UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
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: 001-14429
SKECHERS U.S.A., INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4376145
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
228 MANHATTAN BEACH BLVD.
MANHATTAN BEACH, CALIFORNIA 90266
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 318-3100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange
Class A Common Stock $0.001 par value on which registered
New York Stock Exchange
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 [ ]
THE NUMBER OF SHARES OF CLASS A COMMON STOCK OUTSTANDING AS OF MAY 10,
2001: 13,015,192
THE NUMBER OF SHARES OF CLASS B COMMON STOCK OUTSTANDING AS OF MAY 10,
2001: 23,312,951
SKECHERS U.S.A., INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2001
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets - March 31, 2001 and December 31, 2000................................ 3
Condensed Consolidated Statements of Earnings - Three-months periods ended March 31, 2001 and 2000.......... 4
Condensed Consolidated Statements of Cash Flows - Three-months periods ended March 31, 2001 and 2000........ 5
Notes to Condensed Consolidated Financial Statements........................................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................................................................................. 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................................. 11
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................................ 11
2
SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS
MARCH 31, DECEMBER 31,
2001 2000
---------- -----------
Current Assets:
Cash $ 10,458 $ 8,781
Trade accounts receivable, less allowance for bad debts and returns
of $7,752 in 2001 and $5,152 in 2000 128,449 96,628
Due from officers and employees 390 540
Other receivables 1,319 1,016
Inventories 104,083 111,708
Prepaid expenses and other current assets 12,545 6,457
Deferred tax assets 4,414 4,414
-------- --------
Total current assets 261,658 229,544
-------- --------
Property and equipment, at cost, less accumulated depreciation and amortization 76,725 70,405
Intangible assets, at cost, less applicable amortization 534 559
Other assets, at cost 2,606 2,892
-------- --------
$341,523 $303,400
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 71,577 $ 49,754
Current installments of long-term borrowings 2,563 2,452
Accounts payable 63,016 72,865
Accrued expenses 14,295 11,168
-------- --------
Total current liabilities 151,451 136,239
-------- --------
Long-term borrowings, excluding current installments 32,455 33,115
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.001 par value; 10,000 authorized; none issued
and outstanding -- --
Class A Common Stock, $.001 par value; 100,000 shares authorized;
12,557 shares and 10,789 issued and outstanding at March 31, 2001 and
December 31, 2000, respectively 13 10
Class B Common Stock, $.001 par value; 60,000 shares authorized;
23,500 and 24,805 shares issued and outstanding at March 31, 2001 and
December 31, 2000, respectively 23 25
Additional paid-in capital 80,713 74,243
Retained earnings 76,868 59,768
-------- --------
Total stockholders' equity 157,617 134,046
-------- --------
$341,523 $303,400
======== ========
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)
THREE-MONTHS ENDED MARCH 31,
---------------------------------------
2001 2000
---------- ----------
Net sales $ 227,494 $ 133,344
Cost of sales 128,180 79,709
--------- ---------
Gross profit 99,314 53,635
Royalty income, net 217 5
--------- ---------
99,531 53,640
--------- ---------
Operating expenses:
Selling expenses 20,842 14,671
General and administrative expenses 47,389 26,094
--------- ---------
68,231 40,765
--------- ---------
Earnings from operations 31,300 12,875
--------- ---------
Other income (expense):
Interest, net (3,758) (1,799)
Other, net 491 --
--------- ---------
(3,267) (1,799)
--------- ---------
Earnings before income taxes 28,033 11,076
Income taxes 10,933 4,342
--------- ---------
Net earnings $ 17,100 $ 6,734
========= =========
Net earnings per share:
Basic $ 0.48 $ 0.19
========= =========
Diluted $ 0.45 $ 0.19
========= =========
Weighted average shares:
Basic 35,871 34,905
========= =========
Diluted 38,127 35,658
========= =========
See accompanying notes to unaudited condensed
consolidated financial statements.
