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K-Swiss reports first quarter results

07
May '10
K•Swiss Inc. announced results for the first quarter ended March 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 current and prior-year periods.

Financial Results
Net loss for the first quarter of 2010 was $4,698,000, or $0.13 per diluted share, compared with a net loss of $1,093,000, or $0.03 per diluted share, in the prior-year period.

For the first quarter of 2010, total worldwide revenues decreased 11.0% to $65,870,000 compared with $74,044,000 in the prior-year period. Domestic revenues decreased 21.2% to $23,940,000 in the first quarter, and international revenues decreased 4.0% to $41,930,000 for the same period.

Futures Orders
Worldwide futures orders with start ship dates from April through September 2010 decreased 1.6% to $72,529,000 at March 31, 2010. Domestic futures orders increased 2.7% to $29,115,000 at March 31, 2010. International futures orders decreased 4.3% to $43,414,000 at March 31, 2010. The reported futures orders as of March 31, 2010 do not include any adjustment for potential loss of customer orders associated with the temporary loss of some manufacturing capacity in Thailand.

Thailand Contract Sourcing
In April 2010, the Company's contract manufacturer in Thailand, one of only three manufacturers utilized by the Company in its global supply chain, ceased operations. As a result, it will not be able to fulfill orders for approximately 700,000 pairs scheduled to be produced during the second and third quarters of 2010. A majority of the pairs were being produced to fulfill orders primarily for Latin America and to a lesser extent Europe. The Company is attempting to secure production capacity in other facilities and secure permanent capacity for the primarily canvas product sourced from the Thailand manufacturer. The Company anticipates delays in replacing capacity and is not certain when and how much capacity will be replaced. Assuming the Company cannot fulfill any customer orders from previously scheduled Thailand production, the Company estimates a total impact of approximately $5,000,000 in lost revenues during the second and third quarters of 2010.

Amended Palladium Purchase Agreement
On May 1, 2010, the Company amended the Share Purchase and Shareholders' Rights Agreement, dated as of May 16, 2008, as amended by Amendment No. 1 dated June 2, 2009, by and among the seller, Palladium SAS and K•Swiss Inc. to revise the terms of the remaining future purchase price payable in 2013. The future purchase price will be equal to €3,000,000 plus up to €500,000 based on an amount calculated in accordance with a formula driven by Palladium's EBITDA for the twelve months ended December 31, 2012. In the second quarter of 2010, the Company will recognize the net present value of €3,000,000 in its Consolidated Statement of Earnings/Loss which will accrete to €3,000,000 at December 31, 2012. The €500,000 contingent purchase price will be determined each quarter based on the current quarter's projection of Palladium's EBITDA for the twelve months ended December 31 of the current year.


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