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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2000
or
( )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.
(Exact name of registrant as specified in its charter)
Washington 95-3194947
------------------------------- ---------------------
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
One Icon
Foothill Ranch, California 92610
---------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
(949) 951-0991
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 68,584,604 shares
-------------------------------------- --------------------------------
(Class) (Outstanding on August 10, 2000)
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OAKLEY, INC.
INDEX TO FORM 10-Q
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999...................................... 3
Consolidated Statements of Income for the three- and six-month
periods ended June 30, 2000 and 1999....................... 4
Consolidated Statements of Comprehensive Income for the
three- and six-month periods ended June 30, 2000 and 1999.... 4
Consolidated Statements of Cash Flows for the six-month periods
ended June 30, 2000 and 1999................................. 5
Notes to Consolidated Financial Statements..................... 6-8
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 9-15
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk..... 15-16
PART II. OTHER INFORMATION
ITEM 1 - Legal Proceedings.............................................. 17-19
ITEM 2 - Changes in Securities and Use of Proceeds...................... 19
ITEM 3 - Defaults Upon Senior Securities................................ 19
ITEM 4 - Submission of Matters to a Vote of Security Holders............ 19-20
ITEM 5 - Other Information.............................................. 20
ITEM 6 - Exhibits and Reports on Form 8-K............................... 21
Signatures.............................................................. 22
Exhibits................................................................ 23
2
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,006 $ 5,499
Accounts receivable, less allowance for
doubtful accounts of $1,240 (2000), $598 (1999) 49,698 39,113
Inventories, net (Note 2) 51,645 35,061
Other receivables 1,569 1,776
Deferred income taxes 11,676 11,698
Prepaid expenses and other 8,905 5,561
--------- ---------
Total current assets 131,499 98,708
Property and equipment, net 115,206 113,695
Deposits 2,022 2,281
Other assets 22,408 24,666
--------- ---------
TOTAL ASSETS $ 271,135 $ 239,350
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit (Note 3) $ 15,000 $ 5,000
Accounts payable 20,370 16,592
Accrued expenses and other current liabilities 13,071 10,485
Accrued warranty 4,561 4,483
Income taxes payable 9,030 1,382
Current portion of long-term debt (Note 3) 1,519 1,519
--------- ---------
Total current liabilities 63,551 39,461
Deferred income taxes 3,521 3,511
Long-term debt, net of current maturities (Note 3) 17,831 18,541
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01 per share:
20,000,000 shares authorized; no shares issued -- --
Common stock, par value $.01 per share:
200,000,000 shares authorized; 68,415,000
(2000) and 70,037,000 (1999) issued and
outstanding 684 700
Additional paid-in capital 36,163 51,851
Retained earnings 150,155 126,225
Accumulated other comprehensive loss (770) (939)
--------- ---------
Total shareholders' equity 186,232 177,837
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 271,135 $ 239,350
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
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OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 100,013 $ 72,071 $ 163,099 $ 120,797
Cost of goods sold 33,270 25,287 57,280 45,340
----------- ----------- ----------- -----------
Gross profit 66,743 46,784 105,819 75,457
Operating expenses:
Research and development 2,129 1,491 3,770 2,945
Selling 24,037 19,267 42,073 34,941
Shipping and warehousing 2,347 1,553 3,978 2,797
General and administrative 9,044 7,585 17,835 15,121
----------- ----------- ----------- -----------
Total operating expenses 37,557 29,896 67,656 55,804
----------- ----------- ----------- -----------
Operating income 29,186 16,888 38,163 19,653
Interest expense, net 790 554 1,349 1,151
----------- ----------- ----------- -----------
Income before provision for income taxes 28,396 16,334 36,814 18,502
Provision for income taxes 9,939 5,717 12,885 6,476
----------- ----------- ----------- -----------
Net income $ 18,457 $ 10,617 $ 23,929 $ 12,026
=========== =========== =========== ===========
Basic net income per common share $ 0.27 $ 0.15 $ 0.35 $ 0.17
=========== =========== =========== ===========
Basic weighted average common shares 68,484,000 70,678,000 69,193,000 70,678,000
=========== =========== =========== ===========
Diluted net income per common share $ 0.27 $ 0.15 $ 0.35 $ 0.17
=========== =========== =========== ===========
Diluted weighted average common shares 68,734,000 70,692,000 69,292,000 70,687,000
=========== =========== =========== ===========
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 18,457 $ 10,617 $ 23,929 $ 12,026
Other comprehensive (loss) income:
Transition adjustment related to the
adoption of SFAS 133 -- -- -- (103)
Net unrealized gain on derivative instruments 808 1,013 1,928 1,819
