0000898430-01-503024.txt : 20011026
0000898430-01-503024.hdr.sgml : 20011026
ACCESSION NUMBER: 0000898430-01-503024
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20010930
FILED AS OF DATE: 20011019
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: K SWISS INC
CENTRAL INDEX KEY: 0000862480
STANDARD INDUSTRIAL CLASSIFICATION: FOOTWEAR, (NO RUBBER) [3140]
IRS NUMBER: 954265988
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-18490
FILM NUMBER: 1761881
BUSINESS ADDRESS:
STREET 1: 31248 OAK CREST DRIVE
CITY: WESTLAKE VILLAGE
STATE: CA
ZIP: 91361
BUSINESS PHONE: 8187065100
MAIL ADDRESS:
STREET 1: 31248 OAK CREST DR
CITY: WESTLAKE VILLAGE
STATE: CA
ZIP: 91361
10-Q
1
d10q.txt
FORM 10-Q FOR PERIOD ENDED 09/30/2001
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the period ended September 30, 2001
----------------------------------------------------
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 0-18490
K-SWISS INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-4265988
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
31248 Oak Crest Drive, Westlake Village, CA 91361
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
818-706-5100
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
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
---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of common stock outstanding at October 18, 2001:
Class A 6,289,065
Class B 2,953,478
1
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
------
K-SWISS INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 81,569 $ 67,350
Accounts receivable, less allowance for doubtful
accounts of $887 and $852 as of September 30, 2001
and December 31, 2000, respectively 33,322 25,489
Inventories 28,395 43,815
Prepaid expenses and other 1,267 4,452
Deferred taxes 1,717 1,571
--------- ---------
Total current assets 146,270 142,677
PROPERTY, PLANT AND EQUIPMENT, net 8,104 8,358
OTHER ASSETS
Intangible assets 4,984 3,973
Other 3,360 2,419
--------- ---------
8,344 6,392
--------- ---------
$ 162,718 $ 157,427
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank lines of credit $ - $ 546
Current maturities of subordinated debentures 500 500
Trade accounts payable 6,996 9,763
Accrued income taxes 3,534 711
Accrued liabilities 16,432 10,589
--------- ---------
Total current liabilities 27,462 22,109
OTHER LIABILITIES 6,274 7,590
DEFERRED TAXES 7,878 7,509
STOCKHOLDERS' EQUITY
Preferred Stock-authorized 2,000,000 shares of
$.01 par value; none issued and outstanding - -
Common Stock:
Class A-authorized 18,000,000 shares of $.01 par value;
11,173,097 shares issued, 6,339,065 shares outstanding and 4,834,032
shares held in treasury at September 30, 2001 and 11,080,299 shares
issued, 6,992,467 shares outstanding and 4,087,832 shares held in
treasury at December 31, 2000 112 111
Class B-authorized 10,000,000 shares of $.01 par value; issued
and outstanding 2,953,478 shares at September 30, 2001 and
2,983,478 shares at December 31, 2000 30 30
Additional paid-in capital 41,286 40,444
Treasury stock (67,519) (49,348)
Retained earnings 147,905 129,570
Accumulated other comprehensive earnings -
Foreign currency translation (710) (588)
--------- ---------
121,104 120,219
--------- ---------
$ 162,718 $ 157,427
========= =========
The accompanying notes are an integral part of these statements
2
K-SWISS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS
(Amounts in thousands, except per share amounts)
(Unaudited)
NINE MONTHS THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------ ----------------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues $ 191,454 $ 182,930 $ 67,786 $ 60,466
Cost of goods sold 112,523 109,179 38,518 35,477
--------- --------- -------- --------
Gross profit 78,931 73,751 29,268 24,989
Selling, general and administrative
expenses 49,143 46,869 16,422 15,335
--------- --------- -------- --------
Operating profit 29,788 26,882 12,846 9,654
Interest income, net 1,447 2,496 468 834
--------- --------- -------- --------
Earnings before income taxes 31,235 29,378 13,314 10,488
Income tax expense 12,468 11,724 5,245 4,142
--------- --------- -------- --------
NET EARNINGS $ 18,767 $ 17,654 $ 8,069 $ 6,346
========= ========= ======== ========
Earnings per common share (Note 5)
Basic $ 1.92 $ 1.70 $ .85 $ .63
========= ========= ======== ========
Diluted $ 1.81 $ 1.63 $ .79 $ .59
========= ========= ======== ========
Net earnings $ 18,767 $ 17,654 $ 8,069 $ 6,346
Other comprehensive loss, net of tax -
Foreign currency translation adjustments (122) (23) (6) (7)
--------- --------- -------- --------
Comprehensive net earnings $ 18,645 $ 17,631 $ 8,063 $ 6,339
========= ========= ======== ========
The accompanying notes are an integral part of these statements.
