##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 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
(State or Other Jurisdiction of Incorporation or Organization)
    
    95-4376145
(I.R.S. Employer Identification No.)
 228 Manhattan Beach Blvd. 
Manhattan Beach, California
(Address of Principal Executive Office)
    
    90266
(Zip Code)
 (310) 318-3100
(Registrants Telephone Number, Including Area Code)
 þ o
  þ o o o
  o þ




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##### 



SKECHERS U.S.A., INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Earnings and Comprehensive Income
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 6. Exhibits
    
    
    25Signatures
    
    
    26EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
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PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 KECHERS U.S.A., INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (In thousands)
 March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    152,436
    
    
    $
    199,516Short-term marketable securities
    
    
    
    
    
    
    104,500Trade accounts receivable, less allowances of $13,244 in 2008 and $10,284 in 2007
    
    
    237,021
    
    
    
    167,406Other receivables
    
    
    9,196
    
    
    
    10,520Total receivables
    
    
    246,217
    
    
    
    177,926Inventories
    
    
    178,368
    
    
    
    204,211Prepaid expenses and other current assets
    
    
    21,789
    
    
    
    13,993Deferred tax assets
    
    
    8,594
    
    
    
    8,594Total current assets
    
    
    607,404
    
    
    
    708,740Property and equipment, at cost, less accumulated depreciation and amortization
    
    
    106,687
    
    
    
    98,400Intangible assets, less accumulated amortization
    
    
    14
    
    
    
    78Deferred tax assets
    
    
    14,670
    
    
    
    13,983Long-term marketable securities
    
    
    107,616
    
    
    
    Other assets, at cost
    
    
    22,637
    
    
    
    6,776TOTAL ASSETS
    
    $
    859,028
    
    
    $
    827,977LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Current installments of long-term borrowings
    
    
    323
    
    
    
    437Accounts payable
    
    
    148,187
    
    
    
    164,466Accrued expenses
    
    
    33,288
    
    
    
    19,949Total current liabilities
    
    
    181,798
    
    
    
    184,852Long-term borrowings, excluding current installments
    
    
    16,365
    
    
    
    16,462Total liabilities
    
    
    198,163
    
    
    
    201,314Commitments 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; 33,075 and
32,992 shares issued and outstanding at March 31, 2008 and December 31,
2007, respectively
    
    
    33
    
    
    
    33Class B Common Stock, $.001 par value; 60,000 shares authorized; 12,852 shares
issued and outstanding at March 31, 2008 and December 31, 2007, respectively
    
    
    13
    
    
    
    13Additional paid-in capital
    
    
    259,740
    
    
    
    258,084Accumulated other comprehensive income
    
    
    14,465
    
    
    
    14,763Retained earnings
    
    
    386,614
    
    
    
    353,770Total stockholders equity
    
    
    660,865
    
    
    
    626,663TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    859,028
    
    
    $
    827,977
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SKECHERS U.S.A., INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
 (Unaudited)
 (In thousands, except per share data)
 Three-Months Ended March 31,2008
    
    
    2007Net sales
    
    $
    384,922
    
    
    $
    344,896Cost of sales
    
    
    212,750
    
    
    
    195,857Gross profit
    
    
    172,172
    
    
    
    149,039Royalty income
    
    
    840
    
    
    
    1,201173,012
    
    
    
    150,240Operating expenses:Selling
    
    
    25,534
    
    
    
    26,841General and administrative
    
    
    99,221
    
    
    
    85,984124,755
    
    
    
    112,825Earnings from operations
    
    
    48,257
    
    
    
    37,415Other income (expense):Interest income
    
    
    2,459
    
    
    
    2,438Interest expense
    
    
    (1,006
    )
    
    
    (1,591
    )Other, net
    
    
    (97
    )
    
    
    (22
    )1,356
    
    
    
    825Earnings before income taxes
    
    
    49,613
    
    
    
    38,240Income tax expense
    
    
    16,769
    
    
    
    14,340Net earnings
    
    $
    32,844
    
    
    $
    23,900Net earnings per share:Basic
    
    $
    0.72
    
    
    $
    0.54Diluted
    
    $
    0.70
    
    
    $
    0.52Weighted average shares:Basic
    
    
    45,880
    
    
    