4
SKECHERS U.S.A., INC. AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(Unaudited)
(In thousands)
THREE-MONTHS ENDED MARCH 31,
-----------------------------
2001 2000
---------- --------
Cash flows from operating activities:
Net earnings $ 17,100 $ 6,734
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization of property and equipment 2,755 1,166
Amortization of intangible assets 25 26
Provision for bad debts and returns 2,092 825
Loss on disposal of equipment 341 29
Tax effect of non-qualified stock options 3,414 --
(Increase) decrease in assets:
Receivables (34,066) (20,151)
Inventories 7,625 5,477
Prepaid expenses and other current assets (6,088) (1,615)
Other assets 286 59
Increase (decrease) in liabilities:
Accounts payable (9,849) (10,707)
Accrued expenses 3,127 (1,483)
-------- --------
Net cash used in operating activities (13,238) (19,640)
-------- --------
Cash flows used in investing activities - capital expenditures (9,416) (3,125)
-------- --------
Cash flows from financing activities:
Net proceeds from short-term borrowings 21,823 11,296
Proceeds from the exercise of stock options 3,057 --
Proceeds from long terms borrowings -- 2,605
Payments on long-term borrowings (549) (250)
-------- --------
Net cash provided by financing activities 24,331 13,651
-------- --------
Net increase (decrease) in cash 1,677 (9,114)
Cash at beginning of period 8,781 10,836
-------- --------
Cash at end of period $ 10,458 $ 1,722
======== ========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 3,287 $ 1,756
Income taxes 1,006 945
======== ========
See accompanying notes to unaudited condensed
consolidated financial statements.
5
SKECHERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL
The unaudited condensed consolidated financial statements have been prepared on
the same basis as the audited consolidated financial statements and, in the
opinion of management, reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation for each of the periods
presented. The results of operations for interim periods are not necessarily
indicative of results to be achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01
of Regulation S-X, the accompanying condensed consolidated financial statements
and related footnotes have been condensed and do not contain certain information
that will be included in the Company's annual consolidated financial statements
and footnotes thereto. For further information, refer to the consolidated
financial statements and related footnotes for the year ended December 31, 2000
included in the Company's Annual Report on Form 10-K.
(2) 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
reflects the potential dilution that could occur if options to issue common
stock were exercised or converted into common stock.
The reconciliation of basic to diluted weighted average shares is as follows (in
thousands):
THREE-MONTHS ENDED
MARCH 31,
------------------------
2001 2000
------ ------
Weighted average shares used in basic
computation 35,871 34,905
Dilutive effect of stock options 2,256 753
------ ------
Weighted average shares used in
diluted computation 38,127 35,658
====== ======
Options to purchase 1,217,136 and 7,500 shares of common stock at prices ranging
from $7.06 to $11.00 and $27.28 were outstanding at March 31, 2000 and 2001,
respectively, but not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price of
the common shares.
(3) INCOME TAXES
Income taxes for the interim periods were computed using the effective tax rate
estimated to be applicable for the full fiscal year, which is subject to ongoing
review and evaluation by management.
(4) SHORT-TERM BORROWINGS
The Company has available a secured line of credit permitting borrowings of up
to $120.0 million based upon eligible accounts receivable and inventories. The
agreement expires on December 31, 2002. As amended on June 1, 2000, borrowings
bear interest at the prime rate (8.0% at March 31, 2001) minus 0.50%. The
agreement provides for the issuance of letters of credit up to a maximum of
$36.0 million of which 50% decreases the amount available for borrowings under
the agreement. Outstanding letters of credit at March 31, 2001 were $10.3
million and outstanding borrowings were $71.6 million. Available borrowings
under the line of credit at March 31, 2001 were $43.2 million. The Company pays
an unused line of credit fee of .25% annually. The Company is required to
maintain certain financial covenants including specified minimum tangible net
worth, working capital and leverage ratios as well as limit the payment of
dividends if it is in default of any provision of the agreement. The Company was
in compliance with these covenants at March 31, 2001.
6
(5) LITIGATION
In December 1999 and January 2000, the Company and two officers/directors were
named as defendants in four purported class-action lawsuits. Two of the lawsuits
also named the underwriters of the Company's initial public offering as
defendants. All of the complaints seek damages and rescission on behalf of a
class of persons who purchased securities in, or traceable to, the Company's
initial public offering or thereafter on the open market prior to July 6, 1999.
