Item 1.
Business
Item 2.
Item 2. Properties
The Company's principal corporate and manufacturing facility is located in Foothill Ranch, Orange County, California. The facility is approximately 500,000 square feet, with potential to expand into an additional 100,000 square feet. In June 1996, the Company purchased a facility in Nevada of approximately 63,000 square feet for the production of its X Metal® eyewear. In addition, the Company leases office and warehouse space as necessary to support its operations worldwide, including offices in the United Kingdom, Germany, France, Italy, Australia, South Africa, Japan, Canada, New Zealand and the state of Washington. The Company owns a business office and warehouse of approximately 18,000 square feet in Mexico City for its operations in Mexico and Central America. The facility was first occupied in late 1998. In December 2000, the Company leased a new 118,000 square foot warehouse and shipping facility in Ontario, California to support the expanding needs of its footwear and apparel lines. This facility was increased, with a separate building, by approximately 31,000 square feet in June 2001. The new facility began shipping the Company's spring footwear and apparel lines to retailers in early 2001. The Company believes its current and planned facilities are adequate to carry on its business as currently contemplated.
The Company is subject to federal, state and local environmental laws, regulations and ordinances that (i) govern activities or operations that may have adverse environmental effects (such as emissions to air, discharges to water, and the generation, handling, storage and disposal of solid and hazardous wastes) or (ii) impose liability for the cost of cleanup or other remediation of contaminated property, including damages from spills, disposals or other releases of hazardous substances or wastes, in certain circumstances without regard to fault. The Company's manufacturing operations routinely involve the handling of chemicals and wastes, some of which are or may become regulated as hazardous substances. The Company has not incurred, and does not expect to incur, any significant expenditures or liabilities for environmental matters. As a result, the Company believes that its environmental obligations will not have a material adverse effect on its operations or financial position.
In response to California's recent power crisis, the Company is currently reviewing its options for self-power generation. Although the Company is exploring alternatives to ensure the availability of adequate power for its operations, there can be no assurances that the Company will find a viable alternative or that California's power crisis will not have a material adverse effect on the Company's results of operations and financial condition.
Item 3.
Item 3. Legal Proceedings
The Company is a party to various claims, complaints and other legal actions that have arisen in the normal course of business from time to time. The Company believes the outcome of these pending legal proceedings, in the aggregate, is not likely to have a material adverse effect on the operations or financial position of the Company.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's common stock, par value $.01 per share ("Common Stock"), began trading on the New York Stock Exchange on August 10, 1995 upon completion of the Company's initial public offering (trading symbol "OO"). As of March 22, 2002, the closing sales price for the Common Stock was $18.55. The following table sets forth the high and low sales prices for the Common Stock for each quarter of 2001 and 2000 on the New York Stock Exchange Composite Tape:
The number of shareholders of record for Common Stock on March 22, 2002 was 474.
Dividend Policy
The Company currently does not pay any dividends on its Common Stock. Any future determination as to the payment of dividends will be at the discretion of the Company's Board of Directors and will depend upon the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant by the Board of Directors.
Item 6.
Item 6. Selected Financial Data
The following table sets forth certain selected financial data regarding the Company which is qualified by reference to, and should be read in conjunction with, the Consolidated Financial Statements and Notes thereto. See Index to Consolidated Financial Statements and Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion includes the operations of Oakley, Inc. and its subsidiaries for each of the periods discussed.
Overview
Oakley is an innovation-driven designer, manufacturer and distributor of consumer products that include high-performance eyewear, footwear, watches, apparel and accessories. The Company's products are sold in the United States through a carefully selected base of approximately 9,000 active accounts with approximately 13,600 locations comprised of optical stores, sunglass retailers and specialty sports stores, including bike, surf, ski and golf shops, and motorcycle, athletic footwear and sporting goods stores. In November 2001, the Company acquired Iacon, a sunglass retailing chain headquartered in Scottsdale, Arizona with 43 retail stores at December 31, 2001.
In April 2001, Luxottica, one of the Company's largest competitors, acquired Sunglass Hut, the Company's largest customer. In connection with its acquisition of Sunglass Hut, Luxottica implemented changes to the Sunglass Hut operation which have affected its relationship with the Company. On August 2, 2001, the Company announced that it had reduced its sales and earnings guidance for the remainder of 2001 due to a significant change at the end of July in the order pattern of Sunglass Hut. In December 2001, the Company and Luxottica entered into a new three-year commercial agreement for the distribution of Oakley products through Sunglass Hut retail stores. The agreement applies to Sunglass Hut locations in the United States, Canada, the United Kingdom and Ireland, and marked the resumption of the business relationship between the two companies, which had been substantially reduced since August 2, 2001. Oakley and Luxottica also have resumed their business together on mutually agreed terms for the markets not specifically covered by this new agreement. The arrangements between the companies do not obligate Luxottica to order product from the Company, and there can be no assurances as to the future of the relationship between the Company and Luxottica.
Internationally, the Company sells its products in over 70 countries outside the United States, with direct offices in France, Germany, United Kingdom, Italy, Japan, Mexico, South Africa, Canada, Australia, New Zealand and Brazil. In those parts of the world not serviced by the Company or its subsidiaries, Oakley products are sold through distributors who possess local expertise. These distributors sell the Company's products either exclusively or with complementary, non-competing products and agree to respect the marketing philosophy and practices of the Company. Sales to the Company's distributors are denominated in U.S. dollars. The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions of its international subsidiaries. The Company and its subsidiaries use foreign exchange contracts in the form of forward contracts to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates.
In October 1999, the Company's Board of Directors approved strategic initiatives (the "Restructuring Plan") to restructure and refocus the Company's footwear business. Under the Restructuring Plan, the Company substantially reduced its in-house footwear manufacturing operations and partnered with select third-party manufacturers to assist in the development and manufacture of the Company's complete footwear product line. Additionally, the Company increased its emphasis on direct-sales channels to augment sales throughout traditional retail accounts and to broaden accessibility of the Company's products to its customers. See Note 12 in Notes to Consolidated Financial Statements.
Significant Accounting Policies and Certain Risks and Uncertainties
The Company's historical success is attributable, in part, to its introduction of products which are perceived to represent an improvement in performance over products available in the market. The Company's future success will depend, in part, upon its continued ability to develop and introduce such innovative products, and there can be no assurance of the Company's ability to do so. The consumer products industry, including the eyewear, apparel, footwear and watch categories, is fragmented and highly competitive. In order to retain its market share, the Company must continue to be competitive in the areas of quality, technology, method of distribution, style, brand image, intellectual property protection and customer service. These industries are subject to changing consumer preferences; shifts in consumer preferences may adversely affect companies that misjudge such preferences.
The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. As such, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the balance sheet dates and the reported amounts of revenue and expense during the reporting periods. Actual results could significantly differ from such estimates. The Company believes that the following discussion addresses the Company's most significant accounting policies, which are the most critical to aid in fully understanding and evaluating the Company's reported financial results.
Revenue Recognition
The Company recognizes revenue when merchandise is shipped to a customer. Generally, the Company extends credit to its customers and does not require collateral. The Company performs ongoing credit evaluations of its customers and historic credit losses have been within management's expectations. The Company's shipping terms with all customers are FOB shipping point. Sales agreements with dealers and distributors normally provide payment terms of 30-180 days, depending on the product category. None of the Company's sales agreements with any of its customers provide for any rights of return by the customer, except for product warranty related issues. In addition, although the Company, at its sole discretion, may repurchase its own products to protect the Company image, this practice is infrequent and, historically, the value of these repurchases has not been significant.
Accounts Receivable
The Company performs ongoing credit evaluations of its customers and adjust credit limits based upon payment history and the customer's current creditworthiness, as determined by the Company's review of their current credit information. The Company continuously monitors its customer collections and payments and maintains a provision for estimated credit losses based upon the Company's historical experience and any specific customer collection issues that have been identified. While such credit losses have historically been within the expectations and the provisions established by the Company, there can be no assurances that the Company will continue to experience the same credit loss rates that has been experienced in the past.