Foreign currency translation adjustment (971) (249) (1,759) (1,047)
-------- -------- -------- --------
Other comprehensive (loss) income, net of tax (163) 764 169 669
-------- -------- -------- --------
Comprehensive income $ 18,294 $ 11,381 $ 24,098 $ 12,695
======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months ended
June 30,
----------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 23,929 $ 12,026
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 9,930 9,276
Compensatory stock options 72 117
Gain on disposition of equipment (335) (16)
Deferred income taxes 30 (29)
Changes in assets and liabilities, net of effects of
business acquisitions:
Accounts receivable, net (11,860) (8,755)
Inventories (17,244) 2,175
Other receivables 179 27
Prepaid expenses and other (1,440) (474)
Accounts payable 3,973 5,643
Accrued expenses, other current liabilities and
accrued warranty 2,906 135
Income taxes payable 8,075 4,510
-------- --------
Net cash provided by operating activities 18,215 24,635
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits 242 (898)
Acquisitions of property and equipment (10,662) (7,053)
Proceeds from sale of property and equipment 411 494
Other assets 162 (86)
-------- --------
Net cash used in investing activities (9,847) (7,543)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 61,800 29,000
Repayments of bank borrowings (52,449) (43,059)
Net proceeds from issuance of common shares 117 --
Repurchase of common shares (15,893) --
-------- --------
Net cash used in financing activities (6,425) (14,059)
Effect of exchange rate changes on cash 564 205
Net increase (decrease) in cash and cash equivalents 2,507 3,238
Cash and cash equivalents, beginning of period 5,499 4,553
-------- --------
Cash and cash equivalents, end of period $ 8,006 $ 7,791
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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OAKLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements of Oakley, Inc. and its
wholly-owned subsidiaries (the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC").
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles ("GAAP") for complete financial
statements.
In the opinion of management, the consolidated financial statements contain all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair statement of the consolidated balance sheets as of June 30,
2000 and December 31, 1999, the consolidated statements of income and
comprehensive income for the three- and six-month periods ended June 30, 2000
and 1999 and the statements of cash flows for the six-month periods ended June
30, 2000 and 1999. The results of operations for the three- and six-month
periods ended June 30, 2000 are not necessarily indicative of the results of
operations for the entire year ending December 31, 2000.
NOTE 2 - INVENTORIES
Inventories consist of the following:
June 30, 2000 December 31, 1999
------------- -----------------
Raw Materials $ 18,309,000 $ 14,801,000
Finished Goods 33,336,000 20,260,000
------------ ------------
$ 51,645,000 $ 35,061,000
============ ============
NOTE 3 - FINANCING ARRANGEMENTS
Line of credit - The Company has an unsecured line of credit with a bank
syndicate, which expires in August 2001, allowing for borrowings up to $50
million. The line of credit bears interest at either the bank's prime lending
rate (9.50% at June 30, 2000) or LIBOR plus 0.75% (7.42% at June 30, 2000). At
June 30, 2000, the Company had $15.0 million outstanding under the credit
agreement and was in compliance with all restrictive covenants and financial
ratios of the line of credit.
Long-term debt - The Company has a real estate term loan with an outstanding
balance of $18.7 million at June 30, 2000, which matures 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% (7.84% at June 30, 2000)
for ten years.
NOTE 4 - 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 seek 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, as amended. On July 26, 1999, the Superior Court entered
a dismissal without prejudice of the California Securities Actions. 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
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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 seek unspecified damages and other
relief. On July 10, 1998, the Company and the other defendants filed motions to
dismiss the Federal Securities Actions. On January 14, 1999, the District Court
denied the motions to dismiss filed by the Company and the other defendants. On
March 3, 1999, the defendants filed answers in the Federal Securities Actions.
On June 29, 1999, the District Court approved stipulations for class
certification that the parties had submitted and entered orders for class
certification in the Federal Securities Actions. In July 2000, an agreement in
principle was reached to settle the Federal Securities Action. The proposed
settlement, which is subject to the execution of a definitive written settlement
agreement and approval by the District Court, will be funded entirely by the
Company's insurance carrier and will completely resolve the Federal Securities
Actions. In the event the proposed settlement does not become effective, based
on its current understanding of the facts, the Company believes that the
plaintiffs' claims are without merit and intends to vigorously defend the
actions.
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.
