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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, 2009
 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 Office)
    
    (Zip Code)
 (310) 318-3100
(Registrants Telephone Number, Including Area Code)
 þ o
 o o
  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




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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
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    23Item 4. Controls and procedures
    
    
    23PART II  OTHER INFORMATIONItem 1. Legal proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 6. Exhibits
    
    
    26Signatures
    
    
    27EX-31.1EX-31.2EX-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 31,2009
    
    
    2008ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    73,205
    
    
    $
    114,941Trade accounts receivable, less allowances of $13,395 in 2009 and $14,880 in 2008
    
    
    229,877
    
    
    
    175,064Other receivables
    
    
    9,414
    
    
    
    7,816Total receivables
    
    
    239,291
    
    
    
    182,880Inventories
    
    
    172,886
    
    
    
    261,209Prepaid expenses and other current assets
    
    
    33,398
    
    
    
    31,022Deferred tax assets
    
    
    11,955
    
    
    
    11,955Total current assets
    
    
    530,735
    
    
    
    602,007Property and equipment, at cost, less accumulated depreciation and amortization
    
    
    169,798
    
    
    
    157,757Intangible assets, less accumulated amortization
    
    
    5,184
    
    
    
    5,407Deferred tax assets
    
    
    19,575
    
    
    
    18,158Long-term marketable securities
    
    
    78,050
    
    
    
    81,925Other assets, at cost
    
    
    8,737
    
    
    
    11,062TOTAL ASSETS
    
    $
    812,079
    
    
    $
    876,316LIABILITIES AND EQUITYCurrent Liabilities:Current installments of long-term borrowings
    
    
    613
    
    
    
    572Short-term borrowings
    
    
    1,145
    
    
    
    Accounts payable
    
    
    101,662
    
    
    
    164,643Accrued expenses
    
    
    16,418
    
    
    
    23,021Total current liabilities
    
    
    119,838
    
    
    
    188,236Long-term borrowings, excluding current installments
    
    
    16,079
    
    
    
    16,188Total liabilities
    
    
    135,917
    
    
    
    204,424Commitments and contingenciesEquity:Preferred Stock, $.001 par value; 10,000 authorized; none issued and outstanding
    
    
    
    
    
    
    Class A Common Stock, $.001 par value; 100,000 shares authorized; 33,529 and
33,410 shares issued and outstanding at March 31, 2009 and December 31,
2008, respectively
    
    
    33
    
    
    
    33Class B Common Stock, $.001 par value; 100,000 shares authorized; 12,738 and
12,782 shares issued and outstanding at March 31, 2009 and December 31,
2008, respectively
    
    
    13
    
    
    
    13Additional paid-in capital
    
    
    264,182
    
    
    
    264,200Accumulated other comprehensive income
    
    
    (9,764
    )
    
    
    (4,719
    )Retained earnings
    
    
    417,387
    
    
    
    409,166Skechers U.S.A., Inc. equity
    
    
    671,851
    
    
    
    668,693Noncontrolling interest
    
    
    4,311
    
    
    
    3,199Total equity
    
    
    676,162
    
    
    
    671,892TOTAL LIABILITIES AND EQUITY
    
    $
    812,079
    
    
    $
    876,316
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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 31,2009
    
    
    2008Net sales
    
    $
    343,470
    
    
    $
    384,922Cost of sales
    
    
    218,041
    
    
    
    212,750Gross profit
    
    
    125,429
    
    
    
    172,172Royalty income
    
    
    272
    
    
    
    840125,701
    
    
    
    173,012Operating expenses:Selling
    
    
    21,510
    
    
    
    25,534General and administrative
    
    
    98,038
    
    
    
    99,221119,548
    
    
    
    124,755Earnings from operations
    
    
    6,153
    
    
    
    48,257Other income (expense):Interest income
    
    
    706
    
    
    
    2,459Interest expense
    
    
    (42
    )
    
    
    (1,006
    )Other, net
    
    
    (218
    )
    
    
    (97
    )446
    
    
    
    1,356Earnings before income taxes
    
    
    6,599
    
    
    
    49,613Income tax (benefit) expense
    
    
    (753
    )
    
    
    16,769Net earnings
    
    
    7,352
    
    
    
    32,844Less: Net loss attributable to noncontrolling interest
    
    
    (868
    )
    
    
    Net earnings attributable to Skechers U.S.A., Inc.
    
