##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 OR
 o
    
    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
    
    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 Offices)
    
    (Zip Code)
 (310) 318-3100
 Securities registered pursuant to Section 12(b) of the Act:
 Name of Each Exchange onTitle of Each Class
    
    Which RegisteredClass A Common Stock, $0.001 par value
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:
  
  þ o
 o þ
 þ o
 þ
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  
 DOCUMENTS INCORPORATED BY REFERENCE




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##### 



SKECHERS U.S.A., INC.
TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2007
 PART IITEM 1. BUSINESS
    
    
    2ITEM 1A. RISK FACTORS
    
    
    14ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    
    20ITEM 2. PROPERTIES
    
    
    20ITEM 3. LEGAL PROCEEDINGS
    
    
    20ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    20PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    21ITEM 6. SELECTED FINANCIAL DATA
    
    
    23ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
    
    
    24ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    35ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    36ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
    
    
    60ITEM 9A. CONTROLS AND PROCEDURES
    
    
    60ITEM 9B. OTHER INFORMATION
    
    
    61PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    63ITEM 11. EXECUTIVE COMPENSATION
    
    
    63ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
    
    
    63ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    63ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    63PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    63EXHIBIT 10.3EXHIBIT 10.15(b)EXHIBIT 10.16(b)EXHIBIT 10.16(c)EXHIBIT 10.16(d)EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  i




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SPECIAL NOTE ON FORWARD LOOKING STATEMENTS
    1




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PART I
 
 ITEM 1. BUSINESS
 www.skechers.com www.sec.gov
       Skechers USA.
 
    
    The Casuals line for men and women is defined by lugged outsoles and utilizes
value-oriented and leather materials in the uppers. For men, the Casuals category includes
black and brown boots, shoes and sandals that generally have a rugged urban design  some
with industrial-inspired fashion features. For women, the Casuals category includes basic
black and brown
 2




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oxfords and slip-ons, lug outsole boots, and casual sandals. We design and price both the
mens and womens categories to appeal primarily to younger consumers with broad acceptance
across age groups.
    
    For men, the Dress Casuals category is comprised of basic black and brown mens shoes
that feature shiny leathers and dress details, but may utilize traditional or lugged
outsoles as well as value-oriented materials. For women, the Dress Casual line is comprised
of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or
faux fur lining or trim.
    
    Skechers Comfort is a line of trend-right casuals for men who want all-day comfort
without compromising style. Characteristics of the line include comfortable outsoles,
cushioned insoles and quality leather uppers. A category with unique features, we market and
package the Skechers Comfort styles in a shoe box that is distinct from that of other
categories in the Skechers USA line of footwear.
    
    Our Outdoor styles for men primarily consist of hiker-influenced constructions including
boots and shoes. While this category includes many technical performance features, we market
this category of footwear primarily on the basis of style and comfort. Outsoles generally
consist of molded and contoured hardened rubber. Many designs include gussetted tongues to
prevent penetration of water and debris, cushioned mid-soles, motion control devices such as
heel cups, water-resistant or water-proof construction and materials, and more durable
hardware such as metal D-rings instead of eyelets. Uppers are generally constructed of
heavily oiled nubuck and full-grain leathers.
    
    Our Sandals collection for men and women is designed with many of our existing and proven
outsoles for our Casuals, Dress Casuals and Casual Fusion lines, stylized with basic or core
uppers as well as fresh looks. These styles are generally made with quality leather uppers,
but may also be in canvas or fabric.
    
    Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals
targeted at trend-conscious young men and women. The outsoles are primarily rubber and
adopted from our mens Sport and womens Active lines. This collection features leather or
nubuck uppers, but may also include mesh, and may be in shades of browns and beiges as well
as in black, gray, greens and blues.
 Skechers Sport.
 
    
    Our Jogger, Trail Runner, Sport Hiker and cross trainer-inspired Terrainer designs are
lightweight constructions that include cushioned heels, polyurethane midsoles, phylon and
other synthetic outsoles, as well as leather or synthetic uppers such as durabuck, cordura
and nylon mesh. Careful attention is devoted to the design, pattern and construction of the
outsoles, which vary greatly depending on the intended use. This category features earth
tones and athletic-inspired hues with contrasting pop colors such as lime green, orange and
red in addition to traditional athletic white.
    
    The Performance category is comprised of multi-purpose running shoes that are marketed as
mens lifestyle athletic footwear. Some styles include 3M reflective accents, breathable
upper construction, quality leathers, abrasion-resistant toe and heel cap, removable
moisture wicking molded ethyl vinyl acetate (EVA) sock liner, outsole forefoot flex
grooves for improved flexibility, non-marking rubber lugs with impact dispersment technology
(IDT), aggressive all terrain traction lugs, external torsion stabilizer and tuned
dual-density molded EVA midsole with pronation control.
    
    Street Casual incorporates lower profiles, classic details and skate, street and fusion
influences in a collection of essential, basic casual sneakers. The uppers are designed in
leather, suede, nubuck, canvas and/or mesh, and many include vulcanized outsoles. Street
Casual is targeted to young consumers, but also appeals to a broader demographic.
    
    Our Sport Sandals are primarily designed from existing Skechers Sport outsoles and may
include many of the same sport features as our sneakers with the addition of new
technologies geared toward making a comfortable sport sandal. Sport sandals are designed as
seasonal footwear for the consumer who already wears our Skechers Sport sneakers.
 Skechers Active.
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Skechers Cali
 Skechers Work.
 Skechers Kids.
 
    
    The Skechers Kids line includes embellishments or adornments such as fresh colors and
fabrics from our Skechers adult shoes. Some of these styles are also adapted for toddlers
with softer, more pliable outsoles and for infants with soft, leather-sole crib shoes.
    
    S-Lights is a line of sneakers and sandals with a combined pattern of lights on the
outsole and other areas of the shoes. We market and package the S-Lights styles in a shoe
box that is distinct from that of other categories in the Skechers Kids line of footwear.
    
    Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young women
designed to typify the California lifestyle. The sneakers are designed primarily with canvas
uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and
flats are designed with many of the same upper materials and outsoles as the sneakers.
    
    Airators by Skechers is a line of boys sneakers with a foot-cooling system designed to
pump air from the heel through to the toes.
    
    Skechers Super Z-Strap is a line of athletic styled sneakers with a unique z shaped
closure system for easy closure.
    
    Babiez by Skechers is a line of crib shoes for infants. The uppers and outsoles are
designed in leather and are extremely flexible for newborn feet.
 Cali Gear by Skechers. TM
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Unltd. by Marc Ecko, Rhino Red and Red by Marc Ecko.
 Zoo York.
 310 Motoring.
 Mark Nason and Siren by Mark Nason.
 SoHo Lab.
    5




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Factories.
    Production Oversight .
 6




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Quality Control.
   Advertising.
   GQ, Cosmopolitan, Elle, Lucky, In Style, Seventeen, Maxim, Slam,
Road & Track, Complex, People, Us Weekly, Star,
Sports Illustrated InTouch,
  7




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Outdoor.
 Trend-Influenced Marketing/Public Relations. The
Today Show Good Day L.A., Entertainment Tonight, E! Law
& Order, Entourage, The Big Idea with Donny Deutsch Lucky Seventeen OK!, Teen Vogue,
CosmoGirl, InStyle, Maxim, Slam, Dime Footwear News
 Promotions.
 Visual Merchandising.
  Trade Shows.
 Internet.
   8




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Domestic Wholesale.
   International Wholesale.
  
