10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

[X] QuarterlyReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2012

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)
N/A

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X]  No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer [  ]	Accelerated filer [X]	Non-accelerated filer [  ]	Smaller reporting company [  ]
		(Do not check if a smaller reporting company)

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 31, 2012:

Class A	27,567,971
Class B	8,039,524

PART I - FINANCIAL INFORMATION

Item 1.       Financial Statements

K•SWISS INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)

(Unaudited)

	September 30, 2012			December 31, 2011
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	39,851		$	28,701
Restricted cash and cash equivalents and restricted investments available for sale (Note 3)		200			22,602
Investments available for sale (Note 4)		0			2,057
Accounts receivable, less allowance for doubtful accounts of $1,771 and $1,678 at September 30, 2012 and December 31, 2011, respectively		39,066			31,449
Inventories, net		65,870			90,380
Prepaid expenses and other current assets		3,671			4,927
Income taxes receivable (Note 9)		0			770
Total current assets		148,658			180,886
PROPERTY, PLANT AND EQUIPMENT, net (Note 10)		18,096			19,593
OTHER ASSETS
Intangible assets (Note 5)		11,500			11,482
Deferred income taxes (Note 9)		2,043			2,914
Other		4,966			4,736
Total other assets		18,509			19,132
Total assets	$	185,263		$	219,611
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Bank lines of credit (Note 7)	$	5,323		$	9,716
Current portion of long-term debt (Note 7)		148			250
Current portion of long-term capital leases (Note 7)		82			0
Trade accounts payable		11,606			18,101
Accrued income taxes payable		44			372
Current portion of contingent purchase price (Note 12)		1,909			0
Accrued liabilities		11,762			13,500
Total current liabilities		30,874			41,939
OTHER LIABILITIES
Long-term debt (Note 7)		0			148
Long-term capital leases (Note 7)		139			0
Contingent purchase price (Notes 12 and 13)		0			3,739
Other liabilities		8,549			7,816
Total other liabilities		8,688			11,703
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred Stock - authorized 2,000,000 shares of $0.01 par value; none issued and outstanding		0			0
Common Stock:
Class A - authorized 90,000,000 shares of $0.01 par value; 29,984,255 shares issued, 27,562,638 shares outstanding and 2,421,617 shares held in treasury at September 30, 2012 and 29,982,254 shares issued, 27,560,637 shares outstanding and 2,421,617 shares held in treasury at December 31, 2011		300			300
Class B, convertible - authorized 18,000,000 shares of $0.01 par value; 8,039,524 shares issued and outstanding at September 30, 2012 and December 31, 2011		80			80
Additional paid-in capital		71,773			70,975
Treasury Stock		(58,190	)		(58,190	)
Retained earnings		129,440			149,703
Accumulated other comprehensive earnings:
Foreign currency translation		2,024			2,288
Net unrealized gain on hedge derivatives (Note 6)		274			811
Net unrealized gain on investments available for sale and restricted investments available for sale (Notes 3 and 4)		0			2
Total stockholders’ equity		145,701			165,969
Total liabilities and stockholders’ equity	$	185,263		$	219,611

The accompanying notes are an integral part of these statements.

2

K•SWISS INC.

CONSOLIDATED STATEMENTS OF EARNINGS/LOSS

AND COMPREHENSIVE EARNINGS/LOSS

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

(Unaudited)

	Nine Months Ended September 30,						Three Months Ended September 30,
	2012			2011			2012			2011
Revenues (Note 10)	$	181,621		$	218,194		$	67,551		$	80,456
Cost of goods sold		117,777			138,413			43,509			51,631
Gross profit		63,844			79,781			24,042			28,825
Selling, general and administrative expenses		82,031			120,620			25,805			42,357
Operating loss (Note 10)		(18,187	)		(40,839	)		(1,763	)		(13,532	)
Other income (Note 11)		0			3,000			0			0
Interest (expense)/income, net		(62	)		95			(19	)		242
Loss before income taxes and discontinued operations		(18,249	)		(37,744	)		(1,782	)		(13,290	)
Income tax expense (Note 9)		2,014			1,904			144			342
Loss from continuing operations		(20,263	)		(39,648	)		(1,926	)		(13,632	)
Loss from discontinued operations, less applicable income taxes of $0 and $0 for the nine and three months ended September 30, 2011, respectively (Note 13)		0			(5,638	)		0			(1,786	)
Net Loss	$	(20,263	)	$	(45,286	)	$	(1,926	)	$	(15,418	)
Loss per common share (Note 2)
Basic:
Loss from continuing operations	$	(0.57	)	$	(1.12	)	$	(0.05	)	$	(0.38	)
Loss from discontinued operations		(0.00	)		(0.16	)		(0.00	)		(0.05	)
Net Loss	$	(0.57	)	$	(1.28	)	$	(0.05	)	$	(0.43	)
Diluted:
Loss from continuing operations	$	(0.57	)	$	(1.12	)	$	(0.05	)	$	(0.38	)
Loss from discontinued operations		(0.00	)		(0.16	)		(0.00	)		(0.05	)
Net Loss	$	(0.57	)	$	(1.28	)	$	(0.05	)	$	(0.43	)
Weighted average number of shares outstanding (Note 2)
Basic		35,601			35,480			35,601			35,572
Diluted		35,601			35,480			35,601			35,572
Dividends declared per common share	$	0		$	0		$	0		$	0
Net Loss	$	(20,263	)	$	(45,286	)	$	(1,926	)	$	(15,418	)
Other Comprehensive (Loss)/Earnings, net of tax:
Foreign currency translation adjustments, net of income taxes of $0 and $0 for the nine months ended September 30, 2012 and 2011, respectively, and net of income taxes of $0 and $0 for the three months ended September 30, 2012 and 2011, respectively		(264	)		388			803			(2,948	)
Change in deferred (loss)/gain on hedge derivatives, net of income taxes of $0 and $0 for the nine months ended September 30, 2012 and 2011, respectively, and net of income taxes of $0 and $0 for the three months ended September 30, 2012 and 2011, respectively		(537	)		61			(832	)		840
Change in deferred loss on investments available for sale and restricted investments available for sale, net of income tax benefit of $(1) and $(44) for the nine months ended September 30, 2012 and 2011, respectively, and net of income tax benefit of $0 and $(14) for the three months ended September 30, 2012 and 2011, respectively		(2	)		(86	)		0			(28	)
Comprehensive Loss	$	(21,066	)	$	(44,923	)	$	(1,955	)	$	(17,554	)

The accompanying notes are an integral part of these statements.

3

K•SWISS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2012			2011
Cash flows from operating activities:
Net loss from continuing operations	$	(20,263	)	$	(39,648	)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation/amortization		2,761			2,694
Change in contingent purchase price		(1,830	)		198
Net loss on disposal of property, plant and equipment		25			33
Deferred income taxes		851			133
Stock-based compensation		796			1,319
Increase in accounts receivable		(7,616	)		(19,175	)
Decrease/(Increase) in inventories		25,376			(27,564	)
Decrease in income taxes receivable		770			770
Decrease in prepaid expenses and other assets		131			1,933
Decrease in accounts payable and accrued liabilities		(8,047	)		(886	)
Net cash used in operating activities from continuing operations		(7,046	)		(80,193	)
Net cash used in discontinued operations		0			(3,797	)
Net cash used in operating activities		(7,046	)		(83,990	)
Cash flows from investing activities:
Change in restricted cash and cash equivalents		13,249			(5,643	)
Purchase of investments available for sale and restricted investments available for sale		0			(6,310	)
Proceeds from the maturity or sale of available for sale securities and restricted investments available for sale		11,028			70,666
Purchase of intangible assets		(35	)		0
Purchase of property, plant and equipment		(1,276	)		(2,261	)
Proceeds from disposal of property, plant and equipment		4			41
Net cash provided by investing activities		22,970			56,493
Cash flows from financing activities:
Borrowings under bank lines of credit and capital leases		17,863			31,057
Repayments on bank lines of credit, long-term debt and capital leases		(22,264	)		(16,528	)
Proceeds from stock options exercised		2			1,059
Net cash (used in)/provided by financing activities		(4,399	)		15,588
Effect of exchange rate changes on cash		(375	)		164
Net increase/(decrease) in cash and cash equivalents		11,150			(11,745	)
Cash and cash equivalents at beginning of period		28,701			49,164
Cash and cash equivalents at end of period	$	39,851		$	37,419
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	135		$	181
Income taxes	$	715		$	572

The accompanying notes are an integral part of these statements.

4

K•SWISS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.            Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “S.E.C.”).  Accordingly, they do not include all of the information and notes 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, 2012 and the results of its operations and its cash flows for the nine and three months ended September 30, 2012 and 2011 have been included for the periods presented.  The results of operations and cash flows for the nine and three months ended September 30, 2012 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, 2011 has been derived from the audited financial statements at that date but does not include all the information and notes 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, 2011, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

2.             Loss per Share

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

	Nine Months Ended September 30,										Three Months Ended September 30,
	2012					2011					2012					2011
	Shares		Per Share Amount			Shares		Per Share Amount			Shares		Per Share Amount			Shares		Per Share Amount
Basic EPS		35,601	$	(0.57	)		35,480	$	(1.28	)		35,601	$	(0.05	)		35,572	$	(0.43	)
Effect of Dilutive Stock Options		0		0.00			0		0.00			0		0.00			0		0.00
Diluted EPS		35,601	$	(0.57	)		35,480	$	(1.28	)		35,601	$	(0.05	)		35,572	$	(0.43	)

Because the Company had a net loss for the nine and three months ended September 30, 2012 and 2011, the number of diluted shares is equal to the number of basic shares at September 30, 2012 and 2011. Outstanding stock options would have had an anti-dilutive effect on diluted EPS for the nine and three months ended September 30, 2012 and 2011. Outstanding stock options with either exercise prices or unrecognized compensation cost per share greater than the average market price of a share of the Company’s common stock also have an anti-dilutive effect on diluted EPS and were as follows (shares in thousands):

	Nine Months Ended September 30,				Three Months Ended September 30,
	2012		2011		2012		2011
Options to purchase shares of common stock		3,771		1,480		3,771		1,712
Exercise price range
Low	$	2.76	$	9.77	$	2.76	$	5.12
High	$	34.75	$	34.75	$	34.75	$	34.75
Expiration date range
Earliest	December 2012		May 2012		December 2012		May 2012
Latest	August 2022		August 2021		August 2022		September 2021

5

3.             Restricted Cash and Cash Equivalents and Restricted Investments Available for Sale

At September 30, 2012, the Company collateralized certain operational bank accounts at Bank of America and at December 31, 2011, the Company collateralized its Bank of America line of credit with the following (in thousands):

	September 30, 2012		December 31, 2011
Restricted cash and cash equivalents	$	200	$	13,449
Restricted investments available for sale:
U.S. Treasury Notes		0		5,007
Corporate Notes and Bonds		0		4,062
Accrued interest income		0		84
Total restricted investments available for sale		0		9,153
Total restricted cash and cash equivalents and restricted investments available for sale	$	200	$	22,602

The restricted investments were classified as available for sale and were stated at fair value. The Company capitalized any premiums paid or discounts received and amortized the premiums or accreted the discounts on a straight-line basis over the remaining term of the security. Gross unrealized holding gains and losses were as follows (in thousands):

	September 30, 2011
Gross unrealized holding gains	$	18
Gross unrealized holding losses		5

The change in comprehensive income was as follows (in thousands):

	Nine Months Ended September 30,						Three Months Ended September 30,
	2012			2011			2012		2011
Decrease in comprehensive income	$	(3	)	$	(25	)	$	0	$	(12	)

The Company received proceeds from the sale of restricted investments available for sale and realized gain on sale as follows (in thousands):

	Nine Months Ended September 30, 2012
Proceeds from sale of restricted investments	$	2,015
Realized gain on sale of restricted investments		3

There were no sales of restricted investments available for sale during the three months ended September 30, 2012 and during the nine and three months ended September 30, 2011.  Realized gains and losses are recognized using the actual cost of the investment.

4.             Investments Available for Sale

The Company’s investments were classified as available for sale and stated at fair value and were as follows (in thousands):

	December 31, 2011
Corporate Notes and Bonds	$	2,024
Accrued interest income		33
Total investments available for sale	$	2,057

6

The Company capitalized any premiums paid or discounts received and amortized the premiums or accreted the discounts on a straight-line basis over the remaining term of the security.  Gross unrealized holding gains and losses were as follows (in thousands):

	September 30, 2011
Gross unrealized holding gains	$	2
Gross unrealized holding losses		3

The change in comprehensive income was as follows (in thousands):

	Nine Months Ended September 30,					Three Months Ended September 30,
	2012		2011			2012		2011
Increase/(decrease) in comprehensive income	$	1	$	(61	)	$	0	$	(16	)

The Company received proceeds from the sale of investments available for sale and realized gain on sale as follows (in thousands):

	Nine Months Ended September 30,
	2012		2011
Proceeds from sale of investments	$	1,013	$	23,812
Realized gain on sale of investments		0		12

There were no sales of  investments available for sale during the three months ended September 30, 2012 and 2011.  Realized gains and losses are recognized using the actual cost of the investment.  Realized gains and losses are recognized using the actual cost of the investment.