NOTE 5 - DERIVATIVE FINANCIAL INFORMATION
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 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 uses foreign exchange contracts in
the form of forward contracts and option contracts. In addition, as part of its
overall strategy to manage the level of exposure to the risk of fluctuations in
interest rates, the Company has entered into an interest rate swap agreement. At
June 30, 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, assuming exchange rates at June 30, 2000 remain constant, are
expected to result in reclassifications of $1.7 million of gains to earnings
over the next twelve months. The Company hedges forecasted transactions that are
determined probable to occur within 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. The Company formally
documents all relationships between hedging instruments and hedged items, as
well as 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
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firm commitment, or (v) if management determines that designation of the
derivative as a hedge instrument is no longer appropriate. During the three and
six months ended June 30, 2000, the Company reclassified into earnings net gains
of $462,000 and $923,000, respectively, resulting from the expiration, sale,
termination or exercise of foreign currency exchange contracts.
NOTE 6 - RESTRUCTURE CHARGE
A restructure charge of $12.6 million ($8.2 million, or $0.12 per share, on an
after-tax basis) was recorded in the fourth quarter of fiscal 1999 as part of
the strategic initiatives (the "Restructuring Plan") approved in October 1999 by
the Company's Board of Directors. Under the Restructuring Plan, the Company has
reduced its in-house footwear manufacturing capabilities and selected
third-party partners to assist in the development and manufacture of the
Company's complete footwear line. The charge was included in cost of sales and
is comprised of the following components:
(in thousands)
--------------
Writedown of excess inventories (including
inventory associated with product returns) $ 8,502
Writedown of production equipment to estimated
net realizable value 3,592
Other costs associated with Restructuring Plan 506
-------
$12,600
=======
The Company expects to complete the restructuring of its footwear operations by
October 2000. For the three and six months ended June 30, 2000, the Company
utilized $0.1 million and $3.8 million, respectively, of its restructuring
reserves primarily for the write-down of excess inventories. Of the
restructuring reserves established in connection with the Restructuring Plan,
the balance as of June 30, 2000 was $3.1 million, which the Company anticipates
will be utilized upon ultimate disposal of the inventory during the restructure
period.
NOTE 7 - 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 three months ended June 30, 2000 and 1999, the diluted weighted average
common shares outstanding included 250,000 and 14,000, respectively, of dilutive
stock options. For the six months ended June 30, 2000 and 1999, the diluted
weighted average common shares outstanding includes 99,000 and 9,000,
respectively, of dilutive stock options.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes the operations of Oakley, Inc. and its
subsidiaries for each of the periods discussed.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 and 1999
Net sales
Net sales increased to $100.0 million for the three months ended June 30, 2000
from $72.1 million for the three months ended June 30, 1999, an increase of
$27.9 million, or 38.7%. The increase in net sales was primarily attributable to
a 29.4%, or $20.2 million, increase in gross sunglass sales. Gross sunglass
sales were $88.8 million for the second quarter of 2000 compared to $68.6
million for the second quarter of 1999. For the quarter ended June 30, 2000, the
Company experienced a 20.3% increase in sunglass unit volume and a 7.6% increase
in average selling prices. The increase in gross sunglass sales was driven by
strong sunglass sales of the Company's new Straight Jacket introduced in late
1999, the Minutes, the OO line introduced in June 1999, the X-Metal line, and
the new M-Frame updated in May 1999. New sunglass products introduced in 2000,
including the Twenty, the C-Wire and the new Square Wire also contributed to the
increase in sales. The Company's polarized styles for the three months ended
June 30, 2000 also contributed to the increase in gross sunglass sales, more
than doubling over the three months ended June 30, 1999. The Company's
prescription eyewear gross sales increased 117.6%, or $2.0 million, to $3.7
million for the three months ended June 30, 2000 from $1.7 million for
comparable 1999 period. As a group, gross sales of goggles, apparel, footwear,
watches and sunglass accessories increased 55.6%, or $5.1 million, during the
quarter ended June 30, 2000 over the quarter ended June 30, 1999. During the
quarter ended June 30, 2000, the Company's U.S. net sales increased 38.0%, or
$16.7 million, to $60.7 million from $44.0 million in the comparable 1999
period, principally as a result of a 47.9% increase in net sales to the
Company's broad specialty store account base and higher sales from the internet
and other direct channels. Sales to the Company's largest customer, Sunglass
Hut, increased 24.3% in the U.S. to $23.0 million for the three months ended
June 30, 2000 from $18.5 million for the three months ended June 30, 1999. The
Company's international sales increased 39.9% to $39.3 million during the second
quarter of 2000 from $28.1 million in 1999, principally as a result of increased
sales in all direct operations, including significant increases in net sales in
continental Europe, United Kingdom, Australia, Japan and Canada. On November 1,
1999, the Company acquired its Australian distributor, which contributed to the
increase in direct international sales during the quarter ended June 30, 2000.
