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, 2005

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  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

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 26, 2005:

Class A	25,704,095
Class B	8,380,128

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

K•SWISS INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)

	September 30, 2005			December 31, 2004
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	179,112		$	144,857
Accounts receivable, less allowance for doubtful accounts of $2,286 and $2,009 as of September 30, 2005 and December 31, 2004, respectively		56,442			49,411
Inventories		52,126			64,901
Prepaid expenses and other		5,878			7,710
Deferred taxes		3,764			4,654
Total current assets		297,322			271,533
PROPERTY, PLANT AND EQUIPMENT, net		8,174			8,228
OTHER ASSETS
Intangible assets (Note 4)		4,700			4,700
Deferred taxes		5,475			5,305
Other		5,878			5,111
		16,053			15,116
	$	321,549		$	294,877
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Bank lines of credit	$	—		$	6,750
Trade accounts payable		16,468			22,262
Accrued income taxes		2,078			932
Accrued liabilities		23,018			23,020
Total current liabilities		41,564			52,964
OTHER LIABILITIES		15,440			15,083
STOCKHOLDERS’ EQUITY (Note 5)
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; 27,888,895 shares issued, 25,697,162 shares outstanding and 2,191,733 shares held in treasury at September 30, 2005 and 27,536,890 shares issued, 26,193,494 shares outstanding and 1,343,396 held in treasury at December 31, 2004		279			275
Class B – authorized 18,000,000 shares of $0.01 par value; issued and outstanding 8,380,128 shares at September 30, 2005 and 8,411,028 shares at December 31, 2004		84			84
Additional paid-in capital		40,658			36,692
Treasury Stock		(53,705	)		(27,000	)
Retained earnings		270,619			211,193
Accumulated other comprehensive earnings –
Foreign currency translation		5,646			6,871
Net gain (loss) on hedge derivatives		964			(1,285	)
		264,545			226,830
	$	321,549		$	294,877

The accompanying notes are an integral part of these statements.

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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,
	2005			2004			2005		2004
Revenues (Note 6)	$	416,285		$	395,723		$	136,668	$	135,799
Cost of goods sold		221,908			214,455			73,100		74,050
Gross profit		194,377			181,268			63,568		61,749
Selling, general and administrative expenses		101,378			93,920			34,093		31,406
Operating profit		92,999			87,348			29,475		30,343
Interest income, net		2,091			552			908		252
Earnings before income taxes		95,090			87,900			30,383		30,595
Income tax expense		31,399			32,263			9,321		9,914
NET EARNINGS	$	63,691		$	55,637		$	21,062	$	20,681
Earnings per common share (Note 2)
Basic	$	1.86		$	1.59		$	0.62	$	0.59
Diluted	$	1.78		$	1.52		$	0.59	$	0.57
Weighted average number of shares outstanding (Note 2)
Basic		34,239			35,065			34,091		34,818
Diluted		35,692			36,576			35,478		36,276
Dividends declared per common share	$	0.125		$	0.075		$	0.05	$	0.025
Net Earnings	$	63,691		$	55,637		$	21,062	$	20,681
Other comprehensive (loss) earnings –
Foreign currency translation adjustments, net of income taxes of $0 and $0 for the nine months ended September 30, 2005 and 2004, respectively, and $0 and $0 for the three months ended September 30, 2005 and 2004, respectively		(1,225	)		(736	)		65		258
Change in deferred gain (loss) on hedge derivatives, net of income tax benefit of $0 and $85 for the nine months ended September 30, 2005 and 2004, respectively, and $0 and $85 for the three months ended September 30, 2005 and 2004, respectively		2,249			(132	)		263		(132	)
Comprehensive Earnings	$	64,715		$	54,769		$	21,390	$	20,807

The accompanying notes are an integral part of these statements.

