10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2004

OR

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

Commission File number 0-18490

K-SWISS INC.

(Exact name of registrant as specified in its charter)

Delaware	95-4265988
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
31248 Oak Crest Drive, Westlake Village, California	91361
(Address of principal executive offices)	(Zip code)

818-706-5100

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Shares of common stock outstanding at October 27, 2004:

Class A	25,736,679
Class B	8,530,734

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

K-SWISS INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)

	September 30, 2004			December 31, 2003
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	129,021		$	81,455
Accounts receivable, less allowance for doubtful accounts of $2,074 and $2,079 as of September 30, 2004 and December 31, 2003, respectively		57,855			51,006
Inventories		56,600			73,660
Prepaid expenses and other		6,253			4,760
Deferred taxes		4,717			3,014
Total current assets		254,446			213,895
PROPERTY, PLANT AND EQUIPMENT, net		8,192			8,596
OTHER ASSETS
Intangible assets (Note 5)		4,700			7,301
Other		5,036			4,838
		9,736			12,139
	$	272,374		$	234,630
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Trade accounts payable	$	19,160		$	19,447
Accrued income taxes		563			347
Accrued liabilities		24,757			16,715
Total current liabilities		44,480			36,509
OTHER LIABILITIES		14,423			15,234
DEFERRED TAXES		3,936			3,360
STOCKHOLDERS’ EQUITY (Notes 7 and 8)
Preferred Stock – authorized 2,000,000 shares of $0.01 par value; none issued and outstanding		—			—
Common Stock:
Class A – authorized 90,000,000 shares of $0.01 par value; 27,068,955 shares issued, 25,894,729 shares outstanding and 1,174,226 shares held in treasury at September 30, 2004 and 26,755,362 shares issued and outstanding at December 31, 2003		271			268
Class B – authorized 18,000,000 shares of $0.01 par value; issued and outstanding 8,530,734 shares at September 30, 2004 and 8,682,734 shares at December 31, 2003		85			87
Additional paid-in capital		32,541			31,059
Treasury Stock		(23,629	)		—
Retained earnings		196,449			143,427
Accumulated other comprehensive earnings -
Foreign currency translation		3,950			4,686
Net loss on hedge derivatives		(132	)		—
		209,535			179,527
	$	272,374		$	234,630

The accompanying notes are an integral part of these statements.

2

K-SWISS INC.

CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE EARNINGS

(Amounts in thousands, except per share amounts)

(Unaudited)

	Nine Months Ended September 30,						Three Months Ended September 30,
	2004			2003			2004			2003
Revenues	$	395,723		$	348,730		$	135,799		$	121,292
Cost of goods sold		214,455			190,167			74,050			68,246
Gross profit		181,268			158,563			61,749			53,046
Selling, general and administrative expenses		93,920			82,725			31,406			27,545
Operating profit		87,348			75,838			30,343			25,501
Interest income, net		552			451			252			87
Earnings from continuing operations before income taxes		87,900			76,289			30,595			25,588
Income tax expense (Note 9)		32,263			30,059			9,914			10,084
Earnings from continuing operations		55,637			46,230			20,681			15,504
Loss from discontinued operations, less applicable income tax benefit of $3,082 and $253 for the nine and three months ended September 30, 2003, respectively (Note 2)		—			(4,861	)		—			(398	)
NET EARNINGS	$	55,637		$	41,369		$	20,681		$	15,106
Earnings per common share (Note 3)
Basic:
Earnings from continuing operations	$	1.59		$	1.31		$	0.59		$	0.44
Loss from discontinued operations		—			(0.14	)		—			(0.01	)
Net Earnings	$	1.59		$	1.17		$	0.59		$	0.43
Diluted:
Earnings from continuing operations	$	1.52		$	1.22		$	0.57		$	0.41
Loss from discontinued operations		—			(0.13	)		—			(0.01	)
Net Earnings	$	1.52		$	1.09		$	0.57		$	0.40
Dividends declared per common share	$	0.075		$	0.02		$	0.025		$	0.01
Net Earnings	$	55,637		$	41,369		$	20,681		$	15,106
Other comprehensive (loss) earnings –
Foreign currency translation adjustments, net of income taxes of $0 and $0 for the nine months ended September 30, 2004 and 2003, respectively and $0 and $0 for the three months ended September 30, 2004 and 2003, respectively		(736	)		1,983			258			76
Deferred loss on hedge derivatives, net of income tax benefit of $85 and $0 for the nine months ended September 30, 2004 and 2003, respectively and $85 and $0 for the three months ended September 30, 2004 and 2003, respectively		(132	)		—			(132	)		—
Comprehensive earnings	$	54,769		$	43,352		$	20,807		$	15,182

The accompanying notes are an integral part of these statements.

3

K-SWISS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2004			2003
Net cash provided by operating activities	$	74,731		$	20,067
Cash flows from investing activities:
Purchase of property, plant and equipment		(900	)		(1,033	)
Proceeds from disposal of property, plant and equipment		9			—
Net cash used in investing activities		(891	)		(1,033	)
Cash flows from financing activities:
Purchase of treasury stock		(23,629	)		(18,674	)
Payment of dividends		(2,615	)		(706	)
Proceeds from stock options exercised		360			878
Net cash used in financing activities		(25,884	)		(18,502	)
Effect of exchange rate changes on cash		(390	)		614
Net increase in cash and cash equivalents		47,566			1,146
Cash and cash equivalents at beginning of period		81,455			67,593
Cash and cash equivalents at end of period	$	129,021		$	68,739
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	206		$	22
Income taxes	$	34,276		$	26,860

The accompanying notes are an integral part of these statements.

4

K-SWISS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “S.E.C.”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position of K-Swiss Inc. (the “Company” or “K-Swiss”) as of September 30, 2004 and the results of its operations and its cash flows for the nine and three months ended September 30, 2004 and 2003 have been included for the periods presented. The results of operations and cash flows for the nine and three months ended September 30, 2004 are not necessarily indicative of the results to be expected for any other interim period or the full year. The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in combination with the audited consolidated financial statements and notes thereto for the year ended December 31, 2003. Certain reclassifications have been made in the nine and three months ended September 30, 2003 presentation to conform to the nine and three months ended September 30, 2004 presentation.

2. National Geographic

In the fourth quarter of 2003, the Company reached an agreement with National Geographic to terminate its licensing agreement for $2.0 million. Operations of the National Geographic brand have been accounted for and shown as a discontinued operation in the accompanying financial information. The operations for National Geographic for the nine and three months ended September 30, 2003 are as follows (in thousands):

	Nine Months Ended September 30, 2003			Three Months Ended September 30, 2003
Revenues	$	602		$	276
Cost of goods sold		6,031			496
Gross loss		(5,429	)		(220	)
Selling, general and administrative expenses		2,339			381
Operating loss		(7,768	)		(601	)
Interest expense, net		175			50
Income tax benefit		(3,082	)		(253	)
Loss from discontinued operations	$	(4,861	)	$	(398	)

3. Earnings per Share

The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands):

	Nine Months Ended September 30,								Three Months Ended September 30,
	2004				2003				2004				2003
	Shares	Per Share Amount			Shares	Per Share Amount			Shares	Per Share Amount			Shares	Per Share Amount
Basic EPS	35,065	$	1.59		35,413	$	1.17		34,818	$	0.59		35,384	$	0.43
Effect of Dilutive Stock Options	1,511		(0.07	)	2,479		(0.08	)	1,458		(0.02	)	2,565		(0.03	)
Diluted EPS	36,576	$	1.52		37,892	$	1.09		36,276	$	0.57		37,949	$	0.40

5

The following options were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares:

	Nine Months Ended September 30, 2004		Nine Months Ended September 30, 2003
Options to purchase shares of common stock (in thousands)		18		200
Exercise prices	$	23.45 – $23.71	$	17.62 – $18.50
Expiration dates		December 2013 – February 2014		July 2013 – August 2013
	Three Months Ended September 30, 2004		Three Months Ended September 30, 2003
Options to purchase shares of common stock (in thousands)		214		—
Exercise prices	$	19.26 – $23.71		—
Expiration dates		December 2013 –May 2014		—

4. Accounting for Stock-Based Compensation

Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure – an amendment of SFAS 123,” encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of grant over the amount an employee must pay to acquire the stock.