Sales from the Company's direct international offices represented 82.7% of total
international sales for the quarter ended June 30, 2000, compared to 78.6% for
the comparable 1999 quarter. On a constant dollar basis, international sales
increased 47.6% from the quarter ended June 30, 2000 when compared to the
quarter ended June 30, 1999.
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Gross profit
Gross profit increased to $66.7 million for the three months ended June 30, 2000
from $46.8 million for the three months ended June 30, 1999, an increase of
$19.9 million, or 42.5%. As a percentage of net sales, gross profit increased to
66.7% for the three months ended June 30, 2000 from 64.9% for the three months
ended June 30, 1999. The increase in gross profit as a percentage of net sales
is attributable to several factors, including increased sales volume resulting
in better utilization of the Company's fixed-cost infrastructure and thereby
generating positive leverage, reduced sales returns and discounts, improved
footwear operations and the increased profit derived from the Company's
acquisition of its Australian distributor in November 1999.
Operating expenses
Operating expenses increased to $37.6 million for the three months ended June
30, 2000 from $29.9 million for the three months ended June 30, 1999, an
increase of $7.7 million, or 25.8%. Operating expenses, as a percentage of net
sales, decreased to 37.6% for the quarter ended June 30, 2000 from 41.5% for the
quarter ended June 30, 1999, primarily due to the increased sales volume
generating significant leverage on operating expenses. This increase in absolute
dollars is generally due to higher variable expenses attributable to increased
sales volume, together with the operating expenses and goodwill amortization in
2000 resulting from the Company's acquisition of its Australian distributor. As
a percentage of net sales, research and development expenses remained at 2.1% of
net sales for the three months ended June 30, 2000 and June 30, 1999. Selling
expenses increased $4.8 million to $24.0 million, or 24.0% of net sales, for the
three months ended June 30, 2000 from $19.3 million, or 26.7% of net sales, for
the three months ended June 30, 1999 as a result of increased sales commissions
and higher advertising expenditures, offset by reduced warranty costs resulting
from fewer defective claims. Advertising expenses were higher 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 a collaboration between the agency and the Company's in-house
creative team for advertising content. As a percentage of net sales, shipping
and warehousing expenses increased slightly to 2.3% of net sales for the three
months ended June 30, 2000 compared to 2.2% for the three months ended June 30,
1999, primarily due to increased footwear sales with higher average shipping
costs. General and administrative expenses for the three months ended June 30,
2000 were $9.0 million, or 9.0% of net sales, compared to $7.6 million, or 10.5%
of net sales, in the same period in 1999. This increase in general and
administrative expenses was principally a result of increased personnel-related
costs and 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 $29.2 million for the three months
ended June 30, 2000 from $16.9 million for the three months ended June 30, 1999,
an increase of $12.3 million, or 72.8%, over the same period in the previous
year. As a percentage of net sales, operating income increased to 29.2% for the
three months ended June 30, 2000 from 23.4% for the three months ended June 30,
1999 primarily as a result of the improved gross margin and significant positive
operating expense leverage on higher sales volume.
Interest expense, net
The Company incurred net interest expense of $0.8 million for the three months
ended June 30, 2000 as compared with net interest expense of $0.6 million for
the three months ended June 30, 1999.
Net income
The Company's net income increased to $18.5 million for the three months ended
June 30, 2000 from $10.6 million for the three months ended June 30, 1999, an
increase of $7.9 million, or 74.5%, over the comparable 1999 quarter.
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Six Months Ended June 30, 2000 and 1999
Net sales
Net sales increased to $163.1 million for the six months ended June 30, 2000
from $120.8 million for the six months ended June 30, 1999, an increase of $42.3
million, or 35.0%. The increase in net sales was primarily attributable to a
27.7%, or $30.7 million, increase in gross sunglass sales. Gross sunglass sales
were $141.4 million for the first half of 2000 compared to $110.7 million for
the first half of 1999. For the six months ended June 30, 2000, the Company
experienced a 19.7% increase in sunglass unit volume and a 6.7% increase in
average selling prices. The increase in gross sunglass sales resulted from
strong sunglass sales of the Company's new Straight Jacket, Minutes, OO line,
X-Metal line, new M-Frame, and new sunglass products introduced during 2000.