Inventories
Inventories are stated at the lower of cost to purchase and/or manufacture the inventory or the current estimated market value of the inventory. The Company regularly reviews its inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on the Company's estimated forecast of product demand and production requirements. As experienced in 2001, the demand for the Company's products could fluctuate significantly. Other factors which could affect demand for the Company's products include unanticipated changes in general market conditions or other factors, which may result in cancellations of advance orders or a reduction in the rate of reorders
placed by retailers; continued weakening of economic conditions which could reduce demand for products sold by the Company and which could adversely affect profitability; further terrorist acts, or the threat thereof, which could continue to adversely affect consumer confidence and spending, could interrupt production and distribution of product and raw materials and could, as a result, adversely affect the Company's operations and financial performance. Additionally, Management's estimates of future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and obsolete inventory.
Foreign Currency Translation
The Company has direct operations in Europe, United Kingdom, Japan, Canada, Mexico, South Africa, Australia and Brazil which collect at future dates in the customers' local currencies and purchase finished goods in U.S. dollars. Accordingly, the Company is exposed to transaction gains and losses that could result from changes in foreign currency. Assets and liabilities of the Company denominated in foreign currencies are translated at the rate of exchange on the balance sheet date. Revenues and expenses are translated using the average exchange rate for the period. Gains and losses from translation of foreign subsidiary financial statements are included in accumulated other comprehensive income. Gains and losses on short-term intercompany foreign currency transactions are recognized as incurred. As part of the Company's overall strategy to manage its level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company and its subsidiaries have entered into various foreign exchange contracts in the form of forward contracts. See Note 8 in Notes to Consolidated Financial Statements.
Vulnerability Due to Supplier Concentrations
The Company relies on a single source for the supply of several components, including the uncoated lens blanks from which substantially all of its sunglass lenses are cut. In the event of the loss of the source for lens blanks, the Company has identified an alternate source which may be available. The effect of the loss of any of these sources (including any possible disruption in business) will depend primarily upon the length of time necessary to find a suitable alternative source and could have a material adverse effect on the Company's business. There can be no assurance that, if necessary, an additional source of supply for lens blanks can be located or developed in a timely manner.
Vulnerability Due to Customer Concentrations
Net sales to Sunglass Hut accounted for approximately 12.0%, 21.0% and 23.0% of the Company's net sales for the years ended December 31, 2001, 2000 and 1999, respectively. In April 2001, Luxottica, one of the Company's largest competitors, acquired Sunglass Hut and implemented changes which adversely affected the Company's net sales to Sunglass Hut in 2001. In December 2001, the Company and Luxottica entered into a new three-year commercial agreement for the distribution of Oakley products through Sunglass Hut retail stores. The agreement applies to Sunglass Hut locations in the United States, Canada, the United Kingdom and Ireland, and marked the resumption of the business relationship between the two companies, which had been substantially reduced since August 2, 2001. Oakley and Luxottica also have resumed their business together on mutually agreed terms for the markets not specifically covered by this new agreement. The arrangements between the companies do not obligate Luxottica to order product from the Company, and there can be no assurances as to the future of the relationship between the Company and Luxottica.
Warranties
The Company provides a one-year limited warranty against manufacturer's defects in its eyewear. All authentic Oakley watches are warranted for one year against manufacturer's defects when purchased from an authorized Oakley watch dealer. Footwear is warranted for 90 days against manufacturer's defects, and apparel is warranted for 30 days against manufacturer's defects. The Company's standard warranties require the Company to repair or replace defective product returned to the Company during such warranty period at a nominal cost to the customer. While warranty costs have historically been within the Company's expectations, there can be no assurance that the Company will continue to experience the same warranty return rates or repair costs as in the prior years. A significant increase in product return rates, or a significant increase in the costs to repair product, could have a material adverse impact on the Company's operating results.
Commitments and Contingencies
The Company has entered into operating leases, primarily for facilities and retail real estate leases, and has commitments under endorsement contracts with selected athletes and others who endorse the Company's products. Minimum future payments under these leases and endorsement contracts are identified in Note 7 in Notes to Consolidated Financial Statements.
Results of Operations
The following tables set forth operating results in dollars and as a percentage of net sales for the periods indicated. Operating results for 1999 reflect an adjustment for the elimination of the $12.6 million charge recorded in 1999 to cost of goods sold in connection with the restructuring of the Company's footwear operations. See Note 12 in Notes to Consolidated Financial Statements.
OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
The Company's sunglass sales before discounts and defective returns were $301.6 million, $283.8 million and $212.7 million for the years ended December 31, 2001, 2000 and 1999, respectively. Sunglass unit sales were 4,721,387; 4,892,163; and 4,037,113 for the years ended December 31, 2001, 2000 and 1999, respectively.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Net sales
Net sales increased to $429.3 million for the year ended December 31, 2001 from $363.5 million for the year ended December 31, 2000, an increase of $65.8 million, or 18.1%. The increase in net sales was attributable to several factors, including a 6.3%, or $17.8 million, increase in gross sunglass sales. Gross sunglass sales were $301.6 million for the year ended December 31, 2001 compared to $283.8 million for the year ended December 31, 2000. For 2001, the Company experienced a 3.5% decrease in sunglass unit volume and a 10.1% increase in average selling prices. The increase in gross sunglass sales was driven by strong sunglass sales of the Company's Wire™products (including the Square Wire®, C Wire™, and A Wire®), Straight Jacket®, Twenty-XX™, Minute®, X-Metal® line, and the Company's polarized styles, as well as strong sales of new products offsetting declines in sales of more mature products. New sunglass introductions in 2001, which include the Why 3™, introduced in March 2001, the Four S™, introduced in April 2001, E-Wire®2.1, introduced in May 2001, Scar™ and X-Metal Penny™, introduced in June 2001, Switch™, introduced in September 2001, and Fives® 2.0, introduced in November 2001, contributed to the increase in sales, and as a group, represented 7.7% of the Company's gross sunglass sales. However, the content of new sunglass sales as a percent of total sunglass sales was below the Company's historical levels. The Company believes new sunglass product sales were negatively affected by the temporary disruption in its relationship with Luxottica's Sunglass Hut retail chain and the impact of the tragic events of September 11th on consumer travel and spending patterns. Sales from the Company's new product categories, comprised of footwear, apparel, watches and prescription eyewear, continued to grow with gross sales increasing 79.7%, or $44.7 million, to $100.8 million, or 22.4% of gross sales, for the year ended December 31, 2001 compared to $56.1 million, or 14.6% of gross sales, for the year ended December 31, 2000. Footwear gross sales grew to $30.0 million in 2001 compared to $10.4 million in 2000. Apparel sales increased to $37.9 million in 2001 from $28.4 million in 2000. Watch sales increased $2.5 million, to $8.2 million for 2001 over $5.7 million for 2000. Sales of the Company's prescription products more than doubled to
$24.7 million in 2001 from $11.6 million in 2000. Management believes these increases are a result of its expanded product lines, and expanded distribution and retail initiatives, including its greater dealer base.
The Company's U.S. net sales increased 10.3% to $213.2 million in 2001 from $193.2 million in 2000, principally as a result of a 26.2% increase in net sales to the Company's broad specialty store account base and other U.S. sales, while sales to the Company's largest U.S. customer, Sunglass Hut, decreased 30.4% to $43.6 million in 2001 from $62.6 million in 2000. See discussion regarding Sunglass Hut in "Overview" above. The Company's retail store sales also contributed to the increase in U.S. net sales by increasing 172.8% to $8.9 million in 2001 from $3.3 million in 2000. During 2001, international net sales surpassed U.S. net sales for the first time in the Company's history with an increase of 26.9% to $216.1 million in 2001 from $170.3 million in 2000. The increase was driven by continued strength in almost all regions of the world in which the Company sells its products, with the strongest growth in Europe, Japan, Latin America, Asia and Canada. The only region that showed a decline in net sales was Australia/New Zealand. Additionally, in 2000, sales in this region benefited from the 2000 Sydney Olympics. Sales from the Company's direct international offices represented 82.0% of total international sales for 2001, compared to 83.3% for 2000. On a constant dollar basis, international sales increased approximately 33.9% for 2001 over 2000. During the fourth quarter of 2001, the Company experienced a year over year decline in international sales due to weak consumer environment in major markets, especially those highly dependent on leisure travel activity. In addition, sales in Australia and New Zealand, one of the Company's largest international markets, were negatively impacted by the disruption in Sunglass Hut shipments, magnifying the difficult comparisons to last year's fourth quarter sales, which benefited from the 2000 Sydney Olympics.
