<PAGE>
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 June 30, 1999
-------------
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
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K-SWISS INC.
------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-4265988
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
31248 Oak Crest Drive, Westlake Village, CA 91361
- ------------------------------------------- -----
(Address of principal executive offices) (Zip code)
</TABLE>
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
----- -----
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 20, 1999:
Class A 8,236,339
Class B 3,018,978
1
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------
K-SWISS INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 45,509 $ 37,360
Accounts receivable, less allowance for doubtful
accounts of $1,204 and $825 as of June 30, 1999
and December 31, 1998, respectively 45,885 26,478
Inventories 47,198 33,535
Prepaid expenses and other 1,128 2,883
Deferred taxes 1,286 1,746
-------- --------
Total current assets 141,006 102,002
PROPERTY, PLANT AND EQUIPMENT, net 8,536 8,009
OTHER ASSETS
Intangible assets 4,292 4,429
Other 1,754 1,025
-------- --------
6,046 5,454
-------- --------
$155,588 $115,465
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C> <C>
Bank lines of credit $ 318 $ 155
Current maturities of subordinated debentures 500 500
Trade accounts payable 12,844 7,783
Accrued liabilities 14,207 10,265
-------- --------
Total current liabilities 27,869 18,703
OTHER LIABILITIES 8,070 5,267
DEFERRED TAXES 7,711 8,227
STOCKHOLDERS' EQUITY
Preferred Stock-authorized 2,000,000 shares of
$.01 par value; none issued and outstanding - -
Common Stock:
Class A-authorized 18,000,000 shares of $.01 par value;
10,995,271 shares issued, 8,276,339 shares outstanding and
2,718,932 shares held in treasury at June 30, 1999 and
9,832,728 shares issued, 7,313,796 shares outstanding and
2,518,932 shares held in treasury at December 31, 1998 110 98
Class B-authorized 10,000,000 shares of $.01 par value; issued
and outstanding 3,018,978 shares at June 30, 1999 and
3,426,556 shares at December 31, 1998 30 34
Additional paid-in capital 40,487 25,830
Treasury stock (23,405) (17,760)
Retained earnings 95,188 75,500
Accumulated other Comprehensive Income -
Foreign currency translation (472) (434)
-------- --------
111,938 83,268
-------- --------
$155,588 $115,465
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
K-SWISS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- -----------------
1999 1998 1999 1998
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $155,750 $83,289 $67,173 $41,015
Cost of goods sold 87,082 48,543 36,880 23,415
-------- ------- ------- -------
Gross profit 68,668 34,746 30,293 17,600
Selling, general and administrative
expenses 36,019 25,987 19,394 14,374
-------- ------- ------- -------
Operating profit 32,649 8,759 10,899 3,226
Interest income, net 618 899 345 466
-------- ------- ------- -------
Earnings before income taxes 33,267 9,658 11,244 3,692
Income tax expense 13,245 3,858 4,508 1,437
-------- ------- ------- -------
NET EARNINGS $ 20,022 $ 5,800 $ 6,736 $ 2,255
======== ======= ======= =======
Earnings per common share (Note 3)
Basic $ 1.83 $ .53 $ .61 $ .21
======== ======= ======= =======
Diluted $ 1.75 $ .51 $ .58 $ .20
======== ======= ======= =======
Net earnings $ 20,022 $ 5,800 $ 6,736 $ 2,255
Other comprehensive (loss) income, net of tax -
Foreign currency translation adjustments (38) (122) 20 (92)
-------- ------- ------- -------
Comprehensive net earnings $ 19,984 $ 5,678 $ 6,756 $ 2,163
======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
K-SWISS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1999 1998
------- -------
<S> <C> <C>
Net cash provided by operating activities $ 9,347 $ 4,475
Cash flows from investing activities:
Proceeds from the maturity of investment securities - 3,491
Purchase of property, plant and equipment (1,101) (3,194)
Proceeds from sale of property 23 2,250
------- -------
Net cash (used in) provided by investing activities (1,078) 2,547
Cash flows from financing activities:
Net borrowings (repayments) under bank lines of credit 172 (433)
Purchase of treasury stock (5,645) (2,832)
Proceeds from stock options exercised 5,731 48
Payment of dividends (334) (218)
------- -------
Net cash used in financing activities (76) (3,435)
Effect of exchange rate changes on cash (44) (123)
------- -------
Net increase in cash and cash equivalents 8,149 3,464
Cash and cash equivalents at beginning of period 37,360 36,123
------- -------
Cash and cash equivalents at end of period $45,509 $39,587
======= =======
Supplemental disclosure of cash flow information:
Non-cash investing and financing activities:
Income tax benefit of options exercised $ 8,932 $ 19
