##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-K
 
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For
the fiscal year ended December 31, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For
the transition period from  to
 Commission File Number: 1-13848
 
 Oakley,
Inc.
  Washington
    
    95-3194947(State or other jurisdiction of
Incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 One Icon, Foothill Ranch, California
    
    92610(Address of principal executive offices);
    
    (ZIP 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
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



Oakley, Inc.
 TABLE OF CONTENTS
 PART I
    
    
    
    
    1Item 1.
    
    Business
    
    
    1Item 1a.
    
    Risk Factors
    
    
    12Item 1b.
    
    Unresolved Staff Comments
    
    
    16Item 2.
    
    Properties
    
    
    17Item 3.
    
    Legal Proceedings
    
    
    17Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    17PART IIItem 5.
    
    Market for Registrants Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities
    
    
    18Item 6.
    
    Selected Financial Data
    
    
    20Item 7.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    21Item 7a.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    41Item 8.
    
    Financial Statements and Supplementary Data
    
    
    43Item 9.
    
    Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    78Item 9a.
    
    Controls and Procedures
    
    
    78PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    80Item 11.
    
    Executive Compensation
    
    
    80Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters
    
    
    80Item 13.
    
    Certain Relationships and Related Transactions
    
    
    80Item 14.
    
    Principal Accountant Fees and Services
    
    
    80PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    81EXHIBIT 10.41EXHIBIT 10.42EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




---



##### Table of Contents



Part I
 
 Item 1. Business
 General
 Oakley, Inc. is a Washington corporation that commenced operations in 1977 and began to sell
sunglasses in 1984. As used in this report, the terms we, us, Oakley and the Company refer
to Oakley, Inc. and its predecessors, subsidiaries and affiliates, unless the context indicates
otherwise. Our Internet address is www.oakley.com. On our investor relations website, located at
investor.oakley.com, we post the following filings as soon as reasonably practicable after they are
electronically filed with or furnished to the Securities and Exchange Commission (the SEC): our
annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and
any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the Exchange Act). All such filings on our investor
relations website are free of charge. Also available on our investor relations website are the
charters of the committees of our board of directors, as well as our corporate governance
guidelines, code of business conduct and code of ethics for chief executive and chief financial
officers. Copies of any of these documents will be provided in print to any shareholder who
submits a request in writing to Corporate Secretary, Oakley, Inc., One Icon, Foothill Ranch,
California, 92610.
 ®
  1




---



##### Table of Contents



Recent Developments
 ® ® ®
  Products and Technology
  Optics Products
 High Definition Optics ® HDO ® )
  HDO ® HDO ®
 XYZ
Optics ®
 2




---



##### Table of Contents



Polaric Ellipsoid ®
 Plutonite ®
 Iridium ® Iridium ®
 Polarized Lenses Plutonite ® Plutonite ® XYZ Optics ®
 HDO ® HDO ®
 Clarity Test HDO ® HDO ®
 Refractive Power Test HDO ®
 Prism Test HDO ®
   3




---



##### Table of Contents



Goggles and Shields
 HDO ® Plutonite ®
  Prescription Frames and Lenses
 HDO ®
 Electronically Enabled Eyewear
 ® ®
 Apparel, Footwear and Accessories Products
 Apparel and Accessories
  4




---



##### Table of Contents



Footwear
  Watches
  Product Line and Brand Extensions
  Product Design and Development
   Manufacturing and Sourcing
 X-Metal ®
 5




---



##### Table of Contents



Product Distribution
 U.S. Wholesale
    6




---



##### Table of Contents



Retail and Internet
 ® ®
  ® ®
 Oakley Operated Retail Stores:
 At December 31,2005
    
    2004Oakley BrandedU.S.
    
    
    44
    
    
    
    36International
    
    
    7
    
    
    
    5Sunglass SpecialtyU.S.
    
    
    105
    
    
    
    83
  www.oakley.com
  7




---



##### Table of Contents



International
 Notes to Consolidated
Financial Statements
  Seasonality
   Principal Customers
   8




---



##### Table of Contents



Backlog
  Marketing and Promotions
    Intellectual Property
 ®
  Number ofUtility/Design Patents
    
    Number of TrademarksIssued
    
    Pending
    
    Issued
    
    PendingUnited States
    
    
    175
    
    
    
    55
    
    
    
    153
    
    
    
    100International
    
    
    370
    
    
    
    131
    
    
    
    953
    
    
    
    162
 9




---



##### Table of Contents



Employees
  Competition
   10




---



##### Table of Contents



Environmental Matters
  U.S and International Operations
 Notes to the Consolidated Financial Statements
 11




---



##### Table of Contents



Item 1a. Risk Factors
 Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations
 One of our largest customers is also a major competitor. Our sales to this customer may decline.
  The industries in which we compete are highly competitive; we may not be successful in developing
products that enable us to compete effectively.
  Our markets are characterized by frequent product innovation and changing consumer preferences. As
a result, we could accumulate significant unsold inventory, which may require us to reduce prices
and experience reduced sales, margins and consumer acceptance.
  12




---



##### Table of Contents



We could be significantly harmed if any of our key personnel were to depart.
  We may not be successful in protecting our proprietary rights, which could permit competitors to
offer products that compete more effectively and could increase our enforcement costs.
   13




---



##### Table of Contents



We are dependent upon a single source supplier for a major component. The loss of this or other
major suppliers could materially adversely affect our business.
  Our principal shareholder may exercise control over the Company.
  We have recently acquired, and may in the future acquire, other businesses. The integration of
these businesses would require substantial time and resources and may not be successful.
  14




---



##### Table of Contents



We are subject to numerous risks and uncertainties arising out of our substantial 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; and
    
    less protective foreign laws relating to intellectual property
    
    changes in the fair value of foreign currency derivative instruments.
   We are dependent upon endorsement contracts with athletes and personalities, who may discontinue
arrangements that may not be replaced suitable alternatives.
  15




---



##### Table of Contents



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 backlog, 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;
    
    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;
    
    natural disasters; or
    
    earthquakes concentrated in Southern California where a significant portion of the Companys operations are based and could
result in a disruption of its operations, manufacturing and information systems.
  
 Item 1b. Unresolved Staff Comments
  16




---



##### Table of Contents



Item 2. Properties
 X-Metal ®
  
 Item 3. Legal Proceedings
   
 Item 4. Submission of Matters to a Vote of Security Holders
  17




---



##### Table of Contents



Part II
 
 Item 5. Market for Registrants Common Equity, Related
 Shareholder Matters and Issuer Purchases of Equity Securities
  High
    
    Low2005First Quarter
    
    $
    13.60
    
    
    $
    11.49Second Quarter
    
    $
    17.35
    
    
    $
    12.10Third Quarter
    
    $
    18.90
    
    
    $
    16.24Fourth Quarter
    
    $
    17.85
    
    
    $
    13.872004First Quarter
    
    $
    15.91
    
    
    $
    13.24Second Quarter
    
    $
    16.18
    
    
    $
    12.45Third Quarter
    
    $
    13.00
    
    
    $
    9.85Fourth Quarter
    
    $
    13.85
    
    
    $
    11.36
  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
    
    
    3,865,086
    
    
    $
    11.85
    
    
    
    973,957Equity compensation
plans not approved
by security holders
    
    Not applicable
    
    Not applicable
    
    Not applicable
 18




---



##### Table of Contents



(d)(c)
    
    
    Approximate dollar(a)
    
    
    
    
    
    
    Total number of
    
    
    value of shares thatTotal
    
    
    (b)
    
    
    shares purchased as
    
    
    may yet benumber of
    
    
    Average
    
    
    part of publicly
    
    
    purchased undershares
    
    
    price paid
    
    
    announced plans
    
    
    the plans orPeriod
    
    purchased
    
    
    per share
    
    
    or program
    
    
    program (2)October 1  31, 2005
(1)
    
    
    50,000
    
    
    $
    14.30
    
    
    
    50,000
    
    
    $
    13,650,000November 1  30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    13,650,000December 1  31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    13,650,000Total
    
    
    50,000
    
    
    $
    14.30
    
    
    
    50,000
 
 1)
    
    During the fourth quarter of 2005, the Company purchased 50,000 shares of its Common Stock
at an average price of $14.30 pursuant to the repurchase program that was publicly announced
on March 15, 2005.2)
    
    In March 2005, the Companys Board of Directors authorized the repurchase of $20.0 million
of the Companys Common Stock to occur from time to time as market conditions warrant. 
 19




---



##### Table of Contents



Item 6. Selected Financial Data
 Index to Consolidated Financial Statements Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(dollars in thousands, except share and per share data)Income Statement Data:Net sales
    
    $
    648,131
    
    
    $
    585,468
    
    
    $
    528,034
    
    
    $
    496,091
    
    
    $
    429,267Cost of goods sold
    
    
    277,230
    
    
    
    262,483
    
    
    
    245,578
    
    
    
    228,299
    
    
    
    170,531Gross profit
    
    
    370,901
    
    
    
    322,985
    
    
    
