-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B8Ooup9SjMP1veNItgO+VenuiIMCCII/Jz8LvgPC8wiJXkPe6iPnoCwO+ryWEW+O vPdpEKoLI695ZGvqI/mq6g== 0000898430-97-003013.txt : 19970725 0000898430-97-003013.hdr.sgml : 19970725 ACCESSION NUMBER: 0000898430-97-003013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970724 SROS: NASD 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: 97644899 BUSINESS ADDRESS: STREET 1: 20664 BAHAMA ST CITY: CATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8189983388 MAIL ADDRESS: STREET 1: 20664 BAHAMA ST CITY: CATSWORTH STATE: CA ZIP: 91311 10-Q 1 QUARTERLY REPORT FOR THE PERIOD ENDED 6/30/1997 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 June 30, 1997 ------------- 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.) 20664 Bahama Street, Chatsworth, CA 91311 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) 818-998-3388 - ------------------------------------------------------------------------------ (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 July 22, 1997: Class A 3,269,035 Class B 2,490,572 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------ K-SWISS INC. CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands)
June 30, December 31, 1997 1996 -------- ------------ (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $27,163 $ 34,314 Investment securities 9,619 - Accounts receivable, less allowance for doubtful accounts of $882 and $630 as of June 30, 1997 and December 31, 1996, respectively 20,503 14,702 Inventories 21,972 23,789 Prepaid expenses 9,250 15,674 Deferred taxes 1,745 2,058 ------- -------- Total current assets 90,252 90,537 PROPERTY, PLANT AND EQUIPMENT, net 3,869 3,910 OTHER ASSETS Intangible assets 4,844 5,005 Other 543 823 ------- -------- 5,387 5,828 ------- -------- $99,508 $100,275 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank lines of credit $ 840 $ 1,209 Current maturities of capital lease obligations and subordinated debentures 351 302 Trade accounts payable 4,210 3,239 Accrued liabilities 8,630 6,490 ------- ------- Total current liabilities 14,031 11,240 SUBORDINATED DEBENTURES 150 200 DEFERRED TAXES 9,109 9,266 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; 4,090,235 shares issued, 3,271,535 shares outstanding and 818,700 shares held in treasury at June 30, 1997 and 4,087,018 shares issued, 3,585,018 shares outstanding and 502,000 shares held in treasury at December 31, 1996 41 41 Class B-authorized 10,000,000 shares of $.01 par value; issued and outstanding 2,495,572 shares at June 30, 1997 and December 31, 1996 25 25 Additional paid-in capital 25,135 25,100 Treasury stock (9,401) (5,221) Retained earnings 60,599 59,675 Foreign currency translation (181) (51) -------- -------- 76,218 79,569 -------- -------- $99,508 $100,275 ======= ========
The accompanying notes are an integral part of these statements. 2 K-SWISS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share amounts) (Unaudited)
SIX MONTHS THREE MONTHS ENDED JUNE 30, ENDED JUNE 30, ----------------- ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- Revenues $59,614 $60,384 $28,415 $26,019 Cost of goods sold 38,282 40,199 18,805 18,279 ------- ------- ------- ------- Gross profit 21,332 20,185 9,610 7,740 Selling, general and administrative expenses 20,174 17,267 10,620 8,091 ------- ------- ------- ------- Operating profit (loss) 1,158 2,918 (1,010) (351) Interest income, net 814 576 435 212 ------- ------- ------- ------- Earnings (loss) before income taxes 1,972 3,494 (575) (139) Income tax expense (benefit) 812 2,098 (196) 592 ------- ------- ------- ------- NET EARNINGS (LOSS) $ 1,160 $ 1,396 $ (379) $ (731) ======= ======= ======= ======= Earnings (loss) per share $.19 $.21 $(.06) $(.11) ======= ======= ======= ======= Weighted average common and common equivalent shares outstanding 6,031 6,593 5,938 6,581
The accompanying notes are an integral part of these statements. 3 K-SWISS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited)
SIX MONTHS ENDED JUNE 30, ------------------- 1997 1996 -------- -------- Net cash provided by operating activities $ 7,645 $10,733 Cash flows from investing activities: Cash paid for acquisition of certain assets and rights of Robey Sportswear - (436) Purchase of investment securities (9,619) - Purchase of property, plant and equipment (307) (270) ------- ------- Net cash used in investing activities (9,926) (706) Cash flows from financing activities: Net (repayments) borrowings under bank lines of credit and capital leases (370) 123 Purchase of treasury stock (4,180) - Proceeds from stock options exercised 31 - Income tax benefit of options exercised 4 - Payment of dividends (236) (264) ------- ------- Net cash used in financing activities (4,751) (141) Effect of exchange rate changes on cash (119) 90 ------- ------- Net (decrease) increase in cash and cash equivalents (7,151) 9,976 Cash and cash equivalents at beginning of period 34,314 31,431 ------- ------- Cash and cash equivalents at end of period $27,163 $41,407 ======= =======
