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 March 31, 2003
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, CA |
91361 | |
| (Address of principal executive offices) |
(Zip code) |
818-706-5100
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
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 April 22, 2003:
| Class A |
12,673,859 | |
| Class B |
4,920,467 |
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
K-SWISS INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
| March 31, 2003 |
December 31, 2002 |
|||||||
| (Unaudited) |
||||||||
| ASSETS | ||||||||
| CURRENT ASSETS |
||||||||
| Cash and cash equivalents |
$ |
47,785 |
|
$ |
67,593 |
| ||
| Accounts receivable, less allowance for doubtful accounts of $1,779 and $1,479 as of March 31, 2003 and December 31, 2002, respectively |
|
78,636 |
|
|
37,048 |
| ||
| Inventories |
|
45,628 |
|
|
53,227 |
| ||
| Prepaid expenses and other |
|
2,022 |
|
|
3,497 |
| ||
| Deferred taxes |
|
3,667 |
|
|
2,428 |
| ||
| Total current assets |
|
177,738 |
|
|
163,793 |
| ||
| PROPERTY, PLANT AND EQUIPMENT, net |
|
8,535 |
|
|
8,444 |
| ||
| OTHER ASSETS |
||||||||
| Intangible assets |
|
7,295 |
|
|
8,107 |
| ||
| Other |
|
4,260 |
|
|
3,539 |
| ||
|
|
11,555 |
|
|
11,646 |
| |||
| $ |
197,828 |
|
$ |
183,883 |
| |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES |
||||||||
| Trade accounts payable |
$ |
13,269 |
|
$ |
13,936 |
| ||
| Accrued income taxes |
|
8,460 |
|
|
348 |
| ||
| Accrued liabilities |
|
19,375 |
|
|
16,591 |
| ||
| Total current liabilities |
|
41,104 |
|
|
30,875 |
| ||
| OTHER LIABILITIES |
|
7,107 |
|
|
7,408 |
| ||
| DEFERRED TAXES |
|
6,408 |
|
|
5,807 |
| ||
| STOCKHOLDERS’ EQUITY |
||||||||
| Preferred Stock-authorized 2,000,000 shares of $.01 par value; none issued and outstanding |
|
— |
|
|
— |
| ||
| Common Stock: |
||||||||
| Class A-authorized 36,000,000 shares of $.01 par value; 23,754,616 shares issued, 12,471,052 shares outstanding and 11,283,564 shares held in treasury at March 31, 2003 and 23,641,951 shares issued, 12,833,787 shares outstanding and 10,808,164 shares held in treasury at December 31, 2002 |
|
238 |
|
|
236 |
| ||
| Class B-authorized 10,000,000 shares of $.01 par value; issued and outstanding 5,142,173 shares at March 31, 2003 and 5,242,173 shares at December 31, 2002 |
|
51 |
|
|
52 |
| ||
| Additional paid-in capital |
|
48,003 |
|
|
47,902 |
| ||
| Treasury stock |
|
(100,199 |
) |
|
(89,135 |
) | ||
| Retained earnings |
|
193,786 |
|
|
180,318 |
| ||
| Accumulated other comprehensive earnings— |
||||||||
| Foreign currency translation |
|
1,330 |
|
|
420 |
| ||
|
|
143,209 |
|
|
139,793 |
| |||
| $ |
197,828 |
|
$ |
183,883 |
| |||
The accompanying notes are an integral part of these statements.
2
K-SWISS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS
(Amounts in thousands, except per share amounts)
(Unaudited)
| Three Months Ended March 31, |
|||||||
| 2003 |
2002 |
||||||
| Revenues |
$ |
115,933 |
$ |
80,671 |
| ||
| Cost of goods sold |
|
65,462 |
|
44,640 |
| ||
| Gross profit |
|
50,471 |
|
36,031 |
| ||
| Selling, general and administrative expenses |
|
28,035 |
|
20,001 |
| ||
| Operating profit |
|
22,436 |
|
16,030 |
| ||
| Interest income, net |
|
116 |
|
197 |
| ||
| Earnings before income taxes |
|
22,552 |
|
16,227 |
| ||
| Income tax expense |
|
8,908 |
|
6,559 |
| ||
| NET EARNINGS |
$ |
13,644 |
$ |
9,668 |
| ||
| Earnings per common share (Note 4) |
|||||||
| Basic |
$ |
0.77 |
$ |
0.52 |
| ||
| Diluted |
$ |
0.72 |
$ |
0.49 |
| ||
| Net Earnings |
$ |
13,644 |
$ |
9,668 |
| ||
| Other comprehensive earnings (loss), net of tax— |
|||||||
| Foreign currency translation adjustments |
|
910 |
|
(38 |
) | ||
| Comprehensive net earnings |
$ |
14,554 |
$ |
9,630 |
| ||
The accompanying notes are an integral part of these statements.
