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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended June 30, 2002

or

For the Transition Period From                              To                             

Commission File Number: 1-13848

Oakley, Inc.
(Exact name of registrant as specified in its charter)

(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 ý    No o

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Oakley, Inc.

Index to Form 10-Q

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

OAKLEY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share and per share data)

See accompanying Notes to Consolidated Financial Statements

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OAKLEY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

in thousands, except share and per share data)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

See accompanying Notes to Consolidated Financial Statements

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OAKLEY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

See accompanying Notes to Consolidated Financial Statements

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Oakley, Inc.

Notes to Unaudited Condensed and Consolidated Financial Statements

Note 1—Basis of Presentation

        The accompanying unaudited 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 unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement of the consolidated balance sheet as of June 30, 2002, the consolidated statements of income and comprehensive income for the three- and six-month periods ended June 30, 2002 and 2001, and the consolidated statements of cash flows for the six month periods ended June 30, 2002 and 2001. The results of operations for the three- and six-month periods ended June 30, 2002 are not necessarily indicative of the results of operations for the entire year ending December 31, 2002.

Note 2—Inventories

        Inventories consist of the following:

Note 3—Goodwill and Intangible Assets

        On January 1, 2002, the Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets," which eliminated the amortization of purchased goodwill and other intangibles with indefinite useful lives. Upon adoption of SFAS No. 142, the Company performed an impairment test of the carrying value of its goodwill and intangible assets, and determined that no impairment existed. Under SFAS No. 142, goodwill and non-amortizing intangible assets will be tested for impairment at least annually and more frequently if an event occurs which indicates that goodwill or intangible assets may be impaired.

        On January 1, 2002, the Company adopted SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," which superseded previous guidance on financial accounting and reporting for the impairment or disposal of long-lived assets and for segments of a business to be disposed of. Upon adoption of SFAS No. 144, the Company performed an impairment test of its long-lived assets and determined that no impairment existed. Under SFAS No. 144, long-lived assets including amortizing intangible assets, will be tested for impairment whenever events or changes in circumstances indicate that carrying value of such assets may not be recoverable.

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        Included in other assets in the accompanying unaudited consolidated financial statements are the following amortizing intangible assets.

        During 2002, the Company continued to transition its operations in Brazil to direct distribution from the previous independent distributor. As part of the transition, during the second quarter of 2002, the Company acquired certain intangible assets which are reflected above.

        Changes to goodwill during the three- and six-months ended June 30, 2002 are due to foreign exchange fluctuations.

        The following table reflects the impact that SFAS No. 142 would have had on prior year net income and net income per share if it had been adopted on January 1, 2001:

        Intangible assets other than goodwill will continue to be amortized by the Company using estimated useful lives of 5 to 15 years and no residual values. Intangible amortization expense for the three- and six-month periods June 30, 2002 was approximately $257,000 and $488,000, respectively, and is estimated to be, based on intangible assets at June 30, 2002, approximately $1,111,000 for fiscal 2002.

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Annual estimated amortization expense, based on the Company's intangible assets at June 30, 2002, is as follows:

Note 4—Financing Arrangements

        Lines 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% (1.85% at June 30, 2002) or the bank's prime lending rate minus 0.25% (4.75% at June 30, 2002). At June 30, 2002, the Company did not have any outstanding balance under this credit agreement. At June 30, 2002, the Company was in compliance with all restrictive covenants and financial ratios in such agreement. 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 approximately $21.6 million, of which $15.6 million was outstanding at June 30, 2002. In aggregate, at June 30, 2002, $15.6 million was outstanding under these credit facilities.

        Long-Term Debt—The Company has a real estate term loan with an outstanding balance of $15.6 million at June 30, 2002, 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% (2.9% at June 30, 2002). In January 1999, the Company entered into an interest rate swap agreement that eliminates the risk to the Company of fluctuations in the variable rate of its real estate loan by fixing the interest rate over the term of the loan at 6.31%.

        Additionally, the Company has a note payable as a result of an acquisition in the amount of $2.2 million, net of discounts. The note is due in annual installments of $500,000 per year commencing in 2002 through 2006, with a portion of such payments contingent upon certain conditions.

Note 5—Litigation

        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 material adverse effect on the accompanying consolidated financial statements.

