##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-K/A
 Amendment No. 1
 
 FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 þ ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004
Commission File Number: 1-13848
 
 Oakley, Inc.
  Washington
    
    95-3194947(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer ID No.)One IconFoothill Ranch, California
    
    92610(Address of principal executive offices)
    
    (ZIP Code)
 Registrants telephone number, including area code (949) 951-0991
Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $0.01 per share
    
    New York Stock Exchange
 Securities registered pursuant to section 12(g) of the Act: None
 o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  ̈ þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### Table of Contents



EXPLANATORY NOTE
 Accounting for Derivative Instruments and Hedging
Activities
   2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Net income, as reported
    
    $
    41,550
    
    
    $
    38,196
    
    
    $
    40,637
    
    
    $
    50,371
    
    
    $
    51,052Adjustment
    
    
    1,965
    
    
    
    (5,247
    )
    
    
    (3,545
    )
    
    
    2,708
    
    
    
    (1,188
    )Net income, as restated
    
    $
    43,515
    
    
    $
    32,949
    
    
    $
    37,092
    
    
    $
    53,079
    
    
    $
    49,864% change from
previously reported net
income
    
    
    4.7
    %
    
    
    (13.7
    %)
    
    
    (8.7
    %)
    
    
    5.4
    %
    
    
    (2.3
    %)Earnings per shareBasic, as reported
    
    $
    0.61
    
    
    $
    0.56
    
    
    $
    0.59
    
    
    $
    0.73
    
    
    $
    0.74Adjustment
    
    
    0.03
    
    
    
    (0.08
    )
    
    
    (0.05
    )
    
    
    0.04
    
    
    
    (0.02
    )Basic, as restated
    
    $
    0.64
    
    
    $
    0.48
    
    
    $
    0.54
    
    
    $
    0.77
    
    
    $
    0.72Diluted, as reported
    
    $
    0.60
    
    
    $
    0.56
    
    
    $
    0.59
    
    
    $
    0.72
    
    
    $
    0.73Adjustment
    
    
    0.03
    
    
    
    (0.08
    )
    
    
    (0.05
    )
    
    
    0.04
    
    
    
    (0.01
    )Diluted, as restated
    
    $
    0.63
    
    
    $
    0.48
    
    
    $
    0.53
    
    
    $
    0.76
    
    
    $
    0.72




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Part IIItem 6 - Selected Financial DataItem 7 - Managements Discussion and Analysis of Financial Condition and
Results of OperationsItem 7A  Quantitative and Qualitative Disclosures About Market RiskItem 9A  Controls and ProceduresPart IVItem 15 - Exhibits and Financial Statement Schedules
 Notes to Consolidated Financial Statements




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##### 



Oakley, Inc.  TABLE OF CONTENTS
 PART IItem 1.
    
    Business
    
    
    1Item 2.
    
    Properties
    
    
    14Item 3.
    
    Legal Proceedings
    
    
    14Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    14PART IIItem 5.
    
    Market for Registrants Common Equity and Related Shareholder Matters
    
    
    15Item 6.
    
    Selected Financial Data
    
    
    16Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 7a.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    40Item 8.
    
    Financial Statements and Supplementary Data
    
    
    41Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    41Item 9a.
    
    Controls and Procedures
    
    
    41PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    45Item 11.
    
    Executive Compensation
    
    
    45Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    45Item 13.
    
    Certain Relationships and Related Transactions
    
    
    45Item 14.
    
    Principal Accountant Fees and Services
    
    
    45PART IVItem 15.
    
    Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    46EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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Part I
 
 Business
 General
  Forward-Looking Statements
 When used in this document, the words believes, anticipates, expects, estimates,
intends, may, plans, predicts, will or the negative thereof and similar expressions are
intended to identify, in certain circumstances, forward-looking statements. Oakley Thump ;
 1




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Product Design and Development
    2




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Eyewear Technology and Products
  XYZ Optics ®
 POLARIC
ELLIPSOID  (M Frame ® , Pro M Frame ® Zeros ®
 Plutonite ® Iridium ® Plutonite ® Iridium ® Iridium ®
 Plutonite ® Plutonite ® XYZ Optics ®
 Wire ® C-5  O Matter ® X Metal ® X Metal ®
 O
Matter ® Wire ® Magnesium  X-Metal ®
 3




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##### Table of Contents



Prescription Eyewear Technology and Products
 C-5 X Metal ® , O Metal O Matter ® . Plutonite ® M Frame ® Plutonite ®
 Iridium ®
 Apparel Technology and Products
    4




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##### Table of Contents



Footwear Technology and Products
 Net Shape 
 Split Smoke ® Overdrive  Oakley Race Boot .
  Electronic Technology and Products
 Oakley Thump  Oakley Thump  Oakley Thump  ®
 Oakley Thump  ®
 ® ®
 Oakley Thump 
 5




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Timepiece Technology and Products
  Blade  Judge  GMT Detonator ®
 GMT Judge 
 Goggle Technology and Products
 ® MX O Frame ® A Frame Ò Wisdom  A Frame ®
 Wisdom 
 Face Shields and Hockey Gloves
  6




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##### Table of Contents



Product Line and Brand Extension
   Manufacturing
  Iridium ® X-Metal ®
   7




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Distribution
 Oakley
Thump  ®
  8




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Notes to Consolidated Financial Statements
  Oakley Premium Dealer
  Advertising and Promotion
    9




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O Store ® ,
  Retail Operations
 O
Store ® Oakley Vaults ®
 Sunglass Designs Sporting Eyes, Occhiali da Sole, Sunglass Club Oakley Icon
 O Store ® O Store ® Vaults ® Vault ® Vault ® O Store ® Vaults ® :
 10




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Internet Strategy and Systems
  www.oakley.com) Oakley Premium Dealers
   Principal Customers
   11




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Intellectual Property
   Number of Utility/Design Patents
    
    Number of TrademarksIssued
    
    Pending
    
    Issued
    
    PendingUnited States
    
    
    168
    
    
    
    33
    
    
    
    149
    
    
    
    44International
    
    
    356
    
    
    
    89
    
    
    
    910
    
    
    
    143
  ®
  12




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Competition
      Domestic and Foreign Operations
 Notes to the Consolidated Financial Statements
 Employees
   13




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Item 2. Properties
 X Metal ®
  
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  14




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Part II
 
 Item 5. Market for Registrants Common Equity and Related Shareholder Matters
  High
    
    
    Low2004First Quarter
    
    $
    15.91
    
    
    $
    13.24Second Quarter
    
    $
    16.18
    
    
    $
    12.45Third Quarter
    
    $
    13.00
    
    
    $
    9.85Fourth Quarter
    
    $
    13.85
    
    
    $
    11.362003First Quarter
    
    $
    10.62
    
    
    $
    7.37Second Quarter
    
    $
    12.13
    
    
    $
    7.81Third Quarter
    
    $
    12.28
    
    
    $
    10.00Fourth Quarter
    
    $
    14.10
    
    
    $
    10.11
  Dividend Policy
  Securities Authorized for Issuance Under Equity Compensation Plans
  (c)Number of securities(a)
    
    
    
    
    
    remaining available forNumber of securities
    
    (b)
    
    future issuance underto be issued upon
    
    Weighted-average
    
    equity compensationexercise of
    
    exercise price of
    
    plans (excludingoutstanding options,
    
    outstanding options,
    
    securities reflected inPlan Category
    
    warrants and rights
    
    warrants and rights
    
    column (a))Equity
compensation plans
approved by
security holders
    
    
    4,339,963
    
    
    $
    12.52
    
    
    
    1,919,693Equity compensation
plans not approved
by security holders
    
    Not applicable
    
    Not applicable
    
    Not applicable
  15




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Item 6. Selected Financial Data
 Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements
 Year Ended December 31 (As Restated),2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(dollars in thousands, except share and per share data)Income Statement Data:Net sales (1)
    
    $
    585,468
    
    
    $
    528,034
    
    
    $
    496,091
    
    
    $
    429,267
    
    
    $
    363,474Cost of goods sold (1)
    
    
    262,483
    
    
    
    245,578
    
    
    
    228,299
    
    
    
    170,531
    
    
    
    140,235Gross profit (1)
    
    
    322,985
    
    
    
    282,456
    
    
    
    267,792
    
    
    
    258,736
    
    
    
    223,239Operating expenses:Research and development
    
    
    15,962
    
    
    
    14,308
    
    
    
    16,016
    
    
    
    11,318
    
    
    
    7,894Selling
    
    
    159,366
    
    
    
    142,365
    
    
    
    126,995
    
    
    
    108,948
    
    
    
    90,291Shipping and warehousing (1)
    
    
    17,087
    
    
    
    14,620
    
    
    
    13,739
    
    
    
    16,997
    
    
    
    10,005General and administrative
    
    
    65,228
    
    
    
    59,201
    
    
    
    52,335
    
    
    
    43,606
    
    
    
    35,612Total operating expenses (1)
    
    
    257,643
    
    
    
    230,494
    
    
    
    209,085
    
    
    
    180,869
    
    
    
    143,802Operating income
    
    
    65,342
    
    
    
    51,962
    
    
    
    58,707
    
    
    
    77,867
    
    
    
    79,437Interest expense, net
    
    
    1,037
    
    
    
    1,272
    
    
    
    1,643
    
    
    
    3,108
    
    
    
    2,723Income before provision for
income taxes
    
    
    64,305
    
    
    
    50,690
    
    
    
    57,064
    
    
    
    74,759
    
    
    
    76,714Provision for income taxes
    
    
    20,790
    
    
    
    17,741
    
    
    
    19,972
    
    
    
    21,680
    
    
    
    26,850Net income
    
    $
    43,515
    
    
    $
    32,949
    
    
    $
    37,092
    
    
    $
    53,079
    
    
    $
    49,864Basic net income per share
    
    $
    0.64
    
    
    $
    0.48
    
    
    $
    0.54
    
    
    $
    0.77
    
    
    $
    0.72Basic weighted average common
shares
    
    
    67,953,000
    
    
    
    68,006,000
    
    
    
    68,732,000
    
    
    
    68,856,000
    
    
    
    69,041,000Diluted net income per share
    
    $
    0.63
    
    
    $
    0.48
    
    
    $
    0.53
    
    
    $
    0.76
    
    
    $
    0.72Diluted weighted average
common shares
    
    
    68,610,000
    
    
    
    68,282,000
    
    
    
    69,333,000
    
    
    
    69,751,000
    
    
    
    69,709,000Dividends per share
    
    $
    0.15
    
    
    $
    0.14
    
    
    $
    
    
    
    $
    
    
    
    $
    
 At December 31 (As Restated),2004
    
    2003
    
    2002
    
    2001
    
    2000Balance Sheet Data:Working capital
    
    $
    199,475
    
    
    $
    160,207
    
    
    $
    130,152
    
    
    $
    105,553
    
    
    $
    84,504Total assets
    
    
    483,108
    
    
    
    439,765
    
    
    
    385,081
    
    
    
    362,009
    
    
    
    303,314Total debt
    
    
    30,248
    
    
    
    28,700
    
    
    
    30,757
    
    
    
    59,042
    
    
    
    35,746Shareholders equity
    
    
    365,398
    
    
    
    326,573
    
    
    
    294,676
    
    
    
    261,503
    
    
    
    208,812
 
 (1)
    
