ITEM 1. BUSINESS
ITEM 2.
ITEM 2. PROPERTIES
The Company's principal corporate and manufacturing facility is located in Foothill Ranch, Orange County, California. The facility is approximately 400,000 square feet, with potential to expand into an additional 100,000 square feet. In June 1996, the Company purchased a facility in Nevada of approximately 63,000 square feet for the production of its X METAL(R) eyewear. In addition, the Company leases office and warehouse space as necessary to support its operations worldwide, including offices in the UK, Germany, France, Australia, South Africa, Japan, Canada, New Zealand and the state of Washington. The Company owns a business office and warehouse of approximately 18,000 square feet in Mexico City for its operations in Mexico and Central America. The facility was first occupied in late 1998. In December 2000, the Company leased a new 118,000 square foot warehouse and shipping facility in Ontario, California to support the expanding needs of its footwear and apparel lines. The new facility began shipping the Company's spring footwear and apparel lines to retailers in early 2001. The Company believes its current and planned facilities are adequate to carry on its business as currently contemplated.
The Company is subject to federal, state and local environmental laws, regulations and ordinances that (i) govern activities or operations that may have adverse environmental effects (such as emissions to air, discharges to water, and the generation, handling, storage and disposal of solid and hazardous wastes) or (ii) impose liability for the cost of cleanup or other remediation of contaminated property, including damages from spills, disposals or other releases of hazardous substances or wastes, in certain circumstances without regard to fault. The Company's manufacturing operations routinely involve the handling of chemicals and wastes, some of which are or may become regulated as hazardous substances. The Company has not incurred, and does not expect to incur, any significant expenditures or liabilities for environmental matters. As a result, the Company believes that its environmental obligations will not have a material adverse effect on its operations or financial position.
In response to California's current power crisis and the resulting increase in electricity costs, the Company entered into a month-to-month lease agreement in late 2000 for the rental of four generators to protect against unforeseen blackouts, including blackouts forecasted for summer 2001. Also, by utilizing these generators, the Company would avoid any fines for excess power usage under its I-6 Tariff agreement with Southern California Edison. The Company believes that these generators will supply enough capacity to generate the electricity necessary for the Company to operate. The Company is currently reviewing its options for self-power generation as a longer-term alternative to the use of leased generators. Although the Company has taken these steps to ensure the availability of adequate power for its operations, there can be no assurances that the Company will find a viable alternative to the lease of generators or that California's current power crisis will not have a material adverse effect on the Company's results of operations and financial condition.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
THE CALIFORNIA SECURITIES ACTIONS
The Company and certain of its officers and directors were named as defendants in three putative class action lawsuits (the "California Securities Actions") filed in December 1996 in the California Superior Court for the County of Orange (the "Superior Court"). The cases were captioned:
YOSEF S. ROSENSHEIN V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB AND JIM JANNARD, Case No. 773051 (filed December 17, 1996);
HERSCHEL HARMAN V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB AND JIM JANNARD, Case No. 773053 (filed December 17, 1996); and
ERIC SHER, HAROLD BARON AND DAVID O. ECKERT V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS, INC., Case No. 773366 (filed December 24, 1996).
The plaintiffs sought to represent a class of persons who purchased the Company's common stock between March 22, 1996 and December 5, 1996. The operative complaint in the California Securities Actions alleged claims for violations of the antifraud provisions of the California Corporations Code, unfair business practices and false advertising in violation of certain provisions of the California Business and Professions Code, fraud and negligent misrepresentation. The plaintiffs' claims were based on alleged material misstatements and omissions in certain of the Company's public statements, Securities and Exchange Commission filings and in the reports of third-party analysts regarding the Company's retail distribution practices, market conditions, new product developments and extensions of existing product lines, business with Sunglass Hut and earnings prospects. The plaintiffs sought unspecified damages and other relief against the Company and the other defendants.
The plaintiffs in the California Securities Actions also asserted claims against Merrill Lynch & Co. ("Merrill Lynch") and Alex. Brown and Sons, Inc. ("Alex. Brown"), which served as the U.S. Representatives of the U.S. Underwriters of the June 6, 1996 offering of five million shares of common stock of the Company by certain of its shareholders (the "Secondary Offering"). By letter dated February 7, 1997, counsel for Merrill Lynch and Alex. Brown gave the Company notice pursuant to the indemnification provisions of the U.S. Purchase Agreement dated June 6, 1996, for the Secondary Offering that they were asserting a claim for indemnification under such provisions and requested that the Company reimburse Merrill Lynch and Alex. Brown on a current basis for their attorneys' fees and expenses incurred in defending the California Securities Actions. Counsel for Merrill Lynch and Alex. Brown subsequently indicated that this claim for indemnification also applies to attorneys' fees and expenses incurred in defending the Federal Securities Actions (described below).
Pursuant to the terms of the settlement in the Federal Securities Action (described below), the California Securities Action was dismissed on a with prejudice basis in February 2001.
THE FEDERAL SECURITIES ACTIONS The Company and certain of its officers and directors were named as defendants in five putative class action lawsuits (the "Federal Securities Actions") filed in October, November and December 1997 in the United States District Court for the Central District of California, Southern Division (the "District Court"). The cases were captioned:
KENSINGTON CAPITAL MANAGEMENT V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS INCORPORATED, No. SACV 97-808 GLT (EEx) (filed October 10, 1997) (the "KENSINGTON CAPITAL MANAGEMENT Action");
FRANK LISTER, JAMES J. SCOTELLA, RAYMOND E. NEVEAU, JAMES S. LEWINSKI, JACK ROSENSON AND LEE SPERLING V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS INCORPORATED, No. SACV 97-809 GLT (EEx) (filed October 10, 1997) (the "LISTER Action");
STUART CHAIT AND MARILYN SCHWARTZ V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS, INCORPORATED, No. SACV 97-829 GLT (EEx) (filed October 20, 1997) (the "CHAIT Action");
VAL FICHERA V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN AND SONS INCORPORATED, No. SACV 97-928 GLT (EEx) (filed November 17, 1997 (the "FICHERA Action"); and
YOSEF J. ROSENSHEIN AND HERSHEL HARMAN V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS INCORPORATED, No. SACV 97-993 GLT (EEx) (filed December 5, 1997 (the "ROSENSHEIN Federal Action").
The plaintiffs in the KENSINGTON CAPITAL MANAGEMENT and the FICHERA Actions sought to represent a class of persons who purchased the Company's common stock in the Secondary Offering and allege claims for violations of sections 11, 12(a)(2) and 15 of the Securities Act of 1933. The plaintiffs' claims were based on alleged material misstatements and omissions in the prospectus issued and registration statement filed in connection with the Secondary Offering regarding the Company's retail distribution practices, market conditions, new product developments and extensions of existing product lines, business with Sunglass Hut and quality control standards. The plaintiffs sought unspecified damages and other relief against the Company and the other defendants.
The plaintiffs in the LISTER and CHAIT Actions and the ROSENSHEIN Federal Action sought to represent a class of persons who purchased the Company's common stock between March 22, 1996 and December 5, 1996, including the Secondary Offering, and allege claims for violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The plaintiffs' claims were based on alleged material misstatements and omissions in certain of the Company's public statements, Securities and Exchange Commission filings and in the reports of third-party analysts regarding the Company's retail distribution practices, market conditions, new product developments and extensions of existing product lines, business with Sunglass Hut, earnings prospects and quality control standards. The plaintiffs sought unspecified damages and other relief against the Company and the other defendants.