Note 6—Derivative Financial Information

        The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," on January 1, 1999.

        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 June 30, 2002, all of the Company's derivatives were designated and

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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 $3.8 million of losses to earnings over the next 12 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 three and six months ended June 30, 2002, the Company reclassified into earnings net losses of $0.7 million and $0.4 million, respectively, resulting from the expiration, sale, termination or exercise of foreign currency exchange contracts. During the three months ended June 30, 2002, the Company also recorded a nonrecurring credit of approximately $350,000 resulting from the favorable settlement of the treasury hedge entered into by the Company in connection with the previously announced long-term debt financing, which the Company elected not to pursue in the quarter ended June 30, 2002.

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, 2002 and 2001, the diluted weighted average common shares outstanding included 1,004,000 and 1,171,000, respectively, of dilutive stock options. For the six months ended June 30, 2002 and 2001, the diluted weighted average common shares outstanding includes 914,000 and 1,115,000, respectively, of dilutive stock options.

Note 8—New Accounting Pronouncements

        In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force (EITF) Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. The Company expects to adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002.

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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.

Overview

        Oakley is an innovation-driven designer, manufacturer and distributor of consumer products that include high-performance eyewear, footwear, watches, apparel and accessories. The Company's products are sold in the United States through a carefully selected base of approximately 9,000 active accounts with approximately 13,600 locations comprised of optical stores, sunglass retailers and specialty sports stores, including bike, surf, ski and golf shops, and motorcycle, athletic footwear and sporting goods stores. The Company also operates eight Oakley retail stores in the United States that offer the full range of Oakley products. In November 2001, the Company acquired Iacon, Inc., a sunglass retailing chain headquartered in Scottsdale, Arizona with 51 retail stores at June 30, 2002.

        Internationally, the Company sells its products in over 70 countries outside the United States, with direct offices in France, Germany, United Kingdom, Italy, Japan, Mexico, South Africa, Canada, Australia, New Zealand and Brazil. In those parts of the world not serviced by the Company or its subsidiaries, Oakley products are sold through distributors who possess local expertise. These distributors sell the Company's products either exclusively or with complementary, non-competing products and agree to respect the marketing philosophy and practices of the Company. Sales to the Company's distributors are denominated in U.S. dollars. The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions of its international subsidiaries. The Company and its subsidiaries use foreign exchange contracts in the form of forward contracts to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates.

Significant Accounting Policies and Certain Risks and Uncertainties

        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 eyewear, 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.

        The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. As such, the Company is required 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 significantly differ from such estimates. The Company believes that the following discussion addresses the Company's most significant accounting policies, which are the most critical to aid in fully understanding and evaluating the Company's reported financial results.

Revenue Recognition

        The Company recognizes revenue 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

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expectations. The Company's shipping terms with all customers are FOB shipping point. Sales agreements with dealers and distributors normally provide payment terms of 30 to 180 days, depending on the product category. None of the Company's sales agreements with any of its customers provides for any rights of return by the customer, except for product warranty related issues. In addition, although the Company, at its sole discretion, may repurchase its own products to protect the Company image, this practice is infrequent and, historically, the value of these repurchases has not been significant.

Accounts Receivable

        The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer's current creditworthiness, as determined by the Company's review of their current credit information. The Company continuously monitors its customer collections and payments and maintains a provision for estimated credit losses based upon the Company's historical experience and any specific customer collection issues that have been identified. While such credit losses have historically been within the expectations and the provisions established by the Company, there can be no assurances that the Company will continue to experience the same credit loss rates that have been experienced in the past.

Inventories

        Inventories are stated at the lower of cost to purchase and/or manufacture the inventory or the current estimated market value of the inventory. The Company regularly reviews its inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on the Company's estimated forecast of product demand and production requirements. As experienced in 2001, the demand for the Company's products could fluctuate significantly. Other factors which could affect demand for the Company's products include 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; continued weakening of economic conditions, which could reduce demand for products sold by the Company and which could adversely affect profitability; and further terrorist acts, or the threat thereof, which could continue to adversely affect consumer confidence and spending, could interrupt production and distribution of product and raw materials and could, as a result, adversely affect the Company's operations and financial performance. Additionally, management's estimates of future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and obsolete inventory.