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 June 30, 1997 and the results of its operations and its cash flows for the six and three months ended June 30, 1997 and 1996. The results of operations and cash flows for the six and three months ended June 30, 1997 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, 1996. 2. The federal income tax returns of the Company for the years ended 1990, 1991 and 1992 are under examination by the Internal Revenue Service ("IRS"). In December 1995, the IRS issued its report proposing additional taxes of approximately $3,850,000 plus penalties and interest. The Company is appealing the IRS assessment. Also, the federal income tax returns of the Company for the years ended 1993 and 1994 are currently in preliminary stages of examination by the IRS. Although no assurance can be given regarding the outcome of such examinations, the Company believes that any taxes which might become payable as a result of the proposed assessments for tax years 1990, 1991 and 1992 as well as any reasonably foreseeable assessments for tax years 1993 and 1994 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 unremitted earnings of a foreign subsidiary. Therefore, management believes that resolution of the IRS examinations should not have a material adverse impact on the Company's financial position and results of operations. 3. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS No. 128), Earnings Per Share. SFAS No. 128 establishes standards of computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock. SFAS No. 128 simplifies the standards for computing earnings per share previously found in APB Opinion No. 15 and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the statement of earnings for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997; earlier application is not permitted. The pro forma basic and diluted EPS calculated under SFAS No. 128 would equal the primary earnings per share for the periods ended June 30, 1997 and 1996. 5 ITEM 2. - ------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth, for the periods indicated, the percentage of certain items in the consolidated statements of operations relative to revenues.
SIX MONTHS THREE MONTHS ENDED JUNE 30, ENDED JUNE 30, --------------- --------------- 1997 1996 1997 1996 ---- ---- ----- ---- Revenues 100.0% 100.0% 100.0% 100.0% Cost of goods sold 64.2 66.6 66.2 70.2 Gross profit 35.8 33.4 33.8 29.8 Selling, general and administrative expenses 33.9 28.6 37.4 31.1 Interest income, net 1.4 1.0 1.6 0.8 Earnings (loss) before income taxes 3.3 5.8 (2.0) (0.5) Income tax expense (benefit) 1.4 3.5 (0.7) 2.3 Net earnings (loss) 1.9 2.3 (1.3) (2.8)
Revenues increased to $28,415,000 for the quarter ended June 30, 1997 from $26,019,000 for the quarter ended June 30, 1996, an increase of $2,396,000 or 9.2%. Revenues decreased to $59,614,000 for the six months ended June 30, 1997 from $60,384,000 for the six months ended June 30, 1996, a decrease of $770,000 or 1.3%. The increase for the quarter resulted from an increase in the volume of footwear sold to 1,275,000 pair for the quarter ended June 30, 1997 from 1,181,000 pair for the quarter ended June 30, 1996. The increase in the volume of footwear sold for the quarter ended June 30, 1997 was primarily the result of increased sales of the Classic and children's categories of shoes of 14.4% and 12.4%, respectively. The decrease for the six months resulted from a decrease in apparel sales, partially offset by an increase in footwear sales. The volume of footwear sold increased to 2,611,000 pair for the six months ended June 30, 1997 from 2,608,000 pair for the six months ended June 30, 1996. The average wholesale price per pair increased by 2.8% to $20.73 for the quarter ended June 30, 1997 from $20.17 for the quarter ended June 30, 1996. The average wholesale price per pair was $21.35 for the six months ended June 30, 1997 and $21.16 for the six months ended June 30, 1996. The increase in the average wholesale price per pair for the quarter ended June 30, 1997, is primarily attributable to the change in the product