    $
    8,220
    
    
    $
    32,844Net earnings per share attributable to Skechers U.S.A., Inc.:Basic
    
    $
    0.18
    
    
    $
    0.72Diluted
    
    $
    0.18
    
    
    $
    0.70Weighted average shares used in calculating earnings per share
attributable to Skechers U.S.A, Inc.:Basic
    
    
    46,221
    
    
    
    45,880Diluted
    
    
    46,467
    
    
    
    46,664Comprehensive income:Net earnings
    
    $
    8,220
    
    
    $
    32,844Unrealized loss on marketable securities, net of tax
    
    
    (2,083
    )
    
    
    (1,347
    )(Loss) gain on foreign currency translation adjustment, net of tax
    
    
    (2,962
    )
    
    
    1,049Total comprehensive income
    
    $
    3,175
    
    
    $
    32,546
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SKECHERS U.S.A., INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In thousands)
 Three-Months Ended March 31,2009
    
    
    2008Cash flows from operating activities:Net earnings
    
    $
    8,220
    
    
    $
    32,844Adjustments to reconcile net earnings to net cash used in operating activities:Noncontrolling interest in subsidiaries
    
    
    (868
    )
    
    
    Depreciation of property and equipment
    
    
    4,497
    
    
    
    4,312Amortization of intangible assets
    
    
    224
    
    
    
    106Provision for bad debts and returns
    
    
    826
    
    
    
    3,511Tax benefits from stock-based compensation
    
    
    
    
    
    
    250Non-cash stock compensation
    
    
    589
    
    
    
    536Loss on disposal of property and equipment
    
    
    1
    
    
    
    308Deferred taxes
    
    
    (607
    )
    
    
    Impairment of property and equipment
    
    
    761
    
    
    
    1,389(Increase) decrease in assets:Receivables
    
    
    (57,634
    )
    
    
    (70,812
    )Inventories
    
    
    88,191
    
    
    
    25,923Prepaid expenses and other current assets
    
    
    (2,433
    )
    
    
    (7,746
    )Other assets
    
    
    2,050
    
    
    
    (15,612
    )Increase (decrease) in liabilities:Accounts payable
    
    
    (65,492
    )
    
    
    (17,182
    )Accrued expenses
    
    
    (6,543
    )
    
    
    13,202Net cash used in operating activities
    
    
    (28,218
    )
    
    
    (28,971
    )Cash flows used in investing activities:Capital expenditures
    
    
    (16,406
    )
    
    
    (13,780
    )Purchases of investments
    
    
    
    
    
    
    (11,725
    )Maturities of investments
    
    
    375
    
    
    
    6,575Net cash used in investing activities
    
    
    (16,031
    )
    
    
    (18,930
    )Cash flows from financing activities:Net proceeds from the issuances of stock through employee stock purchase plan
and the exercise of stock options
    
    
    
    
    
    
    681Payments on long-term debt
    
    
    (31
    )
    
    
    (211
    )Increase in short-term borrowings
    
    
    1,145
    
    
    
    Contribution from noncontrolling interest of consolidated entity
    
    
    2,000
    
    
    
    Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    189Net cash provided by financing activities
    
    
    3,114
    
    
    
    659Net decrease in cash and cash equivalents
    
    
    (41,135
    )
    
    
    (47,242
    )Effect of exchange rates on cash and cash equivalents
    
    
    (601
    )
    
    
    162Cash and cash equivalents at beginning of the period
    
    
    114,941
    
    
    
    199,516Cash and cash equivalents at end of the period
    
    $
    73,205
    
    
    $
    152,436Supplemental disclosures of cash flow information:Cash paid during the period for:Interest, net of amounts capitalized
    
    $
    858
    
    
    $
    1,035Income taxes
    
    
    557
    
    
    
    1,576
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SKECHERS U.S.A., INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31, 2008 and 2009
 (Unaudited)
 (1) GENERAL
 Basis of Presentation
 Form 10-Q
  Use of Estimates
  Noncontrolling interests
 Noncontrolling Interests in Consolidated Financial Statements, and amendment of ARB no.
51
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Recent accounting pronouncements
 Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants.
 Disclosures about Derivative
Instruments and Hedging Activities Accounting for Derivative Instruments
and Hedging Activities
 Applying the Acquisition Method
 The
Hierarchy of Generally Accepted Accounting Principles The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles
 (2) INVESTMENTS
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(3) REVENUE RECOGNITION
   8




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(4) OTHER COMPREHENSIVE INCOME
   Three-Months EndedMarch 31, 2009Net earnings
    