Warranties

        The Company provides a one-year limited warranty against manufacturer's defects in its eyewear. All authentic Oakley watches are warranted for one year against manufacturer's defects when purchased from an authorized Oakley watch dealer. Footwear is warranted for 90 days against manufacturer's defects, and apparel is warranted for 30 days against manufacturer's defects. The Company's standard warranties require the Company to repair or replace defective product returned to the Company during such warranty period at a nominal cost to the customer. While warranty costs have historically been within the Company's expectations, there can be no assurance that the Company will continue to experience the same warranty return rates or repair costs as in the prior years. A significant increase in product return rates, or a significant increase in the costs to repair product, could have a material adverse impact on the Company's operating results.

Foreign Currency Translation

        The Company has direct operations in Europe, Japan, Canada, Mexico, South Africa, Australia, New Zealand and Brazil which collect at future dates in the customers' local currencies and purchase

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finished goods in U.S. dollars. Accordingly, the Company is exposed to transaction gains and losses that could result from changes in foreign currency. 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. As part of the Company's overall strategy to manage its level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company and its subsidiaries have entered into various foreign exchange contracts in the form of forward contracts.

Vulnerability Due to Supplier Concentrations

        The Company relies on 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 (including any possible disruption in 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 business. There can be no assurance that, if necessary, an additional source of supply for lens blanks can be located or developed in a timely manner.

Vulnerability Due to Customer Concentrations

        Net sales to Sunglass Hut accounted for approximately 18.3% and 20.4% of the Company's net sales for the three months ended June 30, 2002 and 2001, respectively. For the six months ended June 30, 2002 and 2001, net sales to Sunglass Hut accounted for approximately 15.1% and 18.8% of the Company's net sales, respectively. In April 2001, Luxottica, one of the Company's largest competitors, acquired Sunglass Hut and implemented changes which adversely affected the Company's net sales to Sunglass Hut in 2001. In December 2001, the Company and Luxottica entered into a new three-year commercial agreement for the distribution of Oakley products through Sunglass Hut retail stores. The agreement applies to Sunglass Hut locations in the United States, Canada, the United Kingdom and Ireland, and marked the resumption of the business relationship between the two companies, which had been substantially reduced since August 2, 2001. Oakley and Luxottica also have resumed their business together on mutually agreed terms for the markets not specifically covered by this new agreement. The arrangements between the companies do not obligate Luxottica to order product from the Company, and there can be no assurances as to the future of the relationship between the Company and Luxottica.

Commitments and Contingencies

        The Company has entered into operating leases, primarily for facilities and retail stores, and has commitments under endorsement contracts with selected athletes and others who endorse the Company's products.

Results of Operations

Three Months Ended June 30, 2002 and 2001

Net sales

        Net sales increased to $145.1 million for the three months ended June 30, 2002 from $131.2 million for the three months ended June 30, 2001, an increase of $13.9 million, or 10.6%. One factor contributing to the increase in net sales was a 5.0%, or $5.4 million, increase in gross sunglass sales. Gross sunglass sales were $114.1 million for the second quarter of 2002 compared to $108.7 million for the comparable quarter of 2001. Sunglass average selling prices increased 15.3%

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when compared with average selling prices for the comparable 2001 period, reflecting the continued shift in product mix to higher priced items, the weakening of the U.S. dollar, increasing contribution from the Company's retail stores and the impact of the $5 retail price increase in North America on most sunglasses in July 2001, partially offset by a 8.9% decrease in sunglass unit volume. Sunglass delivery shortfalls throughout the quarter and reduced demand attributable to weak retail environments in certain of the Company's international markets contributed to the unit decline. The delivery shortfall was a result of key raw material shortages caused in part by greater increases in summer demand than originally anticipated, commencing with the Sunglass Hut agreement signed in December 2001. The Company believes that the majority of these issues will be favorably resolved during the third quarter. The increase in gross sunglass sales was driven by strong sunglass sales of the Company's newer sunglasses such as the Half Jacket, Wire Tap and Splice, introduced in 2002, the Switch, introduced in late 2001, and the Company's Wire products, offsetting declines in sales of more mature products. Sales of the Company's polarized styles for the three months ended June 30, 2002 also contributed to the increase in gross sales with a 45%, or $2.8 million, increase over the three months ended June 30, 2001. Sales of the Company's new product categories contributed significantly to the overall sales increase. Sales from the Company's new product categories increased 47.9%, or $10.5 million, to $32.4 million for the three months ended June 30, 2002 from $21.9 million for the three months ended June 30, 2001. Sales from the Company's new product categories, comprised of footwear, apparel, watches and prescription eyewear, accounted for 20.3% of the Company's gross sales for the quarter ended June 30, 2002 compared to 15.9% in the comparable period in 2001.