Sales of the Company's polarized styles for the six months ended June 30, 2000
also contributed to the increase in gross sunglass sales. The Company's
prescription eyewear gross sales increased 143.5%, or $3.3 million, to $5.6
million for the six months ended June 30, 2000 from $2.3 million for comparable
1999 period. As a group, gross sales of goggles, apparel, footwear, watches and
sunglass accessories increased 36.1%, or $7.3 million, during the six months
ended June 30, 2000 over the six months ended June 30, 1999. During the six
months ended June 30, 2000, the Company's U.S. net sales increased 30.1%, or
$21.8 million, to $94.3 million from $72.5 million in the comparable 1999
period, principally as a result of a 46.6% increase in net sales to the
Company's broad specialty store account base and higher sales from the internet
and other direct channels. Sales to the Company's largest customer, Sunglass
Hut, increased 6.9% in the U.S. to $32.5 million for the six months ended June
30, 2000 from $30.4 million for the six months ended June 30, 1999. The
Company's international sales increased 42.4% to $68.8 million during the first
half of 2000 from $48.3 million in the first half of 1999, principally as a
result of increased sales in all direct operations, including significant
increases in net sales in continental Europe, United Kingdom, Australia, Japan
and Canada. On November 1, 1999, the Company acquired its Australian
distributor, which contributed to the increase in direct international sales
during the six months ended June 30, 2000. Sales from the Company's direct
international offices represented 83.1% of total international sales for the six
months ended June 30, 2000, compared to 78.0% for the comparable 1999 period. On
a constant dollar basis, international sales increased approximately 49.2% from
the six months ended June 30, 2000 when compared to the six months ended June
30, 1999.
Gross profit
Gross profit increased to $105.8 million for the six months ended June 30, 2000
from $75.5 million for the six months ended June 30, 1999, an increase of $30.3
million, or 40.1%. As a percentage of net sales, gross profit increased to 64.9%
for the six months ended June 30, 2000 from 62.5% for the six months ended June
30, 1999. The increase in gross profit as a percentage of net sales is
attributable to several factors, including increased sales volume resulting in
better utilization of the Company's fixed-cost infrastructure and thereby
generating positive leverage, reduced sales returns and discounts, improved
footwear operations and the Company's acquisition of its Australian distributor
in November 1999.
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A restructure charge of $12.6 million ($8.2 million, or $0.12 per share, on an
after-tax basis) was recorded in the fourth quarter of fiscal 1999 as part of
the strategic initiatives (the "Restructuring Plan") approved in October 1999 by
the Company's Board of Directors. Under the Restructuring Plan, the Company has
reduced its in-house footwear manufacturing capabilities and selected
third-party partners to assist in the development and manufacture of the
Company's complete footwear line. The charge was included in cost of sales and
is comprised of the following components:
(in thousands)
--------------
Writedown of excess inventories (including
inventory associated with product returns) $ 8,502
Writedown of production equipment to estimated
net realizable value 3,592
Other costs associated with Restructuring Plan 506
-------
$12,600
=======
The Company expects to complete the restructuring of its footwear operations by
October 2000. For the six months ended June 30, 2000, the Company utilized $3.8
million of its restructuring reserves primarily for the write-down of excess
inventories. Of the restructuring reserves established in connection with the
Restructuring Plan, the balance as of June 30, 2000 was $3.1 million, which the
Company anticipates will be utilized upon ultimate disposal of the inventory
during the restructure period.
Operating expenses
Operating expenses increased to $67.7 million for the six months ended June 30,
2000 from $55.8 million for the six months ended June 30, 1999, an increase of
$11.9 million, or 21.3%. Operating expenses, as a percentage of net sales,
declined to 41.5% for the six months ended June 30, 2000 from 46.2% for the six
months ended June 30, 1999, primarily due to the increased sales volume
generating significant leverage on operating expenses. This increase in absolute
dollars is generally due to higher variable expenses attributable to increased
sales volume, together with the operating expenses and goodwill amortization in
2000 resulting from the Company's acquisition of its Australian distributor. As
a percentage of net sales, research and development expenses decreased to 2.3%
of net sales for the six months ended June 30, 2000 compared to 2.4% of net
sales for the six months ended June 30, 1999. Selling expenses increased $7.2
million to $42.1 million, or 25.8 % of net sales, for the six months ended June
30, 2000 from $34.9 million, or 28.9% of net sales, for the six months ended
June 30, 1999 as a result of increased sales commissions and higher advertising
expenditures, offset by reduced warranty costs resulting from fewer defective
claims. Advertising expenses were higher 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 a
collaboration between the agency and the Company's in-house creative team for
advertising content. Shipping and warehousing expenses increased to $4.0
million, or 2.4% of net sales for the six months ended June 30, 2000 from $2.8
million, or 2.3% of net sales, primarily due to increased footwear sales with
higher average shipping costs. General and administrative expenses for the six
months ended June 30, 2000 were $17.8 million, or 10.9% of net sales, compared
to $15.1 million, or 12.5% of net sales, in the same period in 1999. This
increase in general and administrative expenses was principally a result of
increased personnel-related costs and 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.
