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, 2015
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the transition period from ____ to____
Commission File Number 001-14429
SKECHERS U.S.A., INC.
(Exact name of registrant as specified in its charter)
Delaware |
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95-4376145 |
(State or Other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer Identification No.) |
228 Manhattan Beach Blvd. Manhattan Beach, California |
|
90266 |
(Address of Principal Executive Office) |
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(Zip Code) |
(310) 318-3100
(Registrant’s Telephone Number, Including Area Code)
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
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x |
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Accelerated filer |
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¨ |
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Non-accelerated filer |
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¨ |
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Smaller reporting company |
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¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
THE NUMBER OF SHARES OF CLASS A COMMON STOCK OUTSTANDING AS OF NOVEMBER 1, 2015: 129,968,874.
THE NUMBER OF SHARES OF CLASS B COMMON STOCK OUTSTANDING AS OF NOVEMBER 1, 2015: 26,278,458.
SKECHERS U.S.A., INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
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Item 1. |
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 |
Item 3. |
30 |
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Item 4. |
31 |
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PART II – OTHER INFORMATION |
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Item 1. |
31 |
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Item 1A. |
36 |
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Item 6. |
38 |
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39 |
2
PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par values)
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September 30, |
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December 31, |
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|
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2015 |
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|
2014 |
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ASSETS |
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|
|
|
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|
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|
|
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Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
510,679 |
|
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$ |
466,685 |
|
Trade accounts receivable, less allowances of $23,168 in 2015 and $21,007 in 2014 |
|
|
396,428 |
|
|
|
272,103 |
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Other receivables |
|
|
15,642 |
|
|
|
16,510 |
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Total receivables |
|
|
412,070 |
|
|
|
288,613 |
|
Inventories |
|
|
500,201 |
|
|
|
453,837 |
|
Prepaid expenses and other current assets |
|
|
70,865 |
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|
|
57,015 |
|
Deferred tax assets |
|
|
18,866 |
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|
|
18,864 |
|
Total current assets |
|
|
1,512,681 |
|
|
|
1,285,014 |
|
Property, plant and equipment, net |
|
|
388,842 |
|
|
|
373,183 |
|
Other assets |
|
|
39,131 |
|
|
|
16,721 |
|
Total non-current assets |
|
|
427,973 |
|
|
|
389,904 |
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TOTAL ASSETS |
|
$ |
1,940,654 |
|
|
$ |
1,674,918 |
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LIABILITIES AND EQUITY |
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|
|
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Current Liabilities: |
|
|
|
|
|
|
|
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Current installments of long-term borrowings |
|
$ |
30,565 |
|
|
$ |
101,407 |
|
Short-term borrowings |
|
|
57 |
|
|
|
1,810 |
|
Accounts payable |
|
|
407,612 |
|
|
|
352,815 |
|
Accrued expenses |
|
|
79,881 |
|
|
|
49,705 |
|
Total current liabilities |
|
|
518,115 |
|
|
|
505,737 |
|
Long-term borrowings, excluding current installments |
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|
70,147 |
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|
|
15,081 |
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Other long-term liabilities |
|
|
26,901 |
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|
|
19,993 |
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Total non-current liabilities |
|
|
97,048 |
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|
|
35,074 |
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Total liabilities |
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|
615,163 |
|
|
|
540,811 |
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Commitments and contingencies |
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|
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Stockholders’ equity: |
|
|
|
|
|
|
|
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Preferred Stock, $.001 par value; 10,000 shares authorized; none issued and outstanding |
|
|
— |
|
|
|
— |
|
Class A Common Stock, $.001 par value; 500,000 shares authorized; 126,651 and 120,863 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively |
|
|
127 |
|
|
|
120 |
|
Class B Common Stock, $.001 par value; 75,000 shares authorized; 26,278 and 31,410 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively |
|
|
26 |
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|
|
30 |
|
Additional paid-in capital |
|
|
374,739 |
|
|
|
355,536 |
|
Accumulated other comprehensive loss |
|
|
(27,528 |
) |
|
|
(16,077 |
) |
Retained earnings |
|
|
938,104 |
|
|
|
735,640 |
|
Skechers U.S.A., Inc. equity |
|
|
1,285,468 |
|
|
|
1,075,249 |
|
Noncontrolling interests |
|
|
40,023 |
|
|
|
58,858 |
|
Total equity |
|
|
1,325,491 |
|
|
|
1,134,107 |
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TOTAL LIABILITIES AND EQUITY |
|
$ |
1,940,654 |
|
|
$ |
1,674,918 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
|
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Three Months Ended September 30, |
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|
Nine Months Ended September 30, |
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2015 |
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2014 |
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|
2015 |
|
|
2014 |
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Net sales |
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$ |
856,179 |
|
|
$ |
674,270 |
|
|
$ |
2,424,640 |
|
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$ |
1,807,839 |
|
Cost of sales |
|
|
469,173 |
|
|
|
369,772 |
|
|
|
1,330,486 |
|
|
|
993,563 |
|
Gross profit |
|
|
387,006 |
|
|
|
304,498 |
|
|
|
1,094,154 |
|
|
|
814,276 |
|
Royalty income |
|
|
2,312 |
|
|
|
2,070 |
|
|
|
7,824 |
|
|
|
6,928 |
|
|
|
|
389,318 |
|
|
|
306,568 |
|
|
|
1,101,978 |
|
|
|
821,204 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Selling |
|
|
63,685 |
|
|
|
50,239 |
|
|
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177,652 |
|
|
|
140,820 |