5.             Intangible Assets

Intangible assets consist of the following (in thousands):

	September 30, 2012			December 31, 2011
Trademarks	$	12,587		$	12,569
Less accumulated amortization		(1,087	)		(1,087	)
Total intangible assets	$	11,500		$	11,482

The change in the carrying amount of intangible assets during the nine and three months ended September 30, 2012 was as follows (in thousands):

	Nine Months Ended September 30, 2012			Three Months Ended September 30, 2012
Beginning Balance	$	11,482		$	11,433
Trademarks acquired		35			35
Foreign currency translation effects		(17	)		32
Ending Balance	$	11,500		$	11,500

During the nine and three months ended September 30, 2012, the Company purchased a foreign country trademark right which it did not own for the Palladium brand.  The Company performed the annual reassessment and impairment test as of October 1, 2011 of its Palladium intangible assets related to trademarks and determined there was no impairment of its intangible assets.  See the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.  The Company does not believe that a triggering event has occurred through September 30, 2012 to require an updated impairment test.

7

6.             Financial Risk Management and Derivatives

Sales denominated in currencies other than the U.S. dollar, which are primarily sales to customers in Europe, expose the Company to market risk from material movements in foreign exchange rates between the U.S. dollar and the foreign currency.  The Company’s primary risk exposures are from changes in the rates between the U.S. dollar and the Euro and between the Euro and the Pound Sterling.  In 2012 and 2011, the Company entered into forward foreign exchange contracts to exchange Euros for U.S. dollars and Pound Sterling for Euros.  The extent to which forward foreign exchange contracts are used is modified periodically in response to management’s estimate of market conditions and the terms and length of specific sales contracts.

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

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

At September 30, 2012, forward foreign exchange contracts with a notional value of $27,802,000 were outstanding to exchange various currencies with maturities ranging from October 2012 to June 2013, to sell the equivalent of approximately $4,002,000 in foreign currencies at contracted rates and to buy approximately $23,800,000 in foreign currencies at contracted rates.  These contracts have been designated as cash flow hedges.  Cash flows from these forward foreign exchange contracts are classified in the same category as the cash flows from the items being hedged on the Consolidated Statements of Cash Flows.  At September 30, 2012, the Company did not have any forward foreign exchange contracts that do not qualify as hedges.

The fair value of the Company’s derivatives on its Consolidated Balance Sheets were as follows (in thousands):

	Asset Derivatives					Liability Derivatives
	Balance Sheet	September 30, 2012		December 31, 2011		Balance Sheet	September 30, 2012		December 31, 2011
	Location	Fair Value		Fair Value		Location	Fair Value		Fair Value
Derivatives Designated as Hedging Instruments
Foreign exchange contracts	Prepaid expenses and other current assets	$	211	$	1,321	Accrued liabilities	$	525	$	306

The effect of the Company’s derivatives on its Consolidated Statements of Earnings/Loss for the nine months ended September 30, 2012 and 2011 were as follows (in thousands):

Derivatives in	Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings (“OCE”) on Derivative (Effective Portion)					Location of Gain/(Loss) Reclassified from OCE	Amount of Gain/(Loss) Reclassified from OCE into Income (Effective Portion)						Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount	Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Cash Flow Hedging	Nine Months Ended September 30,					into Income (Effective	Nine Months Ended September 30,						Excluded from Effectiveness	Nine Months Ended September 30,
Relationships	2012			2011		Portion)	2012			2011			Testing)	2012			2011
Foreign exchange contracts	$	(537	)	$	61	Cost of goods sold	$	(150	)	$	(78	)	Selling, general and administrative expenses	$	(55	)	$	(20	)

8

The effect of the Company’s derivatives on its Consolidated Statements of Earnings/Loss for the three months ended September 30, 2012 and 2011 were as follows (in thousands):

Derivatives in	Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings (“OCE”) on Derivative (Effective Portion)					Location of Gain/(Loss) Reclassified from OCE	Amount of Gain/(Loss) Reclassified from OCE into Income (Effective Portion)				Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount	Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Cash Flow Hedging	Three Months Ended September 30,					into Income (Effective	Three Months Ended September 30,				Excluded from Effectiveness	Three Months Ended September 30,
Relationships	2012			2011		Portion)	2012		2011		Testing)	2012			2011
Foreign exchange contracts	$	(832	)	$	840	Cost of goods sold	$	387	$	46	Selling, general and administrative expenses	$	(107	)	$	5

7.             Bank Lines of Credit and Other Debt

The Company’s bank lines of credit, long-term debt, long-term capital leases and outstanding letters of credit were as follows (in thousands):

	September 30, 2012		December 31, 2011
Bank lines of credit	$	5,323	$	9,716
Long-term debt		148		398
Long-term capital leases		221		0
Total bank lines of credit, long-term debt and long-term capital leases	$	5,692	$	10,114
Outstanding letters of credit, not included above	$	294	$	280

Bank Lines of Credit

Outstanding bank lines of credit were as follows (dollars and Euros in thousands):

	September 30, 2012		December 31, 2011
Secured Variable Rate Lines of Credit with Financial Institutions:
Credit Facility of $35,000 at an interest rate of 4.50% at September 30, 2012, due April 23, 2016 (1)	$	0	$	0
Bank line of credit of $21,000 at an interest rate of 2.69% at December 31, 2011, due July 1, 2013 (2)		0		9,716
Facility of €4,000, or approximately $5,141, at September 30, 2012, at an interest rate of 0.98%, due December 31, 2012 and approximately $5,182, at December 31, 2011, at an interest rate of 2.13%, due December 31, 2012 (3)		5,323		0
Facilities of €1,200, or approximately $1,542, at September 30, 2012, at interest rates ranging from 1.42% to 2.60%, due December 31, 2012 and facilities of €1,000, or approximately $1,296, at December 31, 2011, at interest rates ranging from 2.56% to 3.12%, due December 31, 2011 (3) (4)		0		0
Total bank lines of credit	$	5,323	$	9,716
Outstanding letters of credit, not included above	$	294	$	280

(1) Secured by all assets of K•Swiss Inc., K•Swiss Sales Corp. and K•Swiss Direct Inc.  The amount available to borrow on this line of credit at September 30, 2012 was $19,162.  See further discussion below.

(2) Fully secured by cash (or the Company’s restricted cash and cash equivalents and restricted investments available for sale, see Note 3).  This facility was fully paid off on April 25, 2012.  See further discussion below.

(3) These lines of credit are secured by Palladium’s assets including accounts receivable and/or intellectual property rights (i.e. trademarks), as well as Palladium common stock.

(4) These lines of credit are renewable every six months.

9

On April 25, 2012, the Company and two of its subsidiaries, K•Swiss Sales Corp. and K•Swiss Direct Inc. (collectively with the Company, the “Borrowers”) entered into a Credit Agreement (the “Credit Facility”) with Wells Fargo Bank, National Association and Wells Fargo Capital Finance, LLC (collectively as “Wells Fargo” or the “Lenders”).  The Credit Facility consists of revolving loans of up to $35,000,000 (subject to the limitations described below) available in U.S. Dollars, Euro and Pound Sterling, and up to $5,000,000 of which may be drawn in the form of letters of credit.  The Credit Facility matures April 23, 2016.

Loans made under the Credit Facility bear interest at:

(1) the greatest of (i) the Federal Funds Rate plus 0.5%, (ii) the LIBOR Rate plus 1%, and (iii) Wells Fargo’s prime rate (the “Base Rate”); or

(2) the rate per annum appearing on Bloomberg L.P.’s Page BBAM1/Official BBA USD Dollar Libor Fixings two Business Days prior to the commencement of the requested Interest Period, for a term and in an amount comparable to the interest period and the amount requested (the “LIBOR Rate”); or

(3) for loans made in Euros or Pound Sterling, the LIBOR Rate;

plus, in each case, the “Applicable Margin.”

If the average use of the Credit Facility is less than 50% of the Maximum Revolver Amount (as defined below) during the previous fiscal quarter, the Applicable Margin is 1.25% for Base Rate loans, 2.25% for U.S. Dollar LIBOR Rate loans, and 3.00% for loans made in Euros or Pound Sterling.  If the average use of the Credit Facility is more than 50% of the Maximum Revolver Amount, the Applicable Margin is 1.50% for Base Rate loans, 2.50% for U.S. Dollar LIBOR Rate loans, and 3.25% for loans made in Euros or Pound Sterling.

The “Maximum Revolver Amount” is $35,000,000; provided that the amount of revolving loans and letters of credit under the Credit Facility may not exceed (a) 85% of Eligible Accounts (as defined in the Credit Facility) plus the lesser of (i) 85% of Eligible Accounts that are Extended Pay Accounts (as defined in the Credit Facility) and (ii) $1,500,000 (minus any dilution reserve), plus (b) the lesser of (i) $20,000,000 or (ii) an amount equal to (x) the lesser of (1) 65% of Eligible Inventory or (2) 85% of Net Recovery Percentage (each as defined in the Credit Facility), minus (y) a reserve of $3,500,000 and any other reserves established by Wells Fargo in its permitted discretion.

The financial covenants contained in the Credit Facility are as follows (in each case, with respect to the Company and its subsidiaries on a consolidated basis):

· The Company must achieve Minimum EBITDA specified in the Credit Facility for each month through November 30, 2013.

· The Company must maintain a Fixed Charge Coverage Ratio for each twelve month fiscal period, commencing for the fiscal period ending on December 31, 2013, of not less than 1.0:1.0.

· The Company must limit Capital Expenditures for each fiscal year to $2,400,000, except with the Lender’s consent.

These financial covenants apply on the date that Excess Availability (as defined in the Credit Facility) has fallen below 20% of the Maximum Revolver Amount and ends on the date that Excess Availability has been greater than 20% of the Maximum Revolver Amount for any period of thirty consecutive days thereafter.

The obligations of the Borrowers under the Credit Facility are guaranteed by four of the Company’s other domestic subsidiaries (the “Guarantors”) pursuant to a Guaranty and Security Agreement, dated April 25, 2012 (the “Guaranty and Security Agreement”).  Pursuant to the Guaranty and Security Agreement, the Borrowers and the Guarantors pledged substantially all of their respective assets as collateral security for the loans to be made pursuant to the Credit Facility.  The foreign subsidiaries of the Borrowers did not guaranty the Credit Facility or pledge any of their directly-owned assets.  The Company has also granted a security interest in its real property to the Lenders, consisting of a deed of trust securing its corporate headquarters building.

The Credit Facility contains other certain affirmative and negative covenants, as well as event of default provisions.  The affirmative covenants include certain reporting requirements, maintenance of properties, payment of taxes and insurance, compliance with laws, environmental compliance, and other provisions customary in such agreements.  Negative covenants limit or restrict, among other things, dividends, secured and unsecured indebtedness, mergers and fundamental changes, asset sales, investments and acquisitions, liens and encumbrances, transactions with affiliates, redemption distributions to former employees, officers or directors, and other matters customarily restricted in such agreements.

10

Wells Fargo and its affiliates are permitted to make loans to, issue letters of credit, accept deposits, provide Bank Products (as defined in the Credit Facility) to, acquire equity interests in, and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with the Company, its subsidiaries and affiliates.

At September 30, 2012, the Company was in compliance with its covenants under the Credit Facility.

On April 25, 2012, the Company drew down approximately $9,924,000 under the Credit Facility to repay in full all indebtedness outstanding under its previous line of credit with Bank of America and to pay fees and expenses related to the Credit Facility. The Company intends to utilize the Credit Facility for working capital, to issue letters of credit in connection with purchases of inventory and other general corporate purposes.

Long-term Debt

Long-term debt outstanding were as follows (dollars and Euros in thousands):

	September 30, 2012		December 31, 2011
Secured Fixed Rate Term Loans with Financial Institutions of €800, or approximately $1,028, at September 30, 2012, at an interest rate of 5.42%, due February 2013 and €1,320, or approximately $1,710, at December 31, 2011, with interest rates ranging from 5.42% to 5.84%, due between February 2012 and February 2013 (1)	$	147	$	394
Accrued interest		1		4
Total long-term debt	$	148	$	398
Current portion of long-term debt	$	148	$	250
Long-term debt	$	0	$	148

(1) These are secured by Palladium’s assets including accounts receivable and/or intellectual property rights (i.e. trademarks), as well as Palladium common stock.

Long-term Capital Leases

Long-term capital leases outstanding were as follows (dollars in thousands):

	September 30, 2012
Capital leases for information systems, with interest rates ranging from 2.01% to 5.05%, due between June 2014 and December 2016	$	221
Current portion of long-term capital leases	$	82
Long-term capital leases	$	139
Leased property – Information systems, net	$	273

Interest expense

Interest expense incurred on the Company’s bank loans, lines of credit and capital leases and amortization of loan origination costs on the Wells Fargo credit facility were as follows (in thousands):

	Nine Months Ended September 30,				Three Months Ended September 30,
	2012		2011		2012		2011
Interest expense	$	200	$	177	$	60	$	106

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8.             Fair Value of Financial Instruments

On January 1, 2012, the Company adopted Accounting Standards Update (“ASU”) 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” which ensures U.S. generally accepted accounting principles are aligned with international accounting standards.  ASU 2011-04 does not modify the requirements for when fair value measurements apply, but rather clarifies how to measure and disclose fair value.  The adoption of ASU 2011-04 did not have a material impact on the Company’s financial position and results of operations.  For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, outstanding borrowings under the lines of credit, current portion of long-term debt, current portion of long-term capital leases, accounts payable and accrued liabilities, the carrying amounts approximate fair value due to their short maturities.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis at September 30, 2012 (in thousands):

			Fair Value Measurements Using
	Total Carrying Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Forward exchange contracts – assets	$	211	$	0	$	211	$	0
Forward exchange contracts – liabilities		525		0		525		0
Contingent purchase price (“CPP”) – Palladium		1,909		0		0		1,909

The Company’s counterparty (“Counterparty”) to a majority of its forward exchange contracts is a major financial institution. These forward exchange contracts are measured at fair value by the Counterparty based on a variety of pricing factors, which include the market price of the derivative instrument available in the dealer-market.