In August 2000, the parties entered into a Stipulation of Settlement dated as of August 28, 2000 to resolve the Federal Securities Actions. Among other things, the Stipulation of Settlement provided for the dismissal with prejudice of the Federal Securities Actions upon final approval of the settlement by the District Court. On December 19, 2000, the District Court finally approved the settlement and entered orders and judgments dismissing the Federal Securities Actions with prejudice in accordance with the terms of the Stipulation of Settlement. Amounts paid under the Stipulation of Settlement were funded entirely by the Company's insurance carrier.
In addition, the Company is a party to various claims, complaints and other legal actions that have arisen in the normal course of business from time to time. The Company believes the outcome of these pending legal proceedings, in the aggregate, will not have a material adverse effect on the operations or financial position of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock, par value $.01 per share ("Common Stock"), began trading on the New York Stock Exchange on August 10, 1995 upon completion of the Company's initial public offering (trading symbol "OO"). As of March 21, 2001, the closing sales price for the Common Stock was $17.09. The following table sets forth the high and low sales prices for the Common Stock for each quarter of 1999 and 2000 on the New York Stock Exchange Composite Tape:
The number of shareholders of record for Common Stock on March 21, 2001 was 568.
DIVIDEND POLICY
The Company currently does not pay any dividends on its Common Stock. Any future determination as to the payment of dividends will be at the discretion of the Company's Board of Directors and will depend upon the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant by the Board of Directors.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data regarding the Company which is qualified by reference to, and should be read in conjunction with, the Consolidated Financial Statements and Notes thereto. See INDEX TO CONSOLIDATED FINANCIAL STATEMENTS and ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes the operations of Oakley, Inc. and subsidiaries for each of the periods discussed.
RESTRUCTURING CHARGE
In October 1999, the Company's Board of Directors approved strategic initiatives (the "Restructuring Plan") to restructure and refocus the Company's footwear business. Under the Restructuring Plan, the Company substantially reduced its in-house footwear manufacturing operations and partnered with select third-party manufacturers to assist in the development and manufacture of the Company's complete footwear product line. Additionally, the Company increased its emphasis on direct-sales channels to augment sales throughout traditional retail accounts and to broaden accessibility of the Company's products to its customers.
Related to this Restructuring Plan, the Company recorded a charge of $12.6 million ($8.2 million, or $0.12 per share, on an after-tax basis) during the fourth quarter of the fiscal year ended December 31, 1999. The Restructuring Plan was completed as of December 31, 2000 with no revisions to the charge recorded. The charge was included in cost of goods sold for the year ended December 31, 1999, and is comprised of the following components:
See Note 12 in NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
RESULTS OF OPERATIONS
The following tables set forth operating results in dollars and as a percentage of net sales for the periods indicated. Operating results for 1999 reflect an adjustment for the elimination of the $12.6 million charge recorded in 1999 to cost of goods sold in connection with the restructuring of the Company's footwear operations. See Note 12 in NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
OAKLEY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands)
The Company's sunglass sales before discounts and defective returns were $283.8 million, $212.7 million and $197.0 million for the years ended December 31, 2000, 1999 and 1998, respectively. Sunglass unit sales were 4,892,163; 4,037,113; and 3,956,150 for the years ended December 31, 2000, 1999 and 1998, respectively.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
NET SALES
Net sales increased to $363.5 million for the year ended December 31, 2000 from $257.9 million for the year ended December 31, 1999, an increase of $105.6 million, or 40.9%. The increase in net sales was primarily attributable to a 33.4%, or $71.1 million, increase in gross sunglass sales. Gross sunglass sales were $283.8 million for the year ended December 31, 2000 compared to $212.7 million for the year ended December 31, 1999. For 2000, the Company experienced a 21.3% increase in sunglass unit volume and a 10.1% increase in average selling prices. The Company attributes the significant gross sunglass sales increase to many factors, including several successful new product introductions in 1999 and 2000, as well as successful sports marketing and advertising support, more timely execution and increased customer fulfillment rates. The increase in gross sunglass sales was driven by strong sunglass sales of the Company's MINUTES and X-METAL line, as well as strong sales of new products offsetting declines in sales of more mature products. The MINUTES style was the Company's largest selling sunglass model during 2000 and sales of the X-METAL line increased 182.6% compared to sales for the year ended December 31, 1999. New sunglass introductions since the fourth quarter of 1999, including the new STRAIGHT JACKET introduced in late 1999, TWENTY, introduced in March 2000, the C-WIRE, introduced in April 2000, the SQUARE WIRE 2.0, introduced in May 2000, and the EYE JACKET 2.0, introduced in July 2000, contributed greatly to the increase in sales, and as a group, represented 24.2% of the Company's gross sunglass sales. Sales of the Company's polarized styles also contributed to the increase in gross sales for the year ended December 31, 2000, more than doubling over the year ended December 31, 1999. Sales from the Company's new product categories, including footwear, apparel, watches and prescription eyewear, continued to grow with gross sales increasing 85.5%, or $25.8 million, for the year ended December 31, 2000 over the year ended December 31, 1999. The Company's U.S. net sales increased 36.2% to $193.2 million in 2000 from $141.8 million in 1999, principally as a result of a 44.3% increase in net sales to the Company's broad specialty store account base, while sales to the Company's largest U.S. customer, Sunglass Hut, increased 22.0% to $62.6 million in 2000 from $51.3 million in 1999. The Company's international net sales increased $54.2 million to $170.3 million in 2000 from $116.1 million in 1999, a 46.7% increase, as a result of increased sales in all direct operations: Australia, United Kingdom, Europe, Japan, Canada, Mexico and South Africa. Additionally, effective November 1, 1999, the Company acquired its Australian distributor, which contributed to the increase in international net sales for the full year 2000 versus only two months in 1999. Sales from the Company's direct international offices represented 83.3% of total international sales for the year ended December 31, 2000, compared to 75.8% for the comparable 1999 period. On a constant dollar basis, international sales increased approximately 58.5% for the year ended December 31, 2000 over the year ended December 31, 1999.
GROSS PROFIT
Gross profit increased to $225.1 million for the year ended December 31, 2000 from $148.5 million for the year ended December 31, 1999, an increase of $76.6 million, or 51.6%. In the fourth quarter of 1999, the Company announced a restructuring of its footwear operations which resulted in a $12.6 million pre-tax charge to cost of goods sold. See Note 12 in NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Excluding the footwear restructuring charge, gross profit increased to $225.1 million, or 61.9% of net sales, in 2000 from $161.1 million, or 62.5% of net sales, in 1999, an increase of $63.9 million, or 39.7%. The decrease in gross profit as a percentage of net sales, prior to the restructuring charge, is attributable to the negative impact on the margins of the Company's direct international sales from the strengthened U.S. dollar together with the negative impact on gross margin resulting from the increased sales contribution from the new product categories, which generally carry lower gross margins than sunglasses. These reductions to gross profit as a percentage of net sales were partially offset by positive effects of increased sales volume, improved X-METAL and footwear margins and the increased rate of gross profit derived from the Company's acquisition of its Australian distributor in November 1999.