3
K-SWISS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
2001 2000
-------- ---------
Net cash provided by operating activities $ 35,012 $ 27,819
Cash flows from investing activities:
Purchase of property, plant and equipment (829) (826)
Proceeds from sale of property 8 12
-------- --------
Net cash used in investing activities (821) (814)
Cash flows from financing activities:
Net (repayments) borrowings under bank lines of credit (526) 395
Payment to minority member (1,000) -
Purchase of treasury stock (18,171) (9,513)
Proceeds from stock options exercised 285 141
Payment of dividends (432) (461)
-------- --------
Net cash used in financing activities (19,844) (9,438)
Effect of exchange rate changes on cash (128) 41
-------- --------
Net increase in cash and cash equivalents 14,219 17,608
Cash and cash equivalents at beginning of period 67,350 53,119
-------- --------
Cash and cash equivalents at end of period $ 81,569 $ 70,727
======== ========
Supplemental disclosure of cash flow information:
Non-cash investing and financing activities:
Contribution of assets by minority member $ 1,333 $ -
Income tax benefit of options exercised $ 481 $ 256
Cash paid during the period for:
Interest $ 1,034 $ 76
Income taxes $ 5,823 $ 9,474
The accompanying notes are an integral part of these statements.
4
K-SWISS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the consolidated
financial position of K-Swiss Inc. (the "Company") as of September 30, 2001
and the results of its operations and its cash flows for the nine and three
months ended September 30, 2001 and 2000. The results of operations and
cash flows for the nine and three months ended September 30, 2001 are not
necessarily indicative of the results to be expected for any other interim
period or the full year. These consolidated financial statements should be
read in combination with the audited consolidated financial statements and
notes thereto for the year ended December 31, 2000.
2. The federal income tax returns of the Company for the years ended 1993,
1995, 1996 and 1998 are currently under examination by the Internal Revenue
Service ("IRS"). In August 2000, the IRS issued its final report proposing
additional taxes for the years ended 1993, 1995 and 1996 of an aggregate of
approximately $4,985,000 plus penalties and interest for these years.
Through September 2001, the Company has agreed to certain adjustments for
the years ended 1993, 1995 and 1996 resulting in approximately $976,000 of
taxes. These tax adjustments did not require the Company to record
additional income tax expense as the Company had recorded deferred income
taxes on the untaxed portion of unremitted earnings of a foreign
subsidiary. Of the remaining balance of the proposed assessments, the
Company believes that approximately $1,222,000 of taxes which might become
payable as a result of these examinations would not result in additional
expense recognized in the financial statements other than interest and
penalties, if any, as the Company has recorded deferred income taxes on the
untaxed portion of the unremitted earnings of a foreign subsidiary. For the
remaining assessed taxes of approximately $2,787,000, for which the Company
has not provided deferred income taxes, the Company believes it has
meritorious defenses to the IRS challenges although no assurance can be
given that the final results of such IRS challenges will not have a
material adverse impact on the Company's financial position and results of
operations.
3. In June 2001, the Company was notified by counsel representing the trustee
appointed to oversee the liquidation of assets of a previous customer of
the Company, which filed for bankruptcy protection in 1999, that they are
seeking reimbursement of all payments made to the Company during the 90 day
period prior to the bankruptcy filing. The aggregate amount of these
payments, which the trustee's counsel is claiming to be preferential
transfers, is approximately $4,315,000. The Company believes these payments
were received in the ordinary course of business and that it has
meritorious defenses against the trustee's claim. No provision for this
claim has been made in the Company's financial statements as of September
30, 2001.
4. In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible
Assets" (FAS 142), which the Company will adopt effective January 1, 2002.
As required by FAS 142, the Company will perform a test on goodwill and
other intangible assets as of the adoption date to determine if there has
been any impairment of goodwill. The Company will perform impairment tests
annually and whenever events or circumstances indicate the value of
goodwill or other intangible assets might be impaired. No additional
amortization of goodwill and certain other intangible assets, including
those recorded in past business combinations, will be recorded. As a result
of the elimination of this amortization, expenses will decrease by
approximately $149,000 annually. The Company has not yet determined the
impact of FAS 142's impairment test provisions on its results of operations
and financial position.