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General and administrative |
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230,048 |
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|
|
182,186 |
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|
628,210 |
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|
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504,325 |
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|
|
|
293,733 |
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|
232,425 |
|
|
|
805,862 |
|
|
|
645,145 |
|
Earnings from operations |
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|
95,585 |
|
|
|
74,143 |
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|
296,116 |
|
|
|
176,059 |
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Other income (expense): |
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|
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|
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|
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Interest income |
|
|
149 |
|
|
|
187 |
|
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|
493 |
|
|
|
488 |
|
Interest expense |
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(2,652 |
) |
|
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(2,671 |
) |
|
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(8,530 |
) |
|
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(9,024 |
) |
Other, net |
|
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(3,409 |
) |
|
|
(3,898 |
) |
|
|
(5,180 |
) |
|
|
(4,832 |
) |
Total other income (expense) |
|
|
(5,912 |
) |
|
|
(6,382 |
) |
|
|
(13,217 |
) |
|
|
(13,368 |
) |
Earnings before income tax expense |
|
|
89,673 |
|
|
|
67,761 |
|
|
|
282,899 |
|
|
|
162,691 |
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Income tax expense |
|
|
15,839 |
|
|
|
12,682 |
|
|
|
60,342 |
|
|
|
36,351 |
|
Net earnings |
|
|
73,834 |
|
|
|
55,079 |
|
|
|
222,557 |
|
|
|
126,340 |
|
Less: Net earnings attributable to non-controlling interests |
|
|
7,232 |
|
|
|
3,956 |
|
|
|
20,093 |
|
|
|
9,450 |
|
Net earnings attributable to Skechers U.S.A., Inc. |
|
$ |
66,602 |
|
|
$ |
51,123 |
|
|
$ |
202,464 |
|
|
$ |
116,890 |
|
Net earnings per share attributable to Skechers U.S.A., Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic |
|
$ |
0.44 |
|
|
$ |
0.34 |
|
|
$ |
1.33 |
|
|
$ |
0.77 |
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Diluted |
|
$ |
0.43 |
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|
$ |
0.33 |
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$ |
1.31 |
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$ |
0.77 |
|
Weighted average shares used in calculating net earnings per share attributable to Skechers U.S.A, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic |
|
|
152,895 |
|
|
|
151,882 |
|
|
|
152,677 |
|
|
|
151,753 |
|
Diluted |
|
|
154,477 |
|
|
|
152,954 |
|
|
|
154,073 |
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|
|
152,746 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
4
SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
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|
|
2015 |
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|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
Net earnings |
|
$ |
73,834 |
|
|
$ |
55,079 |
|
|
$ |
222,557 |
|
|
$ |
126,340 |
|
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on derivative |
|
|
(1,737 |
) |
|
|
— |
|
|
|
(1,737 |
) |
|
|
— |
|
Loss on foreign currency translation adjustment |
|
|
(9,158 |
) |
|
|
(4,611 |
) |
|
|
(12,037 |
) |
|
|
(3,509 |
) |
Comprehensive income |
|
|
62,939 |
|
|
|
50,468 |
|
|
|
208,783 |
|
|
|
122,831 |
|
Less: Comprehensive income attributable to non-controlling interests |
|
|
5,118 |
|
|
|
3,793 |
|
|
|
17,770 |
|
|
|
9,312 |
|
Comprehensive income attributable to Skechers U.S.A., Inc. |
|
$ |
57,821 |
|
|
$ |
46,675 |
|
|
$ |
191,013 |
|
|
$ |
113,519 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
5
SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2015 |
|
|
2014 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
222,557 |
|
|
$ |
126,340 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization of property, plant and equipment |
|
|
42,467 |
|
|
|
34,967 |
|
Amortization of deferred financing costs |
|
|
687 |
|
|
|
901 |
|
Amortization of intangible assets |
|
|
106 |
|
|
|
701 |
|
Provision for bad debts and returns |
|
|
5,489 |
|
|
|
9,460 |
|
Non-cash share-based compensation |
|
|
13,547 |
|
|
|
4,934 |
|
Deferred income taxes |
|
|
2,362 |
|
|
|
24,664 |
|
Other |
|
|
561 |
|
|
|
413 |
|
(Increase) decrease in assets: |
|
|
|
|
|
|
|
|
Receivables |
|
|
(151,003 |
) |
|
|
(123,410 |
) |
Inventories |
|
|
(53,488 |
) |
|
|
(7,800 |
) |
Prepaid expenses and other current assets |
|
|
(14,650 |
) |
|
|
(19,155 |
) |
Other assets |
|
|
(9,866 |
) |
|
|
662 |
|
Increase (decrease) in liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
60,332 |
|
|
|
52,703 |
|
Accrued expenses |
|
|
37,254 |
|
|
|
14,250 |
|
Other long-term liabilities |
|
|
2,808 |
|
|
|
— |
|
Net cash provided by operating activities |
|
|
159,163 |
|
|
|
119,630 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(58,199 |
) |
|
|
(41,976 |
) |
Intangible asset additions |
|
|
(59 |
) |
|
|
— |
|
Purchases of investments |
|
|
(3,369 |
) |
|
|
— |
|
Proceeds from sales of investments |
|
|
144 |
|
|
|
— |
|
Net cash used in investing activities |
|
|
(61,483 |
) |
|
|
(41,976 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net proceeds from the issuances of common stock through employee stock purchase plan |
|
|
2,238 |
|
|
|
1,721 |
|
Payments on long-term debt |
|
|
(16,537 |
) |
|
|
(8,986 |
) |
Proceeds from long-term debt |
|
|
762 |
|
|
|
— |
|
Proceeds (payments) on short-term borrowings |
|
|
(1,751 |
) |
|
|
3 |
|
Excess tax benefits from share-based compensation |
|
|
3,420 |
|
|
|
209 |
|
Contribution from non-controlling interests of consolidated entity |
|
|
485 |
|
|
|
83 |
|
Distributions to non-controlling interests of consolidated entity |
|
|
(37,090 |
) |
|
|
(3,250 |
) |
Net cash used in financing activities |
|
|
(48,473 |
) |
|
|
(10,220 |
) |
Net increase in cash and cash equivalents |
|
|
49,207 |
|
|
|
67,434 |
|
Effect of exchange rates on cash and cash equivalents |
|
|
(5,213 |
) |
|
|
1,345 |
|
Cash and cash equivalents at beginning of the period |
|
|
466,685 |
|
|
|
372,011 |
|
Cash and cash equivalents at end of the period |
|
$ |
510,679 |
|
|
$ |
440,790 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
7,295 |
|
|
$ |
7,974 |
|
Income taxes |
|
|
59,698 |
|
|
|
24,179 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
6
SKECHERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015 and 2014
(Unaudited)
(1) |
GENERAL |
Basis of Presentation
The accompanying condensed consolidated financial statements of Skechers U.S.A., Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S‑X. Accordingly, they do not include certain footnotes and financial presentations normally required under GAAP for complete financial reporting. The interim financial information is unaudited, but reflects all normal adjustments and accruals which are, in the opinion of management, considered necessary to provide a fair presentation for the interim periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
The results of operations for the nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2015.