OPERATING EXPENSES
Operating expenses increased to $143.8 million for the year ended December 31, 2000 from $116.1 million for the year ended December 31, 1999, an increase of $27.7 million, or 23.9%. This increase is generally due to higher variable expenses attributable to increased sales volume along with the greater operating expenses and goodwill amortization in 2000 resulting from the Company's acquisition of its Australian distributor. Research and development expenses increased $1.6 million to $7.9 million, or 2.2% of net sales in 2000, from $6.3 million, or 2.4% of net sales, in 1999, primarily as a result of expanded new product development efforts. Selling expenses increased $18.1 million to $90.3 million, or 24.8% of net sales, in 2000, from $72.2 million, or 28.0% of net sales, in 1999, primarily as a result of increased sales commissions attributable to increased sales, increased sports marketing attributable to new product category expansion and higher advertising expenditures. These increases were partially offset by reduced warranty costs resulting from fewer defective claims. Advertising expenses were greater in 2000 as a result of a strategic decision to increase print advertising for the Oakley brand. This increase resulted from the use of an outside agency for media planning with collaboration between the agency and the Company's in-house creative team for advertising content. The Company believes this increased advertising expenditure contributed greatly to the strong sales increase experienced in 2000 and expects advertising expenses as a percent of net sales to increase in 2001. Shipping and warehousing expenses increased to $10.0 million, or 2.8% of net sales, in 2000 from $6.6 million, or 2.6% of net sales, for 1999. This increase is principally due to increased footwear and apparel sales with higher average shipping costs in addition to set-up costs for the new apparel and footwear distribution center in Ontario, California which began shipping in early 2001. General and administrative expenses increased $4.6 million to $35.6 million, or 9.7% of net sales, in 2000 from $31.0 million, or 12.0% of net sales, in 1999. This increase in general and administrative expenses was principally a result of increased personnel-related costs and other costs necessary to manage the Company's growth, general and administrative expenses and goodwill amortization related to the Company's acquisition of its Australian distributor and an increase in provisions for bad debts as a result of the Company's sales growth.
OPERATING INCOME
The Company's operating income increased to $81.3 million for the year ended December 31, 2000 from $32.5 million for the year ended December 31, 1999, an increase of $48.8 million. Excluding the footwear restructure charge of $12.6 million in 1999, operating income increased to $81.3 million for the year ended December 31, 2000 from $45.1 million for the year ended December 31, 1999, an increase of $36.2 million. As a percentage of net sales, operating income increased to 22.4% in 2000 from 17.5%, prior to the restructuring charge, in 1999, primarily due to the significant positive operating expense leverage on higher sales volume.
INTEREST EXPENSE, NET
The Company had net interest expense of $2.7 million in 2000, as compared with net interest expense of $2.0 million in 1999. The increase in interest expense is due to greater balances on the Company's line of credit which was used to finance the Company's growth as well as the Company's share repurchase programs in 2000.
INCOME TAXES
The Company recorded a provision for income taxes of $27.5 million for the year ended December 31, 2000 compared with $10.7 million for the year ended December 31, 1999. The Company's effective tax rate of 35% remained the same for the years ended December 31, 2000 and 1999. As a result of a one-time tax benefit associated with the Company's foreign operations, the Company's effective tax rate for 2001 is expected to be 30%.
NET INCOME The Company's net income increased to $51.1 million for the year ended December 31, 2000 from $19.8 million for the year ended December 31, 1999, an increase of $31.3 million, or 158.1%. Excluding the
footwear restructuring after-tax charge of $8.2 million, net income increased to $51.1 million for 2000 from $28.0 million for 1999, an increase of $23.1 million, or 82.5%.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET SALES
Net sales increased to $257.9 million for the year ended December 31, 1999 from $231.9 million for the year ended December 31, 1998, an increase of $26.0 million, or 11.2%. This increase was the result of strong sales of the Company's MINUTES and A WIRE models introduced in 1998 and sales of new products, partially offset by declines in sales of more mature products. Sales of the Company's polarized styles also contributed to the increase in net sales with a 28.4%, or $1.5 million, increase over 1998 polarized sunglass sales. Sales of new sunglass products accounted for 22.1% of gross sunglass sales. New products for 1999 included the X METAL JULIET, introduced in February 1999, the NEW ZERO and M FRAME, introduced in May 1999, the OO ("Double O"), introduced in June 1999, the NEW EYE JACKET, introduced in August 1999, the NEW STRAIGHT JACKET, introduced in November 1999, and the X-METAL XX, introduced in December 1999. For the year ended December 31, 1999, the Company experienced a 2.0% increase in sunglass unit volume and a 6.2% increase in average selling prices. The Company's prescription eyewear gross sales increased approximately 100%, or $2.9 million, to $5.8 million for the year ended December 31, 1999 from $2.9 million for the year ended December 31, 1998. Footwear net sales were $3.0 million, or 1.2% of net sales, in 1999, compared to $2.6 million, or 1.1% of net sales, in 1998. As a group, gross sales of goggles, apparel and watches increased 29.1%, or approximately $9.0 million during the year ended December 31, 1999 over the year ended December 31, 1998, primarily due to the Company's expanded apparel program and increased goggle sales attributable to the Company's new A Frame goggle introduced in 1998 and new O Frame goggle introduced in 1999. The Company's U.S. net sales increased 3.8% to $141.8 million in 1999 from $136.5 million in 1998, principally as a result of a 11.4% increase in net sales to the Company's broad specialty store account base, while sales to the Company's largest U.S. customer, Sunglass Hut, decreased 7.3% to $51.3 million in 1999 from $55.3 million in 1998. The Company's international sales increased $20.7 million to $116.1 million in 1999 from $95.4 million in 1998, a 21.7% increase, as a result of increased sales in all regions with significant sales increases from the Company's direct operations in Europe, United Kingdom, Japan, South Africa, and Canada. Additionally, effective November 1, 1999, the Company acquired its Australian distributor, which contributed to the increase in international sales in the fourth quarter of 1999. Sales from the Company's direct international offices represented 75.8% of total international sales for the year ended December 31, 1999.
GROSS PROFIT
Gross profit increased to $148.5 million for the year ended December 31, 1999 from $145.8 million for the year ended December 31, 1998, an increase of $2.7 million, or 1.9%. In the fourth quarter of 1999, the Company announced a restructuring of its footwear operations which resulted in a $12.6 million pre-tax charge to cost of goods sold. See Note 12 in NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Excluding the footwear restructuring charge of $12.6 million, gross profit increased to $161.1 million, or 62.5% of net sales, in 1999 from $145.8 million, or 62.9% of net sales, in 1998, an increase of $15.3 million, or 10.5%. Gross profit as a percentage of net sales, prior to the restructuring charge, decreased primarily due to increases in sales of lower margin apparel and goggles, footwear startup costs and increases in provisions for sales returns. These reductions to gross profit as a percentage of net sales were partially offset by positive effects of increased sales volume, the acquisitions of the Company's Canadian and Australian distributors and foreign exchange gains.
OPERATING EXPENSES
Operating expenses increased to $116.1 million for the year ended December 31, 1999 from $104.5 million for the year ended December 31, 1998, an increase of $11.6 million, or 11.1%. This increase is generally due to higher variable expenses attributable to increased volume, additional footwear operating expenses, and incremental expenses due to the shift to direct operations in Canada and Australia. Research and development expenses increased $1.1 million to $6.3 million in 1999 primarily attributable to expanded new product development efforts. Selling expenses increased $6.0 million to $72.2 million, or 28.0% of net sales, in 1999, from $66.2 million, or 28.5% of net sales, in 1998, primarily as a result of increased sales commissions attributable to increased sales and higher advertising expenditures utilized to increase awareness for Oakley products. Shipping and warehousing expenses decreased to $6.6 million, or 2.6% of net sales, in 1999 from $6.8 million, or 2.9% of net sales, for 1998. This decrease is principally due to positive results from various initiatives to reduce shipping costs worldwide. General and administrative expenses increased $4.7 million to $31.0 million, or 12.0% of net sales, in 1999 from $26.3 million, or 11.4% of net sales, in 1998, due primarily to severance payments related to the resignation of an officer of the Company, increased personnel costs necessary to manage the Company's growth, and increased amortization of intangible assets related to acquisitions completed in 1998 and 1999. Additionally, 1998 general and administrative expenses included a gain on the sale of a fixed asset and favorable effects of changes in foreign exchange rates which did not occur in 1999.