    The years ended December 31, 2004, 2003 and 2002 reflect the reclassification of certain
shipping and handling fees from operating expenses to net sales and cost of sales. See Note 1
 Reclassifications. No reclassifications have been made to such items for the years ended
December 31, 2001 and 2000. 16




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  The Companys net sales, cost of goods sold, shipping and warehousing expenses, and any ratio
calculated therefrom, as used throughout this Annual Report for the years ended December 31, 2004,
2003 and 2002, reflect the reclassification to net sales and cost of sales from shipping and
warehousing expenses of certain shipping and handling fees charged to customers and related freight
costs incurred. See Note 16  Restatement.
 Overview
   Restatement
 Notes to the Consolidated Financial Statements
 17




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Consolidated Statements of Income (in thousands, except share data):
 Years Ended December 31,
    
    2004
    
    2003
    
    2002As
    
    As Previously
    
    As
    
    As Previously
    
    As
    
    As PreviouslyRestated
    
    Reported
    
    Restated
    
    Reported
    
    Restated
    
    ReportedCost of goods sold
    
    $
    262,483
    
    
    $
    265,104
    
    
    $
    245,578
    
    
    $
    237,788
    
    
    $
    228,299
    
    
    $
    222,845Gross profit
    
    
    322,985
    
    
    
    320,364
    
    
    
    282,456
    
    
    
    290,246
    
    
    
    267,792
    
    
    
    273,246Operating income
    
    
    65,342
    
    
    
    62,438
    
    
    
    51,962
    
    
    
    60,035
    
    
    
    58,707
    
    
    
    64,161Income before provision for income taxes
    
    
    64,305
    
    
    
    61,401
    
    
    
    50,690
    
    
    
    58,763
    
    
    
    57,064
    
    
    
    62,518Income taxes
    
    
    20,790
    
    
    
    19,851
    
    
    
    17,741
    
    
    
    20,567
    
    
    
    19,972
    
    
    
    21,881Net income
    
    
    43,515
    
    
    
    41,550
    
    
    
    32,949
    
    
    
    38,196
    
    
    
    37,092
    
    
    
    40,637Basic net income per share
    
    $
    0.64
    
    
    $
    0.61
    
    
    $
    0.48
    
    
    $
    0.56
    
    
    $
    0.54
    
    
    $
    0.59Diluted net income per share
    
    $
    0.63
    
    
    $
    0.60
    
    
    $
    0.48
    
    
    $
    0.56
    
    
    $
    0.53
    
    
    $
    0.59
 Consolidated Statements of Comprehensive Income (in thousands):
 Years Ended December 31,
    
    2004
    
    2003
    
    2002As
    
    As Previously
    
    As
    
    As Previously
    
    As
    
    As PreviouslyRestated
    
    Reported
    
    Restated
    
    Reported
    
    Restated
    
    ReportedOther comprehensive income (loss):Net unrealized gain (loss) on derivative
instruments, net of tax
    
    $
    289
    
    
    $
    2,220
    
    
    $
    316
    
    
    
    ($4,088
    )
    
    
    ($612
    )
    
    
    ($4,181
    )Other comprehensive income (loss)
    
    
    6,603
    
    
    
    9,150
    
    
    
    12,434
    
    
    
    8,063
    
    
    
    1,794
    
    
    
    (1,803
    )
 18




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Critical Accounting Policies
  Revenue Recognition
  Accounts Receivable
  Inventories
  19




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Derivative Instruments
 Accounting for Certain Derivative
Instruments and Certain hedging Activities  an amendment of SFAS 133 Amendment of Statement 133 on Derivative Instruments and
Hedging Activities
 Long-Lived Assets
 Accounting for the
Impairment or Disposal of Long-Lived Assets
 Goodwill
 Goodwill and Intangible
Assets
 20




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Warranties
  Income Taxes
   Insurance Coverage
  21




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Foreign Currency Translation
  Certain Risks and Uncertainties
 Vulnerability Due to Supplier Concentrations
  Vulnerability Due to Customer Concentrations
  22




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Dependence on Key Personnel
  Competition
  Changes in Fashion Trends
  Protection of Proprietary Rights
  23




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Risks Relating to International Operations
  
    
    currency exchange rate fluctuations or restrictions;
    
    local economic and political instability;
    
    wars, civil unrest, acts of terrorism and other conflicts;
    
    natural disasters;
    
    changes in legal or regulatory requirements affecting foreign investment, loans, tariffs and taxes;
    
    less protective foreign laws relating to intellectual property; and
    
    changes in the fair value of foreign currency derivative instruments.
  Nature of Endorsement Contracts
  Control by Principal Shareholder
  24




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Possible Volatility of Stock Price
   
    
    receipt of substantial orders or order cancellations of products;
 
    
    quality deficiencies in services or products;
 
    
    international developments, such as technology mandates, political developments or changes in economic policies;
 
    
    changes in recommendations of securities analysts;
 
    
    shortfalls in the Companys revenues or earnings in any given period relative to the levels expected by securities analysts
or projected by the Company;
 
    
    government regulations, including stock option accounting and tax regulations;
 
    
    energy blackouts;
 
    
    acts of terrorism and war;
 
    
    widespread illness;
 
    
    proprietary rights or product or patent litigation;
 
    
    strategic transactions, such as acquisitions and divestitures; or
 
    
    rumors or allegations regarding the Companys financial disclosures or practices.
 
    
    currency exchange rate fluctuations or changes in the fair value of foreign currency derivative instruments.
  Impact of Potential Future Acquisitions
  25




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Compliance with Changing Regulation of Corporate Governance and Public Disclosure
  Internal Control Weaknesses
  26




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Results of Operations
  OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
 Year Ended December 31,2004
    
    
    2003
    
    
    2002Net sales (1)
    
    $
    585,468
    
    
    $
    528,034
    
    
    $
    496,091Cost of goods sold (1)
    
    
    262,483
    
    
    
    245,578
    
    
    
    228,299Gross profit (1)
    
    
    322,985
    
    
    
    282,456
    
    
    
    267,792Operating expenses:Research and development
    
    
    15,962
    
    
    
    14,308
    
    
    
    16,016Selling
    
    
    159,366
    
    
    
    142,365
    
    
    
    126,995Shipping and warehousing (1)
    
    
    17,087
    
    
    
    14,620
    
    
    
    13,739General and administrative
    
    
    65,228
    
    
    
    59,201
    
    
    
    52,335Total operating expenses (1)
    
    
    257,643
    
    
    
    230,494
    
    
    
    209,085Operating income
    
    
    65,342
    
    
    
    51,962
    
    
    
    58,707Interest expense, net
    
    
    1,037
    
    
    
    1,272
    
    
    
    1,643Income before provision
for income taxes
    
    
    64,305
    
    
    
    50,690
    
    
    
    57,064Provision for income taxes
    
    
    20,790
    
    
    
    17,741
    
    
    
    19,972Net income
    
    $
    43,515
    
    
    $
    32,949
    
    
    $
    37,092
 Year Ended December 31,2004
    
    
    2003
    
    
    2002Net Sales (1)
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold (1)
    
    
    44.8
    
    
    
    46.5
    
    
    
    46.0Gross profit (1)
    
    
    55.2
    
    
    
    53.5
    
    
    
    54.0Operating expenses:Research and development
    
    
    2.7
    
    
    
    2.7
    
    
    
    3.2Selling
    
    
    27.2
    
    
    
    27.0
    
    
    
    25.6Shipping and warehousing (1)
    
    
    2.9
    
    
    
    2.8
    
    
    
    2.8General and administrative
    
    
    11.2
    
    
    
    11.2
    
    
    
    10.6Total operating expenses (1)
    
    
    44.0
    
    
    
    43.7
    
    
    
    42.2Operating income
    
    
    11.2
    
    
    
    9.8
    
    
    
    11.8Interest expense, net
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.3Income before provision
for income taxes
    
    
    11.0
    
    
    
    9.6
    
    
    
    11.5Provision for income taxes
    
    
    3.6
    
    
    
    3.4
    
    
    
    4.0Net income
    
    
    7.4
    %
    
    
    6.2
    %
    
    
    7.5
    %
 
 (1)
    
    Reflects the reclassification of certain shipping and handling fees charged to
customers and related freight costs from operating expenses to net sales and cost of sales. 27




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Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
 Net sales
  Monster Dog  Half Wire  Dartboard  , Why 8  ,
 Oakley
Thump 
 Oakley Thump 
 28




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##### Table of Contents



Oakley Thump 
 Gross profit
  Operating expenses
   29




---



##### Table of Contents



Operating income
  Interest expense, net
  Income taxes
   30




---



##### Table of Contents



Net income
  Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
 Net sales
  Half Jacket  Half
Wire  Splice Ò Valve  , Big Square
Wire Ò , Monster Dog  Teaspoon 
 Wisdom
 31




---



##### Table of Contents



Celebrity Eyeworks Studio
  Gross profit
  32




---



##### Table of Contents



Operating expenses
 Notes to
Consolidated Financial Statements
     33




---



##### Table of Contents



Operating income
  Interest expense, net
  Income taxes
  Net income
  Liquidity and Capital Resources
 Oakley Thump
 34




---



##### Table of Contents



Credit Facilities
   Note Payable
  Capital Expenditures
  Stock Repurchase
  35




---



##### Table of Contents



Cash Dividend
  Contractual Obligations and Commitments
  2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    ThereafterLines of credit
    
    $
    17,541
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Long-term debt
    
    
    1,519
    
    
    
    1,519
    
    
    
    8,731
    
    
    
    
    
    
    
    
    
    
    
    Interest payable on
contractual
obligations
    
    
    743
    
    
    
    647
    
    
    
    413
    
    
    
    
    
    
    
    
    
    
    
    Note payable
    
    
    500
    
    
    
    438
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Letters of credit
    
    
    5,215
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    18,556
    
    
    
    18,236
    
    
    
    16,727
    
    
    
    14,841
    
    
    
    13,259
    
    
    
    43,496Endorsement contracts
    
    
    6,735
    
    
    
    2,485
    
    
    
    1,240
    
    
    
    
    
    
    
    
    
    
    
    Capital expenditure
purchase commitments
    
    
    2,575
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    53,384
    
    
    $
    23,325
    
    
    $
    27,111
    
    
    $
    14,841
    
    
    $
    13,259
    
    
    $
    43,496
  Warranty Provision
  2004
    
    
    2003
    
    
    2002(in thousands)Balance as of January 1,
    
    $
    2,921
    
    
    $
    3,537
    
    
    $
    3,503Warranty claims and expenses
    
    
    (3,959
    )
    
    
    (3,511
    )
    
    
    (4,224
    )Provisions for warranty expense
    
    
    4,124
    
    
    
    2,851
    
    
    
    4,224Changes due to foreign currency translation
    
    
    21
    
    
    
    44
    
    
    
    34Balance as of December 31,
    
    $
    3,107
    
    
    $
    2,921
    
    
    $
    3,537
   36




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##### Table of Contents



Seasonality
  2004
    
    2003Mar. 31
    
    June 30
    
    Sept. 30
    
    Dec. 31
    
    Mar. 31
    
    June 30
    
    Sept. 30
    
    Dec. 31(in thousands)Net sales (1)
    
    $
    128,636
    
    
    $
    153,826
    
    
    $
    150,044
    
    
    $
    152,962
    
    
    $
    112,523
    
    
    $
    145,703
    
    
    $
    146,885
    
    
    $
    122,923Gross profit (1)
    
