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, 2007

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

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 November 5, 2007:

Class A	26,694,572
Class B	8,059,524

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

K•SWISS INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)

(Unaudited)

	September 30, 2007			December 31, 2006
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	282,499		$	260,229
Accounts receivable, less allowance for doubtful accounts of $2,713 and $2,133 as of September 30, 2007 and December 31, 2006, respectively		47,235			40,988
Inventories		59,382			59,178
Prepaid expenses and other current assets		7,162			8,005
Deferred taxes		4,979			5,040
Total current assets		401,257			373,440
PROPERTY, PLANT AND EQUIPMENT, net		24,349			15,831
OTHER ASSETS
Intangible assets (Note 3)		4,700			4,700
Deferred taxes		3,537			2,970
Other		8,114			7,619
		16,351			15,289
	$	441,957		$	404,560
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Trade accounts payable	$	16,156		$	12,262
Accrued income taxes		1,081			1,440
Accrued liabilities		29,002			35,360
Total current liabilities		46,239			49,062
OTHER LIABILITIES		11,662			9,595
STOCKHOLDERS’ EQUITY (Notes 4 and 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; 28,965,400 shares issued, 26,693,239 shares outstanding and 2,272,161 shares held in treasury at September 30, 2007 and 28,764,194 shares issued, 26,507,033 shares outstanding and 2,257,161 shares held in treasury at December 31, 2006		290			288
Class B – authorized 18,000,000 shares of $0.01 par value; issued and outstanding 8,059,524 shares at September 30, 2007 and 8,100,128 shares at December 31, 2006		81			81
Additional paid-in capital		55,282			51,370
Treasury Stock		(56,071	)		(55,661	)
Retained earnings		373,270			342,575
Accumulated other comprehensive earnings -
Foreign currency translation		12,749			8,965
Net loss on hedge derivatives		(1,545	)		(1,715	)
		384,056			345,903
	$	441,957		$	404,560

The accompanying notes are an integral part of these statements.

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K•SWISS INC.

CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE EARNINGS

(Dollar amounts and shares in thousands, except per share amounts)

(Unaudited)

	Nine Months Ended September 30,					Three Months Ended September 30,
	2007		2006			2007			2006
Revenues (Note 6)	$	332,265	$	407,315		$	107,246		$	133,135
Cost of goods sold		179,601		212,689			57,052			69,782
Gross profit		152,664		194,626			50,194			63,353
Selling, general and administrative expenses		116,603		105,425			43,352			36,549
Operating profit (Note 6)		36,061		89,201			6,842			26,804
Other income		5,232		—			5,232			—
Interest income, net		7,176		4,932			2,602			1,768
Earnings before income taxes		48,469		94,133			14,676			28,572
Income tax expense		9,992		27,939			1,855			7,622
NET EARNINGS	$	38,477	$	66,194		$	12,821		$	20,950
Earnings per common share (Note 2)
Basic	$	1.11	$	1.93		$	0.37		$	0.61
Diluted	$	1.08	$	1.87		$	0.36		$	0.59
Weighted average number of shares outstanding (Note 2)
Basic		34,688		34,350			34,746			34,435
Diluted		35,487		35,337			35,475			35,338
Dividends declared per common share	$	0.15	$	0.15		$	0.05		$	0.05
Net Earnings	$	38,477	$	66,194		$	12,821		$	20,950
Other comprehensive earnings (loss) –
Foreign currency translation adjustments, net of income taxes of $0 and $0 for the nine months ended September 30, 2007 and 2006, respectively, and net of income taxes of $0 and $0 for the three months ended September 30, 2007 and 2006, respectively		3,784		2,053			2,147			22
Change in deferred gain (loss) on hedge derivatives, net of income taxes of $0 and $0 for the nine months ended September 30, 2007 and 2006, respectively, and net of income taxes of $0 and $0 for the three months ended September 30, 2007 and 2006, respectively		170		(1,916	)		(248	)		286
Comprehensive Earnings	$	42,431	$	66,331		$	14,720		$	21,258

The accompanying notes are an integral part of these statements.