Cash paid during the period for:
Interest $ 54 $ 63
Income taxes $ 2,027 $ 2,660
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
K-SWISS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the consolidated financial
position of K-Swiss Inc. (the "Company") as of June 30, 1999 and the results
of its operations and its cash flows for the six and three months ended June
30, 1999 and 1998. The results of operations and cash flows for the six and
three months ended June 30, 1999 are not necessarily indicative of the results
to be expected for any other interim period or the full year. These
consolidated financial statements should be read in combination with the
audited consolidated financial statements and notes thereto for the year ended
December 31, 1998.
2.The federal income tax returns of the Company for the years ended 1990, 1991
and 1992 are under examination by the Internal Revenue Service ("IRS"). In May
1998, the IRS issued its final report proposing additional taxes of an
aggregate of approximately $1,561,000 plus penalties and interest for these
years. The Company is protesting the IRS assessment. Also, the federal income
tax returns of the Company for the years ended 1993, 1995 and 1996 are
currently under examination by the IRS. The IRS has issued a preliminary
examination report covering the 1993 fiscal year proposing adjustments to
income of approximately $3,426,000 for this year. Although no assurance can be
given regarding the outcome of such examinations, the Company believes that
any taxes which might become payable as a result of these examinations would
not result in additional expense recognized in the financial statements other
than interest and penalties, if any, as the Company has recorded deferred
income taxes on the untaxed portion of unremitted earnings of a foreign
subsidiary. Therefore, management believes that resolution of the IRS
examinations should not have a material adverse impact on the Company's
financial position and results of operations.
3.The following is a reconciliation of the number of shares (denominator) used
in the basic and diluted earnings per share computations (shares in
thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------- ---------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
Per Per Per Per
Share Share Share Share
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS 10,970 $1.83 10,970 $ .53 11,113 $ .61 10,894 $ .21
Effect of dilutive
stock options 484 (.08) 450 (.02) 509 (.03) 495 (.01)
------ ------ ------ ------ ------ ------ ------ ------
Diluted EPS 11,454 $1.75 11,420 $ .51 11,622 $ .58 11,389 $ .20
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
--------------- ---------------
1998 1998
--------------- ---------------
<S> <C> <C>
Options to purchase shares
of common stock (in thousands) 121 121
Exercise prices $10.63 - $11.50 $10.63 - $11.50
Expiration dates August 2001 - August 2001 -
February 2005 February 2005
</TABLE>
5
<PAGE>
4.The Company's predominant business is the design, development and distribution
of athletic footwear. The Company is organized into three geographic regions:
the United States, Europe and other international operations. The following
tables summarize segment information (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- -----------------------
1999 1998 1999 1998
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Revenues from unrelated entities:
United States $144,762 $75,205 $63,298 $ 37,046
Europe 7,267 5,626 1,830 2,569
Other International 3,721 2,458 2,045 1,400
-------- ------- ------- --------
$155,750 $83,289 $67,173 $ 41,015
======== ======= ======= ========
Inter-geographic revenues:
United States $ 2,445 $ 1,424 $ 1,017 $ 669
Europe 1,803 1,297 662 695
Other International 2,664 2,031 1,500 735
-------- ------- ------- --------
$ 6,912 $ 4,752 $ 3,179 $ 2,099
======== ======= ======= ========
Total revenues:
United States $147,207 $76,629 $64,315 $ 37,715
Europe 9,070 6,923 2,492 3,264
Other International 6,385 4,489 3,545 2,135
Less inter-geographic revenues (6,912) (4,752) (3,179) (2,099)
-------- ------- ------- --------
$155,750 $83,289 $67,173 $ 41,015
======== ======= ======= ========
Operating profit (loss):
United States $ 36,599 $13,432 $12,014 $ 5,219
Europe (46) (375) (555) (240)
Other International 2,776 207 1,442 239
Less corporate expenses and
Eliminations (6,680) (4,505) (2,002) (1,992)
-------- ------- ------- --------
$ 32,649 $ 8,759 $10,899 $ 3,226
======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- ---------
<S> <C> <C>
Identifiable assets:
United States $101,114 $ 67,487
Europe 8,227 6,299
Other International 15,828 15,720
Corporate assets and
eliminations (1) 30,419 25,959
-------- --------
$ 155,588 $115,465
========= ========
</TABLE>
(1) Corporate assets include cash and cash equivalents, investments and
intangible assets.
