10-Q 1 d10q.htm FORM 10-Q Form 10-Q

 

 

UNITED STATES

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 quarterly period ended June 30, 2008

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

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

31248 Oak Crest Drive, Westlake Village, California   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  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

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 30, 2008:

 

  

Class A

   26,760,210      
  

Class B

   8,059,524      

 

 

 


PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

K•SWISS INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)

(Unaudited)

 

     June 30,
2008
    December 31,
2007
 

ASSETS

    

CURRENT ASSETS

    

Cash and cash equivalents

   $ 295,506     $ 291,235  

Accounts receivable, less allowance for doubtful accounts of $2,751 and $2,941 as of June 30, 2008 and December 31, 2007, respectively

     52,274       34,808  

Inventories

     63,811       63,227  

Prepaid expenses and other current assets

     7,428       11,231  

Deferred taxes

     5,067       5,226  
                

Total current assets

     424,086       405,727  

PROPERTY, PLANT AND EQUIPMENT, net

     24,742       24,100  

OTHER ASSETS

    

Intangible assets (Note 3)

     10,715       4,700  

Deferred taxes

     2,977       3,248  

Other

     8,922       8,578  
                
     22,614       16,526  
                
   $ 471,442     $ 446,353  
                

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

CURRENT LIABILITIES

    

Trade accounts payable

   $ 18,072     $ 22,017  

Accrued income taxes

     2,683       530  

Accrued liabilities

     20,617       27,854  
                

Total current liabilities

     41,372       50,401  

OTHER LIABILITIES

     12,081       11,719  

STOCKHOLDERS’ EQUITY (Note 4)

    

Preferred Stock – authorized 2,000,000 shares of $0.01 par value; none issued and outstanding

     —         —    

Common Stock:

    

Class A – authorized 90,000,000 shares of $0.01 par value; 29,181,827 shares issued, 26,760,210 shares outstanding and 2,421,617 shares held in treasury at June 30, 2008 and 28,970,733 shares issued, 26,698,572 shares outstanding and 2,272,161 shares held in treasury at December 31, 2007

     292       290  

Class B, convertible – authorized 18,000,000 shares of $0.01 par value; 8,059,524 shares issued and outstanding at June 30, 2008 and December 31, 2007

     81       81  

Additional paid-in capital

     58,993       55,657  

Treasury Stock

     (58,190 )     (56,070 )

Retained earnings

     402,186       372,128  

Accumulated other comprehensive earnings -

    

Foreign currency translation

     15,865       13,366  

Net loss on hedge derivatives

     (1,238 )     (1,219 )
                
     417,989       384,233  
                
   $ 471,442     $ 446,353  
                

The accompanying notes are an integral part of these statements.

 

2


K•SWISS INC.

CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE EARNINGS

(Dollar amounts and shares in thousands, except per share amounts)

(Unaudited)

 

     Six Months
Ended June 30,
   Three Months
Ended June 30,
 
     2008     2007    2008     2007  

Revenues (Note 5)

   $ 188,064     $ 225,019    $ 85,155     $ 102,451  

Cost of goods sold

     103,468       122,549      48,532       57,529  
                               

Gross profit

     84,596       102,470      36,623       44,922  

Selling, general and administrative expenses

     77,981       73,251      35,358       36,374  
                               

Operating profit (Note 5)

     6,615       29,219      1,265       8,548  

Other income (Note 6)

     30,000       —        30,000       —    

Interest income, net

     3,487       4,574      1,552       2,363  
                               

Earnings before income taxes

     40,102       33,793      32,817       10,911  

Income tax expense

     6,569       8,137      6,394       3,252  
                               

Net Earnings

   $ 33,533     $ 25,656    $ 26,423     $ 7,659  
                               

Earnings per common share (Note 2)

         

Basic

   $ 0.97     $ 0.74    $ 0.76     $ 0.22  
                               

Diluted

   $ 0.95     $ 0.72    $ 0.75     $ 0.22  
                               

Weighted average number of shares outstanding (Note 2)

         

Basic

     34,729       34,658      34,727       34,693  
                               

Diluted

     35,291       35,494      35,271       35,495  
                               

Dividends declared per common share

   $ 0.10     $ 0.10    $ 0.05     $ 0.05  
                               

Net Earnings

   $ 33,533     $ 25,656    $ 26,423     $ 7,659  

Other comprehensive earnings (loss) –

         

Foreign currency translation adjustments, net of income taxes of $0 and $0 for the six months ended June 30, 2008 and 2007, respectively, and net of income taxes of $0 and $0 for the three months ended June 30, 2008 and 2007, respectively

     2,499       1,637      (51 )     1,150  

Change in deferred (loss) gain on hedge derivatives, net of income taxes of $0 and $0 for the six months ended June 30, 2008 and 2007, respectively, and net of income taxes of $0 and $0 for the three months ended June 30, 2008 and 2007, respectively

     (19 )     418      (180 )     (104 )
                               

Comprehensive Earnings

   $ 36,013     $ 27,711    $ 26,192     $ 8,705  
                               

The accompanying notes are an integral part of these statements.