and geographic mix of sales. Domestic revenues increased 20.1% to $21,727,000 for the quarter ended June 30, 1997 from $18,090,000 for the quarter ended June 30, 1996. Domestic revenues increased 7.8% to $45,487,000 for the six months ended June 30, 1997 from $42,206,000 for the six months ended June 30, 1996. International revenues decreased 15.7% to $6,688,000 for the quarter ended June 30, 1997 from $7,929,000 for the quarter ended June 30, 1996. International revenues decreased 22.3% to $14,127,000 for the six months ended June 30, 1997 from $18,178,000 for the six months ended June 30, 1996. International revenues, as a percentage of total revenues, decreased to 23.5% and 23.7% for the quarter and six months ended June 30, 1997 as compared with 30.5% and 30.1% for the quarter and six months ended June 30, 1996. Gross profit margins, as a percentage of revenues, increased to 33.8% for the quarter ended June 30, 1997, from 29.8% for the quarter ended June 30, 1996. Gross profit margins, as a percentage of revenues, increased to 35.8% from 33.4% for the six months ended June 30, 1997 and 1996, respectively. Gross profit margins increased primarily due to changes in the geographic and product mix of sales. 6 Selling, general and administrative expenses increased to $10,620,000 (37.4% of revenues) and $20,174,000 (33.9% of revenues) for the quarter and six months ended June 30, 1997, respectively, from $8,091,000 (31.1% of revenues) and $17,267,000 (28.6% of revenues) for the quarter and six months ended June 30, 1996, respectively, an increase of $2,529,000 and $2,907,000 or 31.3% and 16.8%, respectively. The increases in these expenses, in both amounts and as a percentage of sales, for the quarter and six months ended June 30, 1997 were primarily the result of increases in advertising costs. Net interest income was $435,000 (1.6% of revenues) and $814,000 (1.4% of revenues) for the quarter and six months ended June 30, 1997, respectively, compared to $212,000 (0.8% of revenues) and $576,000 (1.0% of revenues) for the quarter and six months ended June 30, 1996, respectively, increases of $223,000 and $238,000 or 105.2% and 41.3% respectively. For the quarter and six months ended June 30, 1997 as compared to the quarter and six months ended June 30, 1996, the difference in net interest income was primarily related to interest expense recorded relating to taxes assessed as a result of a state income tax audit during the quarter ended June 30, 1996. The Company's effective tax rate decreased to 41.2% of earnings before income tax from 60.0% for the six months ended June 30, 1997 and 1996, respectively, due primarily to recording income taxes relating to a state income tax audit for the six months ended June 30, 1996. The Company recorded a net loss of $379,000 for the quarter ended June 30, 1997 and a net loss of $731,000 for the quarter ended June 30, 1996. Net earnings decreased 16.9% to $1,160,000 for the six months ended June 30, 1997 from $1,396,000 for the six months ended June 30, 1996. Net earnings for the quarter and six months ended June 30, 1997 included net losses of the Company's European operations of $1,050,000 and $1,274,000, respectively. Net earnings for the quarter and six months ended June 30, 1996 included net losses of the Company's European operations of $910,000 and $767,000, respectively. At June 30, 1997 and 1996, domestic footwear futures orders with start ship dates from July through December 1997 and 1996 were approximately $35,834,000 and $19,645,000, respectively. At June 30, 1997 and 1996, international footwear futures orders with start ship dates from July through December 1997 and 1996 were approximately $7,562,000 and $6,681,000, respectively. "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. 7 Liquidity and Capital Resources The Company generated cash of $7,645,000 and $10,733,000 from its operating activities during the six months ended June 30, 1997 and 1996, respectively. Cash provided by operations for the six months ended June 30, 1997 as compared to the six months ended June 30, 1996 varied primarily due to changes in accounts receivable, inventories, prepaid expenses (principally a prepayment to secure inventory purchases) and other assets and accounts payable and accrued liabilities. The Company had a net outflow of cash from its investing activities for the six months ended June 30, 1997 due to the purchase of investment securities and property, plant and equipment. The Company had a net outflow of cash from its investing activities for the six months ended June 