    
    International Subsidiaries
 Europe
  9




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Canada
  Malaysia and Thailand
  Brazil
  
    
    Distributors
  STORE
    
    NUMBER OFREGION
    
    FORMAT
    
    STORES
    
    LOCATION(1)Asia
    
    Concept
    
    
    4
    
    
    Japan (2); Philippines; TaiwanWarehouse
    
    
    4
    
    
    Japan (4)Australia
    
    Concept
    
    
    1
    
    
    SydneyWarehouse
    
    
    2
    
    
    Melbourne, SydneyCentral America/South
America
    
    Concept
    
    
    34
    
    
    Chile (10); Columbia (8); Ecuador; El Salvador;
Guatemala (2); Panama (4); Peru (2); Venezuela
(6)Eastern Europe
    
    Concept
    
    
    7
    
    
    Baltics (2); Greece; Poland; Russia (2); UkraineNorthern Europe
    
    Concept
    
    
    1
    
    
    FinlandMiddle East
    
    Concept
    
    
    6
    
    
    Saudi Arabia; UAE (5)South Africa
    
    Concept
    
    
    1
    
    
    Sandton
 
 (1)
    
    One store per location except as otherwise noted. 10




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Retail Stores.
 
    
    Concept Stores.
   
    
    Factory Outlet Stores.
  
    
    Warehouse Outlet Stores.
  11




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Electronic Commerce.
          12




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13




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ITEM 1A. RISK FACTORS
  Our Future Success Depends On Our Ability To Respond To Changing Consumer Demands, Identify And
Interpret Fashion Trends And Successfully Market New Products.
  Our Business And The Success Of Our Products Could Be Harmed If We Are Unable To Maintain Our Brand
Image.
  Our Business May Be Negatively Impacted As A Result Of Changes In The Economy.
  Our Business Could Be Harmed If We Fail To Maintain Proper Inventory Levels.
  14




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We Face Intense Competition, Including Competition From Companies With Significantly Greater
Resources Than Ours, And If We Are Unable To Compete Effectively With These Companies, Our Market
Share May Decline And Our Business Could Be Harmed.
   We Depend Upon A Relatively Small Group Of Customers For A Large Portion Of Our Sales.
  We May Be Unable To Successfully Execute Our Growth Strategy Or Maintain Our Growth.
  Our International Sales And Manufacturing Operations Are Subject To The Risks Of Doing Business
Abroad, Particularly In China, Which Could Affect Our Ability To Sell Or Manufacture Our Products
In International Markets, Obtain Products From Foreign Suppliers Or Control The Costs Of Our
Products.
  15




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Currency Exchange Rate Fluctuations In China Could Result In Higher Costs And Decreased Margins.
  The Potential Imposition Of Additional Duties, Quotas, Tariffs And Other Trade Restrictions Could
Have An Adverse Impact On Our Sales And Profitability.
  Our Quarterly Revenues And Operating Results Fluctuate As A Result Of A Variety Of Factors,
Including Seasonal Fluctuations In Demand For Footwear, Delivery Date Delays And Potential
Fluctuations In Our Annualized Tax Rate, Which May Result In Volatility Of Our Stock Price.
  16




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We Rely On Independent Contract Manufacturers And, As A Result, Are Exposed To Potential
Disruptions In Product Supply.
   Our Business Could Be Harmed If Our Contract Manufacturers, Suppliers Or Licensees Violate Labor,
Trade Or Other Laws.
   Our Operating Results Could Be Negatively Impacted If Our Sales Are Concentrated In Any One Style
Or Group Of Styles.
  17




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Our Strategies Involve A Number Of Risks That Could Prevent Or Delay Any Successful Opening Of New
Stores As Well As Impact The Performance Of Our Existing Stores.
   Many Of Our Retail Stores Depend Heavily On The Customer Traffic Generated By Shopping And Factory
Outlet Malls Or By Tourism.
  We Depend On Key Personnel To Manage Our Business Effectively In A Rapidly Changing Market, And If
We Are Unable To Retain Existing Personnel, Our Business Could Be Harmed.
  The Disruption, Expense And Potential Liability Associated With Existing And Unanticipated Future
Litigation Against Us Could Have A Material Adverse Effect On Our Business, Results Of Operations
And Financial Condition.
  Our Ability To Compete Could Be Jeopardized If We Are Unable To Protect Our Intellectual Property
Rights Or If We Are Sued For Intellectual Property Infringement.
 ® ® ®
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Natural Disasters Or A Decline In Economic Conditions In California Could Increase Our Operating
Expenses Or Adversely Affect Our Sales Revenue.
  One Principal Stockholder Is Able To Control Substantially All Matters Requiring A Vote Of Our
Stockholders And His Interests May Differ From The Interests Of Our Other Stockholders.
  Our Charter Documents And Delaware Law May Inhibit A Takeover, Which May Cause A Decline In The
Value Of Our Stock.
  19




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ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
      
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  20




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
  HIGH
    
    LOWYEAR ENDED DECEMBER 31, 2007First Quarter
    
    $
    38.03
    
    
    $
    31.95Second Quarter
    
    
    36.87
    
    
    
    28.41Third Quarter
    
    
    30.44
    
    
    
    17.36Fourth Quarter
    
    
    25.57
    
    
    
    18.75YEAR ENDED DECEMBER 31, 2006First Quarter
    
    $
    25.04
    
    
    $
    14.80Second Quarter
    
    
    28.35
    
    
    
    21.19Third Quarter
    
    
    26.00
    
    
    
    19.70Fourth Quarter
    
    
    33.58
    
    
    
    23.51
       21




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Company/Index
    
    

12/31/02
    
    

12/31/03
    
    

12/31/04
    
    

12/31/05
    
    

12/31/06
    
    

12/31/07Skechers U.S.A., Inc.
    
    
    $
    100.00
    
    
    
    $
    96.00
    
    
    
    $
    152.65
    
    
    
    $
    180.45
    
    
    
    $
    392.34
    
    
    
    $
    229.80Russell 2000
    
    
    
    100.00
    
    
    
    
    147.25
    
    
    
    
    174.24
    
    
    
    
    182.18
    
    
    
    
    215.64
    
    
    
    
    212.26Custom Peer Group
    
    
    
    100.00
    
    
    
    
    153.96
    
    
    
    
    203.47
    
    
    
    
    202.10
    
    
    
    
    227.13
    
    
    
    
    288.77
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ITEM 6. SELECTED FINANCIAL DATA
   YEARS ENDED DECEMBER 31,STATEMENT OF EARNINGS DATA:
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Net sales
    
    $
    1,394,181
    
    
    $
    1,205,368
    
    
    $
    1,006,477
    
    
    $
    920,322
    
    
    $
    834,976Gross profit
    
    
    599,989
    
    
    
    523,346
    
    
    
    420,482
    
    
    
    370,857
    
    
    
    317,686Earnings (loss) from operations
    
    
    112,930
    
    
    
    112,544
    
    
    
    76,296
    
    
    
    49,245
    
    
    
    (1,347
    )Earnings (loss) before income taxes
    
    
    118,305
    
    
    
    112,648
    
    
    
    72,797
    
    
    
    38,720
    
    
    
    (10,373
    )Net earnings (loss)
    
    
    75,686
    
    
    
    70,994
    
    
    
    44,717
    
    
    
    23,553
    
    
    
    (11,867
    )Net earnings (loss) per share:(1)
Basic
    
    
    1.67
    
    
    
    1.73
    
    
    
    1.13
    
    
    
    0.61
    
    
    
    (0.31
    )Diluted
    
    
    1.63
    
    
    
    1.59
    
    
    
    1.06
    
    
    
    0.59
    
    
    
    (0.31
    )Weighted average shares:(1)
Basic
    
    
    45,262
    
    
    
    41,079
    
    
    
    39,686
    
    
    
    38,638
    
    
    
    37,840Diluted
    
    
    46,741
    
    
    
    46,139
    
    
    
    44,518
    
    
    
    39,800
    
    
    
    37,840
 AS OF DECEMBER 31,BALANCE SHEET DATA:
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Working capital
    
    $
    523,888
    
    
    $
    450,787
    
    
    $
    361,210
    
    
    $
    313,883
    
    
    $
    275,124Total assets
    
    
    827,977
    
    
    
    737,053
    
    
    
    581,957
    
    
    
    518,653
    
    
    
    466,533Long-term debt, excluding current portion
    
    
    16,462
    
    
    
    106,805
    
    
    
    107,288
    
    
    
    113,038
    
    
    
    116,047Stockholders equity
    
    
    626,663
    
    
    
    449,087
    
    
    