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K•SWISS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2005			2004
Cash flows from operating activities:
Net earnings	$	63,691		$	55,637
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		1,199			1,089
Impairment on intangibles and goodwill		—			2,776
Net loss on disposal of property, plant and equipment		9			5
Deferred income taxes		679			(1,002	)
Income tax benefit of stock options exercised		2,558			1,008
Increase in accounts receivable		(7,360	)		(6,868	)
Decrease in inventories		12,705			16,831
Decrease (increase) in prepaid expenses and other assets		1,611			(1,582	)
(Decrease) increase in accounts payable and accrued liabilities		(2,584	)		6,837
Net cash provided by operating activities		72,508			74,731
Cash flows from investing activities:
Purchase of property, plant and equipment		(1,232	)		(900	)
Proceeds from disposal of property, plant and equipment		24			9
Net cash used in investing activities		(1,208	)		(891	)
Cash flows from financing activities:
Borrowings under bank lines of credit		7,264			—
Repayments on bank lines of credit		(14,014	)		—
Repurchase of stock		(26,705	)		(23,629	)
Payment of dividends		(4,265	)		(2,615	)
Proceeds from stock options exercised		1,200			360
Net cash used in financing activities		(36,520	)		(25,884	)
Effect of exchange rate changes on cash		(525	)		(390	)
Net increase in cash and cash equivalents		34,255			47,566
Cash and cash equivalents at beginning of period		144,857			81,455
Cash and cash equivalents at end of period	$	179,112		$	129,021
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	203		$	206
Income taxes	$	24,500		$	34,276

The accompanying notes are an integral part of these statements.

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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, 2005 and the results of its operations and its cash flows for the nine and three months ended September 30, 2005 and 2004 have been included for the periods presented. The results of operations and cash flows for the nine and three months ended September 30, 2005 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, 2004 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, 2004. Certain reclassifications have been made in the nine and three months ended September 30, 2004 presentation to conform to the nine and three months ended September 30, 2005 presentation.

2. 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,
	2005				2004				2005				2004
	Shares	Per Share Amount			Shares	Per Share Amount			Shares	Per Share Amount			Shares	Per Share Amount
Basic EPS	34,239	$	1.86		35,065	$	1.59		34,091	$	0.62		34,818	$	0.59
Effect of Dilutive Stock Options	1,453		(0.08	)	1,511		(0.07	)	1,387		(0.03	)	1,458		(0.02	)
Diluted EPS	35,692	$	1.78		36,576	$	1.52		35,478	$	0.59		36,276	$	0.57

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, 2005	Nine Months Ended September 30, 2004
Options to purchase shares of common stock (in thousands)	22	18
Exercise prices	$32.10 – $34.66	$23.45 – $23.71
Expiration dates	May 2015 – August 2015	December 2013 – February 2014
	Three Months Ended September 30, 2005	Three Months Ended September 30, 2004
Options to purchase shares of common stock (in thousands)	20	214
Exercise prices	$34.66	$19.26 – $23.71
Expiration dates	August 2015	December 2013 – May 2014

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3. 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 (“APB”) 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, 2005 and 2004 there were 5,000 and 8,500 options, respectively, that were granted at exercise prices below fair market value. During the three months ended September 30, 2005 and 2004 there were no 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, 2005 and 2004 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,
	2005			2004			2005			2004
Net earnings (in thousands)
As reported	$	63,691		$	55,637		$	21,062		$	20,681
Add stock-based employee compensation charges reported in net earnings		143			173			51			55
Less total stock-based employee compensation expense, determined under the fair value method		(1,474	)		(1,429	)		(494	)		(499	)
Pro forma	$	62,360		$	54,381		$	20,619		$	20,237
Basic earnings per share
As reported	$	1.86		$	1.59		$	0.62		$	0.59
Pro forma		1.82			1.55			0.60			0.58
Diluted earnings per share
As reported	$	1.78		$	1.52		$	0.59		$	0.57
Pro forma		1.75			1.49			0.58			0.56

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

	September 30,
	2005		2004
Expected life (years)	6		5
Risk-free interest rate	4.20	%	3.38	%
Expected volatility	45	%	55	%
Expected dividend yield	0.6	%	0.5	%

