financial) and requires enhanced disclosures. This standard was effective for periods ending after June 15, 2009. The adoption of ASC 820 did not have a material impact on our consolidated results of operations or financial position.

        In April 2009, FASB issued FSP 107-1 and Accounting Principles Board 28-1, Interim Disclosures about Fair Value of Financial Instruments (now codified within ASC 825, Financial Instruments ("ASC 825")). This portion of ASC 825 requires disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. ASC 825 was effective for interim periods ending after June 15, 2009. The adoption of ASC 825 did not have a material impact on our consolidated results of operations or financial position.

        In June 2008, FASB issued Staff Position—Emerging Issues Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (now codified within ASC 260, Earnings Per Share ("ASC 260")). Under this portion of ASC 260, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. ASC 260 was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years and requires retrospective application. The adoption of ASC 260 did not have a material impact on our earnings per share calculations.

        In April 2008, FASB issued FSP 142-3, Determination of the Useful Life of Intangible Assets (now codified within ASC 350, Intangibles—Goodwill and Other ("ASC 350")). This portion of ASC 350 provides guidance for determining the useful life of a recognized intangible asset and requires enhanced disclosures so that users of financial statements are able to assess the extent to which the expected future cash flows associated with the asset are affected by our intent and/or ability to renew or extend the arrangement. ASC 350 was effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The adoption of ASC 350 did not have a material impact on our consolidated results of operations or financial position.

        In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (now codified within ASC 815, Derivatives and Hedging ("ASC 815")). This portion of ASC 815 requires enhanced disclosures about an entity's derivative and hedging activities aimed at improving the transparency of financial reporting. ASC 815 was effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of ASC 815 did not have a material impact on our consolidated results of operations or financial position. Refer to Note 7, Derivatives and Risk Management, of this Form 10-K for the enhanced disclosures required by the adoption of ASC 815.

        In December 2007, FASB issued SFAS No. 141(R), Business Combinations (now codified within ASC 805, Business Combinations ("ASC 805")). This portion of ASC 805 establishes principles and requirements for how the acquirer in a business combination recognizes and measures in its financial statements the fair value of identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date. ASC 805 significantly changes the accounting for business combinations in a number of areas, including the treatment of contingent consideration, preacquisition contingencies, transaction costs and restructuring costs. In addition, under ASC 805, changes in an acquired entity's deferred tax assets and uncertain tax positions after the measurement period will impact income tax expense. ASC 805 will apply to any acquisitions we complete on or after December 15, 2008. The adoption of ASC 805 did not have a material impact on the Company's consolidated results of operations or financial position.

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        In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51 (now codified within ASC 810, Consolidation ("ASC 810")). This portion of ASC 810 changes the accounting and reporting for minority interests, which are recharacterized as noncontrolling interests and classified as a component of equity. This new consolidation method significantly changes the accounting for transactions with minority interest holders. The provisions of ASC 810 were applied to all noncontrolling interests prospectively, except for the presentation and disclosure requirements, which were applied retrospectively to all periods presented and have been disclosed as such in our condensed consolidated financial statements herein. ASC 810 became effective for fiscal years beginning on or after December 15, 2008. The Company adopted ASC 810 effective January 4, 2009. Upon adoption of ASC 810, the Company has recognized noncontrolling interests as equity in the consolidated balance sheets and has reflected net income attributable to noncontrolling interests in consolidated net income.

        In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (now codified within ASC 820). This portion of ASC 820 provides guidance for using fair value to measure assets and liabilities. Under ASC 820, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This guidance within ASC 820 became effective for financial statements issued for fiscal years beginning after November 15, 2007; however, the FASB provided a one year deferral for implementation of the standard for non-recurring, non-financial assets and liabilities. Our adoption of this guidance for non-financial assets and non-financial liabilities on January 4, 2009 did not have a material effect on our consolidated results of operations or financial position.

Results of Operations

        The following table sets forth, for the periods indicated, (i) the percentages of our net sales represented by certain line items from our consolidated statements of income and comprehensive income and (ii) the percentage changes in these line items between the fiscal years indicated:

Fiscal Year		2009			Percentage Change from 2008			2008			Percentage Change from 2007			2007
Net sales			100.0	%		(2.2	)%		100.0	%		10.5	%		100.0	%
Cost of sales			45.4			(3.9	)		46.2			6.0			48.2
Gross profit			54.6			(0.7	)		53.8			14.7			51.8
Operating expenses			40.9			(1.9	)		40.8			16.2			38.8
Operating income			13.7			2.8			13.0			10.3			13.0
Interest expense			0.0			(57.7	)		0.0			(37.6	)		0.0
Other income (expense)—net			0.5			*			(0.7	)		*			0.6
Income before income taxes			14.2			13.2			12.3			0.1			13.6
Income taxes			4.9			44.4			3.3			(20.0	)		4.6
Net income			9.3			1.7			9.0			10.4			9.0
	Less: Net income attributable to noncontrolling interest		0.3			35.9			0.2			(28.1	)		0.4
Net income attributable to Fossil, Inc.			9.0	%		0.8			8.8	%		12.0			8.6	%

*

not meaningful

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        The following table sets forth our consolidated net sales by segment, and components of certain segments, and the percentage of net sales related to each respective segment, and components of certain segments, for the fiscal years indicated:

			Amounts in Millions						Percentage of Total
Fiscal Year			2009		2008		2007		2009			2008			2007
International wholesale:
	Europe		$	460.3	$	530.0	$	483.9		29.7	%		33.5	%		33.8	%
	Other			240.6		271.2		233.2		15.6			17.1			16.2
		Total international wholesale		700.9		801.2		717.1		45.3			50.6			50.0
United States wholesale:
	Watch products			276.0		265.4		251.4		17.8			16.8			17.6
	Other products			195.1		207.3		209.2		12.6			13.1			14.6
		Total United States wholesale		471.1		472.7		460.6		30.4			29.9			32.2
Direct to consumer				376.1		309.3		255.3		24.3			19.5			17.8
	Total net sales		$	1,548.1	$	1,583.2	$	1,433.0		100.0	%		100.0	%		100.0	%

Fiscal 2009 Compared to Fiscal 2008

        Net Sales.    The following table illustrates by factor the total year-over-year percentage change in net sales by segment and on a consolidated basis:

	Exchange Rates			Organic Change			Total Change
Europe wholesale		(3.7	)%		(9.5	)%		(13.2	)%
Other international wholesale		(1.2	)		(10.1	)		(11.3	)
United States wholesale		—			(0.3	)		(0.3	)
Direct to consumer		(1.1	)		22.7			21.6
Consolidated		(1.6	)%		(0.6	)%		(2.2	)%

        European Wholesale Net Sales.    The following discussion excludes the impact on sales attributable to foreign currency rate changes as noted in the above table. The net sales decline in our European wholesale segment during fiscal year 2009 was primarily the result of sales volume declines in our core watch and jewelry businesses of 9.4% and 16.1%, respectively. We believe that weakening economies, and the resulting decrease in discretionary spending was the primary reason for our sales volume decreases in this segment. The declines had a bigger impact on our larger, more penetrated businesses. The decrease in our watch business was principally the result of FOSSIL and licensed brand watch sales volumes declining 6.7% and 9.3%, respectively, while the reduction in our jewelry sales volume was primarily led by a 21.1% decrease in Fossil jewelry. However, for brands and businesses recently introduced into our European wholesale segment and for those brands and businesses less penetrated, and thus continuing to expand into new doors, we experienced sales growth. For example, our recently-introduced FOSSIL leathers business increased 18.5% during fiscal year 2009, with solid growth in both the women's and men's categories. We believe the expansion of our leathers business is partly attributable to the growth of our FOSSIL accessory store concept in this region, which is continuing to improve the brand awareness across all FOSSIL categories. Additionally, MICHAEL KORS® and BURBERRY® watch sales volumes rose 17.7% and 8.7%, respectively, primarily as a result of an increase in the penetration level with existing customers and new door growth. During fiscal year 2009, net sales were also favorably impacted by the introduction of DKNY® jewelry, launched during the third quarter of fiscal 2008. Although we believe the current economic environment in Europe will

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negatively impact our ability to substantially grow our sales in the near-term, we believe we have maintained, if not increased, our market share and have positioned the Company to grow as the economic environment and discretionary spending improves.

        Other International Wholesale Net Sales.    The following discussion excludes the impact on sales attributable to foreign currency rate changes as noted in the above table. Our other international wholesale segment includes sales from our Asia Pacific, Mexico and Canada subsidiaries, export sales from the U.S. and sales to our Spain joint venture. Net sales in our other international wholesale segment decreased during fiscal year 2009, principally a result of a $41.7 million decline in wholesale shipments to our third-party distributors and our Spain joint venture. We attribute these sales declines to the challenging economic environment and credit restraints being experienced by a number of our third-party distributors. Excluding shipments to third-party distributors, sales from our Asia Pacific wholesale operations increased 12.8%, principally driven by further penetration in our newer markets of Korea, China and India as well as a 15.5% increase generated in our Australian wholesale business primarily related to sales volume growth in FOSSIL leather goods. Our wholesale operations in Canada and Mexico also experienced solid sales volume growth of 11.3% and 9.6%, respectively, during fiscal 2009. We believe our Asia Pacific distribution business continues to represent our largest opportunity for wholesale expansion. We believe the productivity of our concession model in this region allows us to gain market share in comparison to our competitors by essentially operating the space within our customers' stores. This allows us to control merchandising, inventory levels, build-out and branding decisions, and more importantly, the interaction with the end consumer.

        We believe our diverse global distribution network, including owned distribution in 23 countries, combined with our design and marketing capabilities, will allow us to continue to take shelf space from lesser known local and regional brands as we continue to increase brand awareness through the growth of our retail stores and introduction of new websites in many of the countries in which we operate. We also believe that the recent expansion of our businesses into new markets will allow us to experience higher levels of growth in our international wholesale segments in comparison to our U.S. wholesale segment.

        U.S. Wholesale Net Sales.    We believe wholesale shipments of our watch and accessory offerings were negatively impacted by our wholesale partners significantly reducing their purchases during the first half of fiscal year 2009. We believe this was the result of our wholesale partners carrying higher levels of inventory into the beginning of the year due to the downturn in consumer spending during the fourth quarter of 2008. Nevertheless, net sales from our U.S. wholesale watch business increased 4.0% during fiscal year 2009, primarily a result of sales volume growth in licensed brands, mass market, RELIC and MICHELE watches, partially offset by a sales volume decrease in FOSSIL watches. Licensed watch sales rose 23.9%, principally driven by our MICHAEL KORS and to a lesser extent ADIDAS® and MARC BY MARC JACOBS® watches. MICHAEL KORS wholesale shipments increased 101.6% during fiscal year 2009, which we believe is due to the innovative design that is represented by the assortment and the expansion of points of sale for the brand. Sales volume growth in ADIDAS and MARC BY MARC JACOBS was primarily attributable to the expansion of points of sale. Our mass market watch shipments increased 13.0% in comparison to the prior year, which we attribute primarily to further penetration of our private label program with Wal-Mart as well as consumers continuing to shop for value. RELIC watch sales rose 12.9% during fiscal year 2009, as a result of increased penetration in existing customers and new door growth. MICHELE sales volumes increased 5.5% during fiscal year 2009 which we attribute to consumers' positive response to innovative new styles. Domestic wholesale shipments of FOSSIL watches declined 20.4% during fiscal 2009, which we believe resulted from retailers managing their inventories conservatively. FOSSIL is the most penetrated watch business within our portfolio in the U.S. wholesale segment and thereby more significantly impacted by comparable stores sales within the department store channel. However, new FOSSIL styles introduced into department stores during the fourth quarter of fiscal 2009 experienced

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strong sell through during the holiday season, resulting in the overall trend improving. We believe this improving trend will result in increased wholesale shipments during the first half of fiscal 2010.

        Wholesale shipments from our accessories business in the U.S., which primarily includes handbags, small leather goods, belts, sunglasses, jewelry and cold weather accessories, decreased 5.9% during fiscal year 2009. This decrease is principally attributable to sales volume declines in FOSSIL women's handbags, small leather goods, and eyewear, partially offset by sales volume increases in FOSSIL accessory jewelry and the launch of our FOSSIL footwear line during fiscal 2009. We primarily attribute the sales volume declines in women's handbags, small leather goods and eyewear of 10.4%, 17.8% and 22.7%, respectively, to the challenging economic environment resulting in decreased consumer demand and our wholesale partners reducing inventory levels during the first nine months of fiscal year 2009. Additionally, eyewear sales volume was unfavorably impacted by certain of our customers consolidating vendors in their sunglass departments and discontinuing the RELIC men's eyewear line. FOSSIL accessory jewelry net sales increased 26.1% as a result of retail door growth while the launch of our FOSSIL footwear line contributed $2.6 million to the domestic wholesale business during fiscal 2009. We significantly improved the sales trend in our domestic accessories business during the fourth quarter of fiscal 2009 and expect this favorable momentum to continue into fiscal 2010.

        Direct to Consumer Net Sales.    The following discussion excludes the impact on sales attributable to foreign currency rate changes as noted in the above table. Direct to consumer net sales increased 22.7% during fiscal year 2009, principally the result of a 19.4% increase in the average number of stores open during the year and comparable store sales increases of 7.8%. Our direct to consumer segment was also favorably impacted by 11.4% growth in e-commerce sales primarily driven by our U.S.-based e-commerce businesses. We believe this growth is partially attributable to system upgrades for our U.S. website during the second half of fiscal 2009. Additionally, an increase in the number of catalogs mailed in fiscal 2009 and an increase in the amount of spending during the fourth quarter of fiscal 2009 in on-line search advertising also benefited e-commerce sales. These initiatives led to an increased number of visitors to the site resulting in higher levels of sales. Our e-commerce and catalog initiatives, in addition to the favorable consumer reaction to new product innovation, also benefited our comparable store sales in our U.S. retail stores. Comparable store sales related to our full price accessory concept, which is our growth engine in this segment, increased by 5.9% globally while our global outlet stores experienced comparable store sales growth of 9.7% during fiscal year 2009.

        We ended fiscal year 2009 with 354 stores, including 218 full price accessory stores, 126 of which are located outside the U.S., 90 outlet locations, including 16 outside the U.S., 33 apparel stores and 13 multi-brand stores. This compares to 324 stores at the end of fiscal 2008, which included 191 full price accessory stores, 104 located outside the U.S., 82 outlet locations, including 8 outside the U.S., 33 apparel stores and 18 multi-branded stores. During fiscal year 2009, we opened 42 new stores, including 29 full-price accessory stores, and closed 12 stores. During fiscal 2010, we plan to open approximately 50 stores, concentrating on our full price accessory concept outside of the U.S.

        A store is included in comparable store sales in the thirteenth month of operation. Stores that experience a gross square footage increase of 10% or more due to an expansion and/or relocation are removed from the comparable store sales base, but are included in total sales. These stores are returned to the comparable store sales base in the thirteenth month following the expansion and/or relocation.

        Gross Profit.    Gross profit decreased by 0.7% to $844.9 million in fiscal year 2009, with gross profit margin expanding by 80 basis points to 54.6% compared to 53.8% in the prior fiscal year. The gross profit margin improvement was due primarily to an increase in the sales mix of direct to consumer segment sales and a reduction in sales mix of lower margin shipments to third party distributors. The increase in gross profit margin was partially offset by a stronger U.S. dollar, which unfavorably impacted gross profit margin by approximately 80 basis points during fiscal year 2009 and a

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reduction in the sales mix attributable to our European wholesale segment, which historically generates gross profit margin in excess of our consolidated gross profit margin. In comparison to fiscal 2008, our fiscal 2009 gross profit margin was not impacted by any significant changes in component or labor costs related to the production of our watch and accessory offerings.

        Our consolidated gross profit margin is impacted by our diversified business model that includes but is not limited to: (i) a significant number of product categories we distribute, (ii) the multiple brands we offer within several product categories, (iii) the geographical presence of our businesses, and (iv) the different distribution channels we sell to or through. The components of this diversified business model produce varying ranges of gross profit margin. Generally, on an historical basis, our fashion branded watch, jewelry and sunglass offerings produce higher gross profit margins than our leather goods categories. In addition, in most product categories that we offer, brands with higher retail price points generally produce higher gross profit margins compared to those of lower retail priced brands. From a segment standpoint, our direct to consumer business generally produces the highest gross profit margin as a result of these sales being direct to the ultimate consumer. Gross profit margins related to sales in our international wholesale segment are historically lower than our direct to consumer segment, but historically higher than our U. S. wholesale segment primarily due to the following factors: (i) overall retail prices for comparable product sold in the U.S. are generally higher in our international businesses as a result of less competitive fashion and designer brands being offered in these markets; (ii) the product sales mix in our international wholesale segment, in comparison to our U. S. wholesale segment, is comprised more predominantly of watches and jewelry that generally produce higher gross profit margins than leather goods; and (iii) the watch sales mix in our international wholesale segment, in comparison to our U. S. wholesale segment, is comprised more predominantly of higher priced licensed brands.

        Operating Expenses.    Total operating expenses decreased $12.2 million to $633.2 million in fiscal year 2009 in comparison to the prior fiscal year and as a percentage of net sales, increased 10 basis points to 40.9% compared to 40.8% in fiscal year 2008. Fiscal year 2009 included a reduction of approximately $11.5 million related to the translation impact of foreign-based expenses due to an average stronger U.S. dollar on a comparable year-over-year basis. On a constant dollar basis, operating expenses for fiscal year 2009 included net decreases in our wholesale segments and corporate costs of $43.1 million, partially offset by an increase of $42.5 million in our direct to consumer segment. The decrease in operating expenses associated with our wholesale segments were primarily related to lower compensation cost, as a result of a reduction of workforce in the first quarter of fiscal year 2009 and the freeze of merit increases and certain benefit costs. Additionally, fiscal 2009 wholesale operating expenses benefited from reduced levels of advertising expense and a net reduction of approximately $5.2 million of non-cash charges related to the write-down of certain fixed asset and intangible asset impairments when compared to fiscal year 2008. Fiscal year 2009 operating expenses also benefited from reductions in certain variable expenses as a result of a reduction in wholesale sales. The increase in our direct to consumer operating expenses was primarily related to the impact of the direct operating costs associated with a net 30 new stores opened during fiscal year 2009 and expenses associated with the expansion of our e-commerce and catalog operations. For fiscal year 2010, we expect our operating expenses as a percentage of net sales to increase due to new retail door growth, the full year operating expense impact of the net 30 stores opened during fiscal year 2009 and the normalization of compensation and other expenses that had been reduced in response to the economic environment during fiscal year 2009.

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        The following table sets forth consolidated operating expenses by segment and as a percentage of net sales related to each respective segment for the periods indicated.

		In Millions
		2009					2008
Fiscal Year		Operating Expense		% of Net Sales			Operating Expense		% of Net Sales
Europe wholesale		$	146.0		32	%	$	170.5		32	%
Other international wholesale			76.7		32			75.7		28
United States wholesale			109.1		23			134.2		28
Direct to consumer			222.6		59			183.4		59
Corporate			78.8		—			81.6		—
	Total	$	633.2		41	%	$	645.4		41	%

        Operating Income.    Operating income increased by 2.8% to $211.6 million in fiscal year 2009 compared to $205.8 million in fiscal year 2008. Operating income margin increased by 70 basis points to 13.7% of net sales compared to 13.0% in the prior fiscal year, principally as a result of gross margin expansion. Operating income included approximately $15.4 million of net currency losses in fiscal year 2009 related to the translation of foreign-based sales and expenses into U.S. dollars.

        Other Income (Expense)—Net.    Other income (expense)—net primarily reflects interest income from investments, foreign currency transaction gains or losses and equity in the earnings or losses of our non-consolidated joint venture in Spain. During fiscal year 2009, other income (expense)—net benefited by approximately $19.5 million as compared to fiscal year 2008, primarily driven by net foreign currency transaction gains in comparison to net losses in the prior fiscal year.

        Income Taxes.    Our effective income tax rate was 34.4% during fiscal year 2009, compared to 27.0% in fiscal year 2008. The prior fiscal year's income tax expense was favorably impacted by the recognition of previously unrecognized income tax benefits in connection with the completion of prior year income tax audits. For fiscal year 2010, we estimate our effective tax rate will approximate 36 to 37%, excluding any discrete events.

        Net Income.    Fiscal year 2009 net income attributable to Fossil, Inc. increased 0.8% to $139.2 million, or $2.07 per diluted share, in comparison to $138.1 million, or $2.02 per diluted share, in the prior fiscal year. Fiscal year 2009 earnings per diluted share of $2.07 included an approximate $0.07 diluted earnings per share benefit related to currency. Fiscal year 2008 diluted earnings per share included a benefit of approximately $0.20 per diluted share as a result of the reduction of certain tax reserves recorded in the fourth quarter of fiscal year 2008.

Fiscal 2008 Compared to Fiscal 2007

        Net Sales.    The following table illustrates by factor the total year-over-year percentage change in net sales by segment and on a consolidated basis:

	Exchange Rates			Organic Growth			Total Change
Europe wholesale		2.7	%		6.8	%		9.5	%
Other international wholesale		2.3			14.0			16.3
United States wholesale		—			2.6			2.6
Direct to consumer		(1.1	)		22.3			21.2
Consolidated		1.1	%		9.4	%		10.5	%

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        European Wholesale Net Sales.    The following discussion excludes the impact on sales attributable to foreign currency rate changes as noted in the above table. Shipments from our European wholesale segment expanded in fiscal year 2008 as a result of sales volume growth in licensed brand watches, FOSSIL jewelry and watches, and to a lesser extent, leather goods and licensed brand jewelry. We experienced growth across most of our major licensed brand watch businesses, with EMPORIO ARMANI®, MICHAEL KORS and DIESEL® increasing 5.5%, 101.4% and 11.0% in fiscal year 2008, respectively. These sales increases were partially offset by a sales volume decline in DKNY watches of 8.6% that we attribute to a moderating consumer response to core styles within the assortment. Whereas EMPORIO ARMANI and DIESEL watches have been distributed in our European wholesale segment for some time, the growth in our MICHAEL KORS watch business was primarily related to the introduction of this brand in fiscal 2007 and continued door growth throughout fiscal 2008. FOSSIL jewelry, watch and leather sales rose 12.9%, 5.5% and 27.1% in fiscal year 2008, respectively. We believe this growth was the result of consumers' positive response to our repositioning of the brand towards a unique modern vintage styling and aspirational viewpoint as well as increased brand awareness generated by the accelerated growth in our European retail store base. The bulk of our leather business has historically been distributed through the U.S. department store channel. However, we were able to expand the presence of this business in Europe during fiscal 2008 through some of our wholesale partners based upon the visibility and success of this product category within our own retail stores. Licensed brand jewelry sales rose primarily as a result of the introduction of DKNY jewelry that commenced in the third quarter of fiscal 2008. DKNY jewelry contributed $4.6 million to sales during fiscal year 2008, which was partially offset by a planned decrease of 25.7% in ARMANI jewelry as we were updating the line to stainless steel.

        Other International Wholesale Net Sales.    The following discussion excludes the impact on sales attributable to foreign currency rate changes as noted in the above table. The increase in wholesale shipments from our other international segment in fiscal year 2008 was the result of sales volume growth from our licensed brand and FOSSIL watches as well as increased penetration of our jewelry businesses. Increased licensed brand watch net sales were primarily attributable to EMPORIO ARMANI, DIESEL and MICHAEL KORS increasing 20.8%, 17.3% and 131.0%, respectively in fiscal year 2008, partially offset by a 10.1% decrease in DKNY. The decrease in our DKNY watch business was for similar reasons as explained above for our European wholesale segment. In fiscal 2008, the penetration levels of most of our businesses distributed in this region were much lower than those levels experienced in our U.S. and European wholesale markets. As a result, our growth in the other international segment in fiscal 2008 was primarily related to market share expansion in existing doors and growth in new doors as well as the recent expansion of our businesses into China, India and Korea. Additionally, introduction of new businesses, including MICHAEL KORS watches and OYZTERBAY, a regionally recognized jewelry brand in India acquired in the first half of fiscal 2008, and DKNY jewelry contributed a combined $8.3 million in net sales during fiscal year 2008.

        U.S. Wholesale Net Sales.    During fiscal year 2008, the increase in wholesale watch shipments in the U.S. was primarily the result of sales volume growth in licensed brand and MICHELE watches, partially offset by a sales volume decrease in FOSSIL watches. Licensed brand watch sales included a 108.4% increase from MICHAEL KORS and a 33.9% increase from EMPORIO ARMANI. We attribute the increases for both of these businesses to further penetration of the lines in the department store channel and new doors being added for MICHAEL KORS. These increases were partially offset by DKNY watches, which experienced a 25.3% net sales volume decline. The decrease in our DKNY watch business was for similar reasons as explained above for our European wholesale segment. MICHELE watch sales volume rose 20.8% during fiscal year 2008, primarily as a result of a significant reduction in the level of returns experienced during the year as compared to the prior fiscal year. The increased level of returns in fiscal 2007 was primarily driven by an accommodation made to ship more new styles and by the manner in which product was shipped. Watch heads and straps were shipped assembled together as a complete watch rather than being shipped separately. As a result, end of

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season fashion watches had to be returned to change the straps to current fashion colors. During fiscal 2008, the FOSSIL watch business represented the highest penetration level of our fashion watch brands within the moderate department store environment. As a result, its growth was mostly predicated on the overall performance of the moderate department store channel. We believe the 6.1% net sales decline in FOSSIL watches to be representative of the deteriorating economic conditions in the U.S. throughout 2008, which resulted in lower traffic levels in department stores and an overall decline in department store sales during 2008.

        Wholesale shipments from our other products category in the U.S., decreased 0.9% during fiscal year 2008. This decrease is attributable to sales volume declines in FOSSIL men's and women's leather categories of 24.7% and 2.9%, respectively, and a decrease in RELIC eyewear net sales of 26.5%. These declines were mostly offset by a 28.4% increase in RELIC women's handbags and a 138.6% increase in FOSSIL accessory jewelry that was introduced in the fourth quarter of fiscal year 2007. The sales volume decreases in our FOSSIL men's and women's leather categories were indicative of a weak, highly promotional retail environment that resulted in increased levels of markdown contributions within the U.S. moderate department store channel that negatively impacted our sales. Sales volume decreases in RELIC eyewear were principally related to a reduction in market share due to a contraction in the number of displays within one of our major customers in fiscal year 2008 as compared to fiscal year 2007. However, our RELIC handbag line continued to be a top performer within its distribution channel in fiscal year 2008. We believe this business benefited from its relative value proposition and consumers selectively shopping for lower-priced goods as the economy softened throughout 2008.

        Direct to Consumer Net Sales.    The following discussion excludes the impact on sales attributable to foreign currency rate changes as noted in the above table. Net sales from our direct to consumer segment increased 22.3% during fiscal year 2008, principally the result of a 28.5% increase in the average number of stores open during the year and comparable store sales increases of 2.3%. Additionally, contributing to our growth in the direct to consumer segment were our e-commerce businesses, which grew 22.9% during fiscal year 2008. This growth was attributable to increased sales from our German website that was launched during the second half of 2007, and to a lesser extent, a 6.5% increase in our U.S. based e-commerce business. Comparable store sales related to our full price accessory concept, which was our growth engine in this segment, increased by 2.1% globally while our global outlet stores experienced comparable store sales growth of 5.8% during fiscal year 2008.

        We ended fiscal year 2008 with 324 stores, including 191 full price accessory stores, 104 of which were located outside the U.S., 82 outlet locations, including 8 outside the U.S., 33 apparel stores and 18 multi-brand stores. This compares to 244 stores at the end of fiscal 2007, which included 113 full price accessory stores, 55 located outside the U.S., 80 outlet locations, including 6 outside the U.S., 33 apparel stores and 18 multi-branded stores. During fiscal year 2008, we opened 84 new stores, including 79 full-price accessory stores, and closed 4 stores.

        Gross Profit.    Gross profit increased by 14.7% to $851.2 million in fiscal year 2008, with gross profit margin expanding by 200 basis points to 53.8% compared to 51.8% in the prior fiscal year. The gross profit margin improvement was principally the result of an increase in the sales mix of our higher margin direct to consumer and international wholesale segments and an approximate 40 basis point improvement relating to the average weaker U.S. dollar in comparison to fiscal year 2007. Gross profit margin also improved as a result of our internal initiative, begun in late 2007, to lower our product cost on newly developed styles.

        Operating Expenses.    Total operating expenses of $645.4 million represented an increase of $89.8 million in comparison to the prior fiscal year and as a percentage of sales increased to 40.8% in fiscal year 2008 as compared to 38.8% in the prior fiscal year. Fiscal year 2008 operating expenses included approximately $7.3 million related to the translation impact of foreign-based expenses due to

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an average weaker U.S. dollar on a comparable year-over-year basis and approximately $10.6 million of non-cash charges related to the write-down of certain other than temporary investment, fixed asset, and intangible asset impairments. Fiscal year 2007 operating expenses included approximately $13.1 million related to our completed equity grant review. Additionally, the increase in operating expenses in fiscal year 2008 included an approximate $51 million increase in our direct to consumer segment and an approximate $36 million increase related to our wholesale businesses. The increase in our direct to consumer operating expenses primarily related to the impact of the direct operating costs associated with a net 80 new stores opened during fiscal year 2008, the expansion of our back office infrastructure to support a significantly higher number of stores opened globally and expenses associated with the expansion of our e-commerce and catalog operations. Operating expenses as a percentage of sales, excluding the impact of asset impairment charges and currency in fiscal year 2008 and expenses associated with our completed equity grant review in fiscal year 2007, increased 220 basis points compared to fiscal year 2007. Approximately $5 million, or 35 basis points, of this increase was due to the higher mix of direct to consumer expenses which partially offset the benefit of a higher gross margin resulting from increased direct to consumer sales. An additional $29.0 million in expenses, or 185 basis points, was related to our expenses growing at a slightly higher rate than sales, primarily due to lower fourth quarter sales than originally projected and the expansion of our retail back office infrastructure during fiscal year 2008.

        The following table sets forth consolidated operating expenses by segment and the percentage of net sales related to each respective segment for the periods indicated:

		In Millions
		2008					2007
Fiscal Year		Operating Expense		% of Net Sales			Operating Expense		% of Net Sales
Europe wholesale		$	170.5		32	%	$	144.2		30	%
Other international wholesale			75.7		28			64.4		28
United States wholesale			134.2		28			124.5		27
Direct to consumer			183.4		59			131.6		52
Corporate			81.6		—			90.8		—
	Total	$	645.4		41	%	$	555.5		39	%

        Operating Income.    Operating income increased 10.3% to $205.8 million in fiscal year 2008, compared to $186.5 million in fiscal year 2007. Operating income margin remained unchanged at 13.0% in fiscal year 2008 as compared to the prior fiscal year, as increased gross profit margin was offset by an increase in operating expenses as a percentage of net sales. Operating income included approximately $6.7 million of net currency gains in fiscal year 2008 related to the translation of foreign-based sales and expenses into U. S. dollars.

        Other Income (Expense)—Net.    During fiscal year 2008, other income (expense)—net increased unfavorably by approximately $19.3 million as compared to fiscal year 2007, primarily driven by increased foreign currency transaction losses partially offset by forward contract gains. As the U.S. dollar strengthened during the second half of fiscal year 2008, we recognized currency losses related to foreign currency payable balances denominated in U.S. dollars.

        Income Taxes.    Our effective income tax rate, attributable to Fossil, Inc. was 27.0% during fiscal year 2008 compared to 33.7% in fiscal year 2007. The lower effective tax rate in fiscal year 2008 was primarily attributable to the recognition of previously unrecognized income tax benefits in connection with the completion of prior year income tax audits.

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        Net Income.    Fiscal year 2008 net income attributable to Fossil, Inc. increased 12.0% to $138.1 million, or $2.02 per diluted share, in comparison to $123.3 million, or $1.75 per diluted share, in the prior year period. The fiscal year 2008 earnings per diluted share of $2.02 included an approximate $0.20 per diluted share benefit from a lower effective tax rate partially offset by an unfavorable $0.13 per diluted share impact related to currency and a $0.11 per diluted share charge for impairment. The fiscal year 2007 earnings per share of $1.75 included an approximate $0.13 per diluted share charge related to expenses associated with the Company's completed equity grant review.

Effects of Inflation

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

Liquidity and Capital Resources

        Historically, our business operations have not required substantial cash during the first quarter of our fiscal year. Generally, starting in the second quarter, our cash needs begin to increase, typically reaching a peak in the September-November time frame as we increase inventory levels in advance of the holiday season. Our quarterly cash requirements are also impacted by the number of new stores we open.