        The Company's U.S. net sales, excluding the Company's retail store operations, increased 11.4% to $77.0 million in the second quarter of 2002 from $69.1 million in the comparable quarter of 2001, as a result of a 15.8% increase in net sales to the Company's broad specialty store account base and other domestic sales, while sales to the Company's largest U.S. customer, Sunglass Hut, increased 2.6% to $23.7 million for the three months ended June 30, 2002 from $23.1 million for the three months ended June 30, 2001. Net sales from the Company's retail store operations, including Iacon stores acquired October 31, 2001, and the four new Oakley retail stores opened during the past 12 months, were $8.8 million for the quarter ended June 30, 2002, up from $1.5 million for the quarter ended June 30, 2001, an increase of $7.3 million. During the quarter ended June 30, 2002, the Company opened six new Iacon stores, bringing the total to 51, and one new Oakley store, bringing the total to eight. Total U.S. net sales increased 21.5% in the quarter ended June 30, 2002 to $85.8 million from $70.6 million in the comparable quarter in 2001. During the three months ended June 30, 2002, the Company's international net sales decreased 2.1%, or $1.3 million, to $59.3 million from $60.6 million for the three months ended June 30, 2001. The Company's international sales were impacted during the quarter ended June 30, 2002 by weak retail environments in Europe and Japan, and to a greater extent by the sunglass delivery shortfalls discussed above. International net sales for the quarter were more adversely affected than U.S. net sales by the sunglass delivery issues due to the longer lead times required for delivery outside the U.S. Net sales declined sharply in Latin America during the 2002 quarter due to the transition to direct distribution in Brazil from the previous independent distributor. The Company expects its Brazilian office to commence sales during the third quarter of 2002. During the quarter ended June 30, 2002, sales were strong in Canada and Africa and sales in the South Pacific region increased modestly from the prior year for the first time in a year. Sales from the Company's direct international offices represented 85% of total international sales for the three months ended June 30, 2002, compared to 79% for the comparable 2001 period.

Gross profit

        Gross profit increased to $91.1 million, or 62.7% of net sales, for the three months ended June 30, 2002 from $84.2 million, or 64.2% of net sales, for the three months ended June 30, 2001, an increase of $6.9 million, or 8.2%. The decrease in gross profit as a percentage of net sales reflected a higher contribution from footwear and apparel products which carry lower gross margins than the Company's

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eyewear products, coupled with higher sales discounts, partially offset by improved sunglass gross margins and the favorable effects of foreign exchange.

Operating expenses

        Operating expenses increased to $56.5 million for the three months ended June 30, 2002 from $49.4 million for the three months ended June 30, 2001, an increase of $7.1 million, or 14.4%. As a percentage of net sales, operating expenses increased to 38.9% of net sales for the three months ended June 30, 2002 compared to 37.7% of net sales for the comparable period, as the Company continued to develop the infrastructure, both personnel and systems, to grow its new product categories, increase its retail store presence, expand distribution, including further expanding the Company's national specialty footwear and apparel accounts and premium dealer programs, and manage the growth of the business. Operating expenses included $2.9 million of expenses for the Company's retail store operations, an increase of $2.3 million from the prior year period.