3
K-SWISS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Net cash (used in) provided by operating activities |
$ |
(8,545 |
) |
$ |
4,611 |
| ||
| Cash flows from investing activities: |
||||||||
| Purchase of property, plant and equipment |
|
(508 |
) |
|
(303 |
) | ||
| Net cash used in investing activities |
|
(508 |
) |
|
(303 |
) | ||
| Cash flows from financing activities: |
||||||||
| Net borrowings under bank lines of credit |
|
— |
|
|
568 |
| ||
| Purchase of treasury stock |
|
(11,064 |
) |
|
(1,699 |
) | ||
| Payment of dividends |
|
(176 |
) |
|
(139 |
) | ||
| Proceeds from stock options exercised |
|
24 |
|
|
225 |
| ||
| Net cash used in financing activities |
|
(11,216 |
) |
|
(1,045 |
) | ||
| Effect of exchange rate changes on cash |
|
461 |
|
|
(36 |
) | ||
| Net (decrease) increase in cash and cash equivalents |
|
(19,808 |
) |
|
3,227 |
| ||
| Cash and cash equivalents at beginning of period |
|
67,593 |
|
|
61,579 |
| ||
| Cash and cash equivalents at end of period |
$ |
47,785 |
|
$ |
64,806 |
| ||
| Supplemental disclosure of cash flow information: |
||||||||
| Non-cash investing and financing activities: |
||||||||
| Income tax benefit of options exercised |
$ |
39 |
|
$ |
398 |
| ||
| Cash paid during the period for: |
||||||||
| Interest |
$ |
1 |
|
$ |
18 |
| ||
| Income taxes |
$ |
409 |
|
$ |
131 |
| ||
The accompanying notes are an integral part of these statements.
4
K-SWISS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| 1. | 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 March 31, 2003 and the results of its operations and its cash flows for the three months ended March 31, 2003 and 2002, have been included for the periods presented. The results of operations and cash flows for the three months ended March 31, 2003 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, 2002 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. These consolidated financial statements should be read in combination with the audited consolidated financial statements and notes thereto for the year ended December 31, 2002. Certain reclassifications have been made in the three months ended March 31, 2002 presentation to conform to the three months ended March 31, 2003 presentation. |
| 2. | In June 2001, the Company was notified by counsel representing the trustee appointed to oversee the liquidation of assets of a previous customer of the Company, which filed for bankruptcy protection in 1999, that they are seeking reimbursement of all payments made to the Company during the 90 day period prior to the bankruptcy filing. The aggregate amount of these payments, which the trustee’s counsel is claiming to be preferential transfers, is approximately $4,315,000, while the trustee is seeking the court’s permission to add a further $600,000 in claimed preferential transfers. The Company believes these payments were received in the ordinary course of business and that it has a meritorious defense against the trustee’s claims. In November 2001, the trustee filed suit against K-Swiss (and other creditors) to recover payments made to K-Swiss during the 90 days prior to the customer’s bankruptcy filing. The Company continues to believe that it has a meritorious “ordinary course of business” defense against these claims and will assert that defense in detail at the appropriate time in the litigation. No provision for this claim has been made in the Company’s financial statements as of March 31, 2003. |
| 3. | In response to K-Swiss’ opposition to Swiss Army Brands, Inc.’s registration and intended use of Swiss Army as a trademark on footwear, Swiss Army Brands has petitioned for cancellation of the Company’s U.S. registrations for the K-Swiss trademark. The Company believes it has meritorious defenses to the petitions, but the outcome cannot be predicted at this time. An unfavorable decision could have a material adverse impact on the Company. |
| 4. | The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands): |
| Three Months Ended March 31, |
||||||||||||
| 2003 |
2002 |
|||||||||||
| Shares |
Per Share Amount |
Shares |
Per Share Amount |
|||||||||
| Basic EPS |
17,781 |
$ |
0.77 |
|
18,485 |
$ |
0.52 |
| ||||
| Effect of Dilutive Stock Options |
1,130 |
|
(0.05 |
) |
1,377 |
|
(0.03 |
) | ||||
| Diluted EPS |
18,911 |
$ |
0.72 |
|
19,862 |
$ |
0.49 |
| ||||
The following options were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares:
| 2003 |
2002 | |||||
| Options to purchase shares of common stock (in thousands) |
|
28 |
|
2 | ||
| Exercise prices |
||||||