-----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, KJRLKhDwTLK8mlnrclB/+n1N4vL1W9j9QVb73IKVG9owti7eTgGHP8N/0J5my3El Zy1OqrfOGvEHH1BuqS2oIw== 0000898430-98-003662.txt : 19981023 0000898430-98-003662.hdr.sgml : 19981023 ACCESSION NUMBER: 0000898430-98-003662 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981022 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: SEC FILE NUMBER: 000-18490 FILM NUMBER: 98729313 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 FORM 10-Q DATED SEPTEMBER 30, 1998 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, 1998 ------------------------------- 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) 20664 Bahama Street, Chatsworth, CA 91311 - -------------------------------------------------------------------------------- (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 21, 1998: Class A 3,254,870 Class B 2,168,372 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------ K-SWISS INC. CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands) ASSETS
September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 46,928 $ 36,123 Investment securities - 5,995 Accounts receivable, less allowance for doubtful accounts of $766 and $477 as of September 30, 1998 and December 31, 1997, respectively 20,727 15,657 Inventories 22,264 27,214 Prepaid expenses and other 2,161 4,299 Deferred taxes 3,564 2,256 -------- -------- Total current assets 95,644 91,544 PROPERTY, PLANT AND EQUIPMENT, net 7,792 4,885 OTHER ASSETS Intangible assets 4,515 4,712 Other 1,021 545 -------- -------- 5,536 5,257 -------- -------- $108,972 $101,686 ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES Bank lines of credit $ - $ 642 Current maturities of subordinated debentures 450 400 Trade accounts payable 3,641 4,379 Accrued liabilities 13,858 10,530 -------- -------- Total current liabilities 17,949 15,951 SUBORDINATED DEBENTURES 50 100 DEFERRED TAXES 9,956 9,770 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; 4,436,570 shares issued, 3,254,870 shares outstanding and 1,181,700 shares held in treasury at September 30, 1998 and 4,110,586 shares issued, 3,107,886 shares outstanding and 1,002,700 shares held in treasury at December 31, 1997 44 41 Class B-authorized 10,000,000 shares of $.01 par value; issued and outstanding 2,168,372 shares at September 30, 1998 and 2,485,572 shares at December 31, 1997 22 25 Additional paid-in capital 25,431 25,271 Treasury Stock (15,760) (12,389) Retained earnings 71,892 63,387 Accumulated other comprehensive income - Foreign currency translation (612) (470) -------- -------- 81,017 75,865 -------- -------- $108,972 $101,686 ======== ========
The accompanying notes are an integral part of these statements. 2 K-SWISS INC. CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (Amounts in thousands, except per share amounts) (Unaudited)
NINE MONTHS THREE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------- ------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Revenues $121,501 $92,449 $38,212 $32,835 Cost of goods sold 69,149 57,699 20,606 19,417 -------- ------- ------- ------- Gross profit 52,352 34,750 17,606 13,418 Selling, general and administrative expenses 39,266 30,767 13,279 10,593 -------- ------- ------- ------- Operating profit 13,086 3,983 4,327 2,825 Interest income, net 1,471 1,277 572 463 -------- ------- ------- ------- Earnings before income taxes 14,557 5,260 4,899 3,288 Income tax expense 5,726 2,386 1,868 1,574 -------- ------- ------- ------- NET EARNINGS $ 8,831 $ 2,874 $ 3,031 $ 1,714 ======== ======= ======= ======= Earnings per common share (Note 3) Basic $1.61 $.49 $.56 $.30 ======== ======= ======= ======= Diluted $1.54 $.48 $.53 $.29 ======== ======= ======= ======= Net earnings $ 8,831 $ 2,874 $ 3,032 $ 1,714 Other comprehensive income, net of tax - Foreign currency translation adjustments (142) (211) (20) (81) -------- ------- ------- ------- Comprehensive net earnings $ 8,689 $ 2,663 $ 3,012 $ 1,633 ======== ======= ======= =======