    43,951Diluted
    
    
    46,664
    
    
    
    46,803Comprehensive income:Net earnings
    
    $
    32,844
    
    
    $
    23,900Unrealized loss on marketable securities, net of tax
    
    
    (1,347
    )
    
    
    Gain (loss) foreign currency translation
adjustment, net of tax
    
    
    1,049
    
    
    
    (2,763
    )Total comprehensive income
    
    $
    32,546
    
    
    $
    21,137
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SKECHERS U.S.A., INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In thousands)
 Three-Months Ended March 31,2008
    
    
    2007Cash flows from operating activities:Net earnings
    
    $
    32,844
    
    
    $
    23,900Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization of property and equipment
    
    
    4,312
    
    
    
    4,067Amortization of deferred financing costs
    
    
    
    
    
    
    95Amortization of intangible assets
    
    
    106
    
    
    
    123Provision for bad debts and returns
    
    
    3,511
    
    
    
    2,189Tax benefits from stock-based compensation
    
    
    250
    
    
    
    2,290Non cash stock compensation
    
    
    536
    
    
    
    324(Gain) loss on disposal of equipment
    
    
    1,697
    
    
    
    (1
    )(Increase) decrease in assets:Receivables
    
    
    (70,812
    )
    
    
    (47,271
    )Inventories
    
    
    25,923
    
    
    
    31,839Prepaid expenses and other current assets
    
    
    (7,746
    )
    
    
    (1,567
    )Other assets
    
    
    (15,612
    )
    
    
    (89
    )Increase (decrease) in liabilities:Accounts payable
    
    
    (17,182
    )
    
    
    (51,799
    )Accrued expenses
    
    
    13,202
    
    
    
    (4,541
    )Net cash used in operating activities
    
    
    (28,971
    )
    
    
    (40,441
    )Cash flows used in investing activities:Capital expenditures
    
    
    (13,780
    )
    
    
    (7,692
    )Purchases of long-term marketable securities
    
    
    (11,725
    )
    
    
    (8,400
    )Maturities of long-term marketable securities
    
    
    6,575
    
    
    
    6,900Net cash used in investing activities
    
    
    (18,930
    )
    
    
    (9,192
    )Cash flows from financing activities:Net proceeds from the issuances of stock through employee stock purchase plan and
the exercise of stock options
    
    
    681
    
    
    
    3,626Payments on long-term debt
    
    
    (211
    )
    
    
    (250
    )Excess tax benefits from stock-based compensation
    
    
    189
    
    
    
    957Net cash provided by financing activities
    
    
    659
    
    
    
    4,333Net decrease in cash and cash equivalents
    
    
    (47,242
    )
    
    
    (45,300
    )Effect of exchange rates on cash and cash equivalents
    
    
    162
    
    
    
    130Cash and cash equivalents at beginning of the period
    
    
    199,516
    
    
    
    160,485Cash and cash equivalents at end of the period
    
    $
    152,436
    
    
    $
    115,315Supplemental disclosures of cash flow information:Interest paid
    
    $
    1,035
    
    
    $
    1,234Income taxes paid
    
    
    1,576
    
    
    
    9,044Conversion of subordinated notes into common stock
    
    
    
    
    
    
    89,969
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SKECHERS U.S.A., INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31, 2007 and 2008
 (Unaudited)
 (1) GENERAL
 Basis of Presentation
   Use of Estimates
  Recent accounting pronouncements
 The Fair Value Option for
Financial Assets and Financial Liabilities, Including an amendment of FASB Statement No. 115
 Fair Value Measurements
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##### Table of Contents



(2) INVESTMENTS
      (3) REVENUE RECOGNITION
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(4) OTHER COMPREHENSIVE INCOME
  (5) STOCK COMPENSATION
   WEIGHTED
    
    WEIGHTED AVERAGE
    
    AGGREGATEAVERAGE
    
    REMAINING
    
    INTRINSICSHARES
    
    EXERCISE PRICE
    
    CONTRACTUAL TERM
    
    VALUEOutstanding at December 31, 2007
    
    
    1,961,756
    
    
    $
    11.56Granted
    
    
    