    $
    7,352Unrealized loss on marketable securities, net of tax
    
    
    (2,083
    )Loss on foreign currency translation adjustment, net of tax
    
    
    (2,982
    )Comprehensive income
    
    
    2,287Comprehensive loss attributable to noncontrolling interest
    
    
    (888
    )Comprehensive income attributable to parent
    
    $
    3,175
   Three-Months EndedMarch 31, 2009Noncontrolling interest, January 1, 2009
    
    $
    3,199Net loss attributable to noncontrolling interest
    
    
    (868
    )Foreign currency translation adjustment
    
    
    (20
    )Capital contribution by minority partner
    
    
    2,000Noncontrolling interest, March 31, 2009
    
    $
    4,311
 (5) STOCK COMPENSATION
  9




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WEIGHTED
    
    WEIGHTED AVERAGE
    
    AGGREGATEAVERAGE
    
    REMAINING
    
    INTRINSICSHARES
    
    EXERCISE PRICE
    
    CONTRACTUAL TERM
    
    VALUEOutstanding at December 31, 2008
    
    
    1,739,721
    
    
    $
    11.79Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (6,880
    )
    
    
    12.93Outstanding at March 31, 2009
    
    
    1,732,841
    
    
    
    11.79
    
    
    2.6 years
    
    $
    78,556Exercisable at March 31, 2009
    
    
    1,732,841
    
    
    
    11.79
    
    
    2.6 years
    
    $
    78,556
  WEIGHTED AVERAGEGRANT-DATE FAIRSHARES
    
    VALUENonvested at December 31, 2008
    
    
    217,284
    
    
    $
    16.97Granted
    
    
    2,500
    
    
    
    12.22Vested
    
    
    (101,807
    )
    
    
    17.10Cancelled
    
    
    
    
    
    
    Nonvested at March 31, 2009
    
    
    117,977
    
    
    
    16.76
 (6) EARNINGS PER SHARE
    Three-Months Ended March 31,Basic earnings per share
    
    2009
    
    2008Net earnings attributable to Skechers U.S.A., Inc.
    
    $
    8,220
    
    
    $
    32,844Weighted average common shares outstanding
    
    
    46,221
    
    
    
    45,880Basic earnings per share attributable to Skechers U.S.A., Inc
    
    $
    0.18
    
    
    $
    0.72
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Three-Months Ended March 31,Diluted earnings per share
    
    2009
    
    
    2008Net earnings attributable to Skechers U.S.A., Inc
    
    $
    8,220
    
    
    $
    32,844Weighted average common shares outstanding
    
    
    46,221
    
    
    
    45,880Dilutive effect of stock options
    
    
    246
    
    
    
    784Weighted average common shares outstanding
    
    
    46,467
    
    
    
    46,664Diluted earnings per share attributable to Skechers U.S.A., Inc
    
    $
    0.18
    
    
    $
    0.70
  (7) INCOME TAXES
    (8) LINE OF CREDIT AND SHORT-TERM BORROWINGS
  11




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(9) LITIGATION
  (10) STOCKHOLDERS EQUITY
  (11) SEGMENT AND GEOGRAPHIC REPORTING INFORMATION
  Three Months Ended March 31,2009
    
    
    2008Net salesDomestic wholesale
    
    $
    180,499
    
    
    $
    220,783International wholesale
    
    
    99,551
    
    
    
    99,485Retail
    
    
    60,040
    
    
    
    60,578E-commerce
    
    
    3,380
    
    
    
    4,076Total
    
    $
    343,470
    
    
    $
    384,922
 Three Months Ended March 31,2009
    
    
    2008Gross profitDomestic wholesale
    
    $
    56,507
    
    
    $
    88,155International wholesale
    
    
    33,588
    
    
    
    45,961Retail
    
    
    33,572
    
    
    
    36,043E-commerce
    
    
    1,762
    
    
    
    2,013Total
    
    $
    125,429
    
    
    $
    172,172
 March 31, 2009
    
    
    December 31, 2008Identifiable assetsDomestic wholesale
    
    $
    610,691
    
    
    $
    678,881International wholesale
    
    
    113,678
    
    
    
    110,930Retail
    
    
    87,561
    
    
    
    86,236E-commerce
    
    
    149
    
    
    
    269Total
    
    $
    812,079
    
    
    $
    876,316
 Three Months Ended March 31,2009
    
    
    2008Additions to property, plant and equipmentDomestic wholesale
    
    $
    13,739
    
    
    $
    8,683International wholesale
    
    
    1,493
    
    
    
    187Retail
    
    
    1,174
    
    
    
