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 September 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 October 27, 2004:


Class A		25,736,679
Class B		8,530,734

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

K-SWISS INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)


	September 30, 2004			December 31, 2003
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	129,021		$	81,455
Accounts receivable, less allowance for doubtful accounts of $2,074 and $2,079 as of September 30, 2004 and December 31, 2003, respectively		57,855			51,006
Inventories		56,600			73,660
Prepaid expenses and other		6,253			4,760
Deferred taxes		4,717			3,014

Total current assets		254,446			213,895
PROPERTY, PLANT AND EQUIPMENT, net		8,192			8,596
OTHER ASSETS
Intangible assets (Note 5)		4,700			7,301
Other		5,036			4,838

		9,736			12,139

	$	272,374		$	234,630

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Trade accounts payable	$	19,160		$	19,447
Accrued income taxes		563			347
Accrued liabilities		24,757			16,715

Total current liabilities		44,480			36,509
OTHER LIABILITIES		14,423			15,234
DEFERRED TAXES		3,936			3,360
STOCKHOLDERS’ EQUITY (Notes 7 and 8)
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; 27,068,955 shares issued, 25,894,729 shares outstanding and 1,174,226 shares held in treasury at September 30, 2004 and 26,755,362 shares issued and outstanding at December 31, 2003		271			268
Class B – authorized 18,000,000 shares of $0.01 par value; issued and outstanding 8,530,734 shares at September 30, 2004 and 8,682,734 shares at December 31, 2003		85			87
Additional paid-in capital		32,541			31,059
Treasury Stock		(23,629	)		—
Retained earnings		196,449			143,427
Accumulated other comprehensive earnings -
Foreign currency translation		3,950			4,686
Net loss on hedge derivatives		(132	)		—

		209,535			179,527

	$	272,374		$	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)


	Nine Months Ended September 30,						Three Months Ended September 30,
	2004			2003			2004			2003
Revenues	$	395,723		$	348,730		$	135,799		$	121,292
Cost of goods sold		214,455			190,167			74,050			68,246

Gross profit		181,268			158,563			61,749			53,046
Selling, general and administrative expenses		93,920			82,725			31,406			27,545

Operating profit		87,348			75,838			30,343			25,501
Interest income, net		552			451			252			87

Earnings from continuing operations before income taxes		87,900			76,289			30,595			25,588
Income tax expense (Note 9)		32,263			30,059			9,914			10,084

Earnings from continuing operations		55,637			46,230			20,681			15,504
Loss from discontinued operations, less applicable income tax benefit of $3,082 and $253 for the nine and three months ended September 30, 2003, respectively (Note 2)		—			(4,861	)		—			(398	)

NET EARNINGS	$	55,637		$	41,369		$	20,681		$	15,106

Earnings per common share (Note 3)
Basic:
Earnings from continuing operations	$	1.59		$	1.31		$	0.59		$	0.44
Loss from discontinued operations		—			(0.14	)		—			(0.01	)

Net Earnings	$	1.59		$	1.17		$	0.59		$	0.43

Diluted:
Earnings from continuing operations	$	1.52		$	1.22		$	0.57		$	0.41
Loss from discontinued operations		—			(0.13	)		—			(0.01	)

Net Earnings	$	1.52		$	1.09		$	0.57		$	0.40

Dividends declared per common share	$	0.075		$	0.02		$	0.025		$	0.01

Net Earnings	$	55,637		$	41,369		$	20,681		$	15,106
Other comprehensive (loss) earnings –
Foreign currency translation adjustments, net of income taxes of $0 and $0 for the nine months ended September 30, 2004 and 2003, respectively and $0 and $0 for the three months ended September 30, 2004 and 2003, respectively		(736	)		1,983			258			76
Deferred loss on hedge derivatives, net of income tax benefit of $85 and $0 for the nine months ended September 30, 2004 and 2003, respectively and $85 and $0 for the three months ended September 30, 2004 and 2003, respectively		(132	)		—			(132	)		—

Comprehensive earnings	$	54,769		$	43,352		$	20,807		$	15,182

The accompanying notes are an integral part of these statements.

K-SWISS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2004			2003
Net cash provided by operating activities	$	74,731		$	20,067

Cash flows from investing activities:
Purchase of property, plant and equipment		(900	)		(1,033	)
Proceeds from disposal of property, plant and equipment		9			—

Net cash used in investing activities		(891	)		(1,033	)

Cash flows from financing activities:
Purchase of treasury stock		(23,629	)		(18,674	)
Payment of dividends		(2,615	)		(706	)
Proceeds from stock options exercised		360			878

Net cash used in financing activities		(25,884	)		(18,502	)

Effect of exchange rate changes on cash		(390	)		614

Net increase in cash and cash equivalents		47,566			1,146
Cash and cash equivalents at beginning of period		81,455			67,593

Cash and cash equivalents at end of period	$	129,021		$	68,739

Supplemental disclosure of cash flow information:

Cash paid during the period for:
Interest	$	206		$	22
Income taxes	$	34,276		$	26,860

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 September 30, 2004 and the results of its operations and its cash flows for the nine and three months ended September 30, 2004 and 2003 have been included for the periods presented. The results of operations and cash flows for the nine and three months ended September 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 nine and three months ended September 30, 2003 presentation to conform to the nine and three months ended September 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 nine and three months ended September 30, 2003 are as follows (in thousands):


	Nine Months Ended September 30, 2003			Three Months Ended September 30, 2003
Revenues	$	602		$	276
Cost of goods sold		6,031			496

Gross loss		(5,429	)		(220	)
Selling, general and administrative expenses		2,339			381

Operating loss		(7,768	)		(601	)
Interest expense, net		175			50
Income tax benefit		(3,082	)		(253	)

Loss from discontinued operations	$	(4,861	)	$	(398	)

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):