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4. 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, 2005			December 31, 2004
Goodwill	$	4,618		$	4,618
Trademarks		2,761			2,761
Other		8			8
Less accumulated amortization		(2,687	)		(2,687	)
	$	4,700		$	4,700

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,
	2005		2004			2005		2004
Beginning balance	$	4,700	$	7,301		$	4,700	$	5,746
Additions		—		175			—		—
Impairment losses		—		(2,776	)		—		(1,046	)
Ending balance	$	4,700	$	4,700		$	4,700	$	4,700

In applying SFAS No. 142, the Company has performed the annual reassessment and impairment test required as of January 1, 2005 to determine whether goodwill and intangible assets were impaired and determined there was no impairment. 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 Royal Elastics goodwill and trademark was impaired and recognized as additional impairment loss of $1,046,000.

5. Stockholders’ Equity

Under its stock repurchase program, the Company purchased approximately 848,000 shares of Class A Common Stock during the nine months ended September 30, 2005 for a total expenditure of approximately $26,705,000.

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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 reclassifications have been made in the 2004 presentations. The following tables summarize segment information (in thousands):

	Nine Months Ended September 30,						Three Months Ended September 30,
	2005			2004			2005			2004
Revenues from unrelated entities (1):
United States	$	316,151		$	329,009		$	103,460		$	110,938
Europe		62,437			36,107			20,321			12,728
Other International		37,697			30,607			12,887			12,133
	$	416,285		$	395,723		$	136,668		$	135,799
Inter-geographic revenues:
United States	$	4,376		$	3,094		$	1,493		$	1,163
Europe		6			98			5			—
Other International		20,527			10,295			7,501			3,276
	$	24,909		$	13,487		$	8,999		$	4,439
Total revenues:
United States	$	320,527		$	332,103		$	104,953		$	112,101
Europe		62,443			36,205			20,326			12,728
Other International		58,224			40,902			20,388			15,409
Less inter-geographic revenues		(24,909	)		(13,487	)		(8,999	)		(4,439	)
	$	416,285		$	395,723		$	136,668		$	135,799
Operating profit (loss):
United States (2)	$	82,040		$	83,334		$	26,236		$	26,215
Europe		12,544			4,177			3,792			3,081
Other International (2)		7,473			6,206			2,058			2,592
Less corporate expenses (3)		(12,696	)		(10,147	)		(3,681	)		(3,186	)
Eliminations		3,638			3,778			1,070			1,641
	$	92,999		$	87,348		$	29,475		$	30,343

	September 30, 2005		December 31, 2004
Identifiable assets:
United States	$	111,432	$	124,025
Europe		21,415		14,377
Other International		18,139		15,443
Corporate assets and eliminations (4)		170,563		141,032
	$	321,549	$	294,877

(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 increase in corporate expenses during the nine months ended September 30, 2005 was due to an increase in compensation expenses, which includes bonus/incentive related expenses, as a result of an increase in bonus/incentive related expenses that was calculated in accordance with the bonus formula under the Company’s Economic Value Added Bonus Plan, and an increase in legal expenses in connection with pursuing a lawsuit to protect our trademarks. The increase in corporate expenses for the three months ended September 30, 2005 was due to an increase in legal expenses for the reasons described previously.

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

8

During the nine months ended September 30, 2005 and 2004, approximately 19% and 20%, respectively, of revenues were attributable to one customer. During the three months ended September 30, 2005 and 2004, approximately 20% and 22% of revenues were attributable to one customer.

7. Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs, an Amendment of ARB No. 43, Chapter 4.” SFAS No. 151 retains the general principle of ARB No. 43, Chapter 4, “Inventory Pricing,” that inventories are presumed to be stated at cost; however, it amends ARB No. 43 to clarify that abnormal amounts of idle facilities, freight, handling costs and spoilage should be recognized as current period expenses. Also, SFAS No. 151 requires fixed overhead costs be allocated to inventories based on normal production capacity. The guidance in SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company believes that implementing SFAS No. 151 should not have a material impact on its financial position and results of operations.