    
    69,901
    
    
    
    92,922
    
    
    
    84,017
    
    
    
    76,145
    
    
    
    56,429
    
    
    
    85,399
    
    
    
    79,859
    
    
    
    60,769
 
 (1)
    
    Reflects the reclassification to net sales and cost of sales from shipping and warehousing
expenses of certain shipping and handling fees charged to customers and related freight costs.
See Note 1 and Note 15  Quarterly Financial Data.  Backlog
  Inflation
  New Accounting Pronouncements
  37




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##### Table of Contents



GAAP and Non-GAAP Financial Measures
  Reconciliation of Gross Sales to Net Sales:
 Year ended December 31,2004
    
    
    2003
    
    
    2002(in thousands)Gross sales
    
    $
    621,652
    
    
    $
    567,077
    
    
    $
    535,320Discounts and returns
    
    
    (36,184
    )
    
    
    (39,043
    )
    
    
    (39,229
    )Net sales
    
    $
    585,468
    
    
    $
    528,034
    
    
    $
    496,091
  38




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##### Table of Contents



Forward-Looking Statements
 Oakley Thump ;
 39




---



##### Table of Contents



Item 7a. Quantitative and Qualitative Disclosures about Market Risk
   Foreign currency
 Notes to Consolidated Financial Statements)
  U.S. Dollar
    
    
    
    
    
    
    FairEquivalent
    
    
    Maturity
    
    
    Value (loss)Exchange Contracts:Australian dollar
    
    $
    9,355
    
    
    Jan. 2005 - Dec. 2005
    
    $
    (760
    )British pound
    
    
    24,097
    
    
    Feb. 2005 - Dec. 2005
    
    
    (1,541
    )Canadian dollar
    
    
    18,680
    
    
    Jan. 2005 - Dec. 2005
    
    
    (2,152
    )Euro
    
    
    27,414
    
    
    Jan. 2005 - Dec. 2005
    
    
    (3,185
    )Japanese yen
    
    
    16,289
    
    
    Mar. 2005 - Dec. 2005
    
    
    (850
    )South African rand
    
    
    2,833
    
    
    Mar. 2005 - Dec. 2005
    
    
    (369
    )$
    98,668
    
    
    
    
    
    
    $
    (8,857
    )
  40




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##### Table of Contents



Interest rates
   
 Item 8. Financial Statements and Supplementary Data
 Index to Consolidated Financial Statements
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Disclosure Controls and Procedures
 ,
 41




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##### Table of Contents



Managements Report on Internal Control Over Financial Reporting, as revised
   Internal Control  Integrated Framework Internal Control  Integrated Framework
   Changes in Internal Control over Financial Reporting
   42




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal ControlIntegrated Framework
    43




---



##### Table of Contents




    
    The Company did not maintain adequate internal controls over financial
reporting due to the lack of appropriate technical review of certain
transactions and disclosures, including the documentation supporting
its foreign currency derivative instruments. As a result the Companys
accounting for foreign currency derivatives was inappropriate which
resulted in a restatement of prior annual and quarterly financial
statements as described further in Note 16 to the consolidated
financial statements. This deficiency was concluded to be a material
weakness due to the significance of the adjustments that also resulted
in the restatement of previously issued financial statements and the
potential effect of the deficiency on other account balances and
disclosures.
  Internal ControlIntegrated Framework Internal ControlIntegrated Framework
   
 44




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##### Table of Contents



Item 9b. Other Information
  
 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
  
 Item 14. Principal Accountant Fees and Services
  45




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##### Table of Contents



Part IV
 
 Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
 (a)(1) See page 49 for a listing of financial statements submitted as part of this report.(a)(2) Schedule II  Valuation and Qualifying AccountsAll other schedules are omitted because they are not applicable or the required information
is shown in the financial statements or notes thereto.(a)(3) The following exhibits are included in this report.
 3.1
    (1)
    
    Articles of Incorporation of the Company3.2
    (8)
    
    Amended and Restated Bylaws of the Company3.3
    (3)
    
    Amendment No. 1 to the Articles of Incorporation as filed with the Secretary of State of
the State of Washington on September 26, 19963.4
    (8)
    
    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 Jordan10.2
    (4)
    
    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)10.3
    (4)
    
    Promissory Note, dated March 20, 1997, between Oakley, Inc. and Bank of America National
Trust and Savings Association10.4
    (5)
    
    Promissory Note, dated August 7, 1997, between Oakley, Inc. and Bank of America National
Trust and Savings Association10.5
    (5)
    
    Amendment No. 1 to Promissory Note, dated August 14, 1997, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.6
    (5)
    
    Amendment No. 2 to Promissory Note, dated August 14, 1997, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.7
    (5)
    
    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
Association10.8
    (6)
    
    Amended and Restated Consultant Agreement, dated May 12, 1998, between Jim Jannard and
Oakley, Inc.10.9
    (7)
    
    Modification Agreement (Short Form), dated August 10, 1998, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.10
    (7)
    
    Modification Agreement (Long Form), dated August 10, 1998, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.11
    (9)
    
    Oakley, Inc. Amended and Restated 1995 Stock Incentive Plan10.12
    (9)
    
    Oakley, Inc. Amended and Restated Executive Officers Performance Bonus Plan10.13
    (10)
    
    Second Amended and Restated Employment Agreement, dated January 1, 2000, between Thomas
George and Oakley, Inc.10.14
    (11)
    
    Employment Agreement, dated October 1, 2000, between Tomas Rios and Oakley, Inc.10.15
    (12)
    
    Lease Agreement, dated November 10, 2000, between Haven Gateway LLC and Oakley, Inc.10.16
    (12)
    
    Trademark License Agreement and Assignment of Rights, dated March 31, 2000, between Y,
LLC and Oakley, Inc.10.17
    (13)
    
    Amendment to Trademark License Agreement, dated June 1, 2002, between Y, LLC and Oakley,
Inc.10.18
    (14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Jim Jannard.10.19
    (14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Link Newcomb.10.20
    (14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Colin Baden.10.21
    (14)
    
    Indemnification Agreement, dated February 14, 2003, between Oakley, Inc. and Tommy Rios.
 46




---



##### Table of Contents



10.22
    (14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Tom George.10.23
    (14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Donna Gordon.10.24
    (14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Scott Bowers.10.25
    (14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Jon Krause.10.26
    (14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Kent Lane.10.27
    (14)
    
    Indemnification Agreement, dated February 14, 2003, between Oakley, Inc. and Carlos Reyes.10.28
    (15)
    
    Indemnification Agreement, dated March 26, 2003, between Oakley, Inc. and Irene Miller.10.29
    (15)
    
    Indemnification Agreement, dated March 26, 2003, between Oakley, Inc. and Abbott Brown.10.30
    (15)
    
    Indemnification Agreement, dated March 26, 2003, between Oakley, Inc. and Lee Clow.10.31
    (16)
    
    Aircraft Lease Agreement, dated December 18, 2003, between Oakley, Inc. and N2T, Inc.10.32
    (16)
    
    Indemnification Agreement, dated February 12, 2004, between Oakley, Inc. and Thomas Davin.10.33
    (17)
    
    Agreement and Mutual Release, dated March 5, 2004, between N2T, Inc. and Oakley, Inc.10.34
    (17)
    
    Severance Agreement, dated March 5, 2004, between Link Newcomb and Oakley, Inc.10.35
    (17)
    
    Executive Severance Plan effective as of January 1, 200410.36
    (17)
    
    Officer Severance Plan effective as of January 1, 200410.37
    (18)
    
    Third Amended and Restated Credit Agreement, dated August 19, 2004 among Oakley, Inc., as
borrower, and Bank of America, N.A., as agent, Swing Line Lender and the lenders named
therein.10.38
    (18)
    
    Indemnification Agreement, dated September 29, 2004, between Oakley, Inc. and Cosmas N.
Lykos.10.39
    (18)
    
    Indemnification Agreement, dated September 29, 2004, between Oakley, Inc. and Mary George.10.40
    (19)
    
    Indemnification Agreement, dated January 1, 2005, between Oakley, Inc. and Michael J.
Puntoriero.21.1
    (19)
    
    List of Material Subsidiaries23.1
    (20)
    
    Consent of Deloitte & Touche LLP, independent registered public accounting firm.31.1
    (20)
    
    Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    (20)
    
    Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    (20)
    
    Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
 (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,
1996.(4)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended March 31,
1997.(5)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 1997.(6)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30,
1998.(7)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 1998.(8)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
1998.(9)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30,
1999.(10)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
1999.(11)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 2000.(12)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
2000. 47




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##### Table of Contents



(13)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30,
2002.(14)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
2002.(15)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended March 31,
2003.(16)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
2003.(17)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended March 31,
2004.(18)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 2004.(19)
    
    Previously filed on March 16, 2005 with the Form 10-K of Oakley, Inc. for the year
ended December 31, 2004.(20)
    
    Filed herewith.     48




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##### Table of Contents



Index To Consolidated Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
    50Consolidated Balance Sheets (as restated) as of December 31, 2004 and 2003
    
    
    51Consolidated Statements of Income and Consolidated Statements of Comprehensive
Income (as restated) for the Years Ended December 31, 2004, 2003 and 2002
    
    
    52Consolidated Statements of Shareholders Equity (as restated) for the Years Ended
December 31, 2004, 2003 and 2002
    
    
    53Consolidated Statements of Cash Flows (as restated) for the Years Ended
December 31, 2004, 2003 and 2002
    
    
    54Notes to Consolidated Financial Statements
    
    
    55 - 85
 49




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
      Internal ControlIntegrated
Framework
 
 50




---



##### Table of Contents



OAKLEY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE
SHEETS
(in thousands, except share and per share data)
 December 31, 2004
    
    
    December 31, 2003(As Restated,
    
    
    (As Restated,see Note 16)
    
    
    see Note 16)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    51,738
    
    
    $
    49,211Accounts receivable, less allowances
of $11,045 (2004) and $9,672 (2003)
    
    
    102,817
    
    
    
    77,989Inventories, net (Note 2)
    
    
    115,061
    
    
    
    98,691Other receivables
    
    
    3,992
    
    
    
    3,368Deferred income taxes
    
    
    14,195
    
    
    
    15,627Prepaid expenses and other assets
    
    
    9,087
    
    
    
    8,062Total current assets
    
    
    296,890
    
    
    
    252,948Property and equipment, net
    
    
    152,993
    
    
    
    153,583Deposits
    
    
    1,828
    
    
    
    2,139Goodwill
    
    
    25,699
    
    
    
    24,609Other assets
    
    
    5,698
    
    
    
    6,486TOTAL ASSETS
    
    $
    483,108
    
    
    $
    439,765LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Line of credit (Note 7)
    
    $
    17,541
    
    
    $
    14,039Accounts payable
    
    
    32,838
    
    
    
    26,837Accrued expenses and other current liabilities (Note 5)
    
    
    39,583
    
    
    
    36,984Accrued warranty (Note 1)
    
    
    3,107
    
    
    
    2,921Income taxes payable
    
    
    2,327
    
    
    
    9,941Current portion of long-term debt (Note 7)
    
    
    2,019
    
    
    
    2,019Total current liabilities
    
    
    97,415
    
    
    
    92,741Deferred income taxes
    
    
    9,607
    
    
    