During the nine months ended September 30, 2004 and 2003, 8,500 and 34,000 options, respectively, were granted at exercise prices below fair market value. During the three months ended September 30, 2004 there were no options that were granted at exercise process below fair market value and during the three months ended September 30, 2003, there were 2,000 options that were granted at exercise prices below fair market value. All other options were granted at an exercise price equal to the fair market value of the Company’s common stock at the date of grant. Accordingly, no compensation cost has been recognized for such options granted.

In connection with the exercise of options, the Company realized income tax benefits in the nine and three months ended September 30, 2004 and 2003 that have been credited to additional paid-in capital.

Had compensation cost for the plan been determined based on the fair value of the options at the grant dates consistent with the method of SFAS No. 148, the Company’s net earnings and earnings per share would have been:

	Nine Months Ended September 30,						Three Months Ended September 30,
	2004			2003			2004			2003
Net earnings (in thousands)
As reported	$	55,637		$	41,369		$	20,681		$	15,106
Add stock-based employee compensation charges reported in net earnings		173			191			55			62
Less total stock-based employee compensation expense, determined under the fair value method		(1,429	)		(1,224	)		(499	)		(432	)
Pro forma	$	54,381		$	40,336		$	20,237		$	14,736
Basic earnings per share
As reported	$	1.59		$	1.17		$	0.59		$	0.43
Pro forma		1.55			1.14			0.58			0.42
Diluted earnings per share
As reported	$	1.52		$	1.09		$	0.57		$	0.40
Pro forma		1.49			1.06			0.56			0.39

6

The fair value of options at date of grant was estimated using the Black-Scholes model with the following assumptions:

	September 30,
	2004		2003
Expected life (years)	5		7
Risk-free interest rate	3.38	%	3.41	%
Expected volatility	55	%	57	%
Expected dividend yield	0.5	%	0.2	%

5. Goodwill and Intangible Assets

SFAS No. 142, “Goodwill and Other Intangible Assets,” eliminates the requirement to amortize goodwill and indefinite-lived intangible assets, requiring instead that those assets be measured for impairment at least annually, and more often when events indicate that an impairment exists. Intangible assets with finite lives will continue to be amortized over their useful lives. Goodwill and intangible assets are as follows (in thousands):

	September 30, 2004			December 31, 2003
Goodwill	$	4,618		$	4,772
Trademarks		2,761			5,382
Other		8			8
Less accumulated amortization		(2,687	)		(2,861	)
	$	4,700		$	7,301

The changes in the carrying amount of goodwill and intangible assets is as follows (in thousands):

	Nine Months Ended September 30,						Three Months Ended September 30,
	2004			2003			2004			2003
Beginning balance	$	7,301		$	8,107		$	5,746		$	7,297
Additions		175			—			—			—
Accretion/(amortization) of assets with finite lives		—			(62	)		—			2
Impairment losses		(2,776	)		(746	)		(1,046	)		—
Ending balance	$	4,700		$	7,299		$	4,700		$	7,299

In applying SFAS No. 142, the Company has performed the annual reassessment and impairment test required as of January 1, 2004 to determine whether goodwill and intangible assets were impaired. In the first quarter of 2004, as a result of the annual reassessment and impairment test and after a review of sales, backlog, cash flows and marketing strategy, the Company determined that its investment in the Royal Elastics goodwill and trademark was impaired and recognized an impairment loss of $1,730,000. During the third quarter of 2004, after a subsequent review of sales, backlog, cash flows and marketing strategy, the Company determined that its remaining investment in the Royal Elastics goodwill and trademark was impaired and recognized an additional impairment loss of $1,046,000. In the first quarter of 2003, after a review of sales backlog, the Company determined based on estimated revenues, operating profits and cash flows that its investment in the National Geographic license was impaired and recognized an impairment loss of $746,000. See Note 2 for additional information on National Geographic.

7

6. Segment Information

The Company’s predominant business is the design, development and distribution of athletic footwear. Substantially all of the Company’s revenues are from sales of footwear products. The Company is organized into three geographic regions: the United States, Europe and other international operations. Certain segment information that follows excludes the operations of the National Geographic brand, which was discontinued in 2003. Certain reclassifications have been made in the 2003 presentations. The following tables summarize segment information (in thousands):

	Nine Months Ended September 30,						Three Months Ended September 30,
	2004			2003			2004			2003
Revenues from unrelated entities (1):
United States	$	329,009		$	304,027		$	110,938		$	105,326
Europe		36,107			22,629			12,728			7,529
Other International		30,607			22,074			12,133			8,437
	$	395,723		$	348,730		$	135,799		$	121,292
Inter-geographic revenues:
United States	$	3,094		$	2,198		$	1,163		$	765
Europe		98			128			—			32
Other International		10,295			7,109			3,276			2,257
	$	13,487		$	9,435		$	4,439		$	3,054
Total revenues:
United States	$	332,103		$	306,225		$	112,101		$	106,091
Europe		36,205			22,757			12,728			7,561
Other International		40,902			29,183			15,409			10,694
Less inter-geographic revenues		(13,487	)		(9,435	)		(4,439	)		(3,054	)
	$	395,723		$	348,730		$	135,799		$	121,292
Operating profit (loss):
United States (2)	$	82,723		$	81,897		$	25,995		$	27,339
Europe		4,177			(462	)		3,081			(907	)
Other International (2)		6,817			4,288			2,812			1,604
Less corporate expenses (3)		(10,147	)		(14,507	)		(3,186	)		(4,545	)
Eliminations		3,778			4,622			1,641			2,010
	$	87,348		$	75,838		$	30,343		$	25,501

	September 30, 2004		December 31, 2003
Identifiable assets:
United States	$	117,557	$	127,380
Europe		30,004		26,350
Other International		14,454		11,109
Corporate assets and eliminations (4)		110,359		69,791
	$	272,374	$	234,630

(1) Revenue is attributable to geographic regions based on the location of the Company subsidiary.

(2) For the nine months ended September 30, 2004, operating profit includes impairment losses of $2,776,000 on the Royal Elastics trademark and goodwill, of which $1,632,000 and $1,144,000 of impairment losses were recognized in the United States segment and Other International segment, respectively. For the three months ended September 30, 2004, operating profit includes impairment losses of $1,046,000 on the Royal Elastics trademark and goodwill, of which $616,000 and $430,000 of impairment losses were recognized in the United States segment and Other International segment, respectively.

(3) Corporate expenses include expenses such as salaries and related expenses for executive management and support departments such as accounting and treasury, information technology, human resources and legal which benefit the entire corporation and are not segment/region specific. The decrease in corporate expenses during the nine and three months ended September 30, 2004 is due to a decrease in bonus/incentive related expenses that was calculated in accordance with the Company’s bonus formula in 2004. The decrease in corporate expenses for the nine months ended September 30, 2004 is also due to the decrease in legal expenses as a result of the defense of two lawsuits which were settled in the second quarter of 2003.

(4) Corporate assets include cash and cash equivalents and intangible assets.

During the nine months ended September 30, 2004 and 2003, approximately 20% and 28%, respectively, of revenues were attributable to one customer. During the three months ended September 30, 2004 and 2003, approximately 22% and 30%, respectively, of revenues were attributable to this same customer.

8

7. Financial Risk Management and Derivatives

The Company enters into foreign exchange contracts in order to reduce the impact of foreign currency fluctuations and not to engage in currency speculation. The use of derivative financial instruments allows the Company to reduce its exposure to the risk that the eventual net cash inflow resulting from the sale of products to foreign customers and purchases from foreign suppliers will be materially affected by changes in exchange rates. The Company does not hold or issue financial instruments for trading purposes. The foreign exchange contracts are designated for firmly committed or forecasted purchases and sales. These transactions are expected to occur in less than one year.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking hedge transactions. This process includes linking all derivatives to either specific assets and liabilities on the balance sheet or specific firm commitments or forecasted transactions.