    343,830
    
    
    
    294,895
    
    
    
    255,654
 
 (1)
    
    Basic earnings (loss) per share represents net earnings (loss) divided by the
weighted-average number of common shares outstanding for the period. Diluted earnings (loss)
per share, in addition to the weighted average determined for basic earnings per share,
reflects the potential dilution that could occur if options to issue common stock were
exercised or converted into common stock and assumes the conversion of our 4.50% convertible
subordinated notes for the period outstanding since their issuance in April 2002 until their
conversion in February 2007, unless their inclusion would be anti-dilutive. 23




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
          New product design and delivery
 Building our brands.
 Develop our infrastructure to support continued growth.
 24




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Further grow our company-owned retail business.
 Further develop our international businesses.
    Net sales
 i.e.,
     25




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Gross profit
      Licensing
  Selling expenses
  General and administrative expenses
  26




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Interest income
  Interest expense
  Other income (expense)
  Income taxes
   Net sales
  27




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Gross profit
     28




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Licensing
  Selling expenses
  General and administrative expenses
  Interest income
  Interest expense
  Other income (expense)
  Income taxes
  29




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30




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Payments Due by Period (In Thousands)Less than
    
    
    One to
    
    
    Three to
    
    
    More ThanOne
    
    
    Three
    
    
    Five
    
    
    FiveTotal
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    YearsOther long-term debt
    
    $
    21,082
    
    
    $
    1,783
    
    
    $
    3,567
    
    
    $
    15,732
    
    
    
    Operating lease obligations (1)
    
    
    411,576
    
    
    
    47,124
    
    
    
    106,339
    
    
    
    81,496
    
    
    $
    176,617Purchase obligations (2)
    
    
    239,523
    
    
    
    239,523
    
    
    
    
    
    
    
    
    
    
    
    Construction contract (3)
    
    
    663
    
    
    
    663
    
    
    
    
    
    
    
    
    
    
    
    Minimum payments related to our
licensing arrangements
    
    
    41,110
    
    
    
    10,055
    
    
    
    15,655
    
    
    
    15,400
    
    
    
    $
    713,954
    
    
    $
    299,148
    
    
    $
    125,561
    
    
    $
    112,628
    
    
    $
    176,617
 
 (1)
    
    Operating lease obligations consists primarily of real property leases for our retail
stores, corporate offices and distribution centers. These leases frequently include options
that permit us to extend beyond the terms of the initial fixed term. Payments for these
lease terms are provided for by cash flows generated from operations or, if needed, by our
$150.0 million secured line of credit, for which no amounts were outstanding at December
31, 2007.(2)
    
    Purchase obligations includes the following: (i) accounts payable balances for the
purchase of footwear of $81.3 million, (ii) outstanding letters of credit of $9.6 million
and (iii) open purchase commitments with our foreign manufacturers for $148.7 million. We
currently expect to fund these commitments with cash flows from operations and/or cash on
hand.(3)
    
    During 2005, we entered into a construction agreement with Morley Construction Company
for the construction of our third owned corporate facility in Manhattan Beach, California.
The agreement has a maximum payment clause in which Morley agrees that the construction
cost of the core and shell of the facility will not exceed $18.1 million plus change orders
of $1.7 million, of which $19.2 million was incurred at December 31, 2007. The exterior of
the facility was completed in 2007, and we are currently working on the interior
improvements and we expect to move in during 2008.   31




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Revenue Recognition .
  Allowance for bad debts, returns, sales allowances and customer chargebacks.
   Inventory write-downs .
 32




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Valuation of long-lived assets .
 
    
    the assets ability to continue to generate income;
    
    any loss of legal ownership or title to the asset(s);
    
    any significant changes in our strategic business objectives and utilization of the
asset(s); or
    
    the impact of significant negative industry or economic trends.
  Litigation reserves .
 Valuation of deferred income taxes .
 Uncertain tax positions Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109 Accounting for Income Taxes
 33




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Foreign currency translation . Foreign Currency Translation
 Stock-based compensation. Share-Based
Payment
      Accounting for Noncontrolling Interests
 Applying the Acquisition Method
 34




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The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment
of FASB Statement No. 115
 Fair Value Measurements
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Market risk and interest rate fluctuations.
  Foreign exchange rate fluctuations
 35




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 PageREPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    37CONSOLIDATED BALANCE SHEETS
    
    
    39CONSOLIDATED STATEMENTS OF EARNINGS
    
    
    40CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
    
    
    41CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    42NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    43SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
    
    
    64
 36




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Share-Based Payment Accounting for Uncertainty in Income Taxes
   
 37




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
        
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SKECHERS U.S.A., INC.
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands)
 December 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    199,516
    
    
    $
    160,485Short-term investments
    
    
    104,500
    
    
    
    60,000Trade accounts receivable, less allowances of $10,284 in 2007 and $10,558 in 2006
    
    
    167,406
    
    
    
    177,740Other receivables
    
    
    10,520
    
    
    
    8,035Total receivables
    
    
    177,926
    
    
    
    185,775Inventories
    
    
    204,211
    
    
    
    200,877Prepaid expenses and other current assets
    
    
    13,993
    
    
    
    15,321Deferred tax assets
    
    
    8,594
    
    
    
    9,490Total current assets
    
    
    708,740
    
    
    
    631,948Property and equipment, at cost, less accumulated depreciation and amortization
    
    
    98,400
    
    
    
    87,645Intangible assets, less accumulated amortization
    
    
    78
    
    
    
    633Deferred tax assets
    
    
    13,983
    
    
    
    11,984Other assets, at cost
    
    
    6,776
    
    
    
    4,843TOTAL ASSETS
    
    $
    827,977
    
    
    $
    737,053LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Current installments of long-term borrowings
    
    
    437
    
    
    
    576Accounts payable
    
    
    164,466
    
    
    
    161,150Accrued expenses
    
    
    19,949
    
    
    
    19,435Total current liabilities
    
    
    184,852
    
    
    
    181,1614.50% convertible subordinated notes
    
    
    
    
    
    
    89,969Long-term borrowings, excluding current installments
    
    
    16,462
    
    
    
    16,836Total liabilities
    
    
    201,314
    
    
    
    287,966Commitments and contingenciesStockholders equity:Preferred Stock, $.001 par value; 10,000 authorized; none issued and outstanding
    
    
    
    
    
    
    Class A Common Stock, $.001 par value; 100,000 shares authorized; 32,992 and
28,103 shares issued and outstanding at December 31, 2007 and 2006, respectively
    
    
    33
    
    
    
    28Class B Common Stock, $.001 par value; 60,000 shares authorized; 12,852 and
13,768 shares issued and outstanding at December 31, 2007 and 2006, respectively
    
    
    13
    
    
    
    14Additional paid-in capital
    
    
    258,084
    
    
    
    156,374Accumulated other comprehensive income
    
    
    14,763
    
    
    
    11,200Retained earnings
    
    
    353,770
    
    
    
    281,471Total stockholders equity
    
    
    626,663
    
    
    
    449,087TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    827,977
    
    
    $
    737,053
  39




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##### Table of Contents



SKECHERS U.S.A., INC.
 