All four actions were subsequently consolidated into one matter and a
consolidated complaint was filed on June 1, 2000. The consolidated complaint
named as defendants the Company, two officers of the Company, and the
underwriters of the Company's Offering. The class, as currently alleged in the
consolidated complaint now on file, consists of all persons who purchased
securities in, or traceable to, the Company's June 9, 1999 Offering or
thereafter on the open market prior to June 15, 1999.
In response to the consolidated complaint, the Company filed a motion to dismiss
the entire case. On September 25, 2000, the Court issued a tentative order to
dismiss the consolidated complaint in its entirety, with leave to amend. As of
March 31, 2001, the Court had not issued a final order. Thus, as these matters
are in still in the pleading stage and no discovery has been conducted, neither
the Company nor Company counsel are able to conclude as to the potential
likelihood of an unfavorable outcome. In any event, the Company is vigorously
defending the claims and believes that its defenses are meritorious. The Company
also maintains insurance that it believes covers all the matters alleged in the
consolidated complaint as currently pled. Accordingly, the Company has not
provided for any potential losses associated with these lawsuits.
The Company is involved in other litigation arising from the ordinary course of
business. Management does not believe that the disposition of these matters will
have a material effect on the Company's financial position or results of
operations.
(6) STOCKHOLDERS' EQUITY
During the three months ended March 31, 2001, certain Class B stockholders
converted 1,305,000 shares of Class B common stock to Class A common stock.
7
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and Notes thereto appearing
elsewhere in this document.
This Form 10-Q contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including statements with
regards to the Company's revenues, earnings, spending, margins, cash flow,
orders, inventory, products, actions, plans, strategies and objectives.
Forward-looking statements include, without limitation, any statement that may
predict, forecast, indicate or simply state future results, performance or
achievements, and may contain the words "believe," "anticipate," "expect,"
"estimate," "intend," "plan," "project," "will be," "will continue," "will
result," "could," "may," "might," or any variations of such words with similar
meanings. Any such statements are subject to risks and uncertainties that could
cause the Company's actual results to differ materially from those which are
management's current expectations or forecasts. Such information is subject to
the risk that such expectations or forecasts, or the assumptions underlying such
exceptions or forecasts, become inaccurate.
Risks and uncertainties that could affect the Company's actual results and could
cause such results to differ materially from those forward-looking statements
made by or on behalf of the Company are included under the "Risk Factors" on
pages 12 through 18 in the Company's Form 10-K for the year ended December 31,
2000.
OVERVIEW
Skechers designs and markets branded contemporary casual, active rugged and
lifestyle footwear for men, women and children. The Company's objective is to
become a leading source of contemporary casual and active footwear while
ensuring the longevity of both the Company and Skechers brand name through
controlled, well managed growth. The Company strives to achieve this objective
by developing and offering a balanced assortment of basic and fashionable
merchandise across a wide spectrum of product categories and styles, while
maintaining a diversified, low-cost sourcing base and controlling the growth of
its distribution channels. The Company sells its products to department stores
such as Nordstrom, Dillards, Robinsons-May, JC Penney and specialty retailers
such as Footlocker, Famous Footwear, Genesco's Journeys and Jarman chains, and
FootAction U.S.A. The Company also sells its products internationally in over
100 countries and territories through major international distributors, with the
exception of France and Germany where the Company sells directly, and directly
to consumers through Company owned stores and via mail order and e-commerce.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, selected information
from the Company's results of operations as a percentage of net sales.