Substantially all derivatives entered into by the Company are designated as cash flow hedges. All derivatives are recognized on the balance sheet at their fair value. Unrealized gain positions are recorded as other current assets. Unrealized loss positions are recorded as accrued liabilities. Changes in fair values of outstanding cash flow hedge derivatives that are highly effective are recorded in other comprehensive income, until net income is affected by the variability of cash flows of the hedged transaction.

All derivatives are linked to specific firm commitments and forecasted transactions and are monitored to assess the past and prospective effectiveness. Fluctuations in the value of the hedging instruments are offset by fluctuations in the value of the underlying exposures being hedged. If it is determined that a hedge is not highly effective, the Company discontinues hedge accounting on the ineffective portion of the hedge and takes appropriate action to recognize the related amount residing in Other Comprehensive Earnings into current earnings.

The forward contracts generally require the Company to exchange Euros for U.S. dollars or Pounds Sterling for Euros at maturity, at rates agreed to at the inception of the contracts. The counterparties to derivative transactions are major financial institutions with investment grade or better credit ratings; however, the Company is exposed to credit risk with these institutions. The credit risk is limited to the unrealized gains in such contracts should these counterparties fail to perform as contracted.

Unrealized derivative gains and losses recorded in current assets and liabilities and amounts recorded in other comprehensive earnings are non-cash items and therefore are taken into account in the preparation of the consolidated statement of cash flows based on their respective balance sheet classifications.

At September 30, 2004, forward foreign exchange contacts with a notional value of $16,891,000 were outstanding to exchange various currencies (principally U.S. dollars and Euros) with maturities ranging from October 2004 to May 2005 to sell the equivalent of approximately $6,391,000 in foreign currencies at contracted rates and to buy $10,500,000 at contracted rates. These contracts have been designated as cash flow hedges. As of September 30, 2004, assets of $105,000 and liabilities of $310,000 have been recorded for the fair value of the foreign exchange contracts. Realized losses of $5,000 from cash flow hedges were recorded in cost of goods sold during the quarter and nine months ended September 30, 2004. There was no hedge ineffectiveness in the quarter and nine months ended September 30, 2004. The Company did not enter into any derivative financial instruments during 2003 and did not have any derivative financial instruments outstanding at September 30, 2003.

8. Stockholders’ Equity

Under its stock repurchase programs, the Company purchased 1,174,226 shares of Class A Common Stock during the nine months ended September 30, 2004 for a total expenditure of approximately $23,629,000.

9. Income Taxes

The Company’s effective tax rate was 32.4% and 36.7% for the quarter and nine months ended September 30, 2004, respectively, compared to 39.4% for the quarter and nine months ended September 30, 2003, respectively. The effective tax rate for the quarter and nine months ended September 30, 2004 is different than the statutory rate principally due to realizing net operating loss carry forwards of $475,000 and $568,000, respectively, as a result of the Company’s UK operation having become profitable in the third quarter of 2004 along with adjustments to the Company’s provision for state income taxes.

9

10. Recent Accounting Pronouncements

In December 2003, the S.E.C. issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” which revises or rescinds portions of the interpretative guidance included in SAB No. 101, “Revenue Recognition in Financial Statements” in order to make guidance consistent with authoritative accounting and auditing guidance and with S.E.C. rules and regulations. The principal revisions relate to the rescission of material no longer necessary because of private sector developments in United States generally accepted accounting principles. The adoption of SAB No. 104 did not have a material impact on the Company’s financial position or results of operations.

10

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

Note Regarding Forward-Looking Statements and Analyst Reports

“Forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), include certain written and oral statements made, or incorporated by reference, by us or our representatives in this report, other reports, filings with the Securities and Exchange Commission (the “S.E.C.”), press releases, conferences, or otherwise. Such forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will be,” “will continue,” “will likely result,” or any variations of such words with similar meaning. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Investors should carefully review the risk factors set forth in other reports or documents we file with the S.E.C., including Forms 10-Q, 10-K and 8-K. Some of the other risks and uncertainties that should be considered include, but are not limited to, the following: international, national and local general economic and market conditions; the size and growth of the overall athletic footwear and apparel markets; the size of our competitors; intense competition among designers, marketers, distributors and sellers of athletic footwear and apparel for consumers and endorsers; market acceptance of our training shoe line; market acceptance of new Limited Edition product; market acceptance of non-performance product in Europe; market acceptance of Royal Elastics footwear; demographic changes; changes in consumer preferences; popularity of particular designs, categories of products, and sports; seasonal and geographic demand for our products; the size, timing and mix of purchases of our products; fluctuations and difficulty in forecasting operating results, including, without limitation, the fact that advance “futures” orders may not be indicative of future revenues due to the changing mix of futures and at-once orders; potential cancellation of future orders; our ability to continue, manage or forecast our growth and inventories; new product development and commercialization; the ability to secure and protect trademarks, patents, and other intellectual property; difficulties in implementing, operating and maintaining our increasingly complex information systems and controls; concentration of production in China; potential earthquake disruption due to the location of our warehouse and headquarters; potential disruption in supply chain, due to various factors including but not limited to epidemic diseases or customer purchasing habits; performance and reliability of products; customer service; adverse publicity; the loss of significant customers or suppliers; dependence on distributors; dependence on major customers; concentration of credit risk; business disruptions; increased costs of freight and transportation to meet delivery deadlines; the effects of terrorist actions on business activities, customer orders and cancellations, and the United States and international governments’ responses to these terrorist actions; changes in business strategy or development plans; general risks associated with doing business outside the United States, including, without limitation, import duties, tariffs, quotas and political and economic instability; changes in government regulations; liability and other claims asserted against us; the ability to attract and retain qualified personnel; and other factors referenced or incorporated by reference in this report and other reports.

K-Swiss (the “Company,” “we,” “us,” and “our”) operates in a very competitive and rapidly changing environment. New risk factors can arise and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Investors should also be aware that while we communicate, from time to time, with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts or others contain any projections, forecasts or opinions, such reports are not our responsibility.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

11

We believe that the estimates, assumptions and judgements involved in the accounting policies described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our most recent Annual Report on Form 10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for revenue recognition, the reserve for uncollectible accounts receivable and inventory reserves. These policies require that we make estimates in the preparation of our financial statements as of a given date.

Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

Results of Operations

The following table sets forth, for the periods indicated, the percentage of certain items in the consolidated statements of earnings relative to revenues.

	Nine Months Ended September 30,				Three Months Ended September 30,
	2004		2003		2004		2003
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	54.2		54.5		54.5		56.3
Gross profit	45.8		45.5		45.5		43.7
Selling, general and administrative expenses	23.7		23.7		23.1		22.7
Interest income, net	0.1		0.1		0.1		0.1
Earnings from continuing operations before income taxes	22.2		21.9		22.5		21.1
Income tax expense	8.1		8.6		7.3		8.3
Earnings from continuing operations	14.1		13.3		15.2		12.8
Loss from discontinued operations	—		(1.4	)	—		(0.3	)
Net earnings	14.1		11.9		15.2		12.5

Revenues

K-Swiss brand revenues increased to $133,911,000 for the quarter ended September 30, 2004 from $119,673,000 for the quarter ended September 30, 2003, an increase of $14,238,000 or 11.9%. K-Swiss brand revenues increased to $390,190,000 for the nine months ended September 30, 2004 from $343,960,000 for the nine months ended September 30, 2003, an increase of $46,230,000 or 13.4%. The increase for the quarter and nine months ended September 30, 2004 was the result of increases in the volume of footwear sold along with higher average wholesale prices per pair. The volume of footwear sold increased to 5,346,000 and to 15,207,000 pair for the quarter and nine months ended September 30, 2004, respectively, from 4,820,000 and 13,677,000 pair for the quarter and nine months ended September 30, 2003, respectively. The increase in the volume of footwear sold for the quarter ended September 30, 2004 was primarily the result of increased sales of the Classic, tennis and children’s shoes of 13.5%, 12.8% and 10.2%, respectively, offset by decreased sales of training shoes at 9.6%. This increase for the quarter ended September 30, 2004 was also the result of an increase in the average wholesale price per pair to $24.70 for the quarter ended September 30, 2004 from $24.51 for the quarter ended September 30, 2003, an increase of 0.8%, was due to the mix of sales. This increase for the nine months ended September 30, 2004 was also due to an increase in the average wholesale price per pair to $25.16 for the nine months ended September 30, 2004 from $24.71 for the nine months ended September 30, 2003, an increase of 1.8%, also due to the mix of sales.

