Oakley, Inc., on this preliminary basis, generated fourth quarter net sales of $162.4 million for the fourth quarter, up 6.2% from $153.0 million in the same period the previous year. Net income totaled $9.2 million, or 13 cents per diluted share, compared to $10.0 million, or 15 cents per diluted share, in the fourth quarter of 2004, which included a significant contribution from the company's electronics product launch and benefited from a lower tax rate.

For the full year, Oakley achieved record net sales of $648.1 million, up 10.7% from $585.5 million in the prior year. Net income grew 24.8% to a record $51.9 million, or 75 cents per diluted share, compared with $41.6 million, or 60 cents per diluted share, in 2004.

“2005 was an outstanding year of growth for Oakley,” said Scott Olivet, chief executive officer. “We believe these results attest to the strength of Oakley and its position as a leading sport performance and active eyewear brand.”

Total U.S. fourth quarter net sales increased 6.5 percent to $88.6 million, compared with $83.2 million during the fourth quarter of 2004. U.S. net sales, excluding the company's retail store operations, totaled $59.1 million in the fourth quarter, a 4.8 percent decline compared with $62.1 million in the comparable 2004 period. The decline reflected a comparison against the launch of THUMP(tm) in November 2004 as well as lower watch sales, partially offset by increased sales of sunglasses, apparel, goggles and prescription eyewear.

Fourth quarter international net sales increased 5.7% to $73.8 million, compared with $69.8 million in 2004's comparable period. A stronger U.S. dollar relative to foreign currencies reduced reported international net sales growth by 2.7% points. Strong net sales increases in Latin America and South Pacific were partially offset by modest declines in Japan and the United Kingdom. Global net sales to the retail group of Luxottica Group S.p.A., which includes Sunglass Hut and OPSM locations worldwide, decreased 1.7% to $9.6 million during the quarter and represented 5.9% of total fourth quarter net sales.

Sales through Oakley's U.S. operated retail stores increased 40.2% to $29.6 million, compared with $21.1 million in the fourth quarter of 2004. A successful holiday retail program drove strong quarterly comparable store increases. During the fourth quarter the company added seven new Iacon stores in the U.S.

Fourth quarter gross sales totaled $172.3 million, compared with $162.6 million in 2004's fourth quarter. Worldwide sunglass gross sales increased 10.2% to $76.7 million from $69.6 million, driven by an 18.5% increase in worldwide sunglass unit shipments as a result of the strong consumer reception to the company's new styles. This increase was partially offset by a 7.0% lower average selling price, reflecting the success of the company's new sunglass introductions which carry more moderate price points and the effect of a stronger U.S. dollar on international sales.

Combined fourth quarter gross sales of the company's newer categories — apparel, electronics, prescription eyewear, footwear and watches — decreased 3.8%, to $57.9 million, and accounted for 33.6% of total fourth quarter gross sales. This decrease reflected lower sales of electronics and watches, partially offset by increased sales of footwear, apparel and prescription eyewear.

Fourth quarter margins improved to 53.0%, compared with 52.8% in 2004's comparable period. This improvement reflects higher eyewear margins driven by increased unit volumes and a more favorable foreign currency hedging program. These increases were partially offset by reduced electronics margins and lower apparel margins from closeout sales.

Operating expenses represented 44.9% of net sales in the quarter compared with 43.8% in the prior year's fourth quarter. The increase in operating expenses as a percentage of net sales was driven primarily by increased investment in design and development activities and increased selling expenses. In the fourth quarter, the company reclassified approximately $1.5 million from general and administrative expense to selling expense primarily related to credit card fees incurred during the year in connection with retail transactions at the company's retail stores.

The company's tax rate in the fourth quarter was 31.7 percent compared to 26.5 percent in the fourth quarter of 2004.

Full year consolidated net sales totaled $648.1 million, up 10.7 percent from $585.5 million in the prior year. Net income grew 24.3 percent to a record $51.9 million, or 75 cents per diluted share, compared with $41.6 million, or 60 cents per diluted share, in 2004.

U.S. net sales for 2005 rose 12.6% to $343.4 million from $305.0 million in 2004, driven by increased sales of sunglasses, goggles and prescription eyewear, partially offset by lower sales of electronics and footwear. International net sales advanced 8.6% in 2005 to $304.7 million from $280.5 million in 2004, with the weaker U.S. dollar contributing 2.1 percentage points of that growth.

Net sales at Oakley's U.S. operated retail stores reached $101.0 million during 2005, up 39.5% from $72.4 million in 2004, driven by double-digit annual comparable store sales increases. Oakley's retail operations accounted for 15.6% of total 2005 net sales and 29.4% of 2005 U.S. net sales.