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share Based Payment,” which will require the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award – the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments. SFAS No. 123 (Revised 2004) eliminates the use of APB Opinion No. 25. On April 14, 2005, the S.E.C. adopted a new rule, Staff Accounting Bulletin (“SAB”) No. 107, amending the effective date for SFAS No. 123 (Revised 2004). Under the effective date provisions included in SFAS No. 123 (Revised 2004), the Company would have been required to implement SFAS No. 123 (Revised 2004) as of the first interim or annual reporting period that begins after June 15, 2005. SAB No. 107 allows the Company to implement SFAS No. 123 (Revised 2004) at the beginning of the next fiscal year that begins after June 15, 2005. None of the accounting provisions of SFAS No. 123 (Revised 2004) are affected by SAB No. 107. The Company is currently assessing the impact of implementing SFAS No. 123 (Revised 2004) on its financial position and results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 replaces APB Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle unless it is impracticable to do so. SFAS No. 154 also provides that a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate effected by a change in accounting principle and that correction of errors in previously issued financial statements should be termed a “restatement.” SFAS No. 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Early adoption of this standard is permitted for accounting changes and corrections of errors made in fiscal years beginning after June 1, 2005. The Company believes that implementing SFAS No. 154 should not have a material impact on its financial position and results of operations.

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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 our basketball shoe line; market acceptance of non-performance product in Asia and Europe; market acceptance of Royal Elastics footwear (including the new L.A.M.B. product); demographic changes; 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; performance and reliability of products; difficulties in anticipating or forecasting changes in consumer preferences, consumer demand for our product, and various market factors described above; 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, maintaining, and protecting our increasingly complex information systems and controls including, without limitation, the systems related to demand and supply planning, and inventory control; 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 natural disasters, epidemic diseases or customer purchasing habits; 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; increased labor costs; 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, exchange rate fluctuations, 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 judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

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We believe that the estimates, assumptions and judgments 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.

Overview

Our total revenues increased 0.6% and 5.2% for the quarter and nine months ended September 30, 2005, respectively, from the quarter and nine months ended September 30, 2004, respectively. Our gross margins, as a percentage of revenues, increased to 46.5% and 46.7% for the quarter and nine months ended September 30, 2005, respectively, from 45.5% and 45.8% for the quarter and nine months ended September 30, 2004, respectively, as a result of product mix changes, international sales becoming a larger portion of revenues and changes in our at-once business. At September 30, 2005, our total futures orders with start ship dates from October 2005 through March 2006 were $193,038,000, an increase of 0.2% from September 30, 2004. Of this amount, domestic futures orders were $136,644,000, a decrease of 11.2%, and international futures orders were $56,394,000, an increase of 45.4%. Net earnings and net earnings per diluted share for the quarter ended September 30, 2005, increased 1.8% and 3.5%, respectively, to $21,062,000 or $0.59 per diluted share, compared with $20,681,000, or $0.57 per diluted share, in the prior year period. Net earnings and net earnings per diluted share for the nine months ended September 30, 2005, increased 14.5% and 17.1%, respectively, to $63,691,000 or $1.78 per diluted share, compared with $55,637,000, or $1.52 per diluted share, at September 30, 2004.

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,
	2005		2004		2005		2004
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	53.3		54.2		53.5		54.5
Gross profit	46.7		45.8		46.5		45.5
Selling, general and administrative expenses	24.4		23.7		25.0		23.1
Interest income, net	0.5		0.1		0.7		0.1
Earnings before income taxes	22.8		22.2		22.2		22.5
Income tax expense	7.5		8.1		6.8		7.3
Net earnings	15.3		14.1		15.4		15.2