Gross profit
Gross profit increased to $254.9 million, or 59.4% of net sales, for the year ended December 31, 2001, from $225.1 million, or 61.9% of net sales, for the year ended December 31, 2000, an increase of $29.8 million, or 13.2%. The decrease in gross profit as a percentage of net sales is attributable in part to product mix changes as the Company experienced an increased sales contribution from the lower gross margin categories of footwear, apparel and goggles and higher sunglass production costs per unit due to the reduced production volumes associated with the Sunglass Hut disruption and increased material and labor costs due to the production of more complex multi-layered lens products, as well as a higher percentage of polarized lens products. In addition, the gross margin for 2000 reflected higher foreign exchange gains as compared to 2001 resulting from greater strengthening of the U.S. dollar over the life of the Company's hedge contracts in 2000 compared to the amount of U.S. dollar strengthening experienced over the lives of the Company's 2001 contracts.
Operating expenses
Operating expenses increased to $180.9 million for the year ended December 31, 2001 from $143.8 million for the year ended December 31, 2000, an increase of $37.1 million, or 25.8%. During 2001, the Company continued to develop the infrastructure, both personnel and systems, to grow its new product categories, prudently grow its retail initiatives, expand distribution, including further expanding the Company's national specialty footwear and apparel accounts and premium dealer programs, and manage the growth of the business. Operating expenses include $3.4 million for the Company's retail operations, which includes two months, or $1.2 million, of operating expenses for Iacon. Research and development expenses increased $3.4 million to $11.3 million, or 2.6% of net sales in 2001, from $7.9 million, or 2.2% of net sales, in 2000, primarily as a result of additional personnel and design expenses for prototyping and molds necessary to facilitate the growth in the new product categories, as well as continuing efforts in sunglass design. Selling expenses increased $18.6 million to $108.9 million, or 25.4% of net sales, in 2001, from $90.3 million, or 24.8% of net sales, in 2000, as a
result of higher advertising and direct marketing expenditures, increased display costs to support sales and the premium dealer programs launched in the second half of 2001, additional intellectual property protection costs and the additional sales management necessary to expand the new product categories. Shipping and warehousing expenses increased to $17.0 million, or 4.0% of net sales, in 2001 from $10.0 million, or 2.8% of net sales, for 2000. This increase is principally due to the increased mix of new product category sales with higher average shipping costs in addition to set-up costs for the U.S. apparel and footwear distribution center in Ontario, California and the costs of the Company's third party warehouses in Japan and Europe. General and administrative expenses increased $8.0 million to $43.6 million, or 10.2% of net sales, in 2001 from $35.6 million, or 9.7% of net sales, in 2000. This increase in general and administrative expenses was principally a result of increased personnel-related costs and infrastructure and information technology costs necessary to manage the Company's growth. The Company will continue to increase its general and administrative expenses at prudent rates to manage the growth of the business, but expects the growth for 2002 to be at a lower rate than 2001.
Operating income
The Company's operating income decreased to $74.1 million for the year ended December 31, 2001 from $81.3 million for the year ended December 31, 2000, a decrease of $7.2 million. As a percentage of net sales, operating income decreased to 17.3% in 2001 from 22.4%, in 2000 as a result of the factors discussed above.
Interest expense, net
The Company had net interest expense of $3.1 million in 2001, as compared with net interest expense of $2.7 million in 2000. The increase in interest expense is due to greater average balances on the Company's line of credit which was used to finance the Company's growth as well as the Company's share repurchase programs in 2001, partially offset by lower average interest rates.
Income taxes
The Company recorded a provision for income taxes of $20.6 million for the year ended December 31, 2001, compared with $27.5 million for the year ended December 31, 2000. The Company's effective tax rate for 2001 was 29% as result of a one-time, fixed-amount tax benefit associated with the Company's foreign operations compared to 35% for 2000. The Company's effective tax rate for 2002 is expected to be 35% but will depend in part on the continued ability to realize tax benefits associated with the Extraterritorial Income Exclusion Act of 2000.
Net income
The Company's net income decreased to $50.4 million for the year ended December 31, 2001 from $51.1 million for the year ended December 31, 2000, a decrease of $0.7 million, or 1.3%.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net sales
Net sales increased to $363.5 million for the year ended December 31, 2000 from $257.9 million for the year ended December 31, 1999, an increase of $105.6 million, or 40.9%. The increase in net sales was primarily attributable to a 33.4%, or $71.1 million, increase in gross sunglass sales. Gross sunglass sales were $283.8 million for the year ended December 31, 2000 compared to $212.7 million for the year ended December 31, 1999. For 2000, the Company experienced a 21.3% increase in sunglass unit volume and a 10.1% increase in average selling prices. The Company attributes the significant gross sunglass sales increase to many factors, including several successful new product introductions in 1999 and 2000, as well as successful sports marketing and advertising support, more
timely execution and increased customer fulfillment rates. The increase in gross sunglass sales was driven by strong sunglass sales of the Company's Minute® and X-Metal® lines, as well as strong sales of new products offsetting declines in sales of more mature products. The Minute® style was the Company's largest selling sunglass model during 2000 and sales of the X-Metal® line increased 182.6% compared to sales for the year ended December 31, 1999. New sunglass introductions since the fourth quarter of 1999, including the new Straight Jacket® introduced in late 1999, Twenty-XX™, introduced in March 2000, the C-Wire™,introduced in April 2000, the Square Wire® 2.0, introduced in May 2000, and the Eye Jacket® 2.0, introduced in July 2000, contributed greatly to the increase in sales, and as a group, represented 24.2% of the Company's gross sunglass sales. Sales of the Company's polarized styles also contributed to the increase in gross sales for the year ended December 31, 2000, more than doubling over the year ended December 31, 1999. Sales from the Company's new product categories, including footwear, apparel, watches and prescription eyewear, continued to grow with gross sales increasing 85.5%, or $25.8 million, for the year ended December 31, 2000 over the year ended December 31, 1999. Footwear gross sales were $10.4 million in 2000 compared to $3.2 million in 1999. Apparel sales increased to $28.4 million in 2000 from $18.7 million in 1999. Watch sales increased to $5.7 million in the year ended December 31, 2000 from $2.5 million for the year ended December 31, 1999. Sales of the Company's prescription products increased to $11.6 million in 2000 from $5.9 million in 1999.
The Company's U.S. net sales increased 36.2% to $193.2 million in 2000 from $141.8 million in 1999, principally as a result of a 44.3% increase in net sales to the Company's broad specialty store account base, while sales to the Company's largest U.S. customer, Sunglass Hut, increased 22.0% to $62.6 million in 2000 from $51.3 million in 1999. The Company's international net sales increased $54.2 million to $170.3 million in 2000 from $116.1 million in 1999, a 46.7% increase, as a result of increased sales in all direct operations: Australia, United Kingdom, Europe, Japan, Canada, Mexico and South Africa. Additionally, effective November 1, 1999, the Company acquired its Australian distributor, which contributed to the increase in international net sales for the full year 2000 versus only two months in 1999. Sales from the Company's direct international offices represented 83.3% of total international sales for the year ended December 31, 2000, compared to 75.8% for the comparable 1999 period. On a constant dollar basis, international sales increased approximately 58.5% for the year ended December 31, 2000 over the year ended December 31, 1999.
Gross profit
Gross profit increased to $225.1 million for the year ended December 31, 2000 from $148.5 million for the year ended December 31, 1999, an increase of $76.6 million, or 51.6%. In the fourth quarter of 1999, the Company announced a restructuring of its footwear operations which resulted in a $12.6 million pre-tax charge to cost of goods sold. See Note 12 in Notes to Consolidated Financial Statements. Excluding the footwear restructuring charge, gross profit increased to $225.1 million, or 61.9% of net sales, in 2000 from $161.1 million, or 62.5% of net sales, in 1999, an increase of $63.9 million, or 39.7%. The decrease in gross profit as a percentage of net sales, prior to the restructuring charge, is attributable to the negative impact on the margins of the Company's direct international sales from the strengthened U.S. dollar together with the negative impact on gross margin resulting from the increased sales contribution from the new product categories, which generally carry lower gross margins than sunglasses. These reductions to gross profit as a percentage of net sales were partially offset by positive effects of increased sales volume, improved X-Metal and footwear margins and the increased rate of gross profit derived from the Company's acquisition of its Australian distributor in November 1999.