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, ----------------- 1998 1997 ---- ---- Net cash provided by operating activities $12,043 $ 15,095 Cash flows from investing activities: Proceeds from the maturity of investment securities 5,995 - Purchase of investment securities - (9,619) Purchase of property, plant and equipment (5,159) (775) Proceeds from disposal of property, plant and equipment 2,267 8 ------- -------- Net cash provided by (used in) investing activities 3,103 (10,386) Cash flows from financing activities: Net repayments under the bank lines of credit and capital leases (640) (578) Purchase of treasury stock (3,371) (5,988) Proceeds from stock options exercised 83 63 Income tax benefit of options exercised 50 12 Payment of dividends (326) (349) ------- -------- Net cash used in financing activities (4,204) (6,840) Effect of exchange rate changes on cash (137) (214) ------- -------- Net increase (decrease) in cash and cash equivalents 10,805 (2,345) Cash and cash equivalents at beginning of period 36,123 34,314 ------- -------- Cash and cash equivalents at end of period $46,928 $ 31,969 ======= ========
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, 1998 and the results of its operations and its cash flows for the nine and three months ended September 30, 1998 and 1997. The results of operations and cash flows for the nine and three months ended September 30, 1998 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, 1997. 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 May 1998, the IRS issued its final report proposing additional taxes of an aggregate of approximately $1,561,000 plus penalties and interest for these years. The Company is protesting the IRS assessment. Also, the federal income tax returns of the Company for the years ended 1993 through 1996 are currently under examination by the IRS. The IRS has issued a preliminary examination report covering the 1993 and 1994 fiscal years proposing adjustments to income of approximately $10,490,000 for these years combined. 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 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 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. 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, ------------------------------------ 1998 1997 ---------------- ----------------- Per Share Per Share Shares Amount Shares Amount ------ ------ ------ ------- Basic EPS 5,469 $1.61 5,919 $ .49 Effect of dilutive stock options 247 (.07) 110 (.01) ------ ------ ------ ------- Diluted EPS 5,716 $1.54 6,029 $ .48 ====== ====== ====== =======
The following options were not included in the computation of diluted EPS because the exercise prices of such options were greater than the average market price of the common shares:
1998 1997 --------------- --------------- Options to purchase shares of common stock (in thousands) 60 328 Exercise prices $21.25 - $23.00 $13.75 - $23.00 Expiration dates August 2001 - June 2000 - November 2004 November 2004
5
Three Months Ended September 30, ------------------------------------- 1998 1997 ----------------- ----------------- Per Share Per Share Shares Amount Shares Amount ------ ------ ------- ------ Basic EPS 5,439 $ .56 5,741 $ .30 Effect of dilutive stock options 301 (.03) 160 (.01) ------ ------ ------- ------ Diluted EPS 5,740 $ .53 5,901 $ .29 ====== ====== ======= ======
The following options were not included in the computation of diluted EPS because the exercise prices of such options were greater than the average market price of the common shares:
1998 1997 ------------- --------------- Options to purchase shares of common stock (in thousands) - 194 Exercise prices - $16.25 - $23.00 Expiration dates - June 2000 - November 2004
6 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 earnings relative to revenues.
