November 2, 2010

Initiation of Coverage Scott D. Krasik, CFA / (212) 822-8138 / skrasik@bbandtcm.com

Kelly Halsor / (212) 822-8132 / khalsor@bbandtcm.com
Apparel, Footwear, &
Specialty Retail

Fossil, Inc. (FOSL–$59.26) Buy (1)

Company Statistics FOSL: INITIATING COVERAGE WITH A BUY (1)

12-month Price Target: $68
52-wk Range: $26.14-$60.11
RATING AND $68 PRICE TARGET
Market Capitalization (M): $3,462
Key Points
Shares Outstanding (M) fd: 67.1
Avg. Daily Vol. (000): 1,174 • We are initiating coverage of Fossil, Inc., with a Buy (1) rating
Dividend: NA and $68 price target, which implies approximately 15% upside
Yield: NA
potential from current levels.
Debt/Total cap: 47%
• Near-term earnings momentum. Fossil will report Q3’10 results on
Financials Tuesday, November 9. Business trends have likely remained strong since
it reported double-digit sales growth and triple-digit EPS growth last
FYE Dec 2007A 2008A 2009A 2010E 2011E quarter. We are looking for EPS of $0.76 (versus $0.52 last year and
P/E Ratio: 30.2x 26.2x 25.6x 18.0x 14.7x consensus of $0.72) but think there is upside to our estimates. We are
modeling Q3 sales of $486.1M, up 27.5% yr/yr and compared to
EPS: Q1 $0.36 $0.43 $0.26 $0.53A $0.66
consensus of $481.1M.
Q2 $0.21 $0.36 $0.25 $0.80A $0.74
Q3 $0.43 $0.54 $0.52 $0.76 $1.04
• Burgeoning watch cycle could drive multiyear growth. We
Q4 $0.76 $0.68 $1.03 $1.21 $1.58
believe Fossil is uniquely positioned to benefit from a fashion watch
Total $1.75 $2.02 $2.07 $3.30 $4.02
cycle. Product innovation based on new nontraditional natural and
synthetic materials has revived an industry that appeared to be in secular
Company Description decline. Historically watch cycles have lasted up to ten years.

Fossil Inc., headquartered in Richardson, TX, designs,
markets and distributes fashion accessories on a
worldwide basis. It offers a line of watches under
proprietary brands such as FOSSIL, RELIC and
ZODIAC as well as licensed brands including ADIDAS,
BURBERRY, DIESEL, DKNY, EMPORIO ARMANI,
MARC BY MARC JACOBS AND MICHAEL Michael
Kors. It also provides various fashion accessories for
men and women, including handbags, belts, small
leather goods, jewelry, and sunglasses under the
FOSSIL, FIFTY-FOUR, MICHELE, DIESEL, DKNY,
and RELIC brand names through company owned
retail stores, department stores, and specialty retail
stores, as well as over the Internet and through
catalogs. As of June 30, Fossil operated 354
company-owned stores worldwide. FY'10 sales are
projected to be approximately $1.9B.
• Fossil’s brand penetration is just scratching the surface. We
think the Fossil brand can reach $1B+ in sales in FY’11. Over the next
three to five years, Fossil sales could more than double through retail
expansion (only 354 stores worldwide at end of Q2) and further category
growth both in the United States and internationally.
• Established international infrastructure a competitive
advantage. Early entry in the global market prompted Fossil to invest
in its supply chain to meet the demand of a growing consumer base. We
believe that Fossil has simplified the barriers to enter additional markets
and has a unique advantage in growing its international presence without
the need for additional substantial investments.
• Strong balance sheet to create shareholder value. Fossil has
$442.9M of cash and securities (~$6.50/sh) and just $7.9M of debt. In
August, management announced a $750M share repurchase program
expiring at the end of 2013 that will be funded through a combination of
free cash flow and cash on hand Despite the magnitude of the buyback,
it does not rule out possible acquisitions.

• Attractive valuation offers upside potential. Fossil trades at 18.0x

and 14.7x our FY’10 and FY’11 EPS estimates of $3.30 and $4.02,
respectively. Our $68 price target is based on shares trading at 17.0x our
FY’11 EPS estimate which is just above its historical average.
Furthermore, our DCF analysis supports our thesis and suggests a share
price between $63 and $68.

FOR REQUIRED DISCLOSURES, INCLUDING ANALYST CERTIFICATION, PLEASE REFER TO THE IMPORTANT
DISCLOSURES SECTION THAT ENDS ON THE NEXT TO LAST PAGE OF THIS REPORT
KEY INVESTMENT CONSIDERATIONS
We are initiating coverage of Fossil with a Buy (1) rating and $68 price target, which implies
approximately 15% upside potential from current levels.

Fossil is one of the leading fashion accessories companies worldwide. Through proprietary
and licensed brands, the company is both a supplier and retailer of watches, leather
accessories, jewelry, footwear, and apparel.

With a broad international footprint, and given its leading share in the watch category, we
believe Fossil is uniquely positioned to benefit from strong watch and jewelry growth over the
next few years.

Beyond the potential impact from a strong fashion watch cycle, Fossil maintains growth
opportunities from potentially more than doubling its store base to doubling or tripling its
business in Asia and other international markets. At the same time, Fossil can use its large
cash reserve and solid cash flow generation to increase shareholder value through stock
repurchases and possible acquisitions.

Near-term Earnings Momentum

We believe that Fossil will report strong Q3’10 results that could beat consensus and our
Street-high estimates. We are looking for EPS of $0.76 (versus $0.52 last year and consensus
of $0.72). We are modeling Q3 sales of $486.1M, up 27.5% yr/yr and compared to consensus
of $481.1M.

Our confidence is rooted in the fact that sales trends only recently inflected positive (Q1’10 for
North America and Q2’10 for Europe), which we believe would imply that we should see
continued strong growth through H1’11 at least.

Figure 1: Segment Sales Growth Yr/Yr

75.0%

50.0%

25.0%

0.0%

(25.0%)
Q3'09 Q4'09 Q1'10 Q2'10 Q3'10E Q4'10E

North America Europe Asia Pacific/Other Direct to consumer

Source: Company filings and BB&TCM estimates

Retail same-store sales comparisons also appear to have upside when looking at two-year
trends. On a two-year basis, we think trends could accelerate this quarter. Fossil will likely
benefit from higher ASPs (watches) and, according to our checks, traffic remains positive as
well.

Separately, favorable mix (watches and retail are the fastest-growing categories) should
benefit gross margin in the quarter. We are conservatively modeling only 20 bps of gross
margin improvement yr/yr.

2 of 22
Lastly, while we are modeling accelerating SG&A on a dollar basis going forward (Q3E highest
percentage growth in more than ten quarters), typical input costs (materials and freight) for
Fossil are not exposed to the same inflationary pressures felt by apparel and footwear
companies. This creates an advantage for watch and jewelry suppliers, which, in addition to
controlled marketing investments, could limit pressure on Fossil’s operating margins over the
next few quarters.

New Fashion Watch Cycle Favors Fossil

The last watch cycle began in the late 1980s with the proliferation of stainless steel watch
bands and lasted ten years. After several years of flattish category growth earlier this decade,
speculation centered on whether watches were in a secular tailspin due to Generation Y
apathy and the emerging popularity of checking time on cell phones.

The recent increases in watch sales are being driven by product innovation using new
nontraditional natural and synthetic materials. It is a fashion cycle led by ceramics, silicone,
plastics, nylon, and rubber. Leather bands have gotten new treatments with metal grommets
and other details.

Through its owned and licensed brands, Fossil is able to capitalize on each of these trends at
good, better, and best price points at thousands of points of distribution. This may be best
illustrated in ceramic watches.

Figure 2: Good-Better-Best Pricing Strategy

Michele: Tahitian Ceramic White Bezel MICHAEL Michael Kors: White Midsized Ceramic Watch Fossil: White Ceramic Multi-function Chrono Watch
$1,195.00 $450.00 $195.00

Source: Company websites

Unlike most fashion categories, watches are not subject to weather and other seasonal shifts
and have less overall obsolescence risk due to longer cycles. This results in less promotional
activity and minimal markdowns.

Fossil’s consistent gross margins demonstrate that there is less inherent volatility in its
accessories categories. Since FY’02, Fossil’s gross margin has stayed in a tight range from a
low of 50.2% to a high of 54.6%, which includes the effect of unpredictable currency
fluctuations. Pure merchandise margins are even less volatile (See Figure 3).

3 of 22
Figure 3: Annual Gross Margins

60.0%
57.4%
56.5%
54.6%
53.8%
52.5%
51.3% 51.8%
51.2%
50.4% 50.2%
50.0%

40.0%
2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E

Source: Company filings and BB&TCM estimates

Even when the category has lagged due to stale product, consumers never built an expectation
to purchase watches on a discounted basis—which, along with fashion misses, is one of the
main drivers of margin pressure.