    282,456
    
    
    
    267,792
    
    
    
    258,736Operating expenses:Research and development
    
    
    17,851
    
    
    
    15,962
    
    
    
    14,308
    
    
    
    16,016
    
    
    
    11,318Selling (1)
    
    
    174,641
    
    
    
    160,946
    
    
    
    143,549
    
    
    
    127,725
    
    
    
    109,223Shipping and warehousing
    
    
    17,485
    
    
    
    17,087
    
    
    
    14,620
    
    
    
    13,739
    
    
    
    16,997General and administrative (1)
    
    
    71,426
    
    
    
    63,648
    
    
    
    58,017
    
    
    
    51,605
    
    
    
    43,331Total operating expenses
    
    
    281,403
    
    
    
    257,643
    
    
    
    230,494
    
    
    
    209,085
    
    
    
    180,869Operating income
    
    
    89,498
    
    
    
    65,342
    
    
    
    51,962
    
    
    
    58,707
    
    
    
    77,867Interest (income) expense, net
    
    
    (446
    )
    
    
    1,037
    
    
    
    1,272
    
    
    
    1,643
    
    
    
    3,108Income before provision for
income taxes
    
    
    89,944
    
    
    
    64,305
    
    
    
    50,690
    
    
    
    57,064
    
    
    
    74,759Provision for income taxes
    
    
    30,284
    
    
    
    20,790
    
    
    
    17,741
    
    
    
    19,972
    
    
    
    21,680Net income
    
    $
    59,660
    
    
    $
    43,515
    
    
    $
    32,949
    
    
    $
    37,092
    
    
    $
    53,079Basic net income per share
    
    $
    0.88
    
    
    $
    0.64
    
    
    $
    0.48
    
    
    $
    0.54
    
    
    $
    0.77Basic weighted average common
shares
    
    
    68,101,000
    
    
    
    67,953,000
    
    
    
    68,006,000
    
    
    
    68,732,000
    
    
    
    68,856,000Diluted net income per share
    
    $
    0.87
    
    
    $
    0.63
    
    
    $
    0.48
    
    
    $
    0.53
    
    
    $
    0.76Diluted weighted average
common shares
    
    
    68,930,000
    
    
    
    68,610,000
    
    
    
    68,282,000
    
    
    
    69,333,000
    
    
    
    69,751,000Dividend per share
    
    $
    0.16
    
    
    $
    0.15
    
    
    $
    0.14
    
    
    $
    
    
    
    $
    
 At December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001Balance Sheet Data:Working capital
    
    $
    250,815
    
    
    $
    199,475
    
    
    $
    160,207
    
    
    $
    130,152
    
    
    $
    105,553Total assets
    
    
    521,714
    
    
    
    483,108
    
    
    
    439,765
    
    
    
    385,081
    
    
    
    362,009Total debt
    
    
    22,080
    
    
    
    30,248
    
    
    
    28,700
    
    
    
    30,757
    
    
    
    59,042Shareholders equity
    
    
    421,205
    
    
    
    365,398
    
    
    
    326,573
    
    
    
    294,676
    
    
    
    261,503
 
 (1)
    
    For fiscal years 2004, 2003, 2002 and 2001, amounts reflect the reclassification of credit card
fees incurred in connection with customer transactions at the Companys retail stores and in direct
sales operations from general and administrative expense into selling expense to be more consistent
with industry practice of accounting for retail stores and to conform to current year presentation.
See Note 1  Reclassifications 20




---



##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
    Critical Accounting Policies
  Revenue Recognition
  21




---



##### Table of Contents



Inventory Sale and Purchase Transactions with the Same Third Party
     Inventories
  22




---



##### Table of Contents



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
 23




---



##### Table of Contents



Warranties
   Income Taxes
   Insurance Coverage
  24




---



##### Table of Contents



Foreign Currency Translation
  25




---



##### Table of Contents



Results of Operations
  OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Net sales
    
    $
    648,131
    
    
    $
    585,468
    
    
    $
    528,034Cost of goods sold
    
    
    277,230
    
    
    
    262,483
    
    
    
    245,578Gross profit
    
    
    370,901
    
    
    
    322,985
    
    
    
    282,456Operating expenses:Research and development
    
    
    17,851
    
    
    
    15,962
    
    
    
    14,308Selling (1)
    
    
    174,641
    
    
    
    160,946
    
    
    
    143,549Shipping and warehousing
    
    
    17,485
    
    
    
    17,087
    
    
    
    14,620General and administrative (1)
    
    
    71,426
    
    
    
    63,648
    
    
    
    58,017Total operating expenses
    
    
    281,403
    
    
    
    257,643
    
    
    
    230,494Operating income
    
    
    89,498
    
    
    
    65,342
    
    
    
    51,962Interest (income) expense, net
    
    
    (446
    )
    
    
    1,037
    
    
    
    1,272Income before provision for income taxes
    
    
    89,944
    
    
    
    64,305
    
    
    
    50,690Provision for income taxes
    
    
    30,284
    
    
    
    20,790
    
    
    
    17,741Net income
    
    $
    59,660
    
    
    $
    43,515
    
    
    $
    32,949
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    42.8
    
    
    
    44.8
    
    
    
    46.5Gross profit
    
    
    57.2
    
    
    
    55.2
    
    
    
    53.5Operating expenses:Research and development
    
    
    2.8
    
    
    
    2.7
    
    
    
    2.7Selling
    
    
    26.9
    
    
    
    27.5
    
    
    
    27.2Shipping and warehousing
    
    
    2.7
    
    
    
    2.9
    
    
    
    2.8General and administrative
    
    
    11.0
    
    
    
    10.9
    
    
    
    11.0Total operating expenses
    
    
    43.4
    
    
    
    44.0
    
    
    
    43.7Operating income
    
    
    13.8
    
    
    
    11.2
    
    
    
    9.8Interest (income) expense, net
    
    
    (0.1
    )
    
    
    0.2
    
    
    
    0.2Income before provision for income taxes
    
    
    13.9
    
    
    
    11.0
    
    
    
    9.6Provision for income taxes
    
    
    4.7
    
    
    
    3.6
    
    
    
    3.4Net income
    
    
    9.2
    %
    
    
    7.4
    %
    
    
    6.2
    %
 
  26




---



##### Table of Contents



Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 Net sales
       27




---



##### Table of Contents



Gross profit
  2005
    
    2004
    
    2003Gross margin excluding changes in fair value
of foreign currency derivatives
    
    55.2%
    
    54.7%
    
    55.0%
  Operating expenses
   28




---



##### Table of Contents



Operating income
  Interest income (expense), net
  29




---



##### Table of Contents



Income taxes
   Net income
  Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
 Net sales
  ,
 30




---



##### Table of Contents



31




---



##### Table of Contents



Gross profit
  Operating expenses
     32




---



##### Table of Contents



Operating income
  Interest expense, net
  Income taxes
   33




---



##### Table of Contents



Net income
  Liquidity and Capital Resources
   Credit Facilities
  34




---



##### Table of Contents



Note Payable
  Capital Expenditures
  Stock Repurchase
  35




---



##### Table of Contents



Cash Dividend
  Contractual Obligations and Commitments
  Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter(dollars in thousands)Lines of credit
    
    $
    11,349
    
    
    $
    11,349
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Long-term debt
    
    
    10,251
    
    
    
    1,519
    
    
    
    8,732
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest payable on
contractual obligations
    
    
    1,060
    
    
    
    647
    
    
    
    413
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Note payable
    
    
    500
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Letters of credit
    
    
    2,257
    
    
    
    2,257
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    135,688
    
    
    
    21,529
    
    
    
    20,166
    
    
    
    18,138
    
    
    
    16,611
    
    
    
    15,613
    
    
    
    43,631Endorsement contracts (1)
    
    
    11,422
    
    
    
    7,373
    
    
    
    3,822
    
    
    
    227
    
    
    
    
    
    
    
    
    
    
    
    Product purchase
commitments (2)
    
    
    78,206
    
    
    
    43,206
    
    
    
    8,750
    
    
    
    8,750
    
    
    
    8,750
    
    
    
    8,750Capital expenditure
purchase commitments
    
    
    751
    
    
    
    751
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    251,484
    
    
    $
    89,131
    
    
    $
    41,883
    
    
    $
    27,115
    
    
    $
    25,361
    
    
    $
    24,363
    
    
    $
    43,631
 
 1)
    
    The Company has entered into endorsement contracts with selected athletes and others who
endorse the Companys products. Under these contracts, the Company has agreed to pay
certain incentives based on specific achievements and is required to pay minimum annual
payments. The amounts listed above for endorsement contracts represent approximate amounts
of minimum compensation required to be paid under these contracts. The estimated total
maximum amount that could be paid under existing contracts is approximately $12.1 million
and would assume that all achievements are met. Actual amounts paid under these contracts
may be higher or lower than the amounts listed as a result of the variable nature of these
obligations.2)
    