6
<PAGE>
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 the Company or its
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 the Company files 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 (including the current Asian economic crisis); the size and growth of
the overall athletic footwear and apparel markets; the size of the Company's
competitors; intense competition among designers, marketers, distributors and
sellers of athletic footwear and apparel for consumers and endorsers;
demographic changes; changes in consumer preferences; popularity of particular
designs, categories of products, and sports; seasonal and geographic demand for
the Company's products; the size, timing and mix of purchases of the Company's
products; 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; the ability of the Company to continue, manage or forecast its growth
and inventories; new product development and commercialization; the ability to
secure and protect trademarks, patents, and other intellectual property;
performance and reliability of products; customer service; year 2000 compliance
issues; adverse publicity; the loss of significant customers or suppliers;
dependence on distributors; business disruptions; increased costs of freight and
transportation to meet delivery deadlines; changes in business strategy or
development plans; general risks associated with doing business outside the
United States, including, without limitation, import duties, tariffs, quotas and
political and economic instability; changes in government regulations; liability
and other claims asserted against the Company; the ability to attract and retain
qualified personnel; and other factors referenced or incorporated by reference
in this report and other reports.
The Company operates in a very competitive and rapidly changing
environment. New risk factors can arise and it is not possible for management to
predict all such risk factors, nor can it assess the impact of all such risk
factors on the Company's business or the extent to which any factor, or
combination or factors, may cause 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 the Company does, from time to
time, communicate with securities analysts, it is against the Company's policy
to disclose to them any material non-public information or other confidential
commercial information. Accordingly, investors should not assume that the
Company agrees with any statement or report issued by any analyst irrespective
of the content of the statement or report. Furthermore, the Company has 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 the
responsibility of the Company.
7
<PAGE>
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.
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED JUNE 30 ENDED JUNE 30,
-------------- --------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 55.9 58.3 54.9 57.1
Gross profit 44.1 41.7 45.1 42.9
Selling, general and administrative
expenses 23.1 31.2 28.9 35.0
Interest income, net 0.4 1.1 0.5 1.1
Earnings before income taxes 21.4 11.6 16.7 9.0
Income tax expense 8.5 4.6 6.7 3.5
Net earnings 12.9 7.0 10.0 5.5
</TABLE>
Revenues increased to $67,173,000 for the quarter ended June 30, 1999 from
$41,015,000 for the quarter ended June 30, 1998, an increase of $26,158,000 or
63.8%. Revenues increased to $155,750,000 for the six months ended June 30, 1999
from $83,289,000 for the six months ended June 30, 1998, an increase of
$72,461,000 or 87.0%. The increases for the quarter and six months ended June
30, 1999 were the result of an increase in the volume of footwear sold and
higher average wholesale prices per pair. The volume of footwear sold increased
to 2,540,000 and 5,732,000 pair for the quarter and six months ended June 30,
1999 from 1,619,000 and 3,288,000 pair for the quarter and six months ended June
30, 1998. The increase in the volume of footwear sold for the quarter ended June
30, 1999 was primarily the result of increased sales of the Classic and
children's categories of shoes of 63.3% and 49.0%, respectively. The average
wholesale price per pair increased to $25.39 and $25.87 for the quarter and six
months ended June 30, 1999 from $23.94 and $24.25 for the quarter and six months
ended June 30, 1998, increases of 6.1% and 6.7%, respectively. The increase in
the average wholesale price per pair for the quarter and six months ended June
30, 1999, is primarily attributable to the introduction of new styles in the
Classic category at higher average wholesale prices.