Revenues

K•Swiss brand revenues decreased to $133,709,000 for the quarter ended September 30, 2005 from $133,911,000 for the quarter ended September 30, 2004, a decrease of $202,000 or 0.2%. K•Swiss brand revenues increased to $408,894,000 for the nine months ended September 30, 2005 from $390,190,000 for the nine months ended September 30, 2004, an increase of $18,704,000 or 4.8%. The decrease for the quarter ended September 30, 2005 was the result of a decrease in the volume of footwear sold offset by a higher average wholesale price per pair and the increase for the nine months ended September 30, 2005 was the result of an increase in the volume of footwear sold and a higher average wholesale price per pair. The volume of footwear sold decreased to 5,053,000 pair and increased to 15,849,000 pair for the quarter and nine months ended September 30, 2005, respectively, from 5,346,000 and 15,207,000 pair for the quarter and nine months September 30, 2004, respectively. The decrease in the volume of footwear sold for the quarter ended September 30, 2005 was primarily the result of decreased sales of tennis and Classic shoes of 33.2% and 8.1%, respectively, offset by increased sales of training shoes of 30.8%. This decrease in volume for the quarter ended September 30, 2005 was offset by a higher average wholesale price per pair of

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$26.00 for the quarter ended September 30, 2005 from $24.70 for the quarter ended September 30, 2004, an increase of 5.3%, which resulted from an increase in the price of the Classic during the third quarter of 2005 and to the mix of sales. The increase in K•Swiss brand revenues for the nine months ended September 30, 2005 was also due to a higher average wholesale price per pair of $25.35 for the nine months ended September 30, 2005 from $25.16 for the nine months ended September 30, 2004, an increase of 0.8%, which resulted from the mix of sales and an increase in the price of the Classic during the third quarter of 2005.

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

	Nine Months Ended September 30,						Three Months Ended September 30,
	2005		2004		% Change		2005		2004		% Change
Domestic
K•Swiss brand	$	313,314	$	327,007	(4.2	)%	$	102,033	$	110,289	(7.5	)%
Royal Elastics brand		2,837		2,002	41.7			1,427		649	119.9
Total domestic	$	316,151	$	329,009	(3.9	)%	$	103,460	$	110,938	(6.7	)%
International
K•Swiss brand	$	95,580	$	63,183	51.3	%	$	31,676	$	23,622	34.1	%
Royal Elastics brand		4,554		3,531	29.0			1,532		1,239	23.6
Total international	$	100,134	$	66,714	50.1	%	$	33,208	$	24,861	33.6	%
Total Revenues	$	416,285	$	395,723	5.2	%	$	136,668	$	135,799	0.6	%

Gross Margin

Overall gross profit margins, as a percentage of revenues, increased to 46.5% for the quarter ended September 30, 2005, from 45.5% for the quarter ended September 30, 2004. Overall gross profit margins, as a percentage of revenues, increased to 46.7% for the nine months ended September 30, 2005, from 45.8% for the nine months ended September 30, 2004. Gross profit margin for the quarter and nine months ended September 30, 2005 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 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 $34,093,000 (25.0% of revenues) for the quarter ended September 30, 2005, from $31,406,000 (23.1% of revenues) for the quarter ended September 30, 2004, an increase of $2,687,000 or 8.6%. Overall selling, general and administrative expenses increased to $101,378,000 (24.4% of revenues) for the nine months ended September 30, 2005, from $93,920,000 (23.7% of revenues) for the nine months ended September 30, 2004, an increase of $7,458,000 or 7.9%. The increase in general and administrative expenses during the quarter and nine months ended September 30, 2005 was the result of increases in advertising and legal expenses and also for the nine months ended September 30, 2005 there was an increase in compensation and compensation related expenses. In addition, impairment expenses of $1,046,000 and $2,776,000 were recognized during the quarter and nine months ended September 30, 2004, respectively, on the trademark and goodwill of the Royal Elastics brand based on many factors including the brand not growing as rapidly as we expected. Compensation expenses, which includes commissions and bonus/incentive related expenses, increased 5.2% for the nine months ended September 30, 2005, as a result of an increase in bonus/incentive related expenses that were calculated in accordance with the bonus formula under the Company’s Economic Value Added Bonus Plan. Advertising expenses increased 16.8% and 11.5%, for the quarter and nine months ended September 30, 2005, respectively, as part of a strategic effort to drive revenues. Legal expenses increased 153.4% and 195.4%, for the quarter and nine months ended September 30, 2005, respectively, in connection with pursuing a lawsuit to protect our trademarks. Corporate expenses of $3,681,000 and $3,186,000 for the quarter ended September 30, 2005 and 2004, respectively, and $12,696,000 and $10,147,000, for the nine months ended September 30, 2005 and 2004, respectively, are included in selling, general and administrative expenses. The increase in corporate expenses during the quarter and nine months ended September 30, 2005 was due to an increase in legal expenses as explained above and also for the nine months ended September 30, 2005 due to an increase in compensation expenses as explained above.