        Our cash and cash equivalent balances as of the end of fiscal year 2009 increased to $405.2 million in comparison to $172.0 million at the end of the prior fiscal year. Of the $405.2 million of cash and cash equivalents at fiscal year end 2009, $270.4 million was held in banks outside the U.S. The increase in our cash holdings is primarily the result of $266.0 million of net cash generated from operating activities partially offset by $38.3 million of cash used in investing activities. Cash flows generated from operating activities were principally driven by net income of $144.3 million, non-cash items of approximately $57.6 million and $44.6 million related to decreased inventory balances. Cash used in investing activities was primarily related to fixed asset additions of $37.7 million.

        Accounts receivable at the end of fiscal year 2009 increased by 1.9% to $209.8 million compared to $206.0 million at the end of fiscal year 2008, primarily due to an increase in wholesale shipments during the fourth quarter of fiscal 2009 versus the comparable prior year period. Average day's sales outstanding for our wholesale segments decreased to 54 days in fiscal year 2009 from 58 days in the prior fiscal year, primarily driven by a reduction in sales mix of internationally-based sales that generally result in longer collection cycles than those experienced in the U.S. Inventory at fiscal year end 2009 was $245.7 million, representing a decrease of 15.8% from the 2008 fiscal year-end balance of $292.0 million. Our inventory decline for fiscal 2009 is well above our net sales decline of 2.2%

        At the end of fiscal year 2009, we had working capital of $701.2 million compared to $556.5 million at the end of the prior fiscal year. We had approximately $8.1 million of total indebtedness at the end of fiscal 2009, consisting of $3.6 million of short-term borrowings and $4.5 million of long-term debt. This compares to total indebtedness of $10.0 million in fiscal 2008, consisting of $5.3 million of outstanding short-term borrowings and $4.7 million of long-term debt. The majority of our short-term borrowings are attributable to our Japan subsidiary, which ended fiscal 2009 with short-term borrowings of approximately $3.2 million, compared to $4.9 million at the end of fiscal 2008. These borrowings are under two separate 150 million Yen short-term credit facilities (approximately $3.2 million U.S. dollars based upon the fiscal year end 2009 Yen exchange rate to the U.S. dollar), one bearing interest at the short-term prime rate (1.475% at fiscal year-end 2009) and one bearing interest based upon the Tokyo Interbank Offer Rate (1.475% as of fiscal year-end 2009).

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Borrowings under these Japanese facilities are primarily related to working capital needs and are due in March 2010.

        At the end of fiscal year 2009, the majority of our long-term debt is attributable to our wholly-owned subsidiary, Fossil Group Europe, Gmbh, ("FGE"). FGE had outstanding long-term borrowings in the form of a term note of $3.6 million at the end of fiscal year 2009 compared to approximately $3.5 million at the end of fiscal year 2008. This note has a variable interest term with an interest rate of 2.0% at year-end fiscal 2009 with interest payments due quarterly. This note requires minimum principal payments of 100,000 Swiss Francs each year with no stated maturity and no penalties for early termination.

        At the end of fiscal year 2009, we had no outstanding borrowings under our $100 million U.S. Short-Term Revolving Credit Facility ("the Revolver") with Wells Fargo Bank, N.A. ("Wells Fargo"). Amounts outstanding under the Revolver bear interest at our option of (i) the lesser of (a) the higher of the prime rate (3.25% at fiscal year-end 2009) plus 1.5% or 3% or (b) the maximum rate allowed by law or (ii) the London Interbank Offer Rate, ("LIBOR"), base rate (0.23% at fiscal year-end 2009) plus one-half percent. The Revolver is secured by 65% of the issued and outstanding shares of certain of our subsidiaries pursuant to a Stock Pledge Agreement and requires the maintenance of net worth, quarterly income, working capital and certain financial ratios. The Revolver has an expiration date in November 2010 and allows for an increase from $100 million to $200 million upon our request and approval of Wells Fargo. Available borrowings under our Revolver are reduced by $32.2 million of open letters of credit and by amounts outstanding under foreign based borrowing arrangements. At the end of fiscal year 2009, we had available borrowings of approximately $67.8 million under the Revolver and we were in compliance with all debt covenants.

        During fiscal year 2010, we anticipate total capital expenditures of approximately $55 million to $65 million principally to support new company-owned retail store openings, store remodels, the costs associated with the continued roll-out of a SAP point of sale system for our company-owned retail stores which began in fiscal 2009 and other general maintenance capital requirements. We believe that cash flow from operations combined with existing cash on hand and, if necessary, amounts available under our Revolver will be sufficient to fund our working capital needs and planned capital expenditures for the next twelve months.

Contractual Obligations

	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
	(in thousands)
Debt obligations(1)	$	6,908	$	3,321	$	194	$	194	$	3,199
Minimum royalty payments(2)		224,029		60,363		107,881		55,785		—
Capital lease obligations		1,277		308		598		371		—
Operating lease obligations		398,090		63,712		108,839		88,318		137,221
Purchase obligations(3)		85,089		84,799		290		—		—
Uncertain tax positions(4)		17,018		17,018		—		—		—
Total contractual cash obligations	$	732,411	$	229,521	$	217,802	$	144,668	$	140,420

(1)

Consists of borrowings in Japan and Switzerland, excluding contractual interest payments that are variable in nature.

(2)

Consists primarily of exclusive licenses to manufacture watches and jewelry under trademarks not owned by us. Also includes amounts owed pursuant to various license and design service agreements under which we are obligated to pay the licensors a percentage of our net sales of these licensed products, subject to minimum scheduled royalty, design and advertising payments.

60

(3)

Consists primarily of outstanding letters of credit, which represent inventory purchase commitments that typically mature in one to eight months and open non-cancelable purchase orders.

(4)

Management has only included its current ASC 740 liability in the table above. Long-term amounts of $17.0 million have been excluded because the payment timing cannot be reasonably estimated.

Off Balance Sheet Arrangements

        None.

Selected Quarterly Financial Data

        The table below sets forth selected quarterly financial information. The information is derived from our unaudited consolidated financial statements 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. Certain line items presented in the tables below, when aggregated, may not agree with the corresponding line items on the Company's Consolidated Statements of Income and Comprehensive Income for fiscal years 2009 and 2008 due to rounding.

Fiscal Year 2009		1st Qtr			2nd Qtr			3rd Qtr			4th Qtr
		AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
Net sales		$	323,027		$	315,865		$	381,362		$	527,839
Gross profit			169,379			167,182			210,737			297,552
Operating expenses			145,576			144,706			153,373			189,568
Operating income			23,803			22,476			57,364			107,984
Income before income taxes			28,423			26,957			55,654			108,864
Provision for income taxes			9,927			9,709			19,109			36,859
Net income			18,496			17,248			36,545			72,005
Net income attributable to noncontrolling interest			1,176			625			1,270			2,034
Net income attributable to Fossil, Inc.			17,320			16,623			35,275			69,971
Earnings per share:
	Basic		0.26			0.25			0.53			1.05
	Diluted		0.26			0.25			0.52			1.03
Gross profit as a percentage of net sales			52.4	%		52.9	%		55.3	%		56.4	%
Operating expenses as a percentage of net sales			45.1	%		45.8	%		40.2	%		35.9	%
Operating income as a percentage of net sales			7.4	%		7.1	%		15.0	%		20.5	%

61

Fiscal Year 2008		1st Qtr			2nd Qtr			3rd Qtr			4th Qtr
		AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
Net sales		$	356,184		$	353,191		$	409,760		$	464,106
Gross profit			194,251			190,339			224,177			242,384
Operating expenses			145,136			155,378			160,439			184,427
Operating income			49,115			34,961			63,738			57,957
Income before income taxes			49,039			33,654			60,967			50,544
Provision for income taxes			17,888			7,147			23,447			3,869
Net income			31,151			26,507			37,520			46,675
Net income attributable to noncontrolling interest			934			1,370			1,049			403
Net income attributable to Fossil, Inc			30,217			25,137			36,471			46,272
Earnings per share:
	Basic		0.44			0.37			0.54			0.70
	Diluted		0.43			0.36			0.54			0.69
Gross profit as a percentage of net sales			54.5	%		53.9	%		54.7	%		52.2	%
Operating expenses as a percentage of net sales			40.7	%		44.0	%		39.2	%		39.7	%
Operating income as a percentage of net sales			13.8	%		9.9	%		15.6	%		12.5	%

        While the majority of our products are not seasonal in nature, a significant portion of our net sales and operating income is generally derived in the second half of the year. Our third and fourth quarters, which include the "back to school" and Christmas season, have historically generated a significant portion of our 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 our control. In general, lower levels of inventory held by retailers at the end of the Christmas season may have a positive impact on our net sales and operating income in the first quarter of the following year as a result of higher levels of restocking orders placed by retailers. We currently believe that our inventory levels for certain of our customers in the U.S. at the end of fiscal year 2009 were below their targeted inventory levels.

        As we continue to grow our retail store base and e-commerce businesses, sales from our direct to consumer segment increase as a percentage of the total sales mix, benefiting the Company's profitability in the fourth quarter, generally at the expense of the first and second quarters when, due to seasonality, it is more difficult to leverage direct to consumer expenses against direct to consumer sales. In addition, new product launches would generally augment the sales and operating expense 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 us.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

        As a multinational enterprise, we are exposed to changes in foreign currency exchange rates. Our most significant foreign currency risk relates to the Euro and, to a lesser extent, the British Pound, Australian Dollar, Canadian Dollar, Japanese Yen and Mexican Peso as compared to the U.S. dollar. Due to our vertical nature whereby a significant portion of goods are sourced from our owned facilities, the foreign currency risks relate primarily to the necessary current settlement of intercompany inventory transactions. We employ a variety of operating practices to manage these market risks relative to foreign currency exchange rate changes and, where deemed appropriate, utilize foreign currency forward contracts. These operating practices include, among others, our ability to convert foreign currency into U.S. dollars at spot rates and to maintain U.S. dollar pricing relative to sales of our products to certain distributors located outside the U.S. The use of foreign currency forward contracts allows us to offset exposure to rate fluctuations because the gains or losses incurred on the derivative

62

instruments will offset, in whole or in part, losses or gains on the underlying foreign currency exposure. We use derivative instruments only for risk management purposes and do not use them for speculation or for trading. There were no significant changes in how we managed foreign currency transactional exposure in fiscal year 2009 and management does not anticipate any significant changes in such exposures or in the strategies we employ to manage such exposure in the near future.

        At January 2, 2010, we had outstanding foreign exchange contracts to sell 84.7 million Euro for approximately $121.5 million, expiring through December 2010, 2.0 billion Japanese Yen for approximately $21.8 million, expiring through June 2011, 3.0 million British Pounds for approximately $4.7 million, expiring through June 2010, 7.0 million Australian Dollars for approximately $5.8 million, expiring through June 2010, 31.4 million Mexican Pesos for approximately $2.4 million, expiring through June 2010 and 10.5 million Canadian Dollars for approximately $10.0 million, expiring through January 2011. If we were to settle our Euro, Japanese Yen, British Pound, Australian Dollar, Mexican Peso and Canadian Dollar based contracts at fiscal year-end 2009, the net result would be a net loss of approximately $17,000, net of taxes.

        At fiscal year-end 2009, a 10% unfavorable change in the U.S. dollar strengthening against foreign currencies to which we have balance sheet transactional exposures would have reduced net pre-tax income by $9.6 million. The translation of the balance sheets of our foreign-based operations from their local currencies into U.S. dollars is also sensitive to changes in foreign currency exchange rates. At fiscal year-end 2009, a 10% unfavorable change in the exchange rate of the U.S. dollar strengthening against the foreign currencies to which we have exposure would have reduced consolidated stockholders' equity by approximately $38.5 million. In the view of management, these hypothetical losses resulting from these assumed changes in foreign currency exchange rates are not material to our consolidated financial position, results of operations or cash flows.

63

Item 8.    Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Fossil, Inc.
Richardson, Texas

        We have audited the accompanying consolidated balance sheets of Fossil, Inc. and subsidiaries (the "Company") as of January 2, 2010 and January 3, 2009, and the related consolidated statements of income and comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended January 2, 2010. Our audits also included the consolidated financial statement schedule listed in the Index at Item 15. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and consolidated financial statement schedule based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (U.S.). 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 as of January 2, 2010 and January 3, 2009, and the results of their operations and their cash flows for each of the three years in the period ended January 2, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

        As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for noncontrolling interest in accordance with Accounting Standard Codification 810, Consolidations (formerly Statement of Financial Accounting Standards No. 160 Noncontrolling Interests in Consolidated Financial Statements) and retrospectively adjusted all periods presented in the consolidated financial statements.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of January 2, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2010, expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Dallas, Texas
March 3, 2010

64

FOSSIL, INC.

CONSOLIDATED BALANCE SHEETS

AMOUNTS IN THOUSANDS

Fiscal Year				2009		2008
Assets
Current assets:
	Cash and cash equivalents			$	405,175	$	172,012
	Securities available for sale				7,995		6,436
	Accounts receivable—net				209,784		205,973
	Inventories—net				245,714		291,955
	Deferred income tax assets—net				28,937		27,006
	Prepaid expenses and other current assets				48,868		60,084
		Total current assets			946,473		763,466
Investments					13,730		13,011
Property, plant and equipment—net					212,367		207,328
Goodwill					44,266		43,217
Intangible and other assets—net					59,647		60,274
		Total long-term assets			330,010		323,830
	Total assets			$	1,276,483	$	1,087,296
Liabilities and Stockholders' Equity
Current liabilities:
	Short-term debt			$	3,618	$	5,271
	Accounts payable				103,591		91,027
	Accrued expenses:
		Compensation			39,773		34,091
		Royalties			16,774		17,078
		Co-op advertising			18,498		21,869
		Other			29,618		30,306
	Income taxes payable				33,408		7,327
		Total current liabilities			245,280		206,969
Long-term income taxes payable					18,840		38,784
Deferred income tax liabilities					27,039		22,880
Long-term debt					4,538		4,733
Other long-term liabilities					12,374		8,567
		Total long-term liabilities			62,791		74,964
Stockholders' equity:
	Common stock, 66,900 and 66,502 shares issued for 2009 and 2008, respectively				669		665
	Additional paid-in capital				93,037		81,905
	Retained earnings				834,615		695,427
	Accumulated other comprehensive income				34,460		24,147
	Noncontrolling interest				5,631		3,219
			Total stockholders' equity		968,412		805,363
	Total liabilities and stockholders' equity			$	1,276,483	$	1,087,296

See notes to the consolidated financial statements.

65

FOSSIL, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA

Fiscal Year			2009			2008			2007
Net sales			$	1,548,093		$	1,583,242		$	1,432,984
Cost of sales				703,243			732,091			690,953
		Gross profit		844,850			851,151			742,031
Operating expenses:
		Selling and distribution		478,637			489,600			398,602
		General and administrative		154,586			155,781			156,944
Total operating expenses				633,223			645,381			555,546
Operating income				211,627			205,770			186,485
Interest expense				235			555			890
Other income (expense)—net				8,506			(11,011	)		8,319
Income before income taxes				219,898			194,204			193,914
Provision for income taxes				75,604			52,351			65,426
	Net income			144,294			141,853			128,488
		Less: Net income attributable to noncontrolling interest		5,106			3,756			5,227
Net income attributable to Fossil, Inc.			$	139,188		$	138,097		$	123,261
Other comprehensive income (loss), net of taxes:
		Currency translation adjustment		13,584			(18,790	)		20,215
		Unrealized gain (loss) on securities available for sale		1,093			(749	)		(707	)
		Forward contracts hedging intercompany foreign currency payments—change in fair values		(4,364	)		7,213			(3,060	)
	Total comprehensive income			154,607			129,527			144,936
		Less: Comprehensive income attributable to noncontrolling interest		5,105			3,752			5,223
		Comprehensive income attributable to Fossil, Inc.	$	149,502		$	125,775		$	139,713
Earnings per share:
		Basic	$	2.09		$	2.05		$	1.81
		Diluted	$	2.07		$	2.02		$	1.75
Weighted average common shares outstanding:
		Basic		66,684			67,525			68,213
		Diluted		67,153			68,323			70,333

See notes to the consolidated financial statements.

66

FOSSIL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AMOUNTS IN THOUSANDS

																Accumulated other comprehensive income (loss)
	Common stock
																			Unrealized gain (loss) on securities available for sale			Unrealized gain (loss) on forward contracts
	Shares			Par value			Additional paid-in capital			Treasury stock			Retained earnings			Cumulative translation adjustment									Net Parent Investment			Noncontrolling Interest			Total Stockholders' Equity
Balance, January 6, 2007		67,794		$	678		$	53,459		$	(1,337	)	$	529,376		$	20,344		$	19		$	(338	)	$	602,201		$	4,102		$	606,303
Common stock issued upon exercise of stock options and stock appreciation rights		2,330			23			28,414			623			—			—			—			—			29,060			—			29,060
Tax benefit derived from stock-based compensation		—			—			17,727			—			—			—			—			—			17,727			—			17,727
Repurchase and retirement of common stock		(498	)		(5	)		(18,783	)		2,579			—			—			—			—			(16,209	)		—			(16,209	)
Restricted stock issued in connection with deferred compensation plan		87			1			(1	)		—			—			—			—			—			—			—			—
Restricted stock forfeiture put to treasury		—			—			1,035			(1,865	)		—			—			—			—			(830	)		—			(830	)
Stock-based compensation expense		—			—			6,149			—			—			—			—			—			6,149			—			6,149
FIN 48 adoption		—			—			—			—			(6,145	)		—			—			—			(6,145	)		—			(6,145	)
Net income		—			—			—			—			123,261			—			—			—			123,261			5,227			128,488
Unrealized loss on securities available for sale		—			—			—			—			—			—			(707	)		—			(707	)		—			(707	)
Purchase of Noncontrolling Interest		—			—			—			—			—			—			—			—			—			(989	)		(989	)
Currency translation adjustment		—			—			—			—			—			20,215			—			—			20,215			(4	)		20,211
Distribution of noncontrolling interest earnings		—			—			—			—			—			—			—			—			—			(2,209	)		(2,209	)
Forward contracts hedging intercompany foreign currency payments—change in fair values		—			—			—			—			—			—			—			(3,060	)		(3,060	)		—			(3,060	)
Balance, January 5, 2008		69,713			697			88,000			—			646,492			40,559			(688	)		(3,398	)		771,662			6,127			777,789
Common stock issued upon exercise of stock options and stock appreciation rights		326			3			4,142			764			—			—			—			—			4,909			—			4,909
Tax expense derived from stock-based compensation		—			—			(447	)		—			—			—			—			—			(447	)		—			(447	)
Repurchase and retirement of common stock		(3,660	)		(36	)		(17,353	)		678			(89,162	)		—			—			—			(105,873	)		—			(105,873	)
Restricted stock issued in connection with deferred compensation plan		123			1			(1	)		—			—			—			—			—			—			—			—
Restricted stock forfeiture put to treasury		—			—			311			(1,442	)		—			—			—			—			(1,131	)		—			(1,131	)
Stock-based compensation expense		—			—			7,253			—			—			—			—			—			7,253			—			7,253
Net income		—			—			—			—			138,097			—			—			—			138,097			3,756			141,853
Unrealized loss on securities available for sale		—			—			—			—			—			—			(749	)		—			(749	)		—			(749	)
Currency translation adjustment		—			—			—			—			—			(18,790	)		—			—			(18,790	)		(4	)		(18,794	)
Distribution of noncontrolling interest earnings		—			—			—			—			—			—			—			—			—			(6,660	)		(6,660	)
Forward contracts hedging intercompany foreign currency payments—change in fair values		—			—			—			—			—			—			—			7,213			7,213			—			7,213
Balance, January 3, 2009		66,502			665			81,905			—			695,427			21,769			(1,437	)		3,815			802,144			3,219			805,363
Common stock issued upon exercise of stock options and stock appreciation rights		314			3			3,753			—			—			—			—			—			3,756			—			3,756
Tax benefit derived from stock-based compensation		—			—			1,166			—			—			—			—			—			1,166			—			1,166
Repurchase and retirement of common stock		(45	)		—			(785	)		785			—			—			—			—			—			—			—
Restricted stock issued in connection with deferred compensation plan		129			1			(1	)		—			—			—			—			—			—			—			—
Restricted stock forfeiture put to treasury		—			—			212			(785	)		—			—			—			—			(573	)		—			(573	)
Stock-based compensation expense		—			—			6,787			—			—			—			—			—			6,787			—			6,787
Net income		—			—			—			—			139,188			—			—			—			139,188			5,106			144,294
Unrealized gain on securities available for sale		—			—			—			—			—			—			1,093			—			1,093			—			1,093
Currency translation adjustment		—			—			—			—			—			13,584			—			—			13,584			(1	)		13,583
Distribution of noncontrolling interest earnings		—			—			—			—			—			—			—			—			—			(2,693	)		(2,693	)
Forward contracts hedging intercompany foreign currency payments—change in fair values		—			—			—			—			—			—			—			(4,364	)		(4,364	)		—			(4,364	)
Balance, January 2, 2010		66,900		$	669		$	93,037		$	—		$	834,615		$	35,353		$	(344	)	$	(549	)	$	962,781		$	5,631		$	968,412

See notes to consolidated financial statements

67

FOSSIL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

AMOUNTS IN THOUSANDS

Fiscal Year				2009			2008			2007
Operating Activities:
Net income				$	144,294		$	141,853		$	128,488
Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation, amortization and accretion			41,334			37,642			32,796
		Stock-based compensation			6,787			7,253			6,148
		(Decrease) increase in allowance for returns—net of related inventory in transit			(557	)		2,406			3,459
		Loss (gain) on disposal of assets			618			154			(82	)
		Impairment loss			5,232			10,570			170
		Equity in income of joint venture			(449	)		(1,562	)		(2,202	)
		Distribution from joint venture			—			955			—
		Increase in allowance for doubtful accounts			2,599			3,441			111
		Excess tax benefits from stock based compensation			(1,166	)		(574	)		(17,727	)
		Deferred income taxes			3,235			1,106			(3,952	)
Changes in operating assets and liabilities, net of effects of acquisitions:
		Income taxes payable			7,303			(32,840	)		38,123
		Accrued expenses			1,777			(13,351	)		34,895
		Inventories			44,569			(45,558	)		(20,063	)
		Prepaid expenses and other current assets			8,491			(1,497	)		(19,875	)
		Accounts payable			6,101			(18,756	)		27,650
		Accounts receivable			(4,180	)		17,712			(75,975	)
			Net cash from operating activities		265,988			108,954			131,964
Investing Activities:
	Additions to property, plant and equipment				(37,687	)		(63,934	)		(40,246	)
	Business acquisitions, net of cash acquired				—			—			(1,582	)
	Increase in intangible and other assets				(385	)		(23,664	)		(6,834	)
	Purchase of securities available for sale				(1,237	)		(7,106	)		(10,372	)
	Sales/maturities of securities available for sale				938			12,386			4,508
	Proceeds from sale of property, plant and equipment				76			791			1,984
			Net cash used in investing activities		(38,295	)		(81,527	)		(52,542	)
Financing Activities:
	Acquisition and retirement of common stock				—			(105,873	)		(16,209	)
	Distribution of noncontrolling interest earnings				(2,693	)		(6,660	)		(2,209	)
	Excess tax benefits from stock based compensation				1,166			574			17,727
	Borrowings on notes payable				5,111			114,462			1,361
	Payments on notes payable				(7,055	)		(120,216	)		—
	Proceeds from exercise of stock options				3,756			4,909			29,060
			Net cash from (used in) financing activities		285			(112,804	)		29,730
Effect of exchange rate changes on cash and cash equivalents					5,185			2,145			12,788
Net increase (decrease) in cash and cash equivalents					233,163			(83,232	)		121,940
Cash and cash equivalents:
Beginning of year					172,012			255,244			133,304
End of year				$	405,175		$	172,012		$	255,244

See notes to the consolidated financial statements.

68

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). References to 2009, 2008 and 2007 are for the fiscal years ended January 2, 2010, January 3, 2009, and January 5, 2008, respectively. All 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 accessories on a global basis. The Company's products are sold primarily through department stores, specialty retailers and Company-owned retail stores worldwide.

Use of Estimates are required in the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Management makes 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to product returns, allowance for bad debt, inventories, long-lived asset impairment, impairment of goodwill and trade names, income taxes, warranty costs, hedge accounting, litigation, reserves and stock-based compensation. Management bases its estimates and judgments on historical experience and on various other factors that it believes are reasonable under the circumstances. Management estimates form the basis for making judgments about the carrying value of the assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions.

        Concentration of Risk.    Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash investments and accounts receivable. The Company places its cash investments with high-credit quality financial institutions and currently invests primarily in corporate debt securities and money market funds with major banks and financial institutions. Accounts receivable are generally diversified due to the number of entities comprising the Company's customer base and their dispersion across many geographic regions. The Company believes no significant concentration of credit risk exists with respect to these cash investments and accounts receivable.

        A significant portion of sales of the Company's products are supplied by manufactures located outside of the U.S., primarily in Asia. While the Company is not dependent on any single manufacturer outside the U.S., the Company could be adversely affected by political or economic disruptions affecting the business or operations of third-party manufacturers located outside of the U.S.

        In fiscal years 2009 and 2008, three of the Company's majority owned assembly factories represented more than 50% of the Company's total watch assembly and jewelry production.

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

Securities Available for Sale consists of debt securities with original maturities exceeding three months and mutual fund investments. By policy, the Company invests primarily in high-grade marketable securities. Unrealized holding gains (losses) are included in accumulated other comprehensive income (loss) as a component of stockholders' equity. During fiscal year 2008, $800,000 of losses previously classified in accumulated other comprehensive income (loss) were reclassified into

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Significant Accounting Policies (Continued)

earnings to recognize an other than temporary decline in fair value. No adjustments were recorded in fiscal years 2009 or 2007 for other than temporary declines in fair value.

Accounts Receivable are stated net of allowances of approximately $40.0 million and $42.2 million for estimated customer returns and approximately $16.0 million and $13.4 million for doubtful accounts at the close of fiscal years 2009 and 2008, respectively.

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

Investments in which the Company has significant influence over the investee are accounted for utilizing the equity method. If the Company does not have significant influence over the investee, the cost method is utilized.

Property, Plant and Equipment is 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 thirty years for buildings, five years for furniture and fixtures and three to seven years for computer equipment and software. Leasehold improvements are amortized over the shorter of the lease term or the asset's useful life.

        Property, plant and equipment and other long-lived assets are evaluated for impairment whenever events or conditions indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows related to the asset. Impairment losses related to under-performing Company-owned retail stores of approximately $2.5 million and $1.9 million were recorded in 2009 and 2008, respectively, and are included in selling and distribution expense.

Goodwill and Other Intangible Assets include the cost in excess of net tangible assets acquired (goodwill), trademarks, trade names, customer lists and patents. Trademarks, customer lists and patents are amortized using the straight-line method over the estimated useful lives of generally seven to twenty years. Goodwill and other indefinite-lived intangible assets such as trade names related to business combinations are tested at least annually for impairment rather than amortized. Impairment testing compares the carrying amount of the asset with its fair value. Fair value is estimated based on the market approach and discounted cash flows. When the carrying amount of the asset exceeds its fair value, an impairment charge would be recorded. The Company completed the required annual testing for impairment for fiscal year-end 2009, 2008 and 2007. Pre-tax impairment charges of $2.7 million and $7.9 million, were recorded in fiscal years 2009 and 2008, respectively, for certain trade names. No impairment adjustments were made in fiscal year 2007. See Note 6—Intangibles and Other Assets, for an expanded explanation of impairment to the Company's trade names.

Warranty Liability is recorded using historical warranty repair experience. As changes in warranty costs are experienced, the warranty accrual is adjusted as necessary. The warranty liability recorded for fiscal years 2009, 2008 and 2007 was $6.4 million, $4.6 million and $3.5 million, respectively.

Cumulative Translation Adjustment is included as a component of other comprehensive income (loss) and reflects the adjustments resulting from translating the financial statements of foreign subsidiaries. The functional currency of the Company's foreign subsidiaries is the currency of the primary economic environment in which the entity operates which is generally 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 daily or average monthly rates. Changes in exchange rates that affect cash flows and the related receivables or payables are

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Significant Accounting Policies (Continued)

recognized as transaction gains and losses in the determination of net income. The Company incurred net foreign currency transaction gains of approximately $5.8 million in 2009, and losses of approximately $16.9 million and $826,000 in 2008 and 2007, respectively, which have been included in other income (expense)—net.

Forward Contracts are entered into by the Company principally to hedge the future payment of intercompany inventory transactions by its non-U.S. subsidiaries. These cash flow hedges are stated at estimated fair value and changes in fair value are reported as a component of other comprehensive income (loss), net of taxes. If the Company were to settle its Euro, Canadian Dollar, Japanese Yen, British Pound, Australian Dollar, and Mexican Peso based contracts at fiscal year-end 2009, the result would be a net loss of approximately $17,000, net of taxes. This unrealized loss is recognized in other comprehensive income (loss), net of taxes. Additionally, to the extent that any of these contracts are not considered to be perfectly effective in offsetting the change in the value of the cash flows being hedged, any changes in fair value relating to the ineffective portion of these contracts would be recognized in other income (expense)—net included in the consolidated statements of income and comprehensive income. See Note 7—Derivatives and Risk Management, for an expanded explanation of the Company's use of forward contracts.

Litigation Reserves are estimated amounts for claims that are probable and can be reasonably estimated and are recorded as liabilities in the consolidated balance sheet. The likelihood of a material change in these estimated reserves would be dependent on new claims as they may arise and the expected favorable or unfavorable outcome of each claim. As additional information becomes available, the Company assesses the potential liability related to new claims and existing claims and revises estimates as appropriate. As new claims arise, revisions in estimates of the potential liability could materially impact the Company's results of operations and our financial position.

Stock-Based Compensation is accounted for in accordance with the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123(R), Share-Based Payment (now codified within Accounting Standards Codification ("ASC") 718 Compensation—Stock Compensation). The Company utilizes the Black-Scholes model, which requires the input of subjective assumptions. These assumptions include estimating (a) the length of time employees will retain their vested stock options before exercising them ("expected term"), (b) the volatility of the Company's common stock price over the expected term, and (c) the number of options that will be forfeited. Changes in these assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense amounts recognized on the consolidated statements of operations.

Revenues are recognized at the point title and the risks and rewards of ownership have passed to the customer, based on the terms of sale. The Company accepts limited returns and may request that a customer return a product if the customer has an excess of any style that the Company has identified as being a poor performer for that customer or geographic location. The Company continually monitors returns and maintains a provision for estimated returns based upon historical experience and any specific issues identified. Product returns are accounted for as reductions to revenue, cost of sales, accounts receivable and an increase in inventory to the extent such product is resalable. While returns have historically been within management's expectations and the provisions established, future return rates may differ from those experienced in the past. In the event that the Company's products are performing poorly in the retail market and/or it experiences product damages or defects at a rate significantly higher than the historical rate, the resulting returns could have an adverse impact on the

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Significant Accounting Policies (Continued)

operating results for the period or periods in which such returns materialize. Taxes imposed by governmental authorities on the Company's revenue-producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales.

Cost of Sales includes raw material costs, assembly labor, assembly overhead including depreciation expense, assembly warehousing costs and shipping and handling costs related to the movement of finished goods from assembly locations to sales distribution centers and from sales distribution centers to customer locations. Additionally, cost of sales includes customs duties, product packaging cost, royalty cost associated with sales of licensed products, the cost of molding and tooling and inventory shrinkage and damages.

Selling and Distribution Expenses include sales and distribution labor costs, sales distribution center and warehouse costs, depreciation expense related to sales distribution and warehouse facilities, point-of-sale expenses and advertising expenses.

General and Administrative Expenses include administrative support labor and "back office" or support costs such as treasury, legal, information services, accounting, internal audit, human resources and executive management costs. General and Administrative Expenses also include costs associated with stock-based compensation.

Advertising Costs for in-store and media advertising as well as co-op advertising, catalog costs, product displays, show/exhibit costs, advertising royalty related to the sales of licensed brands, internet costs associated with affiliation fees, printing costs and promotional allowances are expensed as incurred. Advertising expenses were approximately $85.6 million, $97.1 million and $88.7 million for 2009, 2008 and 2007, respectively.

Noncontrolling Interest, formerly defined as minority interest, is recognized as equity in the consolidated balance sheets, is reflected in net income attributable to noncontrolling interests in consolidated net income and is captured within a summary of changes in equity attributable to controlling and noncontrolling interests. A noncontrolling interest emphasizes the Company's substantive control over a subsidiary rather than a simple ownership percentage as with minority interest.