Domestic revenues increased 71.3% to $62,913,000 for the quarter ended June 30,
1999 from $36,717,000 for the quarter ended June 30, 1998. Domestic revenues
increased 92.5% to $143,900,000 for the six months ended June 30, 1999 from
$74,749,000 for the six months ended June 30, 1998. International revenues
decreased to $4,260,000 for the quarter ended June 30, 1999 from $4,298,000 for
the quarter ended June 30, 1998. International revenues increased 38.8% to
$11,850,000 for the six months ended June 30, 1999 from $8,540,000 for the six
months ended June 30, 1998. The increase in international revenues for the six
months ended June 30, 1999 was due to increases in most of the Company's
international markets. International revenues, as a percentage of total
revenues, decreased to 6.3% and 7.6% for the quarter and six months ended June
30, 1999 as compared with 10.5% and 10.3% for the quarter and six months ended
June 30, 1998.
Gross profit margins, as a percentage of revenues, increased to 45.1% for the
quarter ended June 30, 1999, from 42.9% for the quarter ended June 30, 1998.
Gross profit margins, as a percentage of revenues, increased to 44.1% from 41.7%
for the six months ended June 30, 1999 and 1998, respectively. Gross profit
margins increased primarily due to changes in the geographic and product mix of
sales as well as operating efficiencies in the Company's sourcing operations due
to higher contract manufacturing volume.
Selling, general and administrative expenses increased to $19,394,000 (28.9% of
revenues) and $36,019,000 (23.1% of revenues) for the quarter and six months
ended June 30, 1999, respectively, from $14,374,000 (35.0% of revenues) and
$25,987,000 (31.2% of revenues) for the quarter and six months ended June 30,
1998, respectively, increases of $5,020,000 and $10,032,000 or 34.9% and 38.6%,
respectively. The increases in these expenses for the quarter and six months
ended June 30, 1999 were the result of increases in advertising costs, salaries
and commissions as well as an increase in the expenses related to the provision
for bad debts.
Net interest income was $345,000 (0.5% of revenues) and $618,000 (0.4% of
revenues) for the quarter and six months ended June 30, 1999, respectively,
compared to $466,000 (1.1% of revenues) and $899,000 (1.1% of revenues) for the
quarter and six months ended June 30, 1998, respectively, decreases of $121,000
and $281,000, respectively. The decrease in net interest income was primarily
due to lower average balances and rates for the quarter and six months ended
June 30, 1999 as compared to the quarter and six months ended June 30, 1998.
8
<PAGE>
The Company's effective tax rate decreased to 39.8% of earnings before income
tax from 39.9% for the six months ended June 30, 1999 and 1998, respectively.
The $8,932,000 income tax benefit of options exercised for the six months ended
June 30, 1999 was credited to additional paid-in capital and therefore did not
impact the effective tax rate.
Net earnings increased 198.7% to $6,736,000 for the quarter ended June 30, 1999
from $2,255,000 for the quarter ended June 30, 1998. Net earnings increased
245.2% to $20,022,000 for the six months ended June 30, 1999 from $5,800,000 for
the six months ended June 30, 1998.