OPERATING INCOME
The Company's operating income decreased to $32.5 million for the year ended December 31, 1999 from $41.3 million for the year ended December 31, 1998, a decrease of $8.8 million. Excluding the footwear restructure charge of $12.6 million, operating income increased to $45.1 million for the year ended December 31, 1999 from $41.3 million for the year ended December 31, 1998, an increase of $3.8 million. As a percentage of net sales, operating income, prior to the restructuring charge, decreased to 17.5% in 1999 from 17.8% in 1998, primarily attributable to the decrease in gross margin.
INTEREST EXPENSE, NET
The Company had net interest expense of $2.0 million in 1999, as compared with net interest expense of $2.1 million in 1998.
INCOME TAXES
The Company recorded a provision for income taxes of $10.7 million for the year ended December 31, 1999 compared with $15.1 million for the year ended December 31, 1998. Due to the Company's international expansion and a reduction in statutory rates for certain foreign jurisdictions, the Company's effective tax rate for the year ended December 31, 1999 was reduced to 35.0% from 38.4% in 1998.
NET INCOME
The Company's net income decreased to $19.8 million for the year ended December 31, 1999 from $24.1 million for the year ended December 31, 1998, a decrease of $4.3 million, or 17.8%. Excluding the footwear restructuring after-tax charge of $8.2 million, net income increased to $28.0 million for 1999 from $24.1 million for 1998, an increase of $3.9 million, or 16.1%.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations almost entirely with cash flow generated from operations and borrowings from its credit facilities. Cash provided by operating activities totaled $28.1 million for the year ended December 31, 2000 and $38.8 million for the comparable period of 1999. At December 31, 2000, working capital was $84.2 million compared to $59.2 million at December 31, 1999. Working capital may vary from time to time as a result of seasonality, new product category introductions and changes in accounts receivable and inventory levels. Accounts receivable balances increased to $65.0 million at December 31, 2000 compared to $39.1 million at December 31, 1999 with accounts receivable days outstanding at December 31, 2000 of 63 compared to 53 at December 31, 1999. This increase in
receivable levels is primarily due to the significant sales growth. In addition, the increased new product category and international content, as well as increased goggle sales during the last half of fiscal year 2000, contributed to increased receivable balances and an increase in receivable days outstanding due to the longer terms and dating programs customary for these categories and regions. Inventories increased to $62.0 million at December 31, 2000 compared to $35.1 million at December 31, 1999 primarily as a result of the Company's sales growth. Other factors contributing to the increased inventories include the Company's decision to systematically increase inventories in order to improve order fulfillment rates and corresponding turns at retail and the rapid international growth and new category expansion, which require increased inventory levels. Inventory turns decreased slightly to 2.5 at December 31, 2000 compared to 2.8 at December 31, 1999. In addition, as a result of a one-time tax benefit associated with the Company's foreign operations, the Company expects to generate cash from tax savings beginning in the second half of 2001 and through April of 2002 of approximately $6.5 million. The benefits will be cash negative through the first half of 2001, turning positive thereafter. The increase in deferred and prepaid taxes and income tax payable are primarily due to the effects of the cash required in the first half of 2001 to subsequently realize the one-time tax benefit.
In January 2001, the Company amended its unsecured line of credit with a bank syndicate which allows for borrowings up to $75 million and matures in August 2004. The amended line of credit bears interest at either LIBOR or IBOR plus 0.75% (7.40% at December 31, 2000) or the bank's prime lending rate minus 0.25% (9.25% at December 31, 2000). At December 31, 2000, the Company had an outstanding balance of $15.0 million under such facility. The credit agreement contains various restrictive covenants including the maintenance of certain financial ratios. At December 31, 2000, the Company was in compliance with all restrictive covenants and financial ratios. Certain of the Company's foreign subsidiaries have negotiated local lines of credit to provide working capital financing. The aggregate borrowing limit on the foreign lines of credit is $18 million of which $2.9 million was outstanding at December 31, 2000. In aggregate, at December 31, 2000, $17.9 million was outstanding under these credit facilities. The Company also has a ten-year real estate term loan, which is collateralized by the Company's corporate headquarters and requires quarterly principal payments of approximately $380,000 plus interest based on LIBOR plus 1.00% (7.74% at December 31, 2000). In January 1999, the Company entered into an interest rate swap agreement that results in fixing the interest rate over the term of the note at 6.31%. At December 31, 2000, the outstanding balance on the term loan was $17.8 million. The term loan is due in September 2007.
Capital expenditures, net of retirements and purchases of businesses and technology, for the year ended December 31, 2000 were $26.9 million compared to $23.9 million in 1999. Included in capital expenditures for 2000 were $7.6 million for production equipment and new product tooling, $7.5 million for computers and related equipment, $6.4 million for in-store displays, and $5.4 million for building improvements and furniture and fixtures. As of December 31, 2000, the Company had commitments of approximately $5.3 million for future capital purchases. The capital expenditures for 2000 were required to accommodate not only the Company's significant growth, including new category growth and international expansion, but also expenditures for maintenance and upgrades for production cost and quality improvements. In addition, the Company incurred in 2000 some initial expenditures related to its new leased footwear and apparel distribution center in Ontario, California.
In December 1999, the Company's Board of Directors authorized a repurchase by the Company of up to $20 million of the Company's common stock. The Company completed this repurchase program during the second quarter of 2000 resulting in aggregate repurchases of approximately 2,274,000 shares of its common stock at a cost of approximately $20.0 million. During December 2000, the Company's Board of Directors authorized another repurchase program by the Company of up to $20 million of the Company's common stock. As of December 31, 2000, the Company had repurchased under this program 778,000 shares at an aggregate cost of approximately $11.7 million.
The Company believes that existing capital, anticipated cash flow from operations, and current and anticipated credit facilities will be sufficient to meet operating needs and capital expenditures for the foreseeable future.
SEASONALITY
The following table sets forth certain unaudited quarterly data for the periods shown:
(1) Cost of sales includes a $12.6 million charge recorded in 1999 in connection with the restructuring of the Company's footwear operations. See Note 12 in NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Historically, the Company's sales, in the aggregate, have been highest in the period from March to September, the period during which sunglass use is typically highest. As a result, operating margins are typically lower in the first and fourth quarters, as fixed operating costs are spread over lower sales volume. In anticipation of seasonal increases in demand, the Company typically builds inventories in the fourth quarter and first quarter when net sales have historically been lower. In addition, the Company's shipments of goggles, which generate gross profits at lower levels than sunglasses, are lowest in the second quarter. This seasonal trend contributes to the Company's gross profit in the second quarter, which historically has been the highest of the year. Although the Company's business generally follows this seasonal trend, new product category introductions, such as apparel, footwear and watches, and the Company's international expansion, have partially mitigated the impact of seasonality.
BACKLOG
Historically, the Company has generally shipped most eyewear orders within one day of receipt, with longer lead times for its other pre-booked product categories. At December 31, 2000, the Company had a backlog of $26.8 million, including backorders (merchandise remaining unshipped beyond its scheduled shipping date) of $6.9 million as of such date.
INFLATION
The Company does not believe inflation has had a material impact on the Company in the past, although there can be no assurance that this will be the case in the future.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin No.101 (SAB 101) "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. Management of the Company has determined that the adoption of SAB 101 did not have a material impact on the Company's consolidated financial statements.