On August 21, 2015, the Company’s board of directors approved a three-for-one stock split, effected in the form of a stock dividend, of both the Company’s Class A and Class B common stock. The stock split was made on October 16, 2015 to shareholders of record at the close of business on October 2, 2015. All share numbers and per share amounts presented in the condensed consolidated financial statements reflect the three-for-one stock split.
Fair Value of Financial Instruments
The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value because of the relatively short maturity of such instruments.
The carrying amount of the Company’s long-term borrowings, which are considered Level 2 liabilities, approximates fair value based upon current rates and terms available to the Company for similar debt.
As of August 12, 2015, the Company entered into an interest rate swap agreement concurrent with refinancing its domestic distribution center construction loan (see Note 2, Derivative Instruments). The fair value of the interest rate swap was determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipt was based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with GAAP, credit valuation adjustments were incorporated to appropriately reflect both the Company’s nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. The majority of the inputs used to value the interest rate swap were within Level 2 of the fair value hierarchy. As of September 30, 2015, the interest rate swap was a Level 2 derivative and was classified as other long-term liabilities on the Company’s condensed consolidated balance sheet.
Use of Estimates
The preparation of the condensed consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.
7
Revenue Recognition
The Company recognizes revenue on wholesale sales when products are shipped and the customer takes title and assumes risk of loss, collection of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. This generally occurs at time of shipment. Wholesale sales, which include amounts billed for shipping and handling costs, are recognized net of allowances for estimated returns, sales allowances, discounts, and chargebacks. Allowances for estimated returns, discounts, and chargebacks are recorded when related revenue is recorded. Related costs paid to third-party shipping companies are recorded as cost of sales. The Company recognizes revenue from retail and e-commerce sales at the point of sale. Sales and value added taxes collected from retail customers are excluded from reported revenues.
Royalty income is earned from licensing arrangements. Upon signing a new licensing agreement, the Company receives up-front fees, which are generally characterized as prepaid royalties. These fees are initially deferred and recognized as revenue as earned. In addition, the Company receives royalty payments based on actual sales of the licensed products. Typically, at each quarter-end the Company receives correspondence from licensees indicating the actual sales for the period. This information is used to calculate and record the related royalties based on the terms of the agreement.
Recent Accounting Pronouncements
In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). ASU 2015-16 eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. ASU 2015-16 will be effective for the Company’s annual and interim reporting periods beginning January 1, 2018, although early adoption is permitted. The Company does not expect that the adoption of this standard will have a material impact on the Company’s consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). ASU 2015-11 requires that inventory within the scope of this standard be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. ASU 2015-11 will be effective for the Company’s annual and interim reporting periods beginning January 1, 2017, with early adoption permitted. The Company does not expect that the adoption of this standard will have a material impact on the Company’s consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). This guidance requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance simplifies presentation of debt issuance costs but does not address presentation or subsequent measurement of debt issue costs related to line of credit arrangements. In August 2015, the FASB issued ASU 2015-15 “Interest-Imputation of Interest (Subtopic 835-30) Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” which indicates the Securities and Exchange Commission staff would not object to an entity deferring and presenting debt issuance costs related to line-of-credit arrangements as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-03 will be effective for the Company’s annual and interim reporting periods beginning January 1, 2016 and should be applied on a retrospective basis, although early adoption is permitted. The adoption of ASU 2015-03 will not have any impact on the Company’s results of operations, but will result in debt issuance costs being presented as a direct reduction from the carrying amount of debt liabilities that are not line-of-credit arrangements. The Company does not expect that the adoption of this standard will have a material impact on the Company’s consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis” (“ASU 2015-02”). ASU 2015-02 amends the consolidation guidance for variable interest entities (“VIEs”) and general partners’ investments in limited partnerships and modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities. The amendment will be effective for the Company’s annual and interim reporting periods beginning January 1, 2016, with early adoption permitted. The Company will begin evaluating the impact of ASU 2015-02 based on this guidance upon adoption. The Company does not expect that the adoption of this standard will have a material impact on the Company’s consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, which amended the FASB Accounting Standards Codification and amended Subtopic 205-40, “Presentation of Financial Statements – Going Concern.” This amendment prescribes that an entity should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as
8
a going concern within one year after the date that the financial statements are issued. The amendments will become effective for the Company’s annual and interim reporting periods beginning January 1, 2017. The Company will begin evaluating going concern disclosures based on this guidance upon adoption. The Company does not expect that the adoption of this standard will have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, which amended the FASB Accounting Standards Codification (“ASC”) and created a new Topic ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). This amendment prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The amendment supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance throughout the Industry Topics of the Codification. For annual and interim reporting periods the mandatory adoption date of ASC 606 is January 1, 2018, and there will be two methods of adoption allowed, either a full retrospective adoption or a modified retrospective adoption. The Company is currently evaluating the impact of ASC 606, but at the current time does not know what impact the new standard will have on revenue recognized and other accounting decisions in future periods, if any, nor what method of adoption will be selected if the impact is material.