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K•SWISS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2007			2006
Cash flows from operating activities:
Net earnings	$	38,477		$	66,194
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		1,414			1,239
Net loss on disposal of property, plant and equipment		37			4
Deferred income taxes		(504	)		203
Stock-based compensation		1,702			1,769
Excess income tax benefit of stock-based compensation		(1,032	)		(1,755	)
Increase in accounts receivable		(6,228	)		(8,687	)
Increase in inventories		(18	)		(2,151	)
Decrease/(increase) in prepaid expenses and other assets		789			(1,009	)
Decrease in accounts payable and accrued liabilities		(2,719	)		(3,673	)
Net cash provided by operating activities		31,918			52,134
Cash flows from investing activities:
Purchase of property, plant and equipment		(9,878	)		(7,512	)
Proceeds from disposal of property, plant and equipment		4			3
Net cash used in investing activities		(9,874	)		(7,509	)
Cash flows from financing activities:
Repurchase of stock		(410	)		(795	)
Payment of dividends		(5,207	)		(5,157	)
Excess income tax benefit of stock-based compensation		1,032			1,755
Proceeds from stock options exercised		1,180			1,408
Net cash used in financing activities		(3,405	)		(2,789	)
Effect of exchange rate changes on cash		3,631			1,447
Net increase in cash and cash equivalents		22,270			43,283
Cash and cash equivalents at beginning of period		260,229			197,464
Cash and cash equivalents at end of period	$	282,499		$	240,747
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	55		$	14
Income taxes	$	6,973		$	24,664

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 balance sheet of K•Swiss Inc. (the “Company” or “K•Swiss”) as of September 30, 2007, the consolidated statements of earnings for the nine and three months ended September 30, 2007 and 2006 and the consolidated statements of cash flows for the nine months ended September 30, 2007 and 2006 have been included for the periods presented. The consolidated statements of earnings for the nine and three months ended September 30, 2007 and the consolidated statements of cash flows for the nine months ended September 30, 2007 are not necessarily indicative of the results to be expected for any other interim period or the full year. The consolidated balance sheet at December 31, 2006 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, 2006. Certain reclassifications have been made in the 2006 presentation to conform to the 2007 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 (“EPS”) computations (shares in thousands):

	Nine Months Ended September 30,								Three Months Ended September 30,
	2007				2006				2007				2006
	Shares	Per Share Amount			Shares	Per Share Amount			Shares	Per Share Amount			Shares	Per Share Amount
Basic EPS	34,688	$	1.11		34,350	$	1.93		34,746	$	0.37		34,435	$	0.61
Effect of Dilutive Stock Options	799		(0.03	)	987		(0.06	)	729		(0.01	)	903		(0.02	)
Diluted EPS	35,487	$	1.08		35,337	$	1.87		35,475	$	0.36		35,338	$	0.59

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, 2007	Nine Months Ended September 30, 2006
Options to purchase shares of common stock (in thousands)	217	144
Exercise prices	$28.19 – $35.89	$28.93 – $34.66
Expiration dates	February 2015 – May 2017	February 2015 – August 2016
	Three Months Ended September 30, 2007	Three Months Ended September 30, 2006
Options to purchase shares of common stock (in thousands)	218	148
Exercise prices	$27.55 – $35.89	$27.55 –$34.66
Expiration dates	February 2015 – May 2017	February 2015 – August 2016

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3. Intangible Assets

Intangible assets are as follows (in thousands):

	September 30, 2007			December 31, 2006
Goodwill	$	4,618		$	4,618
Trademarks		2,761			2,761
Other		8			8
Less accumulated amortization		(2,687	)		(2,687	)
	$	4,700		$	4,700

There were no changes in the carrying amount of goodwill and intangible assets during the nine and three months ended September 30, 2007 and 2006. The Company has performed the annual reassessment and impairment test required as of January 1, 2007 to determine whether goodwill and intangible assets were impaired and determined there was no impairment.