 CONSOLIDATED STATEMENTS OF EARNINGS
 (In thousands, except per share data)
 Years ended December 31,2007
    
    
    2006
    
    
    2005Net sales
    
    $
    1,394,181
    
    
    $
    1,205,368
    
    
    $
    1,006,477Cost of sales
    
    
    794,192
    
    
    
    682,022
    
    
    
    585,995Gross profit
    
    
    599,989
    
    
    
    523,346
    
    
    
    420,482Royalty income, net
    
    
    4,179
    
    
    
    4,114
    
    
    
    6,628604,168
    
    
    
    527,460
    
    
    
    427,110Operating expenses:Selling
    
    
    126,527
    
    
    
    109,886
    
    
    
    81,378General and administrative
    
    
    364,711
    
    
    
    305,030
    
    
    
    269,436491,238
    
    
    
    414,916
    
    
    
    350,814Earnings from operations
    
    
    112,930
    
    
    
    112,544
    
    
    
    76,296Other income (expense):Interest income
    
    
    10,040
    
    
    
    8,351
    
    
    
    4,368Interest expense
    
    
    (4,763
    )
    
    
    (9,227
    )
    
    
    (9,154
    )Other, net
    
    
    98
    
    
    
    980
    
    
    
    1,2875,375
    
    
    
    104
    
    
    
    (3,499
    )Earnings before income taxes
    
    
    118,305
    
    
    
    112,648
    
    
    
    72,797Income tax expense
    
    
    42,619
    
    
    
    41,654
    
    
    
    28,080Net earnings
    
    $
    75,686
    
    
    $
    70,994
    
    
    $
    44,717Net earnings per share:Basic
    
    $
    1.67
    
    
    $
    1.73
    
    
    $
    1.13Diluted
    
    $
    1.63
    
    
    $
    1.59
    
    
    $
    1.06Weighted average shares:Basic
    
    
    45,262
    
    
    
    41,079
    
    
    
    39,686Diluted
    
    
    46,741
    
    
    
    46,139
    
    
    
    44,518
  40




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##### Table of Contents



SKECHERS U.S.A., INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
 (In thousands)
 SHARES
    
    
    AMOUNT
    
    
    
    
    
    
    ACCUMULATEDCLASS A
    
    
    CLASS B
    
    
    CLASS A
    
    
    CLASS B
    
    
    ADDITIONAL
    
    
    OTHER
    
    
    
    
    
    TOTALCOMMON
    
    
    COMMON
    
    
    COMMON
    
    
    COMMON
    
    
    PAID-IN
    
    
    COMPREHENSIVE
    
    
    RETAINED
    
    
    STOCKHOLDERSSTOCK
    
    
    STOCK
    
    
    STOCK
    
    
    STOCK
    
    
    CAPITAL
    
    
    INCOME
    
    
EARNINGS

    
    
    EQUITYBalance at December 31, 2004
    
    
    22,234
    
    
    
    17,011
    
    
    $
    22
    
    
    $
    17
    
    
    $
    117,091
    
    
    $
    12,005
    
    
    $
    165,760
    
    
    $
    294,895Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,717
    
    
    
    44,717Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,966
    )
    
    
    
    
    
    
    (4,966
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,751Contribution of common stock to the 401(k)
Plan
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    767
    
    
    
    
    
    
    
    
    
    
    
    767Proceeds from issuance of common stock
under the employee stock purchase plan
    
    
    135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,550
    
    
    
    
    
    
    
    
    
    
    
    1,550Proceeds from issuance of common stock
under the employee stock option plan
    
    
    594
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    5,365
    
    
    
    
    
    
    
    
    
    
    
    5,366Tax benefit of stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,501
    
    
    
    
    
    
    
    
    
    
    
    1,501Conversion of Class B Common Stock into
Class A Common Stock
    
    
    360
    
    
    
    (360
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2005
    
    
    23,382
    
    
    
    16,651
    
    
    $
    23
    
    
    $
    17
    
    
    $
    126,274
    
    
    $
    7,039
    
    
    $
    210,477
    
    
    $
    343,830Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,994
    
    
    
    70,994Foreign
currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,161
    
    
    
    
    
    
    
    4,161Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,155Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,029
    
    
    
    
    
    
    
    
    
    
    
    2,029Proceeds from issuance of common stock
under the employee stock purchase plan
    
    
    122
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1,907
    
    
    
    
    
    
    
    
    
    
    
    1,908Proceeds from issuance of common stock
under the employee stock option plan
    
    
    1,716
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    17,054
    
    
    
    
    
    
    
    
    
    
    
    17,055Tax benefit of stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,110
    
    
    
    
    
    
    
    
    
    
    
    9,110Conversion of Class B Common Stock into
Class A Common Stock
    
    
    2,883
    
    
    
    (2,883
    )
    
    
    3
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2006
    
    
    28,103
    
    
    
    13,768
    
    
    $
    28
    
    
    $
    14
    
    
    $
    156,374
    
    
    $
    11,200
    
    
    $
    281,471
    
    
    $
    449,087Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,686
    
    
    
    75,686Foreign
currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,563
    
    
    
    
    
    
    
    3,563Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79,249Cumulative effect of accounting change -
adjustment to retained earnings upon
adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,387
    )
    
    
    (3,387
    )Redemption of convertible subordinated
notes
    
    
    3,368
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    88,743
    
    
    
    
    
    
    
    
    
    
    
    88,746Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,081
    
    
    
    
    
    
    
    
    
    
    
    1,081Proceeds from issuance of common stock
under the employee stock purchase plan
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,066
    
    
    
    
    
    
    
    
    
    
    
    2,066Proceeds from issuance of common stock
under the employee stock option plan
    
    
    506
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    6,126
    
    
    
    
    
    
    
    
    
    
    
    6,127Tax benefit of stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,694
    
    
    
    
    
    
    
    
    
    
    
    3,694Conversion of Class B Common Stock into
Class A Common Stock
    
    
    916
    
    
    
    (916
    )
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    32,992
    
    
    
    12,852
    
    
    $
    33
    
    
    $
    13
    
    
    $
    258,084
    
    
    $
    14,763
    
    
    $
    353,770
    
    
    $
    626,663
  41




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##### Table of Contents



SKECHERS U.S.A., INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Years ended December 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net earnings
    
    $
    75,686
    
    
    $
    70,994
    
    
    $
    44,717Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation and amortization of property and equipment
    
    
    17,220
    
    
    
    16,203
    
    
    
    22,070Amortization of deferred financing costs
    
    
    95
    
    
    
    765
    
    
    
    765Amortization of intangible assets
    
    
    437
    
    
    
    502
    
    
    
    523Provision for bad debts and returns
    
    
    1,610
    
    
    
    4,591
    
    
    
    2,882Tax benefits from stock-based compensation
    
    
    1,456
    
    
    
    4,144
    
    
    
    1,501Non cash stock compensation
    
    
    1,081
    
    
    
    2,030
    
    
    
    Provision for deferred taxes
    
    
    (1,102
    )
    
    
    (6,382
    )
    
    
    (6,322
    )Loss on disposal of equipment
    
    
    272
    
    
    
    299
    
    
    
    170(Increase) decrease in assets:Receivables
    
    
    7,948
    
    
    
    (47,994
    )
    
    
    (22,106
    )Inventories
    
    
    (3,045
    )
    
    
    (64,364
    )
    
    
    13,202Prepaid expenses and other current assets
    
    
    1,417
    
    
    
    (3,530
    )
    
    
    (871
    )Other assets
    
    
    (1,671
    )
    
    
    1,340
    
    
    
    (2,476
    )Increase (decrease) in liabilities:Accounts payable
    
    
    2,956
    
    
    
    49,563
    
    
    
    13,777Accrued expenses
    
    
    (3,005
    )
    
    
    (2,122
    )
    
    
    7,664Net cash provided by operating activities
    
    
    101,355
    
    
    
    26,039
    
    
    
    75,496Cash flows used in investing activities:Capital expenditures
    
    
    (31,175
    )
    
    
    (27,560
    )
    
    
    (13,627
    )Purchases of short-term investments
    
    
    (249,450
    )
    
    
    (113,100
    )
    
    
    Maturities of short-term investments
    
    
    204,950
    
    
    
    53,100
    
    
    
    Net cash used in investing activities
    
    
    (75,675
    )
    
    
    (87,560
    )
    
    
    (13,627
    )Cash flows from financing activities:Net proceeds from the issuances of stock through employee
stock purchase plan and the exercise of stock options
    
    
    8,193
    
    
    
    18,963
    
    
    
    6,916Excess tax benefits from stock-based compensation
    
    
    2,238
    
    
    
    4,966
    
    
    
    Payments on long-term debt
    
    
    (520
    )
    
    
    (1,008
    )
    
    
    (7,660
    )Net cash provided by (used in) financing activities
    
    
    9,911
    
    
    
    22,921
    
    
    
    (744
    )Net increase (decrease) in cash and cash equivalents
    
    
    35,591
    
    
    