    7,809Long-term debt, net of current portion
    
    
    10,688
    
    
    
    12,642COMMITMENTS AND CONTINGENCIES (Note 8)SHAREHOLDERS EQUITY:Preferred stock, par value $.01 per share; 20,000,000
shares authorized; no shares issued
    
    
    
    
    
    
    Common stock, par value $.01 per share; 200,000,000
shares authorized; 68,077,000 (2004) and
67,948,000 (2003) issued and outstanding
    
    
    678
    
    
    
    679Additional paid-in capital
    
    
    33,659
    
    
    
    31,126Deferred compensation
    
    
    (3,617
    )
    
    
    Retained earnings
    
    
    322,742
    
    
    
    289,435Accumulated other comprehensive income (loss)
    
    
    11,936
    
    
    
    5,333Total shareholders equity
    
    
    365,398
    
    
    
    326,573TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    483,108
    
    
    $
    439,765
 Notes to Consolidated Financial Statements
 51




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##### Table of Contents



OAKLEY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
 Year ended December 31,2004
    
    
    2003
    
    
    2002(As Restated,
    
    
    (As Restated,
    
    
    (As Restated,see Note 16)
    
    
    see Note 16)
    
    
    see Note 16)Net sales
    
    $
    585,468
    
    
    $
    528,034
    
    
    $
    496,091Cost of goods sold
    
    
    262,483
    
    
    
    245,578
    
    
    
    228,299Gross profit
    
    
    322,985
    
    
    
    282,456
    
    
    
    267,792Operating expenses:Research and development
    
    
    15,962
    
    
    
    14,308
    
    
    
    16,016Selling
    
    
    159,366
    
    
    
    142,365
    
    
    
    126,995Shipping and warehousing
    
    
    17,087
    
    
    
    14,620
    
    
    
    13,739General and administrative
    
    
    65,228
    
    
    
    59,201
    
    
    
    52,335Total operating expenses
    
    
    257,643
    
    
    
    230,494
    
    
    
    209,085Operating income
    
    
    65,342
    
    
    
    51,962
    
    
    
    58,707Interest expense, net
    
    
    1,037
    
    
    
    1,272
    
    
    
    1,643Income before provision for income taxes
    
    
    64,305
    
    
    
    50,690
    
    
    
    57,064Provision for income taxes
    
    
    20,790
    
    
    
    17,741
    
    
    
    19,972Net income
    
    $
    43,515
    
    
    $
    32,949
    
    
    $
    37,092Basic net income per common share
    
    $
    0.64
    
    
    $
    0.48
    
    
    $
    0.54Basic weighted average common shares
    
    
    67,953,000
    
    
    
    68,006,000
    
    
    
    68,732,000Diluted net income per common share
    
    $
    0.63
    
    
    $
    0.48
    
    
    $
    0.53Diluted weighted average common shares
    
    
    68,610,000
    
    
    
    68,282,000
    
    
    
    69,333,000
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 Year ended December 31,2004
    
    
    2003
    
    
    2002(As Restated,
    
    
    (As Restated,
    
    
    (As Restated,see Note 16)
    
    
    see Note 16)
    
    
    see Note 16)Net income
    
    $
    43,515
    
    
    $
    32,949
    
    
    $
    37,092Other comprehensive income (loss):Net unrealized gain (loss) on cash flow hedges, net of
tax
    
    
    289
    
    
    
    316
    
    
    
    (612
    )Foreign currency translation adjustment
    
    
    6,314
    
    
    
    12,118
    
    
    
    2,406Other comprehensive income
    
    
    6,603
    
    
    
    12,434
    
    
    
    1,794Comprehensive income
    
    $
    50,118
    
    
    $
    45,383
    
    
    $
    38,886
 Notes to Consolidated Financial Statements
 52




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##### Table of Contents



OAKLEY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands, except share data)
 AccumulatedOtherCommon Stock
    
    
    Additional
    
    
    Deferred
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Paid-in Capital
    
    
    Compensation
    
    
    Earnings
    
    
    (Loss) / Income
    
    
    TotalBalance as of January 1, 2002, as previously reported
    
    
    68,821,000
    
    
    $
    688
    
    
    $
    40,805
    
    
    
    
    
    
    $
    227,648
    
    
    $
    (8,431
    )
    
    $
    260,710Prior period adjustment*
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,257
    
    
    
    (464
    )
    
    
    793Balance as of January 1, 2002, as restated*
    
    
    68,821,000
    
    
    
    688
    
    
    
    40,805
    
    
    
    
    
    
    
    228,905
    
    
    
    (8,895
    )
    
    
    261,503Repurchase of common shares (Note 10)
    
    
    (666,000
    )
    
    
    (7
    )
    
    
    (7,986
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,993
    )Exercise of stock options (Note 10)
    
    
    177,000
    
    
    
    2
    
    
    
    1,827
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,829Compensatory stock options
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Tax benefit related to exercise of stock options
    
    
    
    
    
    
    
    
    
    
    448
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    448Net income, as restated*
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,092
    
    
    
    
    
    
    
    37,092Other comprehensive income, as restated *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,794
    
    
    
    1,794Balance as of December 31, 2002, as restated*
    
    
    68,332,000
    
    
    
    683
    
    
    
    35,097
    
    
    
    
    
    
    
    265,997
    
    
    
    (7,101
    )
    
    
    294,676Repurchase of common shares (Note 10)
    
    
    (436,000
    )
    
    
    (4
    )
    
    
    (4,487
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,491
    )Exercise of stock options (Note 10)
    
    
    52,000
    
    
    
    
    
    
    
    470
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    470Compensatory stock options
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Tax benefit related to exercise of stock options
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,511
    )
    
    
    
    
    
    
    (9,511
    )Net income, as restated*
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,949
    
    
    
    
    
    
    
    32,949Other comprehensive income, as restated *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,434
    
    
    
    12,434Balance as of December 31, 2003, as restated*
    
    
    67,948,000
    
    
    
    679
    
    
    
    31,126
    
    
    
    
    
    
    
    289,435
    
    
    
    5,333
    
    
    
    326,573Repurchase of common shares (Note 10)
    
    
    (515,000
    )
    
    
    (5
    )
    
    
    (5,918
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,923
    )Exercise of stock options (Note 10)
    
    
    352,000
    
    
    
    4
    
    
    
    3,454
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,458Compensation expense  stock options
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16Tax benefit related to exercise of stock options
    
    
    
    
    
    
    
    
    
    
    603
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    603Issuance of restricted stock
    
    
    312,500
    
    
    
    
    
    
    
    4,681
    
    
    
    (4,681
    )
    
    
    
    
    
    
    
    
    
    
    Forfeiture of restricted stock
    
    
    (20,500
    )
    
    
    
    
    
    
    (303
    )
    
    
    303
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    761
    
    
    
    
    
    
    
    
    
    
    
    761Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,208
    )
    
    
    
    
    
    
    (10,208
    )Net income, as restated*
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,515
    
    
    
    
    
    
    
    43,515Other comprehensive income, as restated *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,603
    
    
    
    6,603Balance as of December 31, 2004, as restated*
    
    
    68,077,000
    
    
    $
    678
    
    
    $
    33,659
    
    
    $
    (3,617
    )
    
    $
    322,742
    
    
    $
    11,936
    
    
    $
    365,398
 Notes to Consolidated Financial Statements
 
 *
    
    See Note 16 in Notes to Consolidated Financial Statements 53




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##### Table of Contents



OAKLEY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Year ended December 31,2004
    
    
    2003
    
    
    2002(As Restated,
    
    
    (As Restated,
    
    
    (As Restated,see Note 16)
    
    
    see Note 16)
    
    
    see Note 16)CASH FLOWS
FROM OPERATING
ACTIVITIES:Net income
    
    $
    43,515
    
    
    $
    32,949
    
    
    $
    37,092Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    31,879
    
    
    
    30,790
    
    
    
    28,578Changes in value of derivative instruments
    
    
    (2,959
    )
    
    
    8,073
    
    
    
    5,454Provision for bad debt expense
    
    
    1,601
    
    
    
    1,738
    
    
    
    1,877Compensatory stock options and restricted stock expense
    
    
    777
    
    
    
    11
    
    
    
    3Tax benefit related to exercise of stock options
    
    
    603
    
    
    
    35
    
    
    
    448Loss on disposition of equipment
    
    
    639
    
    
    
    1,413
    
    
    
    1,353Deferred income taxes, net
    
    
    3,349
    
    
    
    (1,928
    )
    
    
    (2,429
    )Changes in assets and liabilities, net of effects of business acquisitions:Accounts receivable
    
    
    (23,717
    )
    
    
    (5,403
    )
    
    
    5,672Inventories
    
    
    (13,779
    )
    
    
    (5,847
    )
    
    
    (5,925
    )Other receivables
    
    
    (533
    )
    
    
    1,936
    
    
    
    (2,192
    )Income taxes receivable
    
    
    
    
    
    
    
    
    
    
    6,449Prepaid expenses and other
    
    
    (919
    )
    
    
    (1,558
    )
    
    
    3,243Deposits
    
    
    362
    
    
    
    670
    
    
    
    (1,218
    )Accounts payable
    
    
    6,521
    
    
    
    (125
    )
    
    
    5,644Accrued expenses and other current liabilities
    
    
    5,763
    
    
    
    4,446
    
    
    
    2,838Accrued warranty
    
    
    186
    
    
    
    (616
    )
    
    
    34Income taxes payable
    
    
    (7,659
    )
    
    
    9,445
    
    
    
    306Net cash provided by operating activities
    
    
    45,629
    
    
    
    76,029
    
    
    
    87,227CASH FLOWS FROM INVESTING ACTIVITIES:Acquisitions of property and equipment
    
    
    (30,385
    )
    
    
    (29,689
    )
    
    
    (32,602
    )Proceeds from sale of property and equipment
    
    
    311
    
    
    
    192
    
    
    
    162Acquisitions of businesses
    
    
    (450
    )
    
    
    (430
    )
    
    
    Other assets
    
    
    (491
    )
    
    
    (665
    )
    
    
    (288
    )Net cash used in investing activities
    
    
    (31,015
    )
    
    
    (30,592
    )
    
    
    (32,728
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from bank borrowings
    
    
    3,416
    
    
    
    19,037
    
    
    
    77,852Repayments of bank borrowings
    
    
    (2,853
    )
    
    
    (23,919
    )
    
    
    (107,714
    )Dividends
    
    
    (10,208
    )
    
    
    (9,511
    )
    
    
    Net proceeds from issuance of common shares
    
    
    3,458
    
    
    
    505
    
    
    
    2,277Repurchase of common shares
    
    
    (5,923
    )
    
    
    (4,491
    )
    
    
    (7,993
    )Net cash used in financing activities
    
    
    (12,110
    )
    
    
    (18,379
    )
    
    
    (35,578
    )Effect of exchange rate changes on cash
    
    
    23
    
    
    
    (95
    )
    
    
    (2,285
    )Net increase in cash and cash equivalents
    
    
    2,527
    
    
    
    26,963
    
    
    
    16,636Cash and cash equivalents, beginning of period
    
    
    49,211
    
    
    
    22,248
    
    
    
    5,612Cash and cash equivalents, end of period
    
    $
    51,738
    
    
    $
    49,211
    
    
    $
    22,248Supplemental cash flow information:Cash paid during the year for:Interest
    