    
    
    
    Exercised
    
    
    (78,438
    )
    
    
    8.69Forfeited
    
    
    (10,938
    )
    
    
    22.62Outstanding at March 31, 2008
    
    
    1,872,380
    
    
    
    11.61
    
    
    3.6years
    
    $
    16,644,044Exercisable at March 31, 2008
    
    
    1,861,630
    
    
    
    11.61
    
    
    3.6years
    
    $
    16,564,811
  WEIGHTED AVERAGEGRANT-DATE FAIRSHARES
    
    VALUENonvested at December 31, 2007
    
    
    15,167
    
    
    $
    18.32Granted
    
    
    201,546
    
    
    
    17.16Vested
    
    
    (4,000
    )
    
    
    15.66Cancelled
    
    
    (5,928
    )
    
    
    17.16Nonvested at March 31, 2008
    
    
    206,785
    
    
    
    17.27
 (6) EARNINGS PER SHARE
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Three-Months Ended March 31,Basic earnings per share
    
    2008
    
    2007Net earnings
    
    $
    32,844
    
    
    $
    23,900Weighted average common shares outstanding
    
    
    45,880
    
    
    
    43,951Basic earnings per share
    
    $
    0.72
    
    
    $
    0.54
  Three-Months Ended March 31,Diluted earnings per share
    
    2008
    
    
    2007Net earnings
    
    $
    32,844
    
    
    $
    23,900After tax effect of interest expense on 4.50%
convertible subordinated notes
    
    
    
    
    
    
    352Earnings for purposes of computing diluted
earnings per share
    
    $
    32,844
    
    
    $
    24,252Weighted average common shares outstanding
    
    
    45,880
    
    
    
    43,951Dilutive effect of stock options
    
    
    784
    
    
    
    1,379Weighted average shares to be issued assuming
conversion of 4.50% convertible subordinated
notes
    
    
    
    
    
    
    1,473Weighted average common shares outstanding
    
    
    46,664
    
    
    
    46,803Diluted earnings per share
    
    $
    0.70
    
    
    $
    0.52
  (7) INCOME TAXES
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(8) LINE OF CREDIT
  (9) LITIGATION
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(10) STOCKHOLDERS EQUITY
  (11) SEGMENT AND GEOGRAPHIC REPORTING INFORMATION
  Three Months Ended March 31,2008
    
    
    2007Net salesDomestic wholesale
    
    $
    220,783
    
    
    $
    213,168International wholesale
    
    
    99,485
    
    
    
    71,557Retail
    
    
    60,578
    
    
    
    56,785E-commerce
    
    
    4,076
    
    
    
    3,386Total
    
    $
    384,922
    
    
    $
    344,896
 Three Months Ended March 31,2008
    
    
    2007Gross profitDomestic wholesale
    
    $
    88,155
    
    
    $
    85,216International wholesale
    
    
    45,961
    
    
    
    27,222Retail
    
    
    36,043
    
    
    
    34,883E-commerce
    
    
    2,013
    
    
    
    1,718Total
    
    $
    172,172
    
    
    $
    149,039
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March 31, 2008
    
    
    December 31, 2007Identifiable assetsDomestic wholesale
    
    $
    639,083
    
    
    $
    629,377International wholesale
    
    
    139,360
    
    
    
    118,195Retail
    
    
    80,393
    
    
    
    80,250E-commerce
    
    
    192
    
    
    
    155Total
    
    $
    859,028
    
    
    $
    827,977
 Three Months Ended March 31,2008
    
    
    2007Additions to property, plant and equipmentDomestic wholesale
    
    $
    8,683
    
    
    $
    4,430International wholesale
    
    
    187
    
    
    
    165Retail
    
    
    4,910
    
    
    
    3,097Total
    
    $
    13,780
    
    
    $
    7,692
   Three Months Ended March 31,2008
    
    
    2007Net sales (1)United States
    
    $
    280,291
    
    
    $
    269,054Canada
    
    
    12,944
    
    
    