(2)DERIVATIVE INSTRUMENTS
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. To accomplish this objective, the Company used an interest rate swap as part of its interest rate risk management strategy. The Company’s interest rate swap is designated as a cash flow hedge, which involves the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. On August 12, 2015, in connection with refinancing its domestic distribution center loan, described more fully below, the Company entered into a variable-to-fixed interest rate swap agreement with Bank of America, N.A., to hedge the cash flows on the Company’s $70.0 million variable rate debt. As of September 30, 2015, the swap agreement has an aggregate notional amount of $69.9 million and a maturity date of August 12, 2022, subject to early termination commencing on August 1, 2020 at the option of HF Logistics-SKX T1, LLC (“HF-T1”), a wholly-owned subsidiary of the Company’s joint venture HF Logistics-SKX, LLC (the “JV”), Under the terms of the swap agreement, the Company will pay a weighted-average fixed rate of 2.08% on the $69.9 million notional amount and receive payments from the counterparty based on the 30-day LIBOR rate, which both are recorded to interest expense in the Company’s condensed consolidated financial statements. The rate swap agreement utilized by the Company effectively modifies its exposure to interest rate risk by converting the Company’s floating-rate debt to a fixed-rate basis for the next seven years, thus reducing the impact of interest-rate changes on future interest expense.
The effective portion of the change in the fair value of the derivative designated and that qualifies as a cash flow hedge is recorded in accumulated other comprehensive income (“AOCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects net earnings. The total net loss, net of taxes, recognized in accumulated other comprehensive (loss) income, related to the Company’s cash flow hedge as of September 30, 2015 was $1.7 million. The Company did not recognize in its condensed consolidated statement of earnings a loss on the Company’s cash flow hedges, due to ineffectiveness, for the three and nine months ended September 30, 2015.
The fair value of the fixed-to-variable interest rate swap agreement related to the construction loan (see Note 3 Lines of Credit, Short-Term and Long-Term Borrowings) due 2020 was a liability of $1.7 million at September 30, 2015.
By utilizing an interest rate swap, the Company is exposed to credit-related losses in the event that the counterparty fails to perform under the terms of the derivative contract. To mitigate this risk, the Company enters into derivative contracts with major financial institutions based upon credit ratings and other factors. The Company continually assesses the creditworthiness of its counterparties. As of September 30, 2015, all counterparties to the interest rate swap had performed in accordance with their contractual obligations.
(3) |
LINE OF CREDIT, SHORT-TERM AND LONG-TERM BORROWINGS |
The Company and its subsidiaries had $2.1 million and $3.4 million of outstanding letters of credit as of September 30, 2015 and December 31, 2014, respectively, and approximately $0.1 million and $1.8 million in short-term borrowings as of September 30, 2015 and December 31, 2014, respectively.
9
Long-term borrowings at September 30, 2015 and December 31, 2014 are as follows (in thousands):
|
|
2015 |
|
|
2014 |
|
||
Note payable to banks, due in monthly installments of $249.6 (includes principal and interest), variable-rate interest at 2.19% per annum, secured by property, balloon payment of $62,843 due August 2020 |
|
$ |
69,879 |
|
|
$ |
— |
|
Note payable to banks, due in monthly installments of $338.4 (includes principal and interest), variable-rate interest at 3.90% per annum, secured by property, balloon payment of $77,060 due October 2015, repaid in August 2015 |
|
|
— |
|
|
|
77,900 |
|
Note payable to banks, due in monthly installments of $531.4 (includes principal and interest), fixed-rate interest at 3.54% per annum, secured by property, balloon payment of $12,635 due December 2015 |
|
|
13,582 |
|
|
|
17,940 |
|
Note payable to banks, due in monthly installments of $483.9 (includes principal and interest), fixed-rate interest at 3.19% per annum, secured by property, balloon payment of $11,670 due June 2016 |
|
|
15,220 |
|
|
|
19,159 |
|
Note payable to TCF Equipment Finance, Inc., due in monthly installments of $30.5, (includes principal and interest) fixed- rate interest at 5.24% per annum, maturity date of July 2019 |
|
|
1,270 |
|
|
|
1,489 |
|
Loan payable to a bank, due in quarterly installments of $95.2 starting July 2016 (includes principal), variable-rate interest at 11.50% per annum, due April 2018 |
|
|
761 |
|
|
|
— |
|
Subtotal |
|
|
100,712 |
|
|
|
116,488 |
|
Less current installments |
|
|
30,565 |
|
|
|
101,407 |
|
Total long-term borrowings |
|
$ |
70,147 |
|
|
$ |
15,081 |
|
