By the DCF method, Intrinsic value has been calculated approx $34.
With great management who is looking out for shareholders, this is a
solid pick.

Good solid pick and you will understand why if you do some personal
research.

Perfect example of low risk; high return.

Did you account for the dual share structure, which halves the value
of the shares listed?

Dual share structure is mainly for voting right purposes.

Even if I go along with what you say, you are saying that the company
really is only worth 14/2 = $7.

With $8 per share in cash and equivalent, the company is selling each
share for  $7 when it is worth $8? That means you are getting $1 free.
Still a bargain.

cheers,
http://oldschoolvalue.blogspot.com

Nice slight of hand. If you double the number of shares, you half the
cash on hand per share. You're actually getting $4 for the market
price per share of $16. Real book value does not come close to the
current price. Book value of $11 would be halved as well, meaning that
you have about $5.50 in equity per share. Still not a bargain.

And I fail to see how a dual share structure, essentially allowing one
party voting rights and the other not, is looking out for the best
interest of shareholders. If they really were doing that, they would
give both parties equal voting rights by converting their class of
shares to common stock. This would also keep the family from "hiding"
the true nature of the ownership agreement.

If you double the number of shares, you halve the share price as well
as halving the cash on hand per share. So halving everything
essentially results in the same calculation.

You are right that dual share structure isnt exactly share holder
friendly. But is it shareholder friendly when CEO's only care about
the short term? If management is willing to drive a business where
short term profits will dry out for a period in order to maximise the
long term prospects isnt that considered shareholder friendly?

My point is that dual share structure has both advantages and
disadvantages just like a single share structure. If the CEO was a
tyrant then of course you should steer clear, but when the CEO is
doing what is deemed best for the company and shareholders by not
listening to wall street or people wanting a quick turnaround, I
commend him for his actions and am willing to accept that he has
ultimate control.

With any investment, it would be best to uncover the character of
management rather than to dismiss one because of its dual structure. I
certainly wouldn't invest in a single structure company where the CEO
is like the Countrywide goon.

"If you double the number of shares, you halve the share price as well
"

If this were true, than you would be able to buy a share for $8. If
you could do this, then the shares would be listed for $8. Since the
shares are trading at $16, your point is not correct.

Not only that, but its a dual class share structure. This has to be so
because if those shares were the same class of shares, then you would
have shares in the same class with different voting rights. This is
absurd, and so the shares with more voting power must be a different
class of shares. Doubling the number of listed shares of the currently
listed share class would half the price, but not if the other shares
outstanding (which are equal in rights to the listed common, but which
have higher voting power) are another class of shares. Remember both
share classes have equal rights to the earnings and assets of the
company. its just that only one share class is listed, and the other
one has all the voting power. So while the value per share is constant
(business value divided by the total number of shares), the price in
the market does not have to reflect this fact. In this situation the
price in the market has not reflected this fact.

"My point is that dual share structure has both advantages and
disadvantages just like a single share structure. "

This does not necessitate that management will take a long term
outlook. It may not even be likely. A lot depends on how management is
compensated, and perhaps how business savy controlling shareholders
are. Like you said, you can have good or bad management in place, but
this means a dual share structure doesn't determine the quality of
management one way or another. If it does, you have not shown it.

I think majority ownership would be much better for bringing about
what is best for shareholders long term, but this could take place in
a single share structure, so there is no need for a dual share
structure to achieve this.

In any case, a single share structure will almost always be better
because if short term goals are being achieved at the expense of long
term value, then shareholders can
effect change. This could happen if someone bought majority ownership.
Without majority ownership, the vast majority (maybe 90%) of all
proxies fail.

Bottom line: a dual share structure is deceitful in this case, and
fairly useless.

I should also point out that most of the company's assets are listed
off the books, in the form of operating leases, so you are not getting
a fair ROA figure. the company is far less profitable than it seems.

I agree with many of the things you've put forward. On the point of
the price and the voting rights not being accounted for in the price,
I think you are right. Looking at Berkshire, Class A is financially
considerably more expensive than class B stocks.
But also, Buffett is known for this shareholder friendliness, yet he
maintains a dual share structure. He holds the majority of shares in
class A yet people dont complain about him taking full control. One of
the many reasons being, he clearly articulates his methods and his
results prove what he says.

So if another manager is able to be candid and lay all his cards out
on the table, you have a clear choice between agreeing and trusting
with what they plan or just moving on. Plus I don't recall stating
that a dual structure displays good management.
Looking at Nichols record, his entire career has revolved around the
footwear industry. He and the current (I emphasise current) management
has been through 2-3 of such cycles. A majority of his and his
families fortune is probably based in KSWS. Paraphrasing Buffett,
"find comfort that if you see your wealth drop, my wealth is dropping
with you". I assume the same will go for KSWS and a lot of other good
managers who put their money where their mouth is.

Now, I do want to make it clear that dual structure SHOULD be
considered before making a decision. You can also just rule out all
companies based on dual share structure since there are thousands of
other opportunies you can put your money in. However, I like to
overturn as many rocks as I can rather than walking by after just
glancing at them.

In terms of profitability, if we look at the FCF, ROIC or CROIC, we
can see that KSWS is a profitable company.

Bottom line: A company doesnt have to be ignored because it has a dual
structure.

cheers
http://www.oldschoolvalue.com

I think i agree with your post, for the most part. As with Buffett,
there are a couple of major differences: Buffett owns common stock
available to the public, and the shares are listed. This allows for
more transparency.