At June 30, 1999 and 1998, domestic futures orders with start ship dates from
July through December 1999 and 1998 were approximately $115,313,000 and
$54,527,000, respectively, an increase of 111.5%. At June 30, 1999 and 1998,
international futures orders with start ship dates from July through December
1999 and 1998 were approximately $6,514,000 and $5,349,000, respectively, an
increase of 21.8%. At June 30, 1999 and 1998 total futures orders with start
ship dates from July through December 1999 and 1998 were approximately
$121,827,000 and $59,876,000, respectively, an increase of 103.5%. The 103.5%
increase in total futures orders is comprised of a 131.0% increase in the third
quarter futures orders and a 70.5% increase in the fourth quarter futures
orders. "Backlog", as of any date, represents orders scheduled to be shipped
within the next six months. Backlog does not include orders scheduled to be
shipped on or prior to the date of determination of backlog. These orders are
not necessarily indicative of revenues for subsequent periods because: (1) the
mix of "futures" and "at-once" orders can vary significantly from quarter to
quarter and year to year and (2) the rate of customer order cancellations can
also vary from quarter to quarter and year to year.
Liquidity and Capital Resources
The Company generated cash of $9,347,000 and $4,475,000 from its operating
activities during the six months ended June 30, 1999 and 1998, respectively.
Cash provided by operations for the six months ended June 30, 1999 as compared
to the six months ended June 30, 1998 varied primarily due to changes in net
earnings, accounts receivable, inventories, prepaid expenses and other assets,
accounts payable and accrued liabilities.
The Company had a net outflow of cash from its investing activities for the six
months ended June 30, 1999 due to the purchase of property, plant and equipment.
The Company had a net inflow of cash from its investing activities for the six
months ended June 30, 1998 due to proceeds from the maturity of investment
securities and proceeds from the sale of property partially offset by the
purchase of property, plant and equipment.
The Company had a net outflow of cash from its financing activities for the six
months ended June 30, 1999 primarily due to the purchase of treasury stock and
payment of dividends, partially offset by proceeds from the exercise of stock
options.
In April 1998, the Company announced a new share repurchase program. The Board
of Directors authorized the Company to purchase up to $20 million of its Class A
Common Stock on the open market through April 2002. Such open market purchases,
if any, will occur from time to time as market conditions warrant. The Company
adopted this program because it believes repurchasing its shares can be a good
use of excess cash depending on the Company's array of alternatives. From
inception under its new share repurchase program, the Company purchased 443,532
shares of Class A Common Stock at a cost totaling approximately $9,981,000.
Currently, the Company has made purchases under all stock repurchase programs
from August 14, 1996 through July 22, 1999 (the date of filing of this Form 10-
Q) of 2,758,932 shares at an aggregate cost totaling approximately $25,202,000.
No material capital commitments exist at June 30, 1999. Depending on the
Company's future growth rate, funds may be required by operating activities.
With continued use of its revolving credit facility and internally generated
funds, the Company believes its present and currently anticipated sources of
capital are sufficient to sustain its anticipated capital needs for the
remainder of 1999.
The Company's working capital increased $29,838,000 to $113,137,000 at June
30,1999 from $83,299,000 at December 31, 1998.
9
<PAGE>
Impact of Year 2000
The Year 2000 Issue is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date ending in "00"
as the year 1900 rather than the year 2000. This could result in system failure
or miscalculations causing disruptions of operations including, among other
things, an inability to process transactions, send invoices, or engage in
similar normal business activities. If the Company, its significant customers,
or suppliers fail to make necessary modifications and conversions on a timely
basis, the year 2000 Issue could have a material adverse effect on Company
operations. However, the impact cannot be quantified at this time.
To address these year 2000 Issues with its internal systems, the Company has
initiated a comprehensive program which is designed to deal with the most
critical systems first. Assessment and remediation are proceeding in tandem. The
Company completed its year 2000 software program conversions for its critical
systems during the first quarter of 1999, which encompass all major categories
of systems in use by the Company, including manufacturing, sales and finance.
During the second quarter of 1999, the Company worked with critical suppliers of
products and services and customers to determine that they are year 2000 capable
or to monitor their progress towards year 2000 capability. Once supplier and
customer capability is determined, the Company will commence work on various
types of contingency planning to address potential problem areas with internal
systems and with suppliers, customers, and other third parties. Nevertheless,
there can be no assurance that there will not be a material adverse effect on
the Company if third party governmental or business entities do not convert or
replace their systems in a timely manner and in a way that is compatible with
the Company's systems.