    Amounts listed for purchase obligations represent contractual agreements, letters of
credit and open purchase orders for products or services to be incurred in the ordinary
course of business, which are enforceable and legally binding and specify all significant
terms. (See Note 8 in Notes to Consolidated Financial Statements.) Warranty Provision
  2005
    
    
    2004
    
    
    2003(in thousands)Balance as of January 1,
    
    $
    3,107
    
    
    $
    2,921
    
    
    $
    3,537Warranty claims and expenses
    
    
    (3,751
    )
    
    
    (3,959
    )
    
    
    (3,511
    )Provisions for warranty expense
    
    
    3,712
    
    
    
    4,124
    
    
    
    2,851Changes due to foreign currency translation
    
    
    0
    
    
    
    21
    
    
    
    44Balance as of December 31,
    
    $
    3,068
    
    
    $
    3,107
    
    
    $
    2,921
 36




---



##### Table of Contents



Seasonality
  2005
    
    
    2004Mar. 31
    
    
    June 30
    
    
    Sept. 30
    
    
    Dec. 31
    
    
    Mar. 31
    
    
    June 30
    
    
    Sept. 30
    
    
    Dec. 31(in thousands)Net sales (1)
    
    $
    141,795
    
    
    $
    170,475
    
    
    $
    173,447
    
    
    $
    162,414
    
    
    $
    128,636
    
    
    $
    153,826
    
    
    $
    150,044
    
    
    $
    152,962Gross profit (1)
    
    
    81,590
    
    
    
    106,831
    
    
    
    94,450
    
    
    
    88,030
    
    
    
    69,901
    
    
    
    92,922
    
    
    
    84,017
    
    
    
    76,145
 
 (1)
    
    Amounts reflect the restatement as discussed in Note 16.  Backlog
  Inflation
  New Accounting Pronouncements
 Notes to
Consolidated Financial Statements
 37




---



##### Table of Contents



GAAP and Non-GAAP Financial Measures
   Reconciliation of Gross Sales to Net Sales:
 Year ended December 31,2005
    
    
    2004
    
    
    2003(in thousands)Gross sales
    
    $
    693,342
    
    
    $
    621,652
    
    
    $
    567,077Discounts and returns
    
    
    (45,211
    )
    
    
    (36,184
    )
    
    
    (39,043
    )Net sales
    
    $
    648,131
    
    
    $
    585,468
    
    
    $
    528,034
   38




---



##### Table of Contents



Reconciliation to Gross Profit:
 Change in fair
    
    
    Excluding changesReported
    
    
    value of foreign
    
    
    in fair value ofunder
    
    
    currency
    
    
    foreign currencyGAAP
    
    
    derivatives
    
    
    derivatives(in thousand, except for percentages)Year ended December 31, 2005Net sales
    
    $
    648,131
    
    
    
    
    
    
    $
    648,131Cost of goods sold
    
    
    277,230
    
    
    
    12,988
    
    
    
    290,218Gross profit
    
    
    370,901
    
    
    
    
    
    
    
    357,913Gross profit %
    
    
    57.2
    %
    
    
    
    
    
    
    55.2
    %Year ended
December 31, 2004Net sales
    
    $
    585,468
    
    
    
    
    
    
    $
    585,468Cost of goods sold
    
    
    262,483
    
    
    
    2,621
    
    
    
    265,104Gross profit
    
    
    322,985
    
    
    
    
    
    
    
    320,364Gross profit %
    
    
    55.2
    %
    
    
    
    
    
    
    54.7
    %Year ended
December 31, 2003Net sales
    
    $
    528,034
    
    
    
    
    
    
    $
    528,034Cost of goods sold
    
    
    245,578
    
    
    
    (7,790
    )
    
    
    237,788Gross profit
    
    
    282,456
    
    
    
    
    
    
    
    290,246Gross profit %
    
    
    53.5
    %
    
    
    
    
    
    
    55.0
    %
 39




---



##### Table of Contents



Forward-Looking Statements
 ;
 40




---



##### Table of Contents



Item 7a. Quantitative and Qualitative Disclosures about Market Risk
   Foreign currency
 Notes to Consolidated Financial Statements)
  U.S. Dollar
    
    
    
    
    Fair ValueEquivalent
    
    
    Maturity
    
    Gain (Loss)Exchange Contracts:Australian dollar
    
    $
    4,395
    
    
    Jan. 2006  Dec. 2006
    
    $
    135British pound
    
    
    16,542
    
    
    Feb. 2006  Dec. 2006
    
    
    1,457Canadian dollar
    
    
    14,118
    
    
    Jan. 2006  Dec. 2006
    
    
    (202
    )Euro
    
    
    25,262
    
    
    Jan. 2006  Dec. 2006
    
    
    1,312Japanese yen
    
    
    14,853
    
    
    Jan. 2006  Dec. 2006
    
    
    1,711South African rand
    
    
    2,372
    
    
    Mar. 2006  Sep. 2006
    
    
    (84
    )$
    77,542
    
    
    
    
    $
    4,329
  41




---



##### Table of Contents



Notes to
Consolidated Financial Statements
 Interest rates
   42




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Index To Consolidated Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
    44Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    45Consolidated Statements of Income and Consolidated Statements of Comprehensive
Income for the Years Ended December 31, 2005, 2004 and 2003
    
    
    46Consolidated Statements of Shareholders Equity for the Years Ended
December 31, 2005, 2004 and 2003
    
    
    47Consolidated Statements of Cash Flows for the Years Ended
December 31, 2005, 2004 and 2003
    
    
    48Notes to Consolidated Financial Statements
    
    
    49
 43




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
     Internal Control  Integrated
Framework
 
 44




---



##### Table of Contents



OAKLEY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share and per share data)
 December 31, 2005
    
    
    December 31, 2004ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    82,157
    
    
    $
    51,738Accounts receivable, less allowances
of $10,639 (2005) and $11,045 (2004)
    
    
    99,430
    
    
    
    102,817Inventories, net (Note 2)
    
    
    119,035
    
    
    
    115,061Other receivables
    
    
    4,656
    
    
    
    3,992Deferred income taxes
    
    
    11,707
    
    
    
    14,195Income taxes receivable
    
    
    3,059
    
    
    
    Prepaid expenses and other assets
    
    
    14,132
    
    
    
    9,087Total current assets
    
    
    334,176
    
    
    
    296,890Property and equipment, net
    
    
    153,218
    
    
    
    152,993Deposits
    
    
    2,197
    
    
    
    1,828Goodwill
    
    
    27,146
    
    
    
    25,699Other assets
    
    
    4,977
    
    
    
    5,698TOTAL ASSETS
    
    $
    521,714
    
    
    $
    483,108LIABILITIES
AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Line of credit (Note 7)
    
    $
    11,349
    
    
    $
    17,541Accounts payable
    
    
    30,772
    
    
    
    32,838Accrued expenses and other current liabilities (Note 5)
    
    
    36,173
    
    
    
    39,583Accrued warranty (Note 1)
    
    
    3,068
    
    
    
    3,107Income taxes payable
    
    
    
    
    
    
    2,327Current portion of long-term debt (Note 7)
    
    
    1,999
    
    
    
    2,019Total current liabilities
    
    
    83,361
    
    
    
    97,415Deferred income taxes
    
    
    8,156
    
    
    
    9,607Other long-term liabilities
    
    
    260
    
    
    
    Long-term debt, net of current portion (Note 7)
    
    
    8,732
    
    
    
    10,688COMMITMENTS 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; 69,153,000 (2005) and
68,077,000 (2004) issued and outstanding
    
    
    686
    
    
    
    678Additional paid-in capital
    
    
    48,026
    
    
    
    33,659Deferred compensation
    
    
    (6,082
    )
    
    
    (3,617
    )Retained earnings
    
    
    371,333
    
    
    
    322,742Accumulated other comprehensive income (Note 1)
    
    
    7,242
    
    
    
    11,936Total shareholders equity
    
    
    421,205
    
    
    
    365,398TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    521,714
    
    
    $
    483,108
 Notes to Consolidated Financial Statements
 45




---



##### Table of Contents



OAKLEY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (in thousands, except share and per share data)
 Year ended December 31,2005
    
    
    2004
    
    
    2003Net sales
    
    $
    648,131
    
    
    $
    585,468
    
    
    $
    528,034Cost of goods sold
    
    
    277,230
    
    
    
    262,483
    
    
    
    245,578Gross profit
    
    
    370,901
    
    
    
    322,985
    
    
    
    282,456Operating expenses:Research and development
    
    
    17,851
    
    
    
    15,962
    
    
    
    14,308Selling
    
    
    174,641
    
    
    
    160,946
    
    
    
    143,549Shipping and warehousing
    
    
    17,485
    
    
    
    17,087
    
    
    
    14,620General and administrative
    
    
    71,426
    
    
    
    63,648
    
    
    
    58,017Total operating expenses
    
    
    281,403
    
    
    
    257,643
    
    
    
    230,494Operating income
    
    
    89,498
    
    
    
    65,342
    
    
    
    51,962Interest (income) expense, net
    
    
    (446
    )
    
    
    1,037
    
    
    
