Oakley, Inc. generated full-year 2006 net sales of $761.9 million, an increase of 17.5% from $648.1 million in the prior year. 2006 net income was $44.8 million, or 65 cents per diluted share, including footwear restructuring charges of $2.0 million net of tax, or three cents per diluted share, consistent with the company's guidance of 68 cents per diluted share given at various times throughout the year.

“2006 was a year of strategic re-alignment for Oakley. We concentrated our efforts on five key strategies announced at the beginning of the year — focus on optics, enhance brand development, restructure footwear, re-align apparel and expand our retail platforms,'' said Oakley, Inc. Chief Executive Officer Scott Olivet. “The early results have been promising as evidenced by solid sales growth across all geographies and key products, highlighted by an immediate acceleration in our optics growth.''

“With the footwear restructuring complete, we will continue to focus on optics growth, solidifying our brand development efforts, re-aligning our apparel business, and expanding the retail platform,'' continued Olivet. “Additionally, we will increase our attention on greater international penetration and operational excellence, with a priority on acquisition integration and consumer/retailer customer service enhancements.''

Olivet concluded, “We believe that these strategies, along with the brand and product portfolio effect we are seeing with the addition of Oliver Peoples, retail expansion with The Optical Shop of Aspen (OSA) acquisition, and broadening of our military business with the acquisition of Eye Safety Systems, position Oakley, Inc. for sustained, profitable growth in 2007 and beyond.''

Product Category Net Sales

2006 net optics sales totaled $552.9 million, up 18.9 percent from $465.1 million in the prior year. This growth was driven by significant double-digit increases in prescription eyewear, sunglasses, and goggles as well as incremental sales from the 2006 Oliver Peoples and OSA acquisitions. These increases were partially offset by an expected, large decline in electronics sales. 2006 net sales of apparel, footwear and accessories (AFA) totaled $156.7 million, up 5.6 percent from $148.5 million in the prior year. AFA growth was tempered by the company's previously announced footwear restructuring and apparel re-alignment.

2006 net sales of other brands, which consist of non-Oakley products sold through the company's multi-branded Sunglass Icon and OSA retail stores, increased 50.9 percent to $52.2 million from $34.6 million and were driven significantly by the acquisition of OSA.

Segment Net Sales

Total 2006 net sales to worldwide wholesale customers were $590.6 million, an 11.7 percent increase from $528.9 million in 2005.

2006 net sales to U.S. wholesale customers totaled $252.6 million, up 12.9 percent from $223.6 million in the prior year, driven by a favorable impact of Oakley-branded sunglass growth and the Oliver Peoples acquisition, offset by decreased electronics sales and shipments to the company's government customers.

Oakley's 2006 U.S. retail net sales, which for reporting purposes include the company's e-commerce and telesales business, increased 43.7 percent to $171.3 million, compared with $119.2 million in 2005. The retail sales growth included a moderate increase in comparable store sales; contribution of 45 new Oakley and Sunglass Icon stores added during the last twelve months; incremental sales from the company's OSA and Oliver Peoples acquisitions; and a significant double-digit increase in e-commerce and telesales volume.

Geographic Net Sales

2006 U.S. net sales (wholesale and retail) totaled $423.9 million, an increase of 23.6 percent from $342.8 million in the prior year.

2006 net sales in the company's international business were $338.0 million, a 10.7 percent increase from net sales of $305.3 million in 2005. A weaker U.S. dollar relative to foreign currencies increased reported international net sales growth by one percentage point. During the year, the company's Americas regions saw significant double-digit optics and AFA growth; EMEA (Europe, Middle East and Africa) experienced a significant optics sales increase, offset by a modest decline in AFA growth; and, Asia Pacific had a modest increase in optics sales, partially offset by a slight decline in AFA net sales.

Gross Margin, Operating Expenses, Tax Rate

Reported 2006 gross profit as a percentage of net sales was 54.2 percent compared with 57.2 percent in 2005. Non-GAAP gross margin, as defined below, for 2006 was 55.0 percent compared to 55.2 percent for 2005. The decrease in non-GAAP gross margin versus the prior year reflects increased sales returns and markdowns, increased inventory write-downs, and increased disposal of end-of-line products. These factors were partially offset by improved sales mix towards the optics category, which generates relatively higher gross profit as a percentage of net sales, the addition of Oliver Peoples and OSA, and the favorable impact of increased manufacturing volume.

Non-GAAP gross margin for 2006 excludes footwear restructuring charges and losses from changes in fair value of foreign currency derivatives recorded in accordance with SFAS 133, which totaled $2.3 million and $4.3 million respectively, on a pre-tax basis, for the year. Non-GAAP gross margin for 2005 excludes a $13.0 million gain due to changes in fair value of foreign currency derivatives recorded in accordance with SFAS 133. A reconciliation of non-GAAP gross margin to GAAP gross profit as a percentage of sales is included in the accompanying financial data.

2006 operating expenses totaled $342.9 million, representing 45.0 percent of net sales, compared to $281.4 million, or 43.4 percent of net sales, in 2005. The year over year increase in operating expenses included costs associated with the addition of Oliver Peoples and OSA; increased variable selling costs associated with higher sales volumes; new Oakley, Sunglass Icon and OSA retail locations; higher compensation expense, including the filling of senior staff positions and a $2.3 million increase in stock-based compensation expense, reflecting the implementation of SFAS 123(R); and increased professional fees.

On an annual basis, the company's tax rate for 2006 was 34.5 percent versus 33.7 percent in 2005, which benefited from a significant tax refund from prior periods.

Balance Sheet Highlights

Accounts receivable, less allowances, totaled $109.2 at December 31, 2006, compared with $99.4 million at December 31, 2005.

The company's consolidated inventory totaled $155.4 million at December 31, 2006 compared with $119.0 million at December 31, 2005. This increase was largely driven by the acquisitions of Oliver Peoples and OSA, and the addition of 45 new Oakley and Sunglass Icon stores during the last twelve months.

Stock Repurchase Program

There is approximately $23.3 million available under the stock repurchase plans approved by the company's Board of Directors. During 2006, the company repurchased 657,100 shares at an average price of $15.75 per share.

2007 Guidance

Early in 2006, the company stated that its long-term financial goals included double digit annual sales growth, along with EBITDA and EPS growing faster than sales.

The company expects 2007 net sales in the range of $900 million to $930 million, an increase of 18 to 22 percent over 2006 net sales of $762 million. The majority of this sales growth is expected to come from its optics products and retail platform. The company expects 2007 EPS to be in the range of $0.94 to $0.97 per diluted share, an increase of approximately 45 percent over 2006 EPS.

The Financial Accounting Standards Board issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes'' (FIN 48) in July 2006. FIN 48 provides required accounting treatment for tax positions taken, or expected to be taken, in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. The company is currently reviewing FIN 48 and has not yet determined the potential impact on its financial statements. This guidance assumes no impact from the adoption of FIN 48.