        Research and development expenses increased $1.0 million to $3.9 million, or 2.7% of net sales, for the three months ended June 30, 2002, from $2.9 million, or 2.2% of net sales, for the three months ended June 30, 2001, primarily as a result of greater new product development efforts. Selling expenses increased $3.7 million to $34.3 million, for the three months ended June 30, 2002, from $30.6 million for the three months ended June 30, 2001, primarily as a result of increased sales management expenses, partially offset by reduced commissions. As a percentage of net sales, selling expenses increased slightly to 23.6% of net sales for the quarter ended June 30, 2002 compared to 23.3% for the comparable prior year period. Shipping and warehousing expenses as a percentage of net sales decreased to 3.2% of net sales for the three months ended June 30, 2002 from 3.5% of net sales for the three months ended June 30, 2001 as the Company leveraged its shipping expenses over higher sales. This leverage resulted from labor and freight cost efficiencies. General and administrative expenses increased $2.5 million to $13.7 million, or 9.4% of net sales, for the three months ended June 30, 2002, from $11.2 million, or 8.5% of net sales, for the three months ended June 30, 2001. This increase in general and administrative expenses was principally a result of greater personnel-related costs necessary to support and manage the Company's growth, as well as increased retail store expenses. Other areas of increased costs include depreciation, provisions for doubtful accounts and credit insurance, and insurance expense. These increases were partially offset by the reduction of amortization expense for the three months ended June 30, 2002 of approximately $0.3 million due to the adoption of SFAS No. 142.

Operating income

        The Company's operating income decreased to $34.5 million for the three months ended June 30, 2002 from $34.8 million for the three months ended June 30, 2001, a decrease of $0.3 million. As a percentage of net sales, operating income decreased to 23.7% for the three months ended June 30, 2002 from 26.5% for the three months ended June 30, 2001.

Interest expense, net

        The Company had net interest expense of $0.2 million for the three months ended June 30, 2002, as compared with net interest expense of $1.0 million for the three months ended June 30, 2001. The decrease in interest expense is due to lower interest rates during the three months ended June 30, 2002, reduced short-term borrowing balances and a nonrecurring credit to interest expense of approximately $350,000 resulting from the favorable settlement of the treasury hedge entered into by the Company in connection with the previously announced long-term debt financing, which the Company elected not to pursue in the quarter ended June 30, 2002.

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Income taxes

        The Company recorded a provision for income taxes of $12.0 million for the three months ended June 30, 2002 compared to $10.1 million for the three months ended June 30, 2001. The Company's effective tax rate for the quarter ended June 30, 2002 was 35%, compared to 30% for the comparable quarter in 2001 as a result of a one-time tax benefit associated with the Company's foreign operations in 2001. The Company expects the 35% tax rate to continue for the full year 2002.

Net income

        The Company's net income decreased to $22.3 million for the three months ended June 30, 2002 from $23.6 million for the three months ended June 30, 2001, a decrease of $1.3 million, or 5.5%.

Six Months Ended June 30, 2002 and 2001

Net sales

        Net sales increased to $254.7 million for the six months ended June 30, 2002 from $225.0 million for the six months ended June 30, 2001, an increase of $29.7 million, or 13.2%. One factor contributing to the increase in net sales was a 5.4%, or $9.7 million, increase in gross sunglass sales. Gross sunglass sales were $186.3 million for the first half of 2002 compared to $176.6 million for the first half of 2001. Sunglass average selling prices increased 13.1% when compared with average selling prices for the comparable 2001 period, reflecting the continued shift in product mix to more technical, premium-priced items, the weakening of the U.S. dollar, increasing contribution from the Company's retail stores and the impact of the $5 retail price increase in North America on most sunglasses in July 2001, partially offset by a 6.8% decrease in sunglass unit volume. A decline in Sunglass Hut unit sales during the first quarter of 2002, sunglass delivery shortfalls throughout the second quarter and reduced demand attributable to weak retail environments in certain of the Company's international markets contributed to the unit decline. The delivery shortfall was a result of key raw material shortages caused in part by greater increases in summer demand than originally anticipated, commencing with the Sunglass Hut agreement signed in December 2001. The Company believes that the majority of these issues will be favorably resolved during the third quarter. The increase in gross sunglass sales was driven by strong sunglass sales of the Company's newer sunglasses such as the Half Jacket, Wire Tap and Splice, introduced in 2002, and the Scar, Switch and X-Metal Penny, introduced in 2001, offsetting declines in sales of more mature products. Sales of the Company's polarized styles for the six months ended June 30, 2002 also contributed to the increase in gross sales with a 45%, or $4.5 million, increase over the six months ended June 30, 2001. Increased sales from the Company's new product categories, comprised of footwear, apparel, watches and prescription eyewear, also contributed significantly to the overall sales increase as gross sales increased 49.4%, or $21.6 million, to $65.3 million for the six months ended June 30, 2002 from $43.7 million for the six months ended June 30, 2001.