4. Income Taxes

On January 1, 2007, the Company adopted FASB Interpretation No. 48 (“FIN No. 48”), “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109.” FIN No. 48 creates a single model to address the accounting for the uncertainty in income tax positions and prescribes a minimum recognition threshold a tax position must meet before recognition in the financial statements.

The evaluation of a tax position in accordance with FIN No. 48 is a two-step process. The first step is a recognition process to determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, it is presumed that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. The second step is a measurement process whereby a tax position that meets the more-likely-than-not recognition threshold is calculated to determine the amount of benefit/expense to recognize in the financial statements. The tax position is measured at the largest amount of benefit/expense that is greater than 50% likely of being realized upon ultimate settlement.

Any tax position recognized would be an adjustment to the effective tax rate. FIN No. 48 allows the Company to prospectively change its accounting policy as to where interest expense and penalties on income tax liabilities are classified. Effective January 1, 2007, the Company changed its accounting policy and began to classify interest expense and penalties on income tax liabilities in income tax expense on its Consolidated Statement of Earnings. Prior to January 1, 2007, interest expense and penalties were recognized as a reduction to net interest income and an increase to selling, general and administrative expenses, respectively, on its Consolidated Statement of Earnings. The Company recognizes its FIN No. 48 income tax liability in either accrued income taxes, if determined to be short-term, or other liabilities if determined to be long-term, on its Consolidated Balance Sheet. For federal tax purposes, the Company’s 2004 through 2006 tax years remain open for examination by the tax authorities under the normal three year statute of limitations. Generally, for state tax purposes, the Company’s 2002 through 2006 tax years remain open for examination by the tax authorities under a four year statute of limitations, however, certain states may keep their statute open for six to ten years.

Upon the adoption of FIN No. 48, the Company recognized a cumulative effect to beginning retained earnings of $2,575,000 and at September 30, 2007, the income tax liability relating to FIN No. 48 was $4,837,000, which includes interest of $382,000, which was recognized in other liabilities.

5. Stockholders’ Equity

Under its stock repurchase program, the Company purchased 15,000 shares of Class A Common Stock during the nine months ended September 30, 2007 for a total expenditure of approximately $410,000. In the first quarter of 2007, the Company adopted FIN No. 48 and in accordance with FIN No. 48, recorded a cumulative effect adjustment of $2,575,000 to beginning retained earnings.

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. The following tables summarize segment information (in thousands):

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	Nine Months Ended September 30,						Three Months Ended September 30,
	2007			2006			2007			2006
Revenues from unrelated entities (1):
United States	$	168,064		$	266,195		$	52,017		$	81,697
Europe		112,459			97,066			36,030			34,461
Other International		51,742			44,054			19,199			16,977
	$	332,265		$	407,315		$	107,246		$	133,135
Inter-geographic revenues:
United States	$	6,699		$	6,037		$	1,982		$	2,201
Europe		1			13			—			9
Other International		34,199			39,377			11,065			11,422
	$	40,899		$	45,427		$	13,047		$	13,632
Total revenues:
United States	$	174,763		$	272,232		$	53,999		$	83,898
Europe		112,460			97,079			36,030			34,470
Other International		85,941			83,431			30,264			28,399
Less inter-geographic revenues		(40,899	)		(45,427	)		(13,047	)		(13,632	)
	$	332,265		$	407,315		$	107,246		$	133,135
Operating profit:
United States	$	25,433		$	69,163		$	5,437		$	20,110
Europe		21,599			23,674			5,335			7,641
Other International		6,053			6,496			3,262			2,979
Less corporate expenses (2)		(16,531	)		(13,890	)		(7,983	)		(5,722	)
Eliminations		(493	)		3,758			791			1,796
	$	36,061		$	89,201		$	6,842		$	26,804

	September 30, 2007		December 31, 2006
Identifiable assets:
United States	$	104,707	$	101,278
Europe		53,830		50,971
Other International		30,431		22,593
Corporate assets and eliminations (3)		252,989		229,718
	$	441,957	$	404,560

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

(2) 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 Company and are not segment/region specific. The increase in corporate expenses during the three and nine months ended September 30, 2007 compared to the three and nine months ended September 30, 2006 was the result of SAP implementation related expenses offset by a decrease in legal expenses. The increase in corporate expenses during the three and nine months ended September 30, 2007 includes $3,265,000 and $3,426,000, respectively, in data conversion, training and training material expenses incurred as a result of our domestic and a portion of our international SAP computer software implementation. Legal expenses decreased in the three and nine months ended September 30, 2007 primarily as a result of court-mandated postponements of certain cases, which occurred in the first quarter of 2007.