    1,272Income before provision for income taxes
    
    
    89,944
    
    
    
    64,305
    
    
    
    50,690Provision for income taxes
    
    
    30,284
    
    
    
    20,790
    
    
    
    17,741Net income
    
    $
    59,660
    
    
    $
    43,515
    
    
    $
    32,949Basic net income per common share
    
    $
    0.88
    
    
    $
    0.64
    
    
    $
    0.48Basic weighted average common shares
    
    
    68,101,000
    
    
    
    67,953,000
    
    
    
    68,006,000Diluted net income per common share
    
    $
    0.87
    
    
    $
    0.63
    
    
    $
    0.48Diluted weighted average common shares
    
    
    68,930,000
    
    
    
    68,610,000
    
    
    
    68,282,000
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 Year ended December 31,2005
    
    
    2004
    
    
    2003Net income
    
    $
    59,660
    
    
    $
    43,515
    
    
    $
    32,949Other comprehensive income (loss):Net unrealized gain (loss) on cash flow hedges,
net of tax
    
    
    259
    
    
    
    289
    
    
    
    316Foreign currency translation adjustment
    
    
    (4,953
    )
    
    
    6,314
    
    
    
    12,118Other comprehensive income (loss)
    
    
    (4,694
    )
    
    
    6,603
    
    
    
    12,434Comprehensive income
    
    $
    54,966
    
    
    $
    50,118
    
    
    $
    45,383
 Notes to Consolidated Financial Statements
 46




---



##### 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, 2003
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    470Compensation
expense  stock
options
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Tax benefit related
to exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,511
    )
    
    
    
    
    
    
    (9,511
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,949
    
    
    
    
    
    
    
    32,949Other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,434
    
    
    
    12,434Balance as of
December 31, 2003
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,515
    
    
    
    
    
    
    
    43,515Other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,603
    
    
    
    6,603Balance as of
December 31, 2004
    
    
    68,077,000
    
    
    
    678
    
    
    
    33,659
    
    
    
    (3,617
    )
    
    
    322,742
    
    
    
    11,936
    
    
    
    365,398Repurchase of
common shares (Note
10)
    
    
    (865,000
    )
    
    
    (9
    )
    
    
    (11,779
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,788
    )Exercise of stock
options (Note 10)
    
    
    1,684,000
    
    
    
    17
    
    
    
    18,627
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,644Compensation
expense  stock
options
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17Tax benefit related
to exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    3,426
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,426Issuance of
restricted stock
    
    
    296,000
    
    
    
    
    
    
    
    4,673
    
    
    
    (4,673
    )
    
    
    
    
    
    
    
    
    
    
    Forfeiture
of restricted stock
    
    
    (39,000
    )
    
    
    
    
    
    
    (597
    )
    
    
    597
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,611
    
    
    
    
    
    
    
    
    
    
    
    1,611Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,069
    )
    
    
    
    
    
    
    (11,069
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,660
    
    
    
    
    
    
    
    59,660Other comprehensive
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,694
    )
    
    
    (4,694
    )Balance as of
December 31, 2005
    
    
    69,153,000
    
    
    $
    686
    
    
    $
    48,026
    
    
    $
    (6,082
    )
    
    $
    371,333
    
    
    $
    7,242
    
    
    $
    421,205
 Notes to Consolidated Financial Statements
 47




---



##### Table of Contents



OAKLEY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Year ended December 31,2005
    
    
    2004
    
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    59,660
    
    
    $
    43,515
    
    
    $
    32,949Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    33,269
    
    
    
    31,879
    
    
    
    30,790Changes in fair value of deriviative instruments
    
    
    (13,186
    )
    
    
    (2,959
    )
    
    
    8,073Provision for bad debt expense
    
    
    2,850
    
    
    
    1,601
    
    
    
    1,738Compensatory stock options and restricted stock expense
    
    
    1,627
    
    
    
    777
    
    
    
    11Tax benefit related to exercise of stock options and restricted stock
    
    
    3,426
    
    
    
    603
    
    
    
    35Loss on disposition of equipment
    
    
    831
    
    
    
    639
    
    
    
    1,413Deferred income taxes, net
    
    
    576
    
    
    
    3,349
    
    
    
    (1,928
    )Changes in assets and liabilities, net of effects of business acquisitions:Accounts receivable
    
    
    (2,667
    )
    
    
    (23,717
    )
    
    
    (5,403
    )Inventories
    
    
    (7,194
    )
    
    
    (13,779
    )
    
    
    (5,847
    )Other receivables
    
    
    (774
    )
    
    
    (533
    )
    
    
    1,936Prepaid expenses and other
    
    
    (946
    )
    
    
    (919
    )
    
    
    (1,558
    )Deposits
    
    
    (530
    )
    
    
    362
    
    
    
    670Accounts payable
    
    
    (2,300
    )
    
    
    6,521
    
    
    
    (125
    )Accrued expenses and other current liabilities
    
    
    7,169
    
    
    
    5,763
    
    
    
    4,446Accrued warranty
    
    
    (39
    )
    
    
    186
    
    
    
    (616
    )Income taxes receivable/payable
    
    
    (5,301
    )
    
    
    (7,659
    )
    
    
    9,445Net cash provided by operating activities
    
    
    76,471
    
    
    
    45,629
    
    
    
    76,029CASH FLOWS FROM INVESTING ACTIVITIES:Acquisitions of property and equipment
    
    
    (35,079
    )
    
    
    (30,385
    )
    
    
    (29,689
    )Proceeds from sale of property and equipment
    
    
    1,207
    
    
    
    311
    
    
    
    192Acquisitions of businesses
    
    
    (1,929
    )
    
    
    (450
    )
    
    
    (430
    )Other assets
    
    
    (181
    )
    
    
    (491
    )
    
    
    (665
    )Net cash used in investing activities
    
    
    (35,982
    )
    
    
    (31,015
    )
    
    
    (30,592
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from bank borrowings
    
    
    1,442
    
    
    
    3,416
    
    
    
    19,037Repayments of bank borrowings
    
    
    (8,045
    )
    
    
    (2,853
    )
    
    
    (23,919
    )Dividends paid
    
    
    (10,990
    )
    
    
    (10,208
    )
    
    
    (9,511
    )Net proceeds from exercise of stock options
    
    
    18,644
    
    
    
    3,458
    
    
    
    505Repurchase of common shares
    
    
    (11,788
    )
    
    
    (5,923
    )
    
    
    (4,491
    )Net cash used in financing activities
    
    
    (10,737
    )
    
    
    (12,110
    )
    
    
    (18,379
    )Effect of exchange rate changes on cash
    
    
    667
    
    
    
    23
    
    
    
    (95
    )Net increase in cash and cash equivalents
    
    
    30,419
    
    
    
    2,527
    
    
    
    26,963Cash and cash equivalents, beginning of period
    
    
    51,738
    
    
    
    49,211
    
    
    
    22,248Cash and cash equivalents, end of period
    
    $
    82,157
    
    
    $
    51,738
    
    
    $
    49,211Supplemental cash flow information:Cash paid during the year for:Interest
    
    $
    1,462
    
    
    $
    1,511
    
    
    $
    1,526Income taxes (net of refunds received)
    
    $
    30,299
    
    
    $
    23,031
    
    
    $
    8,573
 Notes to Consolidated Financial Statements
 48




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
 For the Years Ended December 31, 2005, 2004, 2003
 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
  49




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 1
 Significant Accounting Policies and Description of Business (contd)
 Property and Equipment
  Derivative Instruments
 Accounting for Derivative Instruments and Hedging
Activities 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
 50




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 1
 Significant Accounting Policies and Description of Business (contd)
 Goodwill and Intangible Assets
 Goodwill and Intangible
Assets
 Revenue Recognition
    51




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 1
 Significant Accounting Policies and Description of Business (contd)
 Inventory Sale and Purchase Transactions with the Same Third Party
     Shipping and Handling Costs
  Financial Instruments
  Accounts Receivable
  52




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 1
 Significant Accounting Policies and Description of Business (contd)
 Insurance Coverage
  Warranties
    2005
    
    
    2004
    
    
    2003(in thousands)Balance as of January 1,
    
    $
    3,107
    
    
    $
    2,921
    
    
    $
    3,537Warranty claims and expenses
    
    
    (3,751
    )
    
    
    (3,959
    )
    
    
    (3,511
    )Provisions for warranty expense
    
    
    3,712
    
    
    
    4,124
    
    
    
    2,851Changes due to foreign currency translation
    
    
    0
    
    
    
    21
    
    
    
    44Balance as of December 31,
    
    $
    3,068
    
    
    $
    3,107
    
    
    $
    2,921
 53




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 1
 Significant Accounting Policies and Description of Business (contd)
 Income Taxes
   Foreign Currency Translation
 Accounting for Derivative Instruments and Hedging Activities
 54




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 1
 Significant Accounting Policies and Description of Business (contd)
 Comprehensive Income
   As of December 31,2005
    