Worldwide sunglass gross sales increased 7.1% in 2005, to $336.8 million from $314.5 million in 2004. The growth reflected an 8.1% increase in worldwide sunglass unit shipments offset by a slight decline in the average sunglass selling price. Global net sales to Luxottica Group S.p.A. during 2005 were $45.1 million, a one percent increase over $44.7 million in 2004, and represented approximately 7.0% of total net sales.

Combined gross sales of the company's newer categories — apparel, electronics, prescription eyewear, footwear and watches — grew 15.8 percent in 2005, to $239.2 million, and accounted for 34.5 percent of total gross sales, compared to 33.2 percent 2004 gross sales. Additional full year category sales information can be found in the attached financial tables.

The company's 2005 effective tax rate was 32.7% compared to 32.3% in 2004.

Strong operating cash flow during 2005 resulted in cash and investments at December 31, 2005 totaling $82.2 million, compared to $69.0 million at the end of the prior quarter and $51.7 million at December 31, 2004. The company's consolidated inventory totaled $119.0 million at December 31, 2005, compared to $128.0 million the end of the prior quarter and $115.1 million at December 31, 2004. This inventory reflects the expanded company-owned retail operations, increased eyewear inventory to support new releases, as well as inventory related to the electronics category. Accounts receivable, less allowances, decreased to $99.4 million at December 31, 2005, compared with $104.5 million at September 30, 2005 and $102.8 million at December 31, 2004. Accounts receivable days sales outstanding were 56 at December 31, 2005, compared with 62 at December 31, 2004.

The company is completing an evaluation of its accounting for foreign currency hedging activities under SFAS 133. The company accounts for its foreign currency hedging activities as cash flow hedge instruments. Consequently, changes in the fair value of such hedge instruments are reflected on the balance sheet in accumulated other comprehensive income. At December 31, 2005, the fair value of such instruments was a gain of $4.3 million. If the company were to determine that any of its hedging instruments did not qualify as cash flow hedge instruments, changes in the fair value of such instruments would be included in gross profit during the period that any such instrument is outstanding. The total gain or loss associated with any individual hedge instrument which has matured is identical under either of the accounting treatments described. A change to the company's accounting treatment for hedge instruments would affect only the timing and manner of recognition of gains and losses associated with these instruments, and would have no impact on net sales, cash flows or shareholder's equity.

If the company were to account for its hedge instruments under the fair value method, the timing of gains and losses recorded in 2005 and prior years would be adjusted. Under this fair value method, net income for the year ended December 31, 2005 could increase by up to approximately $9.0 million and net income for the year ended December 31, 2004 could increase by up to approximately $2.0 million. If the company were to record the fair value of its hedge instruments outstanding at December 31, 2005 in its income for 2005, the company would not record in 2006 the full benefit of any realized gains on those instruments, which depending on currency fluctuations could adversely impact 2006 results.

During the fourth quarter, the company repurchased 50,000 shares of its common stock at an average price of $14.30 per share. For the full year, the company repurchased 861,500 shares at an average price of $13.64 per share. At December 31, 2005, $13.7 million remained available for future repurchases under the $20.0 million repurchase plan approved by the company's board of directors on March 15, 2005. The company may repurchase shares subject to favorable market conditions.


                             OAKLEY, INC.
                   CONSOLIDATED STATEMENTS OF INCOME
                (in thousands except per share amounts)

                            Three Months Ended   Twelve Months Ended
                               December 31,          December 31,
                           --------------------  --------------------
                              2005       2004       2005       2004
                           ---------  ---------  ---------  ---------
 Net sales                 $ 162,416  $ 152,962  $ 648,131  $ 585,468
 Cost of goods sold           76,311     72,229    290,218    265,104
                           ---------  ---------  ---------  ---------
  Gross profit                86,105     80,733    357,913    320,364

 Operating expenses:
  Research and development     5,034      4,146     17,851     15,962
  Selling                     45,748     41,243    174,641    159,366
  Shipping and warehousing     4,356      4,223     17,485     17,087
  General and
   administrative             17,819     17,342     71,426     65,511
                           ---------  ---------  ---------  ---------
   Total operating
    expenses                  72,957     66,954    281,403    257,926

                           ---------  ---------  ---------  ---------
 Operating income             13,148     13,779     76,510     62,438

 Interest expense, net          (327)       195       (446)     1,037
                           ---------  ---------  ---------  ---------

 Income before provision
  for income taxes            13,475     13,584     76,956     61,401
 Provision for income
  taxes                        4,268      3,593     25,105     19,851
                           ---------  ---------  ---------  ---------
 Net income                $   9,207  $   9,991  $  51,851  $  41,550
                           =========  =========  =========  =========

 Basic net income per
  share                    $    0.13  $    0.15  $    0.76  $    0.61
 Basic weighted average
  shares                      68,642     67,765     68,101     67,953

 Diluted net income per
  share                    $    0.13  $    0.15  $    0.75  $    0.60
 Diluted weighted average
  shares                      69,362     68,953     68,930     68,832