Licensed Watch Brands: In addition to its own brands, Fossil can benefit from worldwide
category growth through its licensed brand portfolio including its more established brands
DKNY, Emporio Armani, and Diesel as well as newer licenses MICHAEL Michael Kors, Marc
by Marc Jacobs, and Adidas.

Emporio Armani and DKNY have historically been Fossil’s largest licensed brands but
MICHAEL Michael Kors is its fastest-growing brand. We estimate that Kors’ sales could triple
this year to ~$150M from ~$50M in FY’09. Furthermore, most of the growth has been
achieved domestically with Kors’ international contribution de minimus at this point. Fossil
just began distributing MICHAEL Michael Kors watches in Europe this fall and has yet to
penetrate Asia despite the brand’s popularity in countries such as Korea and Japan.

Fossil Brand a $1B+ Opportunity

Since 2000, the Fossil brand has more than doubled from ~$400M in sales to almost $1B in
sales this year. While sales mix remains heavily weighted to watches, Fossil has meaningful
leather accessory and jewelry businesses both domestically and abroad.

Management believes that long term, Fossil has the opportunity to become a $2B–$5B
lifestyle brand. We think the three key initiatives it must pursue to achieve this goal are (1)
retail growth, (2) further international penetration, and (3) jewelry expansion.

Retail: At the end of Q2, Fossil operated 354 stores worldwide (195 in the United States and
159 internationally). It operates in several different formats (lifestyle, outlets, and
multibrand), but its growth vehicle globally is its full-priced accessory stores (see Figure 4).

4 of 22
Figure 4: Store Growth by Concept

375 389 13
354 389
12
324 10
28
33 13
18 99
244 33 97
18 90
198 82
15
33
32
80
240 265
78 191 218

113
73

2006 2007 2008 2009 2010E 2011E

Accessory Outlet Apparel Multi-brand

Source: Company filings and BB&TCM estimates

Fossil currently has just 95 accessory stores in the United States and 130 in international
markets. These stores offer full assortments of Fossil’s watches, leather accessories, and
jewelry. Its stores are almost always at full price and, based on excellent recent same-store
sales results, generate strong double-digit operating margins.

Figure 5: Same-Store Sales by Quarter

20.0% 19.2%

15.5%
14.6%
15.0% 14.0% 14.0%
12.1%
11.3% 11.0%

10.0%
8.0%
6.4% 6.5%
5.1% 4.9%
5.0% 4.5%

1.8% 2.0%

0.0%
Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10E Q4'10E

Global Accessory

Source: Company filings and BB&TCM estimates

Management has previously said that store capacity in the United States is 450–500,
including more than 250 accessory stores. We believe that the international opportunity is
similar and perhaps even larger. This would imply that Fossil is capable of almost tripling the
number of stores from the current count on a global basis.

International: Almost 55% of Fossil’s sales are generated outside the United States. Fossil
has one of the largest global footprints of any company we track. We think there are
additional major opportunities for growth in Europe, Asia, and elsewhere.

In the United States, its most mature market, the Fossil brand is less than 60% penetrated
within its possible wholesale distribution; in Europe it is only 40% and in Asia, Fossil is less
than 20% penetrated.

5 of 22
With an international infrastructure already in place, Fossil understood the value of owning
its distribution. Through its subsidiaries, it can capture the full margin from operating
efficiencies and at the same time control brand positioning and deal directly with its local
retail partners.

Over the last 20 years, Fossil has expanded its global presence to more than 100 countries
mainly by acquiring key third-party distributors. In FY’05, Fossil took over local distributors
in Taiwan and Sweden and in FY’07 transitioned Korea and India from distribution
relationships to direct subsidiaries. At this point, other than Eastern Europe, parts of the
Middle East and South America, Fossil has direct control over its businesses around the
world.

Figure 6: Fossil Global Footprint

Fossil Direct

Third-Party
Distributor

Source: Company filings

Asia represents less than 15% of Fossil’s sales. We expect strong double-digit growth from
markets such as Korea, China, and Japan for the next several years. In addition to deeper
watch penetration, Fossil will begin selling jewelry in Asia in FY’11.

Its new Korean subsidiary should see hyper growth for the next few years from just $12M in
FY’09 to expected $100M+ in FY’11. It will more than double the number of concessions it
has in Korea from just 30 to more than 65 by mid FY’11.

Jewelry: In FY’09, jewelry sales were ~$139M, representing 9% of Fossil’s total sales. Fossil
introduced jewelry in Europe prior to offering it in the United States so it is still a relatively
new category.

Fossil has been able to leverage its watch assembly facilities for jewelry production, driving
further efficiencies in its supply chain.

In our view, innovation in the watch category based on new materials has ignited demand for
product innovation in the jewelry category. Jewelry’s growth and popularity has been evident
through recent department store’s monthly sales results. The category has been cited by both
high-end (Nordstrom and Saks) and more moderate department stores (JCPenney and Bon-
Ton) for the last few months as one of their best-performing categories.

Moreover, we believe there is a shift in the jewelry industry favoring more branded product as
this fashion watch cycle takes off since watches are such a brand-centric category. Industry
sources have told us that consumers are increasingly searching for jewelry by brand. Since
many fashion brands, at opening and moderate price points, do not currently produce jewelry,
we believe Fossil has an opportunity to grow this category very quickly in both its own retail
stores as well as wholesale distribution.

6 of 22
Established International Presence a Key Advantage
Fossil identified international expansion as a growth opportunity very early and has been
investing in its global infrastructure since the 1980s, shortly after it was founded.

We think that based on almost 30 years of investments, Fossil has simplified the barriers to
entry for additional markets and owns a unique advantage in growing its international
presence without the need for additional substantial investments.

Fossil acquired its Asian sourcing partner in 1993 to directly control the supply chain process,
which offers advantages both in production and distribution.

Last year, more than 55% of non-Swiss made watches were manufactured through two
majority-owned factories. These facilities are engineered to meet greater future demand while
providing Fossil with operational control of the manufacturing process.

Based on its long record and large scale, we believe Fossil benefits from a best-in-class
reputation in negotiations with its suppliers.

Additionally, while most companies are facing higher labor costs in Asia for FY’11 and beyond,
wage rate increases likely will have a smaller impact on Fossil than others since it already pays
above-average wages in the region.

On the distribution side, Fossil owns a primary warehouse in Germany that services Europe
and recently opened a regional warehouse in Hong Kong to better support distribution to its
Asian subsidiaries. In each case, the facilities are scalable for future growth.

It also leases office, manufacturing, and/or warehouse space in 20 other countries around the
world.

Balance Sheet and Free Cash Flow to Create Shareholder Value

Fossil had $442.9M of cash and securities (~$6.50/sh) and just $7.9M of debt at the end of
Q2.

Historically, the company has been able to generate a significant amount of free cash flow
while at the same time reinvesting appropriately in its business for growth. Since FY’06,
Fossil has generated approximately $460M in free cash flow, and we expect it to generate an
additional ~$120M in FY’10.

Figure 7: Annual Free Cash Flow

250 $228.3

$194.5
200
In $ Millions

150
$122.6
$97.7 $90.1
100

$45.0
50

0
2006 2007 2008 2009 2010E 2011E

Source: Company filings and BB&TCM estimates

In August, management announced a $750M share repurchase program that will expire in
2013. Although not comparable in size, Fossil has a record of completing its prior
authorizations, and we believe it will be consistent buyers even at these levels. It will be paid
for with a combination of cash flow and cash on hand.

In Figure 8, we project accretion scenarios based on possible share repurchase activity for
FY’11 using BB&TCM estimates.

7 of 22
Figure 8: Projected Annualized FY’11 Accretion from Share Repurchases
Share buyback (in $ millions)
$100 $200 $300 $400 $500 $600 $750

$45 $0.27 $0.42 $0.58 $0.76 $0.95 $1.15 $1.50

$50 $0.25 $0.39 $0.53 $0.69 $0.85 $1.03 $1.32

Average Price
$55 $0.24 $0.36 $0.49 $0.63 $0.78 $0.93 $1.18

$60 $0.23 $0.34 $0.46 $0.58 $0.71 $0.85 $1.08

$65 $0.22 $0.33 $0.43 $0.54 $0.66 $0.79 $0.99

$70 $0.22 $0.31 $0.41 $0.51 $0.62 $0.73 $0.91

$75 $0.21 $0.30 $0.39 $0.48 $0.58 $0.69 $0.85

Source: FactSet and BB&TCM estimates

Aggressive repurchases would not preclude Fossil from pursuing strategic acquisitions. Based
on Fossil’s own projections, it will generate additional excess cash flow over the next three
years (beyond what it allocates to share buybacks) to make deals if the opportunity presents
itself. While near-term organic growth opportunities are robust, we believe Fossil will
continue to evaluate potential brand additions through either acquisition or license.

COMPANY BACKGROUND AND DESCRIPTION

Fossil was founded in 1984 and completed an initial public offering in 1993. It is a global
design, marketing, and distribution company specializing in fashion accessories including
watches, jewelry, leather goods, footwear, and apparel under both owned and licensed brands.

