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Press release from Business Wire

K-Swiss Reports Fourth Quarter Results

Thursday, February 17, 2011

K-Swiss Reports Fourth Quarter Results07:00 EST Thursday, February 17, 2011 WESTLAKE VILLAGE, Calif. (Business Wire) -- K•Swiss Inc. (NASDAQ: KSWS) today announced results for the fourth quarter and year ended December 31, 2010. The sale of Royal Elastics on April 30, 2009 is accounted for as a discontinued operation in the Company's financial results and is excluded from futures orders data for the prior-year periods. Financial Results Net loss for the fourth quarter of 2010 was $20,635,000, or $0.58 per diluted share, compared with a net loss of $12,488,000, or $0.36 per diluted share, for the prior-year period. Net loss for the year ended December 31, 2010, was $68,212,000, or $1.94 per diluted share, compared with a net loss of $27,962,000, or $0.80 per diluted share, for the year ended December 31, 2009. Results for 2010 include a one-time charge of $3,320,000, or $0.09 per diluted share (after tax), for recognition of the net present value of the €3,000,000 future purchase price of Palladium SAS, which was revised in May 2010, and a valuation allowance taken against the Company's deferred tax assets, resulting in income tax expense for the year of $7,932,000 compared with an income tax benefit of $9,663,000 in the prior year. Results for 2009 also include a one-time, pre-tax, non-cash impairment charge related to the goodwill and intangible assets related to the trademarks of Palladium of $4,830,000, or $0.13 per diluted share (after tax), a pre-tax non-operating loss of $2,616,000, or $0.08 per diluted share (after tax), from the acquisition of the remaining interest in Palladium SAS in June 2009, and a pre-tax gain of $1,367,000, or $0.03 per diluted share (after tax), from the sale of Royal Elastics in April 2009. For the fourth quarter of 2010, total worldwide revenues increased 1.5% to $42,665,000 compared with $42,020,000 in the prior-year period. Domestic revenues increased 2.8% to $18,596,000 in the fourth quarter, and international revenues increased 0.6% to $24,069,000 for the same period. Total worldwide revenues for 2010 decreased 9.9% to $216,987,000 compared with $240,729,000 in 2009. Domestic revenues decreased 8.7% to $92,382,000 in 2010, and international revenues decreased 10.7% to $124,605,000. Futures Orders Worldwide futures orders with start ship dates from January through June 2011 increased 14.8% to $92,904,000 at December 31, 2010. Domestic futures orders increased 52.8% to $45,216,000 at December 31, 2010, from $29,583,000 the previous year. International futures orders decreased 7.1% to $47,688,000 at December 31, 2010, from $51,341,000 the previous year. Steven Nichols, Chairman of the Board and President, stated, “2010 was a year we committed to innovation and increased brand awareness - at all costs. The positive swing in our future orders suggests our expenditures and efforts were not in vain.” 2011 Guidance For 2011, the Company expects full year consolidated revenues to be 25% to 35% above 2010. Consolidated gross margin is expected to be approximately 39%, which is comparable to 2010. Selling, general and administrative expenses are expected to be $145 million to $155 million due to continued support of the Company's marketing initiatives. These expenditures will be continually evaluated and could change over time, including the possibility of even greater marketing expenditures depending on available branding opportunities. Investor Conference Call and Web Simulcast K•Swiss will conduct a conference call on its fourth quarter 2010 results today, at 11:00 a.m. ET. The number to call for this interactive teleconference is (212) 231-2903. A replay of this conference call will be available until February 24, 2011, by dialing (402) 977-9140 and entering the passcode, 21508967. The Company will also provide an online Web simulcast and rebroadcast of this conference call. The live broadcast of K•Swiss' quarterly conference call will be available online at www.streetevents.com and www.earnings.com today, beginning at 11:00 a.m. ET. The online replay will follow shortly after the call and continue through February 24, 2011. Founded more than forty years ago in Van Nuys, California, K•Swiss introduced the first all-leather tennis