5
5. The following is a reconciliation of the number of shares (denominator)
used in the basic and diluted earnings per share computations (shares in
thousands):
Nine Months Ended September 30, Three Months Ended September 30,
-------------------------------------------- -------------------------------------
2001 2000 2001 2000
-------------------- --------------------- ------------------ ----------------
Per Per Per Per
Share Share Share Share
Shares Amount Shares Amount Shares Amount Shares Amount
-------- -------- -------- -------- ------- -------- ------ -------
Basic EPS 9,782 $ 1.92 10,375 $ 1.70 9,548 $ .85 10,132 $ .63
Effect of dilutive
stock options 587 (.11) 430 (.07) 635 (.06) 553 (.04)
------- ------ -------- ------- ------ ------- ------ -------
Diluted EPS 10,369 $ 1.81 10,805 $ 1.63 10,183 $ .79 10,685 $ .59
======= ====== ======== ======= ====== ======= ====== =======
The following options were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market
price of the common shares:
Nine Months Three Months
Ended September 30, Ended September 30,
---------------------- --------------------
2001 2001
-------- --------
Options to purchase shares
of common stock (in thousands) 117 87
Exercise price $28.20-$47.38 $32.13-$47.38
Expiration date April 2009- April 2009-
August 2011 August 2011
Nine Months Three Months
Ended September 30, Ended September 30,
------------------------ --------------------
2000 2000
-------- --------
Options to purchase shares
of common stock (in thousands) 99 69
Exercise price $17.06-$47.38 $29.63-$47.38
Expiration date April 2009- April 2009-
October 2009 September 2009
6
6. The Company's predominant business is the design, development and
distribution of athletic footwear. The Company is organized into three
geographic regions: the United States, Europe and other international
operations. Certain reclassifications have been made in the 2001 and 2000
presentations. The following tables summarize segment information (in
thousands):
NINE MONTHS THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues from unrelated entities:
United States $ 167,152 $ 162,764 $ 59,019 $ 52,892
Europe 11,844 11,972 4,043 3,589
Other International 12,458 8,194 4,724 3,985
---------- --------- -------- --------
$ 191,454 $ 182,930 $ 67,786 $ 60,466
========== ========= ======== ========
Inter-geographic revenues:
United States $ 1,330 $ 863 $ 397 $ 324
Europe 75 29 41 15
Other International 5,125 3,295 1,782 975
---------- --------- -------- --------
$ 6,530 $ 4,187 $ 2,220 $ 1,314
========== ========= ======== ========
Total revenues:
United States $ 168,482 $ 163,627 $ 59,416 $ 53,216
Europe 11,919 12,001 4,084 3,604
Other International 17,583 11,489 6,506 4,960
Less inter-geographic revenues (6,530) (4,187) (2,220) (1,314)
---------- --------- -------- --------
$ 191,454 $ 182,930 $ 67,786 $ 60,466
========== ========= ======== ========
Operating profit (loss):
United States $ 36,797 $ 33,913 $ 15,525 $ 12,835
Europe (2,041) (1,003) (488) (432)
Other International 2,323 788 626 235
Less corporate expenses and
eliminations (7,291) (6,816) (2,817) (2,984)
---------- --------- -------- --------
$ 29,788 $ 26,882 $ 12,846 $ 9,654
========== ========= ======== ========
September 30, December 31,
2001 2000
---- ----
Identifiable assets:
United States $ 66,696 $ 78,944
Europe 8,819 5,770
Other International 24,271 20,752
Corporate assets and
eliminations (1) 62,932 51,961
--------- ---------
$ 162,718 $ 157,427
========= =========
(1) Corporate assets include cash and cash equivalents and intangible assets.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Notes Regarding Forward-Looking Statements and Analyst Reports
"Forward-looking statements", within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Act"), include certain written
and oral statements made, or incorporated by reference, by the Company or its
representatives in this report, other reports, filings with the Securities and
Exchange Commission ("the S.E.C."), press releases, conferences or otherwise.