        Earnings Per Share ("EPS").    Basic EPS is based on the weighted average number of common shares outstanding during each period. Diluted EPS includes Basic EPS plus the effects of dilutive common stock equivalents outstanding during each period using the treasury stock method.

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Significant Accounting Policies (Continued)

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

Fiscal Year				2009		2008		2007
				IN THOUSANDS, EXCEPT PER SHARE DATA
Numerator:
	Net income attributable to Fossil, Inc.			$	139,188	$	138,097	$	123,261
Denominator:
	Basic EPS computations:
	Basic weighted average common shares outstanding				66,684		67,525		68,213
			Basic EPS	$	2.09	$	2.05	$	1.81
	Diluted EPS computation:
	Basic weighted average common shares outstanding				66,684		67,525		68,213
	Stock options, stock appreciation rights and restricted stock units				469		798		2,120
		Diluted weighted average common shares outstanding			67,153		68,323		70,333
			Diluted EPS	$	2.07	$	2.02	$	1.75

        Approximately 812,000, 392,000, and 3,000 weighted average shares issuable under stock-based awards were not included in the diluted EPS calculation in 2009, 2008 and 2007, respectively, because they were antidilutive. These common share equivalents may be dilutive in future EPS calculations.

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. Effective January 7, 2007, the Company adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (now codified within ASC 740, Income Taxes ("ASC 740")) which addresses how the benefit of tax positions taken or expected to be taken on a tax return should be recorded in the financial statements. Tax benefits associated with uncertain tax positions are recognized in the period in which one of the following conditions is satisfied: (1) the more likely than not recognition threshold is satisfied; (2) the position is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the taxing authority to examine and challenge the position has expired. Tax benefits associated with an uncertain tax position are derecognized in the period in which the more likely than not recognition threshold is no longer satisfied.

Newly Issued Accounting Standard Updates

        In February 2010, FASB issued ASU 2010-9 Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements ("ASU 2010-9"). ASU 2010-9 amends disclosure requirements within Subtopic 855-10. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC's requirements. ASU 2010-9 is effective for interim and annual periods ending after June 15, 2010. The Company does not expect the adoption of ASU 2010-09 to have a material impact on its consolidated results of operations or financial position.

        In January 2010, FASB issued ASU 2010-6 Improving Disclosures about Fair Measurements ("ASU 2010-6"). ASU 2010-6 provides amendments to subtopic 820-10 that require separate disclosure

73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Significant Accounting Policies (Continued)

of significant transfers in and out of Level 1 and Level 2 fair value measurements and the presentation of separate information regarding purchases, sales, issuances and settlements for Level 3 fair value measurements. Additionally, ASU 2010-6 provides amendments to subtopic 820-10 that clarify existing disclosures about the level of disaggregation and inputs and valuation techniques. ASU 2010-6 is effective for financial statements issued for interim and annual periods ending after December 15, 2010. The Company does not expect the adoption of ASU 2010-06 to have a material impact on its consolidated results of operations or financial position.

        In January 2010, FASB issued ASU 2010-2 Accounting and Reporting for Decreases in Ownership of a Subsidiary- a Scope Clarification ("ASU 2010-2"). ASU 2010-2 addresses implementation issues related to the changes in ownership provisions in the Consolidation—Overall Subtopic (Subtopic 810-10) of the FASB Accounting Standards Codification, originally issued as FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. Subtopic 810-10 establishes the accounting and reporting guidance for noncontrolling interests and changes in ownership interests of a subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. ASU 2010-2 is effective for the Company starting January 3, 2010. The Company does not expect the adoption of ASU 2010-2 to have a material impact on the Company's consolidated results of operations or financial position.

        In December 2009, FASB issued ASU 2009-17 Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities ("ASU 2009-17"). ASU 2009-17 amends the FASB ASC for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). The amendments in ASU 2009-17 replace the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. ASU 2009-17 also requires additional disclosures about an enterprise's involvement in variable interest entities. ASU 2009-17 is effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009. The Company does not expect the adoption of ASU 2009-17 to have a material impact on its consolidated results of operations or financial position.

        In December 2009, FASB issued ASU 2009-16 Transfers and Servicing (Topic 860) Accounting for Transfers of Financial Assets ("ASU 2009-16"). ASU 2009-16 amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140. The amendments in ASU 2009-16 improve financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. ASU 2009-16 is effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009.

74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Significant Accounting Policies (Continued)

The Company does not expect the adoption of ASU 2009-16 to have a material impact on its consolidated results of operations or financial position.

Newly Adopted Accounting Standard Codification

        In August 2009, FASB issued ASU 2009-5 Fair Value Measurements and Disclosures (Topic 820) Measuring Liabilities at Fair Value ("ASU 2009-5"). ASU 2009-5 provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures-Overall, for the fair value measurement of liabilities. ASU 2009-5 clarifies that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value. ASU 2009-5 was effective for the Company for interim and annual periods ending after October 3, 2009. The adoption of ASU 2009-5 did not have a material impact on the Company's consolidated results of operations or financial position.

        In August 2009, FASB issued ASU 2009-4 Accounting for Redeemable Equity Instruments—an Amendment to Section 480-10-S99 ("ASU 2009-4"). ASU 2009-4 represents a Securities and Exchange Commission ("SEC") update to Section 480-10-S99, Distinguishing Liabilities from Equity. The adoption of guidance within ASU 2009-4 did not have an impact on the Company's consolidated results of operations or financial position.

        In June 2009, FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—A Replacement of FASB Statement No. 162, (now codified within ASC 105, Generally Accepted Accounting Principles ("ASC 105")). ASC 105 establishes the Codification as the single source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. All guidance contained in the Codification carries an equal level of authority. Following this statement, FASB will not issue new standards in the form of statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates, which will serve only to: (1) update the Codification; (2) provide background information about the guidance; and (3) provide the bases for conclusions on the change(s) in the Codification. ASC 105 was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Codification supersedes all existing non-SEC accounting and reporting standards. The adoption of ASC 105 did not have an impact on the Company's consolidated results of operations or financial position.

        In May 2009, FASB issued SFAS No. 165, Subsequent Events, (now codified within ASC 855, Subsequent Events ("ASC 855")). ASC 855 establishes the general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 was effective for the Company on April 5, 2009. The adoption of ASC 855 did not have a material impact on the Company's consolidated results of operations or financial position.

        In April 2009, FASB issued Staff Position ("FSP") No. 115-2 and FSP 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (now codified within ASC 320, Investments—Debt and Equity Securities ("ASC 320")). ASC 320 provides greater clarity about the credit and noncredit component of an other-than-temporary impairment event and more effectively communicates when an other-than-temporary impairment event has occurred. ASC 320 amends the other-than-temporary impairment model for debt securities. The impairment model for equity securities was not affected. Under ASC 320, an other-than-temporary impairment must be recognized through earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be

75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Significant Accounting Policies (Continued)

required to sell the debt security before recovery of its amortized cost basis. This standard was effective for interim periods ending after June 15, 2009. The adoption of ASC 320 did not have a material impact on the Company's consolidated results of operations or financial position.

        In April 2009, FASB issued FSP 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (now codified within ASC 820, Fair Value Measurements and Disclosures). ASC 820 provides guidelines for making fair value measurements more consistent and provides additional authoritative guidance in determining whether a market is active or inactive and whether a transaction is distressed. ASC 820 is applied to all assets and liabilities (i.e., financial and non-financial) and requires enhanced disclosures. This standard was effective for periods ending after June 15, 2009. The adoption of ASC 820 did not have a material impact on the Company's consolidated results of operations or financial position.

        In April 2009, FASB issued FSP 107-1 and Accounting Principles Board 28-1, Interim Disclosures about Fair Value of Financial Instruments (now codified within ASC 825, Financial Instruments ("ASC 825")). ASC 825 requires disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. ASC 825 was effective for interim periods ending after June 15, 2009. The adoption of ASC 825 did not have a material impact on the Company's consolidated results of operations or financial position.

        In June 2008, FASB issued Staff Position—Emerging Issues Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (now codified within ASC 260, Earnings Per Share ("ASC 260")). Under ASC 260, unvested share based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. ASC 260 was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years and requires retrospective application. The adoption of ASC 260 did not have a material impact on the Company's earnings per share calculations.

        In April 2008, FASB issued FSP 142-3, Determination of the Useful Life of Intangible Assets (now codified within ASC 350, Intangibles—Goodwill and Other ("ASC 350")). ASC 350 provides guidance for determining the useful life of a recognized intangible asset and requires enhanced disclosures so that users of financial statements are able to assess the extent to which the expected future cash flows associated with the asset are affected by our intent and/or ability to renew or extend the arrangement. ASC 350 was effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The adoption of ASC 350 on January 4, 2009 did not impact the Company's consolidated results of operations or financial position.

        In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (now codified within ASC 815, Derivatives and Hedging ("ASC 815")). ASC 815 requires enhanced disclosures about an entity's derivative and hedging activities aimed at improving the transparency of financial reporting. ASC 815 was effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of ASC 815 did not have any impact on the Company's consolidated results of operations or financial position. Refer to Note 7, Derivatives and Risk Management, of this Form 10-K for the enhanced disclosures required by the adoption of ASC 815.

76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Significant Accounting Policies (Continued)

        In December 2007, FASB issued SFAS No. 141(R), Business Combinations (now codified within ASC 805, Business Combinations ("ASC 805")). ASC 805 establishes principles and requirements for how the acquirer in a business combination recognizes and measures in its financial statements the fair value of identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date. ASC 805 significantly changes the accounting for business combinations in a number of areas, including the treatment of contingent consideration, preacquisition contingencies, transaction costs and restructuring costs. In addition, under ASC 805, changes in an acquired entity's deferred tax assets and uncertain tax positions after the measurement period will impact income tax expense. The provisions of this standard will apply to any acquisitions we complete on or after December 15, 2008. The adoption of ASC 805 did not have an impact on the Company's consolidated results of operations or financial position.

        In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51 (now codified within ASC 810, Consolidation ("ASC 810")). ASC 810 changes the accounting and reporting for minority interests, which is recharacterized as noncontrolling interests and classified as a component of equity. This new consolidation method significantly changes the accounting for transactions with minority interest holders. The provisions of ASC 810 were applied to all noncontrolling interests prospectively, except for the presentation and disclosure requirements, which were applied retrospectively to all periods presented and have been disclosed as such in our consolidated financial statements herein. ASC 810 became effective for fiscal years beginning on or after December 15, 2008. The Company adopted ASC 810 effective January 4, 2009. Upon adoption of ASC 810, the Company has recognized noncontrolling interests as equity in the consolidated balance sheets and has reflected net income attributable to noncontrolling interests in consolidated net income.

        In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (now codified within ASC 820). ASC 820 provides guidance for using fair value to measure assets and liabilities. Under ASC 820, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The guidance within ASC 820 became effective for financial statements issued for fiscal years beginning after November 15, 2007; however, the FASB provided a one year deferral for implementation of the standard for non-recurring, non-financial assets and liabilities. The Company adopted ASC 820 for non-financial assets and non-financial liabilities effective January 4, 2009, which did not have any effect on its consolidated results of operations or financial position.

2. Acquisitions

        In February 2006, Fossil International Holdings, Inc. ("FIH"), a wholly owned subsidiary of the Company, contributed approximately $4.3 million to Fossil Mexico, Sociedad Anonima de Capital Variable ("Fossil Mexico"), a newly- formed entity that is 51% owned by FIH. On February 1, 2006, Fossil Mexico acquired certain fixed assets, intangible assets and inventory from Grupo Japme, S.A. de C.V. ("Grupo Japme"), the Company's distributor in Mexico, for a cash purchase price of approximately $7.2 million. The terms of this transaction included an earnout payment to Grupo Japme in an amount of $1.3 million in the event that defined earnings objectives were achieved within the twelve months following the acquisition date. The acquisition was recorded as a purchase and resulted in goodwill of approximately $1.0 million. In 2007, the Company paid an additional $1.3 million in

77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Acquisitions (Continued)

connection with the achievement of the earnout objectives and such amount was recorded as additional goodwill.

        The results of business combinations completed in fiscal 2007 and prior are included in the accompanying consolidated financial statements since the dates of their acquisition. The pro forma effects, as if transactions had occurred at the beginning of the years presented, are not significant.

        Goodwill.    The changes in the carrying amount of goodwill, which is not subject to amortization, are as follows:

Fiscal Year	United States— Wholesale		Europe— Wholesale			Other International— Wholesale			Direct to Consumer		Total
	IN THOUSANDS
Balance at January 5, 2008	$	21,799	$	18,908		$	4,778		$	—	$	45,485
Currency		—		(1,769	)		(499	)		—		(2,268	)
Balance at January 3, 2009		21,799		17,139			4,279			—		43,217
Currency		—		915			134			—		1,049
Balance at January 2, 2010	$	21,799	$	18,054		$	4,413		$	—	$	44,266

3. Inventories

        Inventories—net consist of the following:

Fiscal Year	2009			2008
	IN THOUSANDS
Components and parts	$	17,041		$	22,354
Work-in-process		2,943			3,339
Inventory purchases in transit		35,012			30,056
Finished goods		201,515			252,523
		256,511			308,272
Inventory obsolescence reserve		(10,797	)		(16,317	)
Inventories—net	$	245,714		$	291,955

78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Property, Plant and Equipment

        Property, plant and equipment—net consist of the following:

Fiscal Year	2009		2008
	IN THOUSANDS
Land	$	19,738	$	18,113
Buildings		78,916		77,660
Furniture and fixtures		85,847		83,980
Computer equipment and software		101,187		90,726
Leasehold improvements		99,736		86,844
Construction in progress		9,271		6,763
		394,695		364,086
Less accumulated depreciation and amortization		182,328		156,758
Property, plant and equipment—net	$	212,367	$	207,328

5. Investments

        The Company maintains a 50% equity interest in Fossil Spain, S.A. ("Fossil Spain") pursuant to a joint venture agreement with Sucesores de A. Cardarso for the marketing, distribution and sale of the Company's products in Spain and Portugal. The Company has accounted for the investment based upon the equity method from the effective date of the transaction and as of January 2, 2010 the investment balance was approximately $13.7 million. The Company's equity in Fossil Spain's net income was $1.1 million, $1.6 million and $2.2 million for 2009, 2008 and 2007, respectively, and is included in other income (expense)—net. Net sales to Fossil Spain by the Company for 2009, 2008, and 2007 were $8.0 million, $19.9 million and $18.1 million, respectively. The Company had receivable balances from Fossil Spain of $1.7 million and $1.5 million as of January 2, 2010 and January 3, 2009, respectively, which is included in accounts receivable—net.

        The Company periodically evaluates whether declines in fair value of its investments are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company's ability and intent to hold the investment. Factors considered include, if applicable, quoted market prices, recent financial results and operating trends, other publicly available information, implied values from any recent transactions or offers of investee securities, or other conditions that may affect the value of its investments.

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Intangibles and Other Assets

        Intangibles and other assets—net consist of the following:

		2009				2008
Fiscal Year	Useful Lives	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
		IN THOUSANDS
Intangibles—subject to amortization:
Trademarks	10 yrs.	$	2,646	$	1,612	$	2,620	$	1,459
Customer list	9 yrs.		7,786		5,745		7,656		4,578
Patents	14 - 20 yrs.		764		303		752		258
Other	7 - 20 yrs.		201		184		196		168
Total intangibles—subject to amortization			11,397		7,844		11,224		6,463
Intangibles—not subject to amortization:
Trade names			20,815		—		23,327		—
Other assets:
Key money deposits			22,822		5,191		17,011		2,405
Other deposits			9,015		—		8,639		—
Deferred compensation plan assets			2,847		—		2,101		—
Other			6,379		593		7,131		291
Total other assets			41,063		5,784		34,882		2,696
Total intangibles and other assets		$	73,275	$	13,628	$	69,433	$	9,159
Net of amortization				$	59,647			$	60,274

        Amortization expense for intangible assets was approximately $1.3 million for 2009 and $1.4 million for each of 2008 and 2007. Amortization expense related to existing intangibles is estimated to be approximately $1.4 million for 2010, $0.8 million for 2011, $0.5 million for 2012 and $0.2 million for 2013.

        As noted in Note 1, during the fourth quarter of 2009, the Company performed its annual impairment test of certain trade names. The analysis resulted in net of tax impairment charges of $0.4 million and $1.8 million to the OYZTERBAY and ZODIAC trade names, respectively, representing the excess of the carrying cost of these indefinite-lived intangible assets over their estimated fair value. During 2008, the analysis resulted in net of tax impairment charges of $3.5 million and $1.8 million to the MICHELE and ZODIAC trade names, respectively. The MICHELE trade name is reported within the Company's U.S. Wholesale segment while the ZODIAC and OYZTERBAY trade names are reported within the Europe Wholesale segment. The Company includes trade name impairment charges in selling and distribution expenses. There were no impairment adjustments to trade names in 2007.

7. Derivatives and Risk Management

        On January 4, 2009, the Company adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133, (now codified within ASC 815, Derivatives). ASC 815 requires enhanced disclosures about a company's derivative instruments and hedging activities.

80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Derivatives and Risk Management (Continued)

        The Company is exposed to certain risks relating to its ongoing business operations, which it attempts to manage by using derivative instruments. The primary risks managed by using derivative instruments are the future payments of intercompany inventory transactions, denominated in U.S. dollars, by non-U.S. subsidiaries. Forward contracts are entered into by the Company to manage fluctuations in global currencies that will ultimately be used to settle such U.S. dollar denominated inventory purchases. ASC 815 requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. In accordance with ASC 815, the Company designates all forward contracts as cash flow hedges.

        For a derivative instrument that is designated and qualifies as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss), net of taxes and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

        The Company designates only those contracts which closely match the terms of the underlying transaction for hedge accounting treatment. These hedges resulted in no ineffectiveness in the statements of operations, and there were no components excluded from the assessment of hedge effectiveness for 2009.

        As of January 2, 2010, the Company had the following outstanding forward contracts that were entered into to hedge the future payments of intercompany inventory transactions:

Functional Currency			Contract Currency
Type	Amount		Type	Amount
IN THOUSANDS			IN THOUSANDS
Euro		84,700	U.S. Dollar		121,472
British Pound		3,000	U.S. Dollar		4,742
Japanese Yen		1,977,000	U.S. Dollar		21,847
Mexican Peso		31,394	U.S. Dollar		2,400
Australian Dollar		7,000	U.S. Dollar		5,792
Canadian Dollar		10,500	U.S. Dollar		9,975

        The effective portion of gains and (losses) on derivative instruments designated and qualifying as cash flow hedges that was recognized in accumulated other comprehensive income (loss), net of taxes during 2009 and 2008 is set forth below:

	For the Year Ended January 2, 2010			For the Year Ended January 3, 2009
	IN THOUSANDS			IN THOUSANDS
Foreign exchange contracts	$	(2,911	)	$	7,486
Total (loss) gain recognized in other comprehensive (loss) income, net of taxes	$	(2,911	)	$	7,486

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Derivatives and Risk Management (Continued)

        The effective portion of gains and losses on derivative instruments designated and qualifying as cash flow hedges recorded in accumulated other comprehensive income (loss), net of taxes during the term of the hedging relationship and reclassified into earnings during 2009 and 2008 is set forth below:

	Consolidated Income Statement Location	For the Year Ended January 2, 2010		Consolidated Income Statement Location	For the Year Ended January 3, 2009
	IN THOUSANDS			IN THOUSANDS
Foreign exchange contracts	Other Income (Expense)—net	$	1,453	Other Income (Expense)—net	$	273
Total gain (loss) reclassified from other comprehensive income (loss) into income, net of taxes		$	1,453		$	273

        The table below discloses the Company's fair value amounts as separate asset and liability values, presents the fair value of derivative instruments on a gross basis and identifies the line item(s) in the balance sheet in which the fair value amounts for these categories of derivative instruments are included.

	Asset Derivatives						Liability Derivatives
	January 2, 2010			January 3, 2009			January 2, 2010			January 3, 2009
	IN THOUSANDS						IN THOUSANDS
	Consolidated Balance Sheet Location	Fair Value		Consolidated Balance Sheet Location	Fair Value		Consolidated Balance Sheet Location	Fair Value		Consolidated Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments under ASC 815:
Foreign exchange contracts	Other Current Assets	$	2,122	Other Current Assets	$	8,476	Accounts Payable	$	2,116	Other Current Assets	$	3,629
Total derivatives designated as hedging instruments under ASC 815:		$	2,122		$	8,476		$	2,116		$	3,629

        At the end of fiscal year 2009, the Company had foreign exchange contracts with maturities extending through 2011. The estimated net amount of the existing losses at the reporting date that is expected to be reclassified into earnings within the next 12 months is approximately $0.2 million.

8. Fair Value Measurements

        The Company adopted SFAS No. 157, Fair Value Measurements ("SFAS 157") (now codified within ASC 820, Fair Value Measurement and Disclosures ("ASC 820")). ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Fair Value Measurements (Continued)

•

Level 1—Quoted prices in active markets for identical assets or liabilities.

•

Level 2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

•

Level 3—Unobservable inputs based on the Company's assumptions.

        ASC 820 requires the use of observable market data if such data is available without undue cost and effort.

        The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of January 2, 2010:

		Fair Value at January 2, 2010
		Level 1		Level 2		Level 3		Total
		IN THOUSANDS
Assets:
	Investment in bonds	$	7,453	$	—	$	—	$	7,453
	Investment in publicly traded equity securities		542		—		—		542
	Foreign exchange forward contracts		—		2,122		—		2,122
	Deferred compensation plan assets		2,847		—		—		2,847
	Total	$	10,842	$	2,122	$	—	$	12,964
Liabilities:
	Foreign exchange forward contracts	$	—	$	2,116	$	—	$	2,116
	Total	$	—	$	2,116	$	—	$	2,116

        The fair values of the Company's available-for-sale securities and deferred compensation plan assets are based on quoted prices. The deferred compensation plan assets are recorded as intangible and other assets-net. The foreign exchange forward contracts are entered into by the Company principally to hedge the future payment of intercompany inventory purchases by non-U.S. subsidiaries. The fair values of the Company's foreign exchange forward contracts are based on published quotations of spot currency rates and forwards points, which are converted into implied forward currency rates and are recorded as an asset within prepaid expenses and other current assets or as a liability within accounts payable.

        The Company has evaluated its short-term and long-term debt and believes, based on the interest rates, related terms and maturities, that the fair values of such instruments approximate their carrying amounts. As of January 2, 2010 and January 3, 2009, the carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximated their values due to the short-term maturities of these accounts.

83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Fair Value Measurements (Continued)

        The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a nonrecurring basis as of January 2, 2010:

				Fair Value at January 2, 2010
		Year Ended January 2, 2010		Level 1		Level 2		Level 3		Total Gains/Losses
				IN THOUSANDS
Assets:
	Specific Company-owned stores—net	$	—	$	—	$	—	$	—	$	(2,506	)
	Specific trade names		2,315		—		—		2,315		(2,726	)
	Total			$	—	$	—	$	2,315	$	(5,232	)

        In accordance with the provisions of SFAS No. 144, "Impairment of Long-Lived Assets", (now codified within subsections of ASC 360, Property, Plant and Equipment), property, plant and equipment—net with a carrying amount of $214.9 million was written down to fair value of $212.4 million, resulting in an impairment charge of $2.5 million, which was included in earnings for the period. The fair value of the Company-owned retail stores is determined using level 3 inputs. If undiscounted cash flows estimated to be generated through the operations of Company-owned retail stores are less than the carrying value of the underlying assets, impairment losses are recorded in selling and distribution expenses.

        In accordance with the provisions SFAS No. 142, "Goodwill and Other Intangible Assets" (now codified within ASC 350, Intangibles—Goodwill and Other), intangible and other assets—net with a carrying amount of $62.3 million were written down to implied fair value of $59.6 million, resulting in an impairment charge of $2.7 million, which was included in earnings during fiscal year 2009.

9. Debt

        Short-Term: U.S.-based:    On November 18, 2009, the Company executed a renewal of its Loan Agreement and Revolving Line of Credit (the "Revolver") and decreased the commitment under the Revolver from $140 million to $100 million with its primary bank, Wells Fargo Bank ("Wells Fargo"). The Revolver allows for an increase in the commitment from $100 million to $200 million upon the request of the Company and approval of Wells Fargo. The Revolver also includes a commitment fee ranging from 0.1% to 0.2% for any amounts un-used under such Revolver. The Revolver is secured by 65% of the issued and outstanding shares of certain subsidiaries of the Company pursuant to an Amended and Restated Stock Pledge Agreement entered into as of November 19, 2008. The Revolver requires the maintenance of net worth, quarterly income, working capital and certain financial ratios. Borrowings under the Revolver bear interest at the option of the Company (i) at the lesser of (a) the higher of the prime rate (3.25% at fiscal year-end 2009) plus 1.5% or 3% or (b) the maximum rate allowed by law or (ii) the London Interbank Offer Rate ("LIBOR") base rate (0.23% at fiscal year-end 2009) plus 0.75%. The Company may prepay the Revolver without penalty. Wells Fargo may accelerate the Revolver to be immediately due and payable if the Company fails to pay any part of the principal or interest of the Revolver, or upon an Event of Default (as defined in the Revolver). If needed, the Company would use the proceeds primarily for working capital needs, potential acquisitions and for general corporate purposes. The Revolver expires on November 17, 2010. There were no outstanding borrowings as of fiscal year-end 2009. Amounts available under the Revolver are reduced by any amounts outstanding under letters of credit or stand-by letters of credit and by amounts outstanding under foreign-based borrowing arrangements. At the end of fiscal year 2009, the Company had

84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Debt (Continued)

available borrowings of approximately $67.8 million under the Revolver. The Company's interest expense related to outstanding borrowings under the Revolver was $120,000 and $38,000 for 2008 and 2007, respectively. As a result of no outstanding borrowing during fiscal year 2009, the Company incurred no interest expense related to the Revolver during fiscal year 2009. The Company is in compliance with all covenants related to the Revolver as of January 2, 2010.

        Short-Term: Foreign-based:    The Company's Japanese subsidiary, Fossil Japan, maintains two separate 150 million Yen short-term credit facilities in Japan, one bearing interest at the short-term prime rate (1.475% at fiscal year-end 2009) and one bearing interest based upon the Tokyo Interbank Offer Rate ("TIBOR") (1.475% as of fiscal year-end 2009). Japan-based borrowings, in U.S. dollars, under these facilities were approximately $3.2 million and $4.9 million at fiscal year-end 2009 and 2008, respectively. Up to May 3, 2008, Fossil U.K. Ltd. ("Fossil UK") maintained a 4.0 million British Pound revolving credit facility with interest costs under this facility based upon the aggregate of the Margin, LIBOR and Mandatory Lending Agreement ("MLA") costs (7.11% on a combined basis at fiscal year-end 2008). On May 3, 2008, Fossil U.K. retired all outstanding borrowings under this facility and did not renew the facility upon expiration in 2008. The Company incurred approximately $61,000, $142,000 and $532,000 of interest expense related to Japan and UK borrowings for 2009, 2008 and 2007, respectively. The borrowings entered into by Fossil Japan and Fossil UK were primarily used for working capital purposes and the purchase of a new office/distribution center, respectively.

        Long-Term: Foreign-based:    On September 21, 2007, Fossil Group Europe, Gmbh ("FGE"), a wholly owned subsidiary of the Company, entered into a long-term note payable with its primary bank (the "FGE Note") related to the purchase of a building in Basel, Switzerland. The FGE Note has a variable interest rate (2% at fiscal year-end 2009) with interest payments due quarterly. This note requires minimum principal payments of 100,000 Swiss Francs (approximately $97,000 U.S. dollars at fiscal year-end 2009), per year with no stated maturity and no penalties for early payment. The FGE Note requires FGE to submit an annual balance sheet and income statement and is secured by the Company's building in Basel, Switzerland. The Company incurred approximately $76,000, $119,000, and $31,000 of interest expense related to the FGE Note for 2009, 2008, and 2007, respectively. At fiscal year-end 2009 and 2008, FGE had outstanding long-term notes payable of $3.6 million and $3.5 million, respectively.

        Letters of Credit:    On May 13, 2009, FGE and Fossil Partners LP ("LP") executed a renewal of their Letter of Credit Facility (the "Facility") with the Hongkong and Shanghai Banking Corporation Limited ("HSBC"). Fossil Asia Pacific Ltd. was added to the Facility as part of the renewal. The purpose of the Facility is to allow for up to $40 million of commercial and/or standby letters of credit. At fiscal year-end 2009 and 2008, the Company had outstanding letters of credit of approximately $24.9 million and $18.8 million, respectively, and stand-by letters of credit of approximately $0.4 million and $7.1 million, respectively. Letters of credit and stand-by letters of credit are primarily issued to vendors for the purchase of merchandise.

85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Other Income (Expense)—Net

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

Fiscal Year	2009			2008			2007
	IN THOUSANDS
Interest income	$	1,310		$	4,209		$	5,362
Equity in the earnings of joint venture, net of tax		1,146			1,562			2,202
Currency gains (losses)		5,779			(16,897	)		(826	)
Royalty income		478			453			447
Other (losses) gains		(207	)		(338	)		1,134
Other income (expense)—net	$	8,506		$	(11,011	)	$	8,319

86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Taxes

Income Taxes

        Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the consolidated deferred tax assets and liabilities were:

Fiscal Year			2009			2008
			IN THOUSANDS
Current deferred income tax assets (liabilities):
	Bad debt allowance		$	5,018		$	4,522
	Returns allowance			9,162			8,876
	Inventory			7,442			5,689
	Compensation			1,999			5,633
	Accrued liabilities			4,021			3,096
	In-transit returns inventory			(3,788	)		(4,112	)
	Deferred rent			874			565
	Loss carry-forwards			1,047			653
	Other			5,657			3,403
		Total current deferred tax assets		31,432			28,325
Valuation allowance				(2,495	)		(1,319	)
Net current deferred income tax assets			$	28,937		$	27,006
Long-term deferred income tax (liabilities) assets:
	Unrealized exchange losses			(298	)		843
	State income tax and interest on tax contingencies			2,654			2,541
	Fixed assets			(10,758	)		(9,564	)
	Trade-names and customer list			(7,127	)		(7,390	)
	Compensation			4,408			2,607
	Deferred rent			3,252			3,220
	Loss carry-forwards			3,516			3,644
	Undistributed earnings of certain foreign subsidiaries			(18,141	)		(12,359	)
	Tax deductible foreign reserves			(654	)		(515	)
	Other			1,233			1,049
		Total deferred income tax liabilities		(21,915	)		(15,924	)
Valuation allowance				(2,470	)		(3,572	)
Net long-term deferred income tax liabilities			$	(24,385	)	$	(19,496	)
		Total long-term deferred income tax assets		2,654		$	3,384
		Total long-term deferred income tax liabilities		(27,039	)		(22,880	)
Net long-term deferred income tax liabilities			$	(24,385	)	$	(19,496	)

        The deferred income tax asset for loss carry-forwards includes $16.1 million of net operating losses of foreign subsidiaries that expire at various dates for the years indicated below. Valuation allowances have been recorded to reflect the estimated amount of deferred tax assets that may not be realized on these losses.

87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Taxes (Continued)

Gross operating loss carry-forwards:

	IN THOUSANDS
Expires 2010	$	—
Expires 2011		291
Expires 2012		52
Expires 2013		745
Expires 2014		564
Expires thereafter		14,448
Total gross loss carry-forwards	$	16,100

        The following table identifies earnings before income taxes for the Company's U.S. and non-U.S. based operations for the years indicated:

Fiscal Year	2009		2008		2007
	IN THOUSANDS
U.S.	$	94,543	$	68,457	$	34,947
Non-U.S.		125,355		125,747		158,967
Total	$	219,898	$	194,204	$	193,914

        The Company's provision for income taxes consists of the following for the years indicated:

Fiscal Year		2009			2008			2007
		IN THOUSANDS
Current provision:
	U.S. federal	$	46,350		$	27,732		$	36,105
	Non-U.S.		22,629			21,127			31,455
	State and local		3,284			2,386			2,290
	Total current		72,263			51,245			69,850
Deferred provision
	U.S. federal		3,320			5,013			(4,958	)
	Non-U.S.		(39	)		(3,850	)		867
	State and local		60			(57	)		(333	)
	Total deferred		3,341			1,106			(4,424	)
Provision for income taxes		$	75,604		$	52,351		$	65,426

        The expected cash payments for the current federal income tax expense for 2009, 2008 and 2007 were reduced by approximately $2.1 million, $2.1 million and $17.7 million, respectively, as a result of tax deductions related to the exercise of non-qualified stock options and stock appreciation rights and the vesting of restricted stock and restricted stock units. The expected cash payments for current foreign tax expense were reduced by $0.5 million in 2009 as a result of tax deductions related to the exercise of stock options and the vesting of restricted stock granted to foreign employees. The income tax benefits resulting from these stock-based compensation plans have been recorded to additional paid in capital.