shoe, the K•Swiss "Classic" in 1966. Since its inception, K•Swiss has rooted itself in California Sport with an aim to be the most inspiring and innovative sports brand in the market. Today the Company offers performance and lifestyle footwear and apparel for several categories under its California Sports umbrella including Tennis Heritage, California Fit (Running, Triathlon and Fitness) and California Youth. K•Swiss also designs, develops and markets footwear under the Palladium brand and owns the FORM Athletics brand. For more information about K•Swiss, visit www.kswiss.com. Certain matters discussed in this press release are subject to certain risks and uncertainties that could cause actual results to differ materially, including, but not limited to: the ability to adequately replace lost manufacturing capacity in Thailand, non-achievement of the assumptions discussed herein, general and regional economic conditions, availability of credit, industry trends, merchandise trends, including market acceptance of the Company's product offerings, customer demand, competition, the impact of terrorism and/or a potential global conflict on the worldwide economy, dependence on large customers and credit concentrations and order cancellations and reduced sales resulting from a deepening of the current worldwide recession. A complete description of these factors, as well as others which could affect the Company's business, is set forth in the Company's periodic filings, including its Form 10-K for the year ended December 31, 2010, which is currently on file with the SEC.Futures orders as of any date, represents orders scheduled to be shipped within the next six months.Futures orders as of a certain date do not include orders scheduled to be shipped on or prior to that date.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.K•Swiss Inc. Consolidated Statements of Loss (In thousands, except earnings per share data)         Three Months EndedYear EndedDecember 31,December 31,   2010     2009     2010     2009   (Unaudited) Revenues $42,665 $ 42,020 $216,987 $ 240,729 Cost of goods sold   28,860     26,693     131,908     154,558   Gross profit 13,805 15,327 85,079 86,171 Selling, general and administrative expenses 34,925 27,694 142,474 118,303 Impairment on intangibles and goodwill   -     4,830     -     4,830   Operating loss (21,120) (17,197 ) (57,395) (36,962 ) Other expense, net - - (3,320) (1,249 ) Interest income, net   265     352     435     1,050   Loss before income taxes and discontinued operations (20,855) (16,845 ) (60,280) (37,161 ) Income tax expense (benefit)   (220)   (4,605 )   7,932     (9,663 ) Loss from continuing operations (20,635) (12,240 ) (68,212) (27,498 ) Loss from discontinued operations, less applicable income tax benefit   -     (248 )   -     (464 ) Net loss $(20,635) $ (12,488 ) $(68,212) $ (27,962 ) Basic loss per share $(0.58) $ (0.36 ) $(1.94) $ (0.80 ) Diluted loss per share $(0.58) $ (0.36 ) $(1.94) $ (0.80 ) Weighted average number of shares outstanding   Basic 35,297 35,118 35,218 34,962 Diluted 35,297 35,118 35,218 34,962 K•Swiss Inc. Condensed Balance Sheets (In thousands)           December 31,   2010   2009 ASSETS CURRENT ASSETS Cash and cash equivalents $49,164 $ 139,663 Restricted cash and cash equivalents and restricted investments available for sale 22,918 22,270 Investments available for sale 66,277 31,209 Accounts receivable, net 24,040 27,487 Inventories 66,959 48,183 Prepaid expenses and other current assets 5,058 2,472 Income taxes receivable 770 13,821 Deferred income taxes   -   2,881 Total current assets 235,186 287,986 PROPERTY, PLANT AND EQUIPMENT, NET 20,695 22,053 OTHER ASSETS Intangible assets 18,212 15,259 Deferred income taxes 3,913 9,538 Other   10,159   9,314 Total other assets   32,284   34,111 $288,165 $ 344,150   LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank lines of credit and current portion of long-term debt $566 $ 3,463 Trade accounts payable 19,111 11,639 Accrued income taxes payable 203 335 Accrued liabilities   13,068   12,898 Total current liabilities 32,948 28,335 OTHER LIABILITIES Long-term debt 404 744 Other liabilities 14,101 13,288 Contingent purchase price   5,799   - Total other liabilities 20,304 14,032 STOCKHOLDERS' EQUITY   234,913   301,783 $288,165 $ 344,150 K?Swiss Inc.George Powlick, 818-706-5100Chief Financial Officer