        The Company's U.S. net sales, excluding the Company's retail store operations, increased 12.2% to $129.4 million in the six months ended June 30, 2002 from $115.3 million in the comparable period of 2001, as a result of a 21.3% increase in net sales to the Company's broad specialty store account base and other domestic sales, while sales to the Company's largest U.S. customer, Sunglass Hut, decreased 7.4% to $33.9 million for the six months ended June 30, 2002 from $36.6 million for the six months ended June 30, 2001. In April 2001, Luxottica, one of the Company's largest competitors, acquired Sunglass Hut, the Company's largest customer. In December 2001, the Company and Luxottica entered into a new three-year commercial agreement for the distribution of Oakley products through Sunglass Hut retail stores. The agreement marked the resumption of the business relationship between the two companies, which had been substantially reduced. Net sales from the Company's retail store operations, including Iacon stores acquired October 31, 2001, and the four new Oakley retail stores opened during the past 12 months, were $14.6 million for the six months ended June 30, 2002, up from $2.2 million

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for the six months ended June 30, 2001, an increase of $12.4 million. During the six months ended June 30, 2002, the Company opened eight new Iacon stores, bringing the total to 51, and two new Oakley stores, bringing the total to eight. Total U.S. net sales increased 22.6% in the first half of 2002 to $144.0 million from $117.5 million in the comparable period in 2001. During the six months ended June 30, 2002, the Company's international net sales increased 2.9%, or $3.2 million, to $110.7 million from $107.5 million during the first half of 2001. Although the Company's international sales during the first half of 2002 have been impacted by weak retail environments in Europe, Japan and the South Pacific, all major markets other than Latin America experienced flat to modest growth during the first half of 2002, partially offset by a significant decline in Latin American sales. Latin America experienced a large decrease due to delays in the transition to direct distribution in Brazil from the previous independent distributor. The Company expects its Brazilian office to commence sales during the third quarter of 2002. Sales from the Company's direct international offices represented 83% of total international sales for the six months ended June 30, 2002, compared to 79% for the comparable 2001 period.

Gross profit

        Gross profit increased to $148.8 million, or 58.4% of net sales, for the six months ended June 30, 2002 from $138.6 million, or 61.6% of net sales, for the six months ended June 30, 2001, an increase of $10.2 million, or 7.4%. The decrease in gross profit as a percentage of net sales reflects a higher concentration from footwear and apparel products which carry lower gross margins than the Company's eyewear products, coupled with higher sales discounts, partially offset by improved sunglass gross margins and the favorable effects of foreign exchange.

Operating expenses

        Operating expenses increased to $105.0 million for the six months ended June 30, 2002 from $89.9 million for the six months ended June 30, 2001, an increase of $15.1 million, or 16.8%. As a percentage of net sales, operating expenses increased to 41.2% of net sales for the six months ended June 30, 2002 compared to 40.0% of net sales for the comparable period, as the Company continued to develop the infrastructure, both personnel and systems, to grow its new product categories, increase its retail store presence, expand distribution, including further expanding the Company's national specialty footwear and apparel accounts and premium dealer programs, and manage the growth of the business. Operating expenses included $5.3 million of expenses for the Company's retail store operations, an increase of $4.4 from the prior year period.

        Research and development expenses increased $2.3 million to $7.8 million, or 3.1% of net sales, for the six months ended June 30, 2002, from $5.5 million, or 2.4% of net sales, for the six months ended June 30, 2001, primarily as a result of greater new product development efforts. Selling expenses increased $6.7 million to $61.7 million for the six months ended June 30, 2002, from $55.0 million for the six months ended June 30, 2001, as a result of increased sales management, display and sports marketing expenses, offset by reduced commissions. As a percentage of net sales, selling expenses decreased to 24.2% of net sales for the six months ended June 30, 2002 compared to 24.4% for the comparable prior year period as a result of leverage on fixed expenses and reduced commissions. Shipping and warehousing expenses as a percentage of sales decreased to 3.5% of net sales for the six months ended June 30, 2002 from 3.8% of net sales for the six months ended June 30, 2001 as the Company leveraged its shipping expenses over higher sales. This leverage resulted from labor and freight cost efficiencies offsetting increased distribution center costs. General and administrative expenses increased $5.7 million to $26.5 million, or 10.4% of net sales, for the six months ended June 30, 2002, from $20.8 million, or 9.2% of net sales, for the six months ended June 30, 2001. This increase in general and administrative expenses was principally a result of greater personnel-related and administrative costs and information technology costs necessary to support and manage the Company's

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growth, as well as increased retail store expenses. Areas of increased costs include professional fees, provisions for doubtful accounts and credit insurance, depreciation expenses and insurance expenses. These increases were partially offset by the reduction of amortization expense for the six months ended June 30, 2002 of approximately $0.6 million primarily due to the adoption of SFAS No. 142.