12

The breakdown of revenues (dollar amounts in thousands) is as follows:

	Nine Months Ended September 30,						Three Months Ended September 30,
	2004		2003		% Change		2004		2003		% Change
Domestic
K-Swiss brand	$	327,007	$	302,657	8.0	%	$	110,289	$	104,789	5.2	%
Royal Elastics brand		2,002		1,370	46.1			649		537	20.9
Total domestic	$	329,009	$	304,027	8.2	%	$	110,938	$	105,326	5.3	%
International
K-Swiss brand	$	63,183	$	41,303	53.0	%	$	23,622	$	14,884	58.7	%
Royal Elastics brand		3,531		3,400	3.9			1,239		1,082	14.5
Total international	$	66,714	$	44,703	49.2	%	$	24,861	$	15,966	55.7	%
Total Revenues	$	395,723	$	348,730	13.5	%	$	135,799	$	121,292	12.0	%

Gross Margin

Overall gross profit margins, as a percentage of revenues, increased to 45.5% for the quarter ended September 30, 2004, from 43.7% for the quarter ended September 30, 2003. Overall gross profit margins, as a percentage of revenues, increased to 45.8% for the nine months ended September 30, 2004, from 45.5% for the nine months ended September 30, 2003. Gross profit margin for the quarter and nine months ended September 30, 2004 was affected by product mix changes, international sales becoming a larger portion of revenues and changes in our at-once business. Our gross margins may not be comparable to some of our competitors as we recognize warehousing costs within selling, general and administrative expenses.

Selling, General and Administrative Expenses

Overall selling, general and administrative expenses increased to $31,406,000 (23.1% of revenues) for the quarter ended September 30, 2004, from $27,545,000 (22.7% of revenues) for the quarter ended September 30, 2003, an increase of $3,861,000 or 14.0%. Overall selling, general and administrative expenses increased to $93,920,000 (23.7% of revenues) for the nine months ended September 30, 2004, from $82,725,000 (23.7% of revenues) for the nine months ended September 30, 2003, an increase of $11,195,000 or 13.5%. The increase in selling, general and administrative expenses during the quarter ended September 30, 2004 was primarily due to an impairment recognition and an increase in advertising expenses offset by a decrease in compensation and compensation related expenses. The increase in selling, general and administrative expenses during the nine months ended September 30, 2004 was due to impairment recognition and increases in advertising and warehousing expenses offset by decreases in compensation and compensation related expenses and legal expenses. In the quarter and nine months ended September 30, 2004, impairment of $1,046,000 and $2,776,000, respectively, was recognized on the trademark and goodwill of the Royal Elastics brand based on many factors including the brand not growing as rapidly as we had expected. Advertising expenses increased 32.1% and 24.4%, for the quarter and nine months ended September 30, 2004, respectively, as part of a strategic effort to drive higher revenues. Warehousing expenses, excluding compensation and compensation related expenses, increased 18.2% for the nine months ended September 30, 2004, as a result of additional expenses incurred resulting from an increase in sales during the nine months ended September 30, 2004 and moving our warehouse location in Europe during the second quarter of 2004. Compensation and compensation related expenses, including commissions and bonus/incentive related expenses, decreased 9.7% and 1.2% for the quarter and nine months ended September 30, 2004, respectively, due to a decrease in bonus/incentive related expenses that was calculated in accordance with our bonus formula in the quarter and nine months ended September 30, 2004 offset by an increase in headcount and commissions (as a result of the increase in volume). Legal expenses decreased 66.8% for the nine months ended September 30, 2004, as a result of the defense of two lawsuits during the nine months ended September 30, 2003 which were settled in the second quarter of 2003. Corporate expenses of $3,186,000 and $4,545,000, for the quarter ended September 30, 2004 and 2003, respectively, and $10,147,000 and $14,507,000, for the nine months ended September 30, 2004 and 2003, respectively, are included in selling, general and administrative expenses. The decrease in corporate expenses during the quarter and nine months ended September 30, 2004 is due to decreases in bonus/incentive related expenses and legal expenses which have been explained above.

13

Interest, Other and Taxes

Overall net interest income was $252,000 (0.1% of revenues) and $552,000 (0.1% of revenues) for the quarter and nine months ended September 30, 2004, respectively, compared to $87,000 (0.1% of revenues) and $451,000 (0.1% of revenues) for the quarter and nine months ended September 30, 2003, respectively, representing an increase of $165,000 and $101,000 for the quarter and nine months ended September 30, 2004, respectively, compared to the same prior year periods, respectively. The increase in net interest income for the quarter ended September 30, 2004 is a result of higher average balances and higher average interest rates and the increase for the nine months ended September 30, 2004 is a result of higher average balances offset by lower average interest rates.

Our effective tax rate was 32.4% and 36.7% for the quarter and nine months ended September 30, 2004, respectively, compared to 39.4% for the quarter and nine months ended September 30, 2003, respectively. The decrease in the effective tax rates for the quarter and nine months ended September 30, 2004 is principally due to our UK operation having become profitable in the third quarter of 2004 thereby realizing net operating loss carry forwards of approximately $475,000 and $568,000 for the quarter and nine months ended September 30, 2004, respectively, along with adjustments to our provision for state income taxes.

The net loss from discontinued operations was $398,000 and $4,861,000 for the quarter and nine months ended September 30, 2003, respectively. Included in the nine months ended 2003 was a $4.1 million expense related to a guaranteed royalty payment commitment to National Geographic and a $746,000 impairment loss on the National Geographic license.

Net earnings increased 36.9% to $20,681,000, or $0.57 per share (diluted earnings per share), for the quarter ended September 30, 2004 from $15,106,000, or $0.40 per share (diluted earnings per share) for the quarter ended September 30, 2003. Net earnings increased 34.5% to $55,637,000, or $1.52 per share (diluted earnings per share), for the nine months ended September 30, 2004 from $41,369,000, or $1.09 per share (diluted earnings per share) for the nine months ended September 30, 2003.

Backlog

At September 30, 2004 and 2003 total futures orders with start ship dates from October 2004 and 2003 through March 2005 and 2004 were approximately $192,702,000 and $193,949,000, respectively, a decrease of 0.6%. The 0.6% decrease in total futures orders is comprised of a 0.6% increase in the fourth quarter 2004 future orders and a 1.4% decrease in the first quarter 2005 future orders. At September 30, 2004 and 2003, domestic futures orders with start ship dates from October 2004 and 2003 through March 2005 and 2004 were approximately $153,922,000 and $171,244,000, respectively, a decrease of 10.1%. At September 30, 2004 and 2003, international futures orders with start ship dates from October 2004 and 2003 through March 2005 and 2004 were approximately $38,780,000 and $22,705,000, respectively, an increase of 70.8%. “Backlog,” as of any date, represents orders scheduled to be shipped within the next six months. Backlog does not include orders scheduled to be shipped on or prior to the date of determination of backlog. The mix of “futures” and “at once” orders can vary significantly from quarter to quarter and year to year and therefore “futures” are not necessarily indicative of revenues for subsequent periods. Orders generally may be canceled by customers without financial penalty. We believe our rate of net customer cancellations of domestic orders approximates industry averages for similar companies. Customers may also reject nonconforming goods. To date, we believe we have not experienced returns of our products or bad debts of customers materially in excess of industry averages for similar companies.