The Palladium CPP will be equal to the net present value of €1,500,000 plus up to €500,000 based on an amount calculated in accordance with a formula driven by Palladium’s EBITDA for the twelve months ended December 31, 2012.  The €500,000 CPP will be determined each quarter based on the current quarter’s projection of Palladium’s EBITDA for the twelve months ended December 31 of the current year.  See Note 12 for further discussion.

During the nine and three months ended September 30, 2012 there were no transfers between Level 1, Level 2 and Level 3 measurements.  In addition, there were no changes in the valuation technique of assets and liabilities measured on a recurring basis during the nine and three months ended September 30, 2012.

9.            Income Taxes

Income tax expense was as follows (in thousands):

	Nine Months Ended September 30,				Three Months Ended September 30,
	2012		2011		2012		2011
Income tax expense	$	2,014	$	1,904	$	144	$	342

The Company evaluates its deferred tax assets, including net operating losses and tax credits, to determine if a valuation allowance is required.  The Company assesses whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard.  In making such judgments, significant weight is given to evidence that can be objectively verified.  A cumulative loss in recent years is significant negative evidence in considering whether deferred tax assets are realizable.

12

At September 30, 2012, the Company's valuation allowance was $49,064,000.  At September 30, 2012, the Company had a net deferred tax asset after valuation allowance of $2,043,000 which consisted of U.S. foreign tax credits of $35,000 for the eventual carryback of foreign tax credits to the 2006 tax year as the Company believes it is more-likely-than-not that it will be utilized and foreign net operating losses of $2,008,000 which is related to the pre-acquisition losses of Palladium, a French company, which has an unlimited carryforward period and therefore the Company believes it is more-likely-than-not that the loss carryforward will be utilized.  The ultimate realization of this loss carryforward is dependent upon the generation of future taxable income in France during the periods in which those temporary differences become deductible.  This assessment could change in future periods if the Company does not achieve taxable income in France or projections of future taxable income decline.  Changes in existing tax laws could also affect actual tax results and the valuation of deferred tax assets over time.  The accounting for deferred taxes is based upon an estimate of future operating results.  Differences between the anticipated and actual outcomes of these future tax consequences could have a material impact on the Company’s consolidated results of operations or financial position.  If an increase in the valuation allowance in future periods is required, this would result in an increase in the Company’s income tax expense and could materially impact the effective income tax rate in the period recorded.

At September 30, 2012, uncertain tax positions and the related interest, which are included in other liabilities on the Consolidated Balance Sheet, were $7,707,000 and $1,431,000, respectively, all of which would affect the income tax rate if reversed.  Income tax expense related to uncertain tax positions was as follows (in thousands):

	Nine Months Ended September 30,				Three Months Ended September 30,
	2012		2011		2012		2011
Income tax expense related to uncertain tax positions	$	595	$	640	$	168	$	210
Interest expense related to uncertain tax positions		159		185		54		63
Total income tax expense related to uncertain tax positions	$	754	$	825	$	222	$	273

The federal income tax returns for 2006 through 2009 and certain state returns for 2007 and 2008 are currently under various stages of audit by the applicable taxing authorities.  The Company received a Notice of Proposed Adjustment from the Internal Revenue Service (“IRS”) for tax years 2006 and 2007 of $7,114,000 (which includes $1,186,000 in penalties).  Interest will be assessed, and at this time it is estimated at approximately $1,812,000.  This issue, which relates to intercompany transfer pricing, has been sent to the IRS Appeal’s office for further consideration.  The Company does not believe that an additional tax accrual is required at this time.

In January 2012, the Company received a Notice of Proposed Adjustment for the 2008 tax year, also regarding intercompany transfer pricing.  The 2008 proposed adjustment is $251,000.  Interest will be assessed, and at this time it is estimated at approximately $37,000.  This issue has been sent to the IRS Appeal’s office for further consideration.  This will not create any additional financial statement impact due to the available U.S. tax losses that may be carried back from the 2010 tax year to the 2008 tax year.

Also in January 2012, the Company received a Notice of Proposed Adjustment for the 2009 tax year of $496,000 related to the gain on sale of certain Royal Elastics assets.  Interest will not be assessed as the adjustment will reduce the Company’s net operating loss for 2009.  The Company has agreed to this adjustment. The IRS did not propose an adjustment to the Company's 2009 intercompany transfer pricing even though the Company's intercompany transfer pricing methodology has been the same during the 2006 to 2009 period.

The Company does not agree with the 2006 through 2008 adjustments and plans to vigorously defend its position.  The amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.  The Company’s material tax jurisdiction is the United States.

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10.           Segment Information

The Company’s predominant business is the design, development and distribution of athletic footwear.  The Company has identified its footwear products business to be its only segment as 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, Middle East and Africa (“EMEA”) and Other International.  The Company’s Other International geographic region includes the Company’s operations in Asia.  Certain reclassifications have been made to the 2011 presentation to conform to the 2012 presentation.  The following tables summarize information by geographic region of the Company’s footwear segment (in thousands):

	Nine Months Ended September 30,						Three Months Ended September 30,
	2012			2011			2012			2011
Revenues from unrelated entities (1):
United States	$	61,861		$	96,360		$	22,301		$	32,676
EMEA		73,524			74,772			28,660			32,048
Other International		46,236			47,062			16,590			15,732
Total revenues from unrelated entities	$	181,621		$	218,194		$	67,551		$	80,456
Inter-geographic revenues:
United States	$	4,783		$	4,210		$	1,226		$	1,646
EMEA		47			1,441			21			(5	)
Other International		124			165			58			29
Total inter-geographic revenues	$	4,954		$	5,816		$	1,305		$	1,670
Total revenues:
United States	$	66,644		$	100,570		$	23,527		$	34,322
EMEA		73,571			76,213			28,681			32,043
Other International		46,360			47,227			16,648			15,761
Less inter-geographic revenues		(4,954	)		(5,816	)		(1,305	)		(1,670	)
Total revenues	$	181,621		$	218,194		$	67,551		$	80,456
Operating (loss)/profit:
United States	$	(15,755	)	$	(29,074	)	$	(3,223	)	$	(12,841	)
EMEA		1,288			(9,534	)		2,509			(677	)
Other International		3,839			7,076			1,601			1,754
Less corporate expenses (2)		(8,695	)		(10,782	)		(2,924	)		(3,114	)
Eliminations		1,136			1,475			274			1,346
Total operating loss	$	(18,187	)	$	(40,839	)	$	(1,763	)	$	(13,532	)

	September 30, 2012		December 31, 2011
Long-lived assets (3):
United States	$	15,147	$	16,719
EMEA		1,604		1,519
Other International		1,345		1,355
Total long-lived assets	$	18,096	$	19,593

(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 and legal which benefit the entire Company and are not segment/region specific.  Corporate expenses for the nine and three months ended September 30, 2012 decreased as a result of decreases in compensation and data processing expenses and, in addition, for the nine months ended September 30, 2012, a decrease in legal expenses.  The decrease in compensation expenses, which includes bonus/incentive related expenses and employee recruiting and relocation expenses, resulted from a reduction in salary related expenses, stock option compensation expenses and interest expense related to the Company’s deferred compensation plan which was terminated in October 2011.  The decrease in data processing expenses was a result of decreases in on-going maintenance expenses.  The decrease in legal expenses was a result of decreases in expenses incurred to defend the Company’s trademarks.

(3) Long-lived assets consist of property, plant and equipment, net.

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During the nine and three months ended September 30, 2012 and 2011, there were no customers that accounted for more than 10% of revenues.  At September 30, 2012, approximately 9% of accounts receivable was from one customer.  At December 31, 2011, approximately 10% of accounts receivable was from one customer.

11.          Other Income/Expense

During the nine months ended September 30, 2011, the Company and one of its international distributors entered into a mutual settlement and termination agreement in which the Company agreed to an early termination of this distributor’s contracts for $3,000,000.  The contracts with this distributor were terminated as a result of this distributor not performing in accordance with their contracts, and there was no litigation.  The loss of this distributor did not have a significant impact on the Company’s revenues or gross margin.  The Company is in the process of securing another distributor for this region.

12.          Palladium Contingent Purchase Price

The change in the CPP for the nine and three months ended September 30, 2012 and 2011 was as follows (in thousands):

	Nine Months Ended September 30,					Three Months Ended September 30,
	2012			2011		2012			2011
Beginning balance	$	3,739		$	3,689	$	3,702		$	4,148
Payment		(1,776	)		0		(1,776	)		0
Change in net present value of the CPP		(54	)		197		(17	)		(262	)
Ending balance	$	1,909		$	3,886	$	1,909		$	3,886

On July 9, 2012, the Company entered into Amendment No. 3 to the Share Purchase and Shareholders’ Rights Agreement which required an upfront payment and revised the terms of the remaining future purchase price for Palladium payable in 2013 to be equal to €1,500,000 plus up to €500,000 based on an amount calculated in accordance with a formula driven by Palladium’s EBITDA for the twelve months ended December 31, 2012.  As a result, on July 12, 2012, the Company made a payment of €1,443,000, or $1,776,000.

13.          Form Athletics

During the second quarter of 2011, after a review of sales, backlog, cash flows and marketing strategy, the Company determined that its investment in the Form Athletics goodwill and trademark was impaired and recognized impairment losses of $3,689,000 and reversed the Form CPP liability of $2,110,000, which is included in the loss from discontinued operations as interest income.  The change in the Form CPP for the nine months ended September 30, 2011 is as follows (in thousands):

	Nine Months Ended September 30,
	2011
Beginning balance	$	2,110
Change in net present value of the Form CPP		(2,110	)
Ending balance	$	0

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The operations for Form Athletics for the nine and three months ended September 30, 2011 were as follows (in thousands):

	Nine Months Ended September 30, 2011			Three Months Ended September 30, 2011
Revenues	$	555		$	131
Cost of goods sold		905			558
Gross loss		(350	)		(427	)
Selling, general and administrative expenses		3,709			1,359
Impairment on intangibles and goodwill		3,689			0
Operating loss		(7,748	)		(1,786	)
Interest income, net		2,110			0
Net loss from discontinued operations	$	(5,638	)	$	(1,786	)

14.           Recent Accounting Pronouncements

On January 1, 2012, the Company adopted ASU 2011-05, “Presentation of Comprehensive Income,” which improves the comparability of financial reporting and ensures that U.S. generally accepted accounting principles are aligned with International Accounting Standards.  The adoption of ASU 2011-05 did not have a material impact on the Company’s 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 the reports and 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; concerns relating to our liquidity, including our ability to reduce operating losses and significantly reduce inventory levels; 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 and boots for consumers and endorsers; market acceptance of all our product offerings; 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,  demographics and demand for our product, and various market factors described above; the amount of consumer disposable income; the availability of credit facilities for our customers and/or the stability of credit markets; 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; fluctuations in the price, availability and quality of raw materials; the loss of, or reduction in, sales to a significant customer or distributor; the success, willingness to purchase and financial resources of our customers; pressure to decrease the prices of our products; 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 maintaining SAP information management software; interruptions in data and communication systems; 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; the continued operation and ability of our manufacturers to satisfy our production requirements; our ability to secure sufficient manufacturing capacity, or the loss of, or reduction in, manufacturing capacity from significant suppliers; responsiveness of customer service; adverse publicity; concentration of credit risk to a few customers; business disruptions; increased costs of freight and transportation to meet delivery deadlines; increased material and/or 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; a limited number of our stockholders can exert significant influence over the Company; transitional challenges of integrating newly acquired companies into our business; and other factors referenced or incorporated by reference in this report and other reports.

K•Swiss Inc. (the “Company,” “K•Swiss,” “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.

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Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the S.E.C.  The preparation of these financial statements required 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.

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, inventory reserves, income taxes and intangible assets.  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 16.8% and 16.0% for the nine and three months ended September 30, 2012, respectively, from the nine and three months ended September 30, 2011, respectively.  Our overall gross profit margin, as a percentage of revenues, decreased to 35.2% and 35.6% for the nine and three months ended September 30, 2012, respectively, compared to 36.6% and 35.8% for the nine and three months ended September 30, 2011, respectively, as a result of an increase in the level of closeout product as a percentage of revenues and a decrease in royalty income as a result of a lower level of sales by one of our significant licensees in 2012.  Our selling, general and administrative expenses decreased to $82,031,000 and $25,805,000 for the nine and three months ended September 30, 2012, respectively, from $120,620,000 and $42,357,000 for the nine and three months ended September 30, 2011, respectively.  The decrease for the nine and three months ended September 30, 2012 was a result of decreases in advertising, compensation and other warehousing expenses.  Other income for the nine months ended September 30, 2011 consists of the recognition of $3,000,000 resulting from the settlement and termination of one of our agreements with an international distributor.  At September 30, 2012, our total futures orders with start ship dates from October 2012 through March 2013 were $70,003,000, a decrease of 8.6% from September 30, 2011.  Of this amount, domestic futures orders were $21,556,000, a decrease of 18.6%, and international futures orders were $48,447,000, a decrease of 3.3%.  We incurred a net loss for the nine months ended September 30, 2012 of $20,263,000, or $0.57 per diluted share, compared to a net loss of $45,286,000, or $1.28 per diluted share for the nine months ended September 30, 2011.  We incurred a net loss for the three months ended September 30, 2012 of $1,926,000, or $0.05 per diluted share, compared to a net loss of $15,418,000, or $0.43 per diluted share for the three months ended September 30, 2011.

During the third quarter of 2011, we decided to no longer pursue operating in the Form Athletics line of business, and accordingly Form Athletics is presented as a discontinued operation in the Consolidated Financial Statements.