30, 1996 primarily due to the purchase of certain assets and rights of a small apparel brand primarily sold in the Netherlands. The Company has a net outflow of cash from its financing activities for the six months ended June 30, 1997 primarily due to the purchase of treasury stock and repayments under the bank lines of credit. In November 1996, the Company extended its share repurchase program from December 1996 to December 1997. Under this program the Company may purchase, from time to time as market conditions warrant, up to $10,000,000 of its Class A Common Stock on the open market. At that time, the authorization was increased by approximately $5,200,000 from $4,800,000 (the remaining amount of the previous $10,000,000 authorization) to $10,000,000. 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 this program of 826,200 shares at an aggregate cost totaling approximately $9,514,000. During 1997 and 1998, the Company will need approximately $4,900,000 for the construction of its new headquarters facility. No other material capital commitments exist at June 30, 1997. 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 1997. In March 1997, the Company contracted to sell its Pacoima, California property and opened escrow regarding such sale. The escrow was expected to close in the second quarter of 1997 but, due to an uncertainty, was delayed. It is still uncertain if escrow will close in the third quarter of 1997. 8 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. --------------------------------------------------- (a) The Annual Meeting of Stockholders was held May 22, 1997. (b) The following directors were elected to serve until the 1998 Annual Meeting of Stockholders or until their successors have been duly elected and qualified: Class A Directors Class B Directors ----------------- ----------------- Jonathan K. Layne Steven Nichols Martyn Wilford George Powlick Stanley Bernstein Lawrence Feldman Stephen Fine (c) Of the 3,478,128 shares of Class A Common Stock represented at the meeting, the Class A Directors named in (b) above were elected by the following votes:
No. Of Votes Received --------------------- Name For Withheld Authority ---- --------- ------------------ Jonathan K. Layne 3,464,821 13,307 Martyn Wilford 3,465,821 12,307
Of the 2,384,072 shares of Class B Common Stock represented at the meeting, the Class B Directors named in (b) above were elected by the following votes:
No. Of Votes Received --------------------- Name For Withheld Authority ---- ---------- ------------------ Steven Nichols 23,840,720 - George Powlick 23,840,720 - Stanley Bernstein 23,840,720 - Lawrence Feldman 23,840,720 - Stephen Fine 23,840,720 -
9 ITEM 5: Other Information. ----------------- None. ITEM 6: Exhibits and Reports on Form 8-K: -------------------------------- (a) Exhibits 11 - Computation of Earnings Per Share 27 - Financial Data Schedule (b) Reports on Form 8-K There were no reports filed on Form 8-K during the second quarter of 1997. 10 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: July 22, 1997 By: /s/ George Powlick ----------------------------- George Powlick, Vice President Finance and Chief Financial Officer 11 EXHIBIT INDEX ------------- Exhibit Page - ------- ---- 11 Computation of Earnings Per Share 13 27 Financial Data Schedule 12 EX-11 2 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE (Amounts in thousands, except per share amounts)
SIX MONTHS THREE MONTHS ENDED JUNE 30, ENDED JUNE 30, --------------- -------------- 1997 1996 1997 1996 ---- ---- ---- ---- PRIMARY Earnings (loss) applicable to common stock $1,160 $1,396 $ (379) $ (731) ====== ====== ====== ====== Weighted average shares: Average shares outstanding 6,002 6,581 5,938 6,581 Net effect of warrants and dilutive stock options based on application of treasury stock method using average market price 29 12 - - ------ ------ ------ ------ Total average shares 6,031 6,593 5,938 6,581 ====== ====== ====== ====== Earnings (loss) per share $ .19 $ .21 $ (.06) $ (.11) ====== ====== ====== ======
FULLY DILUTED Fully diluted earnings per share are considered equal to primary earnings per share due to immaterial dilution. 13 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS AND IS QUALIFIED IN ITS ENIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JAN-01-1997 JUN-30-1997 27,163 9,619 21,385 882 21,972 90,252 3,869 0 99,508 14,031 0 0 0 66 76,152 99,508 59,614 59,614 38,282 20,174 0 0 814 1,972 812 1,160 0 0 0 1,160 .19 .19 INTEREST INCOME NET OF INTEREST EXPENSE
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