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

During the nine months ended September 30, 2007 and 2006, approximately 14% and 16%, respectively, of revenues were attributable to one customer. During the three months ended September 30, 2007 and 2006, approximately 14% of revenues were attributable to one customer.

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7. Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” SFAS No. 157 creates a single definition of fair value, along with a conceptual framework to measure fair value, and to increase the consistency and the comparability in fair value measurements and in financial statement disclosures.

In February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and Liabilities – Including an Amendment to FASB Statement No. 115.” SFAS No. 159 improves financial reporting by giving entities the opportunity to mitigate earnings volatility by electing to measure related financial assets and liabilities at fair value rather than using different measurement attributes. Unrealized gains and losses on items for which the fair value option has been elected should be reported in earnings. Upon initial adoption, differences between the fair value and carrying amount should be included as a cumulative-effect adjustment to beginning retained earnings.

SFAS Nos. 157 and 159 are effective as of the beginning of the first fiscal year that begins after November 15, 2007. Earlier application is permitted as of the beginning of the fiscal year that begins on or before November 15, 2007. The Company will not early adopt SFAS Nos. 157 and 159 and is currently assessing the impact of implementing SFAS Nos. 157 and 159 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 all our product offerings; 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 timely commercialization; the ability to secure and protect trademarks, patents, and other intellectual property; inadvertent and nonwillful infringement on others’ 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; difficulties in implementing SAP information management software; interruptions in data and communication systems; concentration of production in China; changes in our effective tax rates as a result of changes in tax laws or changes in our geographic mix of sales and level of earnings; 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 from time to time 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. On an on-going basis we evaluate our policy for revenue recognition and evaluate our estimates, including those related to sales returns and allowances, the realizability of accounts receivable, the carrying value of inventories and the provision for income taxes. 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 decreased 19.4% and 18.4% for the three and nine months ended September 30, 2007, respectively, from the three and nine months ended September 30, 2006, respectively. Our overall gross profit margins, as a percentage of revenues, decreased to 46.8% and 45.9% for the three and nine months ended September 30, 2007, respectively, compared to 47.6% and 47.8% for the three and nine months ended September 30, 2006, respectively, as a result of product mix changes and increases in inventory reserves and reserves for prepaid royalties, offset by international sales, which generally yield a higher gross profit margin, becoming a larger portion of revenue. Our selling, general and administrative expenses increased 18.6% and 10.6% for the three and nine months ended September 30, 2007, respectively, compared to the three and nine months ended September 30, 2006, respectively, as the result of SAP implementation related expenses incurred and increases in advertising expenses, compensation expenses and travel related expenses, offset by a decrease in legal expenses. Other income for the three and nine months ended September 30, 2007 consists of a reversal of an estimate for our underpayment of payroll withholdings in a foreign jurisdiction from January 1, 1993 through December 31, 2005 of $5,232,000. At September 30, 2007, our total futures orders with start ship dates from October 2007 through March 2008 were $145,029,000, a decrease of 15.6% from September 30, 2006. Of this amount, domestic futures orders were $56,794,000, a decrease of 38.9%, and international futures orders were $88,235,000, an increase of 11.7%. Net earnings and net earnings per diluted share for the three months ended September 30, 2007 decreased 38.8% and 39.0%, respectively, to $12,821,000, or $0.36 per diluted share, compared with $20,950,000, or $0.59 per diluted share, in the prior-year period. Net earnings and net earnings per diluted share for the nine months ended September 30, 2007 decreased 41.9% and 42.2%, respectively, to $38,477,000, or $1.08 per diluted share, compared with $66,194,000, or $1.87 per diluted share, in the prior-year period.