    $
    1,511
    
    
    $
    1,526
    
    
    $
    2,700Income taxes (net of refunds received)
    
    $
    23,031
    
    
    $
    8,573
    
    
    $
    14,582Non-cash investing and financing activities:During 2002, the Company acquired certain assets
through
the settlement of accounts receivable
    
    $
    
    
    
    $
    
    
    
    $
    (2,687
    )
 Notes to Consolidated Financial Statements
 54




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 1  Significant Accounting Policies and Description of Business
 Description of Business
  Basis of Presentation
  Principles of Consolidation
  Use of Estimates
  Cash and Cash Equivalents
  Inventories
  Property and Equipment
  55




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 1  Significant Accounting Policies and Description of Business (contd)
 Long-Lived Assets
 Accounting for the
Impairment or Disposal of Long-Lived Assets
 Goodwill and Intangible Assets
 Goodwill and Intangible
Assets
 56




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 1  Significant Accounting Policies and Description of Business (contd)
 Derivative Instruments
 Accounting for Certain Derivative
Instruments and Certain hedging Activities  an amendment of SFAS 133 Amendment of Statement 133 on Derivative Instruments and
Hedging Activities
 Revenue Recognition
   Financial Instruments
  57




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 1  Significant Accounting Policies and Description of Business (contd)
 Accounts Receivable
  Insurance Coverage
  Warranties
   2004
    
    
    2003
    
    
    2002(in thousands)Balance as of January 1,
    
    $
    2,921
    
    
    $
    3,537
    
    
    $
    3,503Warranty claims and expenses
    
    
    (3,959
    )
    
    
    (3,511
    )
    
    
    (4,224
    )Provisions for warranty expense
    
    
    4,124
    
    
    
    2,851
    
    
    
    4,224Changes due to foreign currency translation
    
    
    21
    
    
    
    44
    
    
    
    34Balance as of December 31,
    
    $
    3,107
    
    
    $
    2,921
    
    
    $
    3,537
 58




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 1  Significant Accounting Policies and Description of Business (contd)
 Income Taxes
 Accounting for Income Taxes
 Foreign Currency Translation
  Comprehensive Income (Loss)
   As of December 312004
    
    
    2003(in thousands)Unrealized loss on interest rate swap, net of tax
    
    $
    (317
    )
    
    $
    (606
    )Equity adjustment from foreign currency translation
    
    
    12,253
    
    
    
    5,939Accumulated other comprehensive income
    
    $
    11,936
    
    
    $
    5,333
 59




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 1  Significant Accounting Policies and Description of Business (contd)
 Stock-Based Compensation
 Accounting for Stock Issued to
Employees Accounting for Stock Based Compensation
 Stock Options
  2004
    
    2003
    
    2002Stock volatility
    
    
    36.0
    %
    
    
    50.2
    %
    
    
    70.9
    %Risk-free interest rate
    
    
    3.1
    %
    
    
    2.1
    %
    
    
    2.8
    %Expected dividend yield
    
    
    1.1
    %
    
    
    1.4
    %
    
    
    0
    %Expected life of option
    
    5.0 years
    
    3.8 years
    
    3.6 years
  2004
    
    
    2003
    
    
    2002Net Income: As reported
    
    $
    43,515
    
    
    $
    32,949
    
    
    $
    37,092Add: Stock based employee cost as
reported, net of tax effect
    
    
    489
    
    
    
    
    
    
    
    Deduct: Total stock based employee
compensation expense
determined under
fair value based
method for all
awards,
net of tax effect
    
    
    (3,582
    )
    
    
    (3,071
    )
    
    
    (3,639
    )Pro forma
    
    $
    40,422
    
    
    $
    29,878
    
    
    $
    33,453Basic net income per share:As reported
    
    $
    0.64
    
    
    $
    0.48
    
    
    $
    0.54Pro forma
    
    $
    0.59
    
    
    $
    0.44
    
    
    $
    0.49Diluted net income per share:As reported
    
    $
    0.63
    
    
    $
    0.48
    
    
    $
    0.53Pro forma
    
    $
    0.59
    
    
    $
    0.44
    
    
    $
    0.48
 60




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 1  Significant Accounting Policies and Description of Business (contd)
  Earnings Per Share
  Advertising Costs
  New Accounting Pronouncements
 Consolidation of Variable Interest Entities Consolidation of Variable Interest Entities  An
Interpretation of APB No. 51 Consolidated Financial Statements
 61




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 1  Significant Accounting Policies and Description of Business (contd)
 Inventory Costs, an amendment of ARB No. 43,
Chapter 4,
 Exchanges of Nonmonetary Assets  an amendment of
APB Opinion No. 29, Accounting for Nonmonetary Transactions
 Accounting for
Stock-Based Compensation Accounting for Stock Issued to
Employees
 Reclassifications
    62




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 1  Significant Accounting Policies and Description of Business (contd)
 Supplier Concentrations
  Customer Concentrations
  63




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 2  Inventories
  2004
    
    
    2003(in thousands)Raw materials
    
    $
    29,219
    
    
    $
    21,310Finished goods
    
    
    85,842
    
    
    
    77,381Total inventory
    
    $
    115,061
    
    
    $
    98,691
 Note 3  Property and Equipment
  2004
    
    
    2003(in thousands)Land
    
    $
    8,953
    
    
    $
    8,953Buildings and leasehold improvements
    
    
    100,042
    
    
    
    92,537Equipment and furniture
    
    
    201,700
    
    
    
    184,688Tooling
    
    
    26,995
    
    
    
    24,024337,690
    
    
    
    310,202Less accumulated depreciation and amortization
    
    
    (184,697
    )
    
    
    (156,619
    )Total property and equipment
    
    $
    152,993
    
    
    $
    153,583
 Note 4  Goodwill and Intangible Assets
  As of December 31, 2004
    
    As of December 31, 2003Gross Carrying
    
    Accumulated
    
    Gross Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Amount
    
    Amortization(in thousands)Covenants not to compete
    
    $
    4,290
    
    
    $
    2,948
    
    
    $
    4,284
    
    
    $
    2,452Distribution rights
    
    
    3,567
    
    
    
    1,921
    
    
    
    3,567
    
    
    
    1,615Patents
    
    
    4,108
    
    
    
    2,032
    
    
    
    3,740
    
    
    
    1,689Other identified intangible assets
    
    
    923
    
    
    
    379
    
    
    
    877
    
    
    
    238Total
    
    $
    12,888
    
    
    $
    7,280
    
    
    $
    12,468
    
    
    $
    5,994
  Estimated Amortization Expense:
    
    (in thousands)Fiscal 2005
    
    $
    1,295Fiscal 2006
    
    
    1,236Fiscal 2007
    
    
    880Fiscal 2008
    
    
    772Fiscal 2009
    
    
    706
 64




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 4  Goodwill and Intangible Assets (contd)
  Wholesale
    
    
    RetailUnited
    
    
    Continental
    
    
    Other
    
    
    U.S. RetailStates
    
    
    Europe
    
    
    Countries
    
    
    Operations
    
    
    Consolidated(in thousands)Balance, December 31, 2002
    
    $
    1,574
    
    
    $
    
    
    
    $
    11,692
    
    
    $
    8,204
    
    
    $
    21,470Additions / adjustments:Goodwill additions (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    371
    
    
    
    371Changes due to foreign exchange rates
    
    
    
    
    
    
    
    
    
    
    2,768
    
    
    
    
    
    
    
    2,768Balance, December 31, 2003
    
    
    1,574
    
    
    
    
    
    
    
    14,460
    
    
    
    8,575
    
    
    
    24,609Additions / adjustments:Goodwill additions (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    422
    
    
    
    422Changes due to foreign exchange rates
    
    
    
    
    
    
    
    
    
    
    668
    
    
    
    
    
    
    
    668Balance, December 31, 2004
    
    $
    1,574
    
    
    $
    
    
    
    $
    15,128
    
    
    $
    8,997
    
    
    $
    25,699
 
 (1)
    
    Reflects insignificant acquisitions made by the Companys Iacon subsidiary in 2003 and 2004. Note 5  Accrued Liabilities
  2004
    
    
    2003(in thousands)Accrued employee compensation and benefits
    
    $
    15,689
    
    
    $
    14,188Derivative liability
    
    
    9,354
    
    
    
    12,784Other liabilities
    
    
    14,540
    
    
    
    10,012$
    39,583
    
    
    $
    36,984
 Note 6  Income Taxes
  2004
    
    
    2003
    
    
    2002(in thousands)United States
    
    $
    57,993
    
    
    $
    50,101
    
    
    $
    59,153Foreign
    
    
    6,312
    
    
    
    589
    
    
    
    (2,089
    )$
    64,305
    
    
    $
    50,690
    
    
    $
    57,064
 65




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 6  Income Taxes (contd)
  2004
    
    
    2003
    
    
    2002(in thousands)Current:Federal
    
    $
    13,550
    
    
    $
    12,937
    
    
    $
    20,050State
    
    
    1,154
    
    
    
    1,554
    
    
    
    2,051Foreign
    
    
    2,670
    
    
    
    4,469
    
    
    
    1,39017,374
    
    
    
    18,960
    
    
    
    23,491Deferred:Federal
    
    
    2,428
    
    
    
    2,245
    
    
    
    (942
    )State
    
    
    236
    
    
    
    (207
    )
    
    
    (65
    )Foreign
    
    
    752
    
    
    
    (3,257
    )
    
    
    (2,512
    )3,416
    
    
    
    (1,219
    )
    
    
    (3,519
    )$
    20,790
    
    
    $
    17,741
    
    
    $
    19,972
  Accounting and Disclosure Guidance
for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004
  2004
    
    
    2003
    
    
    2002(in thousands)Tax at U.S. federal statutory rates
    
    $
    22,508
    
    
    $
    17,741
    
    
    $
    19,972State income taxes, net
    
    
    904
    
    
    
    815
    
    
    
    1,217U.S. export benefit,
net of foreign tax rate differential
    
    
    (1,668
    )
    
    
    (1,256
    )
    
    
    (1,268
    )Other, net
    
    
    (954
    )
    
    
    441
    
    
    
    51$
    20,790
    
    
    $
    17,741
    
    
    $
    19,972
 66




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OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 6  Income Taxes (contd)
   2004
    
    
    2003(in thousands)Deferred tax assets:Warranty reserve
    
    $
    1,090
    
    
    $
    1,038Uniform capitalization
    
    
    1,345
    
    
    
    1,177Sales returns reserve
    
    
    1,493
    
    
    
    2,016Inventory
    
    
    1,585
    
    
    
    1,932Allowance for doubtful accounts
    
    
    523
    
    
    
    481Accrued fringe benefits and compensation
    
    
    2,569
    
    
    
    1,720Restricted stock
    
    
    342
    
    
    
    Deferred revenue
    
    
    1,859
    
    
    
    1,054Foreign tax credit
    
    
    
    
    
    
    1,375Foreign net operating loss and credit carryovers
    
    
    5,315
    
    
    
    3,352Foreign unrealized gains/losses
    
    
    3,482
    
    
    
    4,675Other
    
    
    2,159
    
    
    
    1,312Total deferred tax assets
    
    
    21,762
    
    
    
    20,132Deferred tax liabilities:Depreciation and amortization
    
    
    (9,820
    )
    
    
    (7,788
    )Other comprehensive income
    
    
    (714
    )
    