    (38,600
    )
    
    
    61,125Effect of exchange rates on cash and cash equivalents
    
    
    3,440
    
    
    
    2,078
    
    
    
    (1,771
    )Cash and cash equivalents at beginning of year
    
    
    160,485
    
    
    
    197,007
    
    
    
    137,653Cash and cash equivalents at end of year
    
    $
    199,516
    
    
    $
    160,485
    
    
    $
    197,007Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    4,714
    
    
    $
    8,560
    
    
    $
    8,374Income taxes
    
    
    41,481
    
    
    
    47,064
    
    
    
    27,914
    42




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##### Table of Contents



SKECHERS U.S.A., INC
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2007, 2006 and 2005
 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               43




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##### Table of Contents



Buildings
    
    20 yearsBuilding improvements
    
    10 yearsFurniture, fixtures and equipment
    
    5 yearsLeasehold improvements
    
    Useful life or remaining lease term, which ever is shorter
 44




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##### Table of Contents



2007
    
    
    2006Intellectual property
    
    $
    1,250
    
    
    $
    1,250Other intangibles
    
    
    1,000
    
    
    
    1,000Trademarks
    
    
    1,050
    
    
    
    1,050Less accumulated amortization
    
    
    (3,222
    )
    
    
    (2,667
    )Total Intangible Assets
    
    $
    78
    
    
    $
    633
        Years Ended December 31,Basic earnings per share
    
    2007
    
    2006
    
    2005Net earnings
    
    $
    75,686
    
    
    $
    70,994
    
    
    $
    44,717Weighted average common shares outstanding
    
    
    45,262
    
    
    
    41,079
    
    
    
    39,686Basic earnings per share
    
    $
    1.67
    
    
    $
    1.73
    
    
    $
    1.13
 45




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##### Table of Contents



Years Ended December 31,Diluted earnings per share
    
    2007
    
    
    2006
    
    
    2005Net earnings
    
    $
    75,686
    
    
    $
    70,994
    
    
    $
    44,717After tax effect of interest expense on 4.50%
convertible subordinated notes
    
    
    361
    
    
    
    2,553
    
    
    
    2,487Earnings for purposes of
computing diluted earnings per share
    
    $
    76,047
    
    
    $
    73,547
    
    
    $
    47,204Weighted average common shares outstanding
    
    
    45,262
    
    
    
    41,079
    
    
    
    39,686Dilutive stock options
    
    
    1,121
    
    
    
    1,594
    
    
    
    1,366Weighted average assumed conversion of
4.50% convertible subordinated notes
    
    
    358
    
    
    
    3,466
    
    
    
    3,466Weighted average common shares outstanding
    
    
    46,741
    
    
    
    46,139
    
    
    
    44,518Diluted earnings per share
    
    $
    1.63
    
    
    $
    1.59
    
    
    $
    1.06
        Accounting for Noncontrolling Interests
 Applying the Acquisition Method,
 The Fair Value Option for Financial Assets and
Financial Liabilities, Including an amendment of FASB Statement No. 115
 46




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##### Table of Contents



Fair Value Measurements
 (2) SHORT TERM INVESTMENTS
   (3) PROPERTY AND EQUIPMENT
  2007
    
    
    2006Land
    
    $
    14,358
    
    
    $
    14,358Buildings and improvements
    
    
    56,012
    
    
    
    49,454Furniture, fixtures and equipment
    
    
    85,354
    
    
    
    81,164Leasehold improvements
    
    
    79,377
    
    
    
    66,708Total property and equipment
    
    
    235,101
    
    
    
    211,684Less accumulated depreciation and amortization
    
    
    136,701
    
    
    
    124,039Property and equipment, net
    
    $
    98,400
    
    
    $
    87,645
  47




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##### Table of Contents



(4) ACCRUED EXPENSES
  2007
    
    
    2006Accrued inventory purchases
    
    $
    3,937
    
    
    $
    4,678Accrued payroll and related taxes
    
    
    14,919
    
    
    
    13,914Income taxes payable
    
    
    1,058
    
    
    
    Accrued interest
    
    
    35
    
    
    
    843Accrued expenses
    
    $
    19,949
    
    
    $
    19,435
 (5) SHORT-TERM BORROWINGS
  (6) LONG-TERM BORROWINGS
  2007
    
    
    20064.50% convertible subordinated notes due April 15,
2007 (see below)
    
    
    
    
    
    $
    90,000Note payable to bank, due in monthly installments
of $82.2 (includes principal and interest), fixed
rate interest at 7.79%, secured by property,
balloon payment of $8,716 due January 2011
    
    $
    9,557
    
    
    
    9,790Note payable to bank, due in monthly installments
of $57.6 (includes principal and interest), fixed
rate interest at 7.89%, secured by property,
balloon payment of $6,776 due February 2011
    
    
    7,268
    
    
    
    7,383Capital lease obligations
    
    
    74
    
    
    
    208Subtotal
    
    
    16,899
    
    
    
    107,381Less current installments
    
    
    437
    
    
    
    576Total long-term debt
    
    $
    16,462
    
    
    $
    106,805
  2008
    
    $
    4372009
    
    
    3952010
    
    
    4272011
    
    
    15,640$
    16,899
 48




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##### Table of Contents



Classification of
Short-Term Obligations Expected to Be Refinanced an amendment of ARB No. 43, Chapter 3.
  (7) STOCK COMPENSATION
 Share-Based Payment
 Accounting for Stock Issued to Employees
     49




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##### Table of Contents



2006
    
    
    2005Dividend yield
    
    
    
    
    
    
    Expected volatility
    
    
    62
    %
    
    
    71
    %Risk-free interest rate
    
    
    4.52
    %
    
    
    3.88
    %Expected life of option
    
    
    7
    
    
    
    5
    WEIGHTEDSHARES
    
    
    OPTION EXERCISE PRICEOutstanding at December 31, 2004
    
    
    4,975,341
    
    
    $
    10.90Granted
    
    
    35,000
    
    
    
    13.52Exercised
    
    
    (593,671
    )
    
    
    9.04Canceled
    
    
    (207,233
    )
    
    
    14.89Outstanding at December 31, 2005
    
    
    4,209,437
    
    
    
    10.98Granted
    
    
    15,000
    
    
    
    19.49Exercised
    
    
    (1,711,945
    )
    
    
    9.96Canceled
    
    
    (26,910
    )
    
    
    10.35Outstanding at December 31, 2006
    
    
    2,485,582
    
    
    
    11.74Granted
    
    
    Exercised
    
    
    (501,874
    )
    
    
    12.23Canceled
    
    
    (21,952
    )
    
    
    16.86Outstanding at December 31, 2007
    
    
    1,961,756
    
    
    $
    11.56Options available for grant at December 31, 2007
    
    
    3,258,209
 50




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##### Table of Contents



OPTIONS OUTSTANDING
    
    OPTIONS EXERCISABLEWEIGHTEDNUMBER
    
    WEIGHTED
    
    WEIGHTED
    
    NUMBER
    
    AVERAGERANGE OF
    
    OUTSTANDING
    
    AVERAGE REMAINING
    
    AVERAGE
    
    EXERCISABLE AT
    
    EXERCISEEXERCISE PRICE
    
    DECEMBER 31, 2007
    
    CONTRACTUAL LIFE
    
    EXERCISE PRICE
    
    DECEMBER 31, 2007
    
    PRICE$2.78 to $3.94
    
    
    29,812
    
    
    2.1 years
    
    $
    3.93
    
    
    
    29,812
    
    
    $
    3.93$6.95 to $9.28
    
    
    717,873
    
    
    5.4 years
    
    
    7.46
    
    
    
    717,873
    
    
    
    7.46$10.48 to $15.50
    
    
    1,047,355
    
    
    3.0 years
    
    
    12.65
    
    
    
    1,033,355
    
    
    
    12.64$19.19 to $24.00
    
    
    166,716
    
    
    3.1 years
    
    
    23.71
    
    
    
    166,716
    
    
    