 

3


K•SWISS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

 

     Six Months Ended June 30,  
     2008     2007  

Cash flows from operating activities:

    

Net earnings

   $ 33,533     $ 25,656  

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     1,762       954  

Net loss on disposal of property, plant and equipment

     15       22  

Deferred income taxes

     443       199  

Stock-based compensation

     1,178       1,117  

Excess income tax benefit of stock-based compensation

     (659 )     (962 )

Increase in accounts receivable

     (17,545 )     (15,310 )

Increase in inventories

     (405 )     (1,677 )

Decrease in prepaid expenses and other assets

     2,802       911  

(Decrease) increase in accounts payable and accrued liabilities

     (7,645 )     9,817  
                

Net cash provided by operating activities

     13,479       20,727  

Cash flows from investing activities:

    

Purchase of intangible assets

     (6,015 )     —    

Purchase of property, plant and equipment

     (2,322 )     (8,641 )
                

Net cash used in investing activities

     (8,337 )     (8,641 )

Cash flows from financing activities:

    

Repurchase of stock

     (2,120 )     (410 )

Payment of dividends

     (3,475 )     (3,470 )

Excess income tax benefit of stock-based compensation

     659       962  

Proceeds from stock options exercised

     1,501       1,026  
                

Net cash used in financing activities

     (3,435 )     (1,892 )

Effect of exchange rate changes on cash

     2,564       1,776  
                

Net increase in cash and cash equivalents

     4,271       11,970  

Cash and cash equivalents at beginning of period

     291,235       260,229  
                

Cash and cash equivalents at end of period

   $ 295,506     $ 272,199  
                

Supplemental disclosure of cash flow information:

    

Cash paid during the period for:

    

Interest

   $ 23     $ 54  

Income taxes

   $ 1,042     $ 3,819  

The accompanying notes are an integral part of these statements.

 

4


K•SWISS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “S.E.C.”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position of K•Swiss Inc. (the “Company” or “K•Swiss”) as of June 30, 2008 and the results of its operations and its cash flows for the six and three months ended June 30, 2008 and 2007 have been included for the periods presented. The results of operations and cash flows for the six and three months ended June 30, 2008 are not necessarily indicative of the results to be expected for any other interim period or the full year. The balance sheet at December 31, 2007 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In addition, certain reclassifications have been made in the 2007 presentation to conform to the 2008 presentation. These consolidated financial statements should be read in combination with the audited consolidated financial statements and notes thereto for the year ended December 31, 2007, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

 

2. Earnings per Share

The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share (“EPS”) computations (shares in thousands):

 

     Six Months Ended June 30,     Three Months Ended June 30,
     2008     2007     2008     2007
     Shares    Per
Share
Amount
    Shares    Per
Share
Amount
    Shares    Per
Share
Amount
    Shares    Per
Share
Amount

Basic EPS

   34,729    $ 0.97     34,658    $ 0.74     34,727    $ 0.76     34,693    $ 0.22

Effect of Dilutive Stock Options

   562      (0.02 )   836      (0.02 )   544      (0.01 )   802      —  
                                                  

Diluted EPS

   35,291    $ 0.95     35,494    $ 0.72     35,271    $ 0.75     35,495    $ 0.22
                                                  

The following options were not included in the computation of diluted EPS because the exercise price of the options was greater than the average market price of the Company’s common stock during the periods indicated below:

 

     Six Months Ended June 30, 2008    Six Months Ended June 30, 2007

Options to purchase shares of common stock (in thousands)

   229    133

Exercise prices

   $17.62 – $34.75    $31.10 – $35.89

Expiration dates

   July 2013 – February 2017    February 2015 – February 2017
     Three Months Ended June 30, 2008    Three Months Ended June 30, 2007

Options to purchase shares of common stock (in thousands)

   229    199

Exercise prices

   $17.62 – $34.75    $29.14 – $35.89

Expiration dates

   July 2013 – February 2017    February 2015 – May 2017

 

5


3. Intangible Assets

Intangible assets are as follows (in thousands):

 

     June 30,
2008
    December 31,
2007
 

Goodwill

   $ 4,618     $ 4,618  

Trademarks

     8,776       2,761  

Other

     8       8  

Less accumulated amortization

     (2,687 )     (2,687 )
                
   $ 10,715     $ 4,700  
                

The change in the carrying amount of goodwill and intangible assets during the six and three months ended June 30, 2008 is as follows (in thousands):

 

     Six
Months
Ended
June 30,
2008
   Three
Months
Ended
June 30,
2008

Beginning Balance

   $ 4,700    $ 10,715

Purchased trademarks

     6,015      —  
             

Ending Balance

   $ 10,715    $ 10,715
             

During the six months ended June 30, 2008, the Company purchased trademarks of $6,015,000, see discussion in Note 8. There were no changes in the carrying amount of goodwill and intangible assets during the three months ended June 30, 2008. There were no changes in the carrying amount of goodwill and intangible assets during the three and six months ended June 30, 2007. The Company performed the annual reassessment and impairment test as of January 1, 2008 to determine whether goodwill and intangible assets were impaired and determined there was no impairment.

 

4. Stockholders’ Equity

Under its stock repurchase program, the Company purchased 149,456 shares of Class A Common Stock during the six months ended June 30, 2008 for a total expenditure of approximately $2,120,000.

 

6


5. Segment Information

The Company’s predominant business is the design, development and distribution of athletic footwear. Substantially all of the Company’s revenues are from sales of footwear products. The Company is organized into three geographic regions: the United States, Europe and Other International operations. The following tables summarize segment information (in thousands):

 

     Six Months
Ended June 30,
    Three Months
Ended June 30,
 
     2008     2007     2008     2007  

Revenues from unrelated entities (1):

        

United States

   $ 77,571     $ 116,047     $ 36,132     $ 53,664  

Europe

     75,347       76,429       33,961       34,682  

Other International

     35,146       32,543       15,062       14,105  
                                
   $ 188,064     $ 225,019     $ 85,155     $ 102,451  
                                

Inter-geographic revenues:

        

United States

   $ 4,028     $ 4,717     $ 1,754     $ 2,233  

Europe

     3       1       —         —    

Other International

     24,386       23,134       11,626       10,223  
                                
   $ 28,417     $ 27,852     $ 13,380     $ 12,456  
                                

Total revenues:

        

United States

   $ 81,599     $ 120,764     $ 37,886     $ 55,897  

Europe

     75,350       76,430       33,961       34,682  

Other International

     59,532       55,677       26,688       24,328  

Less inter-geographic revenues

     (28,417 )     (27,852 )     (13,380 )     (12,456 )
                                
   $ 188,064     $ 225,019     $ 85,155     $ 102,451  
                                

Operating profit:

        

United States

   $ 1,207     $ 19,897     $ 1,347     $ 6,281  

Europe

     14,203       16,264       6,255       5,964  

Other International

     6,422       2,791       1,880       798  

Less corporate expenses (2)

     (15,653 )     (8,449 )     (8,038 )     (4,500 )

Eliminations

     436       (1,284 )     (179 )     5  
                                
   $ 6,615     $ 29,219     $ 1,265     $ 8,548  
                                

 

     June 30, 2008    December 31, 2007

Identifiable assets:

     

United States

   $ 103,739    $ 105,490

Europe

     62,265      55,872

Other International

     29,560      25,903

Corporate assets and eliminations (3)

     275,878      259,088
             
   $ 471,442    $ 446,353
             

 

(1) Revenue is attributable to geographic regions based on the location of the Company’s subsidiaries.
(2) Corporate expenses include expenses such as salaries and related expenses for executive management and support departments such as accounting and treasury, information technology and legal which benefit the entire Company and are not segment/region specific. The increase in corporate expenses for the three and six months ended June 30, 2008 is due to an increase in data processing expenses, as a result of the on-going maintenance expenses incurred in connection with the Company’s domestic and a portion of its international SAP computer software system implementation in the fourth quarter of 2007 and the Company’s continuing SAP computer software implementation of other operational regions in 2008 and an increase in legal expenses, in connection with pursuing a lawsuit against Payless ShoeSource, Inc., a Missouri corporation, and Payless ShoeSource, Inc., a Delaware corporation (collectively, “Payless”) to protect the Company’s trademarks. In addition, for the six months ended June 30, 2008, the increase in corporate expenses is due to a decrease in the bonus/incentive related expense reversals that were calculated in accordance with the bonus formula under the Company’s Economic Value Added incentive program offset by decreases in other fringe benefit related expenses.
(3) Corporate assets include cash and cash equivalents and intangible assets.

 

7


During the six months ended June 30, 2008 and 2007 approximately 8% and 13%, respectively, of revenues were attributable to one customer. During the three months ended June 30, 2008 and 2007 approximately 7% and 12%, respectively, of revenues were attributable to one customer.

 

6. Other Income

On June 24, 2008, the Company entered into a settlement agreement with Payless in connection with the Company’s 2004 action filed against Payless in the United States District Court for the Central District of California (Western District), in which the Company alleged trademark and trade dress infringement, trademark dilution, unfair competition and breach of contract. The settlement agreement provided, among other things, that Payless would pay to the Company $30 million in cash on or before July 1, 2008 in payment of compensatory damages claimed by the Company from Payless’ advertising, promotion and sale of certain footwear. The Company received this payment on June 30, 2008, which is included in “Other Income” in the Company’s Consolidated Statements of Earnings for the six and three months ended June 30, 2008.

 

7. Fair Value Measurement

On January 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements which increase the consistency and the comparability of fair value measurements in financial statement disclosures. SFAS No. 157 applies in situations where other accounting pronouncements require or permit fair value measurements.

SFAS No. 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis at June 30, 2008 (in thousands):

 

     Total
Carrying
Value
   Fair Value Measurements Using
      Quoted
Prices in
Active
Markets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs

(Level 3)

Forward Exchange Contracts – Assets

   $ 700    $ —      $ 700    $ —  

Forward Exchange Contracts – Liabilities

   $ 1,042    $ —      $ 1,042    $ —  

The Company’s counterparty (“Counterparty”) to these forward exchange transactions is a major financial institution with an investment grade or better credit rating. These forward exchange contracts are measured at fair value using a “mid-market” valuation which represents either (1) the Counterparty’s good faith estimate of the mid-market value of the position, based on estimated or actual bids and offers for the positions, or (2) a “mid-market” price generated by proprietary valuation models utilized by the Counterparty.

 

8


8. Palladium

On May 16, 2008, the Company, entered into a Share Purchase and Shareholders’ Rights Agreement by and among Christophe Mortemousque, Palladium SAS (“Palladium”) and the Company (the “Agreement”) providing for the indirect purchase of 57% of the equity interests of Palladium from its shareholders for a total purchase price of €5.3 million, or approximately $8.4 million, (including a loan of €3.65 million, or approximately, $5.8 million). Pursuant to the terms of the Agreement, the Company has also agreed to acquire the remaining 43% of the equity interests of Palladium based on a formula driven by Palladium’s EBITDA for the year ended December 31, 2012. Closing of the 57% equity purchase occurred on July 1, 2008. In addition, on March 28, 2008, the Company entered into an Assignment and Assumption Agreement (the “Assignment Agreement”) with Palladium. The Assignment Agreement provided for the Company’s assumption of Palladium’s rights and obligations under a certain intellectual property purchase and sale agreement by and between Palladium and Consolidated Shoe Company pursuant to which Palladium agreed to acquire certain intellectual property from Consolidated Shoe Company for a purchase price of $6.0 million.

 

9. Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (Revised 2007), “Business Combinations.” SFAS No. 141 (Revised 2007) changes how a reporting enterprise accounts for the acquisition of a business. SFAS No. 141 (Revised 2007) requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with limited exceptions, and applies to a wider range of transactions or events. SFAS No. 141 (Revised 2007) is effective for fiscal years beginning on or after December 15, 2008 and early adoption and retrospective application is prohibited.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements: an Amendment to ARB No. 51.” SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, it requires the recognition of a noncontrolling interest as equity in the consolidated financial statements which will be separate from the parent’s equity. SFAS No. 160 is effective for fiscal years and interim periods in those fiscal years beginning on or after December 15, 2008 and early adoption is prohibited.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.” SFAS No. 161 requires enhanced disclosure related to derivatives and hedging activities and thereby seeks to improve the transparency of financial reporting. Under SFAS No. 161, entities are required to provide enhanced disclosures relating to: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedge items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 must be applied prospectively to all derivative instruments and non-derivative instruments that are designated and qualify as hedging instruments and related hedged items accounted for under SFAS No. 133 for all financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently assessing the impact that SFAS No. 161 will have on its financial position and results of operations.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS No. 162 is effective 60 days following the S.E.C.’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not expect SFAS No. 162 will result in a change in current practice.