Liquidity and Capital Resources

We experienced net cash inflows of approximately $74,731,000 from our operating activities during the nine months ended September 30, 2004 compared to net cash inflows of approximately $20,067,000 from our operating activities during the nine months ended September 30, 2003. The increase in operating cash inflows from the prior year is due primarily to an increase in net earnings, a greater increase in accounts receivable in 2003 relative to 2004 and a greater decrease in inventories in 2004 relative to 2003.

We had a net outflow of cash from our investing activities for the nine months ended September 30, 2004 and 2003 due to the purchase of property, plant and equipment.

We had a net outflow of cash from our financing activities for the nine months ended September 30, 2004 and 2003 primarily due to the purchase of treasury stock.

14

During the first quarter of 2004, we completed our October 2002 $25 million stock repurchase program. However, prior to this, on October 22, 2003, the Board of Directors authorized a new stock repurchase program to repurchase through December 2008 up to an additional $25 million of our Class A Common Stock. On October 26, 2004, the Board of Directors authorized a new stock repurchase program to repurchase through December 2009 up to an additional 5,000,000 shares of our Class A Common Stock. We adopted these programs because we believe repurchasing our shares can be a good use of excess cash depending on our array of alternatives. Currently, we have made purchases under all stock repurchase programs from August 1996 through October 27, 2004 (the day prior to the filing of the Form 10-Q) of 12.9 million shares at an aggregate cost totaling approximately $135,267,000. See Part II – Other Information, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

No other material capital commitments exist at September 30, 2004. Depending on our future growth rate, funds may be required by operating activities. With continued use of our revolving credit facility and internally generated funds, we believe our present and currently anticipated sources of capital are sufficient to sustain our anticipated capital needs for the remainder of 2004. At September 30, 2004, we do not have any funded debt on our lines of credit and are in compliance with all relevant covenants under our credit facilities. We did not enter into off-balance sheet arrangements during the quarter or nine months ended September 30, 2004 or 2003, nor did we have any off-balance sheet arrangements outstanding at September 30, 2004 or 2003.

Our working capital increased $32,580,000 to $209,966,000 at September 30, 2004 from $177,386,000 at December 31, 2003. Working capital increased during the nine months ended September 30, 2004 mainly due to higher revenues in the first nine months of 2004 compared to revenues in first nine months of 2003.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes from the information previously reported under Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, which Item 7A is hereby incorporated by reference, except as follows.

Foreign Exchange Rate Risk

Sales denominated in currencies other than the U.S. dollar, which are primarily sales to customers in Europe, expose the Company to market risk from material movements in foreign exchange rates between the U.S. dollar and the foreign currency. The Company’s historical primary risk exposures have been from changes in the rates between the U.S. dollar and the Euro. This trend is expected to continue. In 2004, the Company entered into forward exchange contracts to exchange Euros for U.S. dollars and Pounds Sterling for Euros. The extent to which forward foreign exchange contracts are used is modified periodically in response to management’s estimate of market conditions and the terms and length of specific sales contracts.

The Company enters into foreign exchange contracts in order to reduce the impact of foreign currency fluctuations and not to engage in currency speculation. The use of derivative financial instruments allows the Company to reduce its exposure to the risk that the eventual net cash inflow resulting from the sale of products to foreign customers will be materially affected by changes in exchange rates. The Company does not hold or issue financial instruments for trading purposes. The foreign exchange contracts are designated for firmly committed or forecasted sales. These contracts are generally expected to occur in less than one year.

The forward contracts generally require the Company to exchange Euros for U.S. dollars or Pounds Sterling for Euros at maturity, at rates agreed at the inception of the contracts. The counterparties to derivative transactions are major financial institutions with investment grade or better credit ratings; however, the Company is exposed to credit risk with these institutions. The credit risk is limited to the unrealized gains in such contracts should these counterparties fail to perform as contracted.

15

At September 30, 2004, forward foreign exchange contacts with a notional value of $16,891,000 were outstanding to exchange various currencies (principally U.S. dollars and Euros) with maturities ranging from October 2004 to May 2005 to sell the equivalent of approximately $6,391,000 in foreign currencies at contracted rates and to buy $10,500,000 at contracted rates. These contracts have been designated as cash flow hedges. As of September 30, 2004, assets of $105,000 and liabilities of $310,000 have been recorded for the fair value of the foreign exchange contracts. Realized losses of $5,000 from cash flow hedges were recorded in cost of goods sold during the quarter and nine months ended September 30, 2004. There was no hedge ineffectiveness in the quarter and nine months ended September 30, 2004. The Company did not enter into any derivative financial instruments during 2003 and did not have any derivative financial instruments outstanding at September 30, 2003

The Company does not anticipate any material adverse effect on its operations or financial position relating to these foreign currency forward contracts. Based on the Company’s overall currency rate exposure at September 30, 2004, a 10% change in currency rates would not have had a material effect on the financial position, results of operations and cash flows of the Company.

ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management carried out an evaluation under the supervision and with the participation of the Company’s President and Chief Executive Officer and Vice President of Finance and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Disclosure controls and procedures include controls and other procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act, such as this Form 10-Q, is properly recorded, processed, summarized and reported within the time periods required by the Commission’s rules and forms. Management necessarily applied its judgement in assessing the costs and benefits of such controls and procedures that, by their nature, can provide only reasonable assurance regarding management’s control objectives. Management does not expect that its disclosure controls and procedures will prevent all errors and fraud. A control system, irrespective of how well it is designed and operated, can only provide reasonable assurance, and cannot guarantee, that it will succeed in its stated objectives.

Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic filings under the Exchange Act.

(b) Changes in Internal Control Over Financial Reporting

During the period covered by this Quarterly Report on Form 10-Q, there were no significant changes in the Company’s internal controls or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is, from time to time, a party to litigation which arises in the normal course of its business operations. The Company does not believe that it is presently a party to litigation which will have a material adverse effect on its business or operations.

16

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) None.

(c) The following table provides information with respect to purchases made by K-Swiss of K-Swiss Class A Common Stock during the third quarter of 2004:

ISSUER PURCHASES OF EQUITY SECURITIES

	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (A)	Approximate Dollar Value that May Yet Be Purchased Under the Program (A)
July 1 through July 31, 2004	—	$	—	—	$	12,297,400
August 1 through August 31, 2004	53,100		18.35	53,100		11,322,800
September 1 through September 30, 2004	416,926		19.76	416,926		3,086,100
Total	470,026	$	19.60	470,026	$	3,086,100

(A) On October 23, 2003, the Company announced that its Board of Directors approved a $25 million stock repurchase program. This program expires on December 31, 2008. At September 30, 2004, the number of shares of K-Swiss Class A Common Stock purchased under this program was 1,102,486 and the remaining available yet to be purchased is $3,086,100. On October 28, 2004, the Company announced that its Board of Directors approved an additional stock repurchase program authorizing the repurchase of 5,000,000 shares of K-Swiss Class A Common Stock. No shares have been repurchased to date pursuant to this new program.

ITEM 3. Defaults Upon Senior Securities

      None.

ITEM 4. Submission of Matters to a Vote of Security Holders

      None.

ITEM 5. Other Information

      None.