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Interest, Other and Taxes

Overall net interest income was $908,000 (0.7% of revenues) and $2,091,000 (0.5% of revenues) for the quarter and nine months ended September 30, 2005, respectively, compared to $252,000 (0.1% of revenues) and $552,000 (0.1% of revenues) for the quarter and nine months ended September 30, 2004, respectively, representing an increase of $656,000 and $1,539,000 for the quarter and nine months ended September 30, 2005 compared to the same prior year periods, respectively. This increase in net interest income was the result of higher average interest rates and higher average balances, offset by interest expense on our bank lines of credit.

Our effective tax rate was 30.7% for the quarter and 33.0% for the nine months ended September 30, 2005, respectively, compared to 32.4% and 36.7% for the quarter and nine months ended September 30, 2004, respectively. Starting January 1, 2005, future provisions will not be made for appropriate United States income taxes on earnings of selected international subsidiary companies as these future earnings are intended to be permanently invested.

Net earnings increased 1.8% to $21,062,000, or $0.59 per share (diluted earnings per share), for the quarter ended September 30, 2005 from $20,681,000, or $0.57 per share (diluted earnings per share) for the quarter ended September 30, 2004. Net earnings increased 14.5% to $63,691,000, or $1.78 per share (diluted earnings per share), for the nine months ended September 30, 2005 from $55,637,000, or $1.52 per share (diluted earnings per share) for the nine months ended September 30, 2004.

Backlog

At September 30, 2005 and 2004 total futures orders with start ship dates from October 2005 and 2004 through March 2006 and 2005 were approximately $193,038,000 and $192,702,000, respectively, an increase of 0.2%. The 0.2% increase in total futures orders is comprised of a 1.3% increase in the fourth quarter 2005 futures orders and a 0.5% decrease in the first quarter 2006 futures orders. At September 30, 2005 and 2004, domestic futures orders with start ship dates from October 2005 and 2004 through March 2006 and 2005 were approximately $136,644,000 and $153,922,000, respectively, a decrease of 11.2%. At September 30, 2005 and 2004, international futures orders with start ship dates from October 2005 and 2004 through March 2006 and 2005 were approximately $56,394,000 and $38,780,000, respectively, an increase of 45.4%. “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 $72,508,000 from our operating activities during the nine months ended September 30, 2005 compared to net cash inflows of approximately $74,731,000 from our operating activities during the nine months ended September 30, 2004. The decrease in operating cash inflows from the prior year is due primarily to changes in accounts payable and accrued liabilities and inventories, offset by an increase in earnings and changes in prepaid expenses and other assets.

We had a net outflow of cash from our investing activities for the nine months ended September 30, 2005 and 2004 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, 2005 and 2004 primarily due to the purchase of our outstanding stock under our current stock repurchase program and to pay cash dividends, partially offset by proceeds from stock options exercised and for the nine months ended September 30, 2005 we had cash outflows to repay our bank lines of credit.

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 from time to time on the open market, as market conditions warrant. We adopted this program 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 26, 2005 (the day prior to the filing of this Form 10-Q), of 25.2 million shares at an aggregate cost totaling

13

approximately $162,274,000, at an average price of $6.43 per share. See Part II – Other Information, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

No other material capital commitments existed at September 30, 2005. 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 2005. At September 30, 2005 there was no debt outstanding and at December 31, 2004 there was debt outstanding of $6,750,000. At September 30, 2005 we were in compliance with all relevant covenants under our credit facilities. We did not enter into off-balance sheet arrangements during the quarters ended September 30, 2005 or 2004, nor did we have any off-balance sheet arrangements outstanding at September 30, 2005 or 2004.