 

9


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Note 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 us or our 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 we file 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 our competitors; intense competition among designers, marketers, distributors and sellers of athletic footwear and apparel for consumers and endorsers; market acceptance of all our product offerings; demographic changes; popularity of particular designs, categories of products, and sports; seasonal and geographic demand for our products; the size, timing and mix of purchases of our products; performance and reliability of products; difficulties in anticipating or forecasting changes in consumer preferences, consumer demand for our product, and various market factors described above; 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; our ability to continue, manage or forecast our growth and inventories; new product development and timely commercialization; the ability to secure and protect trademarks, patents, and other intellectual property; inadvertent and nonwillful infringement on others’ trademarks, patents and other intellectual property; difficulties in implementing, operating, maintaining, and protecting our increasingly complex information systems and controls including, without limitation, the systems related to demand and supply planning, and inventory control; difficulties in implementing SAP information management software; interruptions in data and communication systems; concentration of production in China; changes in our effective tax rates as a result of changes in tax laws or changes in our geographic mix of sales and level of earnings; potential earthquake disruption due to the location of our warehouse and headquarters; potential disruption in supply chain due to various factors including but not limited to natural disasters, epidemic diseases or customer purchasing habits; customer service; adverse publicity; the loss of significant customers or suppliers; dependence on distributors; dependence on major customers; concentration of credit risk; business disruptions; increased costs of freight and transportation to meet delivery deadlines; increased material and/or labor costs; 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 business strategy or development plans; general risks associated with doing business outside the United States, including, without limitation, exchange rate fluctuations, import duties, tariffs, quotas and political and economic instability; changes in government regulations; liability and other claims asserted against us; the ability to attract and retain qualified personnel; and other factors referenced or incorporated by reference in this report and other reports.

K•Swiss (the “Company,” “we,” “us,” and “our”) operates in a very competitive and rapidly changing environment. New risk factors can arise from time to time and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on our 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 we communicate, from time to time, with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have 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 our responsibility.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the S.E.C. The preparation of these financial statements required us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

 

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We believe that the estimates, assumptions and judgments involved in the accounting policies described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our most recent Annual Report on Form 10-K for the year ended December 31, 2007 have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for revenue recognition, the reserve for uncollectible accounts receivable and inventory reserves. These policies require that we make estimates in the preparation of our financial statements as of a given date.

Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

Overview

Our total revenues decreased 16.9% and 16.4% in the three and six months ended June 30, 2008 from the three and six months ended June 30, 2007, respectively. Our overall gross profit margins, as a percentage of revenues, decreased to 43.0% and 45.0% for the three and six months ended June 30, 2008 compared to 43.8% and 45.5% for the three and six months ended June 30, 2007, respectively. Our selling, general and administrative expenses decreased to $35,358,000 for the three months ended June 30, 2008 from $36,374,000 for the three months ended June 30, 2007 due mainly to a decrease in advertising expenses offset by increases in SAP related expenses, compensation expenses and legal expenses. Our selling, general and administrative expenses increased to $77,981,000 for the six months ended June 30, 2008 compared to $73,251,000 for the six months ended June 30, 2007 due mainly to increases in SAP related expenses, compensation expenses and legal expenses, offset by a decrease in advertising expenses. During the three and six months ended June 30, 2008, we received a settlement payment of $30,000,000 in connection with a lawsuit defending our trademarks, which is included in other income. At June 30, 2008, our total futures orders with start ship dates from July through December 2008 were $104,178,000, a decrease of 32.4% from June 30, 2007. Of this amount, domestic futures orders were $38,054,000, a decrease of 50.7%, and international futures orders were $66,124,000, a decrease of 14.1%. Net earnings and net earnings per diluted share for the three months ended June 30, 2008 increased to $26,423,000 (including the settlement payment described above), or $0.75 per diluted share, respectively, compared with $7,659,000, or $0.22 per diluted share, in the prior-year period. Net earnings and net earnings per diluted share for the six months ended June 30, 2008 increased to $33,533,000 (including the settlement payment described above), or $0.95 per diluted share, respectively, compared with $25,656,000, or $0.72 per diluted share, in the prior-year period. On July 1, 2008, we purchased a 57% equity interest of Palladium SAS (“Palladium”) for €5.3 million, or approximately $8.4 million, (including a loan of €3.65 million, or approximately $5.8 million).

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.

 

     Six Months
Ended June 30,
    Three Months
Ended June 30,
 
     2008     2007     2008     2007  

Revenues

   100.0 %   100.0 %   100.0 %   100.0 %

Cost of goods sold

   55.0     54.5     57.0     56.2  

Gross profit

   45.0     45.5     43.0     43.8  

Selling, general and administrative expenses

   41.5     32.5     41.5     35.4  

Other income

   15.9     —       35.2     —    

Interest income, net

   1.9     2.0     1.8     2.3  

Earnings before income taxes

   21.3     15.0     38.5     10.7  

Income tax expense

   3.5     3.6     7.5     3.2  

Net earnings

   17.8     11.4     31.0     7.5  

 

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Revenues

K•Swiss brand revenues decreased to $82,885,000 for the three months ended June 30, 2008 from $100,670,000 for the three months ended June 30, 2007, a decrease of $17,785,000 or 17.7%. K•Swiss brand revenues decreased to $181,286,000 for the six months ended June 30, 2008 from $219,265,000 for the six months ended June 30, 2007, a decrease of $37,979,000 or 17.3%. The decrease for the three and six months ended June 30, 2008 was the result of a decrease in the volume of footwear sold offset by slightly higher average wholesale prices per pair. The volume of footwear sold decreased to 2,907,000 and 6,211,000 pair for the three and six months ended June 30, 2008, respectively, from 3,564,000 and 7,741,000 pair for the three and six months ended June 30, 2007, respectively. The decrease in the volume of footwear sold for the three months ended June 30, 2008 was primarily the result of decreased sales of the lifestyle category of 20.7%, offset by an increase in the performance category of 3.6%. This decrease in volume for the three and six months ended June 30, 2008 was offset by a higher average wholesale price per pair of $27.59 for the three months ended June 30, 2008 from $27.58 for the three months ended June 30, 2007 and $28.15 for the six months ended June 30, 2008 from $27.60 for the six months ended June 30, 2007, an increase of 2.0%. These higher average wholesale prices per pair resulted primarily from international sales, which generally yield a higher average sales price, having increased as a percentage of total sales for the three and six months ended June 30, 2008.