In March 2000, the Financial Accounting Standards Board (FASB) issued Interpretation No. 44 of Accounting Principles Board Opinion No. 25, "Accounting for Certain Transactions Involving Stock Compensation" which, among other things, addressed accounting consequences of a modification that reduces the exercise price of a fixed stock option award (otherwise known as a repricing). Management of the Company has determined that the adoption of FASB Interpretation No. 44 did not have a material impact on the Company's consolidated financial statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of risks, including foreign currency fluctuations and changes in interest rates affecting the cost of its debt.
FOREIGN CURRENCY
The Company has direct operations in Europe, United Kingdom, Japan, Canada, Mexico, South Africa and Australia which collect at future dates in the customers' local currencies and purchase finished goods in U.S. dollars. Accordingly, the Company is exposed to transaction gains and losses that could result from changes in foreign currency exchange rates.
As more fully described in Note 8 of the Company's NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, the Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to foreign currency transactions. As part of its overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company and its subsidiaries use foreign exchange contracts in the form of forward contracts. All of the Company's derivatives were designated and qualified as cash flow hedges at December 31, 2000.
On the date the Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure. The Company only enters into derivative instruments that qualify as cash flow hedges as described in SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." For all instruments qualifying as highly effective cash flow hedges, the changes in the fair value of the derivative are recorded in other comprehensive income. The following is a summary of the foreign exchange contracts by currency at December 31, 2000:
The Company is exposed to credit losses in the event of nonperformance by counterparties to its forward exchange contracts but has no off-balance sheet credit risk of accounting loss. The Company anticipates, however, that the counterparties will be able to fully satisfy their obligations under the contracts. The Company does not obtain collateral or other security to support the forward exchange contracts subject to credit risk but monitors the credit standing of the counterparties. As of December 31, 2000, outstanding contracts were recorded at fair market value and the resulting gains and losses were recorded in the consolidated financial statements pursuant to the policy set forth above.
The Company sells direct and through its subsidiaries to various customers in the European Union which have adopted the Euro as a legal currency effective January 1, 1999. The Euro is expected to begin circulation after a three-year transition period on January 1, 2002. The Company has analyzed whether the conversion to the Euro will materially affect its business operations. The Company's information systems are currently processing transactions in Euros. Additionally, the Company is planning to upgrade
certain of its information systems through December 31, 2001 to enhance its capability to process transactions and keep records in Euros. While the Company is uncertain as to the ultimate impact of the conversion, the Company does not expect costs in connection with the Euro conversion to have a material adverse affect on the Company.
INTEREST RATES
The Company's principal line of credit, with a balance of $15.0 million outstanding at December 31, 2000, bears interest at either LIBOR or IBOR plus 0.75% or the bank's prime lending rate (minus 0.25%, commencing January 2001). Based on the weighted average interest rate of 8.7% on the line of credit during the year ended December 31, 2000, if interest rates on the line of credit were to increase by 10%, and to the extent that borrowings were outstanding, for every $1.0 million outstanding on the Company's line of credit, net income would be reduced by approximately $6,000 per year.
The Company's long-term debt, with a balance of $17.8 million outstanding at December 31, 2000, bears interest at LIBOR plus 1.0%. In January 1999, the Company entered into an interest rate swap agreement that eliminates the Company's risk of fluctuations in the variable rate of its long-term debt.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See INDEX TO CONSOLIDATED FINANCIAL STATEMENTS for a listing of the consolidated financial statements submitted as part of this report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be contained in the Company's Proxy Statement for its Annual Shareholders Meeting to be held on June 1, 2001, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2000, and is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the Company's Proxy Statement for its Annual Shareholders Meeting to be held on June 1, 2001, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2000, and is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the Company's Proxy Statement for its Annual Shareholders Meeting to be held on June 1, 2001, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2000, and is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the Company's Proxy Statement for its Annual Shareholders Meeting to be held on June 1, 2001, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2000, and is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) See page 38 for a listing of financial statements submitted as part of this report.
(a)(2) All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are shown in the financial statements or are inapplicable, and therefore have been omitted.
(a)(3) The following exhibits are included in this report.
3.1(1) Articles of Incorporation of the Company 3.2(1) Bylaws of the Company 3.3(4) Amendment No. 1 to the Articles of Incorporation as filed with the Secretary of State of the State of Washington on September 26, 1996 3.4(10) Amendment #1 to Section 1 and Sections 3a through 3f of Article IV of the Amended and Restated Bylaws of Oakley, Inc. 10.1(2) Agreement, dated July 17, 1995, between Oakley, Inc. and Michael Jordan 10.2(3) Oakley, Inc. 1995 Stock Incentive Plan 10.3(3) Oakley, Inc. Executive Officer Performance Bonus Plan 10.4(3) Indemnification Agreement, dated August 1, 1995, between Oakley, Inc. and Jim Jannard 10.5(1) Schedule of indemnification agreements between Oakley, Inc. and each of its directors and executive officers 10.6(3) Aircraft Lease Agreement, dated August 10, 1995, between Oakley, Inc. and X, Inc. 10.7(3) Aircraft Lease Agreement, dated August 10, 1995, between Oakley, Inc. and Time Tool Incorporated 10.8(1) Registration Rights Agreement, dated August 1, 1995, between Oakley, Inc., Jim Jannard and the M. and M. Parnell Revocable Trust 10.9(3) Indemnification Agreement, dated August 9, 1995, between Oakley, Inc., Jim Jannard and the M. and M. Parnell Revocable Trust 10.10(5) Reciprocal Exclusive Dealing Agreement dated March 11, 1997 among Oakley, Inc., Gentex Optics, Inc. and Essilor International Compagnie Generale D'Optique, S.A. (portions of this document have been omitted pursuant to a request for confidential treatment) 10.11(5) Promissory Note, dated March 20, 1997, between Oakley, Inc. and Bank of America National Trust and Savings Association 10.12(6) Promissory Note, dated August 7, 1997, between Oakley, Inc. and Bank of America National Trust and Savings Association 10.13(6) Amendment No. 1 to Promissory Note, dated August 14, 1997, between Oakley, Inc. and Bank of America National Trust and Savings Association 10.14(6) Amendment No. 2 to Promissory Note, dated August 14, 1997, between Oakley, Inc. and Bank of America National Trust and Savings Association 10.15(6) Deed of Trust with Assignment of Rents, Security Agreement and Fixture Filing, dated August 7, 1997, between Oakley, Inc. and Bank of America National Trust and Savings Association 10.16(7) Indemnification Agreement, dated October 6, 1997 between Oakley, Inc. and Thomas A. George 10.17(8) Amended and Restated Consultant Agreement, dated May 12, 1998, between Jim Jannard and Oakley, Inc.