THREE-MONTHS ENDED
MARCH 31,
------------------------------------------------
2001 2000
----------------------- ---------------------
Net sales $ 227,494 100.0% $ 133,344 100.0%
Cost of sales 128,180 56.3% 79,709 59.8%
----------- ------ ---------- ------
Gross profit 99,314 43.7% 53,635 40.2%
Royalty income, net 217 0.1% 5 0.0%
----------- ------ ---------- ------
99,531 43.8% 53,640 40.2%
----------- ------ ----------- ------
Operating expenses:
Selling 20,842 9.2% 14,671 11.0%
General and administrative 47,389 20.8% 26,094 19.6%
----------- ------ ---------- ------
68,231 30.0% 40,765 30.6%
----------- ------ ---------- ------
Earnings from operations 31,300 13.8% 12,875 9.6%
Interest expense, net (3,758) (1.7%) (1,799) (1.3%)
Other, net 491 0.2% -- 0.0%
----------- ------ --------- ------
Earnings before income taxes 28,033 12.3% 11,076 8.3%
Income taxes 10,933 4.8% 4,342 3.3%
----------- ------ ---------- ------
Net earnings $ 17,100 7.5% $ 6,734 5.0%
=========== ====== ========== ======
8
Net Sales
Net sales for the three months ended March 31, 2001, were $227.5 million, an
increase of $94.2 million or 70.6% over sales of $133.3 million for the period
ending March 31, 2000. The significant increase in net sales is primarily due to
the increase in wholesale revenues, which continued to benefit from a strong
demand for the company's product offerings. Wholesale revenues realized
increases in each of the men's, women's and kid's categories in the three months
ended March 31, 2001, compared to the same period in 2000. International
wholesale sales increased during the three months ended March 31, 2001, compared
to the same period last year, due to increased brand awareness and increased
marketing efforts in the international marketplace. Retail sales increased
during the period ended March 31, 2001, over the same period last year due
primarily to the increase in the number of retail stores. In addition, during
March 2001, we opened two international retail stores, in Germany and the United
Kingdom, and expect to open another international retail store in Paris, France
during the second quarter of fiscal 2001. Mail order sales decreased during the
three months ended March 31, 2001, compared to the same three-month period last
year, due to the timing of catalog mailings, which took place later in the
quarter during the current year.
Gross Profit
Gross profit for the three months ended March 31, 2001 was $99.3 million, an
increase of $45.7 million or 85.2% over gross profit of $53.6 million for the
three months ended March 31, 2000. Gross profit as a percentage of net sales
increased to 43.7% during the current quarter compared to 40.2% in the same
quarter last year. The increase in gross profit as a percentage of sales during
the three months ended March 31, 2001 was due to continued sales increases
in the women's footwear lines, which have a higher gross margin as a percent of
sales than other categories, and reduced inbound freight costs.
Selling Expenses
Selling expenses for the three months ended March 31, 2001 were $20.8 million,
an increase of $6.2 million over selling expenses of $14.7 million in the same
period last year. However, as a percentage of net sales, selling expenses
decreased to 9.2% in the current year from 11.0% in the same period last year.
Selling expenses for the three months ended March 31, 2001, increased primarily
due to increased sales commissions, which are sales driven, and increased
television advertising and promotional costs.
Management is committed to the overall marketing strategy that is largely
responsible for the increase in the our market presence, product visibility and
product demand. The Company has increased its advertising budget consistent with
projected sales, which has included such avenues as magazine, television, trade
show, and billboards. The Company endeavors to spend approximately 8% to 10% of
annual net sales in the marketing of Skechers footwear through advertising,
promotions, public relations, trade shows and other marketing efforts. Marketing
expense as a percentage of net sales may vary from quarter to quarter. In the
three-months ended March 31, 2001, total advertising expenses increased to $15.7
million or 6.9% of net sales from $11.8 million or 8.9% of net sales for the
same period in 2000.
General and Administrative Expenses
General and administrative expenses were $47.4 million for the three months
ended March 31, 2001, an increase of $21.3 million over general and
administrative expenses of $26.1 million for the period ended March 31, 2000.
General and administrative expenses, as a percentage of net sales, for the three
months ended March 31, 2001 were 20.8%, compared to 19.6% for the same period
last year. The increase in general and administrative expenses during the
current year were due to start up costs associated with our international
operations that were not incurred last year, pre-opening costs incurred in
connection with the opening of our first international retail stores in March
2001, and increased salaries and overtime costs associated with our distribution
facilities to handle to the increase in sales volume. Depreciation expense also
increased during the three months ended March 31, 2001, over the same period
last year, due primarily to the increase in the number of retail stores and
additional material handling equipment utilized at the distribution center.