For the three and six months ended June 30, 2008, total revenues declined 16.9% and 16.4%, respectively. The decrease was the result of a decline in domestic revenues offset by a slight increase in international revenues (other than Europe) for the three and six months ended June 30, 2008. The breakdown of revenues (dollar amounts in thousands) is as follows:

 

     Six Months Ended June 30,     Three Months Ended June 30,  
     2008    2007    % Change     2008    2007    % Change  

Domestic

                

K•Swiss brand

   $ 76,083    $ 114,555    (33.6 )%   $ 35,342    $ 53,120    (33.5 )%

Royal Elastics brand

     1,488      1,492    (0.3 )%     790      544    45.2 %
                                

Total domestic

   $ 77,571    $ 116,047    (33.2 )%   $ 36,132    $ 53,664    (32.7 )%
                                

International

                

K•Swiss brand

   $ 105,203    $ 104,710    0.5 %   $ 47,543    $ 47,550    (0.0 )%

Royal Elastics brand

     5,290      4,262    24.1 %     1,480      1,237    19.6 %
                                

Total international

   $ 110,493    $ 108,972    1.4 %   $ 49,023    $ 48,787    0.5 %
                                

Total Revenues

   $ 188,064    $ 225,019    (16.4 )%   $ 85,155    $ 102,451    (16.9 )%
                                

Customer acceptance of our domestic product has been weak and is likely to continue for the near term. In addition customer acceptance for our international product has weakened. In an effort to increase customer acceptance of our products, during late 2006/early 2007, we hired several individuals in product design and management. It will, however, take additional time for the full impact of the contribution of these individuals to affect our business.

Gross Margin

Gross profit margins, as a percentage of revenues, decreased to 43.0% for the three months ended June 30, 2008, from 43.8% for the three months ended June 30, 2007 and decreased to 45.0% for the six months ended June 30, 2008, from 45.5% for the six months ended June 30, 2007. Gross profit margins for the three and six months ended June 30, 2008 were affected by product mix changes and geographic mix of international sales. International sales generally yield a higher gross profit margin, however gross margins were lower for the six months ended June 30, 2008 compared with the six months ended June 30, 2007, for reasons previously mentioned. Our gross margins may not be comparable to our competitors as we recognize warehousing costs within selling, general and administrative expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased to $35,358,000 (41.5% of revenues) for the three months ended June 30, 2008, from $36,374,000 (35.4% of revenues) for the three months ended June 30, 2007, a decrease of $1,016,000 or 2.8%. Selling, general and administrative expenses increased to $77,981,000 (41.5% of revenues) for the six months ended June 30, 2008, from $73,251,000 (32.5% of revenues) for the six months ended June 30, 2007, an increase of $4,730,000 or 6.5%. The decrease in selling, general and administrative expenses during the three months ended June 30, 2008 compared to the three months ended June 30, 2007, was the result of a decrease in advertising expenses offset by increases in SAP related expenses, compensation expenses and legal expenses. The increase in selling, general and administrative expenses during the six months ended June 30, 2008 compared to the six months ended June 30, 2007, was the result of increases in SAP related expenses, compensation expenses and legal expenses, offset

 

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by a decrease in advertising expenses. The increase in SAP related expenses during the three and six months ended June 30, 2008 includes $1,512,000 and $4,529,000, respectively, in consulting, data conversion, training and training material expenses incurred as a result of our domestic and a portion of our international SAP computer software implementation in the fourth quarter of 2007 and our continuing SAP computer software implementation of other operational regions in 2008. Compensation expenses, which includes commissions, bonus/incentive related expenses and employee recruiting and relocation expenses, increased 14.0% and 11.7% for the three and six months ended June 30, 2008, respectively, primarily due to an increase in headcount. The increase in compensation expenses for the six months ended June 30, 2008 was also due to decreases in the reversal of bonus/incentive related expenses that were calculated in accordance with the bonus formula under our Economic Value Added (“EVA”) incentive program, offset by decreases in other bonus/incentive related expenses. Legal expenses increased 76.9% and 72.1% for the three and six months ended June 30, 2008, respectively, in connection with pursuing a lawsuit against Payless ShoeSource, Inc., a Missouri corporation, and Payless ShoeShource Inc., a Delaware corporation (collectively, “Payless”) to protect our trademarks and as a result of the court-mandated postponement of this case, which occurred in the first quarter of 2007. Advertising expenses decreased 46.0% for the three months ended June 30, 2008 primarily due to decreases in both domestic and international markets and advertising expenses decreased 18.0% for the six months ended June 30, 2008, primarily due to a decrease in international advertising expenses as part of an effort to reduce costs as the growth in our international business slows, offset slightly by an increase in domestic advertising expenses as part of a strategic effort to increase brand awareness. Corporate expenses of $8,038,000 and $15,653,000 for the three and six months ended June 30, 2008, respectively, compared to $4,500,000 and $8,449,000 for the three and six months ended June 30, 2007, respectively, are included in selling, general and administrative expenses and include expenses such as salaries and related expenses for executive management and support departments such as accounting and treasury, information technology and legal which benefit the entire Company. The increase in corporate expenses during the three and six months ended June 30, 2008 was due to SAP related expenses and legal expenses and, for the six months ended June 30, 2008, a reversal of bonus/incentive expenses incurred for reasons discussed above.