Operating expenses
Operating expenses increased to $143.8 million for the year ended December 31, 2000 from $116.1 million for the year ended December 31, 1999, an increase of $27.7 million, or 23.9%. This increase is generally due to higher variable expenses attributable to increased sales volume along with the greater operating expenses and goodwill amortization in 2000 resulting from the Company's acquisition of its Australian distributor. Research and development expenses increased $1.6 million to $7.9 million, or 2.2% of net sales in 2000, from $6.3 million, or 2.4% of net sales, in 1999, primarily as a result of expanded new product development efforts. Selling expenses increased $18.1 million to $90.3 million, or 24.8% of net sales, in 2000, from $72.2 million, or 28.0% of net sales, in 1999, primarily as a result of increased sales commissions attributable to increased sales, increased sports marketing attributable to new product category expansion and higher advertising expenditures. These increases were partially offset by reduced warranty costs resulting from fewer defective claims. Advertising expenses were greater in 2000 as a result of a strategic decision to increase print advertising for the Oakley brand. This increase resulted from the use of an outside agency for media planning with collaboration between the agency and the Company's in-house creative team for advertising content. The Company believes this increased advertising expenditure contributed greatly to the strong sales increase experienced in 2000 and expects advertising expenses as a percent of net sales to increase in 2001. Shipping and warehousing expenses increased to $10.0 million, or 2.8% of net sales, in 2000 from $6.6 million, or 2.6% of net sales, for 1999. This increase is principally due to increased footwear and apparel sales with higher average shipping costs in addition to set-up costs for the new apparel and footwear distribution center in Ontario, California which began shipping in early 2001. General and administrative expenses increased $4.6 million to $35.6 million, or 9.7% of net sales, in 2000 from $31.0 million, or 12.0% of net sales, in 1999. This increase in general and administrative expenses was principally a result of increased personnel-related costs and other costs necessary to manage the Company's growth, general and administrative expenses and goodwill amortization related to the Company's acquisition of its Australian distributor and an increase in provisions for bad debts as a result of the Company's sales growth.
Operating income
The Company's operating income increased to $81.3 million for the year ended December 31, 2000 from $32.5 million for the year ended December 31, 1999, an increase of $48.8 million. Excluding the footwear restructure charge of $12.6 million in 1999, operating income increased to $81.3 million for the year ended December 31, 2000 from $45.1 million for the year ended December 31, 1999, an increase of $36.2 million. As a percentage of net sales, operating income increased to 22.4% in 2000 from 17.5%, prior to the restructuring charge, in 1999, primarily due to the significant positive operating expense leverage on higher sales volume.
Interest expense, net
The Company had net interest expense of $2.7 million in 2000, as compared with net interest expense of $2.0 million in 1999. The increase in interest expense is due to greater balances on the Company's line of credit which was used to finance the Company's growth as well as the Company's share repurchase programs in 2000.
Income taxes
The Company recorded a provision for income taxes of $27.5 million for the year ended December 31, 2000 compared with $10.7 million for the year ended December 31, 1999. The Company's effective tax rate of 35% remained the same for the years ended December 31, 2000 and 1999.
Net income
The Company's net income increased to $51.1 million for the year ended December 31, 2000 from $19.8 million for the year ended December 31, 1999, an increase of $31.3 million, or 158.1%. Excluding the footwear restructuring after-tax charge of $8.2 million, net income increased to $51.1 million for 2000 from $28.0 million for 1999, an increase of $23.1 million, or 82.5%.
Liquidity and Capital Resources
The Company historically has financed its operations almost entirely with cash flow generated from operations and borrowings from its credit facilities. Cash provided by operating activities totaled $30.4 million for the year ended December 31, 2001 and $28.1 million for the comparable period of 2000. At December 31, 2001, working capital was $106.3 million compared to $84.2 million at December 31, 2000. Working capital may vary from time to time as a result of seasonality, new product category introductions and changes in accounts receivable and inventory levels. Accounts receivable balances increased to $74.8 million at December 31, 2001 compared to $65.0 million at December 31, 2000 with accounts receivable days outstanding at December 31, 2001 of 59 compared to 52 at December 31, 2000. This increase in receivable levels is primarily due to the increased new product categories, as well as increased goggle sales during the last half of fiscal year 2001, which contributed to increased receivable balances and an increase in receivable days outstanding due to the longer terms and dating programs customary for these categories. Inventories increased to $77.3 million at December 31, 2001 compared to $62.0 million at December 31, 2000. This inventory reflects the 18.1% growth in 2001 net sales and expanded company-owned retail operations and international warehouses. Average inventory turns for 2001 decreased to 2.5 at December 31, 2001 compared to 2.9 at December 31, 2000.
In January 2001, the Company amended its unsecured line of credit with a bank syndicate which allows for borrowings up to $75 million and matures in August 2004. The amended line of credit bears interest at either LIBOR or IBOR plus 0.75% (2.9% at December 31, 2001) or the bank's prime lending rate minus 0.25% (4.25% at December 31, 2001). At December 31, 2001, the Company had an
outstanding balance of $30.6 million under such facility. The credit agreement contains various restrictive covenants including the maintenance of certain financial ratios. At December 31, 2001, the Company was in compliance with all restrictive covenants and financial ratios. Should the Company ever default on any of these financial covenants, the Company would not be able to access its line of credit until the Company becomes compliant. Certain of the Company's foreign subsidiaries have negotiated local lines of credit to provide working capital financing. The aggregate borrowing limit on the foreign lines of credit is $17.2 million, of which $9.9 million was outstanding at December 31, 2001. In aggregate, at December 31, 2001, $40.5 million was outstanding under these credit facilities. The Company also has a ten-year real estate term loan, which is collateralized by the Company's corporate headquarters and requires quarterly principal payments of approximately $380,000 plus interest based on LIBOR plus 1.00% (3.08% at December 31, 2001). In January 1999, the Company entered into an interest rate swap agreement that results in fixing the interest rate over the term of the note at 6.31%. At December 31, 2001, the outstanding balance on the term loan was $16.3 million. The term loan is due in September 2007. See Notes 6 and 7 in Notes to Consolidated Financial Statements for additional information relating to the Company's financing arrangements.
Capital expenditures, net of retirements for the year ended December 31, 2001 were $44.4 million compared to $26.9 million in 2000. Included in capital expenditures for 2001 were $10.8 million for production equipment and new product tooling, $8.4 million for information technology infrastructure, including software, computers and related equipment, $8.7 million for in-store displays and $13.7 million for building improvements and furniture and fixtures. As of December 31, 2001, the Company had commitments of approximately $0.4 million for future capital purchases. The capital expenditures for 2001 were required to accommodate not only the Company's significant growth, including new category growth and international expansion, but also expenditures for maintenance and upgrades to reduce production costs and quality improvements. Projects for 2001 included establishing an in-house prescription lens finishing lab, expanding of the Company's X-Metal®capacity, set-up costs associated with the domestic apparel and footwear distribution center in Ontario, California, expenditures for product displays, including displays for the premium dealer program, acquiring information technology software for the apparel and footwear business and making facility improvements to handle apparel, footwear and general growth. In addition, the capital expenditures for the Company's retail operations were $2.8 million for 2001. For 2002, the Company expects lower capital expenditure levels as a whole, with capital expenditures for its retail operations to be an increasing percentage of total capital expenditures.
During December 2000, the Company's Board of Directors authorized another stock repurchase program by the Company of up to $20 million of the Company's common stock from time to time as market conditions warrant. As of December 31, 2001, the Company had repurchased under this program 1,128,000 shares for approximately $16.2 million, at an average price of $14.32. Approximately $3.8 million remains available under the current authorization with total common shares outstanding of 68,821,310 as of December 31, 2001.
The Company believes that existing capital, anticipated cash flow from operations, and current and anticipated credit facilities will be sufficient to meet operating needs and capital expenditures for the foreseeable future. The Company's short-term funding comes from its current revolving line of credit which contains various restrictive covenants including the maintenance of certain financial ratios. At December 31, 2001, the Company was in compliance with all restrictive covenants and financial ratios. In addition, the Company currently expects to seek additional long-term debt financing with a fixed interest rate to provide the Company more liquidity at favorable rates and the flexibility to consider additional share repurchases or other accretive long-term investments.