Operating income

        The Company's operating income decreased to $43.8 million for the six months ended June 30, 2002 from $48.6 million for the six months ended June 30, 2001, a decrease of $4.8 million. As a percentage of net sales, operating income decreased to 17.2% for the six months ended June 30, 2002 from 21.6% for the six months ended June 30, 2001.

Interest expense, net

        The Company had net interest expense of $0.8 million for the six months ended June 30, 2002, as compared with net interest expense of $1.9 million for the six months ended June 30, 2001. The decrease in interest expense is due to lower interest rates during the six months ended June 30, 2002, reduced short-term borrowing balances and a nonrecurring credit to interest expense of approximately $350,000 resulting from the favorable settlement of the treasury hedge entered into by the Company in connection with the previously announced long-term debt financing, which the Company elected not to pursue in the quarter ended June 30, 2002.

Income taxes

        The Company recorded a provision for income taxes of $15.0 million for the six months ended June 30, 2002 compared to $14.0 million for the six months ended June 30, 2001. The Company's effective tax rate for the six months ended June 30, 2002 was 35%, compared to 30% for the comparable period in 2001 as a result of a one-time tax benefit associated with the Company's foreign operations in 2001. The Company expects the 35% tax rate to continue for the full year 2002.

Net income

        The Company's net income decreased to $27.9 million for the six months ended June 30, 2002 from $32.7 million for the six months ended June 30, 2001, a decrease of $4.8 million, or 14.7%.

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 $61.6 million for the quarter ended June 30, 2002 compared to $21.4 million for the comparable period in 2001. At June 30, 2002, working capital was $122.6 million compared to $108.3 million at June 30, 2001, a 13% increase. 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, increased to $94.5 million at June 30, 2002 compared to $83.9 million at March 31, 2002 and $74.1 million at June 30, 2002 with quarterly accounts receivable days outstanding at June 30, 2002 of 59 compared to 69 at March 31, 2002 and 51 at June 30, 2001. Inventories increased to $82.5 million at June 30, 2002 compared to $78.5 million at March 31, 2002 and $78.4 million at June 30, 2001. This inventory reflects a 5.1% and 5.2% increase from March 31, 2002 and June 30, 2001, respectively, compared to revenue increases of 32.4% and 10.6%, respectively, from the quarters then ended. The increase in inventory from June 30, 2001 to June 30, 2002, is primarily attributable to the increased inventory for the Company's retail store operations. At June 30, 2002, quarterly inventory turns remained the same at 2.6 compared to March 31, 2002 and increased from 2.4 at June 30, 2001.

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        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% (1.85% at June 30, 2002) or the bank's prime lending rate minus 0.25% (4.75% at June 30, 2002). At June 30, 2002, the Company did not have any balance outstanding under such facility. The credit agreement contains various restrictive covenants including the maintenance of certain financial ratios. At June 30, 2002, 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 U.S dollar borrowing limit on the foreign lines of credit is approximately $20 million, of which $15.6 million was outstanding at June 30, 2002. 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% (2.9% at June 30, 2002). At June 30, 2002, the outstanding balance on the term loan was $15.6 million. The term loan is due in September 2007. In January 1999, the Company entered into an interest rate swap agreement that results in fixing the interest rate over the term of the loan at 6.31%.

        Capital expenditures, net of retirements, for the six months ended June 30, 2002 were $16.5 million, which included $2.5 million for retail store operations. For 2002, the Company expects lower capital expenditure levels from 2001, with capital expenditures for its retail store operations to be an increasing percentage of total capital expenditures. As of June 30, 2002, the Company had commitments of approximately $0.4 million for future capital purchases.