10.18(9) Second Amended and Restated Credit Agreement, dated August 25, 1998, among Oakley, Inc. and Bank of America National Trust and Savings Association, as agent, and the Lenders named therein 10.19(9) Modification Agreement (Short Form), dated August 10, 1998, between Oakley, Inc. and Bank of America National Trust and Savings Association 10.20(9) Modification Agreement (Long Form), dated August 10, 1998, between Oakley, Inc. and Bank of America National Trust and Savings Association 10.21(11) Employment Agreement, dated May 1, 1999, between William Schmidt and Oakley, Inc. 10.22(11) Amended and Restated Employment Agreement, dated May 1, 1999, between Link Newcomb and Oakley, Inc. 10.23(11) Oakley, Inc. Amended and Restated 1995 Stock Incentive Plan 10.24(11) Oakley, Inc. Amended and Restated Executive Officers Performance Bonus Plan 10.25(12) Severance and Release Agreement, dated October 6, 1999, between William Schmidt and Oakley, Inc. 10.26(12) Amendment No. 1 to Amended and Restated Employment Agreement, dated December 31, 1999, between Link Newcomb and Oakley, Inc. 10.27(12) Second Amended and Restated Employment Agreement, dated January 1, 2000, between Thomas George and Oakley, Inc. 10.28(13) Consultant Agreement dated February 14, 2000 between Mike Parnell and Oakley, Inc. 10.29(13) First Amendment to Second Amended and Restated Credit Agreement dated as of March 6, 2000, among Oakley, Inc. and Bank of America National Trust and Savings Association, as agent, and the Lenders named therein 10.30(14) Employment Agreement, dated October 1, 2000, between Tomas Rios and Oakley, Inc. 10.31(15) Second Amendment to Second Amended and Restated Credit Agreement, dated October 16, 2000, among Oakley, Inc. and Bank of America National Trust and Savings Association, as agent, and the Lenders named therein 10.32(15) Third Amendment to Second Amended and Restated Credit Agreement, dated January 18, 2001, among Oakley, Inc. and Bank of America National Trust and Savings Association, as agent, and the Lenders named therein 10.33(15) Lease Agreement, dated November 10, 2000, between Haven Gateway LLC and Oakley, Inc. 10.34(15) Trademark License Agreement and Assignment of Rights, dated March 31, 2000, between Y, LLC and Oakley, Inc. 21.1(12) List of Material Subsidiaries 23.1(12) Consent of Deloitte & Touche LLP, independent auditors
(1) Previously filed with the Registration Statement on Form S-1 of Oakley, Inc. (Registration No. 33-93080)
(2) Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September 30, 1995.
(3) Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31, 1995.
(4) Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31, 1996.
(5) Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended March 31, 1997.
(6) Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September 30, 1997.
(7) Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31, 1997.
(8) Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30, 1998.
(9) Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September 30, 1998.
(10) Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31, 1998.
(11) Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended June 30, 1999.
(12) Previously filed with the Form 10-K of Oakley, Inc. for the year ended December 31, 1999.
(13) Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended March 30, 2000.
(14) Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended September 30, 2000.
(15) Filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended December 31, 2000.
(c) See (a) (3) above for a listing of the exhibits included as a part of this report.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Oakley, Inc.:
We have audited the accompanying consolidated balance sheets of Oakley, Inc. and subsidiaries (the "Company") as of December 31, 2000 and 1999 and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Oakley, Inc. and subsidiaries as of December 31, 2000 and 1999 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP Costa Mesa, California February 2, 2001
OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
See accompanying NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS)
See accompanying NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
See accompanying NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OAKLEY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
See accompanying NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS - The Company is an innovation-driven designer, manufacturer and distributor of consumer products that include high-performance eyewear, footwear, watches, apparel and accessories. The Company believes its principal strength is its ability to develop products that demonstrate superior performance and aesthetics through proprietary technology and styling. Its designs and innovations are protected by approximately 600 legal patents worldwide.
BASIS OF PRESENTATION - The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Oakley, Inc. (a Washington corporation, which succeeded to all the assets and liabilities of Oakley, Inc., a California corporation) and its subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS - For purposes of the consolidated financial statements, investments purchased with an original maturity of three months or less are considered cash equivalents.
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out method) or market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are provided for using the straight-line method over the estimated useful lives (generally three to seven years for property and equipment and 39 years for buildings) of the respective assets or, as to leasehold improvements, the term of the related lease if less than the estimated service life.
INTANGIBLE ASSETS - The excess of cost over fair market value of net identifiable assets of acquired companies and other intangible assets of $18,105,000 (2000) and $21,126,000 (1999) included in other assets in the accompanying balance sheet are amortized on a straight-line basis over periods ranging from ten to fifteen years. The carrying value of intangible assets is periodically reviewed by the Company based on the estimated future operating income of each acquired entity on an undiscounted cash flow basis. Based upon its most recent analysis, the Company believes that no impairment of intangible assets exists at December 31, 2000.
LONG-LIVED ASSETS - The Company accounts for the impairment and disposition of long-lived assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance with SFAS No. 121, long-lived assets to be held are reviewed for events or changes in circumstances which indicate that their carrying value may not be recoverable. As of December 31, 2000, no impairment has been indicated.
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS (CONT'D)
REVENUE RECOGNITION - Revenue is recognized when merchandise is shipped to a customer. Generally, the Company extends credit to its customers and does not require collateral. The Company performs ongoing credit evaluations of its customers and historic credit losses have been within management's expectations.
SEGMENT DISCLOSURES - The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for reporting information about operating segments and related disclosures about products, geographics and major customers (Note 11).
FINANCIAL INSTRUMENTS - The carrying amounts of financial instruments, consisting of cash and cash equivalents, trade accounts receivable and accounts payable, approximate fair value due to the short period of time between origination of the instruments and their expected realization. Management also believes the carrying amount of balances outstanding under the credit agreements approximates fair value as the underlying interest rates reflect market rates.
INCOME TAXES - The Company accounts for income taxes under the provisions of SFAS No. 109, "Accounting for Income Taxes." Deferred taxes are provided for temporary differences between basis of assets and liabilities for financial statement and tax reporting purposes (Note 5).
FOREIGN CURRENCY TRANSLATION - The Company's primary functional currency is the U.S. dollar, while the functional currency of each of the Company's subsidiaries is the local currency of the subsidiary. Assets and liabilities of the Company denominated in foreign currencies are translated at the rate of exchange on the balance sheet date. Revenues and expenses are translated using the average exchange rate for the period. Gains and losses from translation of foreign subsidiary financial statements are included in accumulated other comprehensive income. Gains and losses on short-term intercompany foreign currency transactions are recognized as incurred (Note 8).
COMPREHENSIVE INCOME - The Company has adopted SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income represents the results of operations adjusted to reflect all items recognized under accounting standards as components of comprehensive earnings. All periods have been restated to conform to SFAS No. 130.
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees."
EARNINGS PER SHARE - Basic earnings per share is computed using the weighted average number of common shares outstanding during the reporting period. Earnings per share assuming dilution is computed using the weighted average number of common shares outstanding and the dilutive effect of potential common shares outstanding. For the years ended December 31, 2000, 1999 and 1998, the diluted weighted average common shares outstanding includes 668,000, 2,000 and 173,000, respectively, of dilutive stock options.
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS (CONT'D)
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," on January 1, 1999. The adoption of SFAS No. 133 resulted in a transition adjustment recorded by the Company as a cumulative-effect type adjustment of $103,000 in 1999 as a charge to accumulated other comprehensive income to recognize the fair value of all derivatives that are designated as cash-flow hedges. (Note 8)
NEW ACCOUNTING PRONOUNCEMENTS - In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin No. 101 (SAB 101) "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. Management of the Company has determined that the adoption of SAB 101 did not have a material impact on the Company's consolidated financial statements.
In March 2000, the Financial Accounting Standards Board (FASB) issued Interpretation No. 44 of Accounting Principles Board Opinion No. 25, "Accounting for Certain Transactions Involving Stock Compensation," which, among other things, addressed accounting consequences of a modification that reduces the exercise price of a fixed stock option award (otherwise known as a repricing). Management of the Company has determined that the adoption of FASB Interpretation No. 44 did not have a material impact on the Company's consolidated financial statements.
RECLASSIFICATIONS - Certain reclassifications have been made to prior period financial statements to conform to the presentation for the financial statements for the period ended December 31, 2000.