NINE MONTHS THREE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------- --------------------- 1998 1997 1998 1997 ---------- --------- ---------- --------- Revenues 100.0% 100.0% 100.0% 100.0% Cost of goods sold 56.9 62.4 53.9 59.1 Gross profit 43.1 37.6 46.1 40.9 Selling, general and administrative expenses 32.3 33.3 34.8 32.3 Interest income, net 1.2 1.4 1.5 1.4 Earnings before income taxes 12.0 5.7 12.8 10.0 Income tax expense 4.7 2.6 4.9 4.8 Net earnings 7.3 3.1 7.9 5.2
Revenues increased to $38,212,000 for the quarter ended September 30, 1998 from $32,835,000 for the quarter ended September 30, 1997, an increase of $5,377,000 or 16.4%. Revenues increased to $121,501,000 for the nine months ended September 30, 1998 from $92,449,000 for the nine months ended September 30, 1997, an increase of $29,052,000 or 31.4%. These increases for the quarter and nine months were the result of higher average wholesale prices per pair and increases in the volume of footwear sold. The volume of footwear sold increased to 1,472,000 pair and 4,760,000 pair for the quarter and nine months ended September 30, 1998 from 1,315,000 pair and 3,926,000 pair for the quarter and nine months ended September 30, 1997. The increase in the volume of footwear sold for the quarter ended September 30, 1998 was primarily due to an increase in the children's category of 45.4% and an increase in the tennis/court category of 16.8%. The average wholesale price per pair increased to $24.93 and $24.46 for the quarter and nine months ended September 30, 1998 from $24.47 and $22.44 for the quarter and nine months ended September 30, 1997, increases of 1.9% and 9.0% respectively. The increases in the average wholesale prices per pair were primarily attributable to changes in the product and geographic mix of sales. Domestic revenues increased 24.0% to $33,674,000 for the quarter ended September 30, 1998 from $27,148,000 for the quarter ended September 30, 1997. Domestic revenues increased 49.3% to $108,423,000 for the nine months ended September 30, 1998 from $72,635,000 for the nine months ended September 30, 1997. International revenues decreased 20.2% to $4,538,000 for the quarter ended September 30, 1998 from $5,687,000 for the quarter ended September 30, 1997. International revenues decreased 34.0% to $13,078,000 for the nine months ended September 30, 1998 from $19,814,000 for the nine months ended September 30, 1997. The decrease in international revenues was primarily due to lower sales in the Company's Asian markets due to the Asian financial crisis. International revenues, as a percentage of total revenues, decreased to 11.9% for the quarter ended September 30, 1998 as compared with 17.3% for the quarter ended September 30, 1997. International revenues, as a percentage of total revenues, decreased to 10.8% for the nine months ended September 30, 1998 as compared with 21.4% for the nine months ended September 30, 1997. Gross profit margins, as a percentage of revenues, increased to 46.1% for the quarter ended September 30, 1998, from 40.9% for the quarter ended September 30, 1997. Gross profit margins, as a percentage of revenues, increased to 43.1% from 37.6% for the nine months ended September 30, 1998 and 1997, respectively. Gross profit margins increased primarily due to the Company introducing new styles at relatively higher margins and a decrease in close-out sales. 7 Selling, general and administrative expenses increased to $13,279,000 (34.8% of revenues) for the quarter ended September 30, 1998, from $10,593,000 (32.3% of revenues) for the quarter ended September 30, 1997, an increase of $2,686,000 or 25.4%. Selling, general and administrative expenses increased to $39,266,000 (32.3% of revenues) for the nine months ended September 30, 1998, from $30,767,000 (33.3% of revenues) for the nine months ended September 30, 1997, an increase of $8,499,000 or 27.6%. The increase in the amount for the quarter ended September 30, 1998 was primarily the result of an increase in direct advertising costs. The increase in the amount for the nine months ended September 30, 1998 was primarily the result of an increase in direct advertising costs and commissions, as well as an increase in the bonus accrual for an employee incentive program. These increases were partially offset by a bad debt recovery of a 1995 write-off. Net interest income was $572,000 (1.5% of revenues) and $1,471,000 (1.2% of revenues) for the quarter and nine months ended September 30, 1998, respectively, compared to $463,000 (1.4% of revenues) and $1,277,000 (1.4% of revenues) for the quarter and nine months ended September 30, 1997, respectively, an increase of $109,000 and $194,000 respectively. The increase in net interest income was primarily due to higher average balances and rates for the quarter and nine months ended September 30, 1998 as compared to the quarter and nine months ended September 30, 1997. The Company's effective tax rate decreased to 39.3% of earnings before income tax from 45.4% for the nine months ended September 30, 1998 and 1997, respectively, due to a reduction of certain non-deductible expenses as a percentage of earnings before income taxes. Net earnings increased 76.8% to $3,031,000 for the