88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Taxes (Continued)

        The Company was granted a 100% tax holiday for its watch assembly activities in Switzerland for tax years 2003 through 2007 and a 60% tax holiday for tax years 2008 through 2012. After 2012, the Company will pay the full Swiss tax rate on its watch assembly activities. This holiday had the effect of reducing current foreign income taxes by $130,000, $220,000, and $500,000 in fiscal years 2009, 2008 and 2007, respectively.

        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	2009			2008			2007
Tax at statutory rate		35.0	%		35.0	%		35.0	%
State, net of federal tax benefit		0.8			0.9			0.7
Foreign rate differential		(9.2	)		(13.8	)		(11.9	)
U.S. tax on foreign income		8.7			12.6			8.0
Income tax contingencies		(0.4	)		(8.0	)		1.2
Other		(0.5	)		0.3			0.7
Provision for income taxes		34.4	%		27.0	%		33.7	%

Deferred U.S. federal income taxes and foreign withholding taxes are not provided on undistributed earnings of certain foreign subsidiaries where management plans to continue reinvesting these earnings outside the U.S. The amount of undistributed earnings that would be subject to tax if distributed is approximately $223 million at January 2, 2010. Determination of tax amounts that would be payable if earnings were distributed to the U.S. company is not practicable.

        The total amount of unrecognized tax benefits under ASC 740, excluding interest and penalties that would favorably impact the effective tax rate in future periods, if recognized is $7.8 million as of January 2, 2010, $8.9 million as of January 3, 2009 and $10.7 million as of January 5, 2008. The Company's income tax returns are under audit by the Internal Revenue Service for years 2005 and 2006. The Company is also subject to examinations in various state and foreign jurisdictions for the 2004-2008 tax years, none of which are individually significant. Audit outcomes and the timing of audit settlements are subject to significant uncertainty.

        The Company has classified uncertain tax positions as long-term income taxes payable unless such amounts are expected to be paid within twelve months from January 2, 2010. As of January 2, 2010, the Company has recorded $17 million of unrecognized tax benefits, excluding interest and penalties, for positions that could be settled within the next twelve months. Consistent with its past practice, the Company recognizes interest and/or penalties related to income tax overpayments and income tax underpayments in income tax expense and income taxes receivable/payable, respectively. The total amount of accrued income tax-related interest and penalties included in the condensed consolidated balance sheet was $5.2 million and $0.3 million, respectively at January 2, 2010 and $5.5 million and $0.4 million, respectively at January 3, 2009. The Company accrued interest expense of $1.8 million in 2009 and $3.0 million in each of fiscal years 2008 and 2007.

89

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Taxes (Continued)

        The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the fiscal years indicated:

Fiscal Year	2009			2008			2007
	IN THOUSANDS
Balance at beginning of year	$	33,855		$	57,195		$	51,441
Gross increases—Tax positions in prior years		4,676			2,710			136
Gross decreases—Tax positions in prior period		(641	)		(21,473	)		(4,631	)
Gross increases—current year tax positions		2,428			3,869			9,831
Settlements		—			(8,595	)		(206	)
Lapse in statute of limitations		(4,902	)		—			—
Increase due to currency revaluation		10			149			624
Balance at end of year	$	35,426		$	33,855		$	57,195

Other Taxes

        Subsequent to making a voluntary disclosure, the Company entered into a closing agreement with the IRS to pay the tax liability of its employees, including interest and penalties, arising under Section 409A relating to in-the-money stock options exercised by such employees subsequent to January 1, 2006 up to a certain date. The total payment including penalties was $0.2 million and was made in fiscal year 2009.

        The Company also entered into a closing agreement with the IRS pursuant to a voluntary correction program to settle payroll tax liabilities associated with certain equity grants previously awarded to employees as incentive stock options that should have been treated as non-qualified stock options. Due to different tax requirements associated with the exercise of an incentive stock option versus a non-qualified stock option, it was determined that certain employer and employee FICA taxes and employee withholding taxes were not properly withheld at the time such options were exercised. During fiscal year 2009, the Company paid $2.5 million in delinquent FICA taxes and federal income taxes, including both the employer and employee portions.

12. Commitments and Contingencies

        License Agreements.    The Company has various license agreements to market watches bearing certain trademarks or patents owned by various entities. In accordance with these agreements, the Company incurred royalty expense of approximately $73.9 million, $74.9 million and $60.7 million in 2009, 2008 and 2007, respectively. These amounts are included in the Company's cost of sales or if advertising related, selling and distribution expenses. The Company has various agreements in effect at fiscal year-end 2009 which expire on dates between 2009 and 2014 and such agreements also require the Company to pay royalties ranging from 3.0% to 20% of defined net sales. We are negotiating a new long-term contract for the license that expired at the end of 2009 and have the right to continue the

90

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Commitments and Contingencies (Continued)

business while negotiating. Future minimum royalty commitments under such agreements, by fiscal year, are as follows:

	IN THOUSANDS
2010	$	60,363
2011		54,595
2012		53,286
2013		43,240
2014		12,545
Thereafter		—
	$	224,029

        Leases.    The Company leases its retail and outlet store facilities as well as certain of its office and warehouse facilities and equipment under non-cancelable operating leases and capital leases. Most of the retail and outlet store leases provide for contingent rental payments 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 $77.6 million, $62.7 million and $45.6 million for 2009, 2008 and 2007, respectively. Contingent rent expense was approximately $1.8 million, $1.7 million and $1.7 million for 2009, 2008 and 2007, respectively. Future minimum rental commitments under such non-cancelable leases, by fiscal year, are as follows:

	Operating		Capital
	IN THOUSANDS
2010	$	63,712	$	308
2011		56,720		300
2012		52,119		298
2013		46,598		297
2014		41,720		74
Thereafter		137,221		—
	$	398,090	$	1,277
Less amounts representing interest		—		(32	)
Capital lease obligations, included in short-term debt and in other long-term debt			$	1,245

        The Company has entered into a sublease agreement with a third party related to one of its former retail store locations, which expires in 2011. Future sublease income is expected to be approximately $1.2 million for 2010 and $0.6 million for 2011.

        Purchase Obligations.    As of January 2, 2010, the Company had purchase obligations totaling $85.1 million.

        Asset Retirement Obligations.    SFAS No. 143 Accounting for Asset Retirement Obligations (now codified within ASC 410, Asset Retirement and Environmental Obligations ("ASC 410")) requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made and that the associated asset retirement

91

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Commitments and Contingencies (Continued)

costs be capitalized as part of the carrying amount of the long-lived asset. The Company's asset retirement obligations relate to costs associated with the retirement of leasehold improvements under store and office leases, within the Europe wholesale segment, the Other International wholesale segment, and the Direct to Consumer segment. The Company had asset retirement obligations of $2.9 million as of January 2, 2010.

        Litigation.    The Company is occasionally subject to litigation or other legal proceedings. Set forth below is a description of the Company's significant pending legal matters. Although the estimated range of loss, if any, for the pending legal matters described below cannot be estimated at this time, the Company does not believe that the outcome of these, or any other pending legal matters, individually or collectively, will have a material adverse effect on the business or financial condition of the Company although such matters may have a material adverse effect on the Company's results of operations or cash flows in a particular period.

        Three shareholder derivative lawsuits have been filed in the United States District Court for the Northern District of Texas, Dallas Division, naming the Company as a nominal defendant and naming all of the Company's then current directors and certain of its current and former officers and directors as defendants. The complaints allege purported violations of federal securities laws and state law claims for breach of fiduciary duty, abuse of control, constructive fraud, corporate waste, unjust enrichment and gross mismanagement in connection with certain stock option grants made by the Company.

13. Stockholders' Equity and Benefit Plans

        Common and Preferred Stock.    The Company has 100,000,000 shares of common stock, par value $0.01 per share, authorized, with 66,899,736 and 66,501,883 shares issued and outstanding at fiscal year end 2009 and 2008, respectively. The Company has 1,000,000 shares of preferred stock, par value $0.01 per share, authorized, 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.    During December of 2009, the Company's Board of Directors approved a stock repurchase program pursuant to which $20 million could be used to purchase outstanding shares. No shares were purchased under this authorization during fiscal year 2009. During 2008 and 2007, the Company's Board of Directors approved two stock repurchase programs, pursuant to which up to 2,000,000 shares of its common stock could be repurchased under each program. During fiscal years 2008 and 2007, the Company completed these two repurchase programs and retired 3.6 million and 0.4 million shares, respectively, of its common stock at a cost of approximately $105.9 million and $15.9 million, respectively. The repurchase programs were conducted pursuant to Rule 10b-18 of the Securities Exchange Act of 1934.

        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 U.S. based full-time employees of the Company. The Company's common stock is one of several investment alternatives available under the 401(k) Plan. The Company has a discretionary match for the 401(k) Plan. After one year of service (minimum of 1,000 hours worked), the Company matches 50% of employee contributions up to 3% of their compensation and 25% of employee contributions between 4% and 6% of their compensation. Matching contributions made by the Company to the 401(k) Plan totaled approximately $186,000, $1.2 million and $970,000 for 2009, 2008 and 2007, respectively. In March 2009, the Company eliminated the employer match portion of the 401(k) Plan and effective January 2010, the Company

92

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Stockholders' Equity and Benefit Plans (Continued)

reinstated the employer match program. The Company also has the right to make certain additional matching contributions not to exceed 15% of employee compensation. The Company has not made any additional matching contributions during 2009, 2008 and 2007.

        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. 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 2009, 2008 and 2007. The Company has made payments into a Rabbi Trust. The funds held in the Rabbi Trust are directed to certain investments available through life insurance products and accounted for in accordance with Emerging Issues Task Force No. 97-14, Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested (now codified within ASC 710, Compensation—General ("ASC 710")). As of January 2, 2010, the Company has recorded an asset of $2.8 million related to the Company's invested balances and a liability of $1.4 million related to the participants' invested balances.

        Stock-Based Compensation Plans.    The Company measures the cost of services received in exchange for stock options and similar awards based on the grant-date fair value of the award and recognizes this cost in the income statement over the period during which an award recipient is required to provide service in exchange for the award. As of January 2, 2010, there was approximately $17.5 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the incentive plans. This cost is expected to be recognized over a weighted-average period of approximately two years.

        Long-Term Incentive Plans.    An aggregate of 4,685,030 shares of common stock were initially reserved for issuance pursuant to the Company's 2008 Long-Term Incentive Plan ("2008 LTIP"), adopted in March 2008. Designated employees of the Company, including officers and directors, certain contractors, and outside directors of the Company are eligible to receive (i) stock options, (ii) stock appreciation rights, (iii) restricted or non-restricted stock awards, (iv) restricted stock units, (v) cash awards, or (vi) any combination of the foregoing. The 2008 LTIP is administered by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee"). Each award issued under the 2008 LTIP terminates at the time designated by the Compensation Committee, not to exceed ten years. The current stock options, stock appreciation rights, restricted stock and restricted stock units outstanding have original vesting periods that predominately range from three to five years. All stock appreciation rights and restricted stock units are settled in shares of Company common stock. Effective January 1, 2010, the Company's Board of Directors approved a new equity compensation package for nonemployee directors. Each nonemployee director will receive restricted stock units valued at $100,000 on the date of the annual stockholders' meeting. These grants are scheduled to vest at the earliest of one year from the date of grant or the next annual stockholders' meeting date.

        An aggregate of 5,821,875 shares of common stock were reserved for issuance pursuant to the Company's initial Long- Term Incentive Plan ("LTIP"), adopted in April 1993. An additional 3,037,500 shares were reserved in each of fiscal years 1995, 1998, 2001 and 2003 for issuance under the LTIP. Designated employees of the Company, including officers and directors, were eligible to receive (i) stock options, (ii) stock appreciation rights, (iii) restricted or non-restricted stock awards, (iv) restricted stock units, (v) cash awards, or (vi) any combination of the foregoing. The LTIP was administered by the Compensation Committee. Each award issued under the LTIP terminates at the time designated by the Compensation Committee, not to exceed ten years. The current options, stock

93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Stockholders' Equity and Benefit Plans (Continued)

appreciation rights, restricted stock and restricted stock units outstanding have original vesting periods that predominately range from three to five years. All stock appreciation rights and restricted stock units are settled in shares of Company common stock. On March 26, 2008, the Company's Board of Directors elected to terminate this plan; however, the termination will not impair outstanding awards representing 2,547,251 shares of common stock which will continue in accordance with their original terms.

        An aggregate of 506,250 shares of common stock were reserved for issuance pursuant to the Nonemployee Director Stock Option Plan, adopted in April 1993. An additional 112,500 shares were reserved in fiscal year 2002 for issuance under this plan. During the first year individuals were elected as nonemployee directors 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 nonemployee director automatically received a grant of an additional 4,000 nonqualified stock options as long as the individual was serving as a nonemployee director. Pursuant to this plan, 50% of the options granted became exercisable on the first anniversary of the date of grant and in two additional installments of 25% each on the second and third anniversaries. The exercise prices of stock options granted under this plan were not less than the fair market value of the Company's common stock at the date of grant. On March 26, 2008, the Company's Board of Directors elected to terminate this plan and grants to nonemployee directors since the termination date have been made under the 2008 LTIP. However, the termination of the Nonemployee Director Stock Option Plan will not impair the outstanding awards representing 158,182 shares of common stock which will continue in accordance with their original terms.

        Restricted Stock Plan.    The 2002 Restricted Stock Plan of the Company was intended to advance the interests of the Company, its subsidiaries and its stockholders in order to attract, retain and motivate key employees by providing them with additional incentives through the award of shares of restricted stock. Shares awarded under the Restricted Stock Plan were funded with shares contributed to the Company from a significant stockholder. During 2006, 44,200 shares of stock were contributed to the Restricted Stock Plan by the stockholder and reissued by the Company to employees. At fiscal year-end 2007, 55,850 shares issued to employees were forfeited and subsequently canceled and retired. There were no shares forfeited by employees under this plan in fiscal years 2009 or 2008. The restricted shares outstanding have original vesting periods that predominantly range from one to five years. These shares were accounted for at fair value at the date of grant. On August 29, 2007, the Company's Board of Directors elected to terminate this plan. However, the termination will not impair the outstanding awards representing 64,690 shares of common stock, which will continue in accordance with their original terms.

        Stock Options and Stock Appreciation Rights.    The fair value of stock options and stock appreciation rights granted under the Company's stock-based compensation plans was estimated on the date of grant using the Black-Scholes option-pricing model. The table below outlines the weighted average assumptions for these award grants:

	2009			2008			2007
Risk-free interest rate		1.8	%		2.3	%		4.6	%
Expected term (in years)		5.9			6.4			6.1
Expected volatility		53.2	%		52.0	%		55.8	%
Expected dividend yield		—	%		—	%		—	%
Estimated fair value per options/stock appreciation right granted	$	13.65		$	14.96		$	17.86

94

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Stockholders' Equity and Benefit Plans (Continued)

        The expected term of the options represent the estimated period of time until exercise and is based on historical experience of similar awards. Expected stock price volatility is based on the historical volatility of the Company's common stock. The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent remaining term.

        The Company receives a tax deduction for certain stock option exercises/restricted stock vestings when the options/restricted shares are exercised/vested. Generally for stock options, the tax deduction is related to the excess of the stock price at the time the stock options are sold over the exercise price of the stock options. For restricted shares, the tax deduction is the fair market value of the Company's common stock on the date the restricted shares vest. Excess tax benefits from stock-based compensation on the consolidated statements of cash flows for fiscal years 2009, 2008 and 2007 amounted to approximately $1.2 million, $0.6 million and $17.7 million, respectively.

        The following table summarizes stock option and stock appreciation rights activity:

Stock Options and Stock Appreciation Rights	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
	IN THOUSANDS							IN THOUSANDS
Outstanding at January 6, 2007		4,924		$	14.28		5.0	$	70,324
Granted		446			30.92
Exercised		(2,364	)		12.44			$	56,539
Forfeited or expired		(111	)		19.38
Outstanding at January 5, 2008		2,895			19.18		5.7	$	48,983
Granted		423			28.69
Exercised		(350	)		14.01			$	5,152
Forfeited or expired		(110	)		25.48
Outstanding at January 3, 2009		2,858			21.09		5.7	$	5,862
Granted		317			13.65
Exercised		(315	)		12.03			$	4,935
Forfeited or expired		(49	)		24.13
Outstanding at January 2, 2010		2,811			21.21		5.3	$	35,217
Exercisable at January 2, 2010		1,867			20.19		4.4	$	25,347
Nonvested at January 2, 2010		944			23.24		7.2	$	9,870
Expected to vest		879		$	23.24		7.2	$	9,203

        The aggregate intrinsic value in the table above is before income taxes and is based on the exercise price for outstanding and exercisable options/rights at January 2, 2010 and based on the fair market value of the Company's common stock on the exercise date for options/rights that have been exercised during the fiscal year.

95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Stockholders' Equity and Benefit Plans (Continued)

        Stock Options and Stock Appreciation Rights Outstanding and Exercisable.    The following table summarizes information with respect to options and stock appreciation rights outstanding and exercisable at January 2, 2010:

Stock Options and Stock Appreciation Rights Outstanding							Stock Options and Stock Appreciation Rights Exercisable
Range of Exercise Prices	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Yrs.)		Number of Shares		Weighted- Average Exercise Price
	IN THOUSANDS						IN THOUSANDS
$  4.39 - $  8.78		132	$	7.45		1.0		132	$	7.45
$  8.78 - $13.18		406		11.39		2.7		406		11.39
$13.18 - $17.57		395		14.02		7.9		56		14.97
$17.57 - $21.96		390		18.84		5.0		301		18.89
$21.96 - $26.35		811		24.16		4.9		734		24.19
$26.35 - $30.74		374		30.53		7.0		98		30.08
$30.74 - $35.14		250		31.46		6.7		101		31.52
$35.14 - $39.53		2		36.18		5.8		1		36.18
$39.53 - $43.92		51		43.10		8.0		38		43.10
		2,811	$	21.21		5.3		1,867	$	20.19

        The Company has elected to apply the long-form method to determine the hypothetical additional paid-in capital ("APIC") pool. The Company had determined that a hypothetical pool of excess tax benefits existed in APIC as of January 1, 2006, the date of adoption of SFAS No. 123R (now codified within ASC 718, Compensation—Stock Compensation ("ASC 718")) related to historical stock option exercises. In future periods, excess tax benefits resulting from stock option exercises will be recognized as additions to APIC in the period the benefit is realized. In the event of a shortfall (that is, the tax benefit realized is less than the amount previously recognized through periodic stock compensation expense recognition and related deferred tax accounting), the shortfall would be charged against APIC to the extent of previous excess benefits, if any, including the hypothetical APIC pool, and then to tax expense.

96

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Stockholders' Equity and Benefit Plans (Continued)

        Restricted Stock and Restricted Stock Units.    The following table summarizes restricted stock and restricted stock unit activity:

Restricted Stock and Restricted Stock Units	Shares			Weighted- Average Grant-Date Fair Value
	IN THOUSANDS
Nonvested at January 6, 2007		435		$	18.62
Granted		161			27.51
Vested		(93	)		18.94
Forfeited		(60	)		20.13
Nonvested at January 5, 2008		443			21.59
Granted		174			30.18
Vested		(110	)		21.37
Forfeited		(12	)		25.54
Nonvested at January 3, 2009		495			24.56
Granted		150			13.65
Vested		(142	)		23.48
Forfeited		(10	)		25.02
Nonvested at January 2, 2010		493			21.54
Expected to vest		451		$	21.54

        The total fair value of shares/units vested during fiscal years 2009, 2008 and 2007 was $2.4 million, $3.5 million and $3.4 million, respectively.

14. Supplemental Cash Flow Information

Fiscal Year			2009		2008		2007
			IN THOUSANDS
Cash paid during the year for:
		Interest	$	443	$	569	$	755
		Income taxes	$	62,957	$	77,240	$	40,219
Supplemental disclosures of non-cash investing and financing activities:
	Additions to property, plant and equipment included in accounts payable		$	4,349	$	3,614	$	3,045
	Retirement of treasury stock		$	212	$	110	$	2,071

97

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Supplemental Disclosure for Accumulated Other Comprehensive Income

        A summary of changes in accumulated other comprehensive income is as follows:

			2009			2008			2007
			IN THOUSANDS
Unrealized (loss) gain on securities available for sale:
	Balance at beginning of year		$	(1,437	)	$	(688	)	$	19
	Unrealized gain (loss) on marketable investments			1,093			51			(707	)
	Other than temporary impairment reclassified into earnings			—			(800	)		—
		Balance at end of year		(344	)		(1,437	)		(688	)
Unrealized gain (loss) on cash flow hedges:
	Balance at beginning of year			3,815			(3,398	)		(338	)
	Change in fair value associated with current period hedging activities, net of taxes of ($23), ($1,031), $56, respectively			(2,911	)		3,816			(3,397	)
	Reclassification of gains (losses) into earnings, net of taxes of $749, ($56), and ($28), respectively			1,453			(3,397	)		(337	)
		Balance at end of year	$	(549	)	$	3,815		$	(3,398	)
Cumulative translation adjustment			$	35,353		$	21,769		$	40,559
		Accumulated other comprehensive income	$	34,460		$	24,147		$	36,473

16. Major Customer, Segment and Geographic Information

        In accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (now codified within ASC 280, Segment Reporting ("ASC 280")) the Company reports segment information based on the "management" approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company's reportable segments.

SEGMENT INFORMATION

        The Company manages its business primarily on a geographic basis. The Company's reportable segments are comprised of the U.S.—Wholesale, Europe—Wholesale, Other International—Wholesale and Direct to Consumer. The U.S.—Wholesale, Europe—Wholesale, and Other International—Wholesale reportable segments do not include activities related to the Direct to Consumer segment. The Europe—Wholesale segment primarily includes sales to wholesale or distributor customers based in European countries as well as the Middle East and Africa. The Other International—Wholesale segment primarily includes sales to wholesale or distributor customers based in Australia, Canada, China (including the Company's assembly and procurement operations), India, Indonesia, Japan, Korea, Malaysia, Mexico, Singapore, South America and Taiwan. The Direct to Consumer segment includes Company-owned retail stores and e-commerce activities. Each reportable geographic segment provides similar products and services, and the accounting policies of the various segments are the same as those described in Note 1—Significant Accounting Policies.

        The Company evaluates the performance of its reportable segments based on net sales and operating income. Net sales for geographic segments are generally based on the location of the customers. Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Operating income for each segment

98

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Major Customer, Segment and Geographic Information (Continued)

includes intercompany profits associated with the sale of products by one segment to another. However, in evaluating the performance of each segment, management considers the impact that such intercompany profits have on each reportable segment. Corporate expenses include certain administrative, legal, accounting, technology support costs, equity compensation costs, payroll costs attributable to executive management and amounts related to intercompany eliminations and are not allocated to the various segments. Intercompany sales of products between segments are referred to as intersegment items. Corporate assets including cash, short-term investments and certain intangible assets are reported as corporate.

        Certain reclassifications have been made to prior years to present results on a comparable basis. These changes had no impact on the consolidated net sales or operating income. Summary information by operating segment is as follows:

		Fiscal Year 2009
		Net Sales			Operating Income			Long-lived Assets		Total Assets
IN THOUSANDS
United States—Wholesale:								$	89,781	$	441,838
	External customers	$	471,055		$	84,310			—		—
	Intersegment		196,732			—			—		—
Direct to consumer			376,138			39,047			82,766		142,986
Europe—Wholesale:									104,813		430,921
	External customers		460,254			89,273			—		—
	Intersegment		43,037			—			—		—
Other International—Wholesale:									22,077		206,410
	External customers		240,646			78,491			—		—
	Intersegment		349,896			—			—		—
Intersegment items			(589,665	)		—			—		—
Corporate			—			(79,494	)		30,573		54,328
Consolidated		$	1,548,093		$	211,627		$	330,010	$	1,276,483

99

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Major Customer, Segment and Geographic Information (Continued)

		Fiscal Year 2008
		Net Sales			Operating Income			Long-lived Assets		Total Assets
IN THOUSANDS
United States—Wholesale:								$	96,697	$	359,430
	External customers	$	472,687		$	30,905			—		—
	Intersegment		268,975			—			—		—
Direct to consumer			309,332			13,060			77,938		138,257
Europe—Wholesale:									110,228		381,772
	External customers		530,002			137,753			—		—
	Intersegment		36,313			—			—		—
Other International—Wholesale:									18,958		159,627
	External customers		271,221			105,646			—		—
	Intersegment		456,290			—			—		—
Intersegment items			(761,578	)		—			—		—
Corporate			—			(81,594	)		20,009		48,210
Consolidated		$	1,583,242		$	205,770		$	323,830	$	1,087,296

		Fiscal Year 2007
		Net Sales			Operating Income			Long-lived Assets		Total Assets
IN THOUSANDS
United States—Wholesale:								$	110,422	$	467,017
	External customers	$	460,584		$	24,626			—		—
	Intersegment		230,389			—			—		—
Direct to consumer			255,332			21,731			51,735		119,148
Europe—Wholesale:									100,765		349,488
	External customers		483,897			123,815			—		—
	Intersegment		39,475			—			—		—
Other International—Wholesale:									16,239		139,613
	External customers		233,171			107,179			—		—
	Intersegment		406,759			—			—		—
Intersegment items			(676,623	)		—			—		—
Corporate			—			(90,866	)		18,650		47,362
Consolidated		$	1,432,984		$	186,485		$	297,811	$	1,122,628

100

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Major Customer, Segment and Geographic Information (Continued)

GEOGRAPHIC INFORMATION

        Wholesale customers of the Company consist principally of major department stores and specialty retail stores located throughout the world. The Company does not have an individual customer that comprises 10% or more of the Company's net sales. Net sales, operating income and long-lived assets related to the Company's operations in the U.S., Europe and Other International markets are as follows:

	Fiscal Year 2009
	Net sales		Operating Income		Long-lived Assets
IN THOUSANDS
United States	$	714,176	$	32,957	$	161,636
Europe		556,217		98,886		142,234
Other international		277,700		79,784		26,140
Consolidated	$	1,548,093	$	211,627	$	330,010

	Fiscal Year 2008
	Net sales		Operating Income			Long-lived Assets
IN THOUSANDS
United States	$	690,342	$	(23,598	)	$	169,916
Europe		596,104		123,611			129,937
Other international		296,796		105,757			23,977
Consolidated	$	1,583,242	$	205,770		$	323,830

	Fiscal Year 2007
	Net sales		Operating Income			Long-lived Assets
IN THOUSANDS
United States	$	659,079	$	(36,277	)	$	168,229
Europe		522,727		113,994			110,097
Other international		251,178		108,768			19,485
Consolidated	$	1,432,984	$	186,485		$	297,811

101

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. Selected Quarterly Financial Data (Unaudited)

        The following is a summary of the unaudited quarterly financial information for the fiscal years 2009 and 2008 (in thousands, except per share data):

Fiscal Year 2009		1st Qtr			2nd Qtr			3rd Qtr			4th Qtr
Net sales		$	323,027		$	315,865		$	381,362		$	527,839
Gross profit			169,379			167,182			210,737			297,552
Operating expenses			145,576			144,706			153,373			189,568
Operating income			23,803			22,476			57,364			107,984
Income before income taxes			28,423			26,957			55,654			108,864
Provision for income taxes			9,927			9,709			19,109			36,859
Net income			18,496			17,248			36,545			72,005
Net income attributable to noncontrolling interest			1,176			625			1,270			2,034
Net income attributable to Fossil, Inc.			17,320			16,623			35,275			69,971
Earnings per share:
	Basic		0.26			0.25			0.53			1.05
	Diluted		0.26			0.25			0.52			1.03
Gross profit as a percentage of net sales			52.4	%		52.9	%		55.3	%		56.4	%
Operating expenses as a percentage of net sales			45.1	%		45.8	%		40.2	%		35.9	%
Operating income as a percentage of net sales			7.4	%		7.1	%		15.0	%		20.5	%

Fiscal Year 2008		1st Qtr			2nd Qtr			3rd Qtr			4th Qtr
Net Sales		$	356,184		$	353,191		$	409,760		$	464,106
Gross Profit			194,251			190,339			224,177			242,384
Operating expenses			145,136			155,378			160,439			184,427
Operating income			49,115			34,961			63,738			57,957
Income before income taxes			49,039			33,654			60,967			50,544
Provision for income taxes			17,888			7,147			23,447			3,869
Net income			31,151			26,507			37,520			46,675
Net income attributable to noncontrolling interest			934			1,370			1,049			403
Net income attributable to Fossil, Inc.			30,217			25,137			36,471			46,272
Earnings per share:
	Basic		0.44			0.37			0.54			0.70
	Diluted		0.43			0.36			0.54			0.69
Gross profit as a percentage of net sales			54.5	%		53.9	%		54.7	%		52.2	%
Operating expenses as a percentage of net sales			40.7	%		44.0	%		39.2	%		39.7	%
Operating income as a percentage of net sales			13.8	%		9.9	%		15.6	%		12.5	%

102

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None.

Item 9A.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

        We conducted an evaluation of the effectiveness of our "disclosure controls and procedures" ("Disclosure Controls"), as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of January 2, 2010, the end of the period covered by this Annual Report on Form 10-K. The Disclosure Controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our CEO and CFO have concluded that our Disclosure Controls were effective at the reasonable assurance level as of January 2, 2010.

Management's Report on Internal Control Over Financial Reporting

        Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate over time.

        Management, including our CEO and our CFO, assessed the effectiveness of the Company's internal control over financial reporting as of January 2, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on its assessment and those criteria, management has concluded that the Company maintained effective internal control over financial reporting as of January 2, 2010.

        Deloitte & Touche LLP, the independent registered public accounting firm that audited the Company's consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the Company's internal control over financial reporting, which is included herein.

Changes in Internal Control over Financial Reporting

        There have been no changes in the Company's internal control over financial reporting during the quarter ended January 2, 2010 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

103

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Fossil, Inc.
Richardson, Texas

        We have audited the internal control over financial reporting of Fossil, Inc. and subsidiaries (the "Company") as of January 2, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 2, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

104

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and the consolidated financial statement schedule as of and for the year ended January 2, 2010 of the Company and our report dated March 3, 2010 expressed an unqualified opinion on those consolidated financial statements and consolidated financial statement schedule and includes an explanatory paragraph regarding the Company's change in method of accounting for noncontrolling interest.

/s/ DELOITTE & TOUCHE LLP

Dallas, Texas
March 3, 2010

105

Item 9B.    Other Information

        None.

PART III

Item 10.    Directors, Executive Officers and Corporate Governance

        The information under the headings "Directors and Nominees," "Executive Officers," "Section 16(a) Beneficial Ownership Reporting Compliance" and "Board Committees and Meetings" in our proxy statement to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this report, is incorporated herein by reference.

        We have adopted a code of ethics that applies to all our directors and employees, including the principal executive officer, principal financial officer, principal accounting officer and controller. The full text of our Code of Conduct and Ethics is published on our Investor Relations website at www.fossil.com. We intend to disclose future amendments to certain provisions of the Code of Conduct and Ethics, or waivers of such provisions granted to executive officers and directors, on this website within five business days following the date of such amendment or waiver.

Item 11.    Executive Compensation

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

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

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

Item 13.    Certain Relationships and Related Transactions, and Director Independence

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

Item 14.    Principal Accountant Fees and Services

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

106

PART IV

Item 15.    Exhibits and Financial Statement Schedules

(a)

Documents filed as part of Report.

		Page
1.	Report of Independent Registered Public Accounting Firm		64
	Consolidated Balance Sheets		65
	Consolidated Statements of Income and Comprehensive Income		66
	Consolidated Statements of Stockholders' Equity		67
	Consolidated Statements of Cash Flows		68
	Notes to Consolidated Financial Statements		69
2.	Consolidated Financial Statement Schedule: See "Schedule II".		110
3.	Exhibits required to be filed by Item 601 of Regulation S-K.		111

        The exhibits required to be filed by this Item 15 are set forth in the Exhibit Index accompanying this report.

107

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.