Its eponymous Fossil brand will likely grow to almost $1B in sales this year. Michele is
Fossil’s second-largest proprietary brand with sales in excess of $50M. Other proprietary
brands include Relic and Zodiac.

Figure 9: Proprietary Brand Portfolio

Proprietary Brands Price Point Distibution Channel

U.S. department stores (Macy’s,

Dillard’s, Belk and Nordstrom), U.S.
specialty retailers (the Buckle), better
European department stores, better
$55-$195
European specialty stores, independently-
owned watch and jewelry stores
worldwide, Fossil stores worldwide, and
www.fossil.com

U.S. department stores (Neiman Marcus,

$395-$2395 Saks Fifth Avenue, and
www.michele.com

U.S. department stores (JCPenney,

$45-$145
Kohl’s and Sears)

U.S. department stores (Nordstrom),

watch specialty stores, jewelry
$150-$895 stores worldwide and
www.zodiacwatches.com

Source: Company filings

After Fossil, there are several large licensed brands (i.e., >$100M in sales), including Emporio
Armani, DKNY, and MICHAEL Michael Kors. Beyond watches, Fossil also controls the
jewelry license for DKNY (See Figure 10).

8 of 22
Figure 10: Licensed Brand Portfolio
Licensed Brands Price Point Expiration Distibution Channel

Department stores, major sports stores,

$30-$95 12/31/2012 specialty retailers, jewelry stores
andAdidas stores worldwide

Department stores, specialty retailers,

$295-$995 12/31/2012 duty free stores worldwide and Burberry
boutiques worldwide

Department stores, specialty retailers,

$85-$450 12/31/2010 Diesel boutiques worldwide and
www.dieseltimeframes.com

Department stores, jewelry stores,

$65-$275 Year-to-year specialty retailers and DKNY
boutiques worldwide

Department stores, specialty retailers,

major jewelry and watch stores,
$145-$545 12/31/2013 Emporio Armani boutiques
worldwide, duty free stores worldwide
and www.emporioarmani.com

Department stores, specialty retailers

$125-$500 12/31/2010 and Marc by Marc Jacobs boutiques
worldwide

Department stores, specialty retailers,

jewelry stores, duty free stores
$95-$495 12/31/2014
worldwide and Michael Kors
boutiques nationwide

Source: Company filings

Watches remain Fossil’s primary business, comprising 66% of total sales. Moreover, watches
are Fossil’s highest-margin business. Leather goods (briefcases, large and small handbags,
wallets, and belts) make up almost 20% of sales while jewelry represents 9% of sales.

Figure 11: FY’09 Category Sales Figure 12: FY’09 Segment Sales

Direct to
North
Watches 66% consumer
Jew elry 9% America
24.3%
30.4%

Asia
Pacific/Other
Leather 19% 15.5%
Other 6% Europe
29.7%

Source: Company filings

Most of the companies we track have aspirations to realize global diversification, which Fossil
has already achieved. Almost 55% of Fossil’s total sales come from outside the United States.
Fossil sells its products through direct subsidiaries in 23 countries and has a presence in more
than 125 countries through local distributors.

Fossil has a unique corporate culture. An important point of differentiation for Fossil from
most other companies we follow is the level of control Fossil maintains over both its supply
chain and the distribution process. In addition to establishing direct sourcing very early, as
we discussed above, Fossil does all of its creative work in-house—from product and packaging
to marketing materials and even photography for its website.

9 of 22
INDUSTRY OVERVIEW
Watches and jewelry, after experiencing solid growth for the last two years, have grown to a
$135B+ global industry. Like other discretionary goods, there is a strong correlation between
economic wealth and demand for watches and jewelry.

Watch consumption is concentrated in Europe, Asia, and the United States, each accounting
for roughly one-third of the global supply of watches.

The watch category is dominated by national brands. Consumers carry a strong brand
association with watches and seasonally tend to make their purchases around the holiday
season.

Watches are typically one of the most profitable categories for retailers. Predictable buying
patterns and long product cycles simplify inventory planning and reduce the need for the
promotional activity that is common in more fashion-dependent categories.

Current trends inspired by newness and innovation are driving one of the strongest watch
cycles in the last 20 years. New materials including ceramic, silicone, plastics, and alternative
metals have replaced stainless steel and leather, sparking new consumer interest.

The shift towards new materials has bred creativity and motivated many designers to license
their own line of watches, which in turn has contributed to substantial growth and newness in
the category.

Jewelry is a highly fragmented industry. There are more than 23,000 specialty jewelers in the
United States operating more than 27,000 stores, though they account for only 50% of total
jewelry sales. Fashion jewelry is sensitive to both style and price. At opening and moderate
price points, branded jewelry is significantly less important to the consumer than it is for
other fashion-related products. This is likely due to the absence of well-known brands that
operate at low to mid-level price points. Positive performance by brands in the watch
category could potentially motivate those brands to enter the jewelry category in a more
meaningful way going forward.

RECENT RESULTS AND OUTLOOK

Fossil’s results troughed in Q3’09 but grew strongly in Q4’09 based on a rebound in wholesale
margins and retail same-store sales trends.

Fossil is in the midst of a record year with H1’10 margins at a ten-year high.

In Q2’10, Fossil reported sales of $412.6M, up 30.6% yr/yr. North American wholesale sales
led the increase with 63% growth yr/yr followed by Direct-to-Consumer up 27% and
European wholesale up 22%. EPS were $0.80 (including ~$0.20 tax benefit) compared to
$0.25 last year. Operating margins more than doubled to 15.6% from 7.1% last year.

Figure 13: Annual Sales Figure 14: Annual Operating Margin

CAGR
20.0% 18.7%
2,500 12.2% $2,249.7 16.9%
$1,918.5
2,000 15.0% 13.7%
13.0% 13.0%
13.7%
$1,583.2 $1,548.1
$ in Millions

% of Sales

$1,433.0 10.4% 10.2%

1,500 $1,214.0 10.0%
$960.0 $1,043.1
1,000
5.0%
500

0 0.0%
2004 2005 2006 2007 2008 2009 2010E 2011E 2004 2005 2006 2007 2008 2009 2010E 2010E

Source: Company filings and BB&TCM estimates

Management raised its full-year sales and EPS guidance beyond its impressive Q2 beat. FY’10
sales are expected to grow 13%–15% and EPS of $3.13–$3.23. Last year, Fossil reported sales
of $1,548.1M and EPS of $2.07.

Current FY’10 consensus is for sales of $1,895.0M and EPS of $3.23.

10 of 22
We are modeling sales of $1,918.5M on 13.3% retail comp growth and 25.1% wholesale
growth; and EPS of $3.30. This implies a 17.0% operating margin, which would be Fossil’s
highest since 18.6% in FY’00 and a prior peak of 20.9% in FY’99.

For next year, we are looking for further margin expansion to 18.7% based on double-digit
wholesale and retail sales growth, 90 bps of gross margin improvement, and 90 bps of SG&A
leverage.

Margins should benefit from a more favorable mix going forward as watches and retail
increase as a percentage of total sales.

VALUATION
Fossil currently trades at 18.0x and 14.7x our FY’10 and FY’11 EPS estimates of $3.30 and
$4.02, respectively, compared to its historical average of just over 16.0x and 14.0x.

When we back out the $7.61 of projected year-end cash from the share price, Fossil trades at
just 15.7x and 12.8x.

Figure 15: Comparative Valuation Table

EPS Re venues P /E Ratio P/S Ra tio EV/EBITDA
Shares E nt erprise
P rice Market Ca p CFY NFY CFY NFY CFY NFY CFY NFY CFY NFY
Out. Va lue

Coach Inc. CO H $50 .12 300.4 $15,057 .9 $15,12 0.9 $2.80 $3.18 $4,006 .3 $4,39 5.7 17.9x 15 .8x 3.8x 3 .4 x 10.6x 9 .6x
G uess Inc. GES 3 8.46 92.2 3,546.1 3,14 4.0 2.91 3.33 2,393 .4 2,65 9.5 13.2x 11 .5x 1.5x 1 .3 x 6 .9x 6 .1x
Tiffa ny & Co. TIF 5 3.48 127.8 6,834.7 6,97 1.8 2.63 2.97 3,010 .0 3,26 6.1 20.4x 18 .0x 2.3x 2 .1 x 9 .9x 8 .9x
Movado Gr oup Inc. MO V 1 0.94 24.7 270.2 23 5.8 (0.01) 0.15 379 .2 39 9.0 NM 71 .3x 0.7x 0 .7 x 13.4x 10.2x
W arnaco Gr oup WRC 5 1.97 45.5 2,362.0 2,30 0.0 3.52 4.06 2,242 .6 2,44 6.0 14.8x 12 .8x 1.1x 1 .0 x 7 .3x 6 .8x
Polo Ralph La uren Corp. RL 9 6.46 99.9 9,636.4 8,94 9.3 4.95 5.75 5,357 .8 5,74 8.7 19.5x 16 .8x 1.8x 1 .7 x 9 .4x 8 .5x
Nike In c. NKE 8 1.10 488.6 3 9,6 25.5 34,95 3.6 4.38 4.91 20,540 .9 22,10 0.4 18.5x 16 .5x 1.9x 1 .8 x 10.8x 9 .8x
Median 17.9x 16.1x 1.9x 1.7x 9.7x 8.7x
Fossil Inc. FO SL $59 .26 68.1 $4,035.3 $3 ,5 81.9 $3.30 $4.02 $1,918 .5 $2,26 2.3 18.0x 14.7x 2.1x 1.8x 9.6x 7.5x

Source: FactSet and BB&TCM estimates; Prices as of Nov. 1.