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,
	2007		2006		2007		2006
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	54.1		52.2		53.2		52.4
Gross profit	45.9		47.8		46.8		47.6
Selling, general and administrative expenses	35.1		25.9		40.4		27.5
Other income	1.6		—		4.9		—
Interest income, net	2.2		1.2		2.4		1.3
Earnings before income taxes	14.6		23.1		13.7		21.4
Income tax expense	3.0		6.9		1.7		5.7
Net earnings	11.6		16.2		12.0		15.7

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Revenues

K•Swiss brand revenues decreased to $101,025,000 for the three months ended September 30, 2007 from $129,771,000 for the three months ended September 30, 2006, a decrease of $28,746,000 or 22.2%. K•Swiss brand revenues decreased to $320,290,000 for the nine months ended September 30, 2007 from $398,320,000 for the nine months ended September 30, 2006, a decrease of $78,030,000 or 19.6%. The decrease for the three and nine months ended September 30, 2007 was the result of a decrease in the volume of footwear sold offset by higher average wholesale prices per pair. The volume of footwear sold decreased to 3,510,000 and 11,252,000 pair for the three and nine months ended September 30, 2007, respectively, from 4,563,000 and 14,691,000 pair for the three and nine months ended September 30, 2006, respectively. The decrease in the volume of footwear sold for the three months ended September 30, 2007 was primarily the result of decreased sales of the children’s, training, Classic and tennis categories of 39.7%, 19.5%, 16.2% and 13.0%, respectively. This decrease in volume for the three and nine months ended September 30, 2007 was offset by a higher average wholesale price per pair of $27.93 for the three months ended September 30, 2007 from $27.90 for the three months ended September 30, 2006 and $27.71 for the nine months ended September 30, 2007 from $26.56 for the nine months ended September 30, 2006, an increase of 4.3%. These higher average wholesale prices per pair resulted from product mix changes and international sales becoming a larger portion of revenue.

For the three and nine months ended September 30, 2007, total revenues have declined 19.4% and 18.4%, respectively. The decrease was the result of a decline in domestic revenues offset by an increase in international revenues for the three and nine months ended September 30, 2007. The breakdown of revenues (dollar amounts in thousands) is as follows:

	Nine Months Ended September 30,					Three Months Ended September 30,
	2007		2006		% Change	2007		2006		% Change
Domestic
K•Swiss brand	$	164,172	$	263,595	(37.7%)	$	49,617	$	80,801	(38.6%)
Royal Elastics brand		3,892		2,600	49.7%		2,400		896	167.9%
Total domestic	$	168,064	$	266,195	(36.9%)	$	52,017	$	81,697	(36.3%)
International
K•Swiss brand	$	156,118	$	134,725	15.9%	$	51,408	$	48,970	5.0%
Royal Elastics brand		8,083		6,395	26.4%		3,821		2,468	54.8%
Total international	$	164,201	$	141,120	16.4%	$	55,229	$	51,438	7.4%
Total Revenues	$	332,265	$	407,315	(18.4%)	$	107,246	$	133,135	(19.4%)

Customer acceptance of our domestic product has been weak and is likely to continue for the near term. We have recently hired several individuals in product design and management; however, it will take additional time for the full impact of the contribution of these individuals to affect our business.