But I think you made a good point. its not the case that all dual
share structures are bad for investors. Majority ownership was never
an issue with me, however.

You also wrote that, "in terms of profitability, if we look at the
FCF, ROIC or CROIC, we
can see that KSWS is a profitable company," but I am curious to know
if you factored in the value of the assets that the company has
operating leases on. Operating leases are carried off the books, and
those are assets that are needed to earn revenues. Any metric looking
at assets is only useful if all tangible assets are accounted for in
the measurement. I guarantee you that when you include operating
leases the profitability will be a lot lower.

Good luck!

Big.

You were already wrong with your comment about how the dual structure
halves the value of the shares. As someone has already mentioned, it’s
merely for voting right purposes and unless you give the extra voting
right a premium value, it doesn’t change your valuation-formula.

“In any case, a single share structure will almost always be better
because if short term goals are being achieved at the expense of long
term value, then shareholders can effect change. This could happen if
someone bought majority ownership. Without majority ownership, the
vast majority (maybe 90%) of all proxies fail.”

A single share structure is not always better in all circumstances.
Imagine a partnership with only 2 partners each has 50% of voting
right and very different objectives. The partnership will practically
spend all its resources on negotiations and meetings. You can say
whatever you want to defend your arguments, but really, do you want a
good voting structure with shitty management or shitty voting
structure with good management? Shitty management will look for
loopholes and I can guarantee you that they’ll get what they want.

Oh ya, the operating lease, I was just checking the numbers. It
doesn’t look like a big difference to me.

Mduc,

"You were already wrong with your comment about how the dual structure
halves the value of the shares. As someone has already mentioned, it's
merely for voting right purposes and unless you give the extra voting
right a premium value, it doesn't change your valuation-formula. "

I assume that those shares are entitled to their share of the earnings
and equity of the company. They also are not listed. The shares listed
on google finance are shown as dividing up the earnings and equity of
the company only among that class of shares. This doesn't include
those other shares, which also have a share in the company. If you
combine the number of both classes of shares outstanding, you see that
each share is entitled to less than what is shown here on google
finance. This decreases the value of the shares from what is listed
here on google finance. Its not rocket science.

"A single share structure is not always better in all circumstances."

This is true, and why I said it wasn't so.

"really, do you want a good voting structure with shitty management or
shitty voting
structure with good management?"

I didn't know those were the only two options investors had.

Mduc,

Like yourself, I too thought that the untraded shares didnt matter and
didnt affect the valuation. However, I've changed my thinking to agree
with Mr Big. The only thing is, since we don't know how many class B
shares exist, I can't figure out how much dilution there could be.

After comparing Berkshire to K-Swiss, I realised a couple of things.
- Both share classes are tradeable, it's just that monst companies
dont.
- If both are tradeable, there must be a value associated with the
untraded shares
- The untraded shares, like the traded shares, are entitled to the
company value.

Basically, it just boils down to the fundamental question. "Is this a
high quality company?"
If the answer is no, move on, it doesnt matter whether it is a dual
class stock or single class stock.

cheers,
www.oldschoolvalue.com

Class A-authorized 90,000,000 shares of $0.01 par value; 28,970,733
shares issued, 26,698,572 shares outstanding and 2,272,161 shares held
in treasury at December 31, 2007

Class B-authorized 18,000,000 shares of $0.01 par value; issued and
outstanding 8,059,524 shares at December 31, 2007

from annual report

net earning was 39.073 million last year and diluted earning per share
was 1.10

If 1.10 is a good estimate of actual earnings potential, and if the
number of shares cited is accurate, then IV would be roughly $24.00
per share after adding back in cash on hand.

Jesus you make it hard;

Just watch the 10-K @ Edgar;

There are 26,5 Mio outstanding A Shares and 8,1 Mio Outstanding B
Shares;

These are about 34,6 Mio Shares. Exactly the same amount @ Google
Finance.

@ Mr. Big:
The problematic with leasing is, that other companies such as Adidas
or Nike use Leasing as well. How to compare all this ?!?

My favorite on KSWS is, that they have a careful and longtherm view.
Such a Price as today = Price/Book 1.4 and a PE Ratio (and  PE 3 Year)
below 15 (even with carrying 8$ Cash) (PE of "Operation-body" 7-10)
with no financial debt is a good deal.

As I am German and K-Swiss shoes are seen far more often these days (I
saw about 20 Pairs last month (City is 500K population) even the EUR/$
is on my side. I pay 10€ for 1 Share; 4 Years Ago this would have been
30$/30€.

@ Mr. Value (Jae Jun)
If you don't know how to find the amount of Class A or B Shares (it's
several times in the annual report) there are two possibilities:
1) You didn't read the Annual Report
2) You are not expirienced at all.

Both possibilities are "ok"; but then the name of your Blog "Oldschool
Value" is a bit unfortunate

Last but not least the interesting Earnings-Transscript:
http://seekingalpha.com/article/66240-k-swiss-inc-q4-2007-earnings-ca...

Please excuse my horrible English;

Greetings from Germany
Matze

I think it depends on what type of leases they have. What you need to
look at is the total amount of assets they use to produce their
return. Capital leases are on the balance sheet while operating leases
are not.

To compare all of this, you really need to adjust the balance sheets
of all the companies you want to look at. Thats really the only way.

See you in Germany in a few weeks.

Q1 Earnigs and Outlook don't look very well;

yeah but we all knew that was coming

I'd like to buy into this stock, but once this recession spreads to
retail it's in for some more trouble