On June 30, 2015, the Company entered into a $250.0 million loan and security agreement, subject to increase by up to $100 million, (the “Credit Agreement”), with the following lenders: Bank of America, N.A., MUFG Union Bank, N.A. and HSBC Bank USA, National Association. The Credit Agreement matures on June 30, 2020. The Credit Agreement replaces the credit agreement dated June 30, 2009, which expired on June 30, 2015. The Credit Agreement permits the Company and certain of its subsidiaries to borrow based on a percentage of eligible accounts receivable plus the sum of (a) the lesser of (i) a percentage of eligible inventory to be sold at wholesale and (ii) a percentage of net orderly liquidation value of eligible inventory to be sold at wholesale, plus (b) the lesser of (i) a percentage of the value of eligible inventory to be sold at retail and (ii) a percentage of net orderly liquidation value of eligible inventory to be sold at retail, plus (c) the lesser of (i) a percentage of the value of eligible in-transit inventory and (ii) a percentage of the net orderly liquidation value of eligible in-transit inventory. Borrowings bear interest at the Company’s election based on (a) LIBOR or (b) the greater of (i) the Prime Rate, (ii) the Federal Funds Rate plus 0.5% and (iii) LIBOR for a 30-day period plus 1.0%, in each case, plus an applicable margin based on the average daily principal balance of revolving loans available under the Credit Agreement. The Company pays a monthly unused line of credit fee of 0.25%, payable on the first day of each month in arrears, which is based on the average daily principal balance of outstanding revolving loans and undrawn amounts of letters of credit outstanding during such month. The Credit Agreement further provides for a limit on the issuance of letters of credit to a maximum of $100.0 million. The Credit Agreement contains customary affirmative and negative covenants for secured credit facilities of this type, including covenants that will limit the ability of the Company and its subsidiaries to, among other things, incur debt, grant liens, make certain acquisitions, dispose assets, effect a change of control of the Company, make certain restricted payments including certain dividends and stock redemptions, make certain investments or loans, enter into certain transactions with affiliates and certain prohibited uses of proceeds. The Credit Agreement also requires compliance with a minimum fixed-charge coverage ratio if Availability drops below 10% of the Revolver Commitments (as such terms are defined in the Credit Agreement) until the date when no event of default has existed and Availability has been over 10% for 30 consecutive days. The Company paid closing and arrangement fees of $1.1 million on this facility, which are being amortized to interest expense over the five-year life of the facility. As of September 30, 2015 and December 31, 2014, there was $0.1 million outstanding under the Company’s credit facilities, classified as short-term borrowings in the Company’s condensed consolidated balance sheets. The remaining balance in short-term borrowings, as of December 31, 2014, is related to the Company’s joint venture in India.
On April 30, 2010, the JV, through HF-T1, entered into a construction loan agreement with Bank of America, N.A. as administrative agent and as a lender, and Raymond James Bank, FSB, as a lender (collectively, the "Construction Loan Agreement"), pursuant to which the JV obtained a loan of up to $55.0 million used for construction of the project on certain property (the "Original Loan"). On November 16, 2012, HF-T1 executed a modification to the Construction Loan Agreement (the "Modification"), which
10
added OneWest Bank, FSB as a lender, increased the borrowings under the Original Loan to $80.0 million and extended the maturity date of the Original Loan to October 30, 2015.
On August 11, 2015, the JV, through HF-T1, entered into an amended and restated loan agreement with Bank of America, N.A., as administrative agent and as a lender, and CIT Bank, N.A. (formerly known as OneWest Bank, FSB) and Raymond James Bank, N.A., as lenders (collectively, the "Amended Loan Agreement"), which amends and restates in its entirety the Construction Loan Agreement and the Modification. As of the date of the Amended Loan Agreement, the outstanding principal balance of the Original Loan was $77.3 million. In connection with this refinancing of the Original Loan, the JV, the Company and HF Logistics (“HF”) agreed that the Company would make an additional capital contribution of $38.7 million to the JV, through HF-T1, to make a prepayment on the Original Loan based on the Company’s 50% equity interest in the JV. The prepayment equaled the Company’s 50% share of the outstanding principal balance of the Original Loan. Under the Amended Loan Agreement, the parties agreed that the lenders would loan $70.0 million to HF-T1 (the "New Loan"). The New Loan is being used by the JV, through HF-T1, to (i) refinance all amounts owed on the Original Loan after taking into account the prepayment described above, (ii) pay $0.9 million in accrued interest, loan fees and other closing costs associated with the New Loan and (iii) make a distribution of $31.3 million less the amounts described in clause (ii) to HF. Pursuant to the Amended Loan Agreement, the interest rate on the New Loan is the LIBOR Daily Floating Rate (as defined in the Amended Loan Agreement) plus a margin of 2%. The maturity date of the New Loan is August 12, 2020, which HF-T1 has one option to extend by an additional 24 months, or until August 12, 2022, upon payment of a fee and satisfaction of certain customary conditions. On August 11, 2015, HF-T1 and Bank of America, N.A. entered into an ISDA master agreement (together with the schedule related thereto, the "Swap Agreement") to govern derivative and/or hedging transactions that HF-T1 concurrently entered into with Bank of America, N.A. Pursuant to the Swap Agreement, on August 14, 2015, HF-T1 entered into a confirmation of swap transactions (the "Interest Rate Swap") with Bank of America, N.A. The Interest Rate Swap has an effective date of August 12, 2015 and a maturity date of August 12, 2022, subject to early termination at the option of HF-T1, commencing on August 1, 2020. The Interest Rate Swap fixes the effective interest rate on the New Loan at 4.08% per annum. The Amended Loan Agreement and the Swap Agreement are subject to customary covenants and events of default. Bank of America, N.A. also acts as a lender and syndication agent under the Credit Agreement dated June 30, 2015 (see Note 2, Derivative Instruments).