Our working capital increased $37,189,000 to $255,758,000 at September 30, 2005 from $218,569,000 at December 31, 2004. Working capital increased during the nine months ended September 30, 2005 mainly due to an increase in cash and accounts receivable and a decrease in accounts payable and bank lines of credit offset by cash used to repurchase our Class A Common Stock and a decrease in inventory.

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, 2004, which Item 7A is hereby incorporated by reference.

ITEM 4. CONTROLS AND PROCEDURES

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 Exchange Act) as of September 30, 2005. Based upon that evaluation, the Company’s President and Chief Executive Officer along with the Company’s Vice President of Finance and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of September 30, 2005 are effective in ensuring that (i) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the S.E.C.’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

No changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) or 15d-15(d) have come to management’s attention that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. As of September 30, 2005 the Company has corrected one of the two significant deficiencies disclosed in its Form 10-K for the year ended December 31, 2004 regarding the Company’s design of internal control over financial reporting in the areas of segregation of duties related to the Company’s customer service Amsterdam Operations. The Company believes that this correction did not amount to a material change in the Company’s internal control over financial reporting. As of September 30, 2005, the Company is currently in the process of correcting the other significant deficiency disclosed in its Form 10-K for the year ended December 31, 2004 regarding the Company’s design of internal controls over financial reporting in the areas of segregation of duties related to the Company’s Mira Loma, California inventory management system relating to the development, testing and production environments for that system.

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.

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

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 2005:

	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program (A)	Approximate Number of Shares that May Yet Be Purchased Under the Program (A)
July 1 through July 31, 2005	—	$	—	—	4,208,154 shares
August 1 through August 31, 2005	32,662		30.66	32,662	4,175,492 shares
September 1 through September 30, 2005	34,319		29.00	34,319	4,141,173 shares
Total	66,981	$	29.81	66,981	4,141,173 shares

(A) In October 2004, the Board of Directors approved an additional 5,000,000 share repurchase program. This program expires in December 2009. The Company repurchased these shares on the open market.

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	Amended and Restated Bylaws of K•Swiss Inc. (incorporated by reference to exhibit 3.4 to the Registrant’s Form 10-K for fiscal year ended December 31, 1991)
3.2	Amended and Restated Certificate of Incorporation of K•Swiss Inc. (incorporated by reference to exhibit 3.2 to the Registrant’s Form 10-K for fiscal year ended December 31, 2004)
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)
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)
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)

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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 26, 2004 (incorporated by reference to exhibit 4.1 to the Registrant’s Form S-8 with the S.E.C. on February 23, 2005)
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	Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated May 23, 2005 (incorporated by reference to exhibit 10.12 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
10.13	Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated June 1, 2005 (incorporated by reference to exhibit 10.13 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
10.14	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)
10.15	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)
10.16	Employment Agreement between the Registrant and Steven B. Nichols dated as of August 2, 2004 (incorporated by reference to exhibit 10.14 to the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
10.17	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)
10.18	Loan Agreement dated June 1, 2005, between the Company and Bank of America (incorporated by reference to exhibit 10.18 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
10.19	Amendment No. 1 to Loan Agreement, dated June 28, 2005, between the Company and Bank of America (incorporated by reference to exhibit 10.19 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
10.20	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)

16

10.21	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 Section 906 of the Sarbanes-Oxley Act of 2002

17

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 26, 2005	By:	/s/ George Powlick
		George Powlick,
		Vice President Finance, Chief Operating
		Officer and Chief Financial Officer

18

EXHIBIT INDEX

Exhibit

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 Section 906 of the Sarbanes-Oxley Act of 2002

19

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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 report based on such evaluation; and

d) 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 26, 2005

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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 report based on such evaluation; and

d) 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 26, 2005

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, 2005 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 26, 2005

/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