    
    2004(in thousands)Unrealized loss on interest rate swap, net of tax
    
    $
    (58
    )
    
    $
    (317
    )Equity adjustment from foreign currency translation
    
    
    7,300
    
    
    
    12,253$
    7,242
    
    
    $
    11,936
 Stock-Based Compensation
 Accounting for Stock Issued to
Employees Accounting for
Stock Based Compensation
 Stock Options
  2005
    
    2004
    
    2003Stock volatility
    
    35.2%
    
    36.0%
    
    50.2%Risk-free interest rate
    
    3.8%
    
    3.1%
    
    2.1%Expected dividend yield
    
    1.1%
    
    1.1%
    
    1.4%Expected life of option
    

5.6 years
    
5.0 years
    
3.8 years
 55




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 1
 Significant Accounting Policies and Description of Business (contd)
   2005
    
    
    2004
    
    
    2003(in thousands)Net income:As reported
    
    $
    59,660
    
    
    $
    43,515
    
    
    $
    32,949Add: Stock based employee compensation
expense as reported, net of tax effects
    
    
    1,030
    
    
    
    489
    
    
    
    Deduct: Total stock based employee
compensation expense determined under
fair value based method for all awards,
net of tax effects
    
    
    (1,925
    )
    
    
    (3,582
    )
    
    
    (3,071
    )Pro forma
    
    $
    58,765
    
    
    $
    40,422
    
    
    $
    29,878Basic net income per share:As reported
    
    $
    0.88
    
    
    $
    0.64
    
    
    $
    0.48Pro forma
    
    $
    0.86
    
    
    $
    0.59
    
    
    $
    0.44Diluted net income per share:As reported
    
    $
    0.87
    
    
    $
    0.63
    
    
    $
    0.48Pro forma
    
    $
    0.85
    
    
    $
    0.59
    
    
    $
    0.44
 Share-Based Payment
 56




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 1
 Significant Accounting Policies and Description of Business (contd)
  Earnings Per Share
  Advertising Costs
  57




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 1
 Significant Accounting Policies and Description of Business (contd)
 Customer Concentrations
  Supplier Concentrations
  New Accounting Pronouncements
 Inventory
Costs, an amendment of ARB No. 43, Chapter 4,
 Stock-Based
Compensation
 58




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 1
 Significant Accounting Policies and Description of Business (contd)
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in
Interim Financial Statements
 Reclassification
  Note 2
 Inventories
  2005
    
    
    2004(in thousands)Raw materials
    
    $
    28,776
    
    
    $
    29,219Finished goods
    
    
    90,259
    
    
    
    85,842$
    119,035
    
    
    $
    115,061
 Note 3
 Property and Equipment
  2005
    
    
    2004(in thousands)Land
    
    $
    8,953
    
    
    $
    8,953Buildings and leasehold improvements
    
    
    111,893
    
    
    
    100,042Equipment and furniture
    
    
    207,517
    
    
    
    201,700Tooling
    
    
    29,998
    
    
    
    26,995358,361
    
    
    
    337,690Less accumulated depreciation and amortization
    
    
    (205,143
    )
    
    
    (184,697
    )$
    153,218
    
    
    $
    152,993
 59




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 4
 Goodwill and Intangible Assets
   As of December 31, 2005
    
    
    As of December 31, 2004Gross carrying
    
    
    Accumulated
    
    
    Gross carrying
    
    
    Accumulatedamount
    
    
    amortization
    
    
    amount
    
    
    amortization(in thousands)Covenants not to compete
    
    $
    4,319
    
    
    $
    3,450
    
    
    $
    4,290
    
    
    $
    2,948Distribution rights
    
    
    3,567
    
    
    
    2,226
    
    
    
    3,567
    
    
    
    1,921Patents
    
    
    4,339
    
    
    
    2,423
    
    
    
    4,108
    
    
    
    2,032Other identified intangible assets
    
    
    923
    
    
    
    519
    
    
    
    923
    
    
    
    379Total
    
    $
    13,148
    
    
    $
    8,618
    
    
    $
    12,888
    
    
    $
    7,280
  Estimated Amortization Expense:
    
    (in thousands)Fiscal 2006
    
    $
    1,305Fiscal 2007
    
    
    949Fiscal 2008
    
    
    842Fiscal 2009
    
    
    776Fiscal 2010
    
    
    502
  Wholesale
    
    
    RetailUnited
    
    
    Continental
    
    
    Other
    
    
    U.S. RetailStates
    
    
    Europe
    
    
    Countries
    
    
    Operations
    
    
    Consolidated(in thousands)Balance, 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
    
    
    
    25,699Additions / adjustments:Goodwill additions (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,771
    
    
    
    1,771Changes due to foreign exchange rates
    
    
    
    
    
    
    
    
    
    
    (324
    )
    
    
    
    
    
    
    (324
    )Balance, December 31, 2005
    
    $
    1,574
    
    
    $
    
    
    
    $
    14,804
    
    
    $
    10,768
    
    
    $
    27,146
 
 (1)
    
    Reflects acquisitions made by the Companys Iacon subsidiary. 60




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 5
 Accrued Liabilities
  Years ended December 31,2005
    
    
    2004(in thousands)Accrued employee compensation and benefits
    
    $
    18,226
    
    
    $
    15,689Derivative liability
    
    
    91
    
    
    
    9,354Other liabilities
    
    
    17,856
    
    
    
    14,540$
    36,173
    
    
    $
    39,583
  Note 6
 Income Taxes
  2005
    
    
    2004
    
    
    2003(in thousands)United States
    
    $
    64,690
    
    
    $
    57,993
    
    
    $
    50,101Foreign
    
    
    25,254
    
    
    
    6,312
    
    
    
    589$
    89,944
    
    
    $
    64,305
    
    
    $
    50,690
  2005
    
    
    2004
    
    
    2003(in thousands)Current:Federal
    
    $
    22,565
    
    
    $
    13,550
    
    
    $
    12,937State
    
    
    2,173
    
    
    
    1,154
    
    
    
    1,554Foreign
    
    
    4,725
    
    
    
    2,670
    
    
    
    4,46929,463
    
    
    
    17,374
    
    
    
    18,960Deferred:Federal
    
    
    (3,071
    )
    
    
    2,428
    
    
    
    2,245State
    
    
    (151
    )
    
    
    236
    
    
    
    (207
    )Foreign
    
    
    4,043
    
    
    
    752
    
    
    
    (3,257
    )821
    
    
    
    3,416
    
    
    
    (1,219
    )$
    30,284
    
    
    $
    20,790
    
    
    $
    17,741
 61




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 6
 Income Taxes (contd)
     2005
    
    
    2004
    
    
    2003(in thousands)Tax at U.S. Federal statutory rates
    
    $
    31,480
    
    
    $
    22,508
    
    
    $
    17,741State income taxes, net
    
    
    1,309
    
    
    
    904
    
    
    
    815U.S. export
benefit, net of foreign tax rate differential
    
    
    (1,746
    )
    
    
    (1,668
    )
    
    
    (1,256
    )Other, net
    
    
    (759
    )
    
    
    (954
    )
    
    
    441$
    30,284
    
    
    $
    20,790
    
    
    $
    17,741
  62




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 6
 Income Taxes (contd)
  2005
    
    
    2004(in thousands)Deferred tax assets:Warranty reserve
    
    $
    1,126
    
    
    $
    1,090Uniform capitalization
    
    
    1,564
    
    
    
    1,345Sales returns reserve
    
    
    1,578
    
    
    
    1,493Inventory
    
    
    3,405
    
    
    
    1,585Allowance for doubtful accounts
    
    
    675
    
    
    
    523Accrued fringe benefits and compensation
    
    
    2,458
    
    
    
    2,569Restricted stock
    
    
    840
    
    
    
    342Deferred revenue
    
    
    2,224
    
    
    
    1,859Foreign net operating loss and credit carryovers
    
    
    5,049
    
    
    
    5,315Foreign unrealized gains/losses
    
    
    
    
    
    
    3,482Other
    
    
    2,135
    
    
    
    2,159Total deferred tax assets
    
    
    21,054
    
    
    
    21,762Deferred tax liabilities:Depreciation and amortization
    
    
    (9,327
    )
    
    
    (9,820
    )Other comprehensive income
    
    
    (652
    )
    
    
    (714
    )Foreign unrealized gains/losses
    
    
    (1,810
    )
    
    
    Other
    
    
    (665
    )
    
    
    (1,325
    )Total deferred tax liability
    
    
    (12,454
    )
    
    
    (11,859
    )Net deferred tax assets
    
    
    8,600
    
    
    
    9,903Less: valuation allowance
    
    
    (5,049
    )
    
    
    (5,315
    )Net deferred tax assets, net of valuation allowance
    
    $
    3,551
    
    
    $
    4,588
  63




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 6
 Income Taxes (contd)
  Note 7
 Debt
 Line of Credit
  Long-Term Debt
   64




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 7
 Debt (contd)
  Year EndingDecember 31,
    