    23.711,961,756
    
    
    3.9 years
    
    $
    11.56
    
    
    
    1,947,756
    
    
    $
    11.55
   WEIGHTED AVERAGEGRANT-DATE FAIRSHARES
    
    VALUENonvested at December 31, 2006
    
    
    17,333
    
    
    $
    16.38Granted
    
    
    2,500
    
    
    
    29.26Vested
    
    
    (4,666
    )
    
    
    17.00Nonvested at December 31, 2007
    
    
    15,167
    
    
    $
    18.32
    51




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##### Table of Contents



2005Net earnings, as reported
    
    $
    44,717Deduct total stock-based employee compensation expense under
fair value-based method for all awards, net of related tax
effects
    
    
    (1,853
    )Pro forma net earnings for basic pro
forma earnings per share
    
    
    42,864Add back interest on 4.50% debentures, net of tax
    
    
    2,487Pro forma net earnings for diluted pro forma earnings per share
    
    $
    45,351Pro forma net earnings per share:Basic
    
    $
    1.08Diluted
    
    
    1.02
  (8) STOCKHOLDERS EQUITY
     52




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(9) TOTAL OTHER INCOME (EXPENSE), NET
  2007
    
    
    2006
    
    
    2005Gain (loss) on foreign currency transactions
    
    $
    (295
    )
    
    $
    116
    
    
    $
    (351
    )Legal settlements
    
    
    393
    
    
    
    864
    
    
    
    1,638Total other income, net
    
    $
    98
    
    
    $
    980
    
    
    $
    1,287
 (10) INCOME TAXES
  2007
    
    
    2006
    
    
    2005Federal:Current
    
    $
    33,354
    
    
    $
    38,252
    
    
    $
    27,562Deferred
    
    
    (301
    )
    
    
    (4,451
    )
    
    
    (4,157
    )Total federal
    
    
    33,053
    
    
    
    33,801
    
    
    
    23,405State:Current
    
    
    7,255
    
    
    
    7,398
    
    
    
    5,417Deferred
    
    
    (66
    )
    
    
    (586
    )
    
    
    (588
    )Total state
    
    
    7,189
    
    
    
    6,812
    
    
    
    4,829Foreign :Current
    
    
    2,686
    
    
    
    2,192
    
    
    
    1,423Deferred
    
    
    (309
    )
    
    
    (1,151
    )
    
    
    (1,577
    )Total foreign
    
    
    2,377
    
    
    
    1,041
    
    
    
    (154
    )Total income taxes
    
    $
    42,619
    
    
    $
    41,654
    
    
    $
    28,080
  2007
    
    
    2006
    
    
    2005Expected income tax expense
    
    $
    41,407
    
    
    $
    39,427
    
    
    $
    25,479State income tax, net of federal benefit
    
    
    4,444
    
    
    
    4,611
    
    
    
    3,585Rate differential on foreign income
    
    
    (3,119
    )
    
    
    (379
    )
    
    
    (720
    )Exempt income
    
    
    (1,026
    )
    
    
    (260
    )
    
    
    Non-deductible expenses
    
    
    464
    
    
    
    949
    
    
    
    321Change in valuation allowance
    
    
    194
    
    
    
    (967
    )
    
    
    (974
    )Other
    
    
    255
    
    
    
    (1,727
    )
    
    
    389Total provision for income taxes
    
    $
    42,619
    
    
    $
    41,654
    
    
    $
    28,080
 53




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##### Table of Contents



2007
    
    
    2006DEFERRED TAX ASSETS:Deferred tax assets  current:Inventory adjustments
    
    $
    2,555
    
    
    $
    2,991Accrued expenses
    
    
    6,540
    
    
    
    4,661Allowances for bad debts and chargebacks
    
    
    2,570
    
    
    
    4,732Total current assets
    
    
    11,665
    
    
    
    12,384Deferred tax assets  long term:Depreciation on property and equipment
    
    
    11,441
    
    
    
    9,633Loss carryforwards
    
    
    3,133
    
    
    
    2,737Valuation allowance
    
    
    (682
    )
    
    
    (488
    )Stock-based compensation
    
    
    91
    
    
    
    102Total long term assets
    
    
    13,983
    
    
    
    11,984Total deferred tax assets
    
    
    25,648
    
    
    
    24,368Deferred tax liabilities  current:Prepaid expenses
    
    
    3,071
    
    
    
    2,710Other
    
    
    
    
    
    
    184Total deferred tax liabilities
    
    
    3,071
    
    
    
    2,894Net deferred tax assets
    
    $
    22,577
    
    
    $
    21,474
      Balance as of January 1, 2007
    
    $
    11,241Additions based on current year tax positions
    
    
    6,836Additions for prior year tax positions
    
    
    1,015Reductions for prior year tax positions
    
    
    (287
    )Settlement of uncertain tax positions
    
    
    (504
    )Reductions related to lapse of statute of limitations
    
    
    (36
    )Balance at December 31, 2007
    
    $
    18,265
  54




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(11) BUSINESS AND CREDIT CONCENTRATIONS
      55




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(12) BENEFIT PLAN
   (13) COMMITMENTS AND CONTINGENCIES
        CAPITAL
    
    
    OPERATINGLEASES
    
    
    LEASESYear ending December 31:2008
    
    $
    74
    
    
    $
    47,1242009
    
    
    6
    
    
    
    55,0682010
    
    
    
    
    
    
    51,2712011
    
    
    
    
    
    
    44,5592012
    
    
    
    
    
    
    36,937Thereafter
    
    
    
    
    
    
    176,61780
    
    
    $
    411,576Less imputed interest
    
    
    6Present value of net minimum lease payments
    
    $
    74
 56




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57




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(14) SEGMENT INFORMATION
  2007
    
    
    2006
    
    
    2005Net salesDomestic wholesale
    
    $
    831,235
    
    
    $
    772,920
    
    
    $
    634,294International wholesale
    
    
    267,648
    
    
    
    183,687
    
    
    
    163,523Retail
    
    
    279,361
    
    
    
    237,390
    
    
    
    201,610E-commerce
    
    
    15,937
    
    
    
    11,371
    
    
    
    7,050Total
    
    $
    1,394,181
    
    
    $
    1,205,368
    
    
    $
    1,006,477
 2007
    
    
    2006
    
    
    2005Gross profitDomestic wholesale
    
    $
    320,364
    
    
    $
    301,215
    
    
    $
    232,401International wholesale
    
    
    99,759
    
    
    
    65,034
    
    
    
    60,758Retail
    
    
    171,758
    
    
    
    151,456
    
    
    
    123,928E-commerce
    
    
    8,108
    
    
    
    5,641
    
    
    
    3,395Total
    
    $
    599,989
    
    
    $
    523,346
    
    
    $
    420,482
 2007
    
    
    2006Identifiable assetsDomestic wholesale
    
    $
    629,377
    
    
    $
    563,956International wholesale
    
    
    118,195
    
    
    
    108,210Retail
    
    
    80,250
    
    
    
    64,634E-commerce
    
    
    155
    
    
    
    253Total
    
    $
    827,977
    
    
    $
    737,053
 58




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##### Table of Contents



2007
    
    
    2006Additions to property, plant and equipmentDomestic wholesale
    
    $
    11,371
    
    
    $
    17,453International wholesale
    
    
    1,346
    
    
    
    348Retail
    
    
    18,458
    
    
    
    9,759Total
    
    $
    31,175
    
    
    $
    27,560
   2007
    
    
    2006
    
    
    2005Net Sales (1)United States
    
    $
    1,102,895
    
    
    $
    1,002,022
    
    
    $
    826,920Canada
    
    
    38,060
    
    
    
    25,276
    
    
    
    18,350Other International (2)
    
    
    253,226
    
    
    
    178,070
    
    
    
    161,207Total
    
    $
    1,394,181
    
    
    $
    1,205,368
    
    
    $
    1,006,477
 2007
    
    
    2006Long-lived AssetsUnited States
    
    $
    96,044
    
    
    $
    81,161Canada
    
    
    343
    
    
    