Other Income, Interest and Taxes

Other income for the three and six months ended June 30, 2008 consists of a $30,000,000 settlement payment received on June 30, 2008. On June 24, 2008, the Company entered into a settlement agreement with Payless in connection with our 2004 action filed against Payless in the United States District Court for the Central District of California (Western District), in which we alleged trademark and trade dress infringement, trademark dilution, unfair competition and breach of contract. The settlement agreement provided, among other things, that Payless would pay to us $30 million in cash on or before July 1, 2008 in payment of compensatory damages claimed by us from Payless’ advertising, promotion and sale of certain footwear.

Net interest income was $1,552,000 (1.8% of revenues) and $3,487,000 (1.9% of revenues) for the three and six months ended June 30, 2008, respectively, compared to $2,363,000 (2.3% of revenues) and $4,574,000 (2.0% of revenues) for the three and six months ended June 30, 2007, representing a decrease of $811,000 and $1,087,000 for the three and six months ended June 30, 2008, respectively, compared to the same prior year period. The decrease in net interest income for the three months ended June 30, 2008 was the result of lower average interest rates and average balances and the decrease in net interest income for the six months ended June 30, 2008 was the result of lower average interest rates offset by higher average balances.

Our effective tax rate was 19.5% and 16.4% for the three and six months ended June 30, 2008 compared to 29.8% and 24.1% for the three and six months ended June 30, 2007, respectively. The decrease in the effective tax rate was mainly due to our geographic mix of sales and earnings: international sales have become a larger portion of revenues but our domestic operations were more profitable, due to the settlement payment previously mentioned, during the three and six months ended June 30, 2008. On a quarterly basis, we estimate what our effective tax rate will be for the full calendar year. The estimated annual effective tax rate is then applied to estimated pre-tax income excluding significant or infrequently occurring items, to determine the estimated year-to-date and quarterly tax expense. The income tax effects of infrequent or unusual items are recognized in the quarterly period in which they occur. As the year progresses, we continually refine our estimate based upon actual events and earnings. This continual estimation process periodically results in a change to our expected annual effective tax rate. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date income tax provision equals the estimated annual rate. In addition, starting January 1, 2005, provision has not been made for United States income taxes on earnings of selected subsidiary companies as these are intended to be permanently invested.

Net earnings increased to $26,423,000, or $0.75 per share (diluted earnings per share), for the three months ended June 30, 2008 from $7,659,000, or $0.22 per share (diluted earnings per share), for the three months ended June 30, 2007. Net earnings increased to $33,533,000, or $0.95 per share (diluted earnings per share), for the six months ended June 30, 2008 from $25,656,000, or $0.72 per share (diluted earnings per share), for the six months ended June 30, 2007. Earnings for the three and six months ended June 30, 2008 included the pre-tax settlement of litigation of $30,000,000, described above, or $0.52 per diluted share (after tax).

 

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Backlog

At June 30, 2008 and 2007 total futures orders with start ship dates from July 2008 and 2007 through December 2008 and 2007 were approximately $104,178,000 and $154,131,000, respectively, a decrease of 32.4%. The 32.4% decrease in total futures orders is comprised of a 28.6% decrease in the third quarter 2008 futures orders and a 38.8% decrease in the fourth quarter 2008 futures orders. At June 30, 2008 and 2007, domestic futures orders with start ship dates from July 2008 and 2007 through December 2008 and 2007 were approximately $38,054,000 and $77,194,000, respectively, a decrease of 50.7%. At June 30, 2008 and 2007, international futures orders with start ship dates from July 2008 and 2007 through December 2008 and 2007 were approximately $66,124,000 and $76,937,000, respectively, a decrease of 14.1%. Backlog does not include orders scheduled to be shipped on or prior to the date of determination of backlog. The mix of “futures” and “at-once” orders can vary significantly from quarter to quarter and year to year and therefore “futures” are not necessarily indicative of revenues for subsequent periods. Orders generally may be canceled by customers without financial penalty.

Liquidity and Capital Resources

We experienced net cash inflows of approximately $13,479,000 from our operating activities during the six months ended June 30, 2008 compared to net cash inflows of approximately $20,727,000 from our operating activities during the six months ended June 30, 2007. The decrease in operating cash inflows from the prior year is due primarily to the differences in the amounts of changes in accounts payable and accrued liabilities and accounts receivable, offset by an increase in net earnings and to the differences in the amounts of changes in prepaid expenses and other assets and inventories.

We had net cash outflows from our investing activities for the six months ended June 30, 2008 and 2007 due to the purchase of property, plant and equipment and for the six months ended June 30, 2008, the purchase of trademarks. The investment in property, plant and equipment in 2008 is due to the implementation of SAP information management software for our European operations. During 2008 and over the next few years we will continue our implementation of SAP information management software in our domestic and international operations.

We had net cash outflows from our financing activities for the six months ended June 30, 2008 and 2007 primarily due to the payment of cash dividends and to the purchase of our outstanding stock under our current stock repurchase program, partially offset by proceeds from stock options exercised.

On October 26, 2004, the Board of Directors authorized a stock repurchase program to supplement prior stock repurchase programs, which allows us to repurchase through December 2009, up to 5,000,000 shares of our Class A Common Stock from time to time on the open market, as market conditions warrant. As of June 30, 2008, a maximum of 3,911,289 shares may be repurchased pursuant to the stock repurchase program. We adopted this program because we believe that depending upon the then-array of alternatives, repurchasing our shares can be a good use of excess cash. Currently, we have made purchases under all stock repurchase programs from August 1996 through July 30, 2008 (the day prior to the filing of the Form 10-Q) of 25.5 million shares at an aggregate cost totaling approximately $166,759,000, at an average price of $6.55 per share. See Part II – Other Information, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds for information regarding the number of shares purchased in the three months ended June 30, 2008.