ITEM 6. Exhibits

3.1	Restated Certificate of Incorporation of K-Swiss Inc. (incorporated by reference to exhibit 3.1 to the Registrant’s Form 10-Q for the quarter ended September 30, 2002)
3.2	Amended and Restated Bylaws of K-Swiss Inc. (incorporated by reference to exhibit 3.4 to the Registrant’s Form 10-K for the fiscal year ended December 31, 1991)
4.1	Certificate of Designations of Class A Common Stock of K-Swiss Inc. (incorporated by reference to exhibit 3.2 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
4.2	Certificate of Designations of Class B Common Stock of K-Swiss Inc. (incorporated by reference to exhibit 3.3 to the Registrant’s Form S-1 Registration Statement No. 33-34369)

17

4.3	Specimen K-Swiss Inc. Class A Common Stock Certificate (incorporated by reference to exhibit 4.1 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
4.4	Specimen K-Swiss Inc. Class B Common Stock Certificate (incorporated by reference to exhibit 4.2 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
4.5	$400,000 324 Corp. 10% Junior Subordinated Debenture due December 31, 2001 originally issued to The Rug Warehouse, Inc. Pension Plan and Trust (incorporated by reference to exhibit 4.7 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
4.6	$100,000 324 Corp. 10% Junior Subordinated Debenture due December 31, 2001 issued to George E. Powlick (incorporated by reference to exhibit 4.8 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
10.1	K-Swiss Inc. 1990 Stock Incentive Plan, as amended through October 28, 2002 (incorporated by reference to exhibit 10.1 to the Registrant’s Form 10-K for the year ended December 31, 2002)
10.2	Form of Amendment No. 1 to K-Swiss Inc. Employee Stock Option Agreement Pursuant to the 1990 Stock Incentive Plan (incorporated by reference to exhibit 10.2 to the Registrant’s Form 10-K for the year ended December 31, 2002)
10.3	K-Swiss Inc. 1999 Stock Incentive Plan, as amended through October 28, 2002 (incorporated by reference to exhibit 10.3 to the Registrant’s Form 10-K for the year ended December 31, 2002)
10.4	Form of Amendment No. 1 to K-Swiss Inc. Employee Stock Option Agreement Pursuant to the 1999 Stock Incentive Plan (incorporated by reference to exhibit 10.4 to the Registrant’s Form 10-K for the year ended December 31, 2002)
10.5	K-Swiss Inc. Profit Sharing Plan, as amended (incorporated by reference to exhibit 10.3 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
10.6	Amendment to K-Swiss Inc. 401(k) and Profit Sharing Plan (incorporated by reference to exhibit 10.35 to the Registrant’s Form 10-K for the fiscal year ended December 31, 1993)
10.7	Amendment to K-Swiss Inc. 401(k) and Profit Sharing Plan dated May 26, 1994 (incorporated by reference to exhibit 10.32 to the Registrant’s Form 10-K for the fiscal year ended December 31, 1994)
10.8	Amendment to K-Swiss Inc. 401(k) and Profit Sharing Plan dated January 1, 2000 (incorporated by reference to exhibit 10.30 to the Registrant’s Form 10-K for the fiscal year ended December 31, 1999)
10.9	Amendment to K-Swiss Inc. 401(k) and Profit Sharing Plan (incorporated by reference to exhibit 10 to the Registrant’s Form 10-Q for the quarter ended March 31, 2002)
10.10	Amendment to K-Swiss Inc. 401(k) and Profit Sharing Plan dated January 10, 2003 (incorporated by reference to exhibit 10.23 to the Registrant’s Form 10-Q for the quarter ended June 30, 2003)
10.11	Amendment to K-Swiss Inc. 401(k) and Profit Sharing Plan dated October 9, 2003 (incorporated by reference to exhibit 10.11 to the Registrant’s Form 10-Q for the quarter ended June 30, 2004)
10.12	Form of Indemnity Agreement entered into by and between K-Swiss Inc. and directors (incorporated by reference to exhibit 10.4 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
10.13	Employment Agreement between the Registrant and Steven B. Nichols dated as of May 18, 2000 (incorporated by reference to exhibit 10.31 to the Registrant’s Form 10-Q for the quarter ended June 30, 2000)
10.14	Employment Agreement between K-Swiss Inc. and Steven B. Nichols dated as of August 2, 2004
10.15	Lease Agreement dated March 11, 1997 by and between K-Swiss Inc. and Space Center Mira Loma, Inc. (incorporated by reference to exhibit 10 to the Registrant’s Form 10-Q for the quarter ended March 31, 1997)

18

10.16	Business Loan Agreement (incorporated by reference to exhibit 10 to the Registrant’s Form 10-Q for the quarter ended June 30, 2001)
10.17	Amendment No. 2 to Business Loan Agreement, dated May 27, 2003, between the Company and Bank of America (incorporated by reference to exhibit 10.22 to the Registrant’s Form 10-Q for the quarter ended June 30, 2003)
10.18	K-Swiss Inc. Deferred Compensation Plan, Master Plan Document (incorporated by reference to exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended March 31, 1998)
10.19	K-Swiss Inc. Deferred Compensation Plan, Master Trust Agreement (incorporated by reference to exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended March 31, 1998)
14.1	K-Swiss Inc. Code of Ethics for the Chief Executive Officer, Senior Financial Officers and Board of Directors (incorporated by reference to exhibit 14 to the Registrant’s Form 10-K for the year ended December 31, 2003)
14.2	K-Swiss Inc. Code of Ethics for Directors, Officers and Employees (incorporated by reference to exhibit 14.2 to the Registrant’s Form 10-Q for the quarter ended March 31, 2004)
31.1	Certification of President and Chief Executive Officer Pursuant to Exchange Act Rule 13a-14
31.2	Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14
32	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to the Sarbanes-Oxley Act of 2002

19

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	K-Swiss Inc.
Date: October 27, 2004	By:	/s/ George Powlick
		George Powlick,
		Vice President Finance, Chief Operating
		Officer and Chief Financial Officer

20

EXHIBIT INDEX

Exhibit
10.14	Employment Agreement between K-Swiss Inc. and Steven B. Nichols dated as of August 2, 2004
31.1	Certification pursuant to Rule 13a-14 of the Exchange Act by the Company’s President and Chief Executive Officer
31.2	Certification pursuant to Rule 13a-14 of the Exchange Act by the Company’s Chief Financial Officer
32	Certification pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

21

EX-10.14

EXHIBIT 10.14

EMPLOYMENT AGREEMENT

Parties

The parties to this Agreement, made as of the 2nd day of August 2004, are K-Swiss Inc., a Delaware corporation (the “Company” or “K-Swiss”), and Steven B. Nichols (the “Executive”).

Recitals

WHEREAS, the Executive possesses an intimate knowledge of the footwear business and the business and affairs of the Company, its policies, methods, personnel and operations.

WHEREAS, K-Swiss and the Executive are parties to an Employment Agreement made as of May 18, 2000, (the “2000 Agreement”), which expires December 31, 2005 and whereas the Board of Directors of K-Swiss desires to assure K-Swiss of the Executive’s continued employment in an executive capacity and to compensate him therefor.

WHEREAS, the Executive is willing to commit himself to serve K-Swiss on the terms herein provided.

Therefore, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows:

Agreement

1. Employment.

(a) The Company hereby agrees to employ the Executive, and the Executive hereby agrees to serve the Company, all on the terms and conditions set forth herein.

(b) The employment of the Executive by the Company pursuant to this Agreement shall be for the period commencing on January 1, 2006 (the “Commencement Date”) and expiring on the date set forth in Section B of Appendix I hereto (the “Expiration Date”), unless such employment shall have been sooner terminated as hereinafter set forth.

2. Position and Duties.

The Executive shall serve in the capacity or capacities set forth in Section A of Appendix I hereto, shall be accountable to, and shall also have such other powers, duties and responsibilities as may from time to time be prescribed by, the Board of Directors, provided that such other duties and responsibilities are consistent with the Executive’s position.

The Executive shall perform and discharge, faithfully, diligently and to the best of his ability, such duties and responsibilities. The Executive shall devote substantially all his working time and efforts to the business and affairs of the Company.