(4) |
STOCKHOLDERS’ EQUITY |
On September 24, 2015, the Company’s stockholders approved an amendment to its Certificate of Incorporation to increase the authorized number of Class A Common Stock from 100 million shares to 500 million shares and Class B Common Stock from 60 million shares to 75 million shares. The amendment increasing the Company’s authorized common stock became effective with the filing of the Certificate of Amendment with the Secretary of State of the State of Delaware on September 24, 2015.
During the three months ended September 30, 2015, 1,908,000 shares of Class B common stock were converted into shares of Class A common stock. During the three months ended September 30, 2014, no shares of Class B common stock were converted into shares of Class A common stock. During the nine months ended September 30, 2015, 5,131,296 shares of Class B common stock were converted into shares of Class A common stock. During the nine months ended September 30, 2014, 899,328 shares of Class B common stock were converted into shares of Class A common stock.
The following table reconciles equity attributable to noncontrolling interests (in thousands):
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2015 |
|
|
2014 |
|
||
Non-controlling interests, beginning of period |
|
$ |
58,858 |
|
|
$ |
49,598 |
|
Net earnings attributable to non-controlling interests |
|
|
20,093 |
|
|
|
9,450 |
|
Foreign currency translation adjustment |
|
|
(2,323 |
) |
|
|
(138 |
) |
Capital contribution by non-controlling interests |
|
|
485 |
|
|
|
83 |
|
Capital distribution to non-controlling interests |
|
|
(37,090 |
) |
|
|
(3,250 |
) |
Non-controlling interests, end of period |
|
$ |
40,023 |
|
|
$ |
55,743 |
|
(5) |
NON-CONTROLLING INTERESTS |
The Company has equity interests in several joint ventures that were established either to exclusively distribute the Company’s products throughout Asia or to construct the Company’s domestic distribution facility. These joint ventures are variable interest entities (“VIEs”) under ASC 810-10-15-14. The Company’s determination of the primary beneficiary of a VIE considers all relationships between the Company and the VIE, including management agreements, governance documents and other contractual arrangements. The Company has determined for its VIEs that the Company is the primary beneficiary because it has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic
11
performance, and (b) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Accordingly, the Company includes the assets and liabilities and results of operations of these entities in its consolidated financial statements, even though the Company may not hold a majority equity interest. There have been no changes during 2015 in the accounting treatment or characterization of any previously identified VIE. The Company continues to reassess these relationships quarterly. The assets of these joint ventures are restricted in that they are not available for general business use outside the context of such joint ventures. The holders of the liabilities of each joint venture have no recourse to the Company. The Company does not have a variable interest in any unconsolidated VIEs.
The following VIEs are consolidated into the Company’s condensed consolidated financial statements and the carrying amounts and classification of assets and liabilities were as follows (in thousands):
HF Logistics-SKX, LLC |
|
September 30, 2015 |
|
|
December 31, 2014 |
|
||
Current assets |
|
$ |
2,400 |
|
|
$ |
6,812 |
|
Noncurrent assets |
|
|
114,897 |
|
|
|
118,837 |
|
Total assets |
|
$ |
117,297 |
|
|
$ |
125,649 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
2,771 |
|
|
$ |
78,668 |
|
Noncurrent liabilities |
|
|
71,122 |
|
|
|
1,194 |
|
Total liabilities |
|
$ |
73,893 |
|
|
$ |
79,862 |
|
|
|
|
|
|
|
|
|
|
Distribution joint ventures (1) |
|
September 30, 2015 |
|
|
December 31, 2014 |
|
||
Current assets |
|
$ |
169,119 |
|
|
$ |
94,819 |
|
Noncurrent assets |
|
|
14,749 |
|
|
|
10,322 |
|
Total assets |
|
$ |
183,868 |
|
|
$ |
105,141 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
81,208 |
|
|
$ |
38,470 |
|
Noncurrent liabilities |
|
|
823 |
|
|
|
66 |
|
Total liabilities |
|
$ |
82,031 |
|
|
$ |
38,536 |
|
(1) |
Distribution joint ventures include Skechers China Limited, Skechers Southeast Asia Limited, Skechers Thailand Limited, Skechers Retail India Private Limited, and Skechers South Asia Private Limited. |
Net earnings attributable to non-controlling interests were $7.2 million and $4.0 million for the three months ended September 30, 2015 and 2014, respectively, which represents the share of net earnings that is attributable to the Company’s joint venture partners. Net earnings attributable to non-controlling interests were $20.1 million and $9.5 million for the nine months ended September 30, 2015 and 2014, respectively. HF Logistics-SKX, LLC made capital distributions of $34.7 million and $36.6 million during the three and nine months ended September 30, 2015, respectively. HF Logistics-SKX, LLC made capital distributions of $1.3 million and $2.9 million during the three and nine months ended September 30, 2014, respectively. Skechers China Limited made no capital distributions during the three months ended September 30, 2015 and capital distributions of $0.5 million during the nine months ended September 30, 2015. Skechers China Limited made capital distributions of $0.4 million during the three and nine months ended September 30, 2014. The Company’s distribution joint venture partners made no cash capital contributions during the three months ended September 30, 2015 and cash capital contributions of $0.5 million during the nine months ended September 30, 2015. The Company’s distribution joint venture partners made cash capital contributions of $0.1 million during the three and nine months ended September 30, 2014.