12
<PAGE> 13
Operating income
The Company's operating income increased to $38.2 million for the six months
ended June 30, 2000 from $19.7 million for the six months ended June 30, 1999,
an increase of $18.5 million, or 93.9%, over the same period in the previous
year. As a percentage of net sales, operating income increased to 23.4% for the
six months ended June 30, 2000 from 16.3% for the six months ended June 30,
1999, as a result of the improved gross margin and significant positive
operating expense leverage on higher sales volume.
Interest expense, net
The Company incurred interest expense of $1.3 million for the six months ended
June 30, 2000 as compared with net interest expense of $1.2 million for the six
months ended June 30, 1999.
Net income
The Company's net income increased to $23.9 million for the six months ended
June 30, 2000 from $12.0 million for the six months ended June 30, 1999, an
increase of $11.9 million, or 99.2%, over the comparable 1999 first half.
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 $18.2 million for the six months ended
June 30, 2000 and $24.6 million for the comparable 1999 period. At June 30,
2000, working capital was $67.9 million. 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, less
allowance for doubtful accounts, at June 30, 2000 were $49.7 million compared to
$39.1 million at December 31, 1999 and $41.7 million at June 30, 1999. Accounts
receivable days outstanding at June 30, 2000 were 45 compared to 52 at June 30,
1999. Inventories increased to $51.6 million at June 30, 2000 from $35.1 million
at December 31, 1999 and $32.6 million at June 30, 1999. The 58.3% year over
year increase in inventories was primarily driven by a 39.0% increase in year
over year quarterly sales, as well as a $2.6 million increase related to the
acquisition of the Company's Australian distributor in November 1999. In
addition, the Company has systematically increased inventories in order to
improve order fulfillment rates and corresponding turns at retail. As a result
of the improved gross margin and inventory increases described above, inventory
turns decreased to 2.6 at June 30, 2000 versus 3.1 at June 30, 1999.
The Company has an unsecured line of credit of $50.0 million which expires
August 2001. At June 30, 2000, the Company had an outstanding balance of $15.0
million under such facility. Additionally, the Company has a real estate term
loan which matures September 2007. The term loan, which is collateralized by the
Company's corporate headquarters, requires quarterly principal payments of
approximately $380,000 plus interest base on LIBOR plus 1.00% (7.84% at June 30,
2000) for ten years. 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 June 30, 2000, the outstanding balance on the term loan was
$18.7 million.
Capital expenditures, net of retirements, for the six months ended June 30, 2000
totaled $10.3 million. These expenditures were primarily attributable to
facility improvements and new product production tooling and equipment, product
displays and expansion of the Company's information technology capabilities. As
of June 30, 2000, the Company had commitments of approximately $2.7 million for
future capital purchases.
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.
13
<PAGE> 14
In December 1999, the Company's Board of Directors authorized the repurchase by
the Company of up to $20 million of the Company's common stock. Under this
program, the Company bought approximately 641,000 shares of common stock in
December 1999 for an aggregate purchase price of $4.1 million. During the six
months ended June 30, 2000, the Company completed its share repurchase by
repurchasing an additional 1,633,000 shares of its common stock under such
program at an aggregate cost of approximately $15.9 million. Total shares
repurchased since December 1999 under the program were 2,274,000 for an
aggregate purchase price of approximately $20.0 million.
SEASONALITY
Historically, the Company's sales, in the aggregate, have been the 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 margins at significantly lower levels than sunglasses, are lowest
in the second quarter. This seasonal trend contributes to the Company's gross
margin 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 introductions and the Company's international expansion have partially
mitigated the impact of seasonality.
BACKLOG
Historically, the Company has generally shipped domestic orders (other than
preseason orders for ski goggles, apparel, and footwear and orders from certain
sunglass specialty chains) within one day of receipt and international orders
within two weeks of receipt. At June 30, 2000, the Company had a backlog of
$41.8 million, including backorders (merchandise remaining unshipped beyond its
scheduled shipping date) of $10.3 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 #101 (SAB 101) "Revenue Recognition in Financial
Statements." Management of the Company has determined that the application of
SAB 101 will not have any material impact on the Company's consolidated
financial statements.