Such forward-looking statements include, without limitation, any statement that
may predict, forecast, indicate, or imply future results, performance, or
achievements, and may contain the words "believe", "anticipate", "expect",
"estimate", "intend", "plan", "project", "will be", "will continue", "will
likely result", or any variations of such words with similar meaning. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict; therefore,
actual results may differ materially from those expressed or forecasted in any
such forward-looking statements. Investors should carefully review the risk
factors set forth in other reports or documents the Company files with the
S.E.C., including Forms 10-Q, 10-K and 8-K. Some of the other risks and
uncertainties that should be considered include, but are not limited to, the
following: international, national and local general economic and market
conditions; the size and growth of the overall athletic footwear and apparel
markets; the size of the Company's competitors; intense competition among
designers, marketers, distributors and sellers of athletic footwear and apparel
for consumers and endorsers; market acceptance of the Company's training shoe
line; market acceptance of new Limited Edition product; market acceptance of
non-performance product in Europe; demographic changes; changes in consumer
preferences; popularity of particular designs, categories of products, and
sports; seasonal and geographic demand for the Company's products; the size,
timing and mix of purchases of the Company's products; fluctuations and
difficulty in forecasting operating results, including, without limitation, the
fact that advance "futures" orders may not be indicative of future revenues due
to the changing mix of futures and at-once orders; potential cancellation of
future orders; the ability of the Company to continue, manage or forecast its
growth and inventories; new product development and commercialization; the
ability to secure and protect trademarks, patents, and other intellectual
property; performance and reliability of products; customer service; adverse
publicity; the loss of significant customers or suppliers; dependence on
distributors; business disruptions; increased costs of freight and
transportation to meet delivery deadlines; changes in business strategy or
development plans; general risks associated with doing business outside the
United States, including, without limitation, import duties, tariffs, quotas and
political and economic instability; the effects of terrorist actions on business
activities, customer orders and cancellations, and the United States and
international governments' responses to these terrorist actions; changes in
government regulations; liability and other claims asserted against the Company;
the ability to attract and retain qualified personnel; and other factors
referenced or incorporated by reference in this report and other reports.
The Company operates in a very competitive and rapidly changing
environment. New risk factors can arise and it is not possible for management to
predict all such risk factors, nor can it assess the impact of all such risk
factors on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.
Investors should also be aware that while the Company does, from time
to time, communicate with securities analysts, it is against the Company's
policy to disclose to them any material non-public information or other
confidential commercial information. Accordingly, investors should not assume
that the Company agrees with any statement or report issued by any analyst
irrespective of the content of the statement or report. Furthermore, the Company
has a policy against issuing or confirming financial forecasts or projections
issued by others. Thus, to the extent that reports issued by securities analysts
or others contain any projections, forecasts or opinions, such reports are not
the responsibility of the Company.
8
Results of Operations
The following table sets forth, for the periods indicated, the percentage of
certain items in the consolidated statements of earnings relative to revenues.
NINE MONTHS THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 58.8 59.7 56.8 58.7
Gross profit 41.2 40.3 43.2 41.3
Selling, general and administrative
expenses 25.7 25.6 24.3 25.4
Interest income, net 0.8 1.4 0.7 1.4
Earnings before income taxes 16.3 16.1 19.6 17.3
Income tax expense 6.5 6.4 7.7 6.8
Net earnings 9.8 9.7 11.9 10.5
Revenues increased to $67,786,000 for the quarter ended September 30, 2001 from
$60,466,000 for the quarter ended September 30, 2000, an increase of $7,320,000
or 12.1%. Revenues increased to $191,454,000 for the nine months ended September
30, 2001 from $182,930,000 for the nine months ended September 30, 2000, an
increase of $8,524,000 or 4.7%. The increase for the quarter and nine months
ended September 30, 2001 was the result of an increase in the volume of footwear
sold at slightly lower average wholesale prices per pair. The volume of footwear
sold increased to 2,504,000 and 7,159,000 pair for the quarter and nine months
ended September 30, 2001 from 2,200,000 and 6,649,000 pair for the quarter and
nine months ended September 30, 2000. The increase in the volume of footwear
sold for the quarter ended September 30, 2001 was primarily the result of
increased sales of the Classic and children's categories of shoes of 20.4% and
5.6%, respectively. The average wholesale price per pair was $26.54 and $26.07
for the quarter and nine months ended September 30, 2001 compared with $26.67
and $26.48 for the quarter and nine months ended September 30, 2000,
respectively.