March 3, 2010.	FOSSIL, INC.
	/s/ KOSTA N. KARTSOTIS Kosta N. Kartsotis, 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/ TOM KARTSOTIS Tom Kartsotis	Chairman of the Board and Director	March 3, 2010
/s/ KOSTA N. KARTSOTIS Kosta N. Kartsotis	Chief Executive Officer and Director (Principal Executive Officer)	March 3, 2010
/s/ MIKE L. KOVAR Mike L. Kovar	Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)	March 3, 2010
/s/ MICHAEL W. BARNES Michael W. Barnes	President and Chief Operating Officer and Director	March 3, 2010
/s/ ELAINE AGATHER Elaine Agather	Director	March 3, 2010
/s/ JEFFREY N. BOYER Jeffrey N. Boyer	Director	March 3, 2010
/s/ ELYSIA HOLT RAGUSA Elysia Holt Ragusa	Director	March 3, 2010

108

Signature	Capacity	Date
/s/ JAL S. SHROFF Jal S. Shroff	Director	March 3, 2010
/s/ JAMES E. SKINNER James E. Skinner	Director	March 3, 2010
/s/ MICHAEL STEINBERG Michael Steinberg	Director	March 3, 2010
/s/ DONALD J. STONE Donald J. Stone	Director	March 3, 2010
/s/ JAMES M. ZIMMERMAN James M. Zimmerman	Director	March 3, 2010

109

SCHEDULE II

FOSSIL, INC. AND SUBSIDIARIES
VALUATIONS AND QUALIFYING ACCOUNTS
Fiscal Years 2007, 2008 and 2009
(in Thousands)

					Additions		Deductions
			Balance at the Begining of Period		Charged (Credited) to Operations		Actual Returns or Writeoffs		Balance at End of Period
Classification
Fiscal Year 2007:
	Account receivable allowances:
		Sales returns		38,258		70,210		66,590		41,878
		Bad debts		9,812		3,851		3,740		9,923
	Deferred tax asset valuation allowance			2,982		1,112		2,100		1,994
Fiscal Year 2008:
	Account receivable allowances:
		Sales returns		41,878		74,186		73,832		42,232
		Bad debts		9,923		8,339		4,898		13,364
	Deferred tax asset valuation allowance			1,994		3,035		138		4,891
Fiscal Year 2009:
	Account receivable allowances:
		Sales returns		42,232		59,435		61,664		40,003
		Bad debts		13,364		5,906		3,307		15,963
	Deferred tax asset valuation allowance			4,891		2,250		2,176		4,965

110

EXHIBIT INDEX

Exhibit Number			Description
	3.1		Second Amended and Restated Certificate of Incorporation of Fossil, Inc. (incorporated by reference to the Company's Report on Form 10-K for the year ended January 1, 2005).
	3.2		Certificate of Amendment of the Second Amended and Restated Certificate of Incorporation of Fossil, Inc. (incorporated by reference to the Company's Report on Form 10-K for the year ended January 1, 2005).
	3.3		Second Amended and Restated Bylaws of Fossil, Inc. (incorporated by reference to the Company's Report on Form 8-K filed on August 28, 2008).
	10.1	(2)	Fossil, Inc. 1993 Nonemployee Director Stock Option Plan (incorporated herein by reference to the Company's Registration Statement on 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 the Company's Registration Statement on Form S-1, registration no. 33-45357, filed with the Securities and Exchange Commission).
	10.3	(2)	Form of Award Agreement under the Fossil, Inc. 1993 Long-Term Incentive Plan (incorporated herein by reference to the Company's Registration Statement on Form S-3, registration no. 333-107476, filed with the Securities and Exchange Commission).
	10.4	(2)	Fossil, Inc. 1993 Savings and Retirement Plan (incorporated herein by reference to the Company's Registration Statement on Form S-1, registration no. 33-45357, filed with the Securities and Exchange Commission).
	10.5		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 the Company's Report on Form 10-K for the year ended January 1, 2005).
	10.6		Master Licensing Agreement dated as of August 30, 1994, by and between Fossil, Inc. and Fossil Partners, L.P. (incorporated by reference to the Company's Report on Form 10-K for the year ended January 1, 2005).
	10.7		Agreement of Limited Partnership of Fossil Partners, L.P. (incorporated by reference to the Company's Report on Form 10-K for the year ended January 1, 2005).
	10.8	(2)	First Amendment to the Fossil, Inc. 1993 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K for the year ended January 1, 2005).
	10.9	(2)	Second Amendment to the Fossil, Inc. 1993 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K for the year ended January 1, 2005).
	10.10	(2)	Amendment to the Fossil, Inc. 1993 Non-Employee Director Stock Option Plan (incorporated by reference to the Company's Report on Form 10-K for the year ended January 1, 2005).
	10.11	(2)	Third Amendment to the Fossil, Inc. 1993 Long-Term Incentive Plan (incorporated by reference to the Company's Report on form 10-K for the year ended January 3, 2009).
	10.12	(2)	2002 Restricted Stock Plan of Fossil, Inc. and Form of Award Agreement (incorporated by reference to the Company's Report on Form 10-K for the year ended January 1, 2005).

111

Exhibit Number			Description
	10.13	(1)	Loan Agreement, by and among, Wells Fargo Bank, National Association, Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc., Fossil Trust, Fossil Stores I, Inc., Intermediate Leasing,  Inc., Arrow Merchandising, Inc., Fossil Holdings, LLC and FMW Acquisition, Inc., dated September 23, 2004.
	10.14		First Amendment to Loan Agreement, by and among Wells Fargo Bank, National Association, a national banking association, Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc., Fossil Trust, Fossil Stores I, Inc., Intermediate Leasing, Inc., Arrow Merchandising, Inc. and Fossil Holdings, LLC, dated September 22, 2005 (incorporated by reference to the Company's Report on Form 8-K filed on October 3, 2005).
	10.15		Second Amendment to Loan Agreement, by and among Wells Fargo Bank, National Association, a national banking association, Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc., Fossil Trust, Fossil Stores I, Inc., Arrow Merchandising, Inc. and Fossil Holdings, LLC, dated February 20, 2006 to be effective as of September 22, 2005 (incorporated by reference to the Company's Report on Form 8-K filed on February 23, 2006).
	10.16	(2)	Fourth Amendment to the Fossil, Inc. 1993 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K for the year ended January 6, 2007).
	10.17	(2)	Fifth Amendment to the Fossil, Inc. 2004 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K for the year ended January 6, 2007).
	10.18	(2)	Form of Resale Restriction Agreement (for certain senior and executive officers), effective as of November 16, 2005 (incorporated by reference to the Company's Report on Form 10-K for the year ended January 6, 2007).
	10.19	(2)	Form of Resale Restriction Agreement (for non-employee directors), effective as of November 30, 2005 (incorporated by reference to the Company's Report on Form 10-K for the year ended January 6, 2007).
	10.20	(2)	Amendment to Award Agreement, by and between Fossil, Inc. and Mark Quick, dated November 10, 2005 (incorporated by reference to the Company's Report on Form 10-K for the year ended January 6, 2007).
	10.21	(2)	Form of Restricted Stock Award Agreement under the Fossil, Inc. 2004 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K for the year ended January 6, 2007).
	10.22	(2)	Form of Restricted Stock Unit Award Agreement under the Fossil, Inc. 2004 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K for the year ended January 6, 2007).
	10.23	(2)	Form of Stock Appreciation Rights Award Agreement under the Fossil, Inc. 2004 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K for the year ended January 6, 2007).
	10.24	(2)	Sixth Amendment to the 2004 Long-Term Incentive Plan of Fossil, Inc. (incorporated by reference to the Company's Report on Form 8-K filed on May 30, 2006).

112

Exhibit Number			Description
	10.25		Third Amendment to Loan Agreement, by and among Wells Fargo Bank, National Association, Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc., Fossil Trust, Fossil Stores I, Inc., Arrow Merchandising, Inc. and Fossil Holdings, LLC, effective as of September 21, 2006 (incorporated by reference to the Company's Report on Form 8-K filed on September 26, 2006).
	10.26		Amended and Restated Stock Pledge Agreement, by and between Fossil, Inc. and Wells Fargo Bank, National Association, a national banking association, dated September 21, 2006 (incorporated by reference to the Company's Report on Form 8-K filed on September 26, 2006).
	10.27		Fourth Amendment to Loan Agreement, by and among Wells Fargo Bank, National Association, a national banking association, Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc., Fossil Trust, Fossil Stores I, Inc., Arrow Merchandising, Inc. and Fossil Holdings, LLC, effective as of December 22, 2006 (incorporated by reference to the Company's Report on Form 8-K filed on December 27, 2006).
	10.28	(2)	Form of Letter Agreement relating to outstanding stock options under the Company's long-term equity plans (incorporated by reference to the Company's report on Form 8-K filed on January 5, 2007).
	10.29	(2)	Form of Revised Stock Option Award Agreement under the Fossil, Inc. 2004 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K filed on August 8, 2007).
	10.30	(2)	Form of Revised Restricted Stock Award Agreement under the Fossil, Inc. 2004 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K filed on August 8, 2007).
	10.31	(2)	Form of Revised Restricted Stock Unit Award Agreement under the Fossil, Inc. 2004 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K filed on August 8, 2007).
	10.32	(2)	Form of Revised Stock Appreciation Rights Award Agreement under the Fossil, Inc. 2004 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K filed on August 8, 2007).
	10.33	(2)	Form of International Stock Option Award Agreement under the Fossil, Inc. 2004 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K filed on August 8, 2007).
	10.34	(2)	Form of International Restricted Stock Award Agreement under the Fossil, Inc. 2004 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K filed on August 8, 2007).
	10.35	(2)	Form of International Restricted Stock Unit Award Agreement under the Fossil, Inc. 2004 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K filed on August 8, 2007).
	10.36		Fifth Amendment to Loan Agreement, by and among Wells Fargo Bank, National Association, a national banking association, Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc., Fossil Trust, Fossil Stores I, Inc., Arrow Merchandising, Inc. and Fossil Holdings, LLC, effective as of September 19, 2007 (incorporated by reference to the Company's Report on Form 8-K filed on September 24, 2007).

113

Exhibit Number			Description
	10.37	(2)	Amendment Number One to the Fossil, Inc. 1993 Nonemployee Director Stock Option Plan (incorporated by reference to the Company's Report on Form 10-K for the year ended January 3, 2009).
	10.38	(2)	Option Forfeiture Agreement dated December 31, 2007 between Fossil, Inc. and Kenneth W. Anderson (incorporated by reference to the Company's Report on Form 10-K for the year ended January 3, 2009).
	10.39	(2)	Summary Sheet of Non-Employee Director Compensation dated as of April 1, 2008 (incorporated by reference to the Company's Report on Form 10-Q for the quarter ended April 5, 2008).
	10.40	(2)	Fossil, Inc. 2008 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 8-K filed on May 23, 2008).
	10.41	(2)	Form of Stock Option Award Agreement—U.S. Employees (incorporated by reference to the Company's Report on Form 8-K filed on June 27, 2008).
	10.42	(2)	Form of Stock Option Award Agreement—Non-U.S. Employees (incorporated by reference to the Company's Report on Form 8-K filed on June 27, 2008).
	10.43	(2)	Restricted Stock Unit Award Agreement—U.S. Participants (incorporated by reference to the Company's Report on Form 8-K filed on June 27, 2008).
	10.44	(2)	Restricted Stock Unit Award Agreement—Non-U.S. Participants (incorporated by reference to the Company's Report on Form 8-K filed on June 27, 2008).
	10.45	(2)	Restricted Stock Award Agreement—U.S. Participants (incorporated by reference to the Company's Report on Form 8-K filed on June 27, 2008).
	10.46	(2)	Restricted Stock Award Agreement—Non-U.S. Participants (incorporated by reference to the Company's Report on Form 8-K filed on June 27, 2008).
	10.47	(2)	Stock Appreciation Rights Award (incorporated by reference to the Company's Report on Form 8-K filed on June 27, 2008).
	10.48		Sixth Amendment to Loan Agreement, by and among Wells Fargo Bank, National Association, a national banking association, Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc., Fossil Trust, Fossil Stores I, Inc., Arrow Merchandising, Inc. and Fossil Holdings, LLC, effective as of September 19, 2008 (incorporated by reference to the Company's Report on Form 8-K filed on September 23, 2008).
	10.49		Fourth Amended and Restated Revolving Line of Credit Note, by and between Fossil Partners, L.P. and Wells Fargo Bank, National Association, a national banking association, dated September 19, 2008 (incorporated by reference to the Company's Report on Form 8-K filed on September 23, 2008).
	10.50	(2)	Second Amended and Restated Fossil, Inc. and Affiliates Deferred Compensation Plan (incorporated by reference to the Company's Report on Form 8-K filed on October 31, 2008).

114

Exhibit Number			Description
	10.51		Seventh Amendment to Loan Agreement, by and among Wells Fargo Bank, National Association, a national banking association, Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc., Fossil Trust, Fossil Stores I, Inc., Arrow Merchandising, Inc., Fossil Holdings, LLC and Fossil International Holdings, Inc., effective as of November 19, 2008 (incorporated by reference to the Company's Report on Form 8-K filed on November 25, 2008).
	10.52		Fifth Amended and Restated Revolving Line of Credit Note, by and between Fossil Partners, L.P. and Wells Fargo Bank, National Association, a national banking association, dated November 19, 2008 (incorporated by reference to the Company's Report on Form 8-K filed on November 25, 2008).
	10.53		Amended and Restated Stock Pledge Agreement, by and between Fossil, Inc. and Wells Fargo Bank, National Association, a national banking association, dated November 19, 2008 (incorporated by reference to the Company's Report on Form 8-K filed on November 25, 2008).
	10.54		Amended and Restated Guaranty Agreement, executed by Fossil, Inc., Fossil Intermediate, Inc., Fossil Trust, Fossil Stores I, Inc., Arrow Merchandising, Inc., Fossil Holdings, LLC and Fossil International Holdings, Inc. in favor of Wells Fargo Bank, National Association, a national banking association (incorporated by reference to the Company's Report on Form 8-K filed on November 25, 2008).
	10.55		Eighth Amendment to Loan Agreement, by and among Wells Fargo Bank, National Association, a national banking association, Fossil partners, L.P., Fossil, Inc., Fossil Intermediate, Inc. Fossil Trust, Fossil Stores I, Inc., Arrow Merchandising, Inc., Fossil Holdings, LLC and Fossil International Holdings, Inc. effective as of November 18, 2009 (incorporated by reference to the Company's Report on Form 8-K filed on November 23, 2009).
	10.56		Sixth Amended and Restated Revolving Line of Credit Note, by and between Fossil Partners, L.P. and Wells Fargo Bank, National Association, a national banking association, dated November 18, 2009 (incorporated by reference to the Company's Report on Form 8-K filed on November 23, 2009).
	10.57		Letter Agreement Regarding Acceptance to Serve as an Advisory Director and Election to Decline Participation in the Fossil, Inc. 2008 Long-Term Incentive Plan, executed by Kenneth W. Anderson on May 20, 2009 (incorporated by reference to the Company's Report on Form 8-K filed on May 22, 2009).
	10.58		Letter Agreement Regarding Acceptance to Serve as an Advisory Director and Election to Decline Participation in the Fossil, Inc. 2008 Long-Term Incentive Plan, executed by Alan J. Gold on May 20, 2009 (incorporated by reference to the Company's Report on Form 8-K filed on May 22, 2009).
	10.59	(2)	Summary Sheet of Non-employee Director Cash Compensation (incorporated by reference to the Company's report on Form 8-K filed on April 7, 2009).
	10.60	(2)	Form of Stock Option Award Agreement for Outside Directors under the Fossil, Inc. 2008 Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 8-K filed on January 5, 2009).
	10.61	(1)(2)	Form of Restricted Stock Unit Award Agreement for Outside Directors under the Fossil, Inc. 2008 Long-Term Incentive Plan.

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Exhibit Number			Description
	10.62	(1)(2)	Form of Stock Option Award Agreement for Non-US Optionees under the Fossil, Inc. 2008 Long-Term Incentive Plan.
	10.63	(1)(2)	Summary Sheet of Non-employee Director Compensation, dated as of January 1, 2010.
	21.1	(1)	Subsidiaries of Fossil, Inc.
	23.1	(1)	Consent of Independent Registered Public Accounting Firm.
	31.1	(1)	Certification of Principal Executive Officer
	31.2	(1)	Certification of Principal Financial Officer
	32.1	(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.
	32.2	(1)	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.

(1)

Filed herewith.

(2)

Management contract or compensatory plan or arrangement.

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EX-10.13

Exhibit 10.13

LOAN AGREEMENT

This Loan Agreement (the “Agreement”) is entered into as of September 23, 2004, by and among WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association (the “Bank”), FOSSIL PARTNERS, L.P. (the “Borrower”), FOSSIL, INC. (the “Company”), FOSSIL INTERMEDIATE, INC. (“Fossil Intermediate”), FOSSIL TRUST (“Fossil Trust”), FOSSIL STORES I, INC. (“Fossil I”), INTERMEDIATE LEASING, INC. (“Intermediate Leasing”), ARROW MERCHANDISING, INC. (“Arrow Merchandising”), FOSSIL HOLDINGS, LLC (“Fossil Holdings”) and FMW ACQUISITION, INC. (“FMW”) (the Company, Fossil Intermediate, Fossil Trust, Fossil I, Intermediate Leasing, Arrow Merchandising, Fossil Holdings and FMW are sometimes referred to herein individually as a “Guarantor” and collectively as the “Guarantors”).

R E C I T A L S

WHEREAS, the Borrower and the Guarantors have requested that the Bank make available to the Borrower a revolving line of credit of up to $50,000,000 and the Bank has agreed to do so subject to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the foregoing, the Bank’s making the following described loans, the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, the Bank, the Borrower and the Guarantors agree as follows:

A G R E E M E N T

1.             The Line of Credit.  Subject to, and upon the terms, conditions, covenants and agreements contained herein and in the Revolving Note (as hereinafter defined), the Bank agrees to loan the Borrower, at any time, and from time to time prior to the maturity of the Revolving Note, such amounts as the Borrower may request, up to but not exceeding at any time, the aggregate principal amount of $50,000,000 (the “Total Commitment”); within such limits and during such period, the Borrower may borrow, repay, and re-borrow hereunder (the “Line of Credit”).  All loans under the Line of Credit shall be evidenced by the a Revolving Line of Credit Note (the “Revolving Note”), substantially in form and substance satisfactory to the Bank, executed by the Borrower and payable to the order of the Bank, and bearing interest upon the terms provided therein (but in no event to exceed the maximum non-usurious interest rate permitted by law).  The principal of, and interest on, the Revolving Note shall be due and payable as provided in the Revolving Note.  Notation by the Bank on its records shall constitute prima facie evidence of the amount and date of any payment or borrowing thereunder.

(a)           Renewals and Extensions.  All renewals, extensions, modifications and rearrangements of the Revolving Note, if any, shall be deemed to be made pursuant to this Agreement, and accordingly, shall be subject to the terms and provisions hereof, and the Borrower and the Guarantors shall be deemed to have ratified, as of such renewal,

extension, modification or rearrangement date, all of the representations, covenants and agreements herein set forth.

(b)           Letters of Credit.  Advances under the Line of Credit may be utilized by the Borrower to fund drawings under any Documentary or Stand-by Letters of Credit (as hereinafter defined) that are issued by the Bank for the account of the Borrower.   In the event the Borrower fails to reimburse the Bank for any such drawings, the Bank may, in its own discretion, advance funds under the Line of Credit to fund such drawings and all such advances shall be added to the principal amount of the Revolving Note.

2.             Documentary and Stand-by Letters of Credit.  Subject to the terms and conditions contained herein, the Bank shall (a) from time to time, at the request of the Borrower, issue documentary or stand-by letters of credit to Borrower’s or its subsidiaries’ vendors for the acquisition of inventory for the Borrower or its subsidiaries (the “Inventory Acquisition Letters of Credit”) and (b) issue a stand-by letter of credit in an aggregate amount up to ¥400,000,000 in favor of any Japanese domestic bank for the account of the Borrower (the “JDB Letter of Credit”) (the Inventory Acquisition Letters of Credit and the JDB Letter of Credit are hereinafter collectively referred to as the “Documentary or Stand-by Letters of Credit”).  The fees for issuance of all Inventory Acquisition Letters of Credit shall be in accordance with the Bank’s schedule of fees for issuance of letters of credit existing as of the time of issuance.  No fees shall be charged directly by the Bank to the Borrower in connection with the issuance of the JDB Letter of Credit.  Immediately upon issuance, the undrawn face amount of any such Documentary and Stand-by Letters of Credit shall be considered in computing the amount of funds available to the Borrower under the Line of Credit, as provided in Section 5 hereof.  The Bank shall not be obligated to: (w) issue any Documentary or Stand-by Letter of Credit for the account of the Borrower or its subsidiaries if the issuance of same would cause the Outstanding Revolving Credit to exceed the Total Commitment; (x) issue any Documentary or Stand-by Letter of Credit with an expiration date that is more than one hundred eighty (180) days after the maturity date of the Revolving Note; (y) extend the expiration date of any Documentary or Stand-by Letter of Credit to a date that is more than one hundred eighty (180) days after the maturity date of the Revolving Note; or (z) issue any Documentary or Stand-by Letter of Credit if the face amount of such letter of credit, combined with the aggregate undrawn face amount of all other Documentary and Stand-by Letters of Credit then outstanding, would exceed $50,000,000.  If any Documentary or Stand-by Letters of Credit are outstanding on the maturity date of the Revolving Note, the Borrower shall deposit with the Bank, as cash collateral, an amount equal to the undrawn face amount of all such Documentary or Stand-by Letters of Credit then outstanding (such cash collateral to be maintained in a deposit account at the Bank pursuant to documentation in form and substance mutually acceptable to the Borrower and the Bank (the “Cash Collateral Account”)).  The Cash Collateral Account shall be in the name of Borrower, and shall be pledged to, and subject to the control of, the Bank in a manner satisfactory to the Bank.  The Borrower hereby pledges and grants to the Bank a security interest in all such funds held in the Cash Collateral Account from time to time and all proceeds thereof, as security for the payment of any drawings under any and all such Documentary or Stand-by Letters of Credit.

3.             [Intentionally Deleted]

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4.           Use of Proceeds.  The proceeds of the Line of Credit shall be used for the Borrower’s working capital needs and for general corporate purposes.  No part of the proceeds received hereunder will be used, directly or indirectly, for the purpose of purchasing or carrying, or the payment in full or in part, of indebtedness which was incurred for the purposes of purchasing or carrying margin of stock, as such term is defined in Regulation U of the Board of Governors of the Federal Reserve System, as now or from time to time hereinafter in effect.

5.           Availability.

(a)           Revolving Note.  The aggregate principal amount at any time outstanding under the Revolving Note, plus one hundred percent (100%) of the face amount of the JDB Letter of Credit (calculated by reference to the amount of United States of America dollars into which the Bank determines it could, in accordance with its practice from time to time in the interbank foreign exchange market, convert such amount of Yen at its spot rate of exchange in effect at approximately 8:00 a.m. (Dallas, Texas time) on the date of determination), plus one hundred percent (100%) of the face amount of all outstanding Documentary and Stand-by Letters of Credit (other than the JDB Letter of Credit) issued for the account of the Borrower, plus one hundred percent (100%) of the Bank’s participation interest in all letters of credit issued for the account of the Borrower, the Company or any of their respective subsidiaries pursuant to that certain Hongkong and Shanghai Banking Corporation Limited Uncommitted Letter of Credit Facility, as the same may be amended, modified or extended from time to time (said sum being herein referred to as the “Outstanding Revolving Credit”), shall not at any time exceed the Total Commitment.

(b)           Total Commitment Compliance.  In the event the Outstanding Revolving Credit at any time exceeds the Total Commitment, then, upon notice from the Bank to the Borrower, the Borrower shall immediately make such payments to the Bank as are necessary to reduce the Outstanding Revolving Credit to an amount such that the Outstanding Revolving Credit is less than or equal to the Total Commitment.

6.           Advances.  Advances under the Line of Credit may be made by written or facsimile request signed by an authorized officer of the Borrower or by telephone oral request or electronic request by an authorized officer of the Borrower (unless such authority for telephone oral request, electronic or facsimile request is revoked in writing by an authorized officer of the Borrower, and such revocation is actually received by the Bank (the “Revocation”)), provided that any such advance shall be deposited in an account of the Borrower.  In consideration of the Bank’s permitting the Borrower to make telephone oral requests, electronic and facsimile requests for advances under the Revolving Note until Revocation, the Borrower covenants and agrees to assume liability for and to protect, indemnify and hold harmless the Bank, its predecessors, agents, officers, directors, employees, successors and assigns (individually and collectively, an “Indemnified Party”) from any and all liabilities, obligations, damages, penalties, claims, causes of action, costs, charges and expenses, including attorneys’ fees and expenses of employees, which may be imposed, incurred by or asserted against any Indemnified Party by reason of any loss, damage or claim howsoever arising or incurred because of or out of or in

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connection with (i) any action of any Indemnified Party pursuant to telephone oral requests, electronic requests or facsimile requests for advances under the Line of Credit, (ii) the breach of any provisions of this Agreement by the Borrower, (iii) the transfer of funds pursuant to such telephone oral requests, electronic requests or facsimile requests, or (iv) any Indemnified Party’s honoring or failing to honor any telephone oral request, electronic request or facsimile request for any reason.  The Bank is entitled to rely upon and act upon telephone oral requests, electronic requests and facsimile requests made or purportedly made by any of the officers or employees specified in the resolutions delivered to the Bank of even date herewith, as supplemented in writing from time to time and accepted by the Bank, and the Borrower shall be unconditionally and absolutely estopped from denying (i) the authenticity and validity of any such transaction so acted upon by the Bank once the Bank has advanced funds under the Line of Credit and deposited or transferred such funds as requested in any such telephone oral request, electronic request or facsimile request, and (ii) the Borrower’s liability and responsibility therefore.

7.           Payments; Prepayments.  Any payment or prepayment of the outstanding principal amount of, or accrued interest on, the Revolving Note shall be paid at the office of the Bank designated in the Revolving Note (or at such other place or to such account as the Bank may from time to time designate in writing to the Borrower).  The Borrower shall be entitled to repay and/or prepay the outstanding principal balance of, and accrued interest on, the Revolving Note from time to time and at any time, in whole or in part, without notice or penalty of any kind, except as otherwise set forth in the Revolving Note.  The Borrower may re-borrow all or any portion of the principal amount of the Line of Credit so repaid or prepaid subject to the terms and conditions the Revolving Note and this Agreement (including, without limitation, Section 5(a) hereof).  All payments and prepayments on the Revolving Note shall be applied first to accrued interest and then to principal in the order of maturity.  No prepayment shall relieve the Borrower of the obligation to pay the principal and interest on the Revolving Note until such time as all obligations are paid in full.

8.           Collateral for the Loans.  The Line of Credit shall be secured by the collateral described in the Stock Pledge Agreement (as hereinafter defined) and, if applicable, by the cash collateral maintained in the Cash Collateral Account.  Except as specifically provided in the preceding sentence or as contemplated by Section 12(m) hereof, the Line of Credit shall be unsecured.

9.           Conditions Precedent to Initial Loans .  The Borrower shall execute and deliver, or cause to be executed and delivered, to the Bank the following described documents:

(a)           In connection with and as a condition precedent to the Bank’s obligation to make initial advances under the Line of Credit or otherwise extend any credit accommodations hereunder, the Borrower shall execute and deliver to the Bank, or cause to be executed and delivered to the Bank, the following documents and instruments, each of which shall be in form and substance satisfactory to the Bank (and the Bank shall have no obligation to make initial advances under the Line of Credit or otherwise extend any credit accommodations hereunder until each of said documents and instruments are so executed and delivered to the Bank):

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(i)            This Agreement;

(ii)           The Revolving Note;

(iii)          A Guaranty Agreement, duly executed by each of the Guarantors, pursuant to which the Guarantors shall guarantee the prompt payment and performance by the Borrower of its obligations hereunder (collectively, the “Guaranty Agreement”);

(iv)          A Stock Pledge Agreement, duly executed by the Company, pursuant to which the Company shall pledge to the Bank, as collateral security for the Borrower’s obligations to the Bank hereunder, a security interest in sixty-five percent (65%) of any and all issued and outstanding shares of stock of Fossil Europe B.V. and Fossil (East) Limited, whether now or hereafter issued by such subsidiaries of the Company (the “Stock Pledge Agreement”); and

(v)           Ordinary and customary certificates and documents satisfactory to the Bank and its counsel.

(b)           In connection with the Bank’s issuance of each Documentary or Stand-by Letter of Credit, the Borrower shall, in addition to the documents required in Section 9(a) above, execute and deliver to the Bank a Letter of Credit Application and Agreement (herein so called), provided the Bank shall have no obligation to issue a Documentary or Stand-by Letter of Credit for the account of the Borrower until a Letter of Credit Application and Agreement has been executed by the Borrower and delivered to the Bank.

10.         Conditions Precedent to each Loan and Issuance of each Documentary or Stand-by Letter of Credit.  Notwithstanding any other provision of this Agreement or any other Loan Document to the contrary, it is understood and agreed that the Bank’s obligation to make any advance or extension of credit hereunder on any date (including the issuance of any Documentary or Stand-by Letter of Credit) is subject to the satisfaction of the following conditions precedent:

(a)           The Borrower shall have executed and delivered, or cause to have been executed and delivered, to the Bank this Agreement and the other loan documentation referred to in Section 9 and, if applicable, Section 12(m) hereof;

(b)           There shall have been no material adverse change in the financial condition of the Borrower, individually, or the Guarantors, taken as a whole;

(c)           There shall be no material adverse litigation, either pending or threatened, against the Borrower or any Guarantor that could reasonably be expected to have a material adverse effect on the Borrower, individually, or the Guarantors, taken as a whole;

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(d)           The representations and warranties contained herein and in the other Loan Documents (as hereinafter defined) shall be true and correct on and as of such date; and

(e)           No default or event of default shall have occurred and be continuing hereunder or under any of the other Loan Documents.

11.         Representations and Warranties.  The Borrower and each of the Guarantors hereby jointly and severally represent, warrant and covenant that:

(a)           The Borrower and each of the Guarantors is a limited partnership, corporation, limited liability company or business trust, as the case may be, duly organized, validly existing and in good standing under the laws of the state, of its organization and is duly licensed, qualified to do business and in good standing in each jurisdiction in which the ownership of its property or the conduct of its business requires such licensing and qualification and where the failure to be so licensed or qualified would have a material adverse effect upon (i) its business, operations, properties, assets or condition (financial or otherwise), or (ii) its ability to perform, or of the Bank to enforce, its obligations under the Loan Documents to which it is a party.  Borrower and each of the Guarantors has all powers and all permits consents and authorizations necessary to own and operate  properties and to carry on its business as presently conducted.  The execution, delivery and performance of this Agreement and the Guaranty Agreement by the Guarantors and the execution, delivery and performance of this Agreement by the Borrower, the borrowings hereunder and the execution and delivery of the Revolving Note, the Letter of Credit Applications, the Guaranty Agreement, the Stock Pledge Agreement, and the several agreements and instruments contemplated thereby, (i) have been duly authorized by proper corporate, partnership or trust proceedings, as appropriate, and (ii) will not contravene, or constitute a default under, any provision of applicable law or regulation or of the Agreement of Limited Partnership, Articles of Incorporation, By-Laws or Trust Agreement, as applicable, of the Borrower or any Guarantor, or of any mortgage, indenture, contract, agreement or other instrument, or any judgment, order or decree, binding upon the Borrower or any Guarantor.  To the best of Borrower’s and Guarantors’ knowledge, no consent or authorization of, filing with or other act by or in respect of, any governmental authority or any other person (other than the Bank) is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of any of the Loan Documents, except for such consents, authorizations, filings or acts as have been obtained, filed or taken by the Borrower and the Guarantors prior to the date hereof.  This Agreement, the Revolving Note, the Letter of Credit Applications, the Guaranty Agreement, the Stock Pledge Agreement, and any other agreements, documents and instruments contemplated herein and thereby, or in any way related thereto whether executed simultaneously herewith or hereafter (all of same being hereinafter sometimes called the “Loan Documents”), when duly executed and delivered in accordance with this Agreement, will each constitute a legal, valid and binding obligation of  each of the Borrower and the Guarantors, if a party thereto, enforceable against each such party in accordance with its respective terms.

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(b)           The audited balance sheet of the Company at January 3, 2004, the related statement of income and retained earnings for the period then ended, copies of which have been delivered to the Bank, accurately represent the financial position of the Company at January 3, 2004, and the results of its operations for the periods then ended materially prepared in conformity with generally accepted accounting principles applied on a basis consistent with the preceding year.  No material adverse change has occurred since January 3, 2004 position or in the results of operations of the Company or in its business.