The stock trades below its peers on both a P/E and EV/EBITDA (14.7x and 7.5x compared to
16.1x and 8.7x) basis on our FY’11 estimates, which we think may have an upward bias.

Our $68 price target is based on shares trading at 17.0x our FY’11 EPS estimate, which is just
above its historical average.

Our discounted cash flow analysis supports our thesis for further upside potential to the
shares as well. Assuming a five-year average free cash flow growth rate of 15%, a WACC of
13.1%, and what we consider a conservative terminal multiple of 7x–8x results in a share price
between $63 and $69.

RISKS
In our opinion, there are several risks associated with an investment in Fossil, Inc., and to
attaining our price target.

As a globally diversified company, Fossil is exposed to political and economic concerns in

countries on multiple continents. Furthermore, large fluctuations in the value of the dollar
versus the Euro and/or British pound can impact Fossil’s profitability through currency
translation adjustments.

While the watch and jewelry categories are not as sensitive to fashion swings as apparel and
footwear, there is ultimately some fashion or obsolescence risk related to Fossil’s products.

Lastly, any meaningful slowdown in consumer spending trends would likely be harmful to
results.

11 of 22
CONCLUSION
We are initiating coverage of Fossil, Inc., with a Buy (1) rating and $68 price target.

Fossil is one of the leading fashion accessories companies worldwide. Through proprietary
and licensed brands, it is both a supplier and retailer of watches, leather accessories, jewelry,
footwear, and apparel.

With a wide international footprint, and given its leading share in the watch category, we
believe Fossil is uniquely positioned to benefit from strong watch and jewelry growth over the
next few years.

12 of 22
Fossil Inc.
Income Statement
Dollars in millions, except per share data 2004 2005 2006 2007 2008 2009 2010E 2011E
Year Ended December 31

Net Sales $957.3 $1,043.1 $1,214.0 $1,433.0 $1,583.2 $1,548.1 $1,918.5 $2,262.3
Total Cost of Sales 454.7 508.0 605.0 691.0 732.1 703.2 834.0 964.6

Gross Profit 502.6 535.1 608.9 742.0 851.1 844.9 1,084.5 1,297.7
Gross margin 52.5% 51.3% 50.2% 51.8% 53.8% 54.6% 56.5% 57.4%

SG&A 371.9 426.2 485.6 555.5 645.4 633.2 758.7 873.7

% of sales 38.8% 40.9% 40.0% 38.8% 40.8% 40.9% 39.5% 38.6%

Operating Income (EBIT) 130.7 109.0 123.3 186.5 205.7 211.6 325.8 424.1
% of sales 13.7% 10.4% 10.2% 13.0% 13.0% 13.7% 17.0% 18.7%
One time/restructuring charges 5.5 (5.7) (1.0) 1.9 (15.8) 8.5 3.9 3.9
Interest income, net 0.0 0.3 3.6 0.9 0.6 0.2 0.2 (0.2)

Pre-tax Income (excl charges) 136.2 102.9 118.8 187.5 189.4 219.9 329.5 428.2
Pre-tax Income 136.2 102.9 118.8 187.5 189.4 219.9 329.5 428.2
Taxes 46.7 27.3 41.2 64.3 51.3 75.6 97.9 149.9
Tax Rate 34.3% 26.5% 34.7% 34.3% 27.1% 34.4% 29.7% 35.0%

Net Income (excl charges) $89.5 $75.7 $77.6 $123.3 $138.0 $144.3 $231.5 $278.3
% of sales 9.4% 7.3% 0.0% 8.6% 8.7% 9.3% 12.1% 12.3%
Net Income (GAAP) $89.5 $75.7 $77.6 $123.3 $138.0 $144.3 $231.5 $278.3
% of sales 9.4% 7.3% 6.4% 8.6% 8.7% 9.3% 12.1% 12.3%

Diluted Shares Outstanding 73.0 72.4 68.8 70.3 68.3 67.2 67.9 67.3

EPS excl. charges $1.23 $1.04 $1.13 $1.75 $2.02 $2.07 $3.30 $4.02
EPS (GAAP) $1.23 $1.04 $1.13 $1.75 $2.02 $2.07 $3.30 $4.02

EBITDA 154.1 135.5 155.4 219.3 243.3 253.0 373.8 480.5

% of sales 16.1% 13.0% 12.8% 15.3% 15.4% 16.3% 19.5% 21.2%

GROWTH RATES
Total Net Revenue 22.5% 9.0% 16.4% 18.0% 10.5% (2.2%) 23.9% 17.9%
Operating Income 20.6% (16.6%) 13.2% 51.2% 10.3% 2.9% 54.0% 30.1%
Net Income 33.7% (15.5%) 2.5% 58.9% 12.0% 4.6% 60.5% 20.2%
EPS excl charges (10.6%) (14.8%) 7.9% 55.5% 15.3% 2.6% 59.0% 21.9%
EBITDA 21.0% (12.1%) 14.7% 41.1% 11.0% 4.0% 47.8% 28.5%

Source: Company filings and BB&TCM estimates

13 of 22
Fossil Inc.
Quarterly Income Statement FY 2008 FY 2009 FY 2010E FY 2011E
(In $Ms, Except Per Share Amounts) Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1A Q2A Q3E Q4E Year Q1E Q2E Q3E Q4E Year
Quarter Ending 3/31/08 6/30/08 9/30/08 12/31/08 3/31/09 6/30/09 9/30/09 12/31/09 3/31/10 6/30/10 9/30/10 12/31/10 3/31/11 6/30/11 9/30/11 12/31/11

Net Sales: $356.2 $353.2 $409.8 $464.1 $1,583.2 $323.0 $315.9 $381.4 $527.8 $1,548.1 $393.2 $412.6 $486.1 $626.6 $1,918.5 $472.1 $480.3 $573.3 $736.7 $2,262.3
Total Cost of Sales 161.9 162.9 185.6 221.7 732.1 153.6 148.7 170.6 230.3 703.2 173.8 175.7 216.3 268.2 834.0 206.8 204.1 246.5 307.2 964.6
Gross Profit 194.3 190.3 224.2 242.3 851.1 169.4 167.2 210.7 297.6 844.9 219.4 236.9 269.8 358.4 1,084.5 265.3 276.2 326.8 429.5 1,297.7
Gross margin 54.5% 53.9% 54.7% 52.2% 53.8% 52.4% 52.9% 55.3% 56.4% 54.6% 55.8% 57.4% 55.5% 57.2% 56.5% 56.2% 57.5% 57.0% 58.3% 57.4%

Selling and distribtuion expenses 105.3 115.4 120.6 148.3 489.6 108.1 107.5 115.3 147.8 478.6 124.9 129.2 142.9 181.8 578.7 146.1 146.0 164.4 207.2 663.6
General and administrative expenses 39.8 40.0 39.8 36.2 155.8 37.5 37.2 38.1 41.8 154.6 43.3 43.3 44.5 48.8 179.9 50.6 50.6 52.0 56.9 210.0
Total SG&A 145.1 155.4 160.4 184.5 645.4 145.6 144.7 153.4 189.6 633.2 168.2 172.5 187.4 230.5 758.7 196.6 196.6 216.3 264.1 873.7
% of sales 40.7% 44.0% 39.2% 39.7% 40.8% 45.1% 45.8% 40.2% 35.9% 40.9% 42.8% 41.8% 38.6% 36.8% 39.5% 41.6% 40.9% 37.7% 35.9% 38.6%