Domestic revenues increased 11.0% to $59,019,000 for the quarter ended September
30, 2001 from $53,157,000 for the quarter ended September 30, 2000. Domestic
revenues increased 2.7% to $167,152,000 for the nine months ended September 30,
2001 from $162,764,000 for the nine months ended September 30, 2000.
International revenues increased 20.0% to $8,767,000 for the quarter ended
September 30, 2001 from $7,309,000 for the quarter ended September 30, 2000.
International revenues increased 20.5% to $24,302,000 for the nine months ended
September 30, 2001 from $20,166,000 for the nine months ended September 30,
2000. International revenues, as a percentage of total revenues, increased to
12.9% for the quarter and 12.7% for the nine months ended September 30, 2001 as
compared with 12.1% for the quarter and 11.0% for the nine months ended
September 30, 2000.
Gross profit margins, as a percentage of revenues, increased to 43.2% for the
quarter ended September 30, 2001, from 41.3% for the quarter ended September 30,
2000. Gross profit margins, as a percentage of revenues, increased to 41.2 %
from 40.3% for the nine months ended September 30, 2001 and 2000, respectively.
Gross profit margins, for the three and nine months ended September 30, 2001,
fluctuated primarily due to changes in the product mix of sales.
Selling, general and administrative expenses increased to $16,422,000 (24.3% of
revenues) and $49,143,000 (25.7% of revenues) for the quarter and nine months
ended September 30, 2001, respectively, from $15,335,000 (25.4% of revenues) and
$46,869,000 (25.6% of revenues) for the quarter and nine months ended September
30, 2000, respectively, increases of $1,087,000 and $2,274,000 or 7.1% and 4.9%,
respectively. The increase in these expenses for the quarter ended September 30,
2001 was primarily the result of an increase in payroll and related expenses.
The increase in these expenses for the nine months ended September 30, 2001 was
partially the result of the decrease in the expense related to an employee
incentive bonus during the first quarter of the prior year that did not also
occur in 2001. In the nine months ended September 30, 2000, there was a
reduction of employee incentive bonus accruals due to diminished financial
performance during that period compared to the same period of the previous year.
Also, the increase for the nine months ended September 30, 2001 was related to
an increase in payroll expense partially offset by a decrease in advertising
expenses.
9
Net interest income was $468,000 (0.7% of revenues) and $1,447,000 (0.8% of
revenues) for the quarter and nine months ended September 30, 2001,
respectively, compared to $834,000 (1.4% of revenues) and $2,496,000 (1.4% of
revenues) for the quarter and nine months ended September 30, 2000,
respectively, representing decreases of $366,000 and $1,049,000, or 43.9% and
42.0%, respectively. The decrease in net interest income was primarily due to
lower average interest rates partially offset by higher average balances for the
quarter and nine months ended September 30, 2001 as compared to the quarter and
nine months ended September 30, 2000.
The Company's effective tax rate remained at 39.9% of earnings before income tax
for both the nine months ended September 30, 2001 and 2000. The income tax
benefit of options exercised of $481,000 and $256,000 for the nine months ended
September 30, 2001 and 2000, respectively, was credited to additional paid-in
capital and therefore did not impact the effective tax rate.
Net earnings increased 27.2% to $8,069,000 for the quarter ended September 30,
2001 from $6,346,000 for the quarter ended September 30, 2000. Net earnings
increased 6.3% to $18,767,000 for the nine months ended September 30, 2001 from
$17,654,000 for the nine months ended September 30, 2000.
At September 30, 2001 and 2000, domestic futures orders with start ship dates
from October 2001 and 2000 through March 2002 and 2001 were approximately
$92,993,000 and $78,280,000, respectively, an increase of 18.8%. At September
30, 2001 and 2000, international futures orders with start ship dates from
October 2001 and 2000 through March 2002 and 2001 were approximately $10,999,000
and $8,462,000, respectively, an increase of 30.0%. At September 30, 2001 and
2000 total futures orders with start ship dates from October 2001 and 2000
through March 2002 and 2001 were approximately $103,992,000 and $86,742,000,
respectively, an increase of 19.9%. The 19.9% increase in total futures orders
is comprised of a 30.1% increase in the fourth quarter 2001 futures orders and a
13.7% increase in the first quarter 2002 futures orders. "Backlog", as of any
date, represents orders scheduled to be shipped within the next six months.