(c)           No approvals or consents of any governmental department, administrative agency or instrumentality having jurisdiction over the Borrower or any Guarantor are necessary to permit the Borrower or any Guarantor to enter into the Loan Documents to which it is a party, except for such approvals and covenants as have been obtained.

(d)           There is no action, suit or proceeding pending or, to the knowledge of the Borrower or any Guarantor, threatened against the Borrower or any Guarantor or the Collateral (hereinafter defined) before any court, governmental department, administrative agency or instrumentality which, if such action, suit or proceeding were adversely determined, would materially affect the financial position or the results of operations of the Borrower or any Guarantor or its business or the ability of the Borrower or any Guarantor to perform its obligations under the Loan Documents.

(e)           To the best of the Company’s management’s knowledge, no default or Event of Default (hereinafter defined) has occurred and is continuing.

(f)            To the best of the Company’s management’s knowledge, each of the Borrower and the Guarantors has good and indefeasible title to all of its assets and properties, free and clear of all security interests, mortgages, liens or encumbrances, except as otherwise permitted under this Agreement.

(g)           Neither the Borrower nor any Guarantor is an investment company within the meaning of the Investment Company Act of 1940.

(h)           To the best of the Company’s management’s knowledge, each of the Borrower and the Guarantors has filed all United States federal returns and all material State and foreign tax returns required to be filed by it and paid all sums required thereby to the extent the same have become due and before they may have become delinquent in accordance with such returns, or is contesting the payment of same diligently and in good faith before the proper taxing authority.  To the best of the Company’s management’s knowledge, all other material tax returns required to be filed by the Borrower and the Guarantors with any taxing jurisdiction have been filed and all tax liabilities shown thereon to be due have been paid to the extent the same have become due and before they may have become delinquent in accordance with such returns, or the payment of such tax liabilities is being contested diligently and in good faith before the proper taxing authority, and such returns properly reflect the taxes of the Borrower and the Guarantors, as applicable, for the periods covered thereby in all material respects.

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(i)            Borrower and each Guarantor (a) is solvent and will continue to be solvent after giving effect to the transactions contemplated hereunder, and (b) is able to pay its debts as they mature and has (and has reason to believe it will continue to have) sufficient capital (and not unreasonably small capital) to carry on its business and all businesses in which it is about to engage.  The assets and properties of Borrower and each Guarantor at a fair valuation and at their present fair salable value are, and will be, greater than the indebtedness of Borrower and each such Guarantor, respectively (including subordinated and contingent liabilities computed at the amount which, to the best of the Company’s management’s knowledge, represents an amount which can reasonably be expected to become an actual or matured liability).

12.         Affirmative Covenants.  The Borrower and the Company hereby agree that, at all times during the term of this Agreement and until payment and performance in full of the Revolving Note, unless the Borrower receives prior written approval of a deviation therefrom from the Bank, the Borrower and the Company shall, and except in the case of delivery of financial information, reports and notices, shall cause each of the Guarantors to:

(a)           Annual Financial Statements.  Furnish the Bank, within one hundred (100) days after the end of each fiscal year of the Company, (i) a copy of the Company’s audited consolidated financial statements, consisting of at least a balance sheet and related statement of income, retained earnings and changes in financial condition of the Company prepared in conformity with generally accepted accounting principles, applied on a basis consistent with that of the preceding year, and certified by an independent certified public accountant selected by the Company and reasonably satisfactory to the Bank, (ii) a copy of the consolidating financial statements of the Company prepared by the Company, and (iii) a copy of the Form 10-K of the Company for such fiscal year.

(b)           Quarterly Financial Statements.  Furnish the Bank, upon request, within fifty (50) days after the end of any fiscal quarter of the Company during the term hereof, (i) a copy of its unaudited consolidating financial statements for such fiscal quarter, consisting of at least a balance sheet and related statement of income, materially prepared in conformity with generally accepted accounting principles and certified by an authorized officer of the Company, and (ii) a copy of the Form 10-Q of the Company for such fiscal quarter.

(c)           Compliance Certificate.  Furnish the Bank, concurrently with the delivery of the financial statements required to be delivered pursuant to clauses (a) and (b) above, a Compliance Certificate in a form similar to the Compliance Certificate attached hereto as Exhibit B, but including all representations and warranties to the satisfaction of the Bank, signed by an authorized officer of the Borrower and the Company.

(d)           Accounts Receivable Agings, Accounts Payable Agings and Inventory Summaries.  Furnish the Bank, within ten (10) days of any request by the Bank, accounts receivable agings, accounts payable agings and/or inventory summaries in form and detail acceptable to the Bank.

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(e)           Insurance.  Maintain and keep in full force and effect insurance of the kinds customarily carried or maintained by persons of established reputation engaged in similar lines of business to that of the Borrower and Company, with all such insurance to be carried in amounts and provided by insurance companies reasonably acceptable to the Bank.  The Borrower and the Company agree to deliver to the Bank from time to time at the Bank’s request schedules setting forth all insurance then in effect.

(f)            Taxes.  Pay and discharge all material taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which such taxes, assessments and governmental charges or levies become due and payable; provided, however, that neither the Borrower nor any Guarantor shall be required to pay and discharge or cause to be paid and discharged any such taxes, assessments and governmental charges or levies if (and for so long as) the validity or amount thereof are being contested in good faith by appropriate proceedings diligently pursued and appropriate reserves have been provided therefor; provided further, however, that the Borrower and each of the Guarantors shall, in any event, pay and discharge all material taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the fifteenth (15th) day following the date that any liens securing same are filed of public record.

(g)           Litigation.  Promptly give notice to the Bank of all litigation and all proceedings before governmental or regulatory agencies affecting the Borrower or any Guarantor except litigation or proceedings that could not reasonably be expected to have material adverse effect upon the financial condition of the Borrower, individually, or the Guarantors, taken as a whole.

(h)           Further Assurances.  At any time and from time to time, execute and deliver such further instruments and take such further action as may reasonably be requested by the Bank, in order to cure any defects in the execution and delivery of, or to comply with or accomplish the covenants and agreements contained in the Loan Documents.

(i)            Books and Records.  Make available to the Bank during normal business hours at the Borrower’s main office its books and records, including, but not limited to, the subsidiary journals, accounts receivable files, inventory records, general ledger, and correspondence files.  The Bank shall have the right to examine its collateral at any reasonable time without prior notice.

(j)            Existence.  Continue to be a limited partnership, corporation, limited liability company or business trust, as the case may be, duly organized and existing in good standing under the law of the jurisdiction under which it is organized and continue to be duly licensed or qualified as a foreign limited partnership, corporation, limited liability company or business trust, as the case may be, in all jurisdictions wherein the character of the property owned or leased by it or the nature of the business transacted by it makes licensing or qualification necessary by a foreign limited partnership, corporation,

9

limited liability company or business trust, as the case may be, except where the failure to be so licensed or qualified would not have a material adverse affect on its business or operations taken as a whole.

(k)           Expenses.  Pay reasonable expenses, including reasonable legal expenses and attorney’s fees, of the Bank which have been or may be incurred by the Bank in connection with the preparation of this Agreement and the lending and incurring of obligations or liabilities hereunder, the collection of any note authorized hereby, or for the enforcement of the Borrower’s or any Guarantor’s obligations hereunder and under any document executed to secure the payment of any note authorized hereunder and for the recording and filing and recording and refiling of any such document.

(l)            Default; Name Change; Casualty.  Give notice to the Bank in writing of the occurrence of any default or Event of Default under this Agreement, any change in name, identity or structure of the Borrower or any Guarantor, and any uninsured or partially uninsured loss in excess of $5,000,000 through fire, theft, liability or property damage.

(m)          Domestic Subsidiary Guarantees/Stock Pledges.  At the discretion of the Company, either (i) cause each majority-owned subsidiary of the Company or the Borrower which is incorporated or formed in the United States of America and which owns or holds tangible assets having an aggregate book value of $50,000,000 or more (each, a “Significant Domestic Subsidiary”) to execute a Guaranty Agreement in the form of Exhibit A attached hereto, or (ii) pledge to the Bank, as collateral security for the Borrower’s obligations to the Bank hereunder, a security interest in one hundred percent (100%) of the stock of each such Significant Domestic Subsidiary which is owned by the Borrower or the Company by executing a Stock Pledge Agreement in the form of Exhibit B attached hereto.

13.         Negative Covenants.  The Borrower and the Guarantors hereby agree that, at all times during the term of this Agreement and until payment and performance in full of the Revolving Note, unless the Borrower receives prior written approval of a deviation therefrom from the Bank, the Borrower and the Guarantors shall not directly or indirectly:

(a)           Debt.  Create, incur, assume or suffer to exist any debt for borrowed money, whether by way of loan, or the issuance or sale of bonds, debentures, notes or securities, including deferred debt for the purchase price of assets, except for (i) the loans described herein, (ii) revolving credit loans in an aggregate principal amount of up to ¥400,000,000 from any Japanese domestic bank, provided that the only security for such revolving credit loans shall be the JDB Letter of Credit, (iii) loans from one or more Guarantors to the Borrower or another Guarantor, so long as the indebtedness in respect of such loans is unsecured and fully subordinated to the indebtedness owing to the Bank pursuant to a written subordination agreement in form and substance satisfactory to the Bank, (iv) current accounts payable and other current obligations (other than for borrowed

10

money) arising out of transactions in the ordinary course of business and (v) indebtedness or obligations permitted pursuant to Section 13 (b) hereof.

(b)         Liabilities.  Assume, guarantee, endorse, suffer to exist or otherwise become liable upon, or agree to purchase or otherwise furnish funds for the payment of, the obligations of any person, firm or corporation, except for

(i)            the obligations hereunder;

(ii)           endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business;

(iii)          obligations under operating leases;

(iv)          obligations for indebtedness secured by purchase money liens not to exceed $10,000,000 in the aggregate at any time outstanding;

(v)           obligations under foreign currency exchange contracts, so long as such obligations are incurred in the ordinary course of its business;

(vi)          indebtedness to shareholders, officers or partners, so long as such indebtedness is unsecured, fully subordinated to the indebtedness owing to the Bank in form and substance satisfactory to the Bank, and evidenced by debt instruments satisfactory in form and substance to the Bank;

(vii)         obligations under guaranties securing indebtedness not to exceed $10,000,000 in the aggregate at any time outstanding; and

(viii)        any other unsecured indebtedness which is subordinated to the indebtedness owing to the Bank pursuant to a written subordination agreement in form and substance satisfactory to the Bank.

(c)          Encumbrances.  Create, incur, assume or suffer to exist any mortgage, deed of trust, pledge, encumbrance, lien or security interest of any kind, upon any of its property now owned or hereafter acquired, except (i) liens, mortgages, encumbrances or security interest to secure payment of the borrowings authorized hereunder; (ii) pledges or deposits to secure obligations under workmen’s compensation laws or of similar legislation; (iii) deposits to secure public or statutory obligations; (iv) statutory mechanics’, carriers’, workmen’s, repairmen’s liens or other like items in the ordinary course of business in respect to obligations which are not overdue or are being contested in good faith; (v) existing liens disclosed to the Bank in writing prior to the date of this Agreement or otherwise consented to in writing by the Bank; (vi) liens for taxes, assessments or other governmental charges or levies not yet due or liens which are being contested in good faith by appropriate proceedings for sums not exceeding $100,000 in the aggregate; (vii) legal or equitable encumbrances not in excess of $1,000,000 in the aggregate deemed to exist by reason of the existence of any litigation or other legal

11

proceeding or arising out of a judgment or award with respect to which an appeal is being prosecuted; and (viii) liens securing purchase money indebtedness permitted under Section 13(b)(iv) hereof.

(d)         Purchase of Assets and Investments; Consolidations, Mergers and Sales of Assets.  Form any new subsidiary or merge or invest in or consolidate with any corporation or other entity, or sell, lease, assign, transfer, or otherwise dispose of (whether in one transaction or as a series of related transactions) all or substantially all of its assets, whether now owned or hereafter acquired; or acquire by purchase or otherwise, all or substantially all of the assets of any corporation or other entity; provided, however, that (i) the Borrower and the Company may form new subsidiaries, so long as (A) the Borrower or the Company provides the Bank with prior written notice of such formation and (B) the Borrower and the Company comply with their obligations pursuant to Section 12(m) hereof, and (ii) the Company may merge or consolidate one or more of its wholly-owned subsidiaries (other than the Borrower) with or into (A) the Company (provided that the Company shall be the surviving corporation) or (B) any one or more of its wholly-owned subsidiaries, (iii) the Company may merge or consolidate one or more of its wholly-owned subsidiaries with or into the Borrower (provided that the Borrower shall be the surviving corporation), and (iv) the Company or the Borrower may invest in or acquire by purchase or otherwise, all or substantially all of the assets of any corporation or other entity, so long as (A) the consideration utilized by the Company or the Borrower to effect any such investment or acquisition consists solely of cash and/or capital stock of the Company or any subsidiary of the Company and (B) no default or Event of Default then exists or would exist after giving effect to such investment or acquisition.

(e)           Business.  Change the nature of its business or engage in a kind of business different from that which it presently conducts.

(f)            Loans to Officers.  Make any loans or advances to its shareholders or officers in excess of $500,000 to any individual officer or shareholder or $2,000,000 in the aggregate to all officers and shareholders.

14.           Financial Covenants.  The Company covenants and agrees that, at all times during the term of this Agreement and until payment and performance in full of the Revolving Note, the Company will, on a consolidated basis:

(a)           Quick Ratio.  Maintain, at all times, a ratio of (i) (A) cash, plus (B) cash equivalents, plus (C) account receivables to (ii) current liabilities of not less than 1.0 to 1.0.  Cash, cash equivalents, accounts receivable and current liabilities are defined according to generally accepted accounting principles, with the exception that current liabilities will include all indebtedness of the Borrower under the Revolving Note.

(b)           [Intentionally Deleted]

(c)           Fixed Charge Coverage Ratio.  Maintain a ratio of Cash Flow to Fixed Charges of not less than 2.0 to 1.0 throughout the term hereof.  “Cash Flow” is defined as

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the Company’s net income, plus depreciation and amortization, plus interest expense, plus rental expense, all on a consolidated basis, and each determined in accordance with generally accepted accounting principles.  “Fixed Charges” is defined as the Company’s current portion of long-term debt and capitalized leases, plus interest expense, plus rental expense, plus dividends, all on a consolidated basis, and each determined in accordance with generally accepted accounting principles.  Cash Flow and Fixed Charges shall be determined as of the end of the immediately preceding fiscal quarter for the twelve-month period ended as of the end of such fiscal quarter for which the determination is being made (i.e., on a rolling four-quarter basis).

(d)           Minimum Net Income.  Achieve net income of not less than $5,000,000 for each fiscal quarter of the Company, commencing with the fiscal quarter ending October 2, 2004 (with net income to be determined in accordance with generally accepted accounting principles).

15.         Default.  The Borrower shall be in default hereunder if any one of the following events of default (“Events of Default”) shall occur and be continuing, namely:

(a)           The Borrower, any Guarantor or any other party to the Loan Documents shall fail to pay, when due, any sums owing to the Bank; or

(b)           The Borrower, any Guarantor or any other party to the Loan Documents shall fail to pay, when due, any sums owing to others for borrowed money or the deferred payment of goods or services (excluding trade payables) in excess of $5,000,000 (hereinafter referred to as “Other Indebtedness”) or if the holder of any such Other Indebtedness declares or may declare such Other Indebtedness due prior to the stated maturity because of any default thereunder; or

(c)           Any representation, statement, warranty, projection, or certificate made by the Borrower or any Guarantor in the Loan Documents, or in any agreement, document or instrument executed pursuant hereto or concurrently herewith, or hereafter furnished to the Bank in connection with any loan or loans hereunder, shall prove to have been incorrect in any material respect at the time of making or issuance thereof; or

(d)           The Borrower or any Guarantor, as applicable, shall fail or neglect to perform, keep or observe any covenant contained in Section 12(i), 12(j), 12(l), 13 or 14 hereof on the date that the Borrower or any such Guarantor, as applicable, is required to perform, keep or observe such covenant; or

(e)           The Company shall fail or neglect to perform, keep or observe any covenant contained in Section 3 of the Stock Pledge Agreement on the date that the Company is required to perform, keep or observe such covenant; or

(f)            The Borrower, any Guarantor or any other party to the Loan Documents shall fail or neglect to perform, keep or observe any covenant or agreements set forth in the Loan Documents or in any other agreement, document or instrument executed

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pursuant hereto (other than a covenant or agreement the performance of which is dealt with specifically elsewhere in this Section 15), and such default is not cured to the Bank’s satisfaction within thirty (30) days of the occurrence thereof; provided, however, that the provisions of this Agreement shall control in the event that any of such provisions are in conflict with the provisions of any other agreement, mortgage, indenture or instrument executed pursuant hereto and all of such provisions in such other instruments shall be deemed to be cumulative of the provisions hereof to the extent such provisions are not inconsistent herewith; or

(g)           The Borrower, any Guarantor or any other party to the Loan Documents shall apply for or consent to, or acquiesce in the appointment of a receiver, trustee, or liquidator of itself or himself or of its or his property, or admit in writing its or his inability to pay its or his debts as they mature, or make a general assignment for the benefit of creditors or an Order of Relief be entered with respect to the Borrower, any guarantor or any other party to the Loan Documents by any court having competent jurisdiction in the premises, or file a voluntary petition in bankruptcy or a petition or answer seeking reorganization, composition, readjustment or arrangement, or similar relief with creditors, under any present or future statute, law or regulation, or otherwise, or take advantage of any insolvency law or file an answer admitting the material allegations of a petition filed against it or him in bankruptcy, reorganization, or insolvency proceedings, or corporate action shall be taken by it or him for the purpose of effecting any of the foregoing, or it or he shall have a receiver or trustee or assignee in bankruptcy or insolvency appointed for it or him, or its or his property, without its or his application or consent.

Upon the occurrence and during the continuance of any Event of Default (other than an Event of Default specified in Section 15 (g) above), the obligation of the Bank to make any advance or extend any credit hereunder (including the issuance of Documentary or Stand-by Letters of Credit) to or for the account of the Borrower shall, upon notice by the Bank to the Borrower, immediately terminate and the Bank shall be entitled to each and every remedy and to take each and every action permitted by the Loan Documents.  Upon the occurrence and during the continuance of any Event of Default specified in Section 15 (g) above, the obligation of the Bank to make any advance or extend any credit hereunder (including the issuance of Documentary or Stand-by Letters of Credit) to or for the account of the Borrower shall automatically terminate, all indebtedness, liabilities and obligations of the Borrower to the Bank under this Agreement and the other Loan Documents shall immediately become due and payable (without presentment, demand, protest or other or other notice of any kind, all of which are waived by the Borrower and the Guarantors) and the Bank shall be entitled to each and every remedy and to take each and every action permitted by the Loan Documents.

16.          Notice.  All notices required or permitted hereunder shall be in writing and shall be deemed to have been given or made as follows:  (a) if sent by hand delivery, upon delivery; (b) if sent by registered or certified mail, return receipt requested, upon receipt (as indicated on the return receipt); and (c) if sent by facsimile, upon receipt (which shall be confirmed by a confirmation report from the sender’s facsimile machine), addressed to the parties at their

14

respective addresses set forth below or such other address as any such party may from time to time designate by written notice to the other:

if to the Bank:	Wells Fargo Bank, National Association
	1445 Ross Avenue, 3rd Floor
	MAC T5303-031
	Dallas, Texas 75202
	Attention:	Susan K. Nugent
		Assistant Vice President
	Fax: (214) 969-0370
with a copy to:	Patton Boggs LLP
	2001 Ross Avenue, Suite 3000
	Dallas, Texas 75201
	Attention: Robert Jeffery Cole, Esq.
	Fax: (214) 758-1550
if to the Borrower:	Fossil Partners, L.P.
	2280 N. Greenville Avenue
	Richardson, Texas 75082-4412
	Attention: Mike L. Kovar
	Fax: (972) 498-9448
if to Guarantors:	c/o Fossil, Inc.
	2280 N. Greenville Avenue
	Richardson, Texas 75082-4412
	Attention: Mike L. Kovar
	Fax: (972) 498-9448

17.           Waiver.  No failure to exercise and no delay in exercising on the part of the Bank of any right, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder, preclude any other or further exercise thereof, or the exercise of any other right, power or privilege.  The rights and remedies herein provided are  cumulative and not exclusive of any rights or remedies provided by law or in any other agreement.

18.           Survival of Agreements.  All agreements, representations and warranties herein made shall survive the execution and delivery of the Revolving Note, and the making and renewal thereof.

19.           Amendment.  This Agreement may not be amended except in writing signed by the Borrower, the Guarantors and the Bank.

20.           Successors.  This Agreement shall be binding upon and inure to the benefit of the Borrower, the Guarantors, the Bank and the successors and assigns of each party hereto.

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21.           Severability.  In the case any one or more of the provisions contained in the Loan Documents should be invalid, illegal, or unenforceable, in any respect, the validity, legality, and enforceability of the remaining provisions contained therein shall not in any way be affected thereby.

22.           Interest.  It is the intention of the parties hereto to comply with the laws of the State of Texas accordingly, it is agreed that notwithstanding any provisions to the contrary in the Loan Documents, in no event shall said Loan Documents require the payment or permit the collection of interest, as defined under the laws of the State of Texas, in excess of the maximum amount permitted by such laws.  If any such excess of interest is contracted for, charged or received, under the Loan Documents, or in the event the maturity of the indebtedness evidenced by the Revolving Note or is accelerated in whole or in part, or in the event that all or part of the principal or interest of the Revolving Note shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged, or received under the Loan Documents on the amount of principal actually outstanding from time to time thereunder shall exceed the maximum amount of interest permitted by the laws of the State of Texas, then in any such event (a) the provisions of this section shall govern and control, (b) neither the Borrower nor any other person or entity now or hereafter liable for the payment of the Revolving Note shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted to be contracted for by, charged to or received from the party obligated thereon under the laws of the State of Texas, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal amount on the Revolving Note or refunded to the person paying the same, at the holder’s option, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful rate of interest permitted to be contracted for by, charged to or received from the party obligated thereon under the laws of the State of Texas as now or hereafter construed by the courts having jurisdiction thereof.  It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under the Loan Documents, for the purpose of determining whether such rate exceeds the maximum lawful rate of interest, shall be made, to the extent permitted by the laws of the State of Texas, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated terms of the Revolving Note all interest at any time contracted for, charged or received from the undersigned or otherwise by the holder or holders thereof in connection with such Revolving Note.  To the extent that Chapter 1D of Article 5069 of the Texas Revised Civil Statutes is relevant to the Bank for the purpose of determining the maximum rate of interest, the Bank hereby elects to determine the applicable rate ceiling under such Article by the weekly rate ceiling from time to time in effect, subject to Bank’s right subsequently to change such method in accordance with applicable law, as the same may be amended or modified from time to time.

23.           Participations, Etc.  The Borrower expressly recognizes and agrees that, so long as the total indebtedness of the Borrower to the Bank is $50,000,000 or less, upon the mutual consent of the Borrower and the Bank (unless an Event of Default has occurred hereunder in which case no consent of the Borrower shall be necessary), the Bank may sell to other lenders participations in the loans incurred by the Borrower pursuant hereto.  The Borrower expressly recognizes and agrees that, if the total indebtedness of the Borrower to the Bank is more than

16

$50,000,000, the Bank, without the consent of the Borrower, may sell to other lenders participations in the loans incurred by the Borrower pursuant hereto.  Therefore, as security for the due payment and performance of all indebtedness and other liabilities and obligations of the Borrower to the Bank under the Loan Documents and any other obligation of the Borrower to the Bank, whether now existing or hereafter arising, and to such lenders arising now by reason of such participations or otherwise, the Borrower hereby grants to the Bank and to such lenders, a lien on and security interest in any and all deposits or other sums at  any time credited by or due from the Bank and such lenders or either or any of them to the Borrower, whether in regular or special depository accounts or otherwise, and any and all monies, securities and other property of the Borrower, and the proceeds thereof now or hereafter held or received by or in transit to the Bank and such lenders or either or any of them, from or for the Borrower whether for safekeeping, custody, pledge, transmission, collection or otherwise and any such deposit, sums, monies securities and other property may at any time after Default be set-off, appropriated and applied by the Bank and by such lenders, or either or any of them, against any indebtedness, liabilities or other obligations, whether now existing or hereafter arising, of the Borrower or any of them, under this Agreement, the Revolving Note, or otherwise whether or not such indebtedness, liabilities or other obligation is then due or secured by any indebtedness, liabilities or other obligation is then due or secured by any collateral or if it is so secured whether or not such collateral held by the Bank or such lenders is considered to be adequate.

24.           This Agreement is being executed and delivered, and is intended to be performed in the State of Texas.  Except to the extent that the laws of the United States may apply to the terms hereof, the substantive laws of the State of Texas shall govern the validity, construction, enforcement and interpretation of this Agreement. In the event of a dispute involving this Guaranty or any other instruments executed in connection herewith, the undersigned irrevocably agrees that venue for such dispute shall lie in any court of competent jurisdiction in Dallas County, Texas to the extent such dispute is not resolved by binding arbitration pursuant to the Bank’s current Arbitration Program described in paragraph 28 below.

25.          Judgment Currency.

(a)           If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or under the Revolving Note from a currency (the “Original Currency”) into another currency (the “Other Currency”), the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be the rate of exchange prevailing on the business day immediately preceding the day on which final judgment is given.

(b)           The obligation of the Borrower in respect of any sum due in the Original Currency from it to Bank hereunder or under the Revolving Note shall, notwithstanding any judgment in any Other Currency, be discharged only if and to the extent that on the business day following receipt by Bank of any sum adjudged to be so due in such Other Currency Bank may in accordance with normal banking procedures purchase such amount of the Original Currency with such Other Currency at the rate of exchange prevailing on the business day preceding the day on which the final judgment referred to

17

in Section 25 (a) is given; if the amount of the Original Currency so purchased is less than the amount of the Original Currency which the Bank could have purchased at the rate of exchange prevailing on the business day preceding the day on which such final judgment is given, the Borrower agrees, as a separate obligation of the Borrower to the Bank and notwithstanding any such judgment, to indemnify Bank against such difference, and if the amount of the Original Currency so purchased exceeds the amount of the Original Currency which the Bank could have purchased at the rate of exchange prevailing on the business day preceding the day on which such final judgment is given, Bank agrees to remit to the Borrower such excess.

26.           [Intentionally Deleted]

27.           NOTICE:  THIS AGREEMENT AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE INDEBTEDNESS.

28.           AGREEMENT FOR BINDING ARBITRATION.  The parties agree to be bound by the terms and provisions of the Bank’s current Arbitration Program which is incorporated by reference herein and is acknowledged as received by the parties pursuant to which any and all disputes shall be resolved by mandatory binding arbitration upon the request of any party.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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EXECUTED as of the day and year first above written.

BANK:
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:
Name:			Susan K. Nugent
Title:			Assistant Vice President
BORROWER:
FOSSIL PARTNERS, L.P.
By:		Fossil, Inc., its general partner
By:
		Randy S. Kercho
		Executive Vice President
GUARANTORS:
FOSSIL, INC.
By:
	Randy S. Kercho
	Executive Vice President
FOSSIL INTERMEDIATE, INC.
By:
	Mike L. Kovar, Treasurer

FOSSIL TRUST
By:
	Mike L. Kovar, Treasurer
FOSSIL STORES I, INC.
By:
	Mike L. Kovar, Treasurer
INTERMEDIATE LEASING, INC.
By:
Name:
Title:
ARROW MERCHANDISING, INC.
By:
Name:
Title:
FOSSIL HOLDINGS, LLC
By:
Name:
Title:

FMW ACQUISITION, INC.

By:

Name:

Title:

Exhibits:

A—Guaranty Agreement

B—Stock Pledge Agreement

EXHIBIT A

GUARANTY AGREEMENT

(See Attached)

EXHIBIT B

STOCK PLEDGE AGREEMENT

(See Attached)

EX-10.61

Exhibit 10.61

Restricted Stock Unit Award

under the Fossil, Inc. 2008 Long-Term Incentive Plan

This RESTRICTED STOCK UNIT AWARD (the “Award”), is entered into effect as of the date of the grant (the “Effective Date”).

W I T N E S S E T H:

WHEREAS, Fossil, Inc., a Delaware corporation (the “Company”) has adopted the Fossil, Inc. 2008 Long-Term Incentive Plan (the “Long-Term Incentive Plan”), effective as of the Effective Date (as defined in the Long-Term Incentive Plan), with the objective of advancing the best interests of the Company, its Subsidiaries and its stockholders in order to attract, retain and motivate Outside Directors (as defined in the Long-Term Incentive Plan) with additional incentives through the award of Restricted Stock Units; and

WHEREAS, the Long-Term Incentive Plan provides that Outside Directors of the Company shall automatically be granted an Award which consists of restricted units of common stock, par value $.01 per share (“Common Stock”), of the Company;

NOW, THEREFORE, the Participant identified in the Notice of Grant is hereby awarded Restricted Stock Units in accordance with the following terms:

1.Grant of Award; Restricted Stock Units.  Subject to the terms and conditions set forth in the Long-Term Incentive Plan, this Award and in the Notice of Grant, the Company hereby grants to the Participant an award of those Restricted Stock Units specified in the Notice of Grant, subject to adjustment from time to time as provided in Articles 12, 13 and 14 of the Long-Term Incentive Plan.  Each Restricted Stock Unit shall consist of the right to receive, upon the Vesting Date (set forth in the Notice of Grant), a share of Common Stock for each vested Restricted Stock Unit, which shall be delivered by the Company to an account in the name of the Participant as promptly as practicable following the Vesting Date.

2.Vesting.  If the Participant continuously provides services to the Company or a Subsidiary through the Vesting Date, all of the Restricted Stock Units shall vest and the Company shall  deliver one share of Common Stock to an account in the Participant’s name for each vested Restricted Stock Unit.

Notwithstanding the vesting conditions set forth in the Notice of Grant, all of the Restricted Stock Units shall vest upon the death of the Participant.

3.Termination of Service.  In the event that the Participant incurs a Termination of Service (as defined in the Long-Term Incentive Plan) before the Vesting Date for any reason other than death, the unvested Restricted Stock Units granted pursuant to this Agreement shall be forfeited.

4.Stock Certificates.  Shares of Common Stock evidencing the conversion of Restricted Stock Units into shares of Common Stock shall be delivered to an account in the Participant’s name as of (or as promptly as practicable after) the Vesting Date.  No stock certificate or certificates shall be issued with respect to such shares of Common Stock, unless, the Participant requests delivery of the certificate or certificates by submitting a written request to the General Counsel requesting deliver of the certificates.  Subject to Section 5 of this Award, the Company shall deliver the certificates requested by the Participant to the Participant as soon as administratively practicable following the Company’s receipt of such request.

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Upon registration (or issuance) of any shares hereunder,  the Participant may be required to enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws, the Long-Term Incentive Plan or with the Notice of Grant.

5.Tax Withholding Obligations.  The Participant, as an Outside Director, shall be solely responsible for withholding taxes or any necessary payments to any taxing authority in connection with the award or settlement of the Restricted Stock Units.  Notwithstanding the foregoing, in the event the Participant is an Employee as of the Vesting Date (and thus, is not longer an Outside Director), the Participant shall be required to deposit with the Company an amount of cash equal to the amount determined by the Company to be required with respect to any withholding taxes under any federal, state, or local statute, ordinance, rule, or regulation in connection with the award or settlement of the Restricted Stock Units.  Alternatively, the Company may, at its sole election, withhold a number of shares of Common Stock otherwise deliverable having a Fair Market Value sufficient to satisfy the statutory minimum of all or part of the Participant’s estimated total federal, state, and local tax obligations associated with vesting or settlement of the Restricted Stock Units.  The Company shall not deliver any of the shares of Common Stock until and unless the Participant has made the deposit required herein or proper provision for required withholding has been made.

6.Assignability.  Until the Restricted Stock Units are vested as provided above, they may not be sold, transferred, pledged, assigned, or otherwise alienated  other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended.  Any attempt to do so contrary to the provisions hereof shall be null and void.  No assignment of the Restricted Stock Units herein granted shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such documents and evidence as the Company may deem necessary to establish the validity of the assignment and the acceptance by the assignee or assignees of the terms and conditions hereof.