3. Compensation.

(a) Salary. During each year of his employment hereunder from the Commencement Date, the Executive shall receive an annual base salary equal to $915,000 (the “2006 Base Salary”); provided that with respect to each year commencing on January 1, 2007 and thereafter, the base salary in effect for such year shall equal the base salary in effect for the immediately preceding year multiplied by a factor equal to the sum of: (x) 100%, plus (y) the percentage increase, if any, in the Consumer Price Index - Los Angeles - Anaheim - Riverside, California Area - All Items (the “CPI”) during the period of time from January 1 to December 31 of the year immediately preceding the year for which such adjustment is being computed. All amounts payable pursuant to this Section 3(a) at the then applicable rate shall hereinafter be referred to as “Salary.” Salary shall be payable in substantially equal monthly installments, less any amount required to be withheld under applicable law. Except as otherwise provided in this Agreement, the Salary shall be pro-rated for any period of service less than a full year.

(b) EVA Bonus Awards. The Executive shall be entitled to receive as further compensation, in addition to the Salary payable pursuant to Section 3(a), amounts, if any, payable to Executive pursuant to the K-Swiss Inc. EVA Bonus Plan, as it may be amended from time to time by the K-Swiss Inc. Board of Directors (“EVA Awards”). Each year during the term of this Agreement, the Compensation and Stock Option Committee of the Board of Directors (or a similar Board committee) shall establish in writing, not later than 90 days after the commencement of the period of service to which such performance goal relates, objective performance goals for Executive. The Bonus Target Percentage which shall apply to Executive each year during the term of this Agreement pursuant to the EVA Bonus Plan shall be 60% of Executive’s Salary.

(c) Stock Options. On August 2, 2004, the Company shall grant to the Executive options to purchase 50,000 shares of the Company’s Class A Common Stock. Each such option shall have an exercise price equal to the closing price of the Company’s Class A Common Stock on August 2, 2004 on the Nasdaq, which shall be deemed to equal the fair market value of the Corporation’s Class A Common Stock on the date of grant. The options so granted shall vest 33%, 33% and 34% on the third, fourth and fifth anniversaries, respectively, of January 1, 2006. Such options shall be subject to the Company’s Non-Qualified Stock Option Agreement in use on the date of grant.

(d) Expenses. During the term of his employment hereunder, the Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by him on behalf of the Company (in accordance with the policies and procedures established by the Board of Directors from time to time for the Company’s senior executive officers) in performing services hereunder, provided that the Executive properly accounts therefor in accordance with requirements for federal income tax deductibility and the Company’s policies and procedures.

(e) Fringe Benefits. During the term of his employment hereunder, the Executive shall be entitled to participate in or receive benefits under any life insurance, health, pension, retirement and accident plans or arrangements made generally available by the Company to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and

2

overall administration of such plans and arrangements. Notwithstanding anything else in this Agreement to the contrary the Executive shall receive the following benefits, which shall be in lieu of any similar benefits which may be received by the other executives of the Company:

(i) Term Life Insurance. During the term of this Agreement, the Company will either: (a) purchase and maintain term life insurance in the policy amount of $1,500,000 (with the proceeds thereof payable to the estate of the Executive or to such other beneficiary or beneficiaries as the Executive may designate in writing), provided that the Executive satisfies any requirements, such as an annual physical examination, that may be required as a condition of obtaining such insurance, or (b) at the Executive’s election, pay to the Executive an amount of cash sufficient for the purchase and maintenance of term life insurance as described in subdivision (a) above. In addition, to the extent that, but for subdivision (b) of the immediately preceding sentence, any portion of the cost of the insurance described in subdivision (a) of said sentence would be excluded from the Executive’s gross income for federal and/or state income tax purposes, the Company will pay to the Executive an additional amount of cash compensation sufficient to place the Executive in the same after-tax economic position as that in which the Executive would be if subdivision (b) were not a part of said sentence.

(ii) Disability. The Company will purchase disability insurance (with the proceeds thereof payable to the Executive) covering the Executive if the Executive is permanently disabled as a result of any illness, injury or accident, physical or mental, and is unable to perform satisfactorily his duties hereunder on a full time basis for six consecutive months, that will provide for coverage in an amount mutually satisfactory to the parties hereto.

(iii) Travel Insurance. The Company will purchase travel insurance (with the proceeds thereof payable to the Executive) covering Executive while on Company business in the amount of $1,000,000.

(iv) Automobile. The Company shall provide the Executive with the use of a top-of-the-line General Motors or equivalent car, and the Company shall pay all taxes, insurance, repairs and operating expenses in connection therewith.

(v) Health. The Company will purchase health insurance covering Executive and his family with coverage substantially equivalent to the health insurance coverage currently provided to the Executive.

(f) Vacations. During the term of his employment hereunder, the Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Board of Directors from time to time for the Company’s senior executive officers, but not less than four weeks in any fiscal year, and shall also be entitled to all paid holidays given by the Company to its employees.

4. Offices

The Executive agrees to serve without additional compensation, if elected or appointed thereto, in one or more offices and as a director of K-Swiss or of any

3

subsidiary of K-Swiss; provided, however, that the Executive shall not be required to serve as an officer or director of any such subsidiary if such service would expose him to adverse physical hazards or adverse financial consequences.

5. Unauthorized Disclosure; Inventions.

(a) Unauthorized Disclosure. The Executive shall not, without the written consent of the Board of Directors or a person duly authorized thereby, disclose to any person, other than an employee or professional adviser of the Company or other person to whom disclosure is in the reasonable judgment of the Executive necessary or appropriate in connection with the performance by the Executive of his duties as an executive officer of the Company, any information obtained by him while in the employ of the Company the disclosure of which he knows or, in the exercise of reasonable care, should know may be damaging to the Company; provided, however, that such information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive); and provided, further, that the Executive’s duties under this subsection (a) shall not extend to any disclosures that may be required by law in connection with any judicial or administrative proceeding or inquiry, as may be required by federal and/or state securities law, or as may otherwise be required by the rules of any exchange or association which lists the Company’s securities.

(b) Proprietary Rights. Any and all inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable) conceived, made, developed, created or reduced to practice by the Executive (whether at the request or suggestion of the Company or otherwise, whether alone or in conjunction with others, and whether during regular hours of work or otherwise) during the period of his employment by the Company and for three months thereafter, which may be directly or indirectly useful in, or relate to, the business of or products manufactured or sold by the Company or any of its subsidiaries of affiliates or any business or products contemplated by the Company while the Executive is employed by the Company, shall be promptly and fully disclosed by the Executive to an appropriate executive officer of the Company and shall be the Company’s exclusive property as against the Executive, and the Executive shall promptly deliver to an appropriate executive officer of the Company all papers, drawings, models, data and other material relating to any of the foregoing proprietary rights, conceived, made, developed or created by him as aforesaid.

The Executive shall, upon the Company’s request and without any payment therefor (except for Company Policy Awards), execute any documents necessary or advisable in the opinion of the Company’s counsel to assign his right, title and interest in the foregoing proprietary rights and to direct issuance of patents or copyrights to the Company with respect to such proprietary rights as are to be the Company’s exclusive property as against the Executive under this subsection (b) or to vest in the Company title to such proprietary rights as against the Executive, the expense of securing any such patent or copyright, however, to be borne by the Company.

6. Non-Competition.

The Executive agrees that for a period of twelve (12) months following the Date of Termination, unless the Date of Termination is the Expiration Date, he will

4

not directly or indirectly own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, partner, director or otherwise with, or have any financial interest in, or aid or assist anyone else in the conduct of, or solicit any employees of the Company on behalf of, any entity or business which competes directly with any business conducted by the Company or by any group, division or subsidiary of the Company, in any area where such business is being conducted or is proposed to be conducted at the Date of Termination; provided, however, that this provision shall not apply if Executive or the Company terminates his employment on the Expiration Date. It is understood and agreed that, for the purposes of the foregoing provisions of this Section 6, (i) no business shall be deemed to be a business conducted by the Company or any group, division or subsidiary of the Company, unless not less than five percent (5%) of the Company’s consolidated gross sales or operating revenues is derived from, or not less than five percent (5%) of the Company’s consolidated assets are devoted to, such business; and (ii) no business conducted by any entity by which the Executive is employed or in which he is interested or with which he is connected or associated shall be deemed competitive with any business conducted by the Company unless it is one from which five percent (5%) or more of its consolidated gross sales or operating revenues is derived, or to which five percent (5%) or more of its consolidated assets are devoted; provided, however, that if the actual gross sales or operating revenues or assets of such entity derived from or devoted to such business is equal to or in excess of 10% of the most nearly comparable figure for the Company, such business of such entity shall be deemed to be competitive with a business of the Company. Furthermore, ownership of not to exceed five percent (5%) of the voting stock of any publicly held corporation shall not constitute a violation of this Section 6, and ownership of a partial equity interest in Nichols Foot Form also shall not constitute a violation of this Section 6.