Operating Income (EBIT) 49.1 35.0 63.7 57.9 205.7 23.8 22.5 57.4 108.0 211.6 51.3 64.3 82.4 127.9 325.8 68.7 79.6 110.4 165.3 424.1
% of sales 13.8% 9.9% 15.6% 12.5% 13.0% 7.4% 7.1% 15.0% 20.5% 13.7% 13.0% 15.6% 16.9% 20.4% 17.0% 14.6% 16.6% 19.3% 22.4% 18.7%
Other (expense) income, net (1.5) (2.9) (4.0) (7.4) (15.8) 4.7 4.6 (1.7) 0.9 8.5 2.5 0.2 0.2 0.9 3.9 2.5 0.2 0.2 0.9 3.9
Interest expense, net 0.2 0.1 0.1 0.2 0.6 0.1 0.1 0.1 0.1 0.2 0.1 0.1 0.1 0.0 0.2 (0.0) (0.1) (0.1) (0.1) (0.2)
Pre-tax Income (ex-charges) 47.5 32.0 59.6 50.3 189.4 28.4 27.0 55.7 108.9 219.9 53.7 64.5 82.5 128.7 329.5 71.3 79.9 110.7 166.4 428.2
Pre-tax Income 47.5 32.0 59.6 50.3 189.4 28.4 27.0 55.7 108.9 219.9 53.7 64.5 82.5 128.7 329.5 71.3 79.9 110.7 166.4 428.2
Income Taxes 17.2 6.9 23.2 4.1 51.3 9.9 9.7 19.1 36.9 75.6 16.0 8.0 28.9 45.1 97.9 24.9 28.0 38.7 58.2 149.9
Tax Rate 36.3% 21.4% 38.8% 8.1% 27.1% 34.9% 36.0% 34.3% 33.9% 34.4% 29.9% 12.3% 35.0% 35.0% 29.7% 35.0% 35.0% 35.0% 35.0% 35.0%

Net Income from operations (excl charges) 30.2 25.1 36.5 46.2 138.0 18.5 17.3 36.5 72.0 144.3 37.7 56.6 53.6 83.7 231.5 46.3 51.9 72.0 108.1 278.3
% of sales 8.5% 7.1% 8.9% 10.0% 8.7% 5.7% 5.5% 9.6% 13.6% 9.3% 9.6% 13.7% 11.0% 13.4% 12.1% 9.8% 10.8% 12.6% 14.7% 12.3%
Net Income from operations (GAAP) 30.2 25.1 36.5 46.2 138.0 18.5 17.3 36.5 72.0 144.3 37.7 56.6 53.6 83.7 231.5 46.3 51.9 72.0 108.1 278.3
% of sales 8.5% 7.1% 8.9% 10.0% 8.7% 5.7% 5.5% 9.6% 13.6% 9.3% 9.6% 13.7% 11.0% 13.4% 12.1% 9.8% 10.8% 12.6% 14.7% 12.3%

Less: Net income attributable to noncontrolling interest - - - - - 1.2 0.6 1.3 2.0 5.1 1.8 2.1 2.0 2.0 7.9 1.8 2.1 2.0 2.0 7.9
Net income attributable to Fossil, Inc. (ex-charges) 30.2 25.1 36.5 69.0 138.0 17.3 16.6 35.3 69.0 139.2 35.9 54.5 51.6 81.7 223.7 44.5 49.8 70.0 106.1 270.5
% of sales 8.5% 7.1% 8.9% 14.9% 8.7% 5.4% 5.3% 9.2% 13.1% 9.0% 9.1% 13.2% 10.6% 13.0% 11.7% 9.4% 10.4% 12.2% 14.4% 12.0%
Net income attributable to Fossil, Inc. 30.2 25.1 36.5 70.0 138.0 17.3 16.6 35.3 70.0 139.2 35.9 54.5 51.6 81.7 223.7 44.5 49.8 70.0 106.1 270.5
% of sales 8.5% 7.1% 8.9% 15.1% 8.7% 5.4% 5.3% 9.2% 13.3% 9.0% 9.1% 13.2% 10.6% 13.0% 11.7% 9.4% 10.4% 12.2% 14.4% 12.0%

Shares Outstanding 69.8 69.0 68.0 68.3 68.3 66.7 67.1 67.4 67.2 67.2 68.0 68.0 67.8 67.7 67.9 67.5 67.4 67.2 67.1 67.3

EPS (ex-charges) $0.43 $0.36 $0.54 $0.68 $2.02 $0.26 $0.25 $0.52 $1.03 $2.07 $0.53 $0.80 $0.76 $1.21 $3.30 $0.66 $0.74 $1.04 $1.58 $4.02
EPS (GAAP) $0.43 $0.36 $0.54 $0.62 $2.02 $0.26 $0.25 $0.52 $1.04 $2.07 $0.53 $0.80 $0.76 $1.21 $3.30 $0.66 $0.74 $1.04 $1.58 $4.02

Growth Rates
Total Revenue 16.8% 15.2% 14.3% 0.2% 10.5% -9.3% -10.6% -6.9% 13.7% -2.2% 21.7% 30.6% 27.5% 18.7% 23.9% 20.1% 16.4% 17.9% 17.6% 17.9%
Operating Income 50.9% 51.2% 31.5% -29.7% 10.3% -51.5% -35.7% -10.0% 86.6% 2.9% 115.4% 186.2% 43.6% 18.4% 54.0% 34.0% 23.7% 34.1% 29.3% 30.1%
Net Income 20.7% 71.3% 19.8% -13.0% 12.0% -38.8% -31.4% 0.2% 55.9% 4.6% 103.8% 227.8% 46.7% 16.2% 60.5% 22.9% -8.2% 34.2% 29.2% 20.2%
EPS (ex-charges) 19.8% 73.2% 23.7% -10.5% 15.3% -40.1% -32.0% -2.4% 52.1% 2.6% 103.6% 223.6% 45.4% 17.4% 59.0% 24.8% -7.8% 36.7% 31.1% 21.9%

Source: Company filings and BB&TCM estimates

14 of 22
Fossil Inc.
Quarterly Segment Income
Dolla r s in m illion s, except per sha r e da t a

FY 2008 FY 2009 FY 2010 FY 2011

Q1 Q2 Q3 Q4 Year Q1 Q2 Q3E Q4E Year Q1A Q2A Q3E Q4E Year Q1E Q2E Q3E Q4E Year
3/31/08 6/30/08 9/30/08 12/31/08 3/31/09 6/30/09 9/30/09 12/31/09 3/31/10 6/30/10 9/30/10 12/31/10 3/31/11 6/30/11 9/30/11 12/31/11
Net Sales:
North America $104.9 $98.4 $126.3 $143.0 $472.7 $117.5 $95.3 $118.0 $140.3 $471.1 $153.8 $155.9 $165.2 $171.2 $646.0 $184.6 $162.1 $185.0 $191.7 $723.4
Europe 130.1 116.4 135.5 148.0 530.0 107.4 88.3 111.3 153.4 460.3 112.5 107.7 146.9 187.1 554.1 141.7 140.0 168.9 196.5 647.1
Asia Pacific/Other 65.7 69.4 72.0 64.1 271.2 31.6 51.7 60.5 96.9 240.6 38.7 46.4 65.0 116.2 266.4 50.3 60.4 91.0 162.7 364.4
Total Wholesale 300.7 284.2 333.9 355.1 1,273.9 256.5 235.3 289.7 390.6 1,172.0 305.0 310.0 377.0 474.5 1,466.5 376.6 362.5 444.8 550.9 1,734.8
Direct to consumer 55.5 69.0 75.9 109.0 309.3 66.5 80.6 91.7 137.3 376.1 88.3 102.5 109.1 152.0 451.9 95.5 117.8 128.4 185.7 527.5
Total Net Sales $356.2 $353.2 $409.8 $464.1 $1,583.2 $323.0 $315.9 $381.4 $527.8 $1,548.1 $393.2 $412.6 $486.1 $626.6 $1,918.5 $472.1 $480.3 $573.3 $736.7 $2,262.3

Operating Income:
Wholesale
North America $5.5 $5.2 $20.1 $0.1 $30.9 $18.9 $12.4 $25.7 $27.3 $84.3 $29.8 $40.7 $43.8 $44.5 $158.8 $36.9 $42.5 $49.9 $52.7 $182.1
% of sales 5.3% 5.3% 15.9% 0.1% 6.5% 16.1% 13.0% 21.8% 19.5% 17.9% 19.4% 26.1% 26.5% 26.0% 24.6% 20.0% 26.2% 27.0% 27.5% 25.2%
Europe 31.5 22.9 31.9 51.5 137.8 15.9 13.9 21.6 37.9 89.3 23.4 28.8 38.2 48.6 139.0 31.2 36.4 43.9 51.1 162.6
% of sales 24.2% 19.6% 23.5% 34.8% 26.0% 14.8% 15.7% 19.4% 24.7% 19.4% 20.8% 26.7% 26.0% 26.0% 25.1% 22.0% 26.0% 26.0% 26.0% 25.1%
Asia Pacific/Other 17.8 25.4 27.1 35.4 105.6 11.1 11.6 21.9 33.8 78.5 16.8 9.6 18.8 29.1 74.3 21.9 12.7 27.3 48.8 110.7
% of sales 27.1% 36.6% 37.6% 55.2% 39.0% 35.3% 22.5% 36.2% 34.9% 32.6% 43.5% 20.7% 29.0% 25.0% 27.9% 43.5% 21.0% 30.0% 30.0% 30.4%
Total Wholesale 54.8 53.5 79.0 87.0 274.3 45.9 37.9 69.2 99.1 252.1 70.1 79.1 100.8 122.2 372.2 90.0 91.6 121.1 152.6 455.3
% of sales 18.2% 18.8% 23.7% 24.5% 21.5% 17.9% 16.1% 23.9% 25.4% 21.5% 23.0% 25.5% 26.7% 25.8% 25.4% 23.9% 25.3% 27.2% 27.7% 26.2%
Direct to consumer (5.7) 5.0 5.5 8.2 13.1 (2.1) 5.4 7.6 28.2 39.0 4.9 11.3 12.5 33.4 62.2 5.7 13.4 15.4 41.8 76.4
% of sales -10.3% 7.3% 7.2% 7.5% 4.2% -3.1% 6.6% 8.2% 20.5% 10.4% 5.5% 11.0% 11.5% 22.0% 13.8% 6.0% 11.4% 12.0% 22.5% 14.5%
Corporate - (23.6) (20.8) (37.2) (81.6) (20.1) (20.8) (19.4) (19.3) (79.5) (23.7) (26.1) (30.9) (26.9) (107.6) (24.4) (25.1) (25.9) (28.1) (103.5)
Total Operating Income $49.1 $35.0 $63.7 $58.0 $205.8 $23.8 $22.5 $57.4 $108.0 $211.6 $51.3 $64.3 $82.5 $128.7 $326.8 $71.3 $79.9 $110.7 $166.4 $428.2