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Results of Operations

The following table sets forth, for the periods indicated, the percentage of certain items in the Consolidated Statements of Earnings/Loss relative to revenues.

	Nine Months Ended September 30,						Three Months Ended September 30,
	2012			2011			2012			2011
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		64.8			63.4			64.4			64.2
Gross profit		35.2			36.6			35.6			35.8
Selling, general and administrative expenses		45.2			55.3			38.2			52.7
Other income		0.0			1.4			0.0			0.0
Interest (expense)/income, net		(0.0	)		0.0			(0.0	)		0.3
Loss before income taxes and discontinued operations		(10.0	)		(17.3	)		(2.6	)		(16.6	)
Income tax expense		1.1			0.9			0.2			0.4
Loss from discontinued operations, net of income taxes		0.0			(2.6	)		0.0			(2.2	)
Net loss		(11.1	)%		(20.8	)%		(2.8	)%		(19.2	)%

Revenues

Total revenues decreased 16.8% to $181,621,000 for the nine months ended September 30, 2012 from $218,194,000 for the nine months ended September 30, 2011 and total revenues decreased 16.0% to $67,551,000 for the three months ended September 30, 2012 from $80,456,000 for the three months ended September 30, 2011.  The breakdown of revenues (dollar amounts in thousands) is as follows:

	Nine Months Ended September 30,							Three Months Ended September 30,
	2012		2011		% Change			2012		2011		% Change
Domestic
K•Swiss brand	$	55,551	$	92,824		(40.2	)%	$	19,028	$	31,134		(38.9	)%
Palladium brand		6,310		3,536		78.5			3,273		1,542		112.3
Total domestic	$	61,861	$	96,360		(35.8	)%	$	22,301	$	32,676		(31.8	)%
International
K•Swiss brand	$	84,470	$	89,148		(5.2	)%	$	28,042	$	30,000		(6.5	)%
Palladium brand		35,290		32,686		8.0			17,208		17,780		(3.2	)
Total international	$	119,760	$	121,834		(1.7	)%	$	45,250	$	47,780		(5.3	)%
Total revenues	$	181,621	$	218,194		(16.8	%)	$	67,551	$	80,456		(16.0	)%

K•Swiss brand revenues decreased to $140,021,000 and $47,070,000 for the nine and three months ended September 30, 2012, respectively, from $181,972,000 and $61,134,000 for the nine and three months ended September 30, 2011, respectively, a decrease of $41,951,000, or 23.1%, and $14,064,000, or 23.0%, respectively.  The decrease in K•Swiss brand domestic and international sales of 38.9% and 6.5%, respectively, for the three months ended September 30, 2012, is directionally consistent with the trends in futures orders at June 30, 2012.  The decrease in sales for the nine and three months ended September 30, 2012 was the result of a decrease in the volume of footwear sold and a decrease in average wholesale prices per pair.  The volume of footwear sold decreased to 4,351,000 and 1,511,000 pair for the nine and three months ended September 30, 2012, respectively, from 5,590,000 and 1,924,000 pair for the nine and three months ended September 30, 2011, respectively.  The decrease in the volume of footwear sold for the three months ended September 30, 2012 was primarily the result of decreased sales of the performance category of 43.9%.  The average wholesale price per pair decreased to $28.58 and $27.91 for the nine and three months ended September 30, 2012, respectively, from $28.90 and $28.67 for the nine and three months ended September 30, 2011, respectively, a decrease of 1.1% and 2.7%, respectively.  The decrease in the average wholesale price per pair for the nine and three months ended September 30, 2012 compared to the nine and three months ended September 30, 2011 is attributable primarily to decreases in the average wholesale prices per pair in the performance category and product mix of sales, slightly offset by increases in the average wholesale prices per pair in the lifestyle category and, for the nine months ended September 30, 2012, a higher level of sales of closeout product.

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Palladium brand revenues increased to $41,600,000 and $20,481,000 for the nine and three months ended September 30, 2012, respectively, from $36,222,000 and $19,322,000 for the nine and three months ended September 30, 2011, respectively, an increase of $5,378,000, or 14.8%, and $1,159,000, or 6.0%, respectively.  The increase in Palladium sales for the nine and three months ended September 30, 2012 was primarily due to the increase in worldwide sales in regions other than France as a result of continued marketing and selling efforts of Palladium product in these regions beginning in the second half of 2009.  The volume of footwear sold increased to 1,015,000 and 438,000 pair for the nine and three months ended September 30, 2012, respectively, from 811,000 and 338,000 pair for the nine and three months ended September 30, 2011, respectively, due primarily to an increase in sales in regions other than France, as discussed above, offset by a decrease in sales in France.  The average underlying wholesale price per pair was $40.69 and $46.44 for the nine and three months ended September 30, 2012, respectively, compared to $44.30 and $56.81 for the nine and three months ended September 30, 2011, respectively, a decrease of 8.1% and 18.3%, respectively, attributable primarily to product mix of sales, the geographic mix of sales, and an increase in level of sales of closeout product as a percentage of sales, offset by a higher level of retail and website sales, which yield higher selling prices.

Gross Profit Margin

Gross profit margin, as a percentage of revenues, decreasedto 35.2% and 35.6% for the nine and three months ended September 30, 2012, respectively, from 36.6% and 35.8% for the nine and three months ended September 30, 2011, respectively.  K•Swiss brand gross profit margin, as a percentage of revenues, was 29.7% and 31.9% for the nine months ended September 30, 2012 and 2011 respectively.  This decrease in gross profit margin was a result of an increase in the level of sales of closeout product as a percentage of revenues, offset by a higher level of international sales as a percentage of revenues which generally yield a higher selling price and decreases in inventory reserves, provision for unused molds and reserves against guaranteed minimum royalties.  K•Swiss brand gross profit margin, as a percentage of revenues, was 30.2% and 29.4% for the three months ended September 30, 2012 and 2011 respectively.  This increase in gross profit margin was a result of a higher level of international sales as a percentage of revenues which generally yield a higher selling price, a decrease in the level of closeout product as a percentage of revenues and decreases in inventory reserves and provision for unused molds.  Palladium brand gross profit margin, as a percentage of revenues, was 42.5% and 41.3% for the nine and three months ended September 30, 2012, respectively, and 42.6% and 42.4% for the nine and three months ended September 30, 2011, respectively.  The decrease in gross profit margin for the nine and three months ended September 30, 2012 compared to the nine and three months ended September 30, 2011 is mainly due to a decrease in the level of international sales as a percentage of revenues which generally yield a higher selling price and an increase in the level of sales of closeout product as a percentage of revenues.  In addition, contributing to the decline in overall gross profit margin for the nine and three months ended September 30, 2012 was a decrease in royalty income as a result of lower level of sales by one of our significant licensees in 2012.

Our gross profit margin may not be comparable to our competitors as we recognize warehousing costs within selling, general and administrative expenses.  These warehousing costs were $10,646,000 and $3,566,000 for the nine and three months ended September 30, 2012, respectively, compared to $12,941,000 and $4,517,000 for the nine and three months ended September 30, 2011, respectively.

Selling, General and Administrative Expenses

Overall selling, general and administrative expenses decreased to $82,031,000 (45.2% of revenues) and $25,805,000 (38.2% of revenues) for the nine and three months ended September 30, 2012, respectively, from $120,620,000 (55.3% of revenues) and $42,357,000 (52.7% of revenues) for the nine and three months ended September 30, 2011, respectively.  The decrease for the nine and three months ended September 30, 2012 was a result of decreases in advertising, compensation and other warehousing expenses.  Advertising expenses decreased 55.3% and 66.5% for the nine and three months ended September 30, 2012, respectively, due to an effort to reduce advertising spending to industry averages of approximately 10% of revenues.  Compensation expenses, which includes commissions, bonus/incentive related expenses and employee recruiting and relocation expenses, decreased 21.1% and 24.3% for the nine and three months ended September 30, 2012, respectively, as a result of a 20% reduction in salary related expenses from the prior year in the US and Europe, a decrease in stock option compensation expenses and a decrease in interest expense related to the Company’s deferred compensation plan which was terminated in October 2011.  Other warehousing expenses, which do not include compensation expenses, decreased 15.5% and 17.8% for the nine and three months ended September 30, 2012, respectively, mainly as a result of the decrease in revenues.  Corporate expenses of $8,695,000 and $2,924,000 for the nine and three months ended September 30, 2012, respectively, and $10,782,000 and $3,114,000 for the nine and three months ended September 30, 2011, respectively, are included in selling, general and administrative expenses and include expenses such as salaries and related expenses for executive management and support departments such as accounting and treasury, information technology and legal which benefit the entire Company.  Corporate expenses for the nine and three months ended September 30, 2012 decreased as a result of decreases in compensation and data processing expenses, and for the nine months ended September 30, 2012, a decrease in legal expenses.  The decrease in compensation expenses was due to the reasons discussed above.  The decrease in data processing expenses was a result of decreases in on-going maintenance expenses.  The decrease in legal expenses was a result of decreases in expenses incurred to defend the Company’s trademarks.

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Other Income, Interest and Taxes

Other income for the nine months ended September 30, 2011 consisted of a $3,000,000 settlement agreement between us and one of our international distributors relating to the termination of this distributor’s contracts.  The contracts with this distributor were terminated as a result of this distributor not performing in accordance with its contracts, and there was no litigation.  The loss of this distributor did not have a significant impact on our revenues or gross margin.  We are in the process of securing another distributor for this region.

Net interest expense was $62,000 (0.0% of revenues) and $19,000 (0.0% of revenues) for the nine and three months ended September 30, 2012, respectively, compared to net interest income of $95,000 (0.0% of revenues) and $242,000 (0.3% of revenues) for the nine and three months ended September 30, 2011, respectively.  The change in net interest expense for the nine months ended September 30, 2012 was due to a decrease in interest income earned on cash, restricted cash, restricted investments available for sale and investments available for sale as a result of lower average balances and interest rates and an increase in amortization of loan origination fees, offset by the change in fair value of the Palladium CPP and a decrease in interest expense on debt.  The change in net interest expense for the three months ended September 30, 2012 was due to the change in fair value of the Palladium CPP and a decrease in interest income earned on cash, restricted cash, restricted investments available for sale and investments available for sale as a result of lower average balances and interest rates and an increase in amortization of loan origination fees, offset by and a decrease in interest expense on debt.

Income tax expense was $2,014,000 and $144,000 for the nine and three months ended September 30, 2012, respectively, and was $1,904,000 and $342,000 for the nine and three months ended September 30, 2011, respectively.  We evaluate our deferred tax assets, including net operating losses and tax credits, to determine if a valuation allowance is required.  We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard.  In making such judgments, significant weight is given to evidence that can be objectively verified.  A cumulative loss in recent years is significant negative evidence in considering whether deferred tax assets are realizable.

On a quarterly basis, we estimate what our effective tax rate will be for the full calendar year by estimating pre-tax income, excluding significant or infrequently occurring items, and tax expense for the remaining quarterly periods of the year.  The estimated annual effective tax rate is then applied to year-to-date pre-tax income to determine the estimated year-to-date and quarterly tax expense.  The income tax effects of infrequent or unusual items are recognized in the quarterly period in which they occur.  As the year progresses, we continually refine our estimate based upon actual events and earnings.  This continual estimation process periodically results in a change to our expected annual effective tax rate.  When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date income tax provision equals the estimated annual rate.  Our effective tax rate fluctuates mainly due to our geographic mix of earnings.  In addition, starting January 1, 2005, provision has not been made for United States income taxes on earnings of selected international subsidiary companies as these are intended to be permanently invested.

At September 30, 2012, our valuation allowance was $49,064,000.  At September 30, 2012, we had a net deferred tax asset after valuation allowance of $2,043,000 which consisted of U.S. foreign tax credits of $35,000 for the eventual carryback of foreign tax credits to the 2006 tax year as the Company believes it is more-likely-than-not that it will be utilized and foreign net operating losses of $2,008,000 which is related to the pre-acquisition losses of Palladium, a French company, which has an unlimited carryforward period and therefore the Company believes it is more-likely-than-not that the loss carryforward will be utilized.  The ultimate realization of this loss carryforward is dependent upon the generation of future taxable income in France during the periods in which those temporary differences become deductible.  This assessment could change in future periods if we do not achieve taxable income in France or projections of future taxable income decline.  Changes in existing tax laws could also affect actual tax results and the valuation of deferred tax assets over time.  The accounting for deferred taxes is based upon an estimate of future operating results.  Differences between the anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated results of operations or financial position.  If an increase in the valuation allowance in future periods is required, this would result in an increase in our income tax expense and could materially impact the effective income tax rate in the period recorded.

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At September 30, 2012, uncertain tax positions and the related interest, which are included in other liabilities on the Consolidated Balance Sheet, were $7,707,000 and $1,431,000, respectively, all of which would affect the income tax rate if reversed.  Income tax expense related to uncertain tax positions was as follows (in thousands):

	Nine Months Ended September 30,				Three Months Ended September 30,
	2012		2011		2012		2011
Income tax expense related to uncertain tax positions	$	595	$	640	$	168	$	210
Interest expense related to uncertain tax positions		159		185		54		63
Total income tax expense related to uncertain tax positions	$	754	$	825	$	222	$	273

The federal income tax returns for 2006 through 2009 and certain state returns for 2007 and 2008 are currently under various stages of audit by the applicable taxing authorities.  We received a Notice of Proposed Adjustment from the Internal Revenue Service (“IRS”) for tax years 2006 and 2007 of $7,114,000 (which includes $1,186,000 in penalties).  Interest will be assessed, and at this time it is estimated at approximately $1,812,000.  This issue, which relates to intercompany transfer pricing, has been sent to the IRS Appeal’s office for further consideration.  We do not believe that an additional tax accrual is required at this time.