7.No Stockholder Rights.  The Participant shall have no rights as a stockholder of the Company with respect to the Restricted Stock Units unless and until shares of Common Stock evidencing the conversion of Restricted Stock Units into shares of Common Stock have been delivered into an account in the Participant’s name or certificates evidencing such shares of Common Stock shall have been issued by the Company to the Participant.  Until such time, the Participant shall not be entitled to dividends or distributions in respect of any shares or to vote such shares on any matter submitted to the stockholders of the Company.  In addition, except as to adjustments that may from time to time be made by the Committee in accordance with the Long-Term Incentive Plan, no adjustment shall be made or required to be made in respect of dividends (ordinary or extraordinary, whether in cash, securities or any other property) or distributions paid or made by the Company or any other rights granted in respect of any shares for which the record date for such payment, distribution or grant is prior to the date upon which shares of Common Stock have been delivered to an account in the Participant’s name or certificates evidencing such shares shall have been issued by the Company.

8.Administration.  The Committee shall have the power to interpret the Long-Term Incentive Plan, the Notice of Grant and this Award, and to adopt such rules for the administration, interpretation, and application of the Long-Term Incentive Plan as are consistent therewith and to interpret or revoke any such rules.  All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Participant, the Company, and all other interested persons.  No member of the Committee shall be personally liable for any action, determination, or interpretation made in good faith with respect to the Long-Term Incentive Plan or this Award.

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9.Restrictions and Related Representations. Upon the acquisition of any shares of Common Stock pursuant to the vesting of the Restricted Stock Units granted pursuant hereto, the Participant may be required to enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws, the Long-Term Incentive Plan or with this Award.  In addition, to the extent a certificate or certificates are issued representing any shares, the certificate or certificates will be stamped or otherwise imprinted with a legend in such form as the Company may require with respect to any applicable restrictions on sale or transfer, and the stock transfer records of the Company will reflect stop-transfer instructions, as appropriate, with respect to such shares.

10.Notices and Electronic Delivery.  Unless otherwise provided herein, any notice or other communication hereunder shall be in writing and shall be given by registered or certified mail unless the Company, in its sole discretion, decides to deliver any documents relating to the Award or future awards that may be granted under the Long-Term Incentive Plan by electronic means or to request the Participant’s consent to participate in the Long-Term Incentive Plan by electronic means.  The Participant hereby consents to receive such documents by electronic delivery and, if requested, to agree to participate in the Long-Term Incentive Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.   All notices by the Participant hereunder shall be directed to Fossil, Inc., Attention: Secretary, at the Company’s then current address unless the Company, in writing or electronically, directs the Participant otherwise.  Any notice given by the Company to the Participant directed to him at his address on file with the Company shall be effective to bind any other person who shall acquire rights hereunder.  The Participant shall be deemed to have familiarized himself with all matters contained herein and in the Long-Term Incentive Plan which may affect any of the Participant’s rights or privileges hereunder.

11.Scope of Certain Terms.  Whenever the term “Participant” is used herein under circumstances applicable to any other person or persons to whom this Award may be assigned in accordance with the provisions of Paragraph 6 (Assignability) of this Agreement, it shall be deemed to include such person or persons.  The term “Long-Term Incentive Plan” as used herein shall be deemed to include the Long-Term Incentive Plan and any subsequent amendments thereto, together with any administrative interpretations which have been adopted thereunder by the Committee pursuant to Section 3.3 of the Long-Term Incentive Plan. Unless otherwise indicated, defined terms herein shall have the meaning ascribed to them in the Long-Term Incentive Plan.

12.General Restrictions.  This Award is subject to the requirement that, if at any time the Committee shall determine that (a) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law; (b) the consent or approval of any government regulatory body; or (c) an agreement by the recipient of an Award with respect to the disposition of shares of Common Stock, is necessary or desirable (in connection with any requirement or interpretation of any federal or state securities law, rule or regulation) as a condition of, or in connection with, the granting of such Award or the issuance, purchase or delivery of shares of Common Stock thereunder, such Award may not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee.

13.Adjustments for Changes in Capitalization.  The number of Restricted Stock Units covered by this Award shall be subject to adjustment in accordance with Articles 12-14 of the Long-Term Incentive Plan.

14.No Right to Continue Services.  Neither the granting of the Restricted Stock Units, the exercise of any part hereof, nor any provision of the Long-Term Incentive Plan or this Award shall

3

constitute or be evidence of any understanding, express or implied, on the part of the Company or any Subsidiary to continue the services of the Participant for any specified period.

15.Amendment.  This Award may be amended only by a writing executed by the Company and the Participant which specifically states that it is amending this Award.  Notwithstanding the foregoing, this Award may be amended solely by the Committee by a writing which specifically states that it is amending this Award, so long as a copy of such amendment is delivered to the Participant, and provided that no such amendment adversely affecting the rights of the Participant hereunder may be made without the Participant’s written consent.  Without limiting the foregoing, the Committee reserves the right to change, by written notice to the Participant, the provisions of the Restricted Stock Units or this Award in any way it may deem necessary or advisable to carry out the purpose of the grant as a result of any change in applicable laws or regulations or any future law, regulation, ruling, or judicial decision, provided that any such change shall be applicable only to Restricted Stock Units which are then subject to restrictions as provided herein.

16.Precondition of Legality.  Notwithstanding anything to the contrary contained herein, the Participant agrees that the Company will not be obligated to issue any shares pursuant to this Award, if the issuance of such shares would constitute a violation by the Participant or by the Company of any provision of any law or regulation of any governmental authority or any national securities exchange or transaction quotation system.

17.Incorporation of the Long-Term Incentive Plan. This Award is subject to the Long-Term Incentive Plan, a copy of which has been furnished to the Participant and for which the Participant acknowledges receipt.  The terms and provisions of the Long-Term Incentive Plan are incorporated by reference herein.  In the event of a conflict between any term or provision contained here in and a term or provision of the Long-Term Incentive Plan, the applicable terms and provisions of the Long-Term Incentive Plan shall govern and prevail.

18.Severability.  If one or more of the provisions of this Award shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provisions shall be deemed null and void; however, to the extent permissible by law, any provisions which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Award to be construed so as to first the intent of this Award and the Long-Term Incentive Plan.

19.Construction.  The Restricted Stock Units are being issued pursuant to Section 6.6 and Section 7.1 of the Long-Term Incentive Plan and are subject to the terms of the Long-Term Incentive Plan.  A copy of the Long-Term Incentive Plan has been given to the Participant, and additional copies of the Long-Term Incentive Plan are available upon request during normal business hours at the principal executive offices of the Company.  To the extent that any provision of this Award violates or is inconsistent with an express provision of the Long-Term Incentive Plan, the Long-Term Incentive Plan provision shall govern and any inconsistent provision in this Award shall be of no force or effect.

20.Governing Law.  The Restricted Stock Unit grant and the provisions of this Award are governed by, and subject to, the laws of the State of Delaware, as provided in the Long-Term Incentive Plan.

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EX-10.62

Exhibit 10.62

FOSSIL, INC.

STOCK OPTION AWARD AGREEMENT

International Terms and Conditions

For Non-US Optionees

Fossil, Inc., a Delaware corporation (the “Company”) has adopted the Fossil, Inc. 2008 Long-Term Incentive Plan (the “Long-Term Incentive Plan”) effective as of the Effective Date (as defined in the Long-Term Incentive Plan) with the objective of retaining key executives and other selected employees and of rewarding them for making major contributions to the success of the Company and its Subsidiaries (as defined in the Long-Term Incentive Plan).

The Long-Term Incentive Plan provides that an employee of the Company or its Subsidiaries (the “Optionee”) may be granted an Award (as defined in the Long-Term Incentive Plan), which may consist of right to purchase a specified number of shares of common stock, par value $.01 per share (“Common Stock”), of the Company at a specified price.

In consideration of the premises, the terms and conditions set forth herein, the terms of the Stock Option Award Letter Agreement (the “Award Letter”) between the Company and Optionee, the mutual benefits to be gained by the performance thereof and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Grant of Award. Subject to the terms and conditions set forth herein, the Company hereby grants to the Optionee an Award consisting of U.S. non-statutory stock options (the “Options”) to purchase an aggregate of up to but not exceeding the number of shares of Common Stock (the “Option Shares”) from the Company and at a price per share as set forth in the Award Letter, such number of shares and such price per share being subject to adjustment from time to time as provided in Articles 12-14 of the Long-Term Incentive Plan.

The grant of this Award to the Optionee shall not confer any contractual or other right to such Optionee (or any other Optionee) to be granted any Option or Award in the future, or benefits in lieu of Options under the Long-Term Incentive Plan, even if options have been granted repeatedly in the past.

2.Option Period and Vesting. The Options granted pursuant to this agreement, together with the attached Appendix A (the “Agreement”) may be exercised by the Optionee at any time during the ten-year period beginning on the Grant Date specified in the Award Letter (“Option Period”), subject to the limitation that such Options shall vest and become exercisable in accordance with the Vesting Schedule set forth in the Award Letter (it being understood that the right to purchase the Option Shares shall be cumulative, so that the Optionee may purchase on or after any anniversary and during the remainder of the Option Period that number of Option Shares which the Optionee was entitled to purchase but did not purchase during any preceding period or periods).

Notwithstanding the Vesting Schedule set forth in the Award Letter: (i) the Committee may in its discretion at any time accelerate the vesting of the Options; and (ii) all of the Options granted hereunder shall vest upon a Change in Control of the Company.

3.Method of Exercise. The Options granted pursuant to this Agreement may be exercised by the Optionee by giving written notice of exercise to the Secretary of the Company which notice shall (i) state the number of Option Shares with respect to which such Options are being exercised and (ii) be accompanied by a check, cash or money order payable to the Company in the full amount of the exercise price and any Tax-Related Items (as defined in Paragraph 4 below) for such Options or, by means of a

cashless exercise procedure through the use of a brokerage arrangement approved by the Company (or any combination of cash, check, money order or cashless exercise procedure). As promptly as practicable following the receipt of such written notification and payment, the Company shall electronically register one share of Common Stock in the Optionee’s name for each Option Share with respect to which the Options have been exercised.

4.Tax Withholding. Regardless of any action the Company or Optionee’s employer (the “Employer”) takes with respect to any or all income tax (including U.S. federal, state and local tax and/or non-U.S. tax), social insurance, payroll tax, payment on account or other tax-related items related to Optionee’s participation in the Long-Term Incentive Plan and legally applicable to him or her (“Tax-Related Items”), Optionee acknowledges that the ultimate liability for all Tax-Related Items is and remains Optionee’s responsibility and may exceed the amount actually withheld by the Company and/or the Employer.  Optionee further acknowledges that the Company and/or the Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option grant, including, but not limited to, the grant, vesting or exercise of the Option, the subsequent sale of shares of Common Stock acquired pursuant to such exercise and the receipt of any dividends; and (b) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Option to reduce or eliminate Optionee’s liability for Tax-Related Items or achieve any particular tax result.  Further, if Optionee has become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable event, Optionee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Prior to any relevant taxable event or tax withholding event, Optionee will pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items.  In this regard, Optionee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following: (1) withholding from Optionee’s wages or other cash compensation paid to Optionee by the Company and/or the Employer; (2) withholding from proceeds of the sale of shares of Common Stock acquired upon exercise of the Option either through a voluntary sale or through a mandatory sale arranged by the Company (on Optionee’s behalf pursuant to this authorization); (3) withholding from cash received from the Optionee in the form of cash, check or money order; or (4) withholding in shares of Common Stock to be delivered upon exercise of the Option.  If the Optionee is subject to the short swing profits recapture provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company may impose such additional restrictions as may be necessary to ensure that the satisfaction of withholding requirements by the withholding of a portion of the Option Shares shall be exempt from the short swing profits recapture provisions of Section 16(b) of the Exchange Act.

To avoid negative accounting treatment, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates.  If the obligation for Tax-Related Items is satisfied by withholding in shares of Common Stock, for tax purposes, Optionee is deemed to have been issued the full number of shares of Common Stock subject to the Option, notwithstanding that a number of the shares of Common Stock is held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of Optionee’s participation in the Long-Term Incentive Plan.

Finally, Optionee will pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of Optionee’s participation in the Long-Term Incentive Plan or Optionee’s purchase of shares of Common Stock that cannot be satisfied by the means previously described. The Company may refuse to honor the exercise and refuse to issue or deliver the shares of Common Stock or the proceeds of the sale of shares of

Common Stock if Optionee fails to comply with his or her obligations in connection with the Tax-Related Items.

5.Nature of Grant. In accepting the grant, Optionee acknowledges, understands and agrees that:

(a)the Long-Term Incentive Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time;

(b)the grant of the Option is voluntary and occasional;

(c)all decisions with respect to future option grants, if any, will be at the sole discretion of the Committee;

(d)the Optionee’s participation in the Long-Term Incentive Plan will not create a right to further employment with the Employer and shall not interfere with the ability of the Employer to terminate Optionee’s employment relationship at any time;

(e)the Optionee is voluntarily participating in the Long-Term Incentive Plan;

(f)the Option and the Option Shares are extraordinary items that do not constitute compensation of any kind for services of any kind rendered to the Company or the Employer, and which are outside the scope of Optionee’s employment contract, if any;

(g)the Option and the Option Shares are not intended to replace any pension rights or compensation;

(h)the Option and the Option Shares are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension, retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company, the Employer or any Subsidiary or Affiliate of the Company;

(i)the Option grant and Optionee’s participation in the Long-Term Incentive Plan will not be interpreted to form an employment contract or relationship with the Company, the Employer or any Subsidiary or Affiliate of the Company;

(j)the future value of the underlying shares of Common Stock is unknown and cannot be predicted with certainty;

(k)if the underlying shares of Common Stock do not increase in value, the Option will have no value;

(l)if Optionee exercises his or her Option and obtain shares of Common Stock, the value of those shares of Common Stock acquired upon exercise may increase or decrease in value, even below the exercise price;

(m)no claim or entitlement to compensation or damages shall arise from the forfeiture of the Option resulting from Termination of Service by the Company or the Employer (for any

reason whatsoever and whether or not in breach of local labor laws) and in consideration of the Option grant to which Optionee is otherwise not entitled, Optionee irrevocably agrees never to institute any claim against the Company and/or the Employer, waives Optionee’s ability, if any, to bring any such claim, and releases the Company and/or the Employer from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, Optionee shall be deemed irrevocably to have agreed not to pursue such claim and agree to execute any and all documents necessary to request dismissal or withdrawal of such claims;

(n) in the event that the Optionee ceases to be actively employed by the Company, the Employer or any Subsidiary of the Company (whether or not in breach of local labor laws), Optionee’s right to vest in the Option under the Long-Term Incentive Plan, if any, will terminate effective as of the date that Optionee is no longer actively employed and will not be extended by any notice period mandated under local law (e.g., active employment would not include a period of “garden leave” or similar period pursuant to local law); the Committee shall have the exclusive discretion to determine when Optionee is no longer actively employed for purposes of the Option grant; and

(o) the Option and the benefits under the Long-Term Incentive Plan, if any, will not automatically transfer to another company in the case of a merger, take-over or transfer of liability.

6.No Advice Regarding Grant.  Optionee acknowledges that the Company is not providing any tax, legal or financial advice, or making any recommendations regarding Optionee’s participation in the Long-Term Incentive Plan, or Optionee’s acquisition or sale of the underlying shares of Common Stock.  Optionee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding participation in the Long-Term Incentive Plan before taking any action related to the Long-Term Incentive Plan.

7.Data Privacy. The Optionee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of his or her personal data as described in this Agreement and any other Option grant materials by and among, as applicable, the Employer, and the Company and its Subsidiaries and Affiliates for the exclusive purpose of implementing, administering and managing the Optionee’s participation in the Long-Term Incentive Plan.

The Optionee understands that the Company and the Employer may hold certain personal information about Optionee, including, but not limited to, Optionee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in Optionee’s favor, for the exclusive purpose of implementing, administering and managing the Long-Term Incentive Plan (“Data”). Optionee understands that Data may be transferred to any third parties assisting in the implementation, administration and management of the Long-Term Incentive Plan, that these recipients may be located in Optionee’s country or elsewhere, and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than Optionee’s country. Optionee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting Optionee’s local human resources representative. Optionee authorizes the Company and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Long-Term Incentive Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing Optionee’s participation in the Long-Term Incentive Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom Optionee may elect to deposit any shares of stock acquired upon exercise of the Option.  Optionee understands that Data will be held only as long as is necessary to implement,

administer and manage Optionee’s participation in the Long-Term Incentive Plan. Optionee understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing Optionee’s local human resources representative.  Optionee understands, however, that refusing or withdrawing his or her consent may affect Optionee’s ability to participate in the Long-Term Incentive Plan. For more information on the consequences of Optionee’s refusal to consent or withdrawal of consent, Optionee understands that he or she may contact his or her local human resources representative.

8.Termination in Event of Nonemployment.  In the event that the Optionee ceases to be actively employed by the Company or any of its Subsidiaries (whether or not in breach of local labor laws) during the Option Period for any reason other than death, the Options granted pursuant to this Agreement shall terminate effective as of the date that Optionee is no longer actively employed and will not be extended by any notice period mandated under local law (e.g., active employment does not include a period of “garden leave” or a similar period pursuant to local law), except to the extent that the Options are exercisable on the date the Optionee ceases to be so employed. To the extent that such Options are exercisable on the date that the Optionee ceases to be actively employed by the Company or any of its Subsidiaries for any reason other than death, such Options may be exercised by the Optionee during the three month period beginning on such date but shall terminate and be of no further force or effect at the end of such three-month period.  The Committee shall have the exclusive discretion to determine when the Optionee is no longer actively employed for purposes of the Option grant.

9.Acceleration in Event of Death. In the event that the Optionee ceases to be employed by the Company or any of its Subsidiaries during the Option Period by reason of death at a time when the Options granted pursuant hereto are still in force and unexpired, such unmatured Options shall be accelerated. Such acceleration shall be effective as of the date of death of the Optionee, and each Option so accelerated may be exercised by the person or persons to whom the Optionee’s rights shall pass pursuant to Section 16.7 of the Long-Term Incentive Plan during the 12-month period beginning on such date but shall terminate at the end of such period.

10.Assignability. The Options granted pursuant hereto shall not be assignable or transferable by the Optionee other than by will or the laws of descent and distribution. No assignment of the Options herein granted shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such documents and evidence as the Company may deem necessary to establish the validity of the assignment and the acceptance by the assignee or assignees of the terms and conditions hereof.

11.No Stockholder Rights and No Stock Certificates.  The Optionee shall have no rights as a stockholder of the Company with respect to the Option Shares unless and until such Option Shares shall have been electronically registered by the Company in the Optionee’s name. Until such time, the Optionee shall not be entitled to dividends or distributions in respect of any Option Shares or to vote such shares on any matter submitted to the stockholders of the Company. In addition, except as to adjustments that may from time to time be made by the Committee in accordance with the Long-Term Incentive Plan, no adjustment shall be made or required to be made in respect of dividends (ordinary or extraordinary, whether in cash, securities or any other property) or distributions paid or made by the Company or any other rights granted in respect of any Option Shares for which the record date for such payment, distribution or grant is prior to the date upon which such Option Shares shall have been electronically registered by the Company in the Optionee’ s name.

No stock certificate or certificates shall be issued with respect to any Option Shares unless, the Optionee requests delivery of the certificate or certificates by submitting a written request to the General

Counsel requesting deliver of the certificates. The Company shall deliver the certificates requested by the Optionee to the Optionee as soon as administratively practicable following the Company’s receipt of such request.

12.Administration. The Committee shall have the power to interpret the Long-Term Incentive Plan, the Notice of Grant and this Award, and to adopt such rules for the administration, interpretation, and application of the Long-Term Incentive Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Optionee, the Company, and all other interested persons. No member of the Committee shall be personally liable for any action, determination, or interpretation made in good faith with respect to the Long-Term Incentive Plan or this Award.

13.Restrictions and Related Representations. Upon the acquisition of any Option Shares pursuant to the exercise of the Options granted pursuant hereto, the Optionee may be required to enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws, the Long-Term Incentive Plan or with this Agreement. In addition, to the extent a certificate or certificates representing any Option Shares purchased upon the exercise of the Options are issued, the certificate or certificates will be stamped or otherwise imprinted with a legend in such form as the Company may require with respect to any applicable restrictions on sale or transfer, and the stock transfer records of the Company will reflect stop-transfer instructions, as appropriate, with respect to such shares.

14.Notices and Electronic Delivery. Any notice or other communication hereunder shall be in writing and shall be given by registered or certified mail unless the Company, in its sole discretion, decides to deliver any documents related to current or future participation in the Long-Term Incentive Plan or to request Optionee’s consent to participate in the Long-Term Incentive Plan by electronic means. Optionee hereby consents to receive such documents by electronic delivery and to agree to participate in the Long-Term Incentive Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company. All notices of the exercise by the Optionee of the Options granted pursuant hereto shall be directed to Fossil, Inc., Attention: Secretary, at the Company’s then current address unless the Company directs Optionee otherwise. Any notice given by the Company to the Optionee directed to him at his address on file with the Company shall be effective to bind any other person who shall acquire rights hereunder. The Company shall be under no obligation whatsoever to advise or notify the Optionee of the existence, maturity or termination of any rights hereunder and the Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Long-Term Incentive Plan which may affect any of the Optionee’s rights or privileges hereunder.

15.Scope of Certain Terms. Whenever the term “Optionee” is used herein under circumstances applicable to any other person or persons to whom this award may be assigned in accordance with the provisions of Paragraph 10 of this Agreement, the term “Optionee” shall be deemed to include such person or persons. The term “Long-Term Incentive Plan” as used herein shall be deemed to include the Long-Term Incentive Plan and any subsequent amendments thereto, together with any administrative interpretations which have been adopted thereunder by the Committee pursuant to Section 3.3 of the Long-Term Incentive Plan.

16.General Restrictions. This Award is subject to the requirement that, if at any time the Committee shall determine that (a) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law; (b) the consent or approval of any government regulatory body; or (c) an agreement by the recipient of an Award with respect to the disposition of shares of Common Stock, is necessary or desirable (in connection with any

requirement or interpretation of any federal or state securities law, rule or regulation) as a condition of, or in connection with, the granting of such Award or the issuance, purchase or delivery of shares of Common Stock thereunder, such Award may not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee.

17.Adjustments for Changes in Capitalization. The number of shares subject to this Award and the price per share set forth in the Award Letter shall be subject to adjustment in accordance with the provisions of Articles 12-14 of the Long-Term Incentive Plan.

18.Precondition of Legality. Notwithstanding anything to the contrary contained herein, the Optionee agrees that he will not exercise the Options granted pursuant hereto, and that the Company will not be obligated to issue any Option Shares pursuant to this Agreement, if the exercise of the Options or the issuance of such shares would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority or any national securities exchange or transaction quotation system.

19.Governing Law. The Option grant and the provisions of this Agreement are governed by, and subject to, the laws of the State of Delaware in the United States of America, without regard to the conflict of laws provisions, as provided in the Long-Term Incentive Plan.

For purposes of litigating any dispute that arises under this Option or this Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Delaware, and agree that such litigation shall be conducted in the courts of New Castle County in the State of Delaware, or the federal courts of the United States of America for the District of Delaware, where this grant is made and/or to be performed, and no other courts.

20.No Right of Employment. Neither the granting of this Option, the exercise of any part hereof, nor any provision of the Long-Term Incentive Plan or this Award shall constitute or be evidence of any understanding, express or implied, on the part of the Company or any Subsidiary to employ the Optionee for any specified period.

21.Amendment. This Award may be amended only by a writing executed by the Company and the Optionee which specifically states that it is amending this Award. Notwithstanding the foregoing, this Award may be amended solely by the Committee by a writing which specifically states that it is amending this Award, so long as a copy of such amendment is delivered to the Optionee, and provided that no such amendment adversely affecting the rights of the Optionee hereunder may be made without the Optionee’ s written consent. Without limiting the foregoing, the Committee reserves the right to change, by written notice to the Optionee, the provisions of the Option or this Award in any way it may deem necessary or advisable to carry out the purpose of the grant as a result of any change in applicable laws or regulations or any future law, regulation, ruling, or judicial decision, provided that any such change shall be applicable only to Option which are then subject to restrictions as provided herein.

22.Incorporation of Long-Term Incentive Plan. This Agreement is subject to the Long-Term Incentive Plan, a copy of which has been furnished to the Optionee and for which the Optionee acknowledges receipt. The terms and provisions of the Long-Term Incentive Plan are incorporated by reference herein. In the event of a conflict between any term or provision contained here in and a term or provision of the Long-Term Incentive Plan, the applicable terms and provisions of the Long-Term Incentive Plan shall govern and prevail.

23.Language. If the Optionee has received this Agreement or any other document related to the Long-Term Incentive Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

24.Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

25.Construction. The Option is being granted pursuant to Article 6 of the Long-Term Incentive Plan and is subject to the terms of the Long-Term Incentive Plan.  A copy of the Long-Term Incentive Plan has been given to the Optionee, and additional copies of the Long-Term Incentive Plan are available upon request during normal business hours at the principal executive offices of the Company. To the extent that any provision of this Award violates or is inconsistent with an express provision of the Long-Term Incentive Plan, the Long-Term Incentive Plan provision shall govern and any inconsistent provision in this Award shall be of no force or effect.

26.Appendix A.  The Option grant shall be subject to any special terms and conditions for Optionee’s country of residence set forth in Appendix A, if any.  Moreover, if Optionee relocates to one of the countries included in Appendix A during the Option Period, the special terms and conditions for such country will apply to Optionee, to the extent the Company determines in its sole discretion that the application of such terms and conditions is necessary or advisable in order to comply with local law or facilitate the administration of the Long-Term Incentive Plan.  Appendix A constitutes part of this Agreement.

27.Imposition of Other Requirements.  The Company reserves the right to impose other requirements on Optionee’s participation in the Long-Term Incentive Plan, on the Option and on any shares of Common Stock acquired under the Long-Term Incentive Plan, to the extent the Company determines in its sole discretion that it is necessary or advisable (including, but not limited to, in order to comply with local law or facilitate the administration of the Long-Term Incentive Plan), and to require Optionee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

***

APPENDIX A

TO TERMS AND CONDITIONS OF OPTIONS

SPECIAL PROVISIONS FOR OPTIONEES OUTSIDE THE UNITED STATES

This Appendix A, which is part of the Agreement, includes additional terms and conditions that govern the Options granted to the Optionee if he or she resides in one of the countries listed below.  This Appendix A is part of the Agreement.  Unless otherwise provided below, capitalized terms used but not defined herein shall have the same meanings assigned to them in the Long-Term Incentive Plan, the Agreement and the Award Letter.

This Appendix A also includes information regarding exchange controls and certain other tax or legal issues of which the Optionee should be aware with respect to his or her participation in the Long-Term Incentive Plan.  The information is based on the securities, exchange control and other laws in effect in the respective countries as of March 2009.  Such laws are often complex and change frequently.  As a result, the Company strongly recommends that the Optionee not rely on the information in this Appendix A as the only source of information relating to the consequences of his or her participation in the Long-Term Incentive Plan because the information may be out of date at the time that he or she exercises the Option or sells shares of Common Stock acquired pursuant to the exercise of the Option.

In addition, the information contained herein is general in nature and may not apply to the Optionee’s particular situation, and the Company is not in a position to assure the Optionee of a particular result.  Accordingly, the Optionee is advised to seek appropriate professional advice as to how the relevant laws in his or her country may apply to his or her situation.

Finally, if the Optionee is a citizen or resident of a country other than the one in which he or she is currently residing, the information contained herein may not be applicable to him or her.

Australia

Exercise Restriction

The Optionee may not exercise vested Options unless and until the Fair Market Value of the shares of Common Stock underlying the vested Options on the date of exercise equals or exceeds the exercise price for the Options.

Option Period

Notwithstanding anything to the contrary in Paragraph 2 of the Agreement, the Option Period for the Options granted pursuant to the Agreement shall be the seven-year period beginning on the Grant Date specified in the Award Letter.

Securities Law Notice

If the Optionee exercises the Option and subsequently offers the shares of Common Stock acquired upon exercise for sale to a person or entity resident in Australia, the offer may be subject to disclosure requirements under Australian law.  The Optionee should obtain legal advice regarding any applicable disclosure obligations prior to making any such offer.

Austria

Consumer Protection Information

The Optionee may be entitled to revoke acceptance of the Agreement on the basis of the Austrian Consumer Protection Act (the “Act”) under the conditions listed below, if the Act is considered to be applicable to the Agreement and the Plan:

(i)  The revocation must be made within one (1) week after acceptance of the Agreement.

(ii)  The revocation must be in written form to be valid.  It is sufficient if the Optionee returns the Agreement to the Company or the Company’s representative with language which can be understood as a refusal to conclude or honor the Agreement, provided the revocation is sent within the period discussed above.

Exchange Control Notification

If the Optionee holds shares of Common Stock acquired under the Plan outside of Austria, the Optionee must submit a report to the Austrian National Bank.  An exemption applies if the value of the Option Shares as of any given quarter does not exceed €30,000,000 or as of December 31 does not exceed €5,000,000.  If the former threshold is exceeded, quarterly obligations are imposed, whereas if the latter threshold is exceeded, annual reports must be given.  The annual reporting date is December 31 and the deadline for filing the annual report is March 31 of the following year.

When the Optionee sells shares of Common Stock acquired under the Plan, there may be exchange control obligations if the cash proceeds are held outside of Austria.  If the transaction volume of all accounts abroad exceeds €3,000,000, the movements and balances of all accounts must be reported monthly, as of the last day of the month, on or before the fifteenth day of the following month, on the prescribed form (Meldungen SI-Forderungen und/oder SI-Verpflichtungen).

Belgium

Tax Considerations

The Option is deemed rejected for Belgian tax purposes if the Optionee does not accept the Option within 60 days of the offer.  The Optionee will receive a separate offer letter, acceptance form and undertaking form in addition to the Agreement.  He or she should refer to the offer letter for a more detailed description of the tax consequences of choosing to accept the Option.  The Optionee should consult a personal tax advisor with respect to the acceptance of the Option.

Tax Reporting

The Optionee is required to report any taxable income attributable to the Option on his or her annual tax return.  In addition, the Optionee is also required to report any bank accounts opened and maintained outside Belgium on his or her annual tax return.

Canada

Method of Exercise

The Optionee is prohibited from tendering shares of Common Stock that the Optionee already owns or from attesting to the ownership of shares of Common Stock to pay the exercise price or any Tax-Related Items in connection with the Option.

Termination in Event of Nonemployment

The following section replaces Paragraph 8 the Agreement:

In the event of that the Optionee ceases to be actively employed by the Company, the Employer or any of Subsidiary of the Company (whether or not in breach of local labor laws) during the Option Period for any reason other than death, the Options granted pursuant to the Agreement and the Optionee’s right to vest in this Option, if any, will terminate effective as of the date that is the earlier of:  (1) the date the Optionee receives notice of termination of employment from the Company or the Employer, or (2) the date the Optionee is no longer actively employed by the Company or the Employer regardless of any notice period or period of pay in lieu of such notice required under local law (including, but not limited to, statutory law, regulatory law and/or common law); the Committee shall have the exclusive discretion to determine when the Optionee is no longer actively employed for purposes of the Option grant.

Data Privacy

The following section supplements Paragraph 7 of the Agreement:

The Optionee hereby authorizes the Company and the Company’s representatives to discuss and obtain all relevant information from all personnel, professional or non-professional, involved in the administration of the Long-Term Incentive Plan.  The Optionee further authorizes the Employer, the Company, and its Subsidiaries to disclose and discuss such information with their advisors.  The Optionee also authorizes the Employer, Company and its Subsidiaries to record such information and to keep such information in the Optionee’s employee file.

China

Method of Exercise

The following section replaces Paragraph 3 of the Agreement:

The Options granted pursuant to this Agreement may be exercised by the Optionee by giving written notice of exercise to the Secretary of the Company which notice shall (i) state the number of Option Shares with respect to which such Options are being exercised and (ii) be accompanied by the full amount of the exercise price and any Tax-Related Items (as defined in Paragraph 4 below) solely by means of a cashless exercise procedure through the use of a brokerage arrangement approved by the Company.  To the extent that regulatory requirements change, the Company reserves the right to eliminate the cashless sell-all method of exercise restriction and, in its sole discretion, to permit exercises with cash, check, money orders or cashless sell-to-cover exercise.  As promptly as practicable following the receipt of such written notification and payment, the Company shall electronically register one share of Common Stock in the Optionee’s name for each Option Share with respect to which the Options have been exercised.

The Optionee understands that the Employer is not a party to the Long-Term IncentivePlan, and thus, it is not required to make any payments to the Optionee or on the Optionee’s behalf under the Long-Term Incentive Plan.