        During December 2000, the Company's Board of Directors authorized another stock repurchase program by the Company of up to $20 million of the Company's common stock from time to time as market conditions warrant. As of June 30, 2002, the Company had repurchased under this program 1,128,000 shares for approximately $16.2 million, at an average price per share of $14.32. Approximately $3.8 million remains available under the current authorization with total common shares outstanding of 68,972,779 as of June 30, 2002.

        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. The Company's short-term funding comes from its current revolving line of credit which contains various restrictive covenants including the maintenance of certain financial ratios. At June 30, 2002, the Company was in compliance with all restrictive covenants and financial ratios. In the second quarter of 2002, based on positive trends in cash flow performance, the Company elected not to pursue the long-term financing previously disclosed, but instead intends to rely on short-term financing capacities at more attractive rates for its capital needs.

Seasonality

        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.

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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 June 30, 2002, the Company had a backlog of $61.4 million, including backorders (merchandise remaining unshipped beyond its scheduled shipping date) of $10.5 million, compared to a backlog of $52.4 million, including backorders of $4.9 million, at June 30, 2001. The backlog reflects continued strong demand, coupled with an approximately $3.0 million increase in sunglass backorders resulting from delivery shortfalls that occurred throughout the second quarter as discussed above.

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.

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 manage rapid growth; the ability to identify qualified manufacturing partners; the ability to coordinate product development and production processes with those partners; the ability of those manufacturing partners and the Company's internal production operations to increase production volumes on raw materials and finished goods 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 ability to provide adequate fixturing to existing and future retail customers to meet anticipated needs and schedules; the dependence on eyewear sales to Sunglass Hut which is owned by a major competitor and, accordingly, could materially alter or terminate its relationship with the Company; the Company's ability to expand distribution channels and its own retail operations in a timely manner; 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; continued weakening of economic conditions which could reduce demand for products sold by the Company and could adversely affect profitability, especially of the Company's retail operations; further terrorist acts, or the threat thereof, which could continue to adversely affect consumer confidence and spending, could interrupt production and distribution of product and raw materials and could, as a result, adversely affect the Company's operations and financial performance; the ability of the Company to integrate acquisitions; 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 and changes in consumer preferences; reductions in sales of products, either as the result of economic or other conditions or reduced consumer acceptance of a product, which could result in a buildup of inventory; the ability to source raw materials and finished products at favorable prices to the Company; the potential effect of periodic power crises on the Company's operations including temporary blackouts at the Company's facilities; 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 December 31, 2001 and other filings made periodically by the Company. 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.

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        Foreign currency—The Company has direct operations in Europe, Japan, Canada, Mexico, South Africa, Australia, New Zealand and Brazil 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.

        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 June 30, 2002.

        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 June 30, 2002:

        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, 2002, 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 began circulation after a three-year transition period on January 1, 2002. The Company has upgraded certain of its information systems to enhance its capability to process transactions and keep records in Euros. The Company does not expect costs in connection with the Euro conversion, or other consequences of the Euro conversion, to have a material adverse affect on the Company.

        Interest Rates—The Company's principal line of credit, with no outstanding balance at June 30, 2002, bears interest at either LIBOR or IBOR plus 0.75% or the bank's prime lending rate minus 0.25%. Based on the weighted average interest rate of 3.2% on the line of credit during the six months ended June 30, 2002, 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 $2,000 per year.

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        The Company's long-term debt, with a balance of $15.6 million outstanding at June 30, 2002, 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. At June 30, 2002, the fair value of the Company's interest rate swap agreement was a loss of approximately $615,000.

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Part II—OTHER INFORMATION

Item 1. Legal Proceedings

        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 6, 2002.



(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 six Directors. All such nominees were elected.



(c)

The matters voted at the meeting and the results were as follows:



(1)

To elect six directors to serve as such until the next Annual Meeting of Shareholders and until their successors are elected and qualified.

(2)

To ratify the selection of Deloitte & Touche LLP to serve as independent auditors of the Company for the fiscal year ending December 31, 2002.

Item 5. Other Information

        None

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Item 6. Exhibits and Reports on Form 8-K

        The following exhibits are included herein:

(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, 2002.

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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.

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QuickLinks

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements

Item 2. Management's Discussion And Analysis of Financial Condition And Results Of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risks

Part II—OTHER INFORMATION
Item 1. Legal Proceedings
Item 2 . Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security-Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K