K SWISS INC - 10-Q Quarterly Report

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, 2004

¨	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 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 July 27, 2004:


Class A		26,333,756
Class B		8,530,734

PART I - FINANCIAL INFORMATION

ITEM

1. FINANCIAL STATEMENTS

K-SWISS INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)


	June 30, 2004			December 31, 2003
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	88,983		$	81,455
Accounts receivable, less allowance for doubtful accounts of $2,017 and $2,079 as of June 30, 2004 and December 31, 2003, respectively		73,253			51,006
Inventories		72,655			73,660
Prepaid expenses and other		2,148			4,760
Deferred taxes		3,947			3,014

Total current assets		240,986			213,895
PROPERTY, PLANT AND EQUIPMENT, net		8,346			8,596
OTHER ASSETS
Intangible assets (Note 5)		5,746			7,301
Other		4,996			4,838

		10,742			12,139

	$	260,074		$	234,630

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Trade accounts payable	$	23,849		$	19,447
Accrued income taxes		1,412			347
Accrued liabilities		17,874			16,715

Total current liabilities		43,135			36,509
OTHER LIABILITIES		14,146			15,234
DEFERRED TAXES		4,265			3,360
STOCKHOLDERS’ EQUITY (Note 7)
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; 27,027,289 shares issued, 26,323,089 shares outstanding and 704,200 shares held in treasury at June 30, 2004 and 26,755,362 shares issued and outstanding at December 31, 2003		270			268
Class B – authorized 18,000,000 shares of $0.01 par value; issued and outstanding 8,530,734 shares at June 30, 2004 and 8,682,734 shares at December 31, 2003		85			87
Additional paid-in capital		32,270			31,059
Treasury Stock		(14,418	)		—
Retained earnings		176,629			143,427
Accumulated other comprehensive earnings -
Foreign currency translation		3,692			4,686

		198,528			179,527

	$	260,074		$	234,630

The accompanying notes are an integral part of these statements.

K-SWISS INC.

CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE EARNINGS

(Amounts in thousands, except per share amounts)

(Unaudited)


	Six Months Ended June 30,						Three Months Ended June 30,
	2004			2003			2004			2003
Revenues	$	259,924		$	227,438		$	107,904		$	111,629
Cost of goods sold		140,405			121,921			58,151			60,328

Gross profit		119,519			105,517			49,753			51,301
Selling, general and administrative expenses		62,514			55,180			28,307			28,649

Operating profit		57,005			50,337			21,446			22,652
Interest income, net		300			364			173			177

Earnings from continuing operations before income taxes		57,305			50,701			21,619			22,829
Income tax expense		22,349			19,975			8,431			9,003

Earnings from continuing operations		34,956			30,726			13,188			13,826
Loss from discontinued operations, less applicable income tax benefit of $2,829 and $765 for the six and three months ended June 30, 2003, respectively (Note 2)		—			(4,463	)		—			(1,207	)

NET EARNINGS	$	34,956		$	26,263		$	13,188		$	12,619

Earnings per common share (Note 3)
Basic:
Earnings from continuing operations	$	0.99		$	0.87		$	0.38		$	0.39
Loss from discontinued operations		—			(0.13	)		—			(0.03	)

Net Earnings	$	0.99		$	0.74		$	0.38		$	0.36

Diluted:
Earnings from continuing operations	$	0.93		$	0.81		$	0.35		$	0.36
Loss from discontinued operations		—			(0.12	)		—			(0.03	)

Net Earnings	$	0.93		$	0.69		$	0.35		$	0.33

Dividends declared per common share	$	0.05		$	0.01		$	0.025		$	0.005

Net Earnings	$	34,956		$	26,263		$	13,188		$	12,619
Other comprehensive earnings (loss) –
Foreign currency translation adjustments, net of income taxes of $0 and $0 for the six months ended June 30, 2004 and 2003, respectively and $0 and $0 for the three months ended June 30, 2004 and 2003, respectively		(994	)		1,907			(14	)		997

Comprehensive earnings	$	33,962		$	28,170		$	13,174		$	13,616

The accompanying notes are an integral part of these statements.

K-SWISS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


	Six Months Ended June 30,
	2004			2003
Net cash provided by (used in) operating activities	$	24,609		$	(3,321	)

Cash flows from investing activities:
Purchase of property, plant and equipment		(630	)		(771	)

Net cash used in investing activities		(630	)		(771	)

Cash flows from financing activities:
Purchase of treasury stock		(14,418	)		(12,260	)
Payment of dividends		(1,754	)		(353	)
Proceeds from stock options exercised		252			345

Net cash used in financing activities		(15,920	)		(12,268	)

Effect of exchange rate changes on cash		(531	)		493

Net increase (decrease) in cash and cash equivalents		7,528			(15,867	)
Cash and cash equivalents at beginning of period		81,455			67,593

Cash and cash equivalents at end of period	$	88,983		$	51,726

Supplemental disclosure of cash flow information:

Cash paid during the period for:
Interest	$	197		$	19
Income taxes	$	17,873		$	10,942

The accompanying notes are an integral part of these statements.

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, 2004 and the results of its operations and its cash flows for the six and three months ended June 30, 2004 and 2003 have been included for the periods presented. The results of operations and cash flows for the six and three months ended June 30, 2004 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, 2003 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, 2003. Certain reclassifications have been made in the six and three months ended June 30, 2003 presentation to conform to the six and three months ended June 30, 2004 presentation.

2.	National Geographic

In the fourth quarter of 2003, the Company reached an agreement with National Geographic to terminate its licensing agreement for $2.0 million. Operations of the National Geographic brand have been accounted for and shown as a discontinued operation in the accompanying financial information. The operations for National Geographic for the six and three months ended June 30, 2003 are as follows (in thousands):


	Six Months Ended June 30, 2003			Three Months Ended June 30, 2003
Revenues	$	326		$	202
Cost of goods sold		5,535			1,666

Gross loss		(5,209	)		(1,464	)
Selling, general and administrative expenses		1,958			454

Operating loss		(7,167	)		(1,918	)
Interest expense, net		125			54
Income tax benefit		(2,829	)		(765	)

Loss from discontinued operations	$	(4,463	)	$	(1,207	)

3.	Earnings per Share

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

Six Months Ended June 30,

Three Months Ended June 30,

2004