    764Other International (2)
    
    
    2,013
    
    
    
    5,720Total
    
    $
    98,400
    
    
    $
    87,645
 
 (1)
    
    The Company has subsidiaries in Canada, United Kingdom, Germany, France, Spain, Italy,
Netherlands, Brazil, Thailand and Malaysia that generate net sales within those respective
countries and in some cases the neighboring regions. The Company also has a subsidiary in
Switzerland that generates net sales from that country in addition to net sales to our
distributors located in numerous non-European countries. Net sales are attributable to
geographic regions based on the location of the Company subsidiary.(2)
    
    Other international consists of Brazil, Malaysia, Thailand, Switzerland, United Kingdom,
Germany, France, Spain, Italy, and Netherlands. (15) RELATED PARTY TRANSACTIONS
    59




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(16) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  2007
    
    MARCH 31
    
    JUNE 30
    
    SEPTEMBER 30
    
    DECEMBER 31Net sales
    
    $
    344,896
    
    
    $
    352,211
    
    
    $
    395,033
    
    
    $
    302,041Gross profit
    
    
    149,039
    
    
    
    152,028
    
    
    
    171,670
    
    
    
    127,252Net earnings
    
    
    23,900
    
    
    
    14,948
    
    
    
    24,744
    
    
    
    12,095Net earnings per share:Basic
    
    $
    0.54
    
    
    $
    0.33
    
    
    $
    0.54
    
    
    $
    0.26Diluted
    
    
    0.52
    
    
    
    0.32
    
    
    
    0.53
    
    
    
    0.26
 2006
    
    MARCH 31
    
    JUNE 30
    
    SEPTEMBER 30
    
    DECEMBER 31Net sales
    
    $
    277,565
    
    
    $
    292,183
    
    
    $
    331,126
    
    
    $
    304,494Gross profit
    
    
    118,374
    
    
    
    130,736
    
    
    
    146,303
    
    
    
    127,933Net earnings
    
    
    16,598
    
    
    
    17,616
    
    
    
    22,199
    
    
    
    14,582Net earnings per share:Basic
    
    $
    0.41
    
    
    $
    0.43
    
    
    $
    0.54
    
    
    $
    0.35Diluted
    
    
    0.38
    
    
    
    0.40
    
    
    
    0.49
    
    
    
    0.33
 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
      60




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Internal Control  Integrated Framework Internal Control- Integrated Framework,
      
 ITEM 9B. OTHER INFORMATION
    61




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62




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PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 1.
    
    Financial Statements: See Index to Consolidated
Financial Statements and Financial Statement Schedule in Part II, Item 8 on
page 36 of this annual report on Form 10-K.
 2.
    
    Financial Statement Schedule: See Schedule IIValuation and Qualifying Accounts on page 64
of this annual report on Form 10-K.
 3.
    
    Exhibits: The exhibits listed in the accompanying Index to Exhibits are filed or
incorporated by reference as part of this Form 10-K.
 63




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##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 (in thousands)
 Years Ended December 31, 2007, 2006 and 2005
 BALANCE AT
    
    CHARGED TO
    
    DEDUCTIONS
    
    BALANCEBEGINNING OF
    
    COSTS AND
    
    AND
    
    AT ENDDESCRIPTION
    
    PERIOD
    
    EXPENSES
    
    WRITE-OFFS
    
    OF PERIODYear-ended December 31, 2005:Allowance for chargebacks
    
    $
    578
    
    
    $
    368
    
    
    $
    (323
    )
    
    $
    623Allowance for doubtful accounts
    
    
    1,887
    
    
    
    870
    
    
    
    (792
    )
    
    
    1,965Reserve for sales returns and
allowances
    
    
    3,578
    
    
    
    1,644
    
    
    
    (614
    )
    
    
    4,608Year-ended December 31, 2006:Allowance for chargebacks
    
    $
    623
    
    
    $
    1,237
    
    
    $
    (359
    )
    
    $
    1,501Allowance for doubtful accounts
    
    
    1,965
    
    
    
    1,307
    
    
    
    (573
    )
    
    
    2,699Reserve for sales returns and
allowances
    
    
    4,608
    
    
    
    2,047
    
    
    
    (297
    )
    
    
    6,358Year-ended December 31, 2007:Allowance for chargebacks
    
    $
    1,501
    
    
    $
    1,684
    
    
    $
    (613
    )
    
    $
    2,572Allowance for doubtful accounts
    
    
    2,699
    
    
    
    284
    
    
    
    (635
    )
    
    
    2,348Reserve for sales returns and
allowances
    
    
    6,358
    
    
    
    (358
    )
    
    
    (636
    )
    
    
    5,364
  64




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##### Table of Contents



INDEX TO EXHIBITS
 EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBIT3.1
    
    Amended and Restated Certificate of Incorporation dated April 29, 1999 (incorporated by
reference to exhibit number 3.1 of the Registrants Registration Statement on Form S-1, as
amended (File No. 333-60065), filed with the Securities and Exchange Commission on May 12,
1999).3.2
    
    Bylaws dated May 28, 1998 (incorporated by reference to exhibit number 3.2 of the
Registrants Registration Statement on Form S-1 (File No. 333-60065) filed with the
Securities and Exchange Commission on July 29, 1998).3.2(a)
    
    Amendment to Bylaws dated as of April 8, 1999 (incorporated by reference to exhibit number
3.2(a) of the Registrants Form 10-K for the year ended December 31, 2005).3.2(b)
    
    Second Amendment to Bylaws dated as of December 18, 2007 (incorporated by reference to
exhibit number 3.1 of the Registrants Form 8-K filed with the Securities and Exchange
Commission on December 20, 2007).4.1
    
    Form of Specimen Class A Common Stock Certificate (incorporated by reference to exhibit
number 4.1 of the Registrants Registration Statement on Form S-1, as amended (File No.
333-60065), filed with the Securities and Exchange Commission on May 12, 1999).4.2
    
    Indenture, dated April 9, 2002, between the Registrant and Wells Fargo Bank, National
Association, as Trustee, relating to the 4.5% Convertible Subordinated Notes (incorporated
by reference to exhibit number 4.2 of the Registrants Form 10-Q for the quarter ended June
30, 2002).4.3
    
    Form of Specimen Restricted Global Security (incorporated by reference to exhibit number 4.3
of the Registrants Form 10-Q for the quarter ended June 30, 2002).10.1**
    
    Amended and Restated 1998 Stock Option, Deferred Stock and Restricted Stock Plan
(incorporated by reference to exhibit number 10.1 of the Registrants Registration Statement
on Form S-1 (File No. 333-60065) filed with the Securities and Exchange Commission on July
29, 1998).10.1(a)**
    
    Amendment No. 1 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted
Stock Plan (incorporated by reference to exhibit number 4.4 of the Registrants Registration
Statement on Form S-8 (File No. 333-71114), filed with the Securities and Exchange
Commission on October 5, 2001).10.1(b)**
    
    Amendment No. 2 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted
Stock Plan (incorporated by reference to exhibit number 4.5 of the Registrants Registration
Statement on Form S-8 (File No. 333-135049), filed with the Securities and Exchange
Commission on June 15, 2006).10.1(c)**
    
    Amendment No. 3 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted
Stock Plan (incorporated by reference to exhibit number 10.1 of the Registrants Form 8-K
filed with the Securities and Exchange Commission on February 23, 2007).10.2**
    
    2007 Incentive Award Plan (incorporated by reference to exhibit number 10.1 of the
Registrants Form 8-K filed with the Securities and Exchange Commission on May 24, 2007).10.3**
    
    Form of Restricted Stock Agreement under 2007 Incentive Award Plan.10.4**
    
    2008 Employee Stock Purchase Plan (incorporated by reference to exhibit number 10.2 of the
Registrants Form 8-K filed with the Securities and Exchange Commission on May 24, 2007).10.5**
    
    2006 Annual Incentive Compensation Plan (incorporated by reference to Appendix A of the
Registrants Definitive Proxy Statement filed with the Securities and Exchange Commission on
May 1, 2006).
 65