7. Termination.

(a) Death. The Executive’s employment hereunder shall terminate upon his death.

(b) Incapacity. If in the reasonable judgment of the Board of Directors, as a result of the Executive’s incapacity due to physical or mental illness or otherwise, the Executive shall for six consecutive months during the term of this Agreement have been unable to perform satisfactorily all of his duties hereunder on a full-time basis, the Company may, by a unanimous vote of the members of the Board of Directors (other than the Executive), terminate the Executive’s employment hereunder by notice to the Executive.

(c) Termination by the Executive. The Executive may terminate his employment hereunder upon thirty days’ prior written notice to the Company for Good Reason. For purposes of this Agreement, “Good Reason” shall mean (A) any removal of the Executive from the position indicated in Section A of Appendix I hereof, except in connection with termination of the Executive’s employment for Cause, or (B) a reduction in the Executive’s Salary or any other willful action by the Company that is materially inconsistent with the terms of this Agreement.

(d) Cause. The Company may, by a unanimous vote of the members of the Board of Directors other than the Executive, terminate the Executive’s employment hereunder for Cause. The Company shall give the Executive ten (10) days notice of a Board of Directors meeting at which termination for Cause will be

5

considered, and the Executive shall have the opportunity to be heard at such meeting. If appropriate, the Board of Directors shall give the Executive a reasonable period of time in which to cure any deficiencies under this Section 7(d). For the purposes of this Agreement, the Company shall have “Cause” to terminate the Executive’s employment hereunder upon the Executive’s (A) material failure, refusal or gross neglect to perform and discharge his duties and responsibilities hereunder, or willful action that is materially inconsistent with the terms hereof, or material breach of his fiduciary duties as an officer or member of the Board of Directors of the Company or any subsidiary or affiliate, or (B) gross and willful misconduct that is materially injurious to the Company, or (C) conviction of a felony involving the personal dishonesty of the Executive (unless such conviction is reversed in any final appeal thereof).

(e) Date of Termination; Term of Employment. The term “Date of Termination” shall mean the earlier of (i) the Expiration Date or (ii) if the Executive’s employment is terminated (A) by his death, the date of his death, or (B) for any other reason, the date on which such termination is to be effective pursuant to the notice of termination given by the party terminating the employment relationship. For all purposes of this Agreement, references to the “term” of the Executive’s employment hereunder shall mean the period commencing on the Commencement Date and ending on the Date of Termination.

8. Compensation Upon Termination.

(a) Death. Notwithstanding any other provision of this Agreement, if the Executive’s employment shall be terminated by reason of his death, the Company shall pay to such person as the Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to his estate, (i) in substantially equal monthly installments, for a period of one year from the date of his death, his full Salary, and (ii) an EVA Award for the year during which the Executive died, and, if his death occurs after June 30 in any year prior to 2010, an EVA Award for the year immediately following the year in which the Executive’s death occurred. This amount shall be exclusive of and in addition to any payments the Executive’s widow, beneficiaries or estate may be entitled to receive pursuant to any employee benefit plan or life insurance policy maintained by the Company for the benefit of the Executive.

(b) Incapacity. Notwithstanding any other provision of this Agreement, if the Executive’s employment shall be terminated by reason of his incapacity, and such incapacity is not covered by the disability insurance referred to in Section 3(e)(ii) hereof, the Company shall continue to pay the Executive (i) his full Salary for one year, in monthly installments as provided in Section 3 hereof, and (ii) an EVA Award for the year during which he first became incapacitated (the “Initial Incapacity Date”), and, if the Initial Incapacity Date occurs after June 30 in any year prior to 2010, an EVA Award for the year immediately following the year in which the Initial Incapacity Date occurred.

(c) Cause. Notwithstanding any other provision of this Agreement, if the Company shall terminate the Executive’s employment for Cause, the Company shall pay the Executive his full Salary through the Date of Termination at the rate in effect at the time notice of termination is given as provided in Section 7(e) above, and the Company shall have no further obligations to the Executive under this Agreement.

6

(d) Good Reason. If the Executive shall terminate his employment for Good Reason, then the Company shall pay to the Executive his Salary and EVA Awards through the Date of Termination at the rate in effect at the time notice of termination is given. In addition, in lieu of any further payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay as liquidated damages, or severance pay, or both, to the Executive, in substantially equal monthly installments, from the Date of Termination to the Expiration Date, an amount calculated at an annual rate equal to the annual Salary and EVA Awards that the Executive would have received if his employment had not been terminated.

9. Binding Agreement.

This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee or other designee or, if there be no such designee, to the Executive’s estate.

10. Board of Directors.

The term “Board of Directors” shall mean the Board of Directors of K-Swiss.

11. Notices.

For purposes of this Agreement, notices and all other communications to either party hereunder provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed, in the case of the Company, to them at K-Swiss Inc., 31248 Oak Crest Drive, Westlake Village, California 91361, Attention: Secretary, or, in the case of the Executive, to the Executive at the address set forth in Section C of Appendix I hereto; or to such other address as either party shall designate by giving like notice of such change to the other party.

12. Miscellaneous.

No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is approved by either a majority of the Compensation and Stock Option Committee of the Board of Directors of the Company (or another Committee of the board fulfilling the same functions) (the “Committee”) or by a majority of the Board of Directors of the Company (excluding the Executive) and agreed to in writing signed by the Executive and such officer as may be specifically authorized by the Committee or the Board of Directors, as the case may be. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. Nothing contained in this

7

Agreement shall impair, modify or in any way change the 2000 Agreement or the Amended and Restated Registration Rights Agreement attached as Appendix II to the Employment Agreement made as of April 30, 1993 between Executive and the Company, both of which shall remain in full force and effect. The validity, interpretation, construction and performance of this Agreement shall be governed by the domestic substantive laws of the State of Delaware without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other state.

13. Validity.

The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect, and in the event that any provision hereof shall be determined to be invalid or unenforceable for any reason, such provision shall be construed by limiting it so as to be valid and enforceable to the fullest extent compatible with and possible under applicable law.

14. Counterparts.

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.

K-SWISS INC.
By:	/s/ George Powlick
Title:	Vice President Finance
	and Chief Financial Officer
EXECUTIVE:
/s/ Steven B. Nichols
Steven B. Nichols

8

APPENDIX I

STEVEN B. NICHOLS

A. The Executive shall serve the Company as its President, Chief Executive Officer and Chairman of the Board.

B. Expiration Date: December 31, 2010.

C. Address of Executive: Steven B. Nichols

K-Swiss Inc.

31248 Oak Crest Drive

Westlake Village, CA 91361

/s/ Steven B. Nichols

9

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Steven Nichols, certify that:

1. I have reviewed this quarterly report on Form 10-Q of K-Swiss Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 27, 2004

By:	/s/ Steven Nichols
	Steven Nichols
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, George Powlick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of K-Swiss Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 27, 2004

By:	/s/ George Powlick
	George Powlick
	Vice President of Finance, Chief Operating Officer and Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned hereby certifies, in his capacity as an officer of K-Swiss Inc. (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

• The Quarterly Report of the Company on Form 10-Q for the period ended September 30, 2004 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

• The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 27, 2004

/s/ Steven Nichols
Name:	Steven Nichols
Title:	President and
	Chief Executive Officer

/s/ George Powlick
Name:	George Powlick
Title:	Vice President of Finance, Chief Operating
	Officer and Chief Financial Officer