On May 16, 2008, we entered into a Share Purchase and Shareholders’ Rights Agreement by and among Christophe Mortemousque, Palladium and the Company (the “Agreement”) providing for the indirect purchase of 57% of the equity interests of Palladium from its shareholders for a total purchase price of €5.3 million, or approximately $8.4 million, (including a loan of €3.65 million, or approximately $5.8 million). Pursuant to the terms of the Agreement, the Company has also agreed to acquire the remaining 43% of the equity interests of Palladium based on a formula driven by Palladium’s EBITDA for the year ended December 31, 2012. Closing of the 57% equity purchase occurred on July 1, 2008.

No other material capital commitments existed at June 30, 2008. Depending on our future growth rate, funds may be required by operating activities. With continued use of our revolving credit facility and internally generated funds, we believe our present and currently anticipated sources of capital are sufficient to sustain our anticipated capital needs for the remainder of 2008. At June 30, 2008 and December 31, 2007 there was no funded debt. At June 30, 2008 we were in compliance with all relevant covenants under our credit facilities. We did not enter into any off-balance sheet arrangements during the six months ended June 30, 2008 or 2007, nor did we have any off-balance sheet arrangements outstanding at June 30, 2008 or 2007.

Our working capital increased $27,388,000 to $382,714,000 at June 30, 2008 from $355,326,000 at December 31, 2007. Working capital increased during the six months ended June 30, 2008 mainly due to an increase in accounts receivable and a decrease in accounts payable and accrued liabilities.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes from the information previously reported under Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, which Item 7A is hereby incorporated by reference.

 

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s President and Chief Executive Officer and Vice President of Finance and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2008, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s President and Chief Executive Officer along with the Company’s Vice President of Finance and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of June 30, 2008 are effective in ensuring that (i) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the S.E.C.’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

No changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) or 15d-15(d) have come to management’s attention that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings

The Company is, from time to time, a party to litigation which arises in the normal course of its business operations. The Company does not believe that it is presently a party to litigation which will have a material adverse effect on its business or operations.

On June 24, 2008, the Company entered into a settlement agreement with Payless ShoeSource, Inc., a Missouri corporation and Payless ShoeSource, Inc., a Delaware corporation (collectively, “Payless”) in connection with the Company’s 2004 action filed against Payless in the United States District Court for the Central District of California (Western District), in which the Company alleged trademark and trade dress infringement, trademark dilution, unfair competition and breach of contract. The settlement agreement provided, among other things, that Payless would pay to the Company $30 million in cash on or before July 1, 2008 in payment of compensatory damages claimed by the Company from Payless’ advertising, promotion and sale of certain footwear. The Company received this payment on June 30, 2008.

 

Item 1A. Risk Factors

There have been no material changes from the information previously reported under Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, which Item 1A is hereby incorporated by reference.

 

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to purchases made by K•Swiss of K•Swiss Class A Common Stock during the second quarter of 2008:

 

     Total
Number
of Shares
Purchased
   Average
Price
Paid per
Share
   Total Number of
Shares Purchased as
Part of a Publicly
Announced
Program (1)
   Maximum
Number of Shares
that May Yet Be
Purchased Under
the Program (1)

April 1 through April 30, 2008

   —      $ —      —      3,911,289 shares

May 1 through May 31, 2008

   —        —      —      3,911,289 shares

June 1 through June 30, 2008

   —        —      —      3,911,289 shares
               

Total

   —      $ —      —      3,911,289 shares
               

 

(1) In October 2004, the Board of Directors approved a 5,000,000 share repurchase program. This program expires in December 2009.

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. Submission of Matters to a Vote of Security Holders

Certain matters were submitted to a vote of the Company’s stockholders at the Company’s Annual Stockholders Meeting held on May 20, 2008. The results of these matters are detailed in the Form 8-K filed with the S.E.C. on May 21, 2008.

 

Item 5. Other Information

None.

 

Item 6. Exhibits

 

  3.1    Amended and Restated Bylaws of K•Swiss Inc. (incorporated by reference to exhibit 3.1 to the Registrant’s Form 8-K filed with the S.E.C. on October 1, 2004)
  3.2    Amended and Restated Certificate of Incorporation of K•Swiss Inc. (incorporated by reference to exhibit 3.2 to the Registrant’s Form 10-K for fiscal year ended December 31, 2004)
  3.3    Amendment to the Bylaws of K•Swiss Inc. (incorporated by reference to exhibit 3.1 to the Registrant’s Form 8-K filed with the S.E.C. on April 18, 2006)
  3.4    Amendment to the Bylaws of K•Swiss Inc. (incorporated by reference to exhibit 3.1 to the Registrant’s Form 8-K filed with the S.E.C. on December 10, 2007)
  4.1    Certificate of Designations of Class A Common Stock of K•Swiss Inc. (incorporated by reference to exhibit 3.2 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
  4.2    Certificate of Designations of Class B Common Stock of K•Swiss Inc. (incorporated by reference to exhibit 3.3 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
  4.3    Specimen K•Swiss Inc. Class A Common Stock Certificate (incorporated by reference to exhibit 4.1 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
  4.4    Specimen K•Swiss Inc. Class B Common Stock Certificate (incorporated by reference to exhibit 4.2 to the Registrant’s Form S-1 Registration Statement No. 33-34369)

 