Exchange Control Information for Optionees who are Residents of the People’s Republic of China

The Optionee understands and agrees that, due to exchange control laws in China, the Optionee may be required to immediately repatriate the proceeds from the cashless exercise to China.  The Optionee further understands that such repatriation of the proceeds may need to be effected through a special exchange control account established by the Employer, the Company or any of its Subsidiaries in China and the Optionee hereby consents and agrees that the proceeds from the cashless exercise may be transferred to such special account prior to being delivered to the Optionee’s personal account.

France

Language Consent

By accepting the Option, the Optionee confirms having read and understood the Long-Term Incentive Plan and Agreement, including all terms and conditions included therein, which were provided in the English language.  The Optionee accepts the terms of those documents accordingly.

En acceptant cette Option, le Optionee confirme avoir lu et compris le Plan et le Contrat y relatifs, incluant tous leurs termes et conditions, qui ont été transmis en langue anglaise.  Le Optionee accepte les dispositions de ces documents en connaissance de cause.

Exchange Control Information

If the Optionee maintains a foreign bank account, he or she is required to report such to the French tax authorities when filing his or her annual tax return.

Germany

No special provisions.

Hong Kong

Securities Law Notice

The Option grant and the shares of Common Stock to be issued pursuant to the exercise of the Option is not a public offer of securities and is available only for employees of the Company or any of its Subsidiaries participating in the Long-Term Incentive Plan.

Please note that the Award Letter, the Agreement, this Appendix A, the Long-Term Incentive Plan and any other Option grant documents have not been reviewed by any regulatory authority in Hong Kong.  The Optionee is cautioned to review the documents related to the Option carefully as it may not include the same information as an offer made by a Hong Kong issuer.  If the Optionee is in any doubt about the contents of the Award Letter, the Agreement, this Appendix A, the Long-Term Incentive Plan and any other Option grant documents, the Optionee should obtain independent legal advice.

India

Method of Exercise

The following section supplements Paragraph 3 of the Agreement:

Due to exchange control restrictions in India, payment of the exercise price and any Tax-Related Items (as defined in Paragraph 4) may not be made by means of a cashless sell-to-cover exercise procedure, whereby the Optionee delivers a written notice of exercise to the Secretary of the Company together with irrevocable instructions to the broker approved by the Company to sell some (but not all) of the Option Shares with respect to which Options are being exercised and deliver promptly to the Company the amount of sale proceeds to pay the exercise price and any Tax-Related Items (as defined in Paragraph 4).  However, payment of the exercise price may be made by a cashless sell-all exercise, whereby the Optionee delivers a a written notice of exercise to the Secretary of the Company together with irrevocable instructions to a broker approved by the Company to sell all of the Option Shares with respect to which Options are being exercised and deliver promptly to the Company the amount of sale proceeds to pay the exercise price and any Tax-Related Items (as defined in Paragraph 4), as well as by any other method of payment set forth in Paragraph 3 of the Agreement.  To the extent that regulatory requirements change, the Company reserves the right to permit the cashless sell-to-cover method of exercise.

Exchange Control Notification

If the Optionee remits funds out of India to purchase shares of Common Stock, it is the Optionee’s responsibility to comply with applicable exchange control laws.  Regardless of what method of exercise is used to purchase Option Shares, the Optionee must repatriate the proceeds from the sale of Option Shares and any dividends received in relation to the Option Shares to India within 90 days after receipt.  The Optionee must maintain the foreign inward remittance certificate received from the bank where the foreign currency is deposited in the event that the Reserve Bank of India or the Employer requests proof of repatriation.

Italy

Method of Exercise

The following section replaces Paragraph 3 of the Agreement:

The Options granted pursuant to this Agreement may be exercised by the Optionee by giving written notice of exercise to the Secretary of the Company which notice shall (i) state the number of Option Shares with respect to which such Options are being exercised and (ii) be accompanied by the full amount of the exercise price and any Tax-Related Items (as defined in Paragraph 4 below) solely by means of a cashless sell-all exercise procedure through the use of a brokerage arrangement approved by the Company.  To the extent that regulatory requirements change, the Company reserves the right to eliminate the cashless sell-all method of exercise restriction and, in its sole discretion, to permit exercises with cash, check, money orders or cashless sell-to-cover exercise.  As promptly as practicable following the receipt of such written notification and payment, the Company shall electronically register one share of Common Stock in the Optionee’s name for each Option Share with respect to which the Options have been exercised.

Exchange Controls

Optionees must report on their annual tax return: (i) any transfer of cash or shares of Common Stock to or from Italy exceeding €10,000 or the equivalent amount in U.S. dollars; and (ii) any foreign investment or investments held outside of Italy (including proceeds from the sale of shares of Common Stock in a cashless-sell all exercise of Options) exceeding €10,000 or the equivalent amount in U.S. dollars , if such investment may give rise to income in Italy.  The Optionee is exempt from the formalities in (i) if the investments are made through an authorized broker resident in Italy, as the broker will comply with reporting obligation on the Optionee’s behalf.

Plan Document Acknowledgement

By accepting the Option grant, the Optionee acknowledges that he or she has received a copy of the Long-Term Incentive Plan, has review the Long-Term Incentive Plan and the Agreement in their entirety and fully understands and accepts all provisions of the Long-Term Incentive Plan and the Agreement.

The Optionee further acknowledges that he or she has read and specifically and expressly approves the following clauses in the Agreement: Paragraph 4: Tax Withholding; Paragraph 5: Nature of Grant; Paragraph 6: No Advice Regarding Grant; Paragraph 8: Termination in Event of Nonemployment; Paragraph 10: Assignability; Paragraph 14: Notices and Electronic Delivery; Paragraph 19: Governing Law; Paragraph 20: No Right of Employment; Paragraph 22: Incorporation of Long-Term Incentive Plan; Paragraph 23: Language; Paragraph 25: Construction; Paragraph 26: Appendix A; Paragraph 27: Imposition of Other Requirements; and the Data Privacy Consent below.

Data Privacy Consent

Notwithstanding Paragraph 7 or any other provision of the Agreement, the Optionee agrees that the following shall apply with regard to data privacy in Italy:

The Optionee hereby explicitly and unambiguously consents to the collection, use, processing and transfer, in electronic or other form, of personal data as described in this section of Appendix A by and among, as applicable, the Employer and the Company and any of its Subsidiaries for the exclusive purpose of implementing, administering and managing the Optionee’s participation in the Long-Term Incentive Plan.

The Optionee understands that the Employer, the Company and any of its Subsidiaries may hold certain personal information about the Optionee, including, the Optionee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all options or any other entitlement to shares of Common Stock awarded, canceled, exercised, vested, unvested or outstanding in the Optionee’s favor, for the exclusive purpose of managing and administering the Long-Term Incentive Plan (“Data”).

The Optionee also understands that providing the Company with the Optionee’s Data is necessary for the performance of the Long-Term Incentive Plan and that the Optionee’s denial to provide such Data would make it impossible for the Company to perform its contractual obligations and may affect the Optionee’s ability to participate in the Long-Term Incentive Plan.  The Controller of personal data processing is Fossil, Inc., with registered offices at 2280 N. Greenville Ave., Richardson, Texas 75082, United States of America, and, pursuant to Legislative Decree no. 196/2003, its representative in Italy is Fossil Italia, S. r. L with registered offices at Via Vecchia Ferriera, 4 1-36100 Vicenza, Italia.  The Optionee understands that the Optionee’s Data will not be publicized, but it may be transferred to Citi Smith Barney or other third parties, banks, other financial institutions or

brokers involved in the management and administration of the Long-Term Incentive Plan.  The Optionee further understands that the Company and/or its Subsidiaries will transfer Data amongst themselves as necessary for the purpose of implementation, administration and management of the Optionee’s participation in the Long-Term Incentive Plan, and that the Company and/or its Subsidiaries may each further transfer Data to third parties assisting the Company in the implementation, administration and management of the Long-Term Incentive Plan, including any requisite transfer to Citi Smith Barney or another third party with whom the Optionee may elect to deposit any shares of Common Stock acquired under the Long-Term Incentive Plan. Such recipients may receive, possess, use, retain and transfer the Data in electronic or other form, for the purposes of implementing, administering and managing the Optionee’s participation in the Long-Term Incentive Plan.  The Optionee understands that these recipients may be located in the European Economic Area, or elsewhere, such as the United States or Asia.  Should the Company exercise its discretion in suspending all necessary legal obligations connected with the management and administration of the Long-Term Incentive Plan, it will delete the Optionee’s Data as soon as it has accomplished all the necessary legal obligations connected with the management and administration of the Long-Term Incentive Plan.

The Optionee understands that Data processing related to the purposes specified above shall take place under automated or non-automated conditions, anonymously when possible, that comply with the purposes for which Data are collected and with confidentiality and security provisions as set forth by applicable laws and regulations, with specific reference to Legislative Decree no. 196/2003.

The processing activity, including communication, the transfer of the Optionee’s Data abroad, including outside of the European Union, as herein specified and pursuant to applicable laws and regulations, does not require the Optionee’s consent thereto as the processing is necessary to performance of contractual obligations related to implementation, administration and management of the Long-Term Incentive Plan.  The Optionee understands that, pursuant to Section 7 of the Legislative Decree no. 196/2003, the Optionee has the right to, including, but not limited to, access, delete, update, ask for rectification of the Optionee’s Data and estop, for legitimate reason, the Data processing.  Furthermore, the Optionee is aware that the Optionee’s Data will not be used for direct marketing purposes. In addition, the Data provided can be reviewed and questions or complaints can be addressed by contacting the Optionee’s local human resources department.

Japan

No special provisions.

Korea

Exchange Control Notification

If the Optionee remits funds out of Korea to purchase shares of Common Stock under the Plan, the remittance must be “confirmed” by a foreign exchange bank in Korea.  This is an automatic procedure, i.e., the bank does not need to “approve” the remittance, and it should take no more than a single day to process.  The following supporting documents evidencing the nature of the remittance must be submitted to the bank together with the confirmation application: (i) the Agreement; (ii) the Plan; (iii) a document evidencing the type of shares to be acquired and the amount (e.g., the Award Letter); and (iv) the Optionee’s certificate of employment.  This confirmation is not necessary for broker-assisted cashless same-day sale since there is no remittance out of Korea.

Additionally, exchange control laws require Korean residents who realize US$500,000 or more from the sale of shares of Common Stock to repatriate the proceeds to Korea within 18 months of the sale.

Mexico

Labor Law Acknowledgement and Policy Statement

By accepting the Option, the Optionee acknowledges that the Company, with registered offices at 2280 N. Greenville Ave., Richardson, Texas 75082, United States of America, is solely responsible for the administration of the Long-Term Incentive Plan.  The Optionee further acknowledges that his or her participation in the Long-Term Incentive Plan, the grant of the Option and any acquisition of shares of Common Stock under the Long-Term Incentive Plan do not constitute an employment relationship between the Optionee and the Company because the Optionee is participating in the Long-Term Incentive Plan on a wholly commercial basis and his or her sole employer is Servicios Fossil Mexico, S.A. de C.V. (“Fossil Mexico”), located at Calle IV #1214, 3rd Piso, Col. San Jéronimo, Monterrey, Nuevo Léon, Mexico 64640.  Based on the foregoing, the Optionee expressly acknowledges that the Long-Term Incentive Plan and the benefits that he or she may derive from participation in the Long-Term Incentive Plan do not establish any rights between the Optionee and his or her employer, Fossil Mexico, and do not form part of the employment conditions and/or benefits provided by Fossil Mexico, and any modification of the Long-Term Incentive Plan or its termination shall not constitute a change or impairment of the terms and conditions of the Optionee’s employment.

The Optionee further understands that his or her participation in the Long-Term Incentive Plan is the result of a unilateral and discretionary decision of the Company; therefore, the Company reserves the absolute right to amend and/or discontinue the Optionee’s participation in the Long-Term Incentive Plan at any time, without any liability to the Optionee.

Finally, the Optionee hereby declares that he or she does not reserve to himself or herself any action or right to bring any claim against the Company for any compensation or damages regarding any provision of the Long-Term Incentive Plan or the benefits derived under the Long-Term Incentive Plan, and that he or she therefore grants a full and broad release to the Company, its Subsidiaries, branches, representation offices, shareholders, officers, agents or legal representatives, with respect to any claim that may arise.

Spanish Translation

Reconocimiento de la Ley Laboral y Declaración de la Política

Al aceptar la Opción, el titular del derecho a la Opción reconoce que la Compañía, con domicilio social registrado localizado en 2280 N. Greenville Ave., Richardson, Texas 75082, en los Estados Unidos de América, es el único responsable de la administración del Plan de Incentivos a Largo Plazo.  Además, el titular del derecho a la Opción acepta que su participación en el Plan de Incentivos a Largo Plazo, la concesión la Opción y cualquier adquisición de acciones en el marco del Plan de Incentivos a Largo Plazo no constituyen una relación laboral entre el titular del derecho a la Opción y la Compañía porque el titular del derecho a la Opción está participando en el Plan de Incentivos a Largo Plazo en su totalidad sobre una base comercial y su único empleador es Servicios Fossil Mexico, S.A. de C.V. (“Fossil Mexico”), ubicado en Calle IV #1214, 3rd Piso, Col. San Jerónimo, Monterrey, Nuevo León, México 64640.  Derivado de lo anterior, el titular del derecho a la Opción reconoce expresamente que el Plan de Incentivos a Largo Plazo y los beneficios que pudieran derivar a su favor de la participación en el Plan de Incentivos a Largo Plazo no establece ningún derecho entre el titular del derecho a la Opción y su Empleador, Fossil Mexico y que no forman parte de las condiciones de empleo ni / o prestaciones previstas por Fossil Mexico y cualquier modificación del Plan de Incentivos a Largo Plazo o la

terminación del mismo no constituirá un cambio o deterioro de los términos y condiciones de empleo del titular del derecho a la Opción.

Además, el titular del derecho a la Opción comprende que su participación en el Plan de Incentivos a Largo Plazo es el resultado de una decisión discrecional y unilateral de la Compañía, por lo que dicha Compañía se reserva el derecho absoluto a modificar y / o discontinuar la participación del titular del derecho a la Opción en el Plan de Incentivos a Largo Plazo en cualquier momento, sin responsabilidad alguna para con el titular del derecho a la Opción.

Finalmente, el titular del derecho a la Opción manifiesta que no se reserva ninguna acción o derecho que origine una demanda en contra de la Compañía, por cualquier compensación o daños y perjuicios en relación con cualquier disposición del Plan de Incentivos a Largo Plazo o de los beneficios derivados del mismo, y en consecuencia el titular del derecho a la Opción exime amplia y completamente de toda responsabilidad a la Compañía, sus Subsidiarias, sucursales, oficinas de representación, accionistas, administradores, agentes o representantes legales, con respecto a cualquier demanda que pudiera surgir.

Netherlands

Notification For Dutch Optionees

The Optionee has been granted Options under the Long-Term Incentive Plan, pursuant to which the Optionee may acquire shares of the Company’s shares of Common Stock.  The Optionees that are residents of the Netherlands should be aware of the Dutch insider trading rules, which may impact the sale of such shares of Common Stock issued upon exercise of the Option.  In particular, the Optionee may be prohibited from effecting certain share transactions if he or she has insider information regarding the Company.

Below is a discussion of the applicable restrictions.  The Optionee is advised to read the discussion carefully to determine whether the insider rules could apply to him or her. If it is uncertain whether the insider rules apply, we recommend that the Optionee consults with his or her legal advisor before taking any action.  Please note that the Company cannot be held liable if an Optionee violates the Dutch insider rules. The Optionee is responsible for ensuring his or her compliance with these rules.

By entering into the Agreement and participating in the Long-Term Incentive Plan, the Optionee acknowledges having read and understood the Notification below and acknowledges that it is his or her responsibility to comply with the Dutch insider trading rules, as discussed herein.

Prohibition Against Insider Trading

Dutch securities laws prohibit insider trading. Under Article 46 of the Act on the Supervision of the Securities Trade 1995, anyone who has “inside information” related to the Company is prohibited from effectuating a transaction in securities in or from the Netherlands. “Inside information” is knowledge of a detail concerning the issuer to which the securities relate that is not public and which, if published, would reasonably be expected to affect the stock price, regardless of the development of the price. The insider could be any employee of the Company or its Dutch Subsidiary who has inside information as described above.

Given the broad scope of the definition of inside information, certain employees of the Company working at its Dutch Subsidiary may have inside information and thus, would be prohibited from effectuating a transaction in securities in the Netherlands at a time when he or she had such inside information.

Exchange Controls

The Dutch Central Bank may require that certain reporting requirements be complied with in connection with payments sent to and from abroad. The Optionee should check with his or her financial institution before transferring funds to the Netherlands from the exercise of Options, sale of the shares of Common Stock or receipt of dividends.

New Zealand

No special provisions.

Norway

No special provisions.

Singapore

Securities Law Notification

The grant of Options under the Long-Term Incentive Plan is being made on a private basis and is, therefore, exempt from registration in Singapore. Shares of Common Stock are traded on a U.S. exchange and the Optionees are not able to resell shares on a Singapore exchange.

Director Notification

If the Optionee is a director, associate director or shadow director of a Singapore Subsidiary of the Company, the Optionee is subject to certain notification requirements under the Singapore Companies Act, regardless of whether the Optionee is a Singapore resident or employed in Singapore. Among these requirements is an obligation to notify the Singapore Subsidiary in writing when the Optionee receives an interest (e.g., Options, shares of Common Stock) in the Company or any related companies.  In addition, the Optionee must notify the Singapore Subsidiary or affiliate when the Optionee sells shares of Common Stock of the Company or any related company (including when the Optionee sells shares of Common Stock acquired under the Long-Term Incentive Plan). These notifications must be made within two days of acquiring or disposing of any interest in the Company or any related company. In addition, a notification must be made of the Optionee’s interests in the Company or any related company within two days of becoming a director, associate director or shadow director.

Spain

Labor Law Acknowledgment

This provision supplements Paragraph 5 of the Agreement:

In accepting the Option grant, the Optionee acknowledges that he or she consents to participation in the Long-Term Incentive Plan and has received a copy of the Long-Term Incentive Plan and the Agreement.

The Optionee understands that the Company has unilaterally, gratuitously and discretionally decided to grant Options under the Long-Term Incentive Plan to individuals who may be employees of the Company or its Subsidiaries throughout the world. The decision is a limited decision that is entered into upon the express assumption and condition that any grant will not bind the Company or any of its

Subsidiaries on an ongoing basis. Consequently, the Optionee understands that the Option are granted on the assumption and condition that the Options and the shares of Common Stock acquired upon exercise shall not become a part of any employment contract (either with the Company or any of its Subsidiaries) and shall not be considered a mandatory benefit, salary for any purposes (including severance compensation) or any other right whatsoever. In addition, the Optionee understands that this grant would not be made to the Optionee but for the assumptions and conditions referred to above; thus, the Optionee acknowledges and freely accepts that should any or all of the assumptions be mistaken or should any of the conditions not be met for any reason, then any grant of or right to Options shall be null and void.

Exchange Control Notification

To participate in the Long-Term Incentive Plan, the Optionee must comply with exchange control regulations in Spain.  The purchase of shares of Common Stock under the Long-Term Incentive Plan must be declared for statistical purposes to the Spanish Dirección General de Política Comercial e Inversiones Exteriores (the “DGPCIE”) (i.e., the Bureau for Commercial Policy and Foreign Investments, which is a department of the Ministry of the Economy).  If the Optionee purchases the shares of Common Stock through the use of a Spanish financial institution, that institution will automatically make the declaration to the DGPCIE for the Optionee.  Otherwise, the Optionee must make the declaration himself or herself by filing a form with the DGPCIE.

When the Optionee sells shares of Common Stock received upon exercise of the Option or receive dividends on such shares and transfers the cash proceeds from these transactions into Spain, the Optionee must inform the financial institution receiving the payment of the basis upon which such payment is made.  The Optionee will need to provide the financial institution with the following information: (i) the Optionee’s name, address, and fiscal identification number; (ii) the name and corporate domicile of the Company (i.e., Richardson, Texas, USA); (iii) the amount of the payment; (iv) the currency used; (v) the country of origin; (vi) the reasons for the payment; and (vii) further information that may be required.

If the Optionee wishes to have certificates representing the shares of Common Stock obtained under the Long-Term Incentive Plan transferred to him or her into Spain, rather than held in a brokerage account outside of Spain, the Optionee must declare the importation of such securities to the DGPCIE.

Securities Law Notification

The grant of Options and the shares of Common Stock issued pursuant to the award are considered a private placement outside of the scope of Spanish laws on public offerings and issuances.

Sweden

No special provisions.

Switzerland

Securities Law Notification

The Option grant is considered a private offering in Switzerland and is, therefore, not subject to registration in Switzerland.

Taiwan

Exchange Control Notification

The Optionee may acquire and remit foreign currency (including proceeds from the sale of shares of Common Stock) up to US$5,000,000 per year without justification.

If the transaction amount is TWD500,000 or more in a single transaction, the Optionee must submit a Foreign Exchange Transaction Form.  If the transaction amount is US$500,000 or more in a single transaction, the Optionee must also provide supporting documentation to the satisfaction of the remitting bank.

United Kingdom

Tax Withholding Obligations

The following supplements Paragraph 4 of the Agreement:

If payment or withholding of the Tax-Related Items is not made within 90 days of the event giving rise to the Tax-Related Items (the “Due Date”) or such other period specified in Section 222(1)(c) of the U.K. Income Tax (Earnings and Pensions) Act 2003, the amount of any uncollected Tax-Related Items shall constitute a loan owed by the Optionee to the Employer, effective as of the Due Date. the Optionee agrees that the loan will bear interest at the then current official rate of HM Revenue and Customs (“HMRC”), it will be immediately due and repayable, and the Company or the Employer may recover it at any time thereafter by any of the means referred to in Paragraph 4 of the Agreement.  Notwithstanding the foregoing, if the Optionee is a director or executive officer of the Company (within the meaning of Section 13(k) of the U.S. Securities and Exchange Act of 1934, as amended), he or she shall not be eligible for a loan from the Company to cover the Tax-Related Items.  In the event that the Optionee is a director or executive officer and Tax-Related Items are not collected from or paid by him or her by the Due Date, the amount of any uncollected Tax-Related Items will constitute a benefit to the Optionee on which additional income tax and national insurance contributions (“NICs”) will be payable.  The Optionee will be responsible for reporting any income tax and NICs due on this additional benefit directly to HMRC under the self-assessment regime.  The Optionee agrees that the Company and/or the Employer may collect any income tax and NICs due on this additional benefit from the Optionee by any of the means set forth in Paragraph 4 of the Agreement.

EX-10.63

Exhibit 10.63

Fossil, Inc.

Non-employee Director Compensation

Effective January 1, 2010

1.Board of Directors

Annual Retainer	$	37,200
In-person meeting fee	$	1,395
Telephone meetings*	$	930

2.Audit Committee

Chair annual retainer	$	18,600
Member retainer	$	2,325
In-person meeting fee	$	1,162
Telephone meetings*	$	930

3.Compensation Committee

Chair annual retainer	$	9,300
Member retainer	$	0
In-person meeting fee	$	1,162
Telephone meetings*	$	930

4.Nominating and Corporate Governance Committee

Chair annual retainer	$	6,975
Member retainer	$	0
In-person meeting fee	$	1,162
Telephone meetings*	$	930

5.Finance Committee

Chair annual retainer	$	6,975
Member retainer	$	0
In-person meeting fee	$	1,162
Telephone meetings*	$	930

All fees paid quarterly in arrears.  Payment shall be made for each committee meeting attended even if attending more than one committee meeting on the same day.

6.Equity

2008 Long-Term Incentive Plan

Annual grant:  Grant of Restricted Stock Units with a Fair Market Value of $100,000.  Grant shall be made on the date of the Annual Stockholders Meeting and shall vest 100% on the earlier of (i) the date of the next following Annual Stockholders Meeting or (ii) one year from the Date of Grant.

Outside Directors appointed other than at an Annual Stockholders Meeting shall be granted effective as of the date of appointment a pro-rated number of Restricted Stock Units (pro-rated based on the number of days between the date such individual first became an Outside Director and the date that is one year from the immediately preceding annual stockholders meeting, over 365) that would have been granted to such individual if he or she had been elected as an Outside Director during the immediately preceding Annual Stockholders Meeting and shall vest 100% one year from the Date of Grant.

Terms used with initial capital letters that are not otherwise defined herein shall have the meanings ascribed to such terms in the Fossil, Inc. 2008 Long-Term Incentive Plan.

EX-21.1

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Exhibit 21.1

Subsidiaries of Fossil, Inc.
as of January 2, 2010

Name of Subsidiary	Place of Incorporation		Parent Company	Percent Ownership
Fossil Intermediate, Inc.		Delaware	Fossil, Inc.		100
Fossil Stores I, Inc.		Delaware	Fossil, Inc.		100
Arrow Merchandising, Inc.		Texas	Fossil, Inc.		100
Fossil Canada, Inc.		Canada	Fossil, Inc.		100
Fossil Europe B.V.		The Netherlands	Fossil, Inc.		100
Fossil Austria GmbH		Austria	Fossil Europe, B.V.		100
Fossil Japan, K.K.		Japan	Fossil, Inc.		100
Fossil Holdings, LLC		Delaware	Fossil, Inc.		100
Fossil Holdings (Gibraltar) Ltd.		Gibraltar	Fossil, Inc.		100
Fossil (Gibraltar) Ltd.		Gibraltar	Fossil Holdings (Gibraltar) Ltd.		100
Fossil International Holdings, Inc.		Delaware	Fossil, Inc.		100
Fossil Mexico, S.A. de C. V.		Mexico	Fossil International Holdings, Inc.		52
Servicios Fossil Mexico, S.A. de C.V.		Mexico	Fossil International Holdings, Inc.		51
Fossil (East) Limited		Hong Kong	Fossil Holdings (Gibraltar) Ltd.		100
Fossil Partners, L.P.		Texas	Fossil Trust/Fossil, Inc.		99/1
Swiss Technology Holding GmbH		Switzerland	Fossil, Inc.		100
Fossil Trust		Delaware	Fossil Intermediate, Inc.		100
Fossil Holding LLC Luxembourg, SCS		Luxembourg	Fossil, Inc.		100
Fossil Luxembourg, Sarl		Luxembourg	Fossil Holding LLC Luxembourg, SCS		100
Pulse Time Center Company, Ltd.		Hong Kong	Fossil (East) Limited		96
Fossil (Asia) Ltd		Hong Kong	Fossil (East) Limited		100
Fossil Singapore Ptd Ltd.		Singapore	Fossil (East) Limited		100
FDT, Ltd. (Design Time, Ltd.)		Hong Kong	Fossil (East) Limited		51
Fossil (Australia) Pty Ltd.		Australia	Fossil (East) Limited		100
Fossil (New Zealand) Ltd.		New Zealand	Fossil (Australia) Pty Ltd.		100
Fossil Time Malaysia Sdn. Bhd.		Malaysia	Fossil (East) Limited		100
Fossil Industries Ltd.		Hong Kong	Fossil (East) Limited		100
Fossil Trading (Shanghai) Company Ltd.		China	Fossil (East) Limited		100
Fossil (Asia) Holding Ltd.		Hong Kong	Fossil (East) Limited		81

Name of Subsidiary	Place of Incorporation		Parent Company	Percent Ownership
Fossil Europe GmbH		Germany	Fossil Europe B.V.		100
Fossil Italia, S.r.l.		Italy	Fossil Europe B.V.		100
Gum, S.A.		France	Fossil Europe B.V.		100
Fossil, S.L.		Spain	Fossil Europe B.V.		50
Fossil U.K. Holdings Ltd.		United Kingdom	Fossil Europe B.V.		100
FESCO GmbH		Germany	Fossil Europe B.V.		100
Fossil Swiss No Time GmbH		Switzerland	Fossil Europe B.V.		100
Fossil Swiss X Time GmbH		Switzerland	Fossil Europe B.V.		100
In Time—Portugal		Portugal	Fossil Spain, S.L.		50
Fossil U.K. Ltd.		United Kingdom	Fossil U.K. Holdings Ltd		100
Fossil Stores U.K. Ltd.		United Kingdom	Fossil U.K. Ltd.		100
Montres Antima SA		Switzerland	Swiss Technology Holding GmbH		100
Fossil Group Europe, GmbH		Switzerland	Swiss Technology Holding GmbH		100
Fossil France SA		France	Gum, SA		100
Logisav SARL		France	Fossil France SA		100
Trotime Espana SL		Spain	Fossil France SA		51
Fossil Retail Stores (Australia) Pty. Ltd		Australia	Fossil (Australia) Pty Ltd.		100
Fossil Management Services Pty. Ltd.		Australia	Fossil (Australia) Pty Ltd.		100
Fossil Scandinavia AB		Sweden	Fossil Europe B.V.		100
Fossil Norway AS		Norway	Fossil Scandinavia AB		100
Fossil Denmark AS		Denmark	Fossil Scandinavia AB		100
Fossil Stores France SAS		France	Fossil France S.A.		100
Fossil Stores S.r.l.		Italy	Fossil Italia S.r.l.		100
Fossil (Korea) Ltd.		Korea	Fossil (East) Limited		100
Fossil (Macau) Limited		Macau	Fossil (Asia) Ltd.		100
Fossil India Private Co. Ltd.		India	Fossil (East) Limited		100
Trylink International. Ltd.		Hong Kong	Fossil (East) Limited		85
Fossil Newtime Ltd.		Hong Kong	Fossil (East) Limited		100
Fossil Stores Belgium BVBA		Belgium	Fossil Europe B.V.		100
Fossil Stores Denmark A/S		Denmark	Fossil Denmark A/S		100
Fossil Stores Spain SL		Spain	Fossil Europe B.V.		100
Fossil Belgium BVBA		Belgium	Fossil Europe B.V.		100
Fossil Stores Sweden AB		Sweden	Fossil Scandinavia AB		100
MW Asia Ltd.		Hong Kong	Fossil East Ltd.		100
Fossil Asia Pacific Ltd.		Hong Kong	Fossil East Ltd.		100

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Exhibit 21.1

Subsidiaries of Fossil, Inc. as of January 2, 2010

EX-23.1

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We consent to the incorporation by reference in Registration Statement No. 33-65980, Post-Effective Amendment No. 1 to Registration Statement No. 33-77526, Registration Statement No. 333-70477 and Registration Statement No. 333-151645 on Form S-8 of our reports dated March 3, 2010, relating to the consolidated financial statements and the consolidated financial statement schedule of Fossil, Inc. (which report expresses an unqualified opinion and includes an explanatory paragraph regarding Fossil, Inc.'s change in method of accounting for noncontrolling interest) and the effectiveness of Fossil, Inc.'s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Fossil, Inc. for the year ended January 2, 2010.

/s/ DELOITTE & TOUCHE LLP

Dallas, Texas
March 3, 2010

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-31.1

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EXHIBIT 31.1

CERTIFICATION

I, Kosta N. Kartsotis, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Fossil, Inc.;

2.

Based on my knowledge, this 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 report;

3.

Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

March 3, 2010 /s/ KOSTA N. KARTSOTIS
Kosta N. Kartsotis
Chief Executive Officer

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EXHIBIT 31.1

CERTIFICATION

EX-31.2

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EXHIBIT 31.2

CERTIFICATION

I, Mike L. Kovar, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Fossil, Inc.;

2.

Based on my knowledge, this 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 report;

3.

Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

March 3, 2010 /s/ MIKE L. KOVAR
Mike L. Kovar
Executive Vice President,
Chief Financial Officer and Treasurer

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EXHIBIT 31.2

CERTIFICATION

EX-32.1

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Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of Fossil, Inc. (the "Company") on Form 10-K for the year ended January 2, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Form 10-K"), I, Kosta N. Kartsotis, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)

The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 3, 2010 /s/ KOSTA N. KARTSOTIS
Kosta N. Kartsotis
Chief Executive Officer

        A signed original of this written statement required by Section 906 has been provided to Fossil, Inc. and will be retained by Fossil, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

        The foregoing certification is being furnished as an exhibit to the Form 10-K pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-K for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.2

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Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of Fossil, Inc. (the "Company") on Form 10-K for the year ended January 2, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Form 10-K"), I, Mike L. Kovar, Executive Vice President, Chief Financial Officer and Treasurer of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)

The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 3, 2010 /s/ MIKE L. KOVAR
Mike L. Kovar
Executive Vice President,
Chief Financial Officer and Treasurer

        A signed original of this written statement required by Section 906 has been provided to Fossil, Inc. and will be retained by Fossil, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

        The foregoing certification is being furnished as an exhibit to the Form 10-K pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-K for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002