Backlog does not include orders scheduled to be shipped on or prior to the date
of determination of backlog. These orders are not necessarily indicative of
revenues for subsequent periods because: (1) the mix of "futures" and "at-once"
orders can vary significantly from quarter to quarter and year to year and (2)
the rate of customer order cancellations can also vary from quarter to quarter
and year to year.
The September 11, 2001 terrorist actions and the United States and international
governments' responses to these actions have created a significant amount of
uncertainty about the future of both the United States and world economic
climates. The impact on the demand for the Company's products is indeterminable.
Fourth quarter order cancellations through October 18, 2001 have increased
slightly and order cancellation and return requests are accelerating; it remains
unclear what effect these events will have on our business in the future.
Liquidity and Capital Resources
The Company generated cash of $35,012,000 and $27,819,000 from its operating
activities during the nine months ended September 30, 2001 and 2000,
respectively. Cash provided by operations for the nine months ended September
30, 2001 as compared to the nine months ended September 30, 2000 varied
primarily due to changes in net earnings, deferred taxes, prepaid expenses and
other assets, and accounts payable and accrued liabilities.
The Company had a net outflow of cash from its investing activities for the nine
months ended September 30, 2001 and 2000 due to the purchase of property, plant
and equipment.
The Company had a net outflow of cash from its financing activities for the nine
months ended September 30, 2001 primarily due to the purchase of treasury stock
and a payment to a minority member.
In September 2001, the Company announced the completion of its October 1999 $25
million stock repurchase program and a new authorization by the Board of
Directors for the Company to repurchase through December 2006 up to an
additional $25 million of its Class A Common Stock from time to time on the open
market, as market conditions warrant. The Company adopted this program because
it believes repurchasing its shares can be a good use of excess cash depending
on the Company's array of alternatives. Currently, the Company has made
purchases under all stock repurchase programs from August 1996 through October
19, 2001 (the date of filing of this Form 10-Q) of 4,884,032 shares at an
aggregate cost totaling approximately $68,687,000. Included in this 4,884,032
share figure is an aggregate of 335,100 shares purchased for a cost totaling
approximately $8,403,000 since the September 2001 adoption of the present stock
repurchase program.
10
In June 2001, the Company was notified by counsel representing the trustee
appointed to oversee the liquidation of assets of a previous customer of the
Company, which filed for bankruptcy protection in 1999, that they are seeking
reimbursement of all payments made to the Company during the 90 day period prior
to the bankruptcy filing. The aggregate amount of these payments, which the
trustee's counsel is claiming to be preferential transfers, is approximately
$4,315,000. The Company believes these payments were received in the ordinary
course of business and that it has meritorious defenses against the trustee's
claim. No provision for this claim has been made in the Company's financial
statements as of September 30, 2001.
No material capital commitments exist at September 30, 2001. The Company
maintains an agreement with a bank whereby the Company may borrow, in the form
of an unsecured revolving credit facility, up to $15,000,000. This facility
expires in July 2003. The credit facility provides for interest to be paid at
the prime rate less 3/4% or, at the Company's discretion and with certain
restrictions, other market based rates. The Company pays a commitment fee of
1/8% of the unused line for availability of the credit facility. The Company
must meet certain restrictive financial covenants as agreed upon in the
facility. Depending on the Company's future growth rate, funds may be required
by operating activities. With continued use of its revolving credit facility and
internally generated funds, the Company believes its present and currently
anticipated sources of capital are sufficient to sustain its anticipated capital
needs for the remainder of 2001.
The Company's working capital decreased $1,760,000 to $118,808,000 at September
30, 2001 from $120,568,000 at December 31, 2000.
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PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings.
-----------------
None.
ITEM 2: Changes in Securities.
---------------------
None.
ITEM 3: Defaults Upon Senior Securities.
-------------------------------
None.
ITEM 4: Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
ITEM 5: Other Information.
-----------------
None.
ITEM 6: Exhibits and Reports on Form 8-K:
--------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
During the third quarter of 2001, the Company filed a Current
Report on Form 8-K with respect to its issuance on September
17, 2001 of a press release announcing that the Company's
Board of Directors authorized a new stock repurchase program
for the Company to repurchase up to $25 million of the
Company's Class A Common Stock.
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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.
K-Swiss Inc.
Date: October 18, 2001 By: /s/ George Powlick
-------------------------
George Powlick,
Vice President Finance and
Chief Financial Officer
13