Seasonality
The following table sets forth certain unaudited quarterly data for the periods shown:
Historically, the Company's sales, in the aggregate, have been highest in the period from March to September, the period during which sunglass use is typically highest. As a result, operating margins are typically lower in the first and fourth quarters, as fixed operating costs are spread over lower sales volume. In anticipation of seasonal increases in demand, the Company typically builds inventories in the fourth quarter and first quarter when net sales have historically been lower. In addition, the Company's shipments of goggles, which generate gross profits at lower levels than sunglasses, are lowest in the second quarter. This seasonal trend contributes to the Company's gross profit in the second quarter, which historically has been the highest of the year. Although the Company's business generally follows this seasonal trend, new product category introductions, such as apparel, footwear and watches, and the Company's international expansion, have partially mitigated the impact of seasonality.
Backlog
Historically, the Company has generally shipped most eyewear orders within one day of receipt, with longer lead times for its other pre-booked product categories. At December 31, 2001, the Company had a backlog of $36.7 million, including backorders (merchandise remaining unshipped beyond its scheduled shipping date) of $4.8 million as of such date, a 36.9% increase over the December 31, 2000 backlog of $26.8 million.
Inflation
The Company does not believe inflation has had a material impact on the Company in the past, although there can be no assurance that this will be the case in the future.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 (SFAS No. 141), "Business Combinations." SFAS No. 141 eliminates the pooling method of accounting for business combinations initiated after June 30, 2001. In addition, SFAS No. 141 addresses the accounting for intangible assets and goodwill acquired in a business combination. This portion of SFAS No. 141 is effective for business combinations completed after June 30, 2001. The Company does not expect SFAS No. 141 to have a material effect on the Company's financial position or results of operations.
In June 2001, the FASB issued Statement No. 142 (SFAS No. 142), "Goodwill and Intangible Assets," which revised the accounting for purchased goodwill and intangible assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives will no longer be amortized, but will be tested for impairment annually and also reviewed in the event of an impairment indicator. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 142 as of January 1, 2002 and has begun to test goodwill for impairment under the new rules, applying a fair-value-based test. The Company expects that adoption of SFAS No. 142 will increase annual operating income through a reduction of amortization expense by approximately $1.2 million on an annual basis, based on recorded goodwill at December 31, 2001.
In August 2001, the FASB issued Statement No. 144 (SFAS No. 144), "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes previous guidance on financial accounting and reporting for the impairment or disposal of long-lived assets and for segments of a business to be disposed of. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company does not expect the adoption of SFAS No. 144 to have a significant impact on the Company's financial position or results of operations. However, future impairment reviews may result in charges against earnings to write down the value of long-lived assets.
Item 7a.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to a variety of risks, including foreign currency fluctuations and changes in interest rates affecting the cost of its debt.
Foreign currency
The Company has direct operations in Europe, United Kingdom, Japan, Canada, Mexico, South Africa Australia and Brazil which collect at future dates in the customers' local currencies and purchase finished goods in U.S. dollars. Accordingly, the Company is exposed to transaction gains and losses that could result from changes in foreign currency exchange rates.
As more fully described in Note 8 of the Company's Notes to Consolidated Financial Statements, the Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to foreign currency transactions. As part of its overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company and its subsidiaries use foreign exchange contracts in the form of forward contracts. All of the Company's derivatives were designated and qualified as cash flow hedges at December 31, 2001.
On the date the Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure. The Company only enters into derivative instruments that qualify as cash flow hedges as described in SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." For all instruments qualifying as highly effective cash flow hedges, the changes in the fair value of the derivative are recorded in other comprehensive income. The following is a summary of the Company's foreign exchange contracts by currency at December 31, 2001:
The Company is exposed to credit losses in the event of nonperformance by counterparties to its forward exchange contracts but has no off-balance sheet credit risk of accounting loss. The Company anticipates, however, that the counterparties will be able to fully satisfy their obligations under the contracts. The Company does not obtain collateral or other security to support the forward exchange contracts subject to credit risk but monitors the credit standing of the counterparties. As of December 31, 2001, outstanding contracts were recorded at fair market value and the resulting gains
and losses were recorded in the consolidated financial statements pursuant to the policy set forth above.
The Company sells direct and through its subsidiaries to various customers in the European Union which adopted the Euro as a legal currency effective January 1, 1999. The Euro began its circulation after a three-year transition period on January 1, 2002. The Company has upgraded certain of its information systems to enhance its capability to process transactions and keep records in Euros. The Company does not expect costs in connection with the Euro conversion, or other consequences of the Euro conversion, to have a material adverse effect on the Company.
Interest rates
The Company's principal line of credit, with a balance of $30.6 million outstanding at December 31, 2001, bears interest at either LIBOR or IBOR plus 0.75% (2.9% at December 31, 2001) or the bank's prime lending rate minus 0.25% (4.25% at December 31, 2001). Based on the weighted average interest rate of 5.5% on the line of credit during the year ended December 31, 2001, if interest rates on the line of credit were to increase by 10%, and to the extent that borrowings were outstanding, for every $1.0 million outstanding on the Company's line of credit, net income would be reduced by approximately $4,000 per year.
The Company's ten-year real estate term loan, with a balance of $16.3 million outstanding at December 31, 2001, bears interest at LIBOR plus 1.0% (3.08% at December 31, 2001) and is due in September 2007. In January 1999, the Company entered into an interest rate swap agreement that eliminates the Company's risk of fluctuations in the variable rate of its long-term loan by fixing the rate at 6.31%. As of December 31, 2001, the fair value of the Company's interest rate swap agreement was a loss of approximately $310,000.
Item 8.
Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements for a listing of the consolidated financial statements submitted as part of this report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Part III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information required by this item will be contained in the Company's Proxy Statement for its Annual Shareholders Meeting to be held on June 6, 2002, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2001, and is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation
The information required by this item will be contained in the Company's Proxy Statement for its Annual Shareholders Meeting to be held on June 6, 2002, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2001, and is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item will be contained in the Company's Proxy Statement for its Annual Shareholders Meeting to be held on June 6, 2002, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2001, and is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information required by this item will be contained in the Company's Proxy Statement for its Annual Shareholders Meeting to be held on June 6, 2002, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2001, and is incorporated herein by reference.
Part IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1)
See page 37 for a listing of financial statements submitted as part of this report.
(a)(2)
All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are shown in the financial statements or are inapplicable, and therefore have been omitted.
(a)(3)
The following exhibits are included in this report.
3.1 (1) Articles of Incorporation of the Company
3.2 (10) Amended and Restated Bylaws of the Company (amends Section 1 and Sections 3a through 3f of Article IV of the Bylaws of the Company)
3.3 (4) Amendment No. 1 to the Articles of Incorporation as filed with the Secretary of State of the State of Washington on September 26, 1996
3.4 (10) Amendment No. 1 to Section 1 and Sections 3a through 3f of Article IV of the Amended and Restated Bylaws of Oakley, Inc.
10.1 (2) Agreement, dated July 17, 1995, between Oakley, Inc. and Michael Jordan
10.2 (3) Indemnification Agreement, dated August 1, 1995, between Oakley, Inc. and Jim Jannard
10.3 (1) Schedule of indemnification agreements between Oakley, Inc. and each of its directors and executive officers
10.4 (3) Aircraft Lease Agreement, dated August 10, 1995, between Oakley, Inc. and X, Inc.
10.5 (5) Reciprocal Exclusive Dealing Agreement dated March 11, 1997 among Oakley, Inc., Gentex Optics, Inc. and Essilor International Compagnie Generale D'Optique, S.A. (portions of this document have been omitted pursuant to a request for confidential treatment)
10.6 (5) Promissory Note, dated March 20, 1997, between Oakley, Inc. and Bank of America National Trust and Savings Association
10.7 (6) Promissory Note, dated August 7, 1997, between Oakley, Inc. and Bank of America National Trust and Savings Association
10.8 (6) Amendment No. 1 to Promissory Note, dated August 14, 1997, between Oakley, Inc. and Bank of America National Trust and Savings Association
10.9 (6) Amendment No. 2 to Promissory Note, dated August 14, 1997, between Oakley, Inc. and Bank of America National Trust and Savings Association
10.10 (6) Deed of Trust with Assignment of Rents, Security Agreement and Fixture Filing, dated August 7, 1997, between Oakley, Inc. and Bank of America National Trust and Savings Association
10.11 (7) Indemnification Agreement, dated October 6, 1997 between Oakley, Inc. and Thomas A. George
10.12 (8) Amended and Restated Consultant Agreement, dated May 12, 1998, between Jim Jannard and Oakley, Inc.