    
    (428
    )Other
    
    
    (1,325
    )
    
    
    (746
    )Total deferred tax liability
    
    
    (11,859
    )
    
    
    (8,962
    )Net deferred tax assets
    
    
    9,903
    
    
    
    11,170Less: valuation allowance
    
    
    (5,315
    )
    
    
    (3,352
    )Net deferred tax assets, net of valuation allowance
    
    $
    4,588
    
    
    $
    7,818
 67




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OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 6  Income Taxes (contd)
   Note 7  Debt
 Line of Credit
  68




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OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 7  Debt (contd)
 Long-Term Debt
    Years EndingDecember 31,
    
    (in thousands)2005
    
    $
    2,0192006
    
    
    1,9572007
    
    
    8,7312008
    
    
    2009
    
    
    Thereafter
    
    
    Total
    
    $
    12,707
 Note 8  Commitments and Contingencies
 Operating Leases
  Years EndingDecember 31,
    
    (in thousands)2005
    
    $
    18,5562006
    
    
    18,2362007
    
    
    16,7272008
    
    
    14,8412009
    
    
    13,259Thereafter
    
    
    43,496Total
    
    $
    125,115
 69




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OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 8  Commitments and Contingencies (contd)
   2004
    
    
    2003
    
    
    2002(in thousands)Related Party
    
    $
    
    
    
    $
    90
    
    
    $
    60Other
    
    
    18,992
    
    
    
    14,741
    
    
    
    8,570Total
    
    $
    18,992
    
    
    $
    14,831
    
    
    $
    8,630
  Purchase Commitments
  Employment and Consulting Agreements
  70




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OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 8  Commitments and Contingencies (contd)
 Endorsement Contracts
  Years EndingDecember 31,
    
    (in thousands)2005
    
    $
    6,7352006
    
    
    2,4852007
    
    
    1,2402008
    
    
    2009
    
    
    Thereafter
    
    
    Total
    
    $
    10,460
  Indemnities, Commitments and Guarantees
  Litigation
  71




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OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 9  Derivative Financial Instruments
     U.S. Dollar
    
    
    
    
    
    
    FairEquivalent
    
    
    Maturity
    
    
    Value (loss)Exchange Contracts:Australian dollar
    
    $
    9,355
    
    
    Jan. 2005 - Dec. 2005
    
    $
    (760
    )British pound
    
    
    24,097
    
    
    Feb. 2005 - Dec. 2005
    
    
    (1,541
    )Canadian dollar
    
    
    18,680
    
    
    Jan. 2005 - Dec. 2005
    
    
    (2,152
    )Euro
    
    
    27,414
    
    
    Jan. 2005 - Dec. 2005
    
    
    (3,185
    )Japanese yen
    
    
    16,289
    
    
    Mar. 2005 - Dec. 2005
    
    
    (850
    )South African rand
    
    
    2,833
    
    
    Mar. 2005 - Dec. 2005
    
    
    (369
    )$
    98,668
    
    
    
    
    
    
    $
    (8,857
    )
  72




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OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2004, 2003, 2002
 Note 10  Shareholders Equity
 Stock Repurchase
  Stock Incentive Plan
    2004
    
    
    2003
    
    
    2002Outstanding shares at January 1
    
    
    4,808,020
    
    
    
    3,905,227
    
    
    
    3,495,306Granted
    
    
    58,332
    
    
    
    1,080,697
    
    
    
    702,250Cancelled
    
    
    (174,627
    )
    
    
    (125,485
    )
    
    
    (115,576
    )Exercised
    
    
    (351,762
    )
    
    
    (52,419
    )
    
    
    (176,753
    )Outstanding shares at December 31
    
    
    4,339,963
    
    
    
    4,808,020
    
    
    
    3,905,227Exercisable shares at December 31
    
    
    3,553,968
    
    
    
    2,778,479
    
    
    
    2,155,509Average exercise price at January 1
    
    $
    12.14
    
    
    $
    13.16
    
    
    $
    12.49Granted
    
    
    13.53
    
    
    
    8.50
    
    
    
    16.03Cancelled
    
    
    12.05
    
    
    
    13.92
    
    
    
    14.58Exercised
    
    
    9.76
    
    
    
    9.38
    
    
    
    10.20Average exercise price at December 31
    
    $
    12.52
    
    
    $
    12.14
    
    
    $
    13.16Weighted average exercise price of
exercisable options at December 31
    
    $
    12.98
    
    
    $
    12.25
    
    
    $
    11.67Weighted average fair value of
options granted during the year
    
    $
    4.53
    
    
    $
    3.07
    
    
    $
    8.33
 73




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OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2004, 2003, 2002
 Note 10  Shareholders Equity (contd)
  Options Outstanding
    
    Options ExercisableWeighted AvgRemainingRange of
    
    Number
    
    Contractual
    
    Weighted Avg
    
    Number
    
    Weighted AvgExercise Prices
    
    Outstanding
    
    Life (yrs)
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$    5.56  8.75
    
    
    1,102,157
    
    
    
    7.18
    
    
    $
    8.10
    
    
    
    466,903
    
    
    $
    7.09$  9.06  11.00
    
    
    847,987
    
    
    
    4.17
    
    
    $
    10.39
    
    
    
    809,734
    
    
    $
    10.39$11.29  13.33
    
    
    1,160,620
    
    
    
    3.68
    
    
    $
    12.11
    
    
    
    1,078,306
    
    
    $
    12.08$14.00  25.10
    
    
    1,229,199
    
    
    
    6.60
    
    
    $
    17.74
    
    
    
    1,199,025
    
    
    $
    17.83
   Note 11  Employee Benefit Plan
  74




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2004, 2003, 2002
 Note 12  Related Party Information
 Aircraft Lease
  Reimbursable Costs
  Trademark License Agreement.
  75




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OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2004, 2003, 2002
 Note 13  Segment and Geographic Information
   2004Inter-segment
    
    TotalWholesale
    
    U.S. Retail
    
    transactions
    
    consolidatedNet sales
    
    $
    530,589
    
    
    $
    72,409
    
    
    $
    (17,530
    )
    
    $
    585,468Operating income
    
    
    56,653
    
    
    
    8,796
    
    
    
    (107
    )
    
    
    65,342Identifiable assets
    
    
    449,003
    
    
    
    45,969
    
    
    
    (11,864
    )
    
    
    483,108Acquisitions of property and equipment
    
    
    24,248
    
    
    
    6,137
    
    
    
    
    
    
    
    30,385Depreciation and amortization
    
    
    28,897
    
    
    
    2,982
    
    
    
    
    
    
    
    31,879
 2003Inter-segment
    
    TotalWholesale
    
    U.S. Retail
    
    transactions
    
    consolidatedNet sales
    
    $
    487,767
    
    
    $
    53,206
    
    
    $
    (12,939
    )
    
    $
    528,034Operating income
    
    
    47,844
    
    
    
    4,266
    
    
    
    (148
    )
    
    
    51,962Identifiable assets
    
    
    410,569
    
    
    
    40,280
    
    
    
    (11,084
    )
    
    
    439,765Acquisitions of property and equipment
    
    
    22,587
    
    
    
    7,102
    
    
    
    
    
    
    
    29,689Depreciation and amortization
    
    
    28,551
    
    
    
    2,239
    
    
    
    
    
    
    
    30,790
 2002Inter-segment
    
    TotalWholesale
    
    U.S. Retail
    
    transactions
    
    consolidatedNet sales
    
    $
    471,492
    
    
    $
    32,623
    
    
    $
    (8,024
    )
    
    $
    496,091Operating income
    
    
    57,847
    
    
    
    1,706
    
    
    
    (846
    )
    
    
    58,707Acquisitions of property and equipment
    
    
    25,406
    
    
    
    7,196
    
    
    
    
    
    
    
    32,602Depreciation and amortization
    
    
    27,140
    
    
    
    1,438
    
    
    
    
    
    
    
    28,578
 76




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OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2004, 2003, 2002
 Note 13  Segment and Geographic Information (contd)
  2004TotalWholesale
    
    
    U.S. Retail
    
    
    consolidatedSales to third parties
    
    $
    513,059
    
    
    $
    72,409
    
    
    $
    585,468Inter-segment revenue
    
    
    17,530
    
    
    
    
    
    
    
    17,530Gross sales
    
    
    530,589
    
    
    
    72,409
    
    
    
    602,998Less: eliminations
    
    
    (17,530
    )
    
    
    
    
    
    
    (17,530
    )Total consolidated net sales
    
    $
    513,059
    
    
    $
    72,409
    
    
    $
    585,468
 2003TotalWholesale
    
    
    U.S. Retail
    
    
    consolidatedSales to third parties
    
    $
    474,828
    
    
    $
    53,206
    
    
    $
    528,034Inter-segment revenue
    
    
    12,939
    
    
    
    
    
    
    
    12,939Gross sales
    
    
    487,767
    
    
    
    53,206
    
    
    
    540,973Less: eliminations
    
    
    (12,939
    )
    
    
    
    
    
    
    (12,939
    )Total consolidated net sales
    
    $
    474,828
    
    
    $
    53,206
    
    
    $
    528,034
 2002TotalWholesale
    
    
    U.S. Retail
    
    
    consolidatedSales to third parties
    
    $
    463,468
    
    
    $
    32,623
    
    
    $
    496,091Inter-segment revenue
    
    
    8,024
    
    
    
    
    
    
    
    8,024Gross sales
    
    
    471,492
    
    
    
    32,623
    
    
    
    504,115Less: eliminations
    
    
    (8,024
    )
    
    
    
    
    
    
    (8,024
    )Total consolidated net sales
    
    $
    463,468
    
    
    $
    32,623
    
    
    $
    496,091
  Year ended December 31,2004
    
    
    2003
    
    
    2002(in thousands)United States
    
    $
    304,955
    
    
    $
    261,423
    
    
    $
    258,775Continental Europe
    
    
    94,171
    
    
    
    91,473
    
    
    
    81,879Other international
    
    
    186,342
    
    
    
    175,138
    
    
    
    155,437Consolidated total net sales
    
    $
    585,468
    
    
    $
    528,034
    
    
    $
    496,091
  Year ended December 31,2004
    
    
    2003(in thousands)United States
    
    $
    327,202
    
    
    $
    292,261Continental Europe
    
    
    53,933
    
    
    
    51,516Other international
    
    
    101,973
    
    
    
    95,988Consolidated total identifiable assets
    
    $
    483,108
    
    
    $
    439,765
 77




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OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2004, 2003, 2002
 Note 13  Segment and Geographic Information (contd)
  Year ended December 31,(in thousands)
    
    2004
    
    
    2003
    
    
    2002Sunglasses
    
    $
    314,515
    
    
    $
    310,410
    
    
    $
    330,154Apparel and accessories
    
    
    94,859
    
    
    
    76,018
    
    
    
    56,625Footwear
    
    
    32,211
    
    
    
    36,520
    
    
    
    31,245Watches
    
    
    11,931
    
    
    
    9,862
    
    
    
    11,620Prescription eyewear
    
    
    47,750
    
    
    
    42,669
    
    
    
    34,253Goggles
    
    
    39,177
    
    
    
    36,156
    
    
    
    27,776Electronics
    
    
    19,773
    
    
    
    
    
    
    
    Other
    
    
    61,436
    
    
    
    55,442
    
    
    