quarter ended September 30, 1998 from $1,714,000 for the quarter ended September 30, 1997. Net earnings increased 207.3% to $8,831,000 for the nine months ended September 30, 1998 from $2,874,000 for the nine months ended September 30, 1997. Net earnings for the quarter and nine months ended September 30, 1998 included net losses of the Company's European operations of $119,000 and $318,000, respectively. Net earnings for the quarter and nine months ended September 30, 1997 included net losses of the Company's European operations of $262,000 and $1,536,000, respectively. At September 30, 1998 and 1997, domestic futures orders with start ship dates from October 1998 and 1997 through March 1999 and 1998 were approximately $106,176,000 and $46,955,000, respectively At September 30, 1998 and 1997, international futures orders with start ship dates from October 1998 and 1997 through March 1999 and 1998 were approximately $7,578,000 and $8,716,000, 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. The 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. Liquidity and Capital Resources The Company generated cash of $12,043,000 and $15,095,000 from its operating activities during the nine months ended September 30, 1998 and 1997, respectively. Cash provided by operating activities for the nine months ended September 30, 1998 as compared to the nine months ended September 30, 1997 varied primarily due to changes in accounts receivable, prepaid expenses (principally a prepayment to secure inventory purchases) and other assets, and accounts payable and accrued liabilities, as well as an increase in net earnings. The Company had a net inflow of cash from its investing activities for the nine months ended September 30, 1998 due to proceeds from the maturity of investment securities, partially offset by net purchases of property, plant and equipment. The Company had a net outflow of cash from its investing activities for the nine months ended September 30, 1997 due to the purchase of investment securities and property, plant and equipment. The Company had a net outflow of cash from its financing activities for the nine months ended September 30, 1998 primarily due to the purchase of treasury stock and repayments under the bank lines of credit. 8 On April 23, 1998, the Company announced a new share repurchase program. The Board of Directors has authorized the Company to purchase up to $20 million of its Class A Common Stock on the open market through April 2002. Such open market purchases, if any, will occur from time to time 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. From inception under its new share repurchase program, the Company purchased 24,000 shares of Class A Common Stock at a cost totaling approximately $539,000. The Company maintains revolving credit facilities with Bank of America whereby it may borrow up to an aggregate of $35,000,000 including outstanding letters of credit and bankers' acceptances. This facility currently expires in July 2001. Substantially all of the Company's assets (other than real estate) are pledged as security for this facility. No other material capital commitments exist at September 30, 1998. 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 1998. The Company owned a 56,000 square foot facility in Pacoima, California, which was used as the Company's principal executive offices through December 1992. This facility was sold in January 1998. The Company's working capital increased $2,102,000 to $77,695,000 at September 30, 1998 from $75,593,000 at December 31, 1997. Impact of Year 2000 The Year 2000 Issue is the result of computer-controlled systems using two digits rather than four to define the applicable year. For example, computer programs that have time-sensitive software may recognize a date ending in "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruptions of operations including, among other things, an inability to process transactions, send invoices, or engage in similar normal business activities. If the Company, its significant customers, or suppliers fail to make necessary modifications and conversions on a timely basis, the Year 2000 Issue could have a material adverse effect on Company operations. However, the impact cannot be quantified at this time. To address these Year 2000 Issues with its internal systems, the Company has initiated a comprehensive program which is designed to deal with the most critical systems first. Assessment and remediation are proceeding in tandem, and the Company currently plans to have changes to critical systems completed and tested by December 31, 1998. These activities are intended to encompass all major categories of systems in use by the Company, including manufacturing, sales and finance. Beginning the first quarter of 1999, the Company will work with critical suppliers of products and services, and customers to determine that they are year 2000 capable or to monitor their progress toward year 2000 capability. Once supplier and customer capability is determined, the Company will commence work on various types of contingency planning to address potential problem areas with internal systems and with suppliers, customers, and other third parties. Nevertheless, there