    4,910Total
    
    $
    16,406
    
    
    $
    13,780
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Three Months Ended March 31,2009
    
    
    2008Net sales (1)United States
    
    $
    240,291
    
    
    $
    280,291Canada
    
    
    9,393
    
    
    
    12,944Other international (2)
    
    
    93,786
    
    
    
    91,687Total
    
    $
    343,470
    
    
    $
    384,922
 March 31, 2009
    
    
    December 31, 2008Long-lived assetsUnited States
    
    $
    161,074
    
    
    $
    148,228Canada
    
    
    310
    
    
    
    471Other international (2)
    
    
    8,414
    
    
    
    9,058Total
    
    $
    169,798
    
    
    $
    157,757
 
 (1)
    
    The Company has subsidiaries in Canada, United Kingdom, Germany, France, Spain, Italy, Chile,
Netherlands, Brazil, Thailand and Malaysia, and joint ventures in China and Hong Kong, 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, China, Hong Kong, Switzerland,
United Kingdom, Germany, France, Spain, Italy, Chile and Netherlands. (12) BUSINESS AND CREDIT CONCENTRATIONS
    13




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     15




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Three-Months Ended March 31,2009
    
    
    2008Percentage of revenues by segmentDomestic wholesale
    
    
    52.5
    %
    
    
    57.4
    %International wholesale
    
    
    29.0
    %
    
    
    25.9
    %Retail
    
    
    17.5
    %
    
    
    15.7
    %E-commerce
    
    
    1.0
    %
    
    
    1.0
    %Total
    
    
    100
    %
    
    
    100
    %
    Three-Months Ended March 31,2009
    
    
    2008Net sales
    
    $
    343,470
    
    
    
    100.0
    %
    
    $
    384,922
    
    
    
    100.0
    %Cost of sales
    
    
    218,041
    
    
    
    63.5
    
    
    
    212,750
    
    
    
    55.3Gross profit
    
    
    125,429
    
    
    
    36.5
    
    
    
    172,172
    
    
    
    44.7Royalty income
    
    
    272
    
    
    
    0.1
    
    
    
    840
    
    
    
    0.2125,701
    
    
    
    36.6
    
    
    
    173,012
    
    
    
    44.9Operating expenses:Selling
    
    
    21,510
    
    
    
    6.3
    
    
    
    25,534
    
    
    
    6.6General and administrative
    
    
    98,038
    
    
    
    28.5
    
    
    
    99,221
    
    
    
    25.8119,548
    
    
    
    34.8
    
    
    
    124,755
    
    
    
    32.4Earnings from operations
    
    
    6,153
    
    
    
    1.8
    
    
    
    48,257
    
    
    
    12.5Interest income
    
    
    706
    
    
    
    0.2
    
    
    
    2,459
    
    
    
    0.6Interest expense
    
    
    (42
    )
    
    
    
    
    
    
    (1,006
    )
    
    
    (0.2
    )Other, net
    
    
    (218
    )
    
    
    (0.1
    )
    
    
    (97
    )
    
    
    Earnings before income taxes
    
    
    6,599
    
    
    
    1.9
    
    
    
    49,613
    
    
    
    12.9Income tax (benefit) expense
    
    
    (753
    )
    
    
    (0.2
    )
    
    
    16,769
    
    
    
    4.4Net earnings
    
    
    7,352
    
    
    
    2.1
    
    
    
    32,844
    
    
    
    8.5Less: Net loss attributable to noncontrolling interest
    
    
    (868
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    Net earnings attributable to Skechers U.S.A., Inc.
    
    $
    8,220
    
    
    
    2.4
    %
    
    $
    32,844
    
    
    
    8.5
    %
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Net sales
      Gross profit
  17




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Selling expenses
   General and administrative expenses
   18




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Interest income
  Interest expense
  Income taxes
   Noncontrolling interest in net loss of consolidated subsidiary
     19




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Determining Whether a Market Is Not Active and a Transaction
Is Not Distressed
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Recognition and Presentation of
Other-Than Temporary Impairments
 Interim Disclosures about Fair Value of Financial
Instruments ( Disclosures about Fair Value of Financial Instruments Interim Financial Reporting
         22




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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
    23




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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.
  24




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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.
  25




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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. 26




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SIGNATURES
  Date: May 8, 2009
    SKECHERS U.S.A., INC.By:
    /S/ FREDERICK H. SCHNEIDERFrederick H. SchneiderChief Financial Officer
(Principal Financial and Accounting Officer) 27