    43,647Total gross sales
    
    
    621,652
    
    
    
    567,077
    
    
    
    535,320Discounts and returns
    
    
    (36,184
    )
    
    
    (39,043
    )
    
    
    (39,229
    )Total consolidated net sales
    
    $
    585,468
    
    
    $
    528,034
    
    
    $
    496,091
  Note 14  Restructure Charge
  78




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OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2004, 2003, 2002
 Note 14  Restructure Charge (contd)
  Accrued
    
    
    
    
    
    
    Changes duerestructure
    
    
    
    
    
    
    to foreignliability
    
    
    
    
    
    
    exchange ratesbalance at
    
    
    
    
    
    
    and
    
    
    Balance as ofDec. 31, 2003
    
    
    Amounts paid
    
    
    adjustments
    
    
    Dec. 31, 2004(in thousands)Termination
and modification of
sales agent
contracts and
employee contracts
    
    $
    258
    
    
    $
    (100
    )
    
    $
    12
    
    
    $
    170Rationalization of
warehousing and
distribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    258
    
    
    $
    (100
    )
    
    $
    12
    
    
    $
    170
 Accrued
    
    
    
    
    
    
    Changes duerestructure
    
    
    
    
    
    
    to foreignliability
    
    
    
    
    
    
    exchange ratesbalance at
    
    
    
    
    
    
    and
    
    
    Balance as ofDec. 31, 2002
    
    
    Amounts paid
    
    
    adjustments
    
    
    Dec. 31, 2003(in thousands)Termination
and modification of
sales agent
contracts and
employee contracts
    
    $
    2,249
    
    
    $
    (1,960
    )
    
    $
    (31
    )
    
    $
    258Rationalization of
warehousing and
distribution
    
    
    539
    
    
    
    (864
    )
    
    
    325
    
    
    
    $
    2,788
    
    
    $
    (2,824
    )
    
    $
    294
    
    
    $
    258
 79




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OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2004, 2003, 2002
 Note 15  Quarterly Financial Data (unaudited)
  First
    
    Second
    
    Third
    
    Fourthquarter
    
    quarter
    
    quarter
    
    quarter(in thousands, except share and per share data)Year ended December 31, 2004, as restated:Net sales (1)
    
    $
    128,636
    
    
    $
    153,826
    
    
    $
    150,044
    
    
    $
    152,962Gross profit (1)
    
    
    69,901
    
    
    
    92,922
    
    
    
    84,017
    
    
    
    76,145Income before provision for income taxes
    
    
    8,420
    
    
    
    28,547
    
    
    
    17,883
    
    
    
    9,455Net income
    
    
    5,698
    
    
    
    19,318
    
    
    
    12,101
    
    
    
    6,398Basic net income per share
    
    $
    0.08
    
    
    $
    0.28
    
    
    $
    0.18
    
    
    $
    0.09Diluted net income per share
    
    $
    0.08
    
    
    $
    0.28
    
    
    $
    0.18
    
    
    $
    0.09Diluted weighted avg shares
    
    
    68,940,000
    
    
    
    68,907,000
    
    
    
    68,262,000
    
    
    
    68,304,000Year ended December 31, 2004, as
previously reported:Net sales (1)
    
    $
    128,636
    
    
    $
    153,826
    
    
    $
    150,044
    
    
    $
    152,962Gross profit (1)
    
    
    67,714
    
    
    
    88,582
    
    
    
    83,335
    
    
    
    80,733Income before provision for income taxes
    
    
    6,399
    
    
    
    24,186
    
    
    
    17,232
    
    
    
    13,584Net income
    
    
    4,223
    
    
    
    15,963
    
    
    
    11,373
    
    
    
    9,991Basic net income per share
    
    $
    0.06
    
    
    $
    0.23
    
    
    $
    0.17
    
    
    $
    0.15Diluted net income per share
    
    $
    0.06
    
    
    $
    0.23
    
    
    $
    0.17
    
    
    $
    0.15Diluted weighted avg shares
    
    
    69,008,000
    
    
    
    69,160,000
    
    
    
    68,558,000
    
    
    
    68,593,000Year ended December 31, 2003, as restated:Net sales (1)
    
    $
    112,523
    
    
    $
    145,703
    
    
    $
    146,885
    
    
    $
    122,923Gross profit (1)
    
    
    56,429
    
    
    
    85,399
    
    
    
    79,859
    
    
    
    60,769Income before provision for income taxes
    
    
    2,909
    
    
    
    26,517
    
    
    
    19,257
    
    
    
    2,007Net income
    
    
    1,891
    
    
    
    17,236
    
    
    
    12,517
    
    
    
    1,305Basic net income per share
    
    $
    0.03
    
    
    $
    0.25
    
    
    $
    0.18
    
    
    $
    0.02Diluted net income per share
    
    $
    0.03
    
    
    $
    0.25
    
    
    $
    0.18
    
    
    $
    0.02Year ended December 31, 2003, as
previously reported:Net sales (1)
    
    $
    112,523
    
    
    $
    145,703
    
    
    $
    146,885
    
    
    $
    122,923Gross profit (1)
    
    
    58,455
    
    
    
    86,931
    
    
    
    81,417
    
    
    
    63,443Income before provision for income taxes
    
    
    4,935
    
    
    
    28,049
    
    
    
    20,794
    
    
    
    4,985Net income
    
    
    3,208
    
    
    
    18,232
    
    
    
    13,516
    
    
    
    3,240Basic net income per share
    
    $
    0.05
    
    
    $
    0.27
    
    
    $
    0.20
    
    
    $
    0.05Diluted net income per share
    
    $
    0.05
    
    
    $
    0.27
    
    
    $
    0.20
    
    
    $
    0.05
 
 (1)
    
    In connection with the Companys reclassification of shipping and handling fees
charged to customers (see Note 1  Reclassifications) $1.5 million, $1.8 million and $1.9
million for the three quarters in the period ended September 30, 2004 and $1.3 million, $1.9
million, $1.9 million, and $1.4 million for the four quarters in the period ended December 31,
2003 were reclassified to net sales. As a result of this reclassification and the
reclassification of certain freight costs to cost of sales, gross profit decreased by $1.1
million, $1.1 million and $0.8 million for the three quarters in the period ended September
30, 2004 and $1.0 million, $1.0 million, $1.1
million and $1.4 million for the four quarters in the period ended December 31, 2003, from
amounts previously reported. These reclassifications had no impact on net income for 2004 or
any prior period. 80




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2004, 2003, 2002
 Note 16  Restatement
 Restatement
 Accounting for Derivative Instruments and Hedging
Activities
  Notes to Consolidated Financial Statements
    81




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2004, 2003, 2002
 Note 16  Restatement (contd)
  As of December 31,
    
    2004As Previously
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedDeferred income taxes (current)
    
    $
    10,202
    
    
    $
    3,993
    
    
    $
    14,195Prepaid expenses and other current assets
    
    
    9,141
    
    
    
    (54
    )
    
    
    9,087Total current assets
    
    
    292,951
    
    
    
    3,939
    
    
    
    296,890Deferred income taxes (non-current)
    
    
    1,027
    
    
    
    (1,027
    )
    
    
    Other assets
    
    
    6,379
    
    
    
    (681
    )
    
    
    5,698Total assets
    
    
    480,877
    
    
    
    2,231
    
    
    
    483,108Income taxes payable
    
    
    2,406
    
    
    
    (79
    )
    
    
    2,327Total current liabilities
    
    
    97,494
    
    
    
    (79
    )
    
    
    97,415Deferred income taxes (non-current)
    
    
    6,684
    
    
    
    2,923
    
    
    
    9,607Retained earnings
    
    
    328,312
    
    
    
    (5,570
    )
    
    
    322,742Accumulated other comprehensive income
    
    
    6,979
    
    
    
    4,957
    
    
    
    11,936Total shareholders equity
    
    
    366,011
    
    
    
    (613
    )
    
    
    365,398Total liabilities and shareholders equity
    
    
    480,877
    
    
    
    2,231
    
    
    
    483,108
 2003As Previously
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedDeferred income taxes (current)
    
    $
    9,965
    
    
    $
    5,662
    
    
    $
    15,627Total current assets
    
    
    247,286
    
    
    
    5,662
    
    
    
    252,948Deferred income taxes (non-current)
    
    
    781
    
    
    
    (781
    )
    
    
    Total assets
    
    
    434,884
    
    
    
    4,881
    
    
    
    439,765Income taxes payable
    
    
    9,954
    
    
    
    (13
    )
    
    
    9,941Total current liabilities
    
    
    92,754
    
    
    
    (13
    )
    
    
    92,741Deferred income taxes (non-current)
    
    
    2,884
    
    
    
    4,925
    
    
    
    7,809Retained earnings
    
    
    296,970
    
    
    
    (7,535
    )
    
    
    289,435Accumulated other comprehensive income
(loss)
    
    
    (2,171
    )
    
    
    7,504
    
    
    
    5,333Total shareholders equity
    
    
    326,604
    
    
    
    (31
    )
    
    
    326,573Total liabilities and shareholders equity
    
    
    434,884
    
    
    
    4,881
    
    
    
    439,765
 82




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2004, 2003, 2002
 Note 16  Restatement (contd)
 Change in ValueAs Previously
    
    of Derivative
    
    AsYear Ended December 31, 2004
    
    Reported
    
    Instruments
    
    RestatedCost of goods sold
    
    $
    265,104
    
    
    $
    (2,621
    )
    
    $
    262,483Gross profit
    
    
    320,364
    
    
    
    2,621
    
    
    
    322,985General and administrative
    
    
    65,511
    
    
    
    (283
    )
    
    
    65,228Total operating expenses
    
    
    257,926
    
    
    
    (283
    )
    
    
    257,643Operating income
    
    
    62,438
    
    
    
    2,904
    
    
    
    65,342Income before provision for income taxes
    
    
    61,401
    
    
    
    2,904
    
    
    
    64,305Provision for income taxes
    
    
    19,851
    
    
    
    939
    
    
    
    20,790Net income
    
    
    41,550
    
    
    
    1,965
    
    
    
    43,515Basic net income per share
    
    $
    0.61
    
    
    $
    0.03
    
    
    $
    0.64Diluted net income per share
    
    $
    0.60
    
    
    $
    0.03
    
    
    $
    0.63Diluted weighted average common shares
    
    
    68,832,000
    
    
    
    68,610,000
    
    
    
    68,610,000
 Change in ValueAs Previously
    
    
    of Derivative
    
    
    AsYear Ended December 31, 2003
    
    Reported
    
    
    Instruments
    
    
    RestatedCost of goods sold
    
    $
    237,788
    
    
    $
    7,790
    
    
    $
    245,578Gross profit
    
    
    290,246
    
    
    
    (7,790
    )
    
    
    282,456General and administrative
    
    
    58,918
    
    
    
    283
    
    
    
    59,201Total operating expenses
    
    
    230,211
    
    
    
    283
    
    
    
    230,494Operating income
    
    
    60,035
    
    
    
    (8,073
    )
    
    
    51,962Income before provision for income taxes
    
    
    58,763
    
    
    
    (8,073
    )
    
    
    50,690Provision for income taxes
    
    
    20,567
    
    
    
    (2,826
    )
    
    
    17,741Net income
    
    
    38,196
    
    
    
    (5,247
    )
    