    (in thousands)2006
    
    $
    2,0192007
    
    
    8,732$
    10,751
 Note 8
 Commitments and Contingencies
 Operating Leases
  Year EndingDecember 31,
    
    (in thousands)2006
    
    $
    21,5292007
    
    
    20,1662008
    
    
    18,1382009
    
    
    16,6112010
    
    
    15,613Thereafter
    
    
    43,631Total
    
    $
    135,688
   2005
    
    
    2004
    
    
    2003(in thousands)Retail store
and facility rent expense
    
    $
    24,460
    
    
    $
    18,992
    
    
    $
    14,741Related Party
    
    
    53
    
    
    
    
    
    
    
    90Total
    
    $
    24,513
    
    
    $
    18,992
    
    
    $
    14,831
 65




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 8
 Commitments and Contingencies (contd)
 Purchase Commitments
  Employment and Consulting Agreements
   Endorsement Contracts
  Year Ending December 31,
    
    (in thousands)2006
    
    $
    7,3732007
    
    
    3,8222008
    
    
    227Minimum annual endorsement contract commitments
    
    $
    11,422Estimated bonuses if all achievements are met
    
    
    662Maximum annual endorsement contract commitments
    
    $
    12,084
  66




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 8
 Commitments and Contingencies (contd)
 Indemnities, Commitments and Guarantees
  Litigation
   Note 9
 Derivative Financial Instruments
  67




---



##### Table of Contents



OAKLEY,
INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, 2003
 Note 9
 Derivative Financial Instruments (contd)
    U.S. Dollar
    
    
    
    
    
    
    Fair ValueEquivalent
    
    
    Maturity
    
    
    Gain (Loss)Exchange Contracts:Australian dollar
    
    $
    4,395
    
    
    Jan. 2006 - Dec. 2006
    
    $
    135British pound
    
    
    16,542
    
    
    Feb. 2006 - Dec. 2006
    
    
    1,457Canadian dollar
    
    
    14,118
    
    
    Jan. 2006 - Dec. 2006
    
    
    (202
    )Euro
    
    
    25,262
    
    
    Jan. 2006 - Dec. 2006
    
    
    1,312Japanese yen
    
    
    14,853
    
    
    Jan. 2006 - Dec. 2006
    
    
    1,711South African rand
    
    
    2,372
    
    
    Mar. 2006  Sep. 2006
    
    
    (84
    )$
    77,542
    
    
    
    
    
    
    $
    4,329
  68




---



##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2005, 2004, 2003
 Note 10  Shareholders Equity
 Stock Repurchase
  Stock Incentive Plan
    2005
    
    
    2004
    
    
    2003Outstanding shares at January 1
    
    
    4,339,963
    
    
    
    4,808,020
    
    
    
    3,905,227Granted
    
    
    983,055
    
    
    
    58,332
    
    
    
    1,080,697Cancelled
    
    
    (294,211
    )
    
    
    (174,627
    )
    
    
    (125,485
    )Exercised
    
    
    (1,684,039
    )
    
    
    (351,762
    )
    
    
    (52,419
    )Outstanding shares at December 31
    
    
    3,344,768
    
    
    
    4,339,963
    
    
    
    4,808,020Exercisable shares at December 31
    
    
    1,998,778
    
    
    
    3,553,968
    
    
    
    2,778,479Average exercise price at January 1
    
    $
    12.52
    
    
    $
    12.14
    
    
    $
    13.16Granted
    
    
    15.00
    
    
    
    13.53
    
    
    
    8.50Cancelled
    
    
    14.58
    
    
    
    12.05
    
    
    
    13.92Exercised
    
    
    11.07
    
    
    
    9.76
    
    
    
    9.38Average exercise price at December 31
    
    $
    13.58
    
    
    $
    12.52
    
    
    $
    12.14Weighted average exercise price of
exercisable options at December 31
    
    $
    13.87
    
    
    $
    12.98
    
    
    $
    12.25Weighted average fair value of
options granted during the year
    
    $
    3.36
    
    
    $
    4.53
    
    
    $
    3.07
 69




---



##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2005, 2004, 2003
 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
    
    
    653,732
    
    
    
    6.59
    
    
    $
    8.11
    
    
    
    295,666
    
    
    $
    7.97$9.06  11.00
    
    
    425,912
    
    
    
    3.88
    
    
    $
    10.24
    
    
    
    400,908
    
    
    $
    10.25$11.29  13.94
    
    
    840,750
    
    
    
    7.08
    
    
    $
    12.52
    
    
    
    357,580
    
    
    $
    12.29$14.00  25.10
    
    
    1,424,374
    
    
    
    6.95
    
    
    $
    17.71
    
    
    
    944,624
    
    
    $
    17.86
   Note 11  Employee Benefit Plan
  70




---



##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2005, 2004, 2003
 Note 12  Related Party Information
  Aircraft Lease
   Trademark License Agreement
  71




---



##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2005, 2004, 2003
 Note 12  Related Party Information (contd)
 Reimbursable Cost
  Note 13  Segment and Geographic Information
   2005Inter-segment
    
    TotalWholesale
    
    U.S. Retail
    
    transactions
    
    consolidatedNet sales
    
    $
    571,632
    
    
    $
    100,996
    
    
    $
    (24,497
    )
    
    $
    648,131Operating income
    
    
    73,933
    
    
    
    15,630
    
    
    
    (65
    )
    
    
    89,498Identifiable assets
    
    
    474,554
    
    
    
    59,824
    
    
    
    (12,664
    )
    
    
    521,714Acquisitions of property and
    
    
    24,200
    
    
    
    10,879
    
    
    
    
    
    
    
    35,079equipment
Depreciation and amortization
    
    
    29,303
    
    
    
    3,966
    
    
    
    
    
    
    
    33,269
 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
    
    
    24,248
    
    
    
    6,137
    
    
    
    
    
    
    
    30,385equipment
Depreciation 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
    )
    
    
    51,962Acquisitions of property and
    
    
    22,587
    
    
    
    7,102
    
    
    
    
    
    
    
    29,689equipment
Depreciation and amortization
    
    
    28,551
    
    
    
    2,239
    
    
    
    
    
    
    
    30,790
 72




---



##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2005, 2004, 2003
 Note 13  Segment and Geographic Information (contd)
  2005TotalWholesale
    
    
    U.S. Retail
    
    
    consolidatedSales to third parties
    
    $
    547,135
    
    
    $
    100,996
    
    
    $
    648,131Inter-segment revenue
    
    
    24,497
    
    
    
    
    
    
    
    24,497Gross sales
    
    
    571,632
    
    
    
    100,996
    
    
    
    672,628Less: eliminations
    
    
    (24,497
    )
    
    
    
    
    
    
    (24,497
    )Total consolidated net sales
    
    $
    547,135
    
    
    $
    100,996
    
    
    $
    648,131
 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
  Year ended December 31,2005
    
    
    2004
    
    
    2003(in thousands)United States
    
    $
    343,382
    
    
    $
    304,955
    
    
    $
    261,423Continental Europe
    
    
    93,689
    
    
    
    94,171
    
    
    
    91,473Other international
    
    
    211,060
    
    
    
    186,342
    
    
    
    175,138Total consolidated net sales
    
    $
    648,131
    
    
    $
    585,468
    
    
    $
    528,034
  At December 31,2005
    
    
    2004(in thousands)United States
    
    $
    356,808
    
    
    $
    327,202Continental Europe
    
    
    54,132
    
    
    
    53,933Other international
    
    
    110,774
    
    
    
    101,973Total consolidated identifiable assets
    
    $
    521,714
    
    
    $
    483,108
 73




---



##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2005, 2004, 2003
 Note 13  Segment and Geographic Information (contd)
  Year ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003Sunglasses
    
    $
    336,783
    
    
    $
    314,515
    
    
    $
    310,410Apparel and accessories
    
    
    109,448
    
    
    
    94,859
    
    
    
    76,018Prescription eyewear
    
    
    49,849
    
    
    
    47,750
    
    
    
    42,669Goggles
    
    
    42,040
    
    
    
    39,177
    
    
    
    36,156Electronics
    
    
    37,147
    
    
    
    19,773
    
    
    
    Footwear
    
    
    32,176
    
    
    
    32,211
    
    
    
    36,520Watches
    
    
    10,559
    
    
    
    11,931
    
    
    
    9,862Other
    
    
    75,340
    
    
    
    61,436
    
    
    
    55,442Total gross sales
    
    
    693,342
    
    
    
    621,652
    
    
    
    567,077Discounts and returns
    
    
    (45,211
    )
    
    
    (36,184
    )
    
    
    (39,043
    )Total consolidated net sales
    
    $
    648,131
    
    
    $
    585,468
    
    
    $
    528,034
  Note 14  Restructure Charge
  74




---



##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2005, 2004, 2003
 Note 14  Restructure Charge (contd)
  Accrued
    
    
    
    
    
    
    Changes duerestructure
    
    
    
    
    
    
    to foreignliability
    
    
    
    
    
    
    exchange ratesbalance at
    
    
    