Gross Margin

Overall gross profit margins, as a percentage of revenues, decreased to 46.8% for the three months ended September 30, 2007, from 47.6% for the three months ended September 30, 2006. Overall gross profit margins, as a percentage of revenues, decreased to 45.9% for the nine months ended September 30, 2007, from 47.8% for the nine months ended September 30, 2006. Gross profit margins for the three and nine months ended September 30, 2007 were affected by product mix changes and increases in inventory reserves and reserves for prepaid royalties, offset by international sales, which generally yield a higher gross profit margin, becoming a larger portion of revenues. 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 $43,352,000 (40.4% of revenues) for the three months ended September 30, 2007, from $36,549,000 (27.5% of revenues) for the three months ended September 30, 2006, an increase of $6,803,000 or 18.6%. Overall selling, general and administrative expenses increased to $116,603,000 (35.1% of revenues) for the nine months ended September 30, 2007, from $105,425,000 (25.9% of revenues) for the nine months ended September 30, 2006, an increase of $11,178,000 or 10.6%. The increase in selling, general and administrative expenses during the three and nine months ended September 30, 2007 compared to the three and nine months ended September 30, 2006, respectively, was the result of SAP implementation related expenses incurred and increases in advertising expenses, compensation expenses and travel related expenses, offset by a decrease in legal expenses. In addition, the increase in selling, general and administrative expenses during the nine months ended September 30, 2007 included an increase in accounting related expenses. The increase in selling, general and administrative expenses during the three and nine months ended September 30, 2007 includes $3,265,000 and $3,426,000, respectively, in data conversion, training and training material expenses incurred as a result of our domestic and a portion of our

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international SAP computer software implementation. Advertising expenses increased 20.0% and 6.3% for the three and nine months ended September 30, 2007, respectively, primarily due to an increase in international advertising expenses as part of a strategic effort to drive higher revenues and was offset for the nine months ended September 30, 2007, by a decrease in domestic advertising expenses to cut costs as a result of declining domestic revenues. Compensation expenses, which includes commissions, bonus/incentive related expenses and employee recruiting and relocation expenses, increased 2.2% and 7.1% for the three and nine months ended September 30, 2007, respectively, primarily due to an increase in headcount and was offset by a decrease in bonus/incentive related expenses that were calculated in accordance with the bonus formula under our Economic Value Added (“EVA”) incentive program. Travel related expenses increased 39.4% and 45.0% for the three and nine months ended September 30, 2007, respectively, in connection with increased travel due to our growing international operations and product development efforts. Accounting related expenses increased 62.4% for the nine months ended September 30, 2007 as a result of increased auditing and accounting costs associated with our implementation of the SAP information management software and FIN No. 48. Legal expenses decreased 37.1% and 28.6% for the three and nine months ended September 30, 2007, respectively, primarily as a result of the court-mandated postponements of certain cases, which occurred in the first quarter of 2007. The increase in corporate expenses for the three and nine months ended September 30, 2007 was due to SAP implementation related expenses incurred offset by a decrease in legal expenses for the reasons as described above.

Other Income, Interest, and Taxes

Other income for the three and nine months ended September 30, 2007 consists of a reversal of an estimate for our underpayment of payroll withholdings in a foreign jurisdiction from January 1, 1993 through December 31, 2005 of $5,232,000. As discussed in our Form 10-K for 2006, in the fourth quarter of 2006, we determined that there was an underpayment of payroll withholdings in a foreign jurisdiction from January 1, 1993 through December 31, 2006. In 2006, with the assistance of our tax advisors, we estimated an underpayment of withholdings and related interest totaling $11,105,000, of which $7,866,000 was recorded as a prior period adjustment, under Staff Accounting Bulletin No. 108. Penalties were discretionary, ranging from zero to 300% of the taxes owed, and at that time we could not determine the likelihood of such assessment and did not recognize penalties related to this issue. The September 2007 settlement reached with this foreign jurisdiction resulted in us paying 100% of the payroll withholding liability plus a 50% penalty for periods starting from May 2001, however interest was not assessed. The amount settled was lower than the amounts previously estimated.

Overall net interest income was $2,602,000 (2.4% of revenues) and $7,176,000 (2.2% of revenues) for the three and nine months ended September 30, 2007, respectively, compared to $1,768,000 (1.3% of revenues) and $4,932,000 (1.2% of revenues) for the three and nine months ended September 30, 2006, representing an increase of $834,000 and $2,244,000 for the three and nine months ended September 30, 2007, respectively, compared to the same prior year period. This increase in net interest income was the result of higher average interest rates and higher average balances and no borrowings on our bank lines of credit during the three and nine months ended September 30, 2007.