    9,181Other international (2)
    
    
    91,687
    
    
    
    66,661Total
    
    $
    384,922
    
    
    $
    344,896
 March 31, 2008
    
    
    December 31, 2007Long-lived assetsUnited States
    
    $
    104,525
    
    
    $
    96,044Canada
    
    
    282
    
    
    
    343Other international (2)
    
    
    1,880
    
    
    
    2,013Total
    
    $
    106,687
    
    
    $
    98,400
 
 (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. (12) BUSINESS AND CREDIT CONCENTRATIONS
  12




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Three-Months Ended March 31,2008
    
    2007Percentage of revenues by segmentDomestic wholesale
    
    
    57.4
    %
    
    
    61.8
    %International wholesale
    
    
    25.9
    %
    
    
    20.8
    %Retail
    
    
    15.7
    %
    
    
    16.4
    %E-commerce
    
    
    1.0
    %
    
    
    1.0
    %Total
    
    
    100
    %
    
    
    100
    %
    Three-Months Ended March 31,2008
    
    
    2007Net sales
    
    $
    384,922
    
    
    
    100.0
    %
    
    $
    344,896
    
    
    
    100.0
    %Cost of sales
    
    
    212,750
    
    
    
    55.3
    
    
    
    195,857
    
    
    
    56.8Gross profit
    
    
    172,172
    
    
    
    44.7
    
    
    
    149,039
    
    
    
    43.2Royalty income
    
    
    840
    
    
    
    0.2
    
    
    
    1,201
    
    
    
    0.4173,012
    
    
    
    44.9
    
    
    
    150,240
    
    
    
    43.6Operating expenses:Selling
    
    
    25,534
    
    
    
    6.6
    
    
    
    26,841
    
    
    
    7.8General and administrative
    
    
    99,221
    
    
    
    25.8
    
    
    
    85,984
    
    
    
    24.9124,755
    
    
    
    32.4
    
    
    
    112,825
    
    
    
    32.7Earnings from operations
    
    
    48,257
    
    
    
    12.5
    
    
    
    37,415
    
    
    
    10.9Interest income
    
    
    2,459
    
    
    
    0.6
    
    
    
    2,438
    
    
    
    0.7Interest expense
    
    
    (1,006
    )
    
    
    (0.2
    )
    
    
    (1,591
    )
    
    
    (0.5
    )Other, net
    
    
    (97
    )
    
    
    
    
    
    
    (22
    )
    
    
    Earnings before income taxes
    
    
    49,613
    
    
    
    12.9
    
    
    
    38,240
    
    
    
    11.1Income taxes
    
    
    16,769
    
    
    
    4.4
    
    
    
    14,340
    
    
    
    4.2Net earnings
    
    $
    32,844
    
    
    
    8.5
    %
    
    $
    23,900
    
    
    
    6.9
    %
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Net sales
      Gross profit
  16




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Licensing
  Selling expenses
   General and administrative expenses
  17




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Interest income
  Interest expense
  Income taxes
     18




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Disclosures about Derivative Instruments and
Hedging Activities Accounting for Derivative Instruments and Hedging Activities
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Accounting for Noncontrolling Interests
 Applying the Acquisition Method
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Interest rate fluctuations
 Foreign exchange rate fluctuations
  
 ITEM 4. CONTROLS AND PROCEDURES
    22




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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  We Depend Upon A Relatively Small Group Of Customers For A Large Portion Of Our Sales.
  23




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We Rely On Independent Contract Manufacturers And, As A Result, Are Exposed To Potential
Disruptions In Product Supply.
   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.
  24




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ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer and the Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ***
 
 ***
    
    In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed
filed for the purposes of Section 18 of the Exchange Act or otherwise subject to the
liability of that section, nor shall it be deemed incorporated by reference in any filing
under the Securities Act of 1933, as amended, or the Exchange Act. 25




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SIGNATURES
  Date: May 9, 2008
    SKECHERS U.S.A., INC.By:
    /S/ FREDERICK H. SCHNEIDERFrederick H. SchneiderChief Financial Officer
(Principal Financial and Accounting Officer) 26