Growth Rates
Sales
North America (1.6%) 1.5% 7.6% 2.4% 2.6% 12.0% (3.2%) (6.6%) (1.9%) (0.3%) 30.9% 63.6% 40.0% 22.0% 37.1% 20.0% 4.0% 12.0% 12.0% 12.0%
Europe 29.3% 16.7% 12.4% (9.2%) 9.5% (17.4%) (24.1%) (17.9%) 3.6% (13.2%) 4.7% 22.0% 32.0% 22.0% 20.4% 26.0% 30.0% 15.0% 5.0% 16.8%
Asia Pacific/Other 30.5% 27.2% 23.0% (8.1%) 16.3% (51.9%) (25.5%) (16.1%) 51.2% (11.3%) 22.6% (10.2%) 7.5% 20.0% 10.7% 30.0% 30.0% 40.0% 40.0% 36.8%
Total Wholesale 16.7% 13.1% 12.6% (4.6%) 8.2% (14.7%) (17.2%) (13.2%) 10.0% (8.0%) 18.9% 31.8% 30.1% 21.5% 25.1% 23.5% 16.9% 18.0% 16.1% 18.3%
Direct to consumer 17.4% 24.8% 22.3% 20.1% 21.2% 20.0% 16.8% 20.8% 26.0% 21.6% 32.7% 27.2% 19.0% 10.7% 20.2% 8.3% 14.9% 17.7% 22.2% 16.7%
Total Net Sales 16.8% 15.2% 14.3% 0.2% 10.5% (9.3%) (10.6%) (6.9%) 13.7% (2.2%) 21.7% 30.6% 27.5% 18.7% 23.9% 20.1% 16.4% 17.9% 17.6% 17.9%

Comps
Global Comps (2.2%) 4.2% 2.7% 3.2% 2.3% 5.1% 4.9% 6.4% 12.1% 7.8% 19.2% 15.5% 14.0% 8.0% 13.3% 5.0% 9.0% 10.0% 14.0% 10.3%
Accessory Store Comps (0.3%) 2.7% 2.8% 2.4% 2.1% 4.5% 1.8% 2.0% 11.3% 5.9% 14.6% 14.0% 11.0% 6.5% 10.9% 3.5% 7.8% 8.0% 11.5% 8.4%

Operating Income
North America (264.0%) (136.2%) (688.3%) (97.9%) (282.7%) 242.1% 138.4% 27.9% NM 172.8% 57.9% 228.6% 70.3% 62.9% 88.4% 23.7% 4.4% 14.1% 18.5% 14.6%
Europe 78.0% 91.7% 22.5% 25.8% 42.6% (49.6%) (39.2%) (32.2%) (26.4%) (35.2%) 47.6% 107.4% 76.8% 28.3% 55.8% 33.1% 26.4% 15.0% 5.0% 16.9%
Asia Pacific/Other (0.1%) 10.2% 16.6% 29.9% 15.7% (37.3%) (54.3%) (19.2%) (4.3%) (25.7%) 51.1% (17.4%) (13.9%) (14.1%) (5.3%) 30.0% 32.0% 44.8% 68.0% 48.9%
Total Wholesale 70.6% 158.8% 72.5% 20.1% 60.4% (16.2%) (29.2%) (12.5%) 13.9% (8.1%) 52.7% 108.7% 45.7% 23.3% 47.7% 28.4% 15.7% 20.2% 24.9% 22.3%
Direct to consumer (1,435.9%) 106.0% 108.0% (17.4%) (15.5%) (63.6%) 6.3% 37.5% 243.1% 199.0% (336.2%) 111.5% 66.1% 18.6% 59.3% 17.3% 18.6% 22.8% 24.9% 22.8%
Total Opearing Income 50.9% 51.2% 31.5% (29.6%) 10.3% (51.6%) (35.7%) (10.0%) 86.4% 2.8% 115.5% 186.3% 43.8% 19.2% 54.4% 39.0% 24.1% 34.2% 29.2% 31.0%

Percentage of Sales
North America 29.5% 27.9% 30.8% 30.8% 29.9% 36.4% 30.2% 30.9% 26.6% 30.4% 39.1% 37.8% 34.0% 27.3% 33.7% 39.1% 33.8% 32.3% 26.0% 32.0%
Europe 36.5% 32.9% 33.1% 31.9% 33.5% 33.3% 27.9% 29.2% 29.1% 29.7% 28.6% 26.1% 30.2% 29.9% 28.9% 30.0% 29.2% 29.5% 26.7% 28.6%
Asia Pacific/Other 18.4% 19.7% 17.6% 13.8% 17.1% 9.8% 16.4% 15.9% 18.4% 15.5% 9.8% 11.3% 13.4% 18.6% 13.9% 10.7% 12.6% 15.9% 22.1% 16.1%
Direct to consumer 15.6% 19.5% 18.5% 23.5% 19.5% 20.6% 25.5% 24.0% 26.0% 24.3% 22.4% 24.9% 22.4% 24.3% 23.6% 20.2% 24.5% 22.4% 25.2% 23.3%

Source: Company filings and BB&TCM estimates

15 of 22
Fossil Inc.
Comp sheet
Year ending Dec, 31
FY 2008 FY 2009 FY 2010 FY 2011
Q1 Q2 Q3 Q4 Year Q1 Q2 Q3E Q4E Year Q1A Q2A Q3E Q4E Year Q1E Q2E Q3E Q4E Year
3/31/08 6/30/08 9/30/08 12/31/08 3/31/09 6/30/09 9/30/09 12/31/09 3/31/10 6/30/10 9/30/10 12/31/10 3/31/11 6/30/11 9/30/11 12/31/11
Comps:
Global Comps -2.2% 4.2% 2.7% 3.2% 2.3% 5.1% 4.9% 6.4% 12.1% 7.8% 19.2% 15.5% 14.0% 8.0% 13.3% 5.0% 9.0% 10.0% 14.0% 10.3%
Accessory Store Comps -0.3% 2.7% 2.8% 2.4% 2.1% 4.5% 1.8% 2.0% 11.3% 5.9% 14.6% 14.0% 11.0% 6.5% 10.9% 3.5% 7.8% 8.0% 11.5% 8.4%

Domestic Stores:
Full price accessory stores 58 63 78 87 87 88 89 91 92 92 91 92 94 95 95 97 101 105 109 109
Outlets 75 76 73 74 74 71 61 74 74 74 72 70 70 70 70 70 70 70 70 70
Apparel stores 33 33 33 33 33 33 33 33 33 33 33 31 30 29 29 20 18 15 12 12
Multi-brand stores 5 5 5 5 5 5 5 3 3 3 2 2 2 2 2 2 2 2 2 2
Total Domestic Stores 171 177 189 199 199 197 188 201 202 202 198 195 196 196 196 189 191 192 193 193

International Stores:
Full price accessory stores 60 66 78 104 104 107 109 117 126 126 129 130 133 137 137 147 150 153 156 156
Outlets 6 7 8 8 8 9 10 14 16 16 17 18 20 22 22 22 24 27 29 29
Apparel stores - - - - - - - - - - - - - - - - - - - -
Multi-brand stores 13 13 13 13 13 13 12 10 10 10 12 11 10 8 8 8 8 10 11 11
Total International Stores 79 86 99 125 125 129 131 141 152 152 158 159 163 167 167 177 182 190 196 196

Beginning of period stores 244 250 263 288 250 324 325 329 342 324 354 355 354 357 354 363 366 373 382 363
Store Openings 7 13 28 36 84 7 4 18 13 42 6 9 10 10 35 12 9 12 10 43
Store Closings 1 - 3 - 4 6 - 5 1 12 5 10 7 4 26 9 2 3 3 17
End of period stores 250 263 288 324 324 325 329 342 354 354 355 354 357 363 363 366 373 382 389 389

Source: Company filings and BB&TCM estimates

16 of 22
Fossil Inc.
Balance Sheet
Dollars in millions, except per share data
Yea r en ding Dec, 31
2004 2005 2006 2007 2008 2009 2010E 2011E