Interest Expense
Interest expense for the period ending March 31, 2001 was $3.8 million compared
to $1.8 million for the same period last year. The increase in interest expense
is due to the increase in short term borrowings to support our working capital
requirements and capital additions added during the fourth quarter of fiscal
2000.
9
Other, Net
Other, net consists of rental income from the leasing of offices located in the
administrative building acquired during the fourth quarter of 2000 and a legal
settlement, offset partially by the loss on the disposal of fixed assets.
Income Taxes
Income taxes for the interim periods were computed using the effective tax rate
estimated to be applicable for the full fiscal year, which is subject to ongoing
review and evaluation by management.
LIQUIDITY AND CAPITAL RESOURCES
Our capital needs are derived primarily from working capital requirements and
the continued growth of the business. Our working capital at March 31, 2001 was
$110.2 million, an increase of $16.9 million over working capital of $93.3
million at December 31, 2000. The increase in working capital was primarily due
to the increase in accounts receivable and reductions in accounts payable,
partially offset by increases in short term borrowings and accrued expenses.
Net cash used in operating activities for the three months ended March 31, 2001
was $13.2 million, compared to cash used in operating activities of $19.6
million for the same period last year. The decrease in cash used in operating
activities was due to increased net earnings, depreciation, and the tax effect
of non-qualified stock options, partially offset by increases in accounts
receivable, and prepaid expenses and other current assets.
Net cash used in investing activities was $9.4 million for the three months
ended March 31, 2001, an increase of $6.3 million over the three months ended
March 31, 2000. The increase in cash used in investing activities is due to
increased capital expenditures related to new store openings and the acquisition
of three adjacent properties in Manhattan Beach. We plan on building
administrative offices on these properties.
Net cash provided by financing activities for the three months ended March 31,
2001 was $24.3 million, compared to $13.7 million in the three months ended
March 31, 2000. The cash provided by financing activities was derived primarily
from our short-term credit facilities, and, to a lesser extent, proceeds from
the exercise of stock options, partially offset by reductions in long term debt.
Our credit facility provides for borrowing under a revolving line of credit of
up to $120.0 million and a term loan, with actual borrowings limited to
available collateral and certain limitations on total indebtedness
(approximately $48.4 million of availability as of March 31, 2001) with the CIT
Group, as agents for the lenders. At March 31, 2001, there was approximately
$71.6 million outstanding under the revolving line of credit. The revolving line
of credit bears interest at prime rate (8.0% at March 31, 2001) minus .5%.
Interest on the line of credit is payable monthly in arrears. The revolving line
of credit expires on December 31, 2002. The revolving line of credit provides a
sub-limit for letters of credit of up to $36.0 million to finance our foreign
purchases of merchandise inventory. As of March 31, 2001, we had approximately
$10.3 million of letters of credit under the revolving line of credit. The term
loan component of the credit facility, which has a principal balance of $2.0
million as of March 31, 2001, bears interest at the prime rate plus 1.0% and is
due in monthly installments with a final balloon payment December 2002. The
proceeds from this note were used to purchase equipment for one of our
distribution centers in Ontario, California and the note is secured by such
equipment. The credit facility contains certain financial covenants that require
us to maintain minimum tangible net worth, working capital, and specified
leverage ratios and limits our ability to pay dividends if we are in default of
any provisions of the credit facility. We were in compliance with these
covenants as of March 31, 2001.
We believe that anticipated cash flows from operations, available borrowings
under our revolving line of credit, cash on hand and our financing arrangements
will be sufficient to provide us with the liquidity necessary to fund our
anticipated working capital and capital requirements through fiscal 2001.