Our effective tax rate was 12.6% and 20.6% for the three and nine months ended September 30, 2007 compared to 26.7% and 29.7% for the three and nine months ended September 30, 2006, respectively. Starting January 1, 2005, provision has not been made for United States income taxes on earnings of selected subsidiary companies as these are intended to be permanently invested. The decrease in tax rate was mainly due to our geographic mix of sales, as international sales have become a larger portion of revenues, with these international subsidiaries being profitable and to an increase in our tax-exempt interest income.

Net earnings decreased 38.8% to $12,821,000, or $0.36 per share (diluted earnings per share), for the three months ended September 30, 2007 from $20,950,000, or $0.59 per share (diluted earnings per share), for the three months ended September 30, 2006. Net earnings decreased 41.9% to $38,477,000, or $1.08 per share (diluted earnings per share), for the nine months ended September 30, 2007 from $66,194,000, or $1.87 per share (diluted earnings per share), for the nine months ended September 30, 2006.

Adoption of FIN No. 48

On January 1, 2007, we adopted FASB Interpretation No. 48 (“FIN No. 48”), “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109.” FIN No. 48 creates a single model to address the accounting for the uncertainty in income tax positions and prescribes a minimum recognition threshold a tax position must meet before recognition in the financial statements.

The evaluation of a tax position in accordance with FIN No. 48 is a two-step process. The first step is a recognition process to determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, it is presumed that the position will be examined by the appropriate taxing

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authority that has full knowledge of all relevant information. The second step is a measurement process whereby a tax position that meets the more-likely-than-not recognition threshold is calculated to determine the amount of benefit/expense to recognize in the financial statements. The tax position is measured at the largest amount of benefit/expense that is greater than 50% likely of being realized upon ultimate settlement.

Any tax position recognized would be an adjustment to the effective tax rate. FIN No. 48 allows the Company to prospectively change its accounting policy as to where interest expense and penalties on income tax liabilities are classified. Effective January 1, 2007, we changed our accounting policy and began to classify interest expense and penalties on income tax liabilities in income tax expense on our Consolidated Statement of Earnings. Prior to January 1, 2007, interest expense and penalties were recognized as a reduction to net interest income and an increase to selling, general and administrative expenses, respectively, on our Consolidated Statement of Earnings. We recognize our FIN No. 48 income tax liability in either accrued income taxes, if determined to be short-term, or other liabilities if determined to be long-term, on our Consolidated Balance Sheet. For federal tax purposes, our 2004 through 2006 tax years remain open for examination by the tax authorities under the normal three year statute of limitations. Generally, for state tax purposes, our 2002 through 2006 tax years remain open for examination by the tax authorities under a four year statute of limitations, however, certain states may keep their statute open for six to ten years.

Upon the adoption of FIN No. 48, we recognized a cumulative effect to beginning retained earnings of $2,575,000 and at September 30, 2007 the income tax liability relating to FIN No. 48 was $4,837,000, which includes interest of $382,000, which was recognized in other liabilities.

Backlog

At September 30, 2007 and 2006, total futures orders with start ship dates from October 2007 and 2006 through March 2008 and 2007 were approximately $145,029,000 and $171,923,000, respectively, a decrease of 15.6%. The 15.6% decrease in total futures orders is comprised of a 13.9% decrease in the fourth quarter 2007 futures orders and a 17.1% decrease in the first quarter 2008 futures orders. At September 30, 2007 and 2006, domestic futures orders with start ship dates from October 2007 and 2006 through March 2008 and 2007 were approximately $56,794,000 and $92,914,000, respectively, a decrease of 38.9%. At September 30, 2007 and 2006, international futures orders with start ship dates from October 2007 and 2006 through March 2008 and 2007 were approximately $88,235,000 and $79,009,000, respectively, an increase of 11.7%. “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 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 our customers materially in excess of industry averages for similar companies.

Liquidity and Capital Resources

We experienced net cash inflows of approximately $31,918,000 from our operating activities during the nine months ended September 30, 2007 compared to net cash inflows of approximately $52,134,000 from our operating activities during the nine months ended September 30, 2006. The decrease in operating cash inflows from the prior year is due primarily to lower earnings offset by changes in accounts receivables, inventories, prepaid expenses and other assets and accounts payable and accrued liabilities.