Assets
Cash and equivalents $185.4 $58.2 $133.3 $255.2 $172.0 $405.2 $485.7 $632.9
Short-term investments 6.3 6.6 6.9 12.6 6.4 8.0 8.4 8.4
Accounts receivable, net 155.3 141.2 155.2 227.5 206.0 209.8 247.4 306.9
Inventories 179.2 241.0 228.2 248.4 292.0 245.7 327.8 375.5
Deferred income taxes 19.8 18.8 20.4 24.2 27.0 28.9 26.3 26.3
Prepaid expenses and other 31.3 41.4 36.9 56.8 60.1 48.9 112.8 132.6
Total Current Assets 577.2 507.2 581.0 824.8 763.5 946.5 1,208.4 1,482.7
Investments 7.0 9.4 10.9 13.9 13.0 13.7 8.5 8.5
Property, plant and equipment, net 122.9 147.2 171.5 186.0 207.3 212.4 201.3 203.2
Goodwill 39.8 40.7 43.0 45.5 43.2 44.3 43.1 43.1
Intangibles and other assets, net 40.8 40.7 46.2 52.4 60.3 59.6 55.4 55.4
Total Assets $787.8 $745.1 $852.6 $1,122.6 $1,087.3 $1,276.5 $1,516.7 $1,792.8
Liabilities
Notes payable 27.1 8.6 11.3 10.0 5.3 3.6 3.4 3.0
Accounts payable 48.9 60.6 53.3 111.0 91.0 103.6 135.9 157.0
Accrued expenses and other liabilities 85.6 82.3 105.7 117.4 103.3 104.7 131.4 122.9
Income taxes payable 48.6 29.2 53.1 40.0 7.3 33.4 32.2 61.4
Total Current Liabilities 210.1 180.7 223.4 278.4 207.0 245.3 302.8 344.3
Long-term income taxes payable 7.2 7.2
Deferred income tax liabilities 46.0 28.9 15.0 54.6 38.8 18.8 36.8 36.8
Long-term debt 1.5 6.7 7.9 3.5 22.9 27.0 3.7 2.9
Other long-term liabilities 8.4 13.3 16.9 12.7 12.7
Total Liabilities 257.6 216.3 246.3 344.8 281.9 308.1 363.3 404.0
Total Shareholders' Equity 530.2 528.8 606.3 777.8 805.4 968.4 1,153.4 1,388.9
Total Liabilities and Shareholders'Equity $787.8 $745.1 $852.6 $1,122.6 $1,087.3 $1,276.5 $1,516.7 $1,792.8

Source: Company filings and BB&TCM estimates

17 of 22
Fossil Inc.
Cash Flow Statement
Dollars in millions, except per share data
Yea r en din g Dec, 31
2004 2005 2006 2007 2008 2009 2010E 2011E

Operating Activities:
Net income $89.5 $75.7 $77.6 $123.3 $138.1 $144.3 $223.7 $270.5
Noncash items affecting net income: - - - -
Depreciation and amortization 23.3 26.5 32.0 32.8 37.6 41.3 48.0 56.4
Stock based compensation 3.2 4.2 5.3 6.1 7.3 6.8 10.0 11.1
Minority interest in subsidiaries 4.1 4.3 4.4 5.0 4.8 - 0.0 -
Decrease in allowance for returns, net 0.5 1.5 3.1 3.5 2.4 (0.6) 2.1 -
Loss on disposal of assets (0.1) (0.7) 0.1 (0.1) 0.2 0.6 0.1 -
Impairment loss 0.9 - 0.3 0.2 10.6 5.2 2.5 -
Equity in income of joint venture (1.5) (1.9) (0.7) (2.2) (1.6) (0.4) (0.7) -
Distribution from joint venture - - 4.7 -
Increase (decrease) in allowance for doubtful accounts (1.2) (0.7) (1.3) 0.1 3.4 2.6 (1.3) -
Excess tax benefits from stock based compensation 6.0 3.4 (1.5) (17.7) (0.6) (1.2) (3.0) -
Deferred income taxes (15.5) (17.1) (15.5) (4.0) 1.1 3.2 11.8 -
Change in working capital (28.0) (60.7) 44.5 (15.0) (95.3) 64.1 (129.7) (85.1)
Net cash from operating activities $81.2 $34.5 $148.5 $132.0 $109.0 $266.0 $168.2 $252.8

Investing Activities:
Additions to property, plant and equipment ($28.4) ($53.2) ($50.8) ($41.8) ($63.9) ($37.7) ($45.7) ($58.3)
Increase in intangible and other assets (47.9) (4.4) (7.2) (6.8) (23.7) (0.4) (2.4) -
Purchase of securities available for sale (0.9) (2.0) (3.2) (10.4) (7.1) (1.2) (0.3) -
Sale of securities available for sale and other investments (0.3) (1.3) (0.3) 4.5 12.4 0.9 0.2 -
Proceeds from sale of property, plant and 1.2 0.5 0.2 2.0 0.8 - - -
Net cash used in investing activities (76.3) (60.4) (61.4) (52.5) (81.5) (38.3) (48.2) (58.3)

Cash flow available for financing activities: $4.9 ($25.9) $87.1 $79.4 $27.4 $227.7 $120.0 $194.5

Financing Activities:
Acquisition and retirement of common stock ($6.9) ($75.3) ($25.9) ($16.2) ($105.9) $0.0 ($42.2) ($63.6)
Distribution of minority interest earnings (3.4) (8.0) (2.8) (2.2) (6.7) (2.7) (4.3) 0.0
Excess tax benefits from stock based compensation - - 1.5 17.7 0.6 1.2 3.0 0.0
Net payments on notes payable 23.6 (18.2) 2.0 1.4 (5.8) (1.9) (1.0) (1.2)
Proceeds from exercise of stock options 10.5 5.7 5.1 29.1 4.9 3.8 18.3 17.5
Net cash (used in) from financing activities $23.8 ($95.8) ($20.1) $29.7 ($112.8) $0.3 ($26.2) ($47.3)

Effect of exchange rate changes on cash and cash equivalents($1.4) ($5.5) $8.1 $12.8 $2.1 $5.2 ($18.0) $0.0
Net (decrease) increase in cash and cash equivalents 27.4 (127.2) 75.1 121.9 (83.2) 233.2 80.5 147.2
Beginning of period 158.1 185.4 58.2 133.3 255.2 172.0 405.2 485.7
End of period $185.4 $58.2 $133.3 $255.2 $172.0 $405.2 $485.7 $632.9

Source: Company filings and BB&TCM estimates

18 of 22
Fossil Inc.
Discounted Cash Flow Analysis
Dollars in millions, except per share data

Historical Projected WACC - 13.1%

FY'08A FY'09A FY'10E FY'11E FY'12E FY'13E FY'14E S/O - 67.9
EBITDA $243 $253 $374 $481 $553 $635 $731
Less: Depreciation (38) (41) (48) (56) (65) (75) (86)
EBITA 206 212 326 424 488 561 645
Less: Taxes (51) (76) (98) (150) (172) (198) (228)
Tax Affected EBITA 154 136 228 150 315 363 417
Plus: Depreciation 38 41 48 56 65 75 86
Less: Capital Expenditures (64) (38) (46) (58) (67) (77) (89)
Less: Change in Net Working Capital 1 3 12 0 0 0 0
Unlevered Free Cash Flow $129 $143 $242 $148 $313 $360 $414

PV of
Discount '10E - '14E PV of Terminal Value Based on FY'14E EBITDA Multiple of:
Rate FCF 5.0x 6.0x 7.0x 8.0x 9.0x 5.0x 6.0x 7.0x 8.0x 9.0x
12.0% $1,021 $2,073 $2,488 $2,903 $3,317 $3,732 $3,094 $3,509 $3,923 $4,338 $4,753
12.5% 1,007 2,028 2,433 2,839 3,244 3,650 3,034 3,440 3,845 4,251 4,656
13.0% 993 1,983 2,380 2,776 3,173 3,570 2,976 3,373 3,769 4,166 4,563
13.5% 979 1,940 2,328 2,716 3,104 3,492 2,919 3,307 3,695 4,083 4,471
14.0% 966 1,898 2,277 2,657 3,036 3,416 2,864 3,243 3,623 4,002 4,382

Discount Less: Total Equity Value Equity Value/Share

Rate Net Debt 5.0x 6.0x 7.0x 8.0x 9.0x 5.0x 6.0x 7.0x 8.0x 9.0x
12.0% ($486) $3,580 $3,995 $4,409 $4,824 $5,238 $52.76 $58.87 $64.98 $71.10 $77.21
12.5% (486) 3,520 3,926 4,331 4,737 5,142 51.88 57.86 63.83 69.81 75.79
13.0% (486) 3,462 3,858 4,255 4,652 5,048 51.02 56.86 62.71 68.56 74.40
13.5% (486) 3,405 3,793 4,181 4,569 4,957 50.18 55.90 61.62 67.33 73.05
14.0% (486) 3,349 3,729 4,108 4,488 4,867 49.36 54.96 60.55 66.14 71.74
Source: Company filings and BB&TCM estimates

19 of 22
IMPORTANT DISCLOSURES
Price Chart

BB&T Capital Markets' rating distribution by percentage (as of September 30, 2010):

All companies All companies under coverage to which it has provided

under coverage: investment banking services in the previous 12 months:
Buy (1) 57.3% Buy (1) 13.3%
Hold (2) 42.0% Hold (2) 6.0%
Underweight/Sell (3) 0.7% Underweight/Sell (3) 0.0%
Not Rated (NR) 0.0% Not Rated (NR) 0.0%
Suspended (SP) 0.0% Suspended (SP) 0.0%

BB&T Capital Markets Ratings System:

The BB&T Capital Markets Equity Research Department Stock Rating System consists of three separate ratings. The
appropriate rating is determined by a stock’s estimated 12-month total return potential, which consists of the percentage price
change to the 12-month price target and the current yield on anticipated dividends. A 12-month price target is the analyst’s
best estimate of the market price of the stock in 12 months. A 12-month price target is highly subjective and the result of
numerous assumptions, including company, industry, and market fundamentals, both on an absolute and relative basis, as
well as investor sentiment, which can be highly volatile.