(6) |
EARNINGS PER SHARE |
Basic earnings per share represents net earnings divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share, in addition to the weighted average determined for basic earnings per share, includes potential common shares, if dilutive, that would arise from the exercise of stock options and nonvested shares using the treasury stock method.
12
The Company has two classes of issued and outstanding common stock, Class A Common Stock and Class B Common Stock. Holders of Class A Common Stock and holders of Class B Common Stock have substantially identical rights, including rights with respect to any declared dividends or distributions of cash or property and the right to receive proceeds on liquidation or dissolution of the Company after payment of the Company’s indebtedness. The two classes have different voting rights, with holders of Class A Common Stock entitled to one vote per share while holders of Class B Common Stock are entitled to ten votes per share. The Company uses the two-class method for calculating net earnings per share. Basic and diluted net earnings per share of Class A Common Stock and Class B Common Stock are identical.
The following is a reconciliation of net earnings and weighted average common shares outstanding for purposes of calculating basic earnings per share (in thousands, except per share amounts):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
Basic earnings per share |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
Net earnings attributable to Skechers U.S.A., Inc. |
|
$ |
66,602 |
|
|
$ |
51,123 |
|
|
$ |
202,464 |
|
|
$ |
116,890 |
|
Weighted average common shares outstanding |
|
|
152,895 |
|
|
|
151,882 |
|
|
|
152,677 |
|
|
|
151,753 |
|
Basic earnings per share attributable to Skechers U.S.A., Inc. |
|
$ |
0.44 |
|
|
$ |
0.34 |
|
|
$ |
1.33 |
|
|
$ |
0.77 |
|
The following is a reconciliation of net earnings and weighted average common shares outstanding for purposes of calculating diluted earnings per share (in thousands, except per share amounts):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
Diluted earnings per share |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
Net earnings attributable to Skechers U.S.A., Inc. |
|
$ |
66,602 |
|
|
$ |
51,123 |
|
|
$ |
202,464 |
|
|
$ |
116,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
152,895 |
|
|
|
151,882 |
|
|
|
152,677 |
|
|
|
151,753 |
|
Dilutive effect of nonvested shares |
|
|
1,582 |
|
|
|
1,072 |
|
|
|
1,396 |
|
|
|
993 |
|
Weighted average common shares outstanding |
|
|
154,477 |
|
|
|
152,954 |
|
|
|
154,073 |
|
|
|
152,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to Skechers U.S.A., Inc. |
|
$ |
0.43 |
|
|
$ |
0.33 |
|
|
$ |
1.31 |
|
|
$ |
0.77 |
|
(7) |
STOCK COMPENSATION |
For stock-based awards the Company recognized compensation expense based on the grant date fair value. Share-based compensation expense was $4.7 million and $2.0 million for the three months ended September 30, 2015 and 2014, respectively. Share-based compensation expense was $13.5 million and $4.9 million for the nine months ended September 30, 2015 and 2014, respectively.
A summary of the status and changes of the Company’s nonvested shares related to the Company’s Equity Incentive Plans as of and for the nine months ended September 30, 2015 is presented below:
|
|
Shares |
|
|
Weighted Average Grant-Date Fair Value |
|
||
Nonvested at December 31, 2014 |
|
|
3,791,499 |
|
|
$ |
14.46 |
|
Granted |
|
|
40,500 |
|
|
|
29.83 |
|
Vested |
|
|
(513,999 |
) |
|
|
10.03 |
|
Nonvested at September 30, 2015 |
|
|
3,318,000 |
|
|
$ |
15.33 |
|
As of September 30, 2015, there was $37.3 million of unrecognized compensation cost related to nonvested common shares. The cost is expected to be amortized over a weighted average period of 2.1 years.
13
(8) |
INCOME TAXES |
Income tax expense and the effective tax rate for the three and nine months ended September 30, 2015 and 2014 were as follows (in thousands, except the effective tax rate):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
Income tax expense |
|
$ |
15,839 |
|
|
$ |
12,682 |
|
|
|
60,342 |
|
|
$ |
36,351 |
|
Effective tax rate |
|
|
17.7 |
% |
|
|
18.7 |
% |
|
|
21.3 |
% |
|
|
22.3 |
% |
The tax provision for the three and nine months ended September 30, 2015 and 2014 was computed using the estimated effective tax rates applicable to each of the domestic and international taxable jurisdictions for the full year. The Company estimates its ongoing effective annual tax rate in 2015 to be between 20% and 23%, which is subject to management’s quarterly review and revision, if necessary.
The Company’s provision for income tax expense and effective income tax rate are significantly impacted by the mix of the Company’s domestic and foreign earnings (loss) before income taxes. In the foreign jurisdictions in which the Company has operations, the applicable statutory rates range from 0% to 34%, which is generally significantly lower than the U.S. federal and state combined statutory rate of approximately 39%. For the three months ended September 30, 2015, the decrease in the effective tax rate was primarily due to an increase in the amount of foreign earnings relative to domestic earnings as compared to the same period in the prior year. For the nine months ended September 30, 2015, the decrease in the effective tax rate was primarily due to the reduction in the balance of unrecognized tax benefits resulting from the lapse of the statute of limitations in certain foreign jurisdictions.