    
    
    
    and
    
    
    Balance as ofDec. 31, 2004
    
    
    Amounts paid
    
    
    adjustments
    
    
    Dec. 31, 2005Termination and
modification of
sales agent
contracts and
employee contracts
    
    $
    170
    
    
    $
    (170
    )
    
    $
    
    
    
    $
    $
    170
    
    
    $
    (170
    )
    
    $
    
    
    
    $
    
 Accrued
    
    
    
    
    
    
    Changes duerestructure
    
    
    
    
    
    
    to foreignliability
    
    
    
    
    
    
    exchange ratesbalance at
    
    
    
    
    
    
    and
    
    
    Balance as ofDec. 31, 2003
    
    
    Amounts paid
    
    
    adjustments
    
    
    Dec. 31, 2004Termination 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, 2003Termination 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
 75




---



##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2005, 2004, 2003
 Note 15  Subsequent Events
 ® ® ®
   Note 16  Unaudited Quarterly Financial Data
    76




---



##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Notes to Consolidated Financial Statements  For the Years Ended December 31, 2005, 2004, 2003
 Note 16  Unaudited Quarterly Financial Data (contd)
 Three months endedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(in thousands, except per share data)Year ended December 31, 2005, as restated:Net sales (1)
    
    $
    141,795
    
    
    $
    170,475
    
    
    $
    173,447
    
    
    $
    162,414Gross profit (1)
    
    
    81,590
    
    
    
    106,831
    
    
    
    94,450
    
    
    
    88,030Income before provision for income taxes
(1)
    
    
    15,107
    
    
    
    35,086
    
    
    
    24,351
    
    
    
    15,400Net income (1)
    
    
    9,971
    
    
    
    24,041
    
    
    
    16,072
    
    
    
    9,576Basic net income per share (1)
    
    $
    0.15
    
    
    $
    0.36
    
    
    $
    0.24
    
    
    $
    0.14Diluted net income per share (1)
    
    $
    0.15
    
    
    $
    0.35
    
    
    $
    0.23
    
    
    $
    0.14Diluted weighted average shares
    
    
    68,318,000
    
    
    
    68,361,000
    
    
    
    69,323,000
    
    
    
    69,362,000Year ended December 31, 2005, as
previously reported:Net sales (1)
    
    $
    141,795
    
    
    $
    170,475
    
    
    $
    173,447
    
    
    $
    162,414Gross profit (1)
    
    
    77,627
    
    
    
    101,402
    
    
    
    92,779
    
    
    
    88,030Income before provision for income taxes
(1)
    
    
    11,144
    
    
    
    29,657
    
    
    
    22,680
    
    
    
    15,400Net income (1)
    
    
    7,355
    
    
    
    20,321
    
    
    
    14,969
    
    
    
    9,576Basic net income per share (1)
    
    $
    0.11
    
    
    $
    0.30
    
    
    $
    0.22
    
    
    $
    0.14Diluted net income per share (1)
    
    $
    0.11
    
    
    $
    0.30
    
    
    $
    0.22
    
    
    $
    0.14Diluted weighted average shares
    
    
    68,581,000
    
    
    
    68,658,000
    
    
    
    69,564,000
    
    
    
    69,362,000Year ended December 31, 2004, as restated:Net sales
    
    $
    128,636
    
    
    $
    153,826
    
    
    $
    150,044
    
    
    $
    152,962Gross profit
    
    
    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 average shares
    
    
    68,940,000
    
    
    
    68,907,000
    
    
    
    68,262,000
    
    
    
    68,304,000Year ended December 31, 2004, as
previousley reported:Net sales
    
    $
    128,636
    
    
    $
    153,826
    
    
    $
    150,044
    
    
    $
    152,962Gross profit
    
    
    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 average shares
    
    
    69,008,000
    
    
    
    69,160,000
    
    
    
    68,558,000
    
    
    
    68,593,000
 
 (1)
    
    Amounts for the quarter ended December 31, 2005 have not been restated and therefore there is
no change from the amounts previously reported. 77




---



##### Table of Contents



Item 9.
    
    Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Disclosure Controls and Procedures
 ,
 Internal Control Over Financial Reporting
   Managements Report on Internal Control Over Financial Reporting
 Internal Control  Integrated Framework Internal Control  Integrated Framework
  78




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Managements Report on
Internal Control Over Financial Reporting Internal Control  Integrated Framework
    Internal Control  Integrated Framework Internal Control  Integrated Framework
  
 79




---



##### 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
and Related Shareholder Matters
  
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accountant Fees and Services
  80




---



##### Table of Contents



Part IV
 
 Item 15. Exhibits, Financial Statement Schedules
 (a)(1)
    
    See page 43 for a listing of financial statements submitted as part of this report.(a)(2)
    
    Schedule II  Valuation and Qualifying Accounts
  (a)(3)
    
    The following exhibits are included in this report.
 2.1 (20)
    
    Purchase Agreement and Agreement and Plan of Merger, dated February 8, 2006, by and among
Oakley, Merger Sub, KLO Merger Sub, Oliver Peoples and KLO.3.1 (1)
    
    Articles of Incorporation of the Company3.3 (2)
    
    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. (Includes complete text of the Companys Amended and Restated
Bylaws)10.1 (3)
    
    Promissory Note, dated March 20, 1997, between Oakley, Inc. and Bank of America National
Trust and Savings Association10.2 (4)
    
    Promissory Note, dated August 7, 1997, between Oakley, Inc. and Bank of America National
Trust and Savings Association10.3 (4)
    
    Amendment No. 1 to Promissory Note, dated August 14, 1997, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.4 (4)
    
    Amendment No. 2 to Promissory Note, dated August 14, 1997, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.5 (4)
    
    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
Association10.6 (5)
    
    Amended and Restated Consultant Agreement, dated May 12, 1998, between Jim Jannard and
Oakley, Inc.10.7 (6)
    
    Modification Agreement (Short Form), dated August 10, 1998, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.8 (6)
    
    Modification Agreement (Long Form), dated August 10, 1998, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.9 (7)
    
    Oakley, Inc. Amended and Restated 1995 Stock Incentive Plan10.10 (7)
    
    Oakley, Inc. Amended and Restated Executive Officers Performance Bonus Plan10.11 (8)
    
    Lease Agreement, dated November 10, 2000, between Haven Gateway LLC and Oakley, Inc.10.12 (8)
    
    Trademark License Agreement and Assignment of Rights, dated March 31, 2000, between Y,
LLC and Oakley, Inc.10.13 (9)
    
    Amendment to Trademark License Agreement, dated June 1, 2002, between Y, LLC and Oakley,
Inc.10.15 (10)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Jim Jannard.10.16 (10)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Link Newcomb.10.17 (10)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Colin Baden.10.18 (10)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Donna Gordon.10.19 (10)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Scott Bowers.10.20 (10)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Jon Krause.10.21 (10)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Kent Lane.10.22 (10)
    
    Indemnification Agreement, dated February 14, 2003, between Oakley, Inc. and Carlos Reyes.10.23 (11)
    
    Aircraft Lease Agreement, dated December 18, 2003, between Oakley, Inc. and N2T, Inc.
 81




---



##### Table of Contents



10.24 (11)
    
    Indemnification Agreement, dated February 12, 2004, between Oakley, Inc. and Thomas Davin.10.25 (12)
    
    Agreement and Mutual Release, dated March 5, 2004, between N2T, Inc. and Oakley, Inc.10.26 (12)
    
    Severance Agreement, dated March 5, 2004, between Link Newcomb and Oakley, Inc.10.27 (12)
    
    Executive Severance Plan effective as of January 1, 200410.28 (12)
    
    Officer Severance Plan effective as of January 1, 200410.29 (13)
    
    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.10.30 (13)
    
    Indemnification Agreement, dated September 29, 2004, between Oakley, Inc. and Cosmas N.
Lykos.10.31 (13)
    
    Indemnification Agreement, dated September 29, 2004, between Oakley, Inc. and Mary George.10.32 (14)
    
    Indemnification Agreement, dated January 1, 2005, between Oakley, Inc. and Michael J.
Puntoriero.10.33 (15)
    
    Reciprocal Exclusive Dealing Agreement, entered into effective March 12, 2005 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 confidentiality
treatment).10.34 (15)
    
    Indemnification Agreement, dated June 3, 2005, between Oakley, Inc. and Greg Trojan.10.35 (15)
    
    Indemnification Agreement, dated June 3, 2005, between Oakley, Inc. and Colombe Nicholas.10.36 (16)
    
    Employment Agreement, dated September 19, 2005, between Oakley, Inc. and D. Scott Olivet.10.37 (17)
    
    First Amendment to Aircraft Lease Agreement, dated September 23, 2005, between Oakley,
Inc. and N2T, Inc.10.38 (18)
    
    Indemnification Agreement, dated September 19, 2005, between Oakley, Inc. and D. Scott
Olivet10.39 (18)
    
    Indemnification Agreement, dated September 26, 2005, between Oakley, Inc. and Frits van
Paasschen.10.40 (19)
    