FORWARD-LOOKING STATEMENTS
This document contains certain statements of a forward-looking nature. Such
statements are made pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The accuracy of such statements may be
impacted by a number of business risks and uncertainties that could cause actual
results to differ materially from those projected or anticipated, including:
risks related to the Company's ability to identify qualified manufacturing
partners; the ability to coordinate product development and production processes
with those partners; the ability of those manufacturing partners to increase
production volumes in a timely fashion in response to increasing demand and
enable the Company to achieve timely delivery of finished goods to its retail
customers, the dependence on eyewear sales to Sunglass Hut; unanticipated
changes in general market conditions or other factors, which may result in
cancellations of advance orders or a reduction in the rate of reorders placed by
retailers; risks that the net realizable value of assets disposed of in the
footwear restructuring may differ from estimates used; the ability to continue
to develop and produce innovative new products and introduce them in a timely
manner; the acceptance in the marketplace of the Company's new products; the
ability to source
14
<PAGE> 15
raw materials and finished products at favorable prices to the Company; foreign
currency exchange rate fluctuations; and other risks outlined in the Company's
SEC filings, including but not limited to the Annual Report on Form 10-K for the
year ended Dec. 31, 1999, and Quarterly Reports on Form 10-Q for the three-month
periods ended March 31, 2000 and June 30, 2000. The Company undertakes no
obligation to update this forward-looking information.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risks
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, Japan, Canada,
Mexico, South Africa, Australia and New Zealand, 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 5 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 uses
foreign exchange contracts in the form of forward contracts and option
contracts. All of the Company's derivatives were designated and qualified as
cash flow hedges at June 30, 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. 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 outstanding foreign
currency exchange contracts outstanding at June 30, 2000:
June 30, 2000
----------------------------------------
U.S. Dollar Fair
Equivalent Maturity Value
------------ --------- -----------
Forward Contracts:
British pounds $ 3,764,550 Sep. 2000 $ 4,052,180
British pounds 2,993,771 Dec. 2000 3,219,347
Canadian dollars 2,504,212 Sep. 2000 2,516,763
Canadian dollars 1,498,753 Dec. 2000 1,507,286
Japanese yen 986,530 Sep. 2000 951,510
Japanese yen 2,693,986 Dec. 2000 2,635,731
Japanese yen 1,897,173 Mar. 2001 1,910,220
Japanese yen 948,587 Jun. 2001 971,534
French francs 1,285,810 Jul. 2000 1,400,000
French francs 1,469,497 Aug. 2000 1,600,000
French francs 1,836,872 Sep. 2000 2,000,000
French francs 1,653,185 Oct. 2000 1,800,000
French francs 1,561,341 Nov. 2000 1,700,000
French francs 1,377,654 Dec. 2000 1,500,000
Australian dollars 1,013,370 Sep. 2000 1,117,410
Australian dollars 3,397,770 Dec. 2000 3,745,470
----------- -----------
$30,883,061 $32,627,451
=========== ===========
15
<PAGE> 16
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 June 30, 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 be material.
Interest Rates - The Company's line of credit, with a balance of $15.0 million
outstanding at June 30, 2000, bears interest at either the bank's prime lending
rate or LIBOR plus 0.75%. Based on the weighted average interest rate of 7.88%
on the line of credit during the six months ended June 30, 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 $5,000 per year.
The Company's long-term real estate term loan, with a balance of $18.7 million
outstanding at June 30, 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 this long-term debt.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
THE CALIFORNIA SECURITIES ACTIONS
The Company and certain of its officers and directors have been 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 are 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).
By order dated January 30, 1997, the Superior Court ordered that the California
Securities Actions be assigned to the Superior Court's Complex Litigation Panel,
where they have since been consolidated. On April 18, 1997, the plaintiffs filed
a consolidated amended complaint in the California Securities Actions. The
plaintiffs seek to represent a class of persons who purchased the Company's
common stock between March 22, 1996 and December 5, 1996.
The complaint in the California Securities Actions alleges 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 are 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 seek unspecified damages and other
relief against the Company and the other defendants.
The plaintiffs in the California Securities Actions have 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). On July
7, 1999, the parties submitted to the Superior Court a stipulated request for
dismissal without prejudice if the California Securities Actions. On July 26,
1999, the Superior Court entered a dismissal without prejudice of the California
Securities Actions.
17
<PAGE> 18
THE FEDERAL SECURITIES ACTIONS
The Company and certain of its officers and directors have been 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 are captioned:
Kensington Capital Management v. Oakley, Inc., Mike Parnell, Link New-comb, 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 seek
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 are 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 seek unspecified damages and
other relief against the Company and the other defendants. Plaintiffs in the
Kensington Capital Management Action filed a motion to consolidate that action
with the Fichera Action, and plaintiffs in the Kensington Capital Management and
the Fichera Actions filed competing motions to be appointed lead plaintiffs for
the purported plaintiff class and for the selection of lead counsel to the
purported plaintiff class. Plaintiff's motion in the Fichera Action was later
withdrawn.