As of September 30, 2015, the Company had approximately $510.7 million in cash and cash equivalents, of which $198.7 million, or 38.9%, was held outside the U.S. Of the $198.7 million held by the Company’s foreign subsidiaries, approximately $26.5 million is available for repatriation to the U.S. without incurring U.S. income taxes and applicable foreign income and withholding taxes in excess of the amounts accrued in the Company’s condensed consolidated financial statements. Under current applicable tax laws, if the Company chooses to repatriate some or all of the funds designated as indefinitely reinvested outside the U.S., the amount repatriated would be subject to U.S. income taxes and applicable foreign income and withholding taxes. The Company does not expect to repatriate any of the funds presently designated as indefinitely reinvested outside the U.S. As such, the Company did not provide for deferred income taxes on its accumulated undistributed earnings of the Company’s foreign subsidiaries.
(9) |
BUSINESS AND CREDIT CONCENTRATIONS |
The Company generates the majority of its sales in the United States; however, several of its products are sold into various foreign countries, which subjects the Company to the risks of doing business abroad. In addition, the Company operates in the footwear industry, and its business depends on the general economic environment and levels of consumer spending. Changes in the marketplace may significantly affect management’s estimates and the Company’s performance. Management performs regular evaluations concerning the ability of customers to satisfy their obligations and provides for estimated doubtful accounts. Domestic accounts receivable, which generally do not require collateral from customers, were $199.1 million and $166.9 million before allowances for bad debts, sales returns and chargebacks at September 30, 2015 and December 31, 2014, respectively. Foreign accounts receivable, which in some cases are collateralized by letters of credit, were equal to $220.5 million and $126.2 million before allowance for bad debts, sales returns and chargebacks at September 30, 2015 and December 31, 2014, respectively. The Company’s credit losses attributable to write-offs for the three months ended September 30, 2015 and 2014 were $1.5 million and $1.9 million, respectively. The Company’s credit losses attributable to write-offs for the nine months ended September 30, 2015 and 2014 were $2.2 million and $6.8 million, respectively.
Assets located outside the U.S. consist primarily of cash, accounts receivable, inventory, property, plant and equipment, and other assets. Net assets held outside the United States were $677.7 million and $548.9 million at September 30, 2015 and December 31, 2014, respectively.
The Company’s net sales to its five largest customers accounted for approximately 13.4% and 14.8% of total net sales for the three months ended September 30, 2015 and 2014, respectively. The Company’s net sales to its five largest customers accounted for approximately 15.1% and 15.9% of total net sales for the nine months ended September 30, 2015 and 2014, respectively. No customer accounted for more than 10% of the Company’s net sales during the three and nine months ended September 30, 2015 and 2014. No customer accounted for more than 10% of net trade receivables at September 30, 2015 or December 31, 2014.
14
The Company’s top five manufacturers produced the following, as a percentage of total production, for the three and nine months ended September 30, 2015 and 2014:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
Manufacturer #1 |
|
|
41.2 |
% |
|
|
41.2 |
% |
|
|
41.4 |
% |
|
|
38.0 |
% |
Manufacturer #2 |
|
|
8.4 |
% |
|
|
6.4 |
% |
|
|
7.6 |
% |
|
|
5.7 |
% |
Manufacturer #3 |
|
|
3.5 |
% |
|
|
5.1 |
% |
|
|
4.9 |
% |
|
|
5.5 |
% |
Manufacturer #4 |
|
|
3.3 |
% |
|
|
4.6 |
% |
|
|
3.4 |
% |
|
|
5.3 |
% |
Manufacturer #5 |
|
|
3.3 |
% |
|
|
4.4 |
% |
|
|
3.1 |
% |
|
|
4.4 |
% |
|
|
|
59.7 |
% |
|
|
61.7 |
% |
|
|
60.4 |
% |
|
|
58.9 |
% |
The majority of the Company’s products are produced in China. The Company’s operations are subject to the customary risks of doing business abroad, including, but not limited to, currency fluctuations and revaluations, custom duties and related fees, various import controls and other monetary barriers, restrictions on the transfer of funds, labor unrest and strikes, and, in certain parts of the world, political instability. The Company believes it has acted to reduce these risks by diversifying manufacturing among various factories. To date, these business risks have not had a material adverse impact on the Company’s operations.
(10) |
SEGMENT AND GEOGRAPHIC REPORTING INFORMATION |
The Company has four reportable segments – domestic wholesale sales, international wholesale sales, retail sales, and e-commerce sales. Management evaluates segment performance based primarily on net sales and gross profit. All other costs and expenses of the Company are analyzed on an aggregate basis, and these costs are not allocated to the Company’s segments. Net sales, gross margins, identifiable assets and additions to property and equipment for the domestic wholesale, international wholesale, retail, and the e-commerce segments on a combined basis were as follows (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic wholesale |
|
$ |
300,114 |
|
|
$ |
268,449 |
|
|
$ |
960,089 |
|
|
$ |
757,626 |
|
International wholesale |
|
|
319,551 |
|
|
|
209,041 |
|
|
|
846,994 |
|
|
|
539,175 |
|
Retail |
|
|
229,864 |
|
|
|
190,178 |
|
|
|
597,088 |
|
|
|
490,936 |
|
E-commerce |
|
|
6,650 |
|
|
|
6,602 |
|
|
|
20,469 |
|
|
|
20,102 |
|
Total |
|
$ |
856,179 |
|
|
$ |
674,270 |
|
|
$ |
2,424,640 |
|
|
$ |
1,807,839 |
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic wholesale |
|
$ |
113,748 |
|
|
$ |
100,543 |
|
|
$ |
374,541 |
|
|
$ |
279,284 |
|
International wholesale |
|
|
132,460 |
|
|
|
87,493 |
|
|
|
349,608 |
|
|
|
228,574 |
|
Retail |
|
|
135,996 |
|
|
|
113,428 |
|
|
|
356,934 |