can be no absolute assurance that there will not be a material adverse effect on the Company if third party governmental or business entities do not convert or replace their systems in a timely manner and in a way that is compatible with the Company's systems. Costs related to the Year 2000 Issue are funded through operating cash flows. Currently, the Company has expended approximately $250,000 in remediation efforts, principally the cost of modifying the applicable code of existing software. The Company estimates remaining costs to be approximately $200,000. The Company presently believes that the total cost of achieving Year 2000 compliant systems is not expected to be material to financial condition, liquidity, or results of operations. Time and cost estimates are based on currently available information. Developments that could affect estimates include, but are not limited to, the availability and cost of trained personnel; the ability to locate and correct all relevant computer code and systems; and remediation success of the Company's suppliers and customers. 9 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 -------- (a) Exhibits 10- Fourth Amendment to Credit Agreement 27- Financial Data Schedule (b) Reports on Form 8-K There were two reports filed on Form 8-K during the third quarter of 1998. On July 28, 1998, the Company issued a press release regarding the filing by the Company of a Form S-3 Registration Statement covering shares of the Company's Class A Common Stock held by one of its principal stockholders. On August 21, 1998, the Company issued a press release relating to the resignation of two members of the Company's Board of Directors. 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: October 21, 1998 By:/s/ George Powlick ----------------------------- George Powlick, Vice President Finance and Chief Financial Officer 11 EXHIBIT INDEX ------------- Exhibit Page - ------- ---- 10 Fourth Amendment to Credit Agreement 13 27 Financial Data Schedule 16 12 EX-10 2 FOURTH AMENDMENT TO CREDIT AGREEMENT FOURTH AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10 This Fourth Amendment to Credit Agreement (this "Amendment") is entered into as of September 9,1998, between Bank of America National Trust and Savings ----------- Association ("Bank") and K-Swiss, Inc. ("Borrower"), with reference to the following: Recitals -------- A. Bank and Borrower are parties to that certain Credit Agreement dated as of March 25, 1994, as modified by amendments dated as of June 29, 1995, August 12, 1996, and July 29, 1997 (as amended, the "Credit Agreement"). B. Bank and Borrower now desire to further amend the Credit Agreement on the terms and conditions set forth below. Agreement --------- NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. Capitalized terms not otherwise defined in this Amendment ----------- shall have the meanings ascribed to them in the Credit Agreement. 2. Amendments. The Credit Agreement shall be amended as follows: ---------- (a) In the definition of "Availability Period" in Paragraph 1.1, the date "July 1, 1999" is amended to read "July 1, 2001." (b) Paragraph 2.2(d) is amended in full to read as follows: "(d) Except as provided in Paragraph 2.2 (e), advances under the Revolving Facility shall bear interest at a rate per annum equal to the Reference Rate minus three-quarters percent (0.75%). Borrower shall pay ----- interest monthly on the first day of each month until the last day of the Availability Period, on which date all accrued and unpaid interest shall be due and payable." (c) Subparagraph 2.4(c)(1) is amended in full to read as follows: "(1) expire on or before two hundred twenty-five (225) days after the date such letter of credit is issued, but not to extend more than one hundred eighty (180) days beyond the last day of the Availability Period;" (d) Paragraph 2.4(d) is amended in full to read as follows: "(d) Borrower shall pay Bank negotiation fees of the greater of two-tenths percent (0.20%) of the amount of each drawing or Seventy Five Dollars ($75), and other fees at the times and in the amounts Bank advises Borrower from time to time as being generally applicable to commercial letters of credit issued by Bank, including without limitation, amendment, discrepancy, and cancellation fees." (e) In Paragraph 2.5(d) the percentage of "one and one half percent (1.5%)" is amended to read "one percent (1.0%)". (f) Paragraph 3.2 of the Agreement is amended in full to read as follows: 13 "3.2 Unused commitment fee. Borrower shall pay Bank a fee on --------------------- any difference between the Credit Limit and the sum of advances actually outstanding plus the face amount of letters of credit and acceptances actually outstanding under this Agreement, determined by the weighted average of the unused portion of credit provided under the Revolving Facility that is available for advances, acceptances, and letters of credit under Paragraphs 2.2, 2.3, 2.4, and 2.5 of this Agreement, respectively during the specified period. The fee will be calculated at the rate of one eighth percent (0.125%) per annum. This fee is due on July 31, 1998, and quarterly in arrears thereafter until the expiration of the Availability