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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBIT10.6**
    
    Indemnification Agreement dated June 7, 1999 between the Registrant and its directors and
executive officers (incorporated by reference to exhibit number 10.6 of the Registrants
Form 10-K for the year ended December 31, 1999).10.6(a)**
    
    List of Registrants directors and executive officers who entered into Indemnification
Agreement referenced in Exhibit 10.6 with the Registrant (incorporated by reference to
exhibit number 10.6(a) of the Registrants Form 10-K for the year ended December 31, 2005).10.7
    
    Registration Rights Agreement dated June 9, 1999, between the Registrant, the Greenberg
Family Trust and Michael Greenberg (incorporated by reference to exhibit number 10.7 of the
Registrants Form 10-Q for the quarter ended June 30, 1999).10.8
    
    Tax Indemnification Agreement dated June 8, 1999, between the Registrant and certain
shareholders (incorporated by reference to exhibit number 10.8 of the Registrants Form 10-Q
for the quarter ended June 30, 1999).10.9
    
    Second Amended and Restated Loan and Security Agreement, dated May 31, 2006, by and among
the Registrant and certain of its subsidiaries that are also borrowers under the Agreement,
certain of its subsidiaries who are guarantors under the Agreement, and certain lenders
including The CIT Group/Commericial Services, Inc., which acts as agent for the lenders
(incorporated by reference to exhibit number 10.1 of the Registrants Form 8-K filed with
the Securities and Exchange Commission on June 6, 2006).10.10
    
    Promissory Note, dated December 27, 2000, between the Registrant and Washington Mutual Bank,
FA, for the purchase of property located at 225 South Sepulveda Boulevard, Manhattan Beach,
California (incorporated by reference to exhibit number 10.23 of the Registrants Form 10-K
for the year ended December 31, 2000).10.11
    
    Loan Agreement, dated December 21, 2000, between Yale Investments, LLC, and MONY Life
Insurance Company, for the purchase of property located at 1670 South Champagne Avenue,
Ontario, California (incorporated by reference to exhibit number 10.25 of the Registrants
Form 10-K for the year ended December 31, 2000).10.12
    
    Promissory Note, dated December 21, 2000, between Yale Investments, LLC, and MONY Life
Insurance Company, for the purchase of property located at 1670 Champagne Avenue, Ontario,
California (incorporated by reference to exhibit number 10.26 of the Registrants Form 10-K
for the year ended December 31, 2000).10.13
    
    Agreement dated August 25, 2005 between Duncan Investments, LLC, a wholly owned subsidiary
of the Registrant, and Morley Construction Company regarding 330 South Sepulveda Boulevard,
Manhattan Beach, California (incorporated by reference to exhibit number 10.1 of the
Registrants Form 8-K filed with the Securities and Exchange Commission on August 29, 2005).10.14
    
    General Conditions of the Contract for Construction regarding 330 South Sepulveda Boulevard,
Manhattan Beach, California (incorporated by reference to exhibit number 10.2 of the
Registrants Form 8-K filed with the Securities and Exchange Commission on August 29, 2005).10.15
    
    Lease Agreement, dated November 21, 1997, between the Registrant and The Prudential
Insurance Company of America, regarding 1661 South Vintage Avenue, Ontario, California
(incorporated by reference to exhibit number 10.14 of the Registrants Registration
Statement on Form S-1 (File No. 333-60065) filed with the Securities and Exchange Commission
on July 29, 1998).10.15(a)
    
    First Amendment to Lease Agreement, dated April 26, 2002, between the Registrant and
ProLogis California I LLC, regarding 1661 South Vintage Avenue, Ontario, California
(incorporated by reference to exhibit number 10.14(a) of the Registrants Form 10-K for the
year ended December 21, 2002).10.15(b)
    
    Second Amendment to Lease Agreement, dated December 10, 2007, between the Registrant and
ProLogis California I LLC, regarding 1661 South Vintage Avenue, Ontario, California.
 66




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EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBIT10.16
    
    Lease Agreement, dated November 21, 1997, between the Registrant and The Prudential
Insurance Company of America, regarding 1777 South Vintage Avenue, Ontario, California
(incorporated by reference to exhibit number 10.15 of the Registrants Registration
Statement on Form S-1 (File No. 333-60065) filed with the Securities and Exchange Commission
on July 29, 1998).10.16(a)
    
    First Amendment to Lease Agreement, dated April 26, 2002, between the Registrant and Cabot
Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California
(incorporated by reference to exhibit number 10.15(a) of the Registrants Form 10-K for the
year ended December 21, 2002).10.16(b)
    
    Second Amendment to Lease Agreement, dated May 14, 2002, between the Registrant and Cabot
Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California.10.16(c)
    
    Third Amendment to Lease Agreement, dated May 7, 2007, between the Registrant and Cabot
Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California.10.16(d)
    
    Fourth Amendment to Lease Agreement, dated November 10, 2007, between the Registrant and
Cabot Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California.10.17
    
    Lease Agreement, dated April 10, 2001, between the Registrant and ProLogis California I LLC,
regarding 4100 East Mission Boulevard, Ontario, California (incorporated by reference to
exhibit number 10.28 of the Registrants Form 10-K for the year ended December 31, 2001).10.17(a)
    
    First Amendment to Lease Agreement, dated October 22, 2003, between the Registrant and
ProLogis California I LLC, regarding 4100 East Mission Boulevard, Ontario, California
(incorporated by reference to exhibit number 10.28(a) of the Registrants Form 10-K for the
year ended December 31, 2003).10.18
    
    Lease Agreement, dated February 8, 2002, between Skechers International, a subsidiary of the
Registrant, and ProLogis Belgium II SPRL, regarding ProLogis Park Liege Distribution Center
I in Liege, Belgium (incorporated by reference to exhibit number 10.29 of the Registrants
Form 10-K for the year ended December 31, 2002).10.19
    
    Lease Agreement dated September 25, 2007 between the Registrant and HF Logistics I, LLC,
regarding distribution facility in Moreno Valley, California (incorporated by reference to
exhibit number 10.1 of the Registrants Form 8-K filed with the Securities and Exchange
Commission on September 27, 2007).10.20**
    
    Amended and Restated 1998 Employee Stock Purchase Plan (incorporated by reference to exhibit
number 10.1 of the Registrants Form 10-Q, for the quarter ended June 30, 2000).21.1
    
    Subsidiaries of the Registrant.23.1
    
    Consent of Independent Registered Public Accounting Firm.31.1
    
    Certification of the Chief Executive Officer pursuant Securities Exchange Act Rule 13a-14(a).31.2
    
    Certification of the Chief Financial Officer pursuant Securities Exchange Act Rule 13a-14(a).32.1
    
    Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 **
    
    Management contract or compensatory plan or arrangement required to be filed as an exhibit. 67




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##### Table of Contents



SIGNATURES
  SKECHERS U.S.A., INC.By:
    /S/  ROBERT GREENBERGRobert GreenbergChairman of the Board and
Chief Executive Officer  SIGNATURE
    
    TITLE
    
    DATE/S/ ROBERT GREENBERG

Robert Greenberg
    
    Chief Executive Officer
(Principal Executive Officer)
    
    February 29, 2008/S/ MICHAEL GREENBERG

Michael Greenberg
    
    President and Director
    
    February 29, 2008/S/ DAVID WEINBERG

David Weinberg
    
    Executive Vice President, Chief Operating Officer
and Director
    
    February 29, 2008/S/ FREDERICK H. SCHNEIDER

Frederick H. Schneider
    
    Chief Financial Officer
(Principal Financial and Accounting Officer)
    
    February 29, 2008/S/ JEFFREY GREENBERG

Jeffrey Greenberg
    
    Director
    
    February 29, 2008/S/ J. GEYER KOSINSKI

J. Geyer Kosinski
    
    Director
    
    February 29, 2008/S/ MORTON D. ERLICH

Morton D. Erlich
    
    Director
    
    February 29, 2008/S/ RICHARD SISKIND

Richard Siskind
    
    Director
    
    February 29, 2008
 68