    
    32,949Basic net income per share
    
    $
    0.56
    
    
    $
    (0.08
    )
    
    $
    0.48Diluted net income per share
    
    $
    0.56
    
    
    $
    (0.08
    )
    
    $
    0.48
 Change in ValueAs Previously
    
    of Derivative
    
    AsYear Ended December 31, 2002
    
    Reported
    
    Instruments
    
    RestatedCost of goods sold
    
    $
    222,845
    
    
    $
    5,454
    
    
    $
    228,299Gross profit
    
    
    273,246
    
    
    
    (5,454
    )
    
    
    267,792General and administrative
    
    
    52,335
    
    
    
    
    
    
    
    52,335Operating income
    
    
    64,161
    
    
    
    (5,454
    )
    
    
    58,707Income before provision for income taxes
    
    
    62,518
    
    
    
    (5,454
    )
    
    
    57,064Provision for income taxes
    
    
    21,881
    
    
    
    (1,909
    )
    
    
    19,972Net income
    
    
    40,637
    
    
    
    (3,545
    )
    
    
    37,092Basic net income per share
    
    $
    0.59
    
    
    $
    (0.05
    )
    
    $
    0.54Diluted net income per share
    
    $
    0.59
    
    
    $
    (0.06
    )
    
    $
    0.53
 83




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2004, 2003, 2002
 Note 16  Restatement (contd)
 Change in ValueAs Previously
    
    of Derivative
    
    Other
    
    AsYear Ended December 31, 2004
    
    Reported
    
    Instruments
    
    Adjustment
    
    RestatedOther comprehensive income (loss):Net unrealized gain (loss) on derivative
instruments, net of tax
    
    $
    2,220
    
    
    $
    (1,931
    )
    
    $
    
    
    
    $
    289Foreign currency translation adjustment
    
    
    6,930
    
    
    
    
    
    
    
    (616
    )
    
    
    6,314Other comprehensive income (loss)
    
    
    9,150
    
    
    
    (1,931
    )
    
    
    (616
    )
    
    
    6,603
 Change in ValueAs Previously
    
    of Derivative
    
    Other
    
    AsYear Ended December 31, 2003
    
    Reported
    
    Instruments
    
    Adjustment
    
    RestatedOther comprehensive income (loss):Net unrealized gain (loss) on derivative
instruments, net of tax
    
    $
    (4,088
    )
    
    $
    4,404
    
    
    $
    
    
    
    $
    316Foreign currency translation adjustment
    
    
    12,151
    
    
    
    (33
    )
    
    
    
    
    
    
    12,118Other comprehensive income
    
    
    8,063
    
    
    
    4,371
    
    
    
    
    
    
    
    12,434
 Change in ValueAs Previously
    
    of Derivative
    
    Other
    
    AsYear Ended December 31, 2002
    
    Reported
    
    Instruments
    
    Adjustment
    
    RestatedOther comprehensive income (loss):Net unrealized gain (loss) on derivative
instruments, net of tax
    
    $
    (4,181
    )
    
    $
    3,569
    
    
    $
    
    
    
    $
    (612
    )Foreign currency translation adjustment
    
    
    2,378
    
    
    
    28
    
    
    
    
    
    
    
    2,406Other comprehensive income (loss)
    
    
    (1,803
    )
    
    
    3,597
    
    
    
    
    
    
    
    1,794
 84




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##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Schedule
II  Valuation and Qualifying Accounts  For the Years Ended December 31, 2004, 2003, 2002
 AdditionsBalance at
    
    charged to
    
    
    
    
    
    
    
    
    
    Balancebeginning
    
    costs and
    
    
    
    
    
    
    
    
    
    at end ofof period
    
    expense
    
    Deductions
    
    Adjustments
    
    period(in thousands)For the year ended December 31, 2004:Allowance for doubtful accounts
    
    $
    2,623
    
    
    $
    1,601
    
    
    $
    (1,602
    )
    
    $
    
    
    
    $
    2,622Sales return reserve
    
    $
    7,049
    
    
    $
    3,964
    
    
    $
    (2,590
    )
    
    $
    
    
    
    $
    8,423Inventory reserve
    
    $
    7,250
    
    
    $
    3,652
    
    
    $
    (581
    )
    
    $
    
    
    
    $
    10,321For the year ended December 31, 2003:Allowance for doubtful accounts
    
    $
    2,606
    
    
    $
    1,738
    
    
    $
    (1,721
    )
    
    $
    
    
    
    $
    2,623Sales return reserve
    
    $
    5,825
    
    
    $
    4,707
    
    
    $
    (3,483
    )
    
    $
    
    
    
    $
    7,049Inventory reserve
    
    $
    7,158
    
    
    $
    1,501
    
    
    $
    (1,409
    )
    
    $
    
    
    
    $
    7,250For the year ended December 31, 2002:Allowance for doubtful accounts
    
    $
    1,844
    
    
    $
    1,877
    
    
    $
    (1,115
    )
    
    $
    
    
    
    $
    2,606Sales return reserve
    
    $
    4,111
    
    
    $
    5,108
    
    
    $
    (3,394
    )
    
    $
    
    
    
    $
    5,825Inventory reserve
    
    $
    8,074
    
    
    $
    1,630
    
    
    $
    (2,546
    )
    
    $
    
    
    
    $
    7,158
 85




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##### Table of Contents



Signatures
  OAKLEY, INC.By:
    
    /s/ D. Scott Olivet

D. Scott OlivetChief Executive Officer
   Signature
    
    Title
    
    Date/s/ D. Scott Olivet
    
    Chief Executive Officer
(Principal Executive Officer)
    
    March 31, 2006D. Scott Olivet/s/ Richard Shields
    
    Chief Financial Officer
(Principal Financial and Accounting Officer)
    
    March 31, 2006Richard Shields/s/ Jim Jannard
    
    Chairman of the Board of Directors
    
    March 31, 2006Jim Jannard/s/ Link Newcomb
    
    Chief Operating Officer and Director
    
    March 31, 2006Link Newcomb/s/ Tom Davin
    
    Director
    
    March 31, 2006Tom Davin/s/ Mary George
    
    Director
    
    March 31, 2006Mary George/s/ Colombe Nicholas
    
    Director
    
    March 31, 2006Colombe Nicholas/s/ Michael Puntoriero
    
    Director
    
    March 31, 2006Michael Puntoriero/s/ Greg Trojan
    
    Director
    
    March 31, 2006Greg Trojan/s/ Frits van Paasschen
    
    Director
    
    March 31, 2006Frits van Paasschen




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##### Table of Contents



10.22(14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Tom George.10.23(14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Donna Gordon.10.24(14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Scott Bowers.10.25(14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Jon Krause.10.26(14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Kent Lane.10.27(14)
    
    Indemnification Agreement, dated February 14, 2003, between Oakley, Inc. and Carlos Reyes.10.28(15)
    
    Indemnification Agreement, dated March 26, 2003, between Oakley, Inc. and Irene Miller.10.29(15)
    
    Indemnification Agreement, dated March 26, 2003, between Oakley, Inc. and Abbott Brown.10.30(15)
    
    Indemnification Agreement, dated March 26, 2003, between Oakley, Inc. and Lee Clow.10.31 (16)
    
    Aircraft Lease Agreement, dated December 18, 2003, between Oakley, Inc. and N2T, Inc.10.32 (16)
    
    Indemnification Agreement, dated February 12, 2004, between Oakley, Inc. and Thomas Davin.10.33 (17)
    
    Agreement and Mutual Release, dated March 5, 2004, between N2T, Inc. and Oakley, Inc.10.34 (17)
    
    Severance Agreement, dated March 5, 2004, between Link Newcomb and Oakley, Inc.10.35 (17)
    
    Executive Severance Plan effective as of January 1, 200410.36 (17)
    
    Officer Severance Plan effective as of January 1, 200410.37 (18)
    
    Third Amended and Restated Credit Agreement, dated August 19, 2004 among Oakley, Inc., as
borrower, and Bank of America, N.A., as agent, Swing Line Lender and the lenders named
therein.10.38 (18)
    
    Indemnification Agreement, dated September 29, 2004, between Oakley, Inc. and Cosmas N.
Lykos.10.39 (18)
    
    Indemnification Agreement, dated September 29, 2004, between Oakley, Inc. and Mary George.10.40 (19)
    
    Indemnification Agreement, dated January 1, 2005, between Oakley, Inc. and Michael J.
Puntoriero.21.1(19)
    
    List of Material Subsidiaries23.1(20)
    
    Consent of Deloitte & Touche LLP, independent registered public accounting firm.31.1(20)
    
    Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2(20)
    
    Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1(20)
    
    Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
 (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,
1996.(4)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended March 31,
1997.(5)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 1997.(6)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30,
1998.(7)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 1998.(8)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
1998.(9)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30,
1999.(10)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
1999.(11)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 2000.(12)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
2000.




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##### Table of Contents



(13)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30,
2002.(14)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
2002.(15)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended March 31,
2003.(16)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
2003.(17)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended March 31,
2004.(18)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 2004.(19)
    
    Previously filed on March 16, 2005 with the Form 10-K of Oakley, Inc. for the year
ended December 31, 2004.(20)
    
    Filed herewith.




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##### Table of Contents



3.1(1)
    
    Articles of Incorporation of the Company3.2(8)
    
    Amended and Restated Bylaws of the Company3.3(3)
    
    Amendment No. 1 to the Articles of Incorporation as filed with the Secretary of State of
the State of Washington on September 26, 19963.4(8)
    
    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 Jordan10.2(4)
    
    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)10.3(4)
    
    Promissory Note, dated March 20, 1997, between Oakley, Inc. and Bank of America National
Trust and Savings Association10.4(5)
    
    Promissory Note, dated August 7, 1997, between Oakley, Inc. and Bank of America National
Trust and Savings Association10.5(5)
    
    Amendment No. 1 to Promissory Note, dated August 14, 1997, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.6(5)
    
    Amendment No. 2 to Promissory Note, dated August 14, 1997, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.7(5)
    
    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
Association10.8(6)
    
    Amended and Restated Consultant Agreement, dated May 12, 1998, between Jim Jannard and
Oakley, Inc.10.9(7)
    
    Modification Agreement (Short Form), dated August 10, 1998, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.10(7)
    
    Modification Agreement (Long Form), dated August 10, 1998, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.11(9)
    
    Oakley, Inc. Amended and Restated 1995 Stock Incentive Plan10.12(9)
    
    Oakley, Inc. Amended and Restated Executive Officers Performance Bonus Plan10.13(10)
    
    Second Amended and Restated Employment Agreement, dated January 1, 2000, between Thomas
George and Oakley, Inc.10.14(11)
    
    Employment Agreement, dated October 1, 2000, between Tomas Rios and Oakley, Inc.10.15(12)
    
    Lease Agreement, dated November 10, 2000, between Haven Gateway LLC and Oakley, Inc.10.16(12)
    
    Trademark License Agreement and Assignment of Rights, dated March 31, 2000, between Y,
LLC and Oakley, Inc.10.17(13)
    
    Amendment to Trademark License Agreement, dated June 1, 2002, between Y, LLC and Oakley,
Inc.10.18(14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Jim Jannard.10.19(14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Link Newcomb.10.20(14)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Colin Baden.10.21(14)
    
    Indemnification Agreement, dated February 14, 2003, between Oakley, Inc. and Tommy Rios.