Costs related to the year 2000 Issues are funded through operating cash flows.
Currently, the Company has expended approximately $470,000 in remediation
efforts, principally the cost of modifying the applicable code of existing
software. The Company estimates remaining costs to be minimal. The Company
presently believes that the total cost of achieving Year 2000 compliant systems
is not expected to be material to financial condition, liquidity, or results of
operations.
Time and cost estimates are based on currently available information.
Developments that could affect estimates include, but are not limited to, the
availability and cost of trained personnel; the ability to locate and correct
all relevant computer code and systems; and remediation success of the Company's
suppliers and customers.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings.
-----------------
None.
ITEM 2: Changes in Securities.
---------------------
None.
ITEM 3: Defaults Upon Senior Securities.
-------------------------------
None.
ITEM 4: Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
(a) The Annual Meeting of Stockholders was held May 20, 1999.
(b) The following directors were elected to serve until the 2000 Annual
Meeting of Stockholders or until their successors have been duly
elected and qualified:
Class A Directors Class B Directors
----------------- -----------------
Jonathan K. Layne Steven Nichols
Martyn Wilford George Powlick
Lawrence Feldman
(c) Of the 6,192,631 shares of Class A Common Stock represented at the
meeting, the Class A Directors named in (b) above were elected by
the following votes:
<TABLE>
<CAPTION>
No. Of Votes Received
-----------------------------------
Name For Withheld Authority
----------------- --------- ------------------
<S> <C> <C>
Jonathan K. Layne 5,676,223 516,408
Martyn Wilford 5,729,905 462,726
</TABLE>
Of the 3,209,452 shares of Class B Common Stock represented at the
meeting, the Class B Directors named in (b) above were elected by
the following votes:
<TABLE>
<CAPTION>
No. Of Votes Received
-----------------------------------
Name For Withheld Authority
----------------- ---------- ------------------
<S> <C> <C>
Steven Nichols 32,094,520 -
George Powlick 32,094,520 -
Lawrence Feldman 32,094,520 -
</TABLE>
(d) At the Annual Meeting, the Company's stockholders adopted, approved
and ratified the Company's 1999 Stock Incentive Plan. The number of
votes cast for and against such proposal were as follows:
<TABLE>
<CAPTION>
No. Of Votes Received
Class A and Class B
---------------------
<S> <C>
In Favor 33,908,576
Opposed 2,366,235
Abstain 321,074
</TABLE>
11
<PAGE>
ITEM 5: Other Information.
-----------------
None.
ITEM 6: Exhibits and Reports on Form 8-K:
--------------------------------
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the second quarter
of 1999.
12
<PAGE>
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.
By: /s/ George Powlick
--------------------------
George Powlick,
Vice President Finance and
Chief Financial Officer
Date: July 21, 1999
13
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
- ------- ----
10.1 K-Swiss Inc. 1999 Stock Incentive Plan
(incorporated by reference to Exhibit 4.1
of the Registrant's Form S-8 Registration
Statement #333-79641)
27 Financial Data Schedule 15
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS AND
COMPREHENSIVE EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 45,509
<SECURITIES> 0
<RECEIVABLES> 47,089
<ALLOWANCES> (1,204)
<INVENTORY> 47,198
<CURRENT-ASSETS> 141,006
<PP&E> 8,536
<DEPRECIATION> 0
<TOTAL-ASSETS> 155,588
<CURRENT-LIABILITIES> 27,869
<BONDS> 0
0
0
<COMMON> 140
<OTHER-SE> 111,798
<TOTAL-LIABILITY-AND-EQUITY> 155,588
<SALES> 155,750
<TOTAL-REVENUES> 155,750
<CGS> 87,082
<TOTAL-COSTS> 36,019
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 618 <F1>
<INCOME-PRETAX> 33,267
<INCOME-TAX> 13,245
<INCOME-CONTINUING> 20,022
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,022
<EPS-BASIC> 1.83
<EPS-DILUTED> 1.75
<FN>
<F1>Interest Income net of Interest Expense
</FN>
</TABLE>