We had a net outflow of cash from our investing activities for the nine months ended September 30, 2007 and 2006 due to the purchase of property, plant and equipment. The increase in investment in 2007 is due to the implementation of SAP information management software. During 2007 and over the next few years we will continue our implementation of SAP information management software in our domestic and international operations.

We had a net outflow of cash from our financing activities for the nine months ended September 30, 2007 and 2006 primarily due to the payment of cash dividends and to the purchase of our outstanding stock under our current stock repurchase program, partially offset by proceeds from stock options exercised and the excess income tax benefit of stock-based compensation.

On October 26, 2004, the Board of Directors authorized a stock repurchase program to supplement prior stock repurchase programs, which allows us to repurchase through December 2009 up to 5,000,000 shares of our Class A Common Stock from time to time on the open market, as market conditions warrant. As of September 30, 2007, a maximum of 4,060,745 shares may be repurchased pursuant to the stock repurchase program. We adopted this program because we believe repurchasing our shares can be a good use of excess cash depending on our array of alternatives. From August 1996 through November 5, 2007 (the day prior

13

to the filing of the Form 10-Q) we have purchased an aggregate of 25.3 million shares at an aggregate cost totaling approximately $164,639,000 (an average price of $6.51 per share) under all of our stock repurchase programs. See Part II – Other Information, Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

No other material capital commitments existed at September 30, 2007. 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 2007. At September 30, 2007 and December 31, 2006, there was no funded debt. At September 30, 2007, we were in compliance with all relevant covenants under our credit facilities.

Our working capital increased $30,640,000 to $355,018,000 at September 30, 2007 from $324,378,000 at December 31, 2006. Working capital increased during the nine months ended September 30, 2007 mainly due to increases in cash and accounts receivable and a decrease in accrued liabilities offset by an increase in accounts payable.

Off-Balance Sheet Arrangements

We did not enter into off-balance sheet arrangements during the three or nine months ended September 30, 2007 or 2006, nor did we have any off-balance sheet arrangements outstanding at September 30, 2007 or 2006.

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, 2006, 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, 2007, pursuant to Exchange Act Rule 13a-15. 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, 2007 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.

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.

Item 1A. Risk Factors

There have been no material changes from the information previously reported under Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, which Item 1A is hereby incorporated by reference.

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Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

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 2007:

	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program (1)	Maximum Number of Shares that May Yet Be Purchased Under the Program (1)
July 1 through July 31, 2007	—	$	—	—	4,060,745 shares
August 1 through August 31, 2007	—		—	—	4,060,745 shares
September 1 through September 30, 2007	—		—	—	4,060,745 shares
Total	—	$	—	—	4,060,745 shares

(1) In October 2004, the Board of Directors approved a 5,000,000 share repurchase program. This program expires in December 2009.

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 3.1 to the Registrant’s Form 8-K filed with the S.E.C. on October 1, 2004)
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 the fiscal year ended December 31, 2004)
3.3	Amendment to the Bylaws of K•Swiss Inc. (incorporated by reference to exhibit 3.1 to the Registrant’s Form 8-K filed with the S.E.C. on April 18, 2006)
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 filed 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	Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated January 1, 2007 (incorporated by reference to exhibit 10.14 to the Registrant’s Form 10-Q for the quarter ended March 31, 2007)
10.15	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)
10.16	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	Amendment No. 2 to Loan Agreement, dated June 28, 2007, between the Company and Bank of America

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	(incorporated by reference to exhibit 10.1 to the Registrant’s Form 8-K filed with the S.E.C. on June 29, 2007)
10.21	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)
10.22	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

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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: November 5, 2007	By:	/s/ George Powlick
		George Powlick
		Vice President Finance, Chief Operating Officer and Chief Financial Officer

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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

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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.

Dated: November 5, 2007

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.

Dated: November 5, 2007

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, 2007 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: November 5, 2007

/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