    Severance Agreement, dated November 3, 2005, between Richard Shields and Oakley, Inc.10.41 (21)
    
    Indemnification Agreement, dated November 3, 2005, between Oakley, Inc. and Richard
Shields.10.42 (21)
    
    First Amendment to Third Amended and Restated Credit Agreement, dated January 18, 2006
among Oakley, Inc., as borrower, and Bank of America, N.A., as agent, and the lenders named
therein.21.1 (21)
    
    List of Material Subsidiaries23.1 (21)
    
    Consent of Deloitte & Touche LLP, independent registered public accounting firm.31.1 (21)
    
    Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2 (21)
    
    Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1 (21)
    
    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
 82




---



##### Table of Contents



(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-K of Oakley, Inc. for the year ended December 31,
1996.(3)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended March 31,
1997.(4)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 1997.(5)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30,
1998.(6)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 1998.(7)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30,
1999.(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,
2002.(10)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
2002.(11)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
2003.(12)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended March 31,
2004.(13)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 2004.(14)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
2004(15)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30,
2005.(16)
    
    Previously filed with the Form 8-K of Oakley, Inc. on September 21, 2005.(17)
    
    Previously filed with the Form 8-K of Oakley, Inc. on September 29, 2005.(18)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 2005.(19)
    
    Previously filed with the Form 8-K of Oakley, Inc. on October 20, 2005.(20)
    
    Previously filed with the Form 8-K of Oakley, Inc. on February 9, 2006.(21)
    
    Filed herewith. 83




---



##### Table of Contents



OAKLEY, INC. and SUBSIDIARIES
 Schedule II  Valuation and Qualifying Accounts
For the Years Ended December 31, 2005, 2004, 2003
 AdditionsBalance at
    
    charged to
    
    
    
    
    
    
    
    
    
    Balancebeginning
    
    costs and
    
    
    
    
    
    
    
    
    
    at end ofof period
    
    expense
    
    Deductions
    
    Adjustments
    
    period(in thousands)For the year ended December 31, 2005:Allowance for doubtful accounts
    
    $
    2,622
    
    
    $
    2,850
    
    
    $
    (1,863
    )
    
    $


    
    
    $
    3,609Sales return reserve
    
    $
    8,423
    
    
    $
    2,434
    
    
    $
    (4,174
    )
    
    $
    
    
    
    $
    6,683Provision for markdowns and concessions
    
    $
    
    
    
    $
    347
    
    
    $
    
    
    
    $
    
    
    
    $
    347Inventory reserve
    
    $
    10,321
    
    
    $
    3,757
    
    
    $
    (1,074
    )
    
    $
    
    
    
    $
    13,004For 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
    )
    
    $
    
    
    
    $
    7,250
 84




---



##### Table of Contents



Signatures
  OAKLEY, INC.By:
    
    /s/ D. Scott OlivetD. Scott OlivetChief Executive Officer
   Signature
    
    Title
    
    DateChief Executive Officer/s/ D. Scott Olivet
    
    (Principal Executive Officer)
    
    March 31, 2006D. Scott OlivetChief Financial Officer/s/ Richard Shields
    
    (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
 85




---



##### Table of Contents



EXHIBIT INDEX
 2.1 (20)
    
    Purchase Agreement and Agreement and Plan of Merger, dated February 8, 2006, by and among
Oakley, Merger Sub, KLO Merger Sub, Oliver Peoples and KLO.3.1 (1)
    
    Articles of Incorporation of the Company3.3 (2)
    
    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. (Includes complete text of the Companys Amended and Restated
Bylaws)10.1 (3)
    
    Promissory Note, dated March 20, 1997, between Oakley, Inc. and Bank of America National
Trust and Savings Association10.2 (4)
    
    Promissory Note, dated August 7, 1997, between Oakley, Inc. and Bank of America National
Trust and Savings Association10.3 (4)
    
    Amendment No. 1 to Promissory Note, dated August 14, 1997, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.4 (4)
    
    Amendment No. 2 to Promissory Note, dated August 14, 1997, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.5 (4)
    
    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
Association10.6 (5)
    
    Amended and Restated Consultant Agreement, dated May 12, 1998, between Jim Jannard and
Oakley, Inc.10.7 (6)
    
    Modification Agreement (Short Form), dated August 10, 1998, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.8 (6)
    
    Modification Agreement (Long Form), dated August 10, 1998, between Oakley, Inc. and Bank
of America National Trust and Savings Association10.9 (7)
    
    Oakley, Inc. Amended and Restated 1995 Stock Incentive Plan10.10 (7)
    
    Oakley, Inc. Amended and Restated Executive Officers Performance Bonus Plan10.11 (8)
    
    Lease Agreement, dated November 10, 2000, between Haven Gateway LLC and Oakley, Inc.10.12 (8)
    
    Trademark License Agreement and Assignment of Rights, dated March 31, 2000, between Y,
LLC and Oakley, Inc.10.13 (9)
    
    Amendment to Trademark License Agreement, dated June 1, 2002, between Y, LLC and Oakley,
Inc.10.15 (10)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Jim Jannard.10.16 (10)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Link Newcomb.10.17 (10)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Colin Baden.10.18 (10)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Donna Gordon.10.19 (10)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Scott Bowers.10.20 (10)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Jon Krause.10.21 (10)
    
    Indemnification Agreement, dated February 7, 2003, between Oakley, Inc. and Kent Lane.10.22 (10)
    
    Indemnification Agreement, dated February 14, 2003, between Oakley, Inc. and Carlos Reyes.10.23 (11)
    
    Aircraft Lease Agreement, dated December 18, 2003, between Oakley, Inc. and N2T, Inc.




---



##### Table of Contents



10.24 (11)
    
    Indemnification Agreement, dated February 12, 2004, between Oakley, Inc. and Thomas Davin.10.25 (12)
    
    Agreement and Mutual Release, dated March 5, 2004, between N2T, Inc. and Oakley, Inc.10.26 (12)
    
    Severance Agreement, dated March 5, 2004, between Link Newcomb and Oakley, Inc.10.27 (12)
    
    Executive Severance Plan effective as of January 1, 200410.28 (12)
    
    Officer Severance Plan effective as of January 1, 200410.29 (13)
    
    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.10.30 (13)
    
    Indemnification Agreement, dated September 29, 2004, between Oakley, Inc. and Cosmas N.
Lykos.10.31 (13)
    
    Indemnification Agreement, dated September 29, 2004, between Oakley, Inc. and Mary George.10.32 (14)
    
    Indemnification Agreement, dated January 1, 2005, between Oakley, Inc. and Michael J.
Puntoriero.10.33 (15)
    
    Reciprocal Exclusive Dealing Agreement, entered into effective March 12, 2005 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 confidentiality
treatment).10.34 (15)
    
    Indemnification Agreement, dated June 3, 2005, between Oakley, Inc. and Greg Trojan.10.35 (15)
    
    Indemnification Agreement, dated June 3, 2005, between Oakley, Inc. and Colombe Nicholas.10.36 (16)
    
    Employment Agreement, dated September 19, 2005, between Oakley, Inc. and D. Scott Olivet.10.37 (17)
    
    First Amendment to Aircraft Lease Agreement, dated September 23, 2005, between Oakley,
Inc. and N2T, Inc.10.38 (18)
    
    Indemnification Agreement, dated September 19, 2005, between Oakley, Inc. and D. Scott
Olivet10.39 (18)
    
    Indemnification Agreement, dated September 26, 2005, between Oakley, Inc. and Frits van
Paasschen.10.40 (19)
    
    Severance Agreement, dated November 3, 2005, between Richard Shields and Oakley, Inc.10.41 (21)
    
    Indemnification Agreement, dated November 3, 2005, between Oakley, Inc. and Richard
Shields.10.42 (21)
    
    First Amendment to Third Amended and Restated Credit Agreement, dated January 18, 2006
among Oakley, Inc., as borrower, and Bank of America, N.A., as agent, and the lenders named
therein.21.1 (21)
    
    List of Material Subsidiaries23.1 (21)
    
    Consent of Deloitte & Touche LLP, independent registered public accounting firm.31.1 (21)
    
    Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2 (21)
    
    Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1 (21)
    
    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




---



##### Table of Contents



(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-K of Oakley, Inc. for the year ended December 31,
1996.(3)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended March 31,
1997.(4)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 1997.(5)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30,
1998.(6)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 1998.(7)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30,
1999.(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,
2002.(10)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
2002.(11)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
2003.(12)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended March 31,
2004.(13)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 2004.(14)
    
    Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31,
2004(15)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30,
2005.(16)
    
    Previously filed with the Form 8-K of Oakley, Inc. on September 21, 2005.(17)
    
    Previously filed with the Form 8-K of Oakley, Inc. on September 29, 2005.(18)
    
    Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September
30, 2005.(19)
    
    Previously filed with the Form 8-K of Oakley, Inc. on October 20, 2005.(20)
    
    Previously filed with the Form 8-K of Oakley, Inc. on February 9, 2006.(21)
    
    Filed herewith.