K-Swiss Inc.'s loss widened in the third quarter to $28.3 million, or 80 cents a share, from $2.9 million or 8 cents, a year ago, partly due to a tax charge. Revenues
decreased 12.8% to $61.6 million compared with $70.6 million in the
prior-year period.

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.

Results for the third quarter of 2010 also include a $20.2 million valuation allowance taken against the company’s U.S. deferred tax assets, resulting in income tax expense of $14.0 million in the third quarter compared with an income tax benefit of $1.6 million in the prior-year period.

Domestic revenues increased 13.2% to $27.1
millioon in the third quarter, and international revenues decreased
26.1% to $34.5 million for the same period.


Net loss for the nine months ended Sept.30, 2010, was $47.6 million or $1.35 per diluted share, compared with a net loss of $15.4 million or 44 cents per diluted share, for the nine months ended September 30, 2009.
 
Results for the nine-month 2010 period include the valuation allowance noted above, resulting in income tax expense for the period of $8.2 million compared with an income tax benefit of $5.1 million in the prior-year period. Results for the nine-month 2009 period also includes a pre-tax non-operating loss of $2.6 million or 8 cents per diluted share (after tax), from the acquisition of the remaining interest in Palladium SAS in June 2009, and a pre-tax gain of $1.4 million or 3 cents per diluted share (after tax), from the sale of Royal Elastics in April 2009.

Total worldwide revenues for the first nine months of 2010 decreased 12.3% to $174.3 million compared with $198.7 million in the first nine months of 2009. Domestic revenues decreased 11.2% to $73.8 million in the first nine months of 2010, and international revenues decreased 13.0% to $100.5 million 

Futures Orders

Worldwide futures orders with start ship dates from October 2010 through March 2011 increased 17.5% to $79,915,000 at September 30, 2010. Domestic futures orders increased 50.9% to $34.9 million at Sept.r 30, 2010, from $23.1 million the previous year. International futures orders increased 0.3% to $45.0 million at Sept. 30, 2010, from $44.9 million the previous year.

Valuation Allowance on Deferred Tax Assets

K-Swiss has previously disclosed that should it be unable to substantiate evidence for realizing the benefit of the company’s deferred tax assets in the second half of 2010, it might be required to establish a reserve against these deferred tax assets. The company has concluded that it cannot prove that it is “more likely than not” that the company’s U.S. deferred tax assets will be realized in the future and, therefore, the company recognized a tax valuation allowance of $20.2 million against the U.S. deferred tax assets in the third quarter of 2010.

Steven Nichols, Chairman of the Board and President, stated, “While the results over the last couple of years have been dismal, there are an increasing number of ‘green shoots’ of promise that Spring will in fact come in 2011. Our domestic futures orders are up 50% and positive worldwide, which could be an acknowledgement that our three years of investing in innovative product and brand positioning might pay off.”

2010 Guidance

For 2010, the company expects full year consolidated revenues to be 5% to 10% less than 2009.

Consolidated gross margin is expected to be approximately 41% compared with 35.8% in 2009 due to expected lower closeout sales during 2010 compared with 2009.

Selling, general & administrative expenses are expected to be $138 million to $144 million due to increased marketing expenditures. These expenditures will be continually evaluated and could change over time, including the possibility of even greater marketing expenditures depending on available branding opportunities.

The tax rate is projected to be approximately 16%, compared with a previous expectation of a tax benefit rate of 25%.


K•Swiss Inc. Consolidated Statements of Earnings/Loss

(In thousands, except earnings per share data)


 
 

 
 

 
 

 
 



Three Months Ended

Nine Months Ended



September 30,

September 30,



2010

2009

2010

2009




(Unaudited)


(Unaudited)

Revenues

$ 61,621



$
70,633


$ 174,322



$
198,709

Cost of goods sold


 
 36,519
 


 
44,341
 


 
 103,048
 


 
127,865
 

Gross profit


25,102




26,292



71,274




70,844

Selling, general and administrative expenses


 
 39,246
 


 
30,329
 


 
 107,549
 


 
90,609
 

Operating loss


(14,144 )



(4,037
)


(36,275 )



(19,765
)

Other expense, net


–




(486
)


(3,320 )



(1,249
)

Interest income (expense), net


 
 (197 )


 
354
 


 
 170
 


 
698
 

Loss before income tax expense (benefit) and discontinued operations


(14,341 )



(4,169
)


(39,425 )



(20,316
)

Income tax expense (benefit)


 
 13,993
 


 
(1,581
)


 
 8,152
 


 
(5,058
)

Loss before discontinued operations


(28,334 )



(2,588
)


(47,577 )



(15,258
)

Loss from discontinued operations, less applicable income tax


 
 –
 


 
(296
)


 
 –
 


 
(216
)

Net loss

$ (28,334 )


$
(2,884
)

$ (47,577 )


$
(15,474
)

Basic loss per share

$ (0.80 )


$
(0.08
)

$
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