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10.1    K•Swiss Inc. 1990 Stock Incentive Plan, as amended through October 28, 2002 (incorporated by reference to exhibit 10.1 to the Registrant’s Form 10-K for the year ended December 31, 2002)
10.2    Form of Amendment No. 1 to K•Swiss Inc. Employee Stock Option Agreement Pursuant to the 1990 Stock Incentive Plan (incorporated by reference to exhibit 10.2 to the Registrant’s Form 10-K for the year ended December 31, 2002)
10.3    K•Swiss Inc. 1999 Stock Incentive Plan, as amended through October 26, 2004 (incorporated by reference to exhibit 4.1 to the Registrant’s Form S-8 with the S.E.C. on February 23, 2005)
10.4    Form of Amendment No. 1 to K•Swiss Inc. Employee Stock Option Agreement Pursuant to the 1999 Stock Incentive Plan (incorporated by reference to exhibit 10.4 to the Registrant’s Form 10-K for the year ended December 31, 2002)
10.5    K•Swiss Inc. Profit Sharing Plan, as amended (incorporated by reference to exhibit 10.3 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
10.6    Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan (incorporated by reference to exhibit 10.35 to the Registrant’s Form 10-K for the fiscal year ended December 31, 1993)
10.7    Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated May 26, 1994 (incorporated by reference to exhibit 10.32 to the Registrant’s Form 10-K for the fiscal year ended December 31, 1994)
10.8    Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated January 1, 2000 (incorporated by reference to exhibit 10.30 to the Registrant’s Form 10-K for the fiscal year ended December 31, 1999)
10.9    Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated January 23, 2002 (incorporated by reference to exhibit 10 to the Registrant’s Form 10-Q for the quarter ended March 31, 2002)
10.10    Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated January 10, 2003 (incorporated by reference to exhibit 10.23 to the Registrant’s Form 10-Q for the quarter ended June 30, 2003)
10.11    Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated October 9, 2003 (incorporated by reference to exhibit 10.11 to the Registrant’s Form 10-Q for the quarter ended June 30, 2004)
10.12    Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated May 23, 2005 (incorporated by reference to exhibit 10.12 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
10.13    Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated June 1, 2005 (incorporated by reference to exhibit 10.13 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
10.14    Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated January 1, 2007 (incorporated by reference to exhibit 10.14 to the Registrant’s Form 10-Q for the quarter ended March 31, 2007)
10.15    Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated December 31, 2007 (incorporated by reference to exhibit 10.15 to the Registrant’s Form 10-K for the year ended December 31, 2007)
10.16    Form of Indemnity Agreement entered into by and between K•Swiss Inc. and directors (incorporated by reference to exhibit 10.4 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
10.17    Employment Agreement between the Registrant and Steven B. Nichols dated as of August 2, 2004 (incorporated by reference to exhibit 10.14 to the Registrant’s Form 10-Q for the quarter ended June 30, 2004)
10.18    Lease Agreement dated March 11, 1997 by and between K•Swiss Inc. and Space Center Mira Loma, Inc. (incorporated by reference to exhibit 10 to the Registrant’s Form 10-Q for the quarter ended March 31, 1997)

 

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10.19    Amendment No. 2 to Lease Agreement entered into on March 11, 1997 between K•Swiss Inc. and Space Center Mira Loma, Inc. dated July 1, 2008
10.20    Loan Agreement dated June 1, 2005, between K•Swiss Inc. and Bank of America (incorporated by reference to exhibit 10.18 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
10.21    Amendment No. 1 to Loan Agreement, dated June 28, 2005, between K•Swiss Inc. and Bank of America (incorporated by reference to exhibit 10.19 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
10.22    Amendment No. 2 to Loan Agreement, dated June 28, 2007, between K•Swiss Inc. and Bank of America (incorporated by reference to exhibit 10.1 to the Registrant’s Form 8-K filed with the S.E.C. on June 29, 2007)
10.23    Amendment No. 3 to Loan Agreement, dated March 28, 2008, between K•Swiss Inc. and Bank of America (incorporated by reference to exhibit 10.1 to Registrant’s Form 8-K filed with the S.E.C. on March 28, 2008)
10.24    K•Swiss Inc. Deferred Compensation Plan, Master Plan Document (incorporated by reference to exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended March 31, 1998)
10.25    K•Swiss Inc. Deferred Compensation Plan, Master Trust Agreement (incorporated by reference to exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended March 31, 1998)
10.26    K•Swiss Inc. Directors’ Deferred Compensation Plan effective December 31, 2007 (incorporated by reference to exhibit 10.24 to the Registrant’s Form 10-K for the year ended December 31, 2007)
10.27    Share Purchase and Shareholders’ Rights Agreement, dated as of May 16, 2008 by and among Christophe Mortemousque, Palladium SAS and K•Swiss Inc. (incorporated by reference to exhibit 10.1 to the Registrant’s Form 8-K filed with the S.E.C. on May 22, 2008)
10.28    Assignment and Assumption Agreement, dated as of March 28, 2008, by and between Palladium SAS and K•Swiss Inc. (incorporated by reference to exhibit to 10.2 to the Registrant’s Form 8-K filed with the S.E.C. on May 22, 2008)
14.1    K•Swiss Inc. Code of Ethics for the Chief Executive Officer, Senior Financial Officers and Board of Directors (incorporated by reference to exhibit 14 to the Registrant’s Form 10-K for the year ended December 31, 2003)
14.2    K•Swiss Inc. Code of Ethics for Directors, Officers and Employees (incorporated by reference to exhibit 14.2 to the Registrant’s Form 10-Q for the quarter ended March 31, 2004)
31.1    Certification of President and Chief Executive Officer Pursuant to Exchange Act Rule 13a-14
31.2    Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14
32    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 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.

 

  K-Swiss Inc.
Date: July 30, 2008   By:  

/s/ George Powlick

    George Powlick,
    Vice President Finance, Chief Operating
    Officer and Chief Financial Officer

 

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EXHIBIT INDEX

 

Exhibit

    
    10.19    Amendment No. 2 to Lease Agreement entered into on March 11, 1997 between K•Swiss Inc. and Space Center Mira Loma, Inc. dated July 1, 2008
    31.1    Certification of President and Chief Executive Officer Pursuant to Exchange Act Rule 13a-14
    31.2    Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14
    32    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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