10.13 (9) Second Amended and Restated Credit Agreement, dated August 25, 1998, among Oakley, Inc. and Bank of America National Trust and Savings Association, as agent, and the Lenders named therein
10.14 (9) Modification Agreement (Short Form), dated August 10, 1998, between Oakley, Inc. and Bank of America National Trust and Savings Association
10.15 (9) Modification Agreement (Long Form), dated August 10, 1998, between Oakley, Inc. and Bank of America National Trust and Savings Association
10.16 (11) Amended and Restated Employment Agreement, dated May 1, 1999, between Link Newcomb and Oakley, Inc.
10.17 (11) Oakley, Inc. Amended and Restated 1995 Stock Incentive Plan
10.18 (11) Oakley, Inc. Amended and Restated Executive Officers Performance Bonus Plan
10.19 (12) Amendment No. 1 to Amended and Restated Employment Agreement, dated December 31, 1999, between Link Newcomb and Oakley, Inc.
10.20 (12) Second Amended and Restated Employment Agreement, dated January 1, 2000, between Thomas George and Oakley, Inc.
10.21 (13) First Amendment to Second Amended and Restated Credit Agreement, dated as of March 6, 2000, among Oakley, Inc. and Bank of America National Trust and Savings Association, as agent, and the Lenders named therein
10.22 (14) Employment Agreement, dated October 1, 2000, between Tomas Rios and Oakley, Inc.
10.23 (15) Second Amendment to Second Amended and Restated Credit Agreement, dated October 16, 2000, among Oakley, Inc. and Bank of America National Trust and Savings Association, as agent, and the Lenders named therein
10.24 (15) Third Amendment to Second Amended and Restated Credit Agreement, dated January 18, 2001, among Oakley, Inc. and Bank of America National Trust and Savings Association, as agent, and the Lenders named therein
10.25 (15) Lease Agreement, dated November 10, 2000, between Haven Gateway LLC and Oakley, Inc.
10.26 (15) Trademark License Agreement and Assignment of Rights, dated March 31, 2000, between Y, LLC and Oakley, Inc.
21.1 (16) List of Material Subsidiaries
23.1 (16) Consent of Deloitte & Touche LLP, independent auditors
(1)Previously filed with the Registration Statement on Form S-1 of Oakley, Inc. (Registration No. 33-93080)
(2)Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September 30, 1995.
(3)Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31, 1995.
(4)Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31, 1996.
(5)Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended March 31, 1997.
(6)Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September 30, 1997.
(7)Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31, 1997.
(8)Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30, 1998.
(9)Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September 30, 1998.
(10)Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31, 1998.
(11)Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30, 1999.
(12)Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31, 1999.
(13)Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended March 30, 2000.
(14)Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September 30, 2000.
(15)Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31, 2000.
(16)Filed herewith.
(b)Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended December 31, 2001.
(c)See (a) (3) above for a listing of the exhibits included as a part of this report.
Index To Consolidated Financial Statements
Independent Auditors' Report
To the Board of Directors and Shareholders of Oakley, Inc.:
We have audited the accompanying consolidated balance sheets of Oakley, Inc. and subsidiaries (the "Company") as of December 31, 2001 and 2000, and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 Oakley, Inc. and subsidiaries as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such 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.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
February 8, 2002
OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
See accompanying Notes to Consolidated Financial Statements
OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
See accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
See accompanying Notes to Consolidated Financial Statements
OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
See accompanying Notes to Consolidated Financial Statements
OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
See accompanying Notes to Consolidated Financial Statements
OAKLEY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2001, 2000 and 1999
Note 1-Significant Accounting Policies and Description of Business
Description of Business-The Company is an innovation-driven designer, manufacturer and distributor of consumer products that include high-performance eyewear, footwear, watches, apparel and accessories. The Company believes its principal strength is its ability to develop products that demonstrate superior performance and aesthetics through proprietary technology and styling. Its designs and innovations are protected by approximately 600 legal patents and 800 trademarks worldwide.
Basis of Presentation-The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Principles of Consolidation-The consolidated financial statements include the accounts of Oakley, Inc. (a Washington corporation, which succeeded to all the assets and liabilities of Oakley, Inc., a California corporation) and its subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents-For purposes of the consolidated financial statements, investments purchased with an original maturity of three months or less are considered cash equivalents.
Inventories-Inventories are stated at the lower of cost (first-in, first-out method) or market.
Property and Equipment-Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are provided for using the straight-line method over the estimated useful lives (generally three to seven years for property and equipment and 39 years for buildings) of the respective assets or, as to leasehold improvements, the term of the related lease if less than the estimated service life.
Intangible Assets-The excess of cost over fair market value of net identifiable assets of acquired companies and other intangible assets of $24,491,000 (2001) and $18,105,000 (2000) included in other assets in the accompanying balance sheet is amortized on a straight-line basis over periods ranging from ten to fifteen years. The carrying value of intangible assets is periodically reviewed by the Company based on the estimated future operating income of each acquired entity on an undiscounted cash flow basis. Based upon its most recent analysis, the Company believes that no impairment of intangible assets existed at December 31, 2001.
Long-Lived Assets-The Company accounts for the impairment and disposition of long-lived assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance with SFAS No. 121, long-lived assets to be held are reviewed for events or changes in circumstances which indicate that their carrying value may not be recoverable. As of December 31, 2001, no impairment has been indicated.
Revenue Recognition-Revenue is recognized when merchandise is shipped to a customer. Generally, the Company extends credit to its customers and does not require collateral. The Company performs ongoing credit evaluations of its customers and historic credit losses have been within management's expectations. In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." The Company's management has determined that the application of SAB 101 did not have a material impact on the Company's consolidated financial statements.
Financial Instruments-The carrying amounts of financial instruments, consisting of cash and cash equivalents, trade accounts receivable and accounts payable, approximate fair value due to the short period of time between origination of the instruments and their expected realization. Management also believes the carrying amount of balances outstanding under the credit agreements approximates fair value as the underlying interest rates reflect market rates.
Income Taxes-The Company accounts for income taxes under the provisions of SFAS No. 109, "Accounting for Income Taxes." Deferred taxes are provided for temporary differences between basis of assets and liabilities for financial statement and tax reporting purposes (Note 5).
Foreign Currency Translation-The Company's primary functional currency is the U.S. dollar, while the functional currency of each of the Company's subsidiaries is the local currency of the subsidiary. Assets and liabilities of the Company denominated in foreign currencies are translated at the rate of exchange on the balance sheet date. Revenues and expenses are translated using the average exchange rate for the period. Gains and losses from translation of foreign subsidiary financial statements are included in accumulated other comprehensive income. Gains and losses on short-term intercompany foreign currency transactions are recognized as incurred (Note 8).
Comprehensive Income-The Company has adopted SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income represents the results of operations adjusted to reflect all items recognized under accounting standards as components of comprehensive earnings. All periods have been restated to conform to SFAS No. 130.
Stock-Based Compensation-The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," under which no compensation expense is recognized for stock option awards granted at fair market value. Stock-based awards to non-employees are accounted for using the fair value method in accordance with the Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation."
Earnings Per Share-Basic earnings per share is computed using the weighted average number of common shares outstanding during the reporting period. Earnings per share assuming dilution is computed using the weighted average number of common shares outstanding and the dilutive effect of potential common shares outstanding. For the years ended December 31, 2001, 2000 and 1999, the diluted weighted average common shares outstanding includes 895,000, 668,000 and 2,000, respectively, of dilutive stock options.
Derivative Instruments and Hedging Activities-The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," on January 1, 1999. The adoption of SFAS No. 133 resulted in a transition adjustment recorded by the Company as a cumulative-effect type adjustment of $103,000 in 1999 as a charge to accumulated other comprehensive income to recognize the fair value of all derivatives that are designated as cash-flow hedges. (Note 8)
New Accounting Pronouncements-In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 141 (SFAS No. 141), "Business Combinations." SFAS No. 141 eliminates the pooling method of accounting for business combinations initiated after June 30, 2001. In addition, SFAS No. 141 addresses the accounting for intangible assets and goodwill acquired in a business combination. This portion of SFAS No. 141 is effective for business combinations completed after June 30, 2001. The Company does not expect SFAS No. 141 to have a material effect on the Company's financial position or results of operations.