Period." (g) The following is added as a new Paragraph 7.17: "7.17 Year 2000 Compliance. Borrower has conducted a -------------------- comprehensive review and assessment of Borrower's systems and equipment applications and made inquiry of Borrower's key suppliers, vendors and customers with respect to the "year 2000 problem" (that is, the inability of computers, as well as embedded microchips in non-computing devices, to properly perform date-sensitive functions with respect to certain dates prior to and after December 31, 1999). Based on that review and inquiry, Borrower does not believe the year 2000 problem, including costs of remediation, will result in a material adverse change in Borrower's business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit. Borrower has developed adequate contingency plans to ensure uninterrupted and unimpaired business operation in the event of a failure of its own or a third party's systems or equipment due to the year 2000 problem, including those of vendors, customers, and suppliers, as well as a general failure of or interruption in its communications and delivery infrastructure." (h) Paragraph 8.3 is amended in full to read as follows: "8.3 Audits. Maintain adequate books, accounts and records and ------ prepare all financial statements required hereunder in accordance with generally accepted accounting principles consistently applied, and in compliance with the regulations of any governmental regulatory body having jurisdiction over Borrower or Borrower's business and to allow Bank and its agents to inspect Borrower's properties (including taking and removing samples for environmental testing) and examine, audit, and make copies of books and records at any reasonable time. If any of Borrower's properties, books or records are in the possession of a third party, Borrower authorizes that third party to permit Bank or its agents to have access to perform inspections or audits and to respond to Bank's requests for information concerning such properties, books and records. Bank has no duty to inspect Borrower's properties or to examine, audit, or copy books and records and Bank shall not incur any obligation or liability by reason of not making any such inspection or inquiry. In the event that Bank inspects Borrower's properties or examines, audits, or copies books and records, Bank will be acting solely for the purposes of protecting Bank's security and preserving Bank's rights under this Agreement. Neither Borrower nor any other party is entitled to rely on any inspection or other inquiry by Bank. Bank owes no duty of care to protect Borrower or any other party against, or to inform Borrower or any other party of, any adverse condition that may be observed as affecting Borrower's properties or premises, or Borrower's business. Bank may in its discretion disclose to Borrower or any other party any findings made as a result of, or in connection with, any inspection of Borrower's properties." (i) Paragraph 8.6 is amended in full to read as follows: 14 "8.6 Effective Tangible Net Worth. Maintain at all times on a ---------------------------- consolidated basis effective Tangible Net Worth plus Subordinated Debt of at least Sixty Six Million Dollars ($66,000,000) plus the sum of seventy five percent (75%) of net income after income taxes (without subtracting losses) earned in each fiscal year commencing after December 31, 1997, less the sum of purchases of treasury stock up to and including Ten Million Dollars ($10,000,000) in each fiscal year commencing after December 31, 1997, but not to exceed an aggregate amount of Twenty Million Dollars ($20,000,000)." (j) The following sentence is added at the end of Paragraph 10.4: "In the event that any case is commenced by or against Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute, Bank is entitled to recover costs and reasonable attorneys' fees incurred by Bank related to the preservation, protection, or enforcement of any rights of Bank in such a case." (k) Except as hereby amended, all of the terms and conditions of the Credit Agreement shall remain in full force and effect. 3. Representations and Warranties. Borrower represents and warrants to ------------------------------ Bank that: (a) no Event of Default has occurred and is continuing under the Credit Agreement, (b) the representations and warranties in the Credit Agreement are true as of the date of this Amendment, (c) this Amendment is within Borrower's powers, has been duly authorized, and does not conflict with Borrower's organizational papers, and (d) this Amendment does not conflict with any law, agreement, or obligation by which Borrower is bound. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. BANK OF AMERICA NATIONAL TRUST K-SWISS, INC. AND SAVINGS ASSOCIATION By: /s/Richard J. Pankow By: /s/George Powlick ----------------------------- ----------------------------- Richard J. Pankow George Powlick Vice President Vice President -Finance 15 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1998 SEP-30-1998 46,928 0 21,493 (766) 22,264 95,644 7,792 0 108,972 17,949 0 0 0 66 80,951 108,972 121,501 121,501 69,149 39,266 0 0 1,471 14,557 5,726 8,831 0 0 0 8,831 1.61 1.54
-----END PRIVACY-ENHANCED MESSAGE-----