The plaintiffs in the Lister and Chait Actions and the Rosenshein Federal Action
seek to represent a class of persons who purchased the Company's common stock
between March 22, 1996 and December 5, 1996, including in 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 are 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 seek unspecified damages
and other relief against the Company and the other defendants. Plaintiffs in the
Lister and Chait Actions filed a motion to consolidate the Lister and Chait
Actions and the Rosenshein Federal Action, to appoint certain persons as lead
plaintiffs for the purported plaintiff class and for the selection of lead
counsel to the purported plaintiff class.
18
<PAGE> 19
On January 26, 1998, the District Court granted the plaintiffs' motions for
appointment of lead plaintiffs and for the selection of lead counsel to the
purported plaintiff classes. The District Court further ordered that all of the
Federal Securities Actions be consolidated for pretrial purposes. On April 3,
1998, plaintiffs filed consolidated amended complaints in the Federal Securities
Actions.
On July 10, 1998, the Company and defendants Mike Parnell, Link Newcomb and Jim
Jannard filed motions to dismiss the Federal Securities Actions. Merrill Lynch
and Alex. Brown also filed motions to dismiss the Federal Securities Actions. On
January 14, 1999, the District Court denied the motions to dismiss filed by the
Company and the other defendants. On March 3, 1999, the defendants filed answers
to the consolidated amended complaints in the Federal Securities Actions. On
April 2, 1999, plaintiffs filed motions for class certification in the Federal
Securities Actions. On June 24, 1999, the parties submitted to the District
Court stipulations and proposed orders for class certification in the Federal
Securities Actions. On June 29, 1999, the District Court approved the
stipulations and entered orders for class certification in the Federal
Securities Actions.
In July 2000, an agreement in principle was reached to settle the Federal
Securities Action. The proposed settlement, which is subject to the execution of
a definitive written settlement agreement and approval by the District Court,
will be funded entirely by the Company's insurance carrier and will completely
resolve the Federal Securities Actions. In the event the proposed settlement
does not become effective, based on its current understanding of the facts, the
Company believes that the plaintiffs' claims are without merit in intends to
vigorously defend the actions.
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 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security-Holders
(a) The Registrant's Annual Meeting of Shareholders was held on June 9,
2000.
(b) Proxies for the Annual Meeting were solicited pursuant to Regulation
14 under the Securities Exchange Act of 1934. There was no
solicitation in opposition to the management's nominees as listed in
the proxy statement to elect five Directors. All such nominees were
elected.
19
<PAGE> 20
(c) The matters voted at the meeting and the results were as follows:
(1) To elect five directors to serve as such until the next Annual
Meeting of Shareholders and until their successors are elected
and qualified.
For Withheld
---------- --------
Director #1 - Jim Jannard 66,019,058 237,427
Director #2 - Link Newcomb 66,019,058 237,427
Director #3 - Irene Miller 66,019,058 237,427
Director #4 - Orin Smith 66,019,058 237,427
Director #5 - Michael Jordan 66,019,057 237,428
(2) To ratify the selection of Deloitte & Touche LLP to serve as
independent auditors of the Company for the fiscal year ending
December 31, 2000.
For Against Abstain
---------- ------- -------
66,214,801 22,122 19,562
ITEM 5. Other Information
None
20
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
3.1(1) Articles of Incorporation of the Company
3.2(3) Amended and Restated Bylaws of the Company
3.3(2) Amendment No. 1 to the Articles of Incorporation as filed with
the Secretary of State of the State of Washington on September
26, 1996
3.4(3) Amendment No. 1 to Sections 1 and Sections 3a through 3f of
Article IV of the Amended and Restated Bylaws of Oakley, Inc.
27.1(4) Financial Data Schedule
-----------------
(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-K of Oakley, Inc. for the year ended
December 31, 1998.
(4) Filed herewith.
The Company did not file any reports on Form 8-K during the three months ended
June 30, 2000.
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<PAGE> 22
SIGNATURES
Pursuant to the requirements 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.
/s/ Jim Jannard August 10, 2000
-------------------------------------
Jim Jannard
Chief Executive Officer
/s/ Thomas George August 10, 2000
-------------------------------------
Thomas George
Chief Financial Officer
22
<PAGE> 23
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27.1 Financial Data Schedule