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
GENERAL BUSINESS - The Company's historical success is attributable, in part, to its introduction of products which are perceived to represent an improvement in performance over products available in the market. The Company's future success will depend, in part, upon its continued ability to develop and introduce such innovative products, and there can be no assurance of the Company's ability to do so. The consumer products industry, including the sunglass, apparel, footwear, and watch categories, is fragmented and highly competitive. In order to retain its market share, the Company must continue to be competitive in the areas of quality, technology, method of distribution, style, brand image, intellectual property protection and customer service. These industries are subject to changing consumer preferences; shifts in consumer preferences may adversely affect companies that misjudge such preferences.
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS (CONT'D)
In addition, the Company has experienced significant growth under several measurements which has placed, and could continue to place, a significant strain on its employees and operations. If management is unable to anticipate or manage growth effectively, the Company's operating results could be materially adversely affected.
USE OF ESTIMATES - The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the balance sheet dates and the reported amounts of revenue and expense during the reporting periods. Actual results could differ from such estimates.
VULNERABILITY DUE TO SUPPLIER CONCENTRATIONS - The Company uses a single source for the supply of several components, including the uncoated lens blanks from which substantially all of its sunglass lenses are cut. In the event of the loss of the source for lens blanks, the Company has identified an alternate source which may be available. The effect of the loss of any of these sources or a disruption in their business will depend primarily upon the length of time necessary to find a suitable alternative source and could have a material adverse effect on the Company's results of operations.
VULNERABILITY DUE TO CUSTOMER CONCENTRATIONS - Net sales to a sunglass specialty retail chain accounted for approximately 21.0%, 23.0% and 26.0% of net sales for the years ended December 31, 2000, 1999 and 1998, respectively.
NOTE 2 - ACQUISITIONS
During 1998, the Company acquired the Oakley division of its exclusive Canadian distributor and certain patented technology for an aggregate cost of approximately $7.3 million. During 1999, the Company acquired its Australian distributor and paid approximately $7.7 million for goodwill. All acquisitions were recorded using the purchase method of accounting and the results of operations from the date of acquisition have been included in the Company's respective 2000, 1999 and 1998 financial statements. The excess of the purchase prices over the fair values of the net assets acquired have been allocated to intangible assets, which are included in the caption "Other assets" in the accompanying consolidated balance sheet and are being amortized on a straight-line basis over periods ranging from ten to fifteen years. Had the acquisitions occurred at the beginning of the fiscal year in which each acquisition was completed, or the beginning of the immediately preceding year, combined pro forma net sales, net income and net income per common share would not have been materially different from that currently being reported.
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 3 - INVENTORIES
Inventories at December 31, consist of the following:
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, consist of the following:
NOTE 5 - INCOME TAXES
The provision for income taxes for the years ended December 31, consists of the following:
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 5 - INCOME TAXES (CONT'D)
A reconciliation of income tax expense computed at U.S. Federal statutory rates to income tax expense for the years ended December 31, is as follows:
Deferred and prepaid income taxes consist of prepaid taxes of $15,388,000 at December 31, 2000 and zero at December 31, 1999 and reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31, are as follows:
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 6 - DEBT
LINE OF CREDIT - In January 2001, the Company amended its unsecured line of credit with a bank syndicate which allows for borrowings up to $75 million and matures in August 2004. The amended line of credit bears interest at either LIBOR or IBOR plus 0.75% (7.40% at December 31, 2000) or the bank's prime lending rate minus 0.25% (9.25% at December 31, 2000). At December 31, 2000 and 1999, the Company had $15 million and $5.0 million, respectively, outstanding under the credit agreement. The credit agreement contains various restrictive covenants including the maintenance of certain financial ratios. At December 31, 2000, the Company was in compliance with all restrictive covenants and financial ratios. Certain of the Company's foreign subsidiaries have negotiated local lines of credit to provide working capital financing. The aggregate borrowing limit on the foreign lines of credit is $18 million of which $2.9 million was outstanding at December 31, 2000. In aggregate, at December 31, 2000, $17.9 million was outstanding under these credit facilities.
LONG-TERM DEBT - The Company has a real estate term loan with an outstanding balance of $17.8 million at December 31, 2000, which expires September 2007. The term loan, which is collateralized by the Company's corporate headquarters, requires quarterly principal payments of approximately $380,000 ($1,519,000 annually), plus interest based upon LIBOR plus 1.00% (7.74% at December 31, 2000). In January 1999, the Company entered into an interest rate swap agreement that eliminates the Company's risk of fluctuations in the variable rate of its long-term debt by fixing the interest rate over the term of the note at 6.31%.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
LEASES - The Company is committed under noncancelable operating leases expiring at various dates through 2009 for certain offices, warehouse facilities, production facilities, distribution centers and aircraft. The aircraft is leased from an entity controlled by an officer and a shareholder of the Company.
Minimum future annual rentals under these leases are as follows:
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONT'D)
Rent expense for the years ended December 31, is summarized as follows:
PURCHASE COMMITMENTS - The Company has an exclusive dealing agreement, which renews annually, with its lens blank supplier and the supplier's French parent, pursuant to which the Company received the exclusive right to purchase decentered sunglass lenses, in return for the Company's agreement to fulfill all its lens requirements, subject to certain exceptions, from such supplier.
EMPLOYMENT AND CONSULTING AGREEMENTS - The Company has entered into employment and consulting agreements with certain officers of the Company which have terms of two to three years. The agreements require minimum aggregate compensation to the respective officers. Additionally, the officers participate in a performance bonus plan, and the employment agreements establish minimum bonus targets for such officers.
ENDORSEMENT CONTRACTS - The Company has entered into several endorsement contracts with selected athletes and others who endorse the Company's products. Under the contracts, the Company has agreed to pay certain incentives based on performance and is required to pay minimum annual payments as follows:
Included in such amounts is an annual retainer of $0.5 million through 2005 for a director of the Company.
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONT'D)
LITIGATION - During December 1996, three putative class action lawsuits (the "California Securities Actions") were filed in the California Superior Court for the County of Orange (the "Superior Court") against the Company and three of its officers and directors alleging material misstatements and omissions in certain of the Company's public statements, SEC filings and reports of third-party analysts. The plaintiffs sought unspecified damages and other relief. In addition, one of the lawsuits also asserted claims against firms who served as underwriters of the June 6, 1996 offering of the Company's common stock by certain of its shareholders (the "Secondary Offering"). Pursuant to certain provisions of the underwriting agreement between the Company and the firms, the Company agreed to indemnify the firms against certain liabilities, including liabilities under the Securities Act of 1933. Pursuant to the terms of the settlement in the Federal Securities Action (described below), the California Securities Action was dismissed on a with prejudice basis in February 2001. During October, November, and December 1997, five putative class action lawsuits (the "Federal Securities Actions") were filed in the United States District Court for the Central District of California, Southern Division (the "District Court"), against the Company, three of its officers and directors, and firms that served as underwriters of the Secondary Offering, alleging material misstatements and omissions in certain of the Company's public statements, the reports of third-party analysts and/or certain of the Company's SEC filings. The plaintiffs in the Federal Securities Actions sought unspecified damages and other relief.
In August 2000, the parties entered into a Stipulation of Settlement dated as of August 28, 2000 to resolve the Federal Securities Actions. Among other things, the Stipulation of Settlement provided for the dismissal with prejudice of the Federal Securities Actions upon final approval of the settlement by the District Court. On December 19, 2000, the District Court finally approved the settlement and entered orders and judgments dismissing the Federal Securities Actions with prejudice in accordance with the terms of the Stipulation of Settlement. Amounts paid under the Stipulation of Settlement were funded entirely by the Company's insurance carrier.