In June 2001, the FASB issued Statement No. 142 (SFAS No. 142), "Goodwill and Intangible Assets," which revised the accounting for purchased goodwill and intangible assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives will no longer be amortized, but will be tested for impairment annually and also in the event of an impairment indicator. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 142 as of January 1, 2002 and has begun to test goodwill for impairment under the new rules, applying a fair-value-based test. The Company expects that adoption of SFAS No. 142 will increase annual operating income through a reduction of amortization expense by approximately $1.2 million on an annual basis, based on recorded goodwill at December 31, 2001.
In August 2001, the FASB issued Statement No. 144 (SFAS No. 144), "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes previous guidance on financial accounting and reporting for the impairment or disposal of long-lived assets and for segments of a business to be disposed of. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company does not expect the adoption of SFAS No. 144 to have a significant impact on the Company's financial position or results of operations. However, future impairment reviews may result in charges against earnings to write down the value of long-lived assets.
Reclassifications-Certain reclassifications have been made to prior period financial statements to conform to the presentation for the financial statements for the period ended December 31, 2001.
Certain Significant Risks and Uncertainties
General Business-The Company's historical success is attributable, in part, to its introduction of products which are perceived to represent an improvement in performance over products available in the market. The Company's future success will depend, in part, upon its continued ability to develop and introduce such innovative products, and there can be no assurance of the Company's ability to do so. The consumer products industry, including the eyewear, apparel, footwear and watch categories, is fragmented and highly competitive. In order to retain its market share, the Company must continue to be competitive in the areas of quality, technology, method of distribution, style, brand image, intellectual property protection and customer service. These industries are subject to changing consumer preferences; shifts in consumer preferences may adversely affect companies that misjudge such preferences.
In addition, the Company has experienced significant growth under several measurements which has placed, and could continue to place, a significant strain on its employees and operations. If management is unable to anticipate or manage growth effectively, the Company's operating results could be materially adversely affected.
Use of Estimates-The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the balance sheet dates and the reported amounts of revenue and expense during the reporting periods. Actual results could significantly differ from such estimates.
Vulnerability Due to Supplier Concentrations-The Company uses a single source for the supply of several components, including the uncoated lens blanks from which substantially all of its sunglass lenses are cut. In the event of the loss of the source for lens blanks, the Company has identified an alternate source which may be available. The effect of the loss of any of these sources or a disruption in their business will depend primarily upon the length of time necessary to find a suitable alternative source and could have a material adverse effect on the Company's results of operations.
Vulnerability Due to Customer Concentrations-Net sales to a sunglass and watch specialty retail chain ("Sunglass Hut") accounted for approximately 12.0%, 21.0% and 23.0% of net sales for the years ended December 31, 2001, 2000 and 1999, respectively. There can be no assurances as to the future of the relationship between the Company and this retail chain. In April 2001, Luxottica, one of the Company's largest competitors, acquired Sunglass Hut and implemented changes which adversely affected the Company's net sales to Sunglass Hut in 2001. In December 2001, the Company and
Luxottica entered into a new three-year commercial agreement for the distribution of Oakley products through Sunglass Hut retail stores. The agreement applies to Sunglass Hut locations in the United States, Canada, the United Kingdom and Ireland, and marked the resumption of the business relationship between the two companies, which had been substantially reduced since August 2, 2001. Oakley and Luxottica also have resumed their business together on mutually agreed terms for the markets not specifically covered by this new agreement. The arrangements between the companies do not obligate Luxottica to order product from the Company, and there can be no assurances as to the future of the relationship between the Company and Luxottica.
Note 2-Acquisitions
On October 31, 2001, the Company acquired one of its largest U.S. customers, Iacon, Inc., a sunglass specialty retailer. On November 1, 1999, the Company acquired its exclusive Australian distributor. These acquisitions have been recorded using the purchase method of accounting and the results of operations from the date of acquisition have been included in the Company's consolidated financial statements. The purchase prices for these acquisitions were allocated on the respective dates of acquisition as follows:
The excess of the purchase prices over the fair values of the net assets acquired have been allocated to intangible assets, including goodwill, as referenced above, and are included in the caption "Other assets" in the accompanying consolidated balance sheets. Had the acquisitions occurred at the beginning of the fiscal year in which each acquisition was completed, or the beginning of the immediately preceding year, combined pro forma net sales, net income and net income per common share would not have been materially different from that currently being reported.
Note 3-Inventories
Inventories at December 31, consist of the following:
Note 4-Property and Equipment
Property and equipment at December 31, consist of the following:
Note 5-Income Taxes
The provision for income taxes for the years ended December 31, consists of the following:
A reconciliation of income tax expense computed at U.S. Federal statutory rates to income tax expense for the years ended December 31, is as follows:
Deferred and prepaid income taxes consist of prepaid taxes of $267,000 at December 31, 2001 and $15,388,000 at December 31, 2000 and reflect the net tax effect 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 Company's deferred tax assets and liabilities at December 31, are as follows:
Note 6-Debt
Line of Credit-In January 2001, the Company amended its unsecured line of credit with a bank syndicate which allows for borrowings up to $75 million and matures in August 2004. The amended line of credit bears interest at either LIBOR or IBOR plus 0.75% (2.9% at December 31, 2001) or the bank's prime lending rate minus 0.25% (4.25% at December 31, 2001). At December 31, 2001 and 2000, the Company had $30.6 million and $15.0 million, respectively, outstanding under the credit agreement. The credit agreement contains various restrictive covenants including the maintenance of certain financial ratios. At December 31, 2001, the Company was in compliance with all restrictive covenants and financial ratios. Certain of the Company's foreign subsidiaries have negotiated local lines of credit to provide working capital financing. The aggregate borrowing limit on the foreign lines of credit is $17.2 million of which $9.9 million was outstanding at December 31, 2001. In aggregate, at December 31, 2001, $40.5 million was outstanding under these credit facilities.
Long-Term Debt-The Company has a real estate term loan with an outstanding balance of $16.3 million at December 31, 2001, which expires in September 2007. The term loan, which is collateralized by the Company's corporate headquarters, requires quarterly principal payments of approximately $380,000 ($1,519,000 annually), plus interest based upon LIBOR plus 1.00% (3.08% at December 31, 2001). In January 1999, the Company entered into an interest rate swap agreement that eliminates the Company's risk of fluctuations in the variable rate of its long-term debt by fixing the interest rate over the term of the note at 6.31%.
The following schedule lists the Company's minimum annual principal payments on its long-term debt:
Additionally, the Company has a note payable as a result of an acquisition in the amount of $2.2 million, net of discounts. The note is due in annual installments of $500,000 per year commencing in 2002 through 2006, with a portion of such payments contingent upon certain conditions.
Note 7-Commitments and Contingencies
Leases-The Company is committed under noncancelable operating leases expiring at various dates through 2009 for certain offices, warehouse facilities, retail stores, production facilities and distribution centers.
Minimum future annual rentals under these leases are as follows:
Rent expense for the years ended December 31, is summarized as follows:
Additionally, during the years ended December 31, 2001 and 2000, the Company paid an officer and shareholder of the Company approximately $135,000 and $170,000, respectively, for the placement of the Company's trademarks on, and related marketing activities in connection with, an automobile owned by the officer and shareholder, competing on the National Hot Rod Association drag racing circuit.
Purchase Commitments-The Company has an exclusive dealing agreement, which renews annually, with its lens blank supplier and the supplier's French parent, pursuant to which the Company received the exclusive right to purchase decentered sunglass lenses, in return for the Company's agreement to fulfill all of its lens requirements, subject to certain exceptions, from such supplier.
Employment and Consulting Agreements-The Company has entered into employment and consulting agreements with certain officers of the Company which have terms of two to three years. The agreements require minimum aggregate compensation to the respective officers. Additionally, the officers participate in a performance bonus plan, and the employment agreements establish minimum bonus targets for such officers.
Endorsement Contracts-The Company has entered into several endorsement contracts with selected athletes and others who endorse the Company's products. The contracts are primarily of short duration. Under the contracts, the Company has agreed to pay certain incentives based on performance and is required to pay minimum annual payments as follows:
Included in such amounts is an annual retainer of $0.5 million through 2005 for a director of the Company.