However, in connection with our growth strategy, we will incur significant
working capital requirements and capital expenditures. Our future capital
requirements will depend on many factors, including, but not limited to, the
levels at which we maintain inventory, the market acceptance of our footwear,
the levels of promotion and advertising required to promote our footwear, the
extent to which we invest in new product design and improvements to our existing
product design and the number and timing of new store openings. To the extent
that available funds are insufficient to fund our future activities, we may need
to raise additional funds through public or private financing. We cannot assure
you that additional financing will be available or that, if available, it can be
obtained on terms favorable to us and our stockholders. Failure to obtain such
financing could delay or prevent our planned expansion, which could adversely
affect our business, financial condition and results of operations. In addition,
if additional capital is raised through the sale of additional equity or
convertible securities, dilution to our stockholders could occur.
10
QUARTERLY RESULTS AND SEASONALITY
While sales of footwear products have historically been somewhat seasonal in
nature with the strongest sales generally occurring in the third and fourth
quarters, we believe that changes in our product offerings have somewhat
mitigated the effect of this seasonality and, consequently, our sales are not
necessarily as subjected to seasonal trends as that of our past or our
competitors in the footwear industry.
We have experienced, and expect to continue to experience, variability in our
net sales and operating results on a quarterly basis. Our domestic customers
generally assume responsibility for scheduling pickup and delivery of purchased
products. Any delay in scheduling or pickup which is beyond our control could
materially negatively impact our net sales and results of operations for any
given quarter. We believe the factors which influence this variability include
(i) the timing of our introduction of new footwear products, (ii) the level of
consumer acceptance of new and existing products, (iii) general economic and
industry conditions that affect consumer spending and retail purchasing, (iv)
the timing of the placement, cancellation or pickup of customer orders, (v)
increases in the number of employees and overhead to support growth, (vi) the
timing of expenditures in anticipation of increased sales and customer delivery
requirements, (vii) the number and timing of our new retail store openings and
(viii) actions by competitors. Due to these and other factors, the operating
results for any particular quarter are not necessarily indicative of the results
for the full year.
INFLATION
We do not believe that the relatively moderate rates of inflation experienced in
the United States of America over the last three years has had a significant
effect on our net sales or profitability. However, we cannot accurately predict
the effect of inflation on future operating results. Although higher rates of
inflation have been experienced in a number of foreign countries in which our
products are manufactured, we do not believe that inflation has had a material
effect on our net sales or profitability. In the past, we have been able to
offset our foreign product cost increases by increasing prices or changing
suppliers, although no assurance can be given that we will be able to continue
to make such increases or changes in the future.
EXCHANGE RATES
We receive U.S. Dollars for substantially all of our product sales and our
royalty income. Inventory purchases from offshore contract manufacturers are
primarily denominated in U.S. Dollars; however, purchase prices for our products
may be impacted by fluctuations in the exchange rate between the U.S. Dollar and
the local currencies of the contract manufacturers, which may have the effect of
increasing our cost of goods in the future. During the fiscal year ending
December 31, 2000 and for the three months ended March 31, 2001, exchange rate
fluctuations did not have a material impact on our inventory costs. We do not
engage in hedging activities with respect to such exchange rate risk.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not hold any derivative securities or other market rate
sensitive instruments.
At March 31, 2001, approximately 29% of the Company's total indebtedness
contained fixed rates of interest ranging from 7.66% to 7.89%. Substantially all
of the Company's remaining indebtedness is at variable rates of interest and,
accordingly, while changes in interest rates would not impact the fair value of
these financial instruments, such changes would impact net earnings in future
periods. It is estimated that a change in interest rates of 1% would result in
an annual impact on interest expense of approximately $736,000.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K --
(a) Exhibits
None
(b) Reports on Form 8-K
During the three-month period ending March 31, 2001, the Company filed one
current report on Form 8-K on March 27, 2001 under Item 5 - Other Events,
regarding members of the Greenberg family each entering into an individual
written plan for the purposes of trading shares of the Company's common stock
and establishing an affirmative defense to insider trading liability pursuant
to Rule 10b5-1 as promulgated under the Securities Exchange Act of 1934, as
amended.
11
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.
SKECHERS U.S.A, INC.
Dated: May 14, 2001 /s/ David Weinberg
--------------------------------------
David Weinberg
Executive Vice President and
Chief Financial Officer
12