In addition, the Company is currently involved in litigation incidental to the Company's business. In the opinion of management, the ultimate resolution of such litigation, in the aggregate, will not have a significant effect on the accompanying consolidated financial statements.
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 8 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," on January 1, 1999. The adoption of SFAS No. 133 resulted in a transition adjustment recorded by the Company as a cumulative-effect type adjustment of a $103,000 charge in 1999 to accumulated other comprehensive income to recognize the fair value of all derivatives that are designated as cash-flow hedges.
The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions of its international subsidiaries as well as fluctuations in its variable rate debt. As part of its overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company and its subsidiaries use foreign exchange contracts in the form of forward contracts. In addition, as part of its overall strategy to manage the level of exposure to the risk of fluctuations in interest rates, in January 1999 the Company entered into an interest rate swap agreement that results in fixing the interest rate over the term of the Company's ten-year real estate term loan. At December 31, 2000, all of the Company's derivatives were designated and qualified as cash flow hedges. For all qualifying and highly effective cash flow hedges, the changes in the fair value of the derivative are recorded in other comprehensive income. The Company is currently hedging forecasted foreign currency transactions that could result in reclassifications of $2.7 million of losses to earnings over the next twelve months; however, under the specific terms of Company's foreign exchange contracts, assuming exchange rates at December 31, 2000 remain constant, losses of only $0.4 million would be reclassified to earnings over the next twelve months. The Company hedges forecasted transactions that are determined probable to occur within 18 months or less.
On the date the Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure. The Company does not enter into derivative instruments that do not qualify as cash flow hedges as described in SFAS No. 133. The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions. In this documentation, the Company specifically identifies the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and states how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. The Company would discontinue hedge accounting prospectively (i) if it is determined that the derivative is no longer effective in offsetting change in the cash flows of a hedged item, (ii) when the derivative expires or is sold, terminated, or exercised, (iii) when the derivative is designated as a hedge instrument, because it is probable that the forecasted transaction will not occur, (iv) because a hedged firm commitment no longer meets the definition of a firm commitment, or (v) if management determines that designation of the derivative as a hedge instrument is no longer appropriate. During the twelve months ended December 31, 2000, the Company reclassified into earnings a net gain of $3.9 million resulting from the expiration, sale, termination, or exercise of foreign currency exchange contracts.
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 8 - DERIVATIVE FINANCIAL INSTRUMENTS (CONT'D)
The following is a summary of the foreign currency contracts outstanding by currency at December 31, 2000:
The Company is exposed to credit losses in the event of nonperformance by counterparties to its forward exchange contracts but has no off-balance sheet credit risk of accounting loss. The Company anticipates, however, that the counterparties will be able to fully satisfy their obligations under the contracts. The Company does not obtain collateral or other security to support the forward exchange contracts subject to credit risk but monitors the credit standing of the counterparties. As of December 31, 2000, outstanding contracts were recorded at fair market value and the resulting gains and losses were recorded in the consolidated financial statements pursuant to the policy set forth above.
NOTE 9 - SHAREHOLDERS' EQUITY
STOCK REPURCHASE - In December 1999, the Company's Board of Directors authorized a repurchase by the Company of up to $20 million of the Company's common stock. The Company completed this repurchase program during the second quarter of 2000 resulting in aggregate repurchases of approximately 2,274,000 shares of its common stock at a cost of approximately $20.0 million, or an average cost of $8.79 per share. In December 2000, the Company's Board of Directors authorized another $20 million stock repurchase program to occur from time to time as market conditions warrant. Under this program, as of December 31, 2000 the Company had purchased approximately 778,000 shares of its common stock at an aggregate cost of approximately $11.7 million, or an average cost of $15.00 per share.
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 9 - SHAREHOLDERS' EQUITY (CONT'D)
STOCK INCENTIVE PLAN - The Company's 1995 Stock Incentive Plan (the "Plan") provides for stock-based incentive awards, including incentive stock options, nonqualified stock options, restricted stock, performance shares, stock appreciation rights and deferred stock to Company officers, employees, advisors and consultants. A total of 6,712,000 shares have been reserved for issuance under the Plan. At December 31, 2000, stock options for 1,649,397 shares were exercisable and 2,686,825 shares were available for issuance pursuant to new stock option grants.
The following table summarizes information with respect to the Plan for the years ended December 31, 2000, 1999 and 1998:
Additional information regarding options outstanding as of December 31, 2000 is as follows:
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 9 - SHAREHOLDERS' EQUITY (CONT'D)
During the years ended December 31, 2000, 1999 and 1998, the Company recorded stock compensation expense of $141,000, $238,000 and $203,000, respectively, associated with stock options issued to non-employees.
As disclosed in Note 1, the Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based awards. No compensation expense has been recognized in the financial statements for employee stock arrangements. SFAS No. 123, "Accounting for Stock-Based Compensation," requires the disclosure of pro forma net income and earnings per share had the Company adopted the fair value method in accounting for stock-based awards as of the beginning of fiscal 1995. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option-pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the Black-Scholes option-pricing model with the following weighted average assumptions:
If the computed fair value of the 2000, 1999 and 1998 awards had been amortized to expense over the vesting period of the awards, net income would have been as follows:
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 10 - NET SALES
The Company's net sales to U.S. and international customers for the years ended December 31, are summarized as follows:
NOTE 11 - SEGMENT AND GEOGRAPHIC INFORMATION
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company's chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company operates exclusively in the consumer products industry in which the Company designs, manufactures and sells performance and prescription eyewear, athletic equipment, apparel, footwear and watches. For segment reporting purposes, these product groups have been aggregated because of their common characteristics and their reliance on shared operating functions.
Although the Company operates in one industry segment, it derives revenues from different product lines within the segment. Revenues as a percentage of gross sales from external customers for each product line for the years ended December 31, are as follows:
Other consumer products consist of prescription eyewear, goggles, footwear, apparel, watches and accessories.
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 11 - SEGMENT AND GEOGRAPHIC INFORMATION (CONT'D)
Consumer product information related to domestic and foreign operations is as follows:
NOTE 12 - RESTRUCTURE CHARGE
In October 1999, the Company's Board of Directors approved strategic initiatives (the "Restructuring Plan") to restructure and refocus the Company's footwear business. Under the Restructuring Plan, the Company substantially reduced its in-house footwear manufacturing operations and partnered with select third-party manufacturers to assist in the development and manufacture of the Company's complete footwear product line. Additionally, the Company has increased its emphasis on direct-sales channels to augment sales throughout traditional retail accounts and to broaden accessibility of the Company's products to its customers.
Related to this Restructuring Plan, the Company recorded a charge of $12.6 million ($8.2 million, or $0.12 per share, on an after-tax basis) during the fourth quarter of the fiscal year ended December 31, 1999. This charge was included in cost of goods sold and is comprised of the following components:
OAKLEY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 12 - RESTRUCTURE CHARGE (CONT'D)
The $12.6 million charge included reserves related to inventory and sales returns, aggregating $6.5 million, which the Company fully utilized upon the completion of the Restructuring Plan in October 2000 with no revisions to the charge recorded.
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
(1) Cost of goods sold includes a $12.6 million charge recorded in 1999 in connection with the restructuring of the Company's footwear, see Note 12 in NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
OAKLEY, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(1) Includes inventory reserves related to the $12.6 million restructuring charge recorded in 1999 in connection with the restructuring of the Company's footwear operations. Such reserves were fully utilized in 2000 as shown above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
OAKLEY, INC.
By: /s/ JIM JANNARD --------------------------- Jim Jannard CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Date: March 26, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.