Litigation-The Company is currently involved in litigation incidental to the Company's business. In the opinion of management, the ultimate resolution of such litigation, in the aggregate, will not likely have a material adverse effect on the accompanying consolidated financial statements.
Note 8-Derivative Financial Instruments
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," on January 1, 1999. The adoption of SFAS No. 133 resulted in a transition adjustment recorded by the Company as a cumulative-effect type adjustment of a $103,000 charge in 1999 to accumulated other comprehensive income to recognize the fair value of all derivatives that are designated as cash-flow hedges.
The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions of its international subsidiaries as well as fluctuations in its variable rate debt. As part of its overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company and its subsidiaries use foreign exchange contracts in the form of forward contracts. In addition, as part of its overall strategy to manage the level of exposure to the risk of fluctuations in interest rates, in January 1999, the Company entered into an interest rate swap agreement that results in fixing the interest rate over the term of the Company's ten-year real estate term loan. At December 31, 2001, all of the Company's derivatives were designated and qualified as cash flow hedges. For all qualifying and highly effective cash flow hedges, the changes in the fair value of the derivative are recorded in other comprehensive income. The Company is currently hedging forecasted foreign currency transactions that could result in reclassifications of $1.7 million of gains to earnings over the next twelve months. The Company hedges forecasted transactions that are determined probable to occur within eighteen months or less.
On the date the Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure. The Company does not enter into derivative instruments that do not qualify as cash flow hedges as described in SFAS No. 133. The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions. In this documentation, the Company specifically identifies the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and states how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. The Company would discontinue hedge accounting prospectively (i) if it is determined that the derivative is no longer effective in offsetting change in the cash flows of a hedged item, (ii) when the derivative expires or is sold, terminated, or exercised, (iii) when the derivative is designated as a hedge instrument, because it is probable that the forecasted transaction will not occur, (iv) because a hedged firm commitment no longer meets the definition of a firm commitment, or (v) if management determines that designation of the derivative as a hedge instrument is no longer appropriate. During the twelve months ended December 31, 2001, the Company reclassified into earnings net gains of $2.4 million resulting from the expiration, sale, termination, or exercise of foreign currency exchange contracts.
The following is a summary of the foreign currency contracts outstanding by currency at December 31, 2001:
The Company is exposed to credit losses in the event of nonperformance by counterparties to its forward exchange contracts but has no off-balance sheet credit risk of accounting loss. The Company anticipates, however, that the counterparties will be able to fully satisfy their obligations under the contracts. The Company does not obtain collateral or other security to support the forward exchange contracts subject to credit risk but monitors the credit standing of the counterparties. As of December 31, 2001, outstanding contracts were recorded at fair market value and the resulting gains and losses were recorded in the consolidated financial statements pursuant to the policy set forth above.
Note 9-Shareholders' Equity
Stock Repurchase-In December 1999, the Company's Board of Directors authorized a repurchase by the Company of up to $20 million of the Company's common stock. The Company completed this repurchase program during the second quarter of 2000 resulting in aggregate repurchases of approximately 2,274,000 shares of its common stock at a cost of approximately $20.0 million, or an average cost of $8.79 per share. In December 2000, the Company's Board of Directors authorized another $20 million stock repurchase program to occur from time to time as market conditions warrant. Under this program, as of December 31, 2001 the Company had purchased approximately 1,128,000 shares of its common stock at an aggregate cost of approximately $16.2 million, or an average cost of $14.32 per share.
Stock Incentive Plan-The Company's Amended and Restated 1995 Stock Incentive Plan (the "Plan") provides for stock-based incentive awards, including incentive stock options, nonqualified stock options, restricted stock, performance shares, stock appreciation rights and deferred stock to Company officers, employees, advisors and consultants. These shares are granted at an exercise price equal to the fair market value of the Company's stock on the time of grant. Options vest over periods ranging from one to four years and expire ten years after the grant date. A total of 6,712,000 shares have been reserved for issuance under the Plan. At December 31, 2001, stock options for 1,704,894 shares were exercisable and 1,637,284 shares were available for issuance pursuant to new stock option grants.
The following table summarizes information with respect to the Plan for the years ended December 31, 2001, 2000 and 1999:
Additional information regarding options outstanding as of December 31, 2001 is as follows:
During the years ended December 31, 2001, 2000 and 1999, the Company recorded stock compensation expense of $98,000, $141,000 and $238,000, respectively, associated with the fair value of stock options issued to non-employees.
The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," under which no compensation expense is recognized in the financial statements for stock option awards granted at fair market value. SFAS No. 123, "Accounting for Stock-Based Compensation," requires the disclosure of pro forma net income and earnings per share had the Company adopted the fair value method in accounting for stock-based awards as of the beginning of fiscal 1995. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option-pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values.
The Company's calculations were made using the Black-Scholes option-pricing model with the following weighted average assumptions:
If the computed fair value of the 2001, 2000 and 1999 awards had been amortized to expense over the vesting period of the awards, net income would have been as follows:
Note 10-Net Sales
The Company's net sales to U.S. and international customers for the years ended December 31, are summarized as follows:
Note 11-Segment and Geographic Information
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company's chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company operates exclusively in the consumer products industry in which the Company designs, manufactures and sells performance and prescription eyewear, athletic equipment, apparel, footwear and watches. For segment reporting purposes, these product groups have been aggregated because of their common characteristics and their reliance on shared operating functions.
Although the Company operates in one industry segment, it derives revenues from different product lines within the segment. Revenues as a percentage of gross sales from external customers for each product line for the years ended December 31, are as follows:
Other consumer products consist of prescription eyewear, goggles, footwear, apparel, watches, accessories and Iacon sales of sunglasses other than the Company's.
Consumer product information related to domestic and foreign operations is as follows:
Operating income and net income for the Company's foreign operations reflects Oakley product sales to its subsidiaries at transfer price and other corporate charges.
Note 12-Restructure Charge
In October 1999, the Company's Board of Directors approved strategic initiatives (the "Restructuring Plan") to restructure and refocus the Company's footwear business. Under the Restructuring Plan, the Company substantially reduced its in-house footwear manufacturing operations and partnered with select third-party manufacturers to assist in the development and manufacture of the Company's complete footwear product line. Additionally, the Company has increased its emphasis on direct-sales channels to augment sales throughout traditional retail accounts and to broaden accessibility of the Company's products to its customers.
Related to this Restructuring Plan, the Company recorded a charge of $12.6 million ($8.2 million, or $0.12 per share, on an after-tax basis) during the fourth quarter of the fiscal year ended December 31, 1999. This charge was included in cost of goods sold and is comprised of the following components:
The $12.6 million charge included reserves related to inventory and sales returns, aggregating $6.5 million, which the Company fully utilized upon the completion of the Restructuring Plan in October 2000 with no revisions to the charge recorded.
Note 13-Quarterly Financial Data (unaudited)
(1)Cost of goods sold includes a $12.6 million charge recorded in 1999 in connection with the restructuring of the Company's footwear, see Note 12 in Notes to Consolidated Financial Statements.
OAKLEY, INC. AND SUBSIDIARIES
Schedule II-Valuation and Qualifying Accounts
For The Years Ended December 31, 2001, 2000 and 1999
(1)Includes inventory reserves related to the $12.6 million restructuring charge recorded in 1999 in connection with the restructuring of the Company's footwear operations. Such reserves were fully utilized in 2000 as shown above.
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.
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
Title
Date
/s/ JIM JANNARD Jim Jannard
Chairman of the Board and CEO
(Principal Executive Officer)
March 28, 2002
/s/ LINK NEWCOMB Link Newcomb
Chief Operating Officer and Director
March 28, 2002
/s/ THOMAS GEORGE Thomas George
Chief Financial Officer
(Principal Accounting Officer)
March 28, 2002
/s/ ABBOTT BROWN Abbott Brown
Director
March 28, 2002
/s/ MICHAEL JORDAN Michael Jordan
Director
March 28, 2002
/s/ IRENE MILLER Irene Miller
Director
March 28, 2002
/s/ ORIN SMITH Orin Smith
Director
March 28, 2002
Oakley, Inc. TABLE OF CONTENTS
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
OAKLEY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands)
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Index To Consolidated Financial Statements
OAKLEY, INC. AND SUBSIDIARIES Schedule II-Valuation and Qualifying Accounts For The Years Ended December 31, 2001, 2000 and 1999
Signatures