The definition of each rating is as follows:

Buy (1): estimated total return potential greater than or equal to 10%
Hold (2): estimated total return potential greater than or equal to 0% and less than 10%
Underweight (3): estimated total return potential less than 0%

NR: Not Rated

NA: Not Applicable
NM: Not Meaningful
SP: Suspended

Stocks rated Buy (1) are required to have a published 12-month price target, while it is not required on stocks rated Hold (2)
and Underweight (3).

BB&T Capital Markets Equity Research Disclosures as of November 2, 2010

Company Disclosure
Fossil, Inc. (FOSL) 1, 6, 9

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST

BB&T Capital Markets Equity Research Disclosure Legend

1. BB&T Capital Markets makes a market in the securities of the subject company.

20 of 22
2. The analyst serves as an officer, director, or advisory board member of the subject company.
3. The analyst or a member of the analyst's household owns shares of the subject company.
4. BB&T Capital Markets has managed or co-managed a public offering of securities for the subject company in the last 12
months.
5. BB&T Capital Markets has received compensation for investment banking services from the subject company in the last
12 months.
6. BB&T Capital Markets expects to receive or intends to seek compensation for investment banking services from the
subject company in the next three months.
7. BB&T Capital Markets or its affiliates beneficially own 1% or more of the common stock of the subject company as
calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934.
8. The subject company is, or during the past 12 months was, a client of BB&T Capital Markets, which provided non-
investment banking, securities-related services to, and received compensation from, the subject company for such
services. The analyst or employees of BB&T Capital Markets with the ability to influence the substance of this report
knows the foregoing facts.
9. An affiliate of BB&T Capital Markets received compensation from the subject company for products or services other
than investment banking services during the past 12 months. The analyst or employees of BB&T Capital Markets with
the ability to influence the substance of this report know or have reason to know the foregoing facts.

For valuation methodology and related risk factors on Buy (1)–rated stocks, please refer to the body text of this report or to
individual reports on any covered companies referenced in this report.

The analyst(s) principally responsible for preparation of this report received compensation that is based upon many factors,
including the firm’s overall investment banking revenue.

Analyst Certification
The analyst(s) principally responsible for the preparation of this research report certify that the views expressed in this
research report accurately reflect his/her (their) personal views about the subject security(ies) or issuer(s) and that his/her
(their) compensation was not, is not, or will not be directly or indirectly related to the specific recommendations or views
contained in this research report.

OTHER DISCLOSURES
The information and statistics in this report have been obtained from sources we believe are reliable but we do not warrant
their accuracy or completeness. We do not undertake to advise the reader as to changes in figures or our views. This is not a
solicitation of an order to buy or sell any securities.

BB&T Capital Markets is a division of Scott & Stringfellow, LLC, member NYSE/FINRA/SIPC. Scott & Stringfellow is a wholly
owned nonbank subsidiary of BB&T Corporation. NOT A DEPOSIT, NOT FDIC INSURED, NOT GUARANTEED BY THE
BANK, NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY AND MAY GO DOWN IN VALUE.

The opinions expressed are those of the analyst(s) and not those of BB&T Corporation or its executives.

Important Information Regarding the Distribution of this Report in the United Kingdom
This report has been produced by BB&T Capital Markets and is being distributed in the United Kingdom (UK) by Seymour
Pierce Limited (SPL). SPL is authorized and regulated in the UK by the Financial Services Authority to carry out both corporate
finance and investment services and is a member of the London Stock Exchange. Although BB&T Capital Markets is under
separate ownership from SPL, BB&T Capital Markets has appointed SPL as its exclusive distributor of this research in the UK,
and BB&T Capital Markets will be remunerated by SPL by way of a fee. This report has not been approved for purposes of
section 21 of the UK's Financial Services and Markets Act 2000, and accordingly is only provided in the UK for the use of
persons to whom communications can be made without being so approved, as detailed in the Financial Services and Markets
Act 2000 (Financial Promotion) Order 2005.

21 of 22
 EQUITY RESEARCH
Director of Research - Vernon C. Plack, CFA (804) 780-3257
Assistant Director of Research - James H. Weber, CFA (804) 782-8773

COMMERCIAL AND INDUSTRIAL ENERGY

Building Materials/Specialty Construction & Coal
Facilities Services Mark A. Levin (804) 782-8856
John F. Kasprzak Jr. (804) 782-8715 Garrett S. Nelson (804) 787-8259
Adam R. Thalhimer, CFA (804) 344-8377
Paul Betz (804) 782-8746 Energy Infrastructure
Teresa T. Nguyen (804) 782-8745 Robert F. Norfleet, III (804) 787-8231
Bryce D. Humphrey (804) 782-8893
Chemicals
Frank J. Mitsch (212) 822-8145
Sabina Chatterjee (212) 822-8146 HEALTHCARE SERVICES
Maggie Cheung (212) 822-8147 Home Health & Hospice/PBMs/Disease
Management/Elder Care Services
Commercial Durables Eugene Goldenberg (212) 822-8149
Matthew S. McCall, CFA (804) 780-3582
Jack C. Stimac, CFA (804) 782-8884
TECHNOLOGY
Industrial Equipment—Distribution & Components Defense & Government Services
Holden Lewis (804) 782-8820 Jeremy W. Devaney (703) 245-0902
John C. Cooper (804) 787-8293

Industrial Equipment—Flow Control TRANSPORTATION SERVICES

Kevin R. Maczka, CFA (804) 782-8811 Airfreight & Logistics/Maritime
Andrey V. Rudnitsky (804) 782-2006 Kevin W. Sterling, CFA (804) 782-8804
John R. Mims (804) 780-3246
Industrial Equipment—Machinery
C. Schon Williams (804) 782-8769 Surface Transportation
Thomas S. Albrecht, CFA (804) 787-8210
CONSUMER E. Neal Deaton (704) 367-3805
John R. Mims (804) 780-3246
Agribusiness/Consumer Foods A. Rhem Wood, Jr. (804) 782-8784
Heather L. Jones (804) 780-3280
Brett M. Hundley (804) 782-8753
RESEARCH DEPARTMENT
Apparel, Footwear, & Specialty Retail
Scott D. Krasik, CFA (212) 822-8138 Product Manager
Kelly L. Halsor (212) 822-8132 W. Moultrie Dotterer, CFA (804) 780-3279

Automotive Aftermarket Supervisory Analysts

Anthony F. Cristello (804) 780-3269 Kathleen R. Schneider (732) 567-8766
Allen M. Hatzimanolis, CFA (804) 782-8732 Denise Bossé Tyznar (804) 782-8880
James H. Weber, CFA (804) 782-8773
Consumer Staples/Food &
Drug Merchandising Editor
Andrew P. Wolf, CFA (804) 787-8224 Peggy Myers Walz (804) 782-8785
H. Preston Wilkinson III (804) 782-8711
Publishing Coordinator
Specialty Hardlines Retailers Peter W. Councill (804) 782-8850
Anthony C. Chukumba (212) 822-8143
Eric Cohen (212) 822-8140 RESEARCH OFFICES
Richmond—Main Office
901 East Byrd St., Suite 310 (800) 552-7757
FINANCIAL SERVICES Richmond, Virginia 23219
Banks/Thrifts
Cary A. Morris (804) 782-8831 New York—Research, Sales Trading, Sales
Nicole M. Peterson (804) 727-2604 1133 Avenue of the Americas, 27th fl. (800) 896-9868
New York, New York 10036
Specialty Finance
Vernon C. Plack, CFA (804) 780-3257 Tysons Corner—Research
Charles E. Redding (804) 782-8853 8200 Greensboro Drive, Suite 825 (703) 761-2800
McLean, VA 22102