In January 2012, we received a Notice of Proposed Adjustment for the 2008 tax year, also regarding intercompany transfer pricing.  The 2008 proposed adjustment is $251,000.  Interest will be assessed, and at this time it is estimated at approximately $37,000.  This issue has been sent to the IRS Appeal’s office for further consideration.  This will not create any additional financial statement impact due to the available U.S. tax losses that may be carried back from the 2010 tax year to the 2008 tax year.

Also in January 2012, we received a Notice of Proposed Adjustment for the 2009 tax year of $496,000 related to the gain on sale of certain Royal Elastics assets.  Interest will not be assessed as the adjustment will reduce our net operating loss for 2009.  We have agreed to this adjustment. The IRS did not propose an adjustment to our 2009 intercompany transfer pricing even though our intercompany transfer methodology has been the same during the 2006 to 2009 period.

We do not agree with the 2006 through 2008 adjustments and plan to vigorously defend our position.  The amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.  Our material tax jurisdiction is the United States.

The net loss for the nine months ended September 30, 2012 was $20,263,000, or $0.57 per diluted share, compared to a net loss of $45,286,000, or $1.28 per diluted share for the nine months ended September 30, 2011.  The net loss for the three months ended September 30, 2012 was $1,926,000, or $0.05 per diluted share, compared to a net loss of $15,418,000, or $0.43 per diluted share for the three months ended September 30, 2011.

Futures Orders

At September 30, 2012 and 2011, total futures orders with start ship dates from October 2012 and 2011 through March 2013 and 2012 were approximately $70,003,000 and $76,598,000, respectively, a decrease of 8.6%.  The 8.6% decrease in total futures orders is comprised of a 16.5% decrease in the fourth quarter 2012 futures orders and a 4.2% decrease in the first quarter 2013 futures orders.  At September 30, 2012 and 2011, domestic futures orders with start ship dates from October 2012 and 2011 through March 2013 and 2012 were approximately $21,556,000 and $26,494,000, respectively, a decrease of 18.6%.  At September 30, 2012 and 2011, international futures orders with start ship dates from October 2012 and 2011 through March 2013 and 2012 were approximately $48,447,000 and $50,104,000, respectively, a decrease of 3.3%.  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.

Liquidity and Capital Resources

We experienced net cash used in operating activities from continuing operations of $7,046,000 and $80,193,000 during the nine months ended September 30, 2012 and 2011, respectively.  The change in net cash used in operating activities for the nine months ended September 30, 2012 was due to the differences in the amounts of changes in inventories and accounts receivables and the decrease in net loss, offset by the differences in the amounts of changes in accounts payable and accrued liabilities, CPP and prepaid expenses and other current assets.  The change in inventory was due to the timing of sales to customers and purchases from suppliers and starting in 2012, a focus on improving our inventory management.  The change in accounts receivable was due to the timing of sales to customers and receipts from customers.  The change in accounts payable and accrued liabilities was due to the timing of payments to suppliers.  The change in prepaid expenses and other current assets were due to changes in forward contracts, premiums or discounts on investments available for sale and restricted investments available for sale, prepaid payments to vendors, prepaid insurance and loan origination fees.  The change in CPP is primarily due to the payment of $1,776,000 in July 2012 as a result of Amendment No. 3 to the Share Purchase and Shareholders’ Rights agreement which revised the terms of the remaining future purchase price for Palladium.  For additional details, see Note 12 to our Consolidated Financial Statements.

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We had net cash inflows from our investing activities of $22,970,000 and $56,493,000 for the nine months ended September 30, 2012 and 2011, respectively.  The change in cash inflows from investment activities was mainly due to the changes in proceeds from the maturity or sale of investments and restricted investments available for sale, offset by the change in restricted cash and cash equivalents and the change in purchase of investments and restricted investments available for sale.  The changes in restricted cash and cash equivalents, restricted investments available for sale and investments available for sale are due to the Company’s strategy to shift to higher yielding liquid investments or liquidation of investments into cash for operating activities.  For the nine months ended September 30, 2012, the restrictions on a significant amount of cash were released as a result of entering into a new loan facility in April 2012.

We had net cash outflows from our financing activities of $4,399,000 for the nine months ended September 30, 2012 compared to net cash inflows from our financing activities of $15,588,000 for the nine months ended September 30, 2011.  The change in cash flows from financing activities for the nine months ended September 30, 2012 compared to the same period of the prior year was due to a decrease in borrowings on our lines of credit and capital leases and an increase in net repayments on our lines of credit, long-term debt and capital leases.  For the nine months ended September 30, 2012, as a result of entering into a new loan facility in April 2012, we paid off our previous line of credit.

In November 2009, the Board of Directors approved a stock repurchase program to purchase through December 31, 2014 up to $70,000,000 of the Company’s Class A Common Stock.  As of September 30, 2012, $70,000,000 is remaining in this program.  We adopted the $70,000,000 program because we believed that depending upon the then-array of alternatives, repurchasing our shares could be a good use of excess cash.  We have made purchases under all stock repurchase programs from August 1996 through October 31, 2012 (the day prior to the filing of this Form 10-Q) of 25.5 million shares at an aggregate cost totaling approximately $166,759,000, at an average price of $6.55 per share.  See Part II – Other Information, Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

Our bank lines of credit, long-term debt, long-term capital leases and outstanding letters of credit were as follows (dollars and Euros in thousands):

	September 30, 2012		December 31, 2011
Bank Lines of Credit – Secured Variable Rate Lines of Credit with Financial Institutions:
Credit Facility of $35,000 at an interest rate of 4.50% at September 30, 2012, due April 23, 2016 (1)	$	0	$	0
Bank line of credit of $21,000 at an interest rate of 2.69% at December 31, 2011, due July 1, 2013 (2)		0		9,716
Facility of €4,000, or approximately $5,141, at September 30, 2012, at an interest rate of 0.98%, due December 31, 2012 and approximately $5,182, at December 31, 2011, at an interest rate of 2.13%, due December 31, 2012 (3)		5,323		0
Facilities of €1,200, or approximately $1,542, at September 30, 2012, at interest rates ranging from 1.42% to 2.60%, due December 31, 2012 and facilities of €1,000, or approximately $1,296, at December 31, 2011, at interest rates ranging from 2.56% to 3.12%, due December 31, 2011 (3) (4)		0		0
Total bank lines of credit		5,323		9,716
Secured Fixed Rate Term Loans with Financial Institutions of €800, or approximately $1,028, at September 30, 2012, at an interest rate of 5.42%, due February 2013 and €1,320, or approximately $1,710, at December 31, 2011, with interest rates ranging from 5.42% to 5.84%, due between February 2012 and February 2013 (3)		147		394
Accrued interest		1		4
Total long-term debt		148		398
Capital leases for information systems, with interest rates ranging from 2.01% to 5.05%, due between June 2014 and December 2016		221		0
Total bank lines of credit, long-term debt and long-term capital leases	$	5,692	$	10,114
Outstanding letters of credit, not included above	$	294	$	280

(1) Secured by all assets of K•Swiss Inc., K•Swiss Sales Corp. and K•Swiss Direct Inc.  The amount available to borrow on this line of credit at September 30, 2012 was $19,162.  See further discussion below.

(2) Fully secured by cash (or the Company’s restricted cash and cash equivalents and restricted investments available for sale, see Note 3).  This facility was fully paid off on April 25, 2012.  See further discussion below.

(3) These lines of credit are secured by Palladium’s assets including accounts receivable and/or intellectual property rights (i.e. trademarks), as well as Palladium common stock.

(4) These lines of credit are renewable every six months.

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On April 25, 2012, the Company and two of its subsidiaries, K•Swiss Sales Corp. and K•Swiss Direct Inc. (collectively with the Company, the “Borrowers”) entered into a Credit Agreement (the “Credit Facility”) with Wells Fargo Bank, National Association and Wells Fargo Capital Finance, LLC (collectively as “Wells Fargo” or the “Lenders”).  The Credit Facility consists of revolving loans of up to $35,000,000 (subject to the limitations described below) available in U.S. Dollars, Euro and Pound Sterling, and up to $5,000,000 of which may be drawn in the form of letters of credit.  The Credit Facility matures April 23, 2016.

Loans made under the Credit Facility bear interest at:

(1) the greatest of (i) the Federal Funds Rate plus 0.5%, (ii) the LIBOR Rate plus 1%, and (iii) Wells Fargo’s prime rate (the “Base Rate”); or

(2) the rate per annum appearing on Bloomberg L.P.’s Page BBAM1/Official BBA USD Dollar Libor Fixings two Business Days prior to the commencement of the requested Interest Period, for a term and in an amount comparable to the interest period and the amount requested (the “LIBOR Rate”); or

(3) for loans made in Euros or Pound Sterling, the LIBOR Rate;

plus, in each case, the “Applicable Margin.”

If the average use of the Credit Facility is less than 50% of the Maximum Revolver Amount (as defined below) during the previous fiscal quarter, the Applicable Margin is 1.25% for Base Rate loans, 2.25% for U.S. Dollar LIBOR Rate loans, and 3.00% for loans made in Euros or Pound Sterling.  If the average use of the Credit Facility is more than 50% of the Maximum Revolver Amount, the Applicable Margin is 1.50% for Base Rate loans, 2.50% for U.S. Dollar LIBOR Rate loans, and 3.25% for loans made in Euros or Pound Sterling.

The “Maximum Revolver Amount” is $35,000,000; provided that the amount of revolving loans and letters of credit under the Credit Facility may not exceed (a) 85% of Eligible Accounts (as defined in the Credit Facility) plus the lesser of (i) 85% of Eligible Accounts that are Extended Pay Accounts (as defined in the Credit Facility) and (ii) $1,500,000 (minus any dilution reserve), plus (b) the lesser of (i) $20,000,000 or (ii) an amount equal to (x) the lesser of (1) 65% of Eligible Inventory or (2) 85% of Net Recovery Percentage (each as defined in the Credit Facility), minus (y) a reserve of $3,500,000 and any other reserves established by Wells Fargo in its permitted discretion.

The financial covenants contained in the Credit Facility are as follows (in each case, with respect to the Company and its subsidiaries on a consolidated basis):

· We must achieve Minimum EBITDA specified in the Credit Facility for each month through November 30, 2013.

· We must maintain a Fixed Charge Coverage Ratio for each twelve month fiscal period, commencing for the fiscal period ending on December 31, 2013, of not less than 1.0:1.0.

· We must limit Capital Expenditures for each fiscal year to $2,400,000, except with the Lender’s consent.

These financial covenants apply on the date that Excess Availability (as defined in the Credit Facility) has fallen below 20% of the Maximum Revolver Amount and ends on the date that Excess Availability has been greater than 20% of the Maximum Revolver Amount for any period of thirty consecutive days thereafter.

Our obligations under the Credit Facility are guaranteed by four of the Company’s other domestic subsidiaries (the “Guarantors”) pursuant to a Guaranty and Security Agreement, dated April 25, 2012 (the “Guaranty and Security Agreement”).  Pursuant to the Guaranty and Security Agreement, the Borrowers and the Guarantors pledged substantially all of their respective assets as collateral security for the loans to be made pursuant to the Credit Facility.  The foreign subsidiaries of the Borrowers did not guaranty the Credit Facility or pledge any of their directly-owned assets.  We also granted a security interest in our real property to the Lenders, consisting of a deed of trust securing our corporate headquarters building.

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The Credit Facility contains other certain affirmative and negative covenants, as well as event of default provisions.  The affirmative covenants include certain reporting requirements, maintenance of properties, payment of taxes and insurance, compliance with laws, environmental compliance, and other provisions customary in such agreements.  Negative covenants limit or restrict, among other things, dividends, secured and unsecured indebtedness, mergers and fundamental changes, asset sales, investments and acquisitions, liens and encumbrances, transactions with affiliates, redemption distributions to former employees, officers or directors, and other matters customarily restricted in such agreements.

Wells Fargo and its affiliates are permitted to make loans to, issue letters of credit, accept deposits, provide Bank Products (as defined in the Credit Facility) to, acquire equity interests in, and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with us.

At September 30, 2012, the Company was in compliance with its covenants under the Credit Facility.

On April 25, 2012, we drew down approximately $9,924,000 under the Credit Facility to repay in full all indebtedness outstanding under our previous line of credit with Bank of America and to pay fees and expenses related to the Credit Facility.  We intend to utilize the Credit Facility for working capital, to issue letters of credit in connection with purchases of inventory and other general corporate purposes.

We anticipate future cash needs for repayments required pursuant to borrowings under our lines of credit facilities and term loans.  In addition, additional funds will be required by our operations if operating results continue to be weak.  No other material capital commitments exist at September 30, 2012.  With our new asset-based line of credit, we believe our present sources of capital are sufficient to sustain our anticipated capital needs for the next twelve months.  However, the negative cash flow we have sustained has reduced our working capital and continued negative cash flow would materially and negatively affect our ability to fund our operations.  While we have taken and continue to take actions intended to improve our results including implementing a major cost reduction program in which we reduced compensation costs, advertising and promotion costs and inventories, the availability of necessary working capital is subject to many factors beyond our control.  Such factors include, among others, our ability to increase revenues and to reduce our losses from operations, economic conditions, market acceptance of our products, the intensity of competition in our markets and the level of demand for our products.  Our present 2012 forecasted operating loss is estimated at approximately $30,000,000.  There is no assurance that this forecast can be achieved although we have already made significant decreases to operating expenses, as mentioned above, compared to last year and in line with our 2012 forecast.

Our working capital decreased $21,163,000 to $117,784,000 at September 30, 2012 from $138,947,000 at December 31, 2011.  Working capital decreased during the nine months ended September 30, 2012 mainly due to decreases in inventory, restricted cash and cash equivalents and restricted investments available for sale,  investments available for sale and prepaid expenses and other assets and increases in CPP, offset by increases in cash and cash equivalents and accounts receivable and decreases in trade accounts payable, bank lines of credit, and accrued liabilities.

Contractual Obligations

There have been no material changes to our contractual obligations in the nine months ended September 30, 2012, except for a reduction in bank debt as a result of the repayment of our outstanding indebtedness under our Bank of America line of credit.  No amounts were outstanding under our Credit Facility as of September 30, 2012.  For additional details regarding the changes to our debt, see Note 7 to our Consolidated Financial Statements.

Off-Balance Sheet Arrangements

We did not enter into any off-balance sheet arrangements during the nine and three months ended September 30, 2012 or 2011, nor did we have any off-balance sheet arrangements outstanding at September 30, 2012 or 2011.

Item 3.       Quantitative and Qualitative Disclosures About Market Risk

During the nine months ended September 30, 2012, 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, 2011.

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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 of 1934, as amended (“Exchange Act”)) as of September 30, 2012, 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, 2012 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 were identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) or 15d-15(d) during the three months ended September 30, 2012 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

Except as set forth below, 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, 2011, which Item 1A is hereby incorporated by reference.

If we continue to incur significant losses and are unable to access sufficient working capital from our operations or through external financings, our liquidity will be impaired.

We have incurred substantial net losses in each of the last three fiscal years. As reflected in our financial statements, we have experienced net losses of $70,471,000, $68,212,000 and $27,962,000 for the years ended December 31, 2011, 2010 and 2009, respectively. As a result the total amount of our cash and cash equivalents, restricted cash and cash equivalents and restricted investments available for sale, and investments available for sale declined from $207,423,000 at December 31, 2008 to $53,360,000 at December 31, 2011.  The negative cash flow we have sustained has reduced our working capital and continued negative cash flow would materially and negatively affect our ability to fund our operations. While we have taken and continue to take actions intended to improve our results, including implementing a major cost reduction program in which we reduced compensation costs, advertising and promotion costs and inventories, the availability of necessary working capital is subject to many factors beyond our control. Such factors include, among others, our ability to obtain additional financing, our ability to increase revenues and to reduce our losses from operations, economic conditions, market acceptance of our products, the intensity of competition in our markets and the level of demand for our products. In an effort to increase the amount of credit available to us, in April 2012, we replaced our credit facility with a $35,000,000 asset-based facility.  If we are unable to reduce our operating losses and significantly reduce our inventories, our liquidity would be impaired.

Restrictions imposed by the terms of our Credit Facility may limit our operating and financial flexibility.

On April 25, 2012, we entered into a new revolving credit facility (“Credit Facility”) with Wells Fargo Bank, National Association and Wells Fargo Capital Finance, LLC (collectively as “Wells Fargo”).  The Credit Facility, among other things, largely prevents us from incurring any additional indebtedness, limits capital expenditures and restricts dividends and stock repurchases.  The Credit Facility also provides for financial covenants, which include a minimum monthly EBITDA for each month through November 30, 2013 and a fixed charge coverage ratio for each twelve month fiscal period commencing for the fiscal period ending on December 31, 2013 which applies when the excess availability has fallen below a certain level.  In addition, our ability to access the Credit Facility will be affected by the amount and value of our assets which are used to determine the borrowing base under the Credit Facility.  The borrowing base is reduced by availability limits and reserves established by Wells Fargo pursuant to the terms of the Credit Facility.  As a result of the foregoing, our operation and financial flexibility may be limited, which may prevent us from engaging in transactions that might further our growth strategy or otherwise be considered beneficial to us.

26

The Credit Facility contains events of default that include failure to pay principal or interest when due, failure to comply with the covenants set forth in the Credit Facility, bankruptcy events, cross-defaults and judgments involving an aggregate amount of $1,000,000 or more and the occurrence of a change of control, in each case subject to the grace periods, qualifications and thresholds specified in the Credit Facility.  If the indebtedness under the Credit Facility were to be accelerated, we cannot be certain that we will have sufficient funds available to pay such indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all.  Any such acceleration could also result in a foreclosure on all or substantially all of our assets, which would have a negative impact on the value of our common stock and jeopardize our ability to continue as a going concern.

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

During the third quarter of 2012, the Company did not repurchase any shares of K•Swiss Class A Common Stock.  $70,000,000 remains available for repurchase under the Company’s repurchase program.

As discussed in Part I, Item 2, the Company’s Credit Facility limits the Company’s ability to pay dividends. Pursuant to the Credit Facility, the Company may pay a dividend provided that (i) no Event of Default (as defined in the Credit Facility) has occurred and is continuing or would result from the payment of the dividend, (ii) the aggregate dividend amount does not to exceed $3,000,000 per fiscal year, (iii) there will be Excess Availability (as defined in the Credit Facility) equal to or greater than $10,000,000 immediately after payment of the dividend, (iv) the Company remains in compliance with the financial covenants in the Credit Facility, after giving effect to the payment of the dividend, and (v) the Fixed Charge Coverage Ratio (as defined in the Credit Facility) for the most recent twelve month period ended prior to paying a dividend is greater than or equal to 1.0:1.0.

Item 3.       Defaults Upon Senior Securities

None.

Item 4.       Mine Safety Disclosures

Not Applicable.

Item 5.       Other Information

None.

Item 6.       Exhibits

3.1 Second 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 March 27, 2009)

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)

27

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. 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)

10.2 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)

10.3 K•Swiss Inc. 2009 Stock Incentive Plan (incorporated by reference to exhibit 99.1 to the Registrant’s Registration Statement on Form S-8 filed with the S.E.C. on May 22, 2009)

10.4 K•Swiss Inc. Employee Stock Option Agreement (Officers) Pursuant to the 2009 Stock Incentive Plan (incorporated by reference to exhibit 10.2 to the Registrant’s Form 8-K filed with the S.E.C. on May 22, 2009)

10.5 K•Swiss Inc. Non-Employee Director Stock Option Agreement Pursuant to the 2009 Stock Incentive Plan (incorporated by reference to exhibit 10.3 to the Registrant’s Form 8-K filed with the S.E.C. on May 22, 2009)

10.6 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)

10.7 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 year ended December 31, 1993)

10.8 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 year ended December 31, 1994)

10.9 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 year ended December 31, 1999)

10.10 Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated January 23, 2002 (incorporated by reference to exhibit 10 to the Registrant’s Form 10-Q for the quarter ended March 31, 2002)

10.11 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)

10.12 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)

10.13 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)

10.14 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)

10.15 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)

28

10.16 Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated December 31, 2007 (incorporated by reference to exhibit 10.15 to the Registrant’s Form 10-K for the year ended December 31, 2007)

10.17 Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated August 1, 2009 (incorporated by reference to exhibit 10.19 to the Registrant’s Form 10-Q for the quarter ended September 30, 2009)

10.18 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)

10.19 Employment Agreement between the Registrant and Steven B. Nichols dated as of December 22, 2010 (incorporated by reference to exhibit 10.1 to the Registrant’s Form 8-K filed with the S.E.C. on December 23, 2010)

10.20 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)

10.21 Amendment No. 2 to Lease Agreement entered into on March 11, 1997 between K•Swiss Inc. and Space Center Mira Loma, Inc. dated July 1, 2008 (incorporated by reference to exhibit 10.19 to the Registrant’s Form 10-Q for the quarter ended June 30, 2008)

10.22 Loan Agreement dated June 30, 2010, between K•Swiss Inc. and Bank of America, N.A. (incorporated by reference to exhibit 10.1 to the Registrant’s Form 8-K filed with the S.E.C. on July 2, 2010)

10.23 First Amendment to Loan Agreement dated April 18, 2011 between K•Swiss Inc., K•Swiss Sales Corp. and Bank of America, N.A. (incorporated by reference to exhibit 10.1 to the Registrant’s Form 8-K filed with the S.E.C. on April 21, 2011)

10.24 Second Amendment to Loan Agreement dated January 24, 2012 between K•Swiss Inc., K•Swiss Sales Corp. and Bank of America, N.A. (incorporated by reference to exhibit 10.1 to the Registrant’s Form 8-K filed with the S.E.C. on January 25, 2012)

10.25 K•Swiss Inc. Directors’ Deferred Compensation Plan effective December 31, 2007 (incorporated by reference to exhibit 10.24 to the Registrant’s Form 10-K for the year ended December 31, 2007)

10.26 Share Purchase and Shareholders’ Rights Agreement, dated as of May 16, 2008 by and among Christophe Mortemousque, Palladium SAS and K•Swiss Inc. (incorporated by reference to exhibit 10.1 to the Registrant’s Form 8-K filed with the S.E.C. on May 22, 2008)

10.27 Assignment and Assumption Agreement, dated as of March 28, 2008, by and between Palladium SAS and K•Swiss Inc. (incorporated by reference to exhibit 10.2 to the Registrant’s Form 8-K filed with the S.E.C. on May 22, 2008)

10.28 Amendment No. 1 to Share Purchase and Shareholders’ Rights Agreement, dated June 2, 2009 by and among Christophe Mortemousque, Palladium SAS and K•Swiss Inc. (incorporated by reference to exhibit 10.1 to the Registrant’s Form 8-K filed with the S.E.C. on June 4, 2009)

10.29 Amendment No. 2 to Share Purchase and Shareholders’ Rights Agreement, dated May 1, 2010 by and among Christophe Mortemousque, Palladium SAS and K•Swiss Inc. (incorporated by reference to exhibit 10.35 to the Registrant’s Form 10-Q for the quarter ended March 31, 2010)

10.30 Amendment No. 3 to Share Purchase and Shareholders’ Rights Agreement, dated July 9, 2012 by and among Christophe Mortemousque, Palladium SAS and K•Swiss Inc. (incorporated by reference to exhibit 10.1 to the Registrant’s Form 8-K filed with the S.E.C. on July 12, 2012)

29

10.31 Credit Agreement dated April 25, 2012 between K•Swiss Inc., K•Swiss Sales Corp. and K•Swiss Direct Inc. and Wells Fargo Bank, National Association and Wells Fargo Capital Finance, LLC (incorporated by reference to exhibit 10.1 to the Registrant’s Form 8-K filed with the S.E.C. on April 30, 2012)

10.32 Guaranty and Security Agreement, dated as of April 25, 2012, among the persons listed on the signature pages thereto as “Grantors” and those additional entities that thereafter become parties thereto by executing a Joinder thereto, and Wells Fargo Bank, National Association, in its capacity as administrative agent for the Lender Group and Bank Product Providers (incorporated by reference to exhibit 10.2 to the Registrant’s Form 8-K filed with the S.E.C. on April 30, 2012)

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

101.INS XBRL Instance Document*

101.SCH XBRL Taxonomy Extension Schema Document*

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB XBRL Taxonomy Extension Label Linkbase Document*

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*

* Pursuant to applicable securities laws and regulations, the Company is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Company has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fails to comply with the submission requirements.  Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability.

30

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 31, 2012		By:	/s/ George Powlick
			George Powlick,
			Vice President Finance, Chief Administrative
			Officer and Chief Financial Officer

31

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

101.INS XBRL Instance Document*

101.SCH XBRL Taxonomy Extension Schema Document*

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB XBRL Taxonomy Extension Label Linkbase Document*

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*

* Pursuant to applicable securities laws and regulations, the Company is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Company has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fails to comply with the submission requirements.  Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability.

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 31, 2012

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 31, 2012

By:       /s/      George Powlick                                                        

George Powlick

Vice President of Finance, Chief Administrative

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, 2012 fully complies with the requirements of Section 13(a) or 15(d) 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 31, 2012

/s/      Steven Nichols                                                                

Name: Steven Nichols

Title: President and Chief Executive Officer

/s/      George Powlick                                                                

Name: George Powlick

Title: Vice President of Finance, Chief Administrative

Officer and Chief Financial Officer

XML

Note 4 - Investments Available for Sale (Detail) - Unrealized Holding Gains (Losses) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2011
Gross unrealized holding gains	$ 2
Gross unrealized holding losses	$ 3

XML

Note 7 - Bank Lines of Credit and Other Debt (Detail) - Summary of Long-Term Capital Leases Outstanding (Parentheticals)	Sep. 30, 2012
Minimum [Member]
Capital Leases Interest Rate Minimum Maximum	2.01%
Capital Leases Maturity Date Minimum Maximum	Dec. 31, 2014
Maximum [Member]
Capital Leases Interest Rate Minimum Maximum	5.05%
Capital Leases Maturity Date Minimum Maximum	Dec. 31, 2016

XML

Note 7 - Bank Lines of Credit and Other Debt (Detail) - Summary of Bank Lines of Credit, Long-Term Debt, Long-Term Capital Leases and Outstanding Letters of Credit (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Bank lines of credit	$ 5,323	$ 9,716
Long-term debt	148	398
Long-term capital leases	221	0
Total bank lines of credit, long-term debt and long-term capital leases	5,692	10,114
Outstanding letters of credit, not included above	$ 294	$ 280

XML

Note 7 - Bank Lines of Credit and Other Debt (Detail) - Summary of Interest Expense Incurred on Bank Loans, Lines of Credit and Capital Leases (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Interest expense	$ 60	$ 106	$ 200	$ 177

XML

Note 6 - Financial Risk Management and Derivatives (Detail) - The Effect of the Company’s Derivatives on its Consolidated Statements of Earnings/Loss (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Foreign exchange contracts	$ (832)	$ 840	$ (537)	$ 61
Foreign exchange contracts	387	46	(150)	(78)
Foreign exchange contracts	$ (107)	$ 5	$ (55)	$ (20)

XML

Note 2 - Loss per Share (Detail) - Antidilutive Securities (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Options to purchase shares of common stock (in Shares)	3,771	1,712	3,771	1,480
Earliest [Member]
Expiration date range	December 2012	May 2012	December 2012	May 2012
Latest [Member]
Expiration date range	August 2022	September 2021	August 2022	August 2021
Minimum [Member]
Exercise price range	2.76	5.12	2.76	9.77
Maximum [Member]
Exercise price range	34.75	34.75	34.75	34.75

XML

Note 8 - Fair Value of Financial Instruments (Detail) - Assets and Liabilities Carried at Fair Value Measured on a Recurring Basis (USD $)	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Dec. 31, 2010
Forward exchange contracts – assets	$ 211,000		$ 1,321,000
Forward exchange contracts – liabilities	525,000		306,000
Contingent purchase price (“CPP”) – Palladium	1,909,000	3,702,000	3,739,000	3,886,000	4,148,000	3,689,000
Estimate of Fair Value, Fair Value Disclosure [Member]
Forward exchange contracts – assets	211,000
Forward exchange contracts – liabilities	525,000
Contingent purchase price (“CPP”) – Palladium	1,909,000
Fair Value, Inputs, Level 1 [Member]
Forward exchange contracts – assets	0
Forward exchange contracts – liabilities	0
Contingent purchase price (“CPP”) – Palladium	0
Fair Value, Inputs, Level 2 [Member]
Forward exchange contracts – assets	211,000
Forward exchange contracts – liabilities	525,000
Contingent purchase price (“CPP”) – Palladium	0
Fair Value, Inputs, Level 3 [Member]
Forward exchange contracts – assets	0
Forward exchange contracts – liabilities	0
Contingent purchase price (“CPP”) – Palladium	$ 1,909,000

XML

Note 6 - Financial Risk Management and Derivatives (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value [Table Text Block]

	Asset Derivatives					Liability Derivatives
	Balance Sheet	September 30, 2012		December 31, 2011		Balance Sheet	September 30, 2012		December 31, 2011
	Location	Fair Value		Fair Value		Location	Fair Value		Fair Value
Derivatives Designated as Hedging Instruments
Foreign exchange contracts	Prepaid expenses and other current assets	$	211	$	1,321	Accrued liabilities	$	525	$	306

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance [Table Text Block]

Derivatives in	Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings (“OCE”) on Derivative (Effective Portion)					Location of Gain/(Loss) Reclassified from OCE	Amount of Gain/(Loss) Reclassified from OCE into Income (Effective Portion)						Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount	Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Cash Flow Hedging	Nine Months Ended September 30,					into Income (Effective	Nine Months Ended September 30,						Excluded from Effectiveness	Nine Months Ended September 30,
Relationships	2012			2011		Portion)	2012			2011			Testing)	2012			2011
Foreign exchange contracts	$	(537	)	$	61	Cost of goods sold	$	(150	)	$	(78	)	Selling, general and administrative expenses	$	(55	)	$	(20	)

Derivatives in	Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings (“OCE”) on Derivative (Effective Portion)					Location of Gain/(Loss) Reclassified from OCE	Amount of Gain/(Loss) Reclassified from OCE into Income (Effective Portion)				Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount	Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Cash Flow Hedging	Three Months Ended September 30,					into Income (Effective	Three Months Ended September 30,				Excluded from Effectiveness	Three Months Ended September 30,
Relationships	2012			2011		Portion)	2012		2011		Testing)	2012			2011
Foreign exchange contracts	$	(832	)	$	840	Cost of goods sold	$	387	$	46	Selling, general and administrative expenses	$	(107	)	$	5

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Note 7 - Bank Lines of Credit and Other Debt (Detail) - Summary of Outstanding Bank Lines of Credit (Parentheticals)														9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended
	Apr. 23, 2016 USD ($)	Sep. 30, 2012 Euros [Member] BankLineOfCreditThree[Member] EUR (€)	Dec. 31, 2011 Euros [Member] BankLineOfCreditThree[Member] EUR (€)	Sep. 30, 2012 Euros [Member] Bank Line Of Credit Four [Member] EUR (€)	Dec. 31, 2011 Euros [Member] Bank Line Of Credit Four [Member] EUR (€)	Sep. 30, 2012 US Dollar [Member] BankLineOfCreditThree[Member] USD ($)	Dec. 31, 2011 US Dollar [Member] BankLineOfCreditThree[Member] USD ($)	Sep. 30, 2012 US Dollar [Member] Bank Line Of Credit Four [Member] USD ($)	Dec. 31, 2011 US Dollar [Member] Bank Line Of Credit Four [Member] USD ($)	Sep. 30, 2012 Minimum [Member] Bank Line Of Credit Four [Member]	Dec. 31, 2011 Minimum [Member] Bank Line Of Credit Four [Member]	Sep. 30, 2012 Maximum [Member] Bank Line Of Credit Four [Member]	Dec. 31, 2011 Maximum [Member] Bank Line Of Credit Four [Member]	Sep. 30, 2012 Bank Line Of Credit One [Member] USD ($)	Dec. 31, 2011 Bank Line Of Credit Two [Member] USD ($)	Sep. 30, 2012 BankLineOfCreditThree[Member]	Dec. 31, 2011 BankLineOfCreditThree[Member]	Sep. 30, 2012 Bank Line Of Credit Four [Member]	Dec. 31, 2011 Bank Line Of Credit Four [Member]
Bank and Facility Lines of Credit	$ 35,000,000	€ 4,000,000	€ 4,000,000	€ 1,200,000	€ 1,000,000	$ 5,141,000	$ 5,182,000	$ 1,542,000	$ 1,296,000					$ 35,000,000	$ 21,000,000
Bank and Facility Interest Rates														4.50%	2.69%	0.98%	2.13%
Bank and Facility Due Dates														Apr. 23, 2016	Jul. 01, 2013	Dec. 31, 2012	Dec. 31, 2012	Dec. 31, 2012	Dec. 31, 2011
Facilitiеs intеrеst ratе Minimum										1.42%	2.56%
Facilitiеs intеrеst ratе Maximum												2.60%	3.12%

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Note 5 - Intangible Assets (Detail) - Intangible Assets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011
Trademarks	$ 12,587		$ 12,569
Less accumulated amortization	(1,087)		(1,087)
Total intangible assets	$ 11,500	$ 11,433	$ 11,482

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Note 3 - Restricted Cash and Cash Equivalents and Restricted Investments Available for Sale (Detail) - Sales Of Restricted Investments (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Proceeds from sale of restricted investments	$ 2,015
Realized gain on sale of restricted investments	$ 3

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Note 7 - Bank Lines of Credit and Other Debt (Detail) - Summary of Long-Term Debt Outstanding (Parentheticals) In Thousands, unless otherwise specified					9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2012 Secured Fixed Rate Term Loans Borrowing Limits in Euros [Member] EUR (€)	Dec. 31, 2011 Secured Fixed Rate Term Loans Borrowing Limits in Euros [Member] EUR (€)	Sep. 30, 2012 Secured Fixed Rate Term Loans Borrowing Limits in US Dollars [Member] USD ($)	Dec. 31, 2011 Secured Fixed Rate Term Loans Borrowing Limits in US Dollars [Member] USD ($)	Sep. 30, 2012 Minimum [Member]	Dec. 31, 2011 Minimum [Member]	Sep. 30, 2012 Maximum [Member]	Dec. 31, 2011 Maximum [Member]
Secured Fixed Rate Term Loan Borrowing Capacity (in Dollars)	€ 800	€ 1,320	$ 1,028	$ 1,710
Secured Fixed Rate Term Loan Interest Rate Minimum					5.42%	5.42%
Secured Fixed Rate Term Loan Interest Rate Maximum							5.42%	5.84%
Secured Fixed Rate Term Loan Minimum Maturity Date					Feb. 28, 2013	Feb. 29, 2012
Secured Fixed Rate Term Loan Maximum Maturity Date							Feb. 28, 2013	Feb. 28, 2013

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Note 13 - Form Athletics (Detail) (USD $)	3 Months Ended
	Jun. 30, 2011
Goodwill And Other Impairment Charges	$ 3,689,000
Form Athletics [Member]
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability	$ (2,110,000)

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Note 10 - Segment Information (Detail)	9 Months Ended			3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012 Accounts Receivable Held By One Customer [Member]	Dec. 31, 2011 Accounts Receivable Held By One Customer [Member]	Sep. 30, 2012 Sales Revenue, Goods, Net [Member]	Sep. 30, 2011 Sales Revenue, Goods, Net [Member]	Sep. 30, 2012 Sales Revenue, Goods, Net [Member]	Sep. 30, 2011 Sales Revenue, Goods, Net [Member]
Number of Geographic Regions	3
Concentration Risk, Percentage				10.00%	10.00%	10.00%	10.00%
AR Concentration One Customer		9.00%	10.00%

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Note 7 - Bank Lines of Credit and Other Debt (Detail) (USD $)	6 Months Ended
	Dec. 31, 2012	Apr. 23, 2016	Sep. 30, 2012	Apr. 25, 2012
Line of Credit Facility, Remaining Borrowing Capacity (in Dollars)			$ 19,162
Line Of Credit Facility Maturity Term	6 months
Line of Credit Facility, Maximum Borrowing Capacity (in Dollars)		35,000,000
Letters Of Credit Maximum Borrowing Capacity (in Dollars)		5,000,000
Eligible Accounts Receivable Percentage		85.00%
Eligible Extended Pay Accounts Percentage		85.00%
Line Of Credit AR Limit Value (in Dollars)		1,500,000
Lineof Credit Inventory Value Ceiling (in Dollars)		20,000,000
Line Of Credit Facility Percentage Of Eligible Inventory		65.00%
Line Of Credit Facility Net Recovery Percentage		85.00%
Line Of Credit Inventory Reserve Amount (in Dollars)		3,500,000
Credit Facility Covenant Capital Expenditures (in Dollars)		2,400,000
Twenty Percent Of Line Of Credit Facility Maximum Borrowing Capacity		20.00%
Repayments On Lines Of Credit (in Dollars)				$ 9,924,000
Base Rate Loans [Member] | Line Of Credit Facility Less Than Fifty Percent Of Maximum Borrowing Capacity Member
Debt Instrument, Interest Rate, Stated Percentage		1.25%
Base Rate Loans [Member] | Line Of Credit Facility Greater Than Fifty Percent Of Maximum Borrowing Capacity Member
Debt Instrument, Interest Rate, Stated Percentage		1.50%
LIBOR Rate [Member] | Line Of Credit Facility Less Than Fifty Percent Of Maximum Borrowing Capacity Member
Debt Instrument, Interest Rate, Stated Percentage		2.25%
LIBOR Rate [Member] | Line Of Credit Facility Greater Than Fifty Percent Of Maximum Borrowing Capacity Member
Debt Instrument, Interest Rate, Stated Percentage		2.50%
Euros Or Pound Sterling Rate [Member] | Line Of Credit Facility Less Than Fifty Percent Of Maximum Borrowing Capacity Member
Debt Instrument, Interest Rate, Stated Percentage		3.00%
Euros Or Pound Sterling Rate [Member] | Line Of Credit Facility Greater Than Fifty Percent Of Maximum Borrowing Capacity Member
Debt Instrument, Interest Rate, Stated Percentage		3.25%
Line Of Credit Facility Less Than Fifty Percent Of Maximum Borrowing Capacity Member
Fifty Percent Of Line Of Credit Facility Maximum Borrowing Capacity		50.00%
Line Of Credit Facility Greater Than Fifty Percent Of Maximum Borrowing Capacity Member
Fifty Percent Of Line Of Credit Facility Maximum Borrowing Capacity		50.00%
Federal Funds Rate [Member]
Debt Instrument, Basis Spread on Variable Rate		0.50%
LIBOR [Member]
Debt Instrument, Basis Spread on Variable Rate		1.00%

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Note 3 - Restricted Cash and Cash Equivalents and Restricted Investments Available for Sale

9 Months Ended

Sep. 30, 2012

Restricted Cash And Investments Current Item Description [Text Block]

3.             Restricted Cash and Cash Equivalents and Restricted Investments Available for Sale

At September 30, 2012, the Company collateralized certain operational bank accounts at Bank of America and at December 31, 2011, the Company collateralized its Bank of America line of credit with the following (in thousands):

	September 30, 2012		December 31, 2011
Restricted cash and cash equivalents	$	200	$	13,449
Restricted investments available for sale:
U.S. Treasury Notes		0		5,007
Corporate Notes and Bonds		0		4,062
Accrued interest income		0		84
Total restricted investments available for sale		0		9,153
Total restricted cash and cash equivalents and restricted investments available for sale	$	200	$	22,602

The restricted investments were classified as available for sale and were stated at fair value. The Company capitalized any premiums paid or discounts received and amortized the premiums or accreted the discounts on a straight-line basis over the remaining term of the security. Gross unrealized holding gains and losses were as follows (in thousands):

	September 30, 2011
Gross unrealized holding gains	$	18
Gross unrealized holding losses		5

The change in comprehensive income was as follows (in thousands):

	Nine Months Ended September 30,						Three Months Ended September 30,
	2012			2011			2012		2011
Decrease in comprehensive income	$	(3	)	$	(25	)	$	0	$	(12	)

The Company received proceeds from the sale of restricted investments available for sale and realized gain on sale as follows (in thousands):

	Nine Months Ended September 30, 2012
Proceeds from sale of restricted investments	$	2,015
Realized gain on sale of restricted investments		3

There were no sales of restricted investments available for sale during the three months ended September 30, 2012 and during the nine and three months ended September 30, 2011.  Realized gains and losses are recognized using the actual cost of the investment.

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Note 10 - Segment Information (Detail) - Summary of Segment Reporting (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011		Sep. 30, 2012		Sep. 30, 2011
Revenues from unrelated entities (1):
Revenues	$ 67,551	[1]	$ 80,456	[1]	$ 181,621	[1]	$ 218,194	[1]
Inter-geographic revenues:
Inter-geographic revenues	(1,305)		(1,670)		(4,954)		(5,816)
Total revenues:
Less inter-geographic revenues	(1,305)		(1,670)		(4,954)		(5,816)
Operating (loss)/profit:
Operating (loss)/profit	(1,763)		(13,532)		(18,187)		(40,839)
United States [Member]
Revenues from unrelated entities (1):
Revenues from unrelated entities	22,301	[1]	32,676	[1]	61,861	[1]	96,360	[1]
Inter-geographic revenues:
Inter-geographic revenues	1,226		1,646		4,783		4,210
Total revenues:
Total revenues	23,527		34,322		66,644		100,570
Less inter-geographic revenues	1,226		1,646		4,783		4,210
Operating (loss)/profit:
Operating (loss)/profit	(3,223)		(12,841)		(15,755)		(29,074)
EMEA [Member]
Revenues from unrelated entities (1):
Revenues from unrelated entities	28,660	[1]	32,048	[1]	73,524	[1]	74,772	[1]
Inter-geographic revenues:
Inter-geographic revenues	21		(5)		47		1,441
Total revenues:
Total revenues	28,681		32,043		73,571		76,213
Less inter-geographic revenues	21		(5)		47		1,441
Operating (loss)/profit:
Operating (loss)/profit	2,509		(677)		1,288		(9,534)
Other International [Member]
Revenues from unrelated entities (1):
Revenues from unrelated entities	16,590	[1]	15,732	[1]	46,236	[1]	47,062	[1]
Inter-geographic revenues:
Inter-geographic revenues	58		29		124		165
Total revenues:
Total revenues	16,648		15,761		46,360		47,227
Less inter-geographic revenues	58		29		124		165
Operating (loss)/profit:
Operating (loss)/profit	1,601		1,754		3,839		7,076
Inter Geographic Revenues [Member]
Inter-geographic revenues:
Inter-geographic revenues	1,305		1,670		4,954		5,816
Total revenues:
Less inter-geographic revenues	1,305		1,670		4,954		5,816
Corporate Expenses [Member]
Operating (loss)/profit:
Operating (loss)/profit	(2,924)	[2]	(3,114)	[2]	(8,695)	[2]	(10,782)	[2]
Intersegment Elimination [Member]
Operating (loss)/profit:
Operating (loss)/profit	$ 274		$ 1,346		$ 1,136		$ 1,475

[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 and legal which benefit the entire Company and are not segment/region specific. Corporate expenses for the nine and three months ended September 30, 2012 decreased as a result of decreases in compensation and data processing expenses and, in addition, for the nine months ended September 30, 2012, a decrease in legal expenses. The decrease in compensation expenses, which includes bonus/incentive related expenses and employee recruiting and relocation expenses, resulted from a reduction in salary related expenses, stock option compensation expenses and interest expense related to the Company's deferred compensation plan which was terminated in October 2011. The decrease in data processing expenses was a result of decreases in on-going maintenance expenses. The decrease in legal expenses was a result of decreases in expenses incurred to defend the Company's trademarks.

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Note 5 - Intangible Assets (Detail) - Change in the Carrying Amount of Intangible Assets (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Sep. 30, 2011
Beginning Balance	$ 11,433	$ 11,482
Ending Balance	11,500	11,500
Trademarks acquired	35	35	0
Foreign currency translation effects	$ 32	$ (17)

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Note 10 - Segment Information (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Nine Months Ended September 30,						Three Months Ended September 30,
	2012			2011			2012			2011
Revenues from unrelated entities (1):
United States	$	61,861		$	96,360		$	22,301		$	32,676
EMEA		73,524			74,772			28,660			32,048
Other International		46,236			47,062			16,590			15,732
Total revenues from unrelated entities	$	181,621		$	218,194		$	67,551		$	80,456
Inter-geographic revenues:
United States	$	4,783		$	4,210		$	1,226		$	1,646
EMEA		47			1,441			21			(5	)
Other International		124			165			58			29
Total inter-geographic revenues	$	4,954		$	5,816		$	1,305		$	1,670
Total revenues:
United States	$	66,644		$	100,570		$	23,527		$	34,322
EMEA		73,571			76,213			28,681			32,043
Other International		46,360			47,227			16,648			15,761
Less inter-geographic revenues		(4,954	)		(5,816	)		(1,305	)		(1,670	)
Total revenues	$	181,621		$	218,194		$	67,551		$	80,456
Operating (loss)/profit:
United States	$	(15,755	)	$	(29,074	)	$	(3,223	)	$	(12,841	)
EMEA		1,288			(9,534	)		2,509			(677	)
Other International		3,839			7,076			1,601			1,754
Less corporate expenses (2)		(8,695	)		(10,782	)		(2,924	)		(3,114	)
Eliminations		1,136			1,475			274			1,346
Total operating loss	$	(18,187	)	$	(40,839	)	$	(1,763	)	$	(13,532	)

Schedule of Disclosure on Geographic Areas, Long-Lived Assets in Individual Foreign Countries by Country [Table Text Block]

	September 30, 2012		December 31, 2011
Long-lived assets (3):
United States	$	15,147	$	16,719
EMEA		1,604		1,519
Other International		1,345		1,355
Total long-lived assets	$	18,096	$	19,593

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Note 9 - Income Taxes (Tables)

9 Months Ended

Sep. 30, 2012

Income Tax Expense [Table Text Block]

	Nine Months Ended September 30,				Three Months Ended September 30,
	2012		2011		2012		2011
Income tax expense	$	2,014	$	1,904	$	144	$	342

Uncertain Income Tax Expense [Table Text Block]

	Nine Months Ended September 30,				Three Months Ended September 30,
	2012		2011		2012		2011
Income tax expense related to uncertain tax positions	$	595	$	640	$	168	$	210
Interest expense related to uncertain tax positions		159		185		54		63
Total income tax expense related to uncertain tax positions	$	754	$	825	$	222	$	273

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Note 8 - Fair Value of Financial Instruments (Detail)	Sep. 30, 2012 USD ($)	Jun. 30, 2012 USD ($)	Dec. 31, 2011 USD ($)	Sep. 30, 2011 USD ($)	Jun. 30, 2011 USD ($)	Dec. 31, 2010 USD ($)	Dec. 31, 2012 Contingent Purchase Price Original Minimum [Member] EUR (€)	Dec. 31, 2012 Contingent Purchase Price Additional Minimum [Member] EUR (€)
Business Acquisition, Contingent Consideration, Potential Cash Payment	$ 1,909,000	$ 3,702,000	$ 3,739,000	$ 3,886,000	$ 4,148,000	$ 3,689,000	€ 1,500,000	€ 500,000

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Note 6 - Financial Risk Management and Derivatives (Detail) (USD $)	Sep. 30, 2012
Notional Amount of Cash Flow Hedge Instruments	$ 27,802,000
Contract to Sell Foreign Currencies [Member]
Notional Amount of Cash Flow Hedge Instruments	4,002,000
Contract to Buy Foreign Currencies [Member]
Notional Amount of Cash Flow Hedge Instruments	$ 23,800,000

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Note 12 - Palladium Contingent Purchase Price (Tables)

9 Months Ended

Sep. 30, 2012

Change In Contingent Purchase Price [Table Text Block]

	Nine Months Ended September 30,					Three Months Ended September 30,
	2012			2011		2012			2011
Beginning balance	$	3,739		$	3,689	$	3,702		$	4,148
Payment		(1,776	)		0		(1,776	)		0
Change in net present value of the CPP		(54	)		197		(17	)		(262	)
Ending balance	$	1,909		$	3,886	$	1,909		$	3,886

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Note 13 - Form Athletics (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Contingent Consideration on Form Athletics [Table Text Block]

	Nine Months Ended September 30,
	2011
Beginning balance	$	2,110
Change in net present value of the Form CPP		(2,110	)
Ending balance	$	0

Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures [Table Text Block]

	Nine Months Ended September 30, 2011			Three Months Ended September 30, 2011
Revenues	$	555		$	131
Cost of goods sold		905			558
Gross loss		(350	)		(427	)
Selling, general and administrative expenses		3,709			1,359
Impairment on intangibles and goodwill		3,689			0
Operating loss		(7,748	)		(1,786	)
Interest income, net		2,110			0
Net loss from discontinued operations	$	(5,638	)	$	(1,786	)

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Note 2 - Loss per Share

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Text Block]

2.             Loss per Share

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

	Nine Months Ended September 30,										Three Months Ended September 30,
	2012					2011					2012					2011
	Shares		Per Share Amount			Shares		Per Share Amount			Shares		Per Share Amount			Shares		Per Share Amount
Basic EPS		35,601	$	(0.57	)		35,480	$	(1.28	)		35,601	$	(0.05	)		35,572	$	(0.43	)
Effect of Dilutive Stock Options		0		0.00			0		0.00			0		0.00			0		0.00
Diluted EPS		35,601	$	(0.57	)		35,480	$	(1.28	)		35,601	$	(0.05	)		35,572	$	(0.43	)

Because the Company had a net loss for the nine and three months ended September 30, 2012 and 2011, the number of diluted shares is equal to the number of basic shares at September 30, 2012 and 2011. Outstanding stock options would have had an anti-dilutive effect on diluted EPS for the nine and three months ended September 30, 2012 and 2011. Outstanding stock options with either exercise prices or unrecognized compensation cost per share greater than the average market price of a share of the Company’s common stock also have an anti-dilutive effect on diluted EPS and were as follows (shares in thousands):

	Nine Months Ended September 30,				Three Months Ended September 30,
	2012		2011		2012		2011
Options to purchase shares of common stock		3,771		1,480		3,771		1,712
Exercise price range
Low	$	2.76	$	9.77	$	2.76	$	5.12
High	$	34.75	$	34.75	$	34.75	$	34.75
Expiration date range
Earliest	December 2012		May 2012		December 2012		May 2012
Latest	August 2022		August 2021		August 2022		September 2021

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Note 2 - Loss per Share (Detail) - Earnings (Loss) Per Share (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Basic EPS	35,601	35,572	35,601	35,480
Basic EPS (in Dollars per share)	$ (0.05)	$ (0.43)	$ (0.57)	$ (1.28)
Effect of Dilutive Stock Options	0	0	0	0
Effect of Dilutive Stock Options (in Dollars per share)	$ 0.00	$ 0.00	$ 0.00	$ 0.00
Diluted EPS	35,601	35,572	35,601	35,480
Diluted EPS (in Dollars per share)	$ (0.05)	$ (0.43)	$ (0.57)	$ (1.28)

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Note 4 - Investments Available for Sale (Detail) - The Change in Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Increase/(decrease) in comprehensive income	$ 0	$ (16)	$ 1	$ (61)

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Note 7 - Bank Lines of Credit and Other Debt (Detail) - Summary of Long-Term Capital Leases Outstanding (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Capital leases for information systems, with interest rates ranging from 2.01% to 5.05%, due between June 2014 and December 2016	$ 221	$ 0
Current portion of long-term capital leases	82	0
Long-term capital leases	139	0
Leased property – Information systems, net	$ 273

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Consolidated Balance Sheets (Dollar amounts in thousands) (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
CURRENT ASSETS
Cash and cash equivalents	$ 39,851		$ 28,701
Restricted cash and cash equivalents and restricted investments available for sale (Note 3)	200		22,602
Investments available for sale (Note 4)	0		2,057
Accounts receivable, less allowance for doubtful accounts of $1,771 and $1,678 at September 30, 2012 and December 31, 2011, respectively	39,066		31,449
Inventories, net	65,870		90,380
Prepaid expenses and other current assets	3,671		4,927
Income taxes receivable (Note 9)	0		770
Total current assets	148,658		180,886
PROPERTY, PLANT AND EQUIPMENT, net (Note 10)	18,096	[1]	19,593	[1]
OTHER ASSETS
Intangible assets (Note 5)	11,500		11,482
Deferred income taxes (Note 9)	2,043		2,914
Other	4,966		4,736
Total other assets	18,509		19,132
Total assets	185,263		219,611
CURRENT LIABILITIES
Bank lines of credit (Note 7)	5,323		9,716
Current portion of long-term debt (Note 7)	148		250
Current portion of long-term capital leases (Note 7)	82		0
Trade accounts payable	11,606		18,101
Accrued income taxes payable	44		372
Current portion of contingent purchase price (Note 12)	1,909		0
Accrued liabilities	11,762		13,500
Total current liabilities	30,874		41,939
OTHER LIABILITIES
Long-term debt (Note 7)	0		148
Long-term capital leases (Note 7)	139		0
Contingent purchase price (Notes 12 and 13)	0		3,739
Other liabilities	8,549		7,816
Total other liabilities	8,688		11,703
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred Stock - authorized 2,000,000 shares of $0.01 par value; none issued and outstanding	0		0
Additional paid-in capital	71,773		70,975
Treasury Stock	(58,190)		(58,190)
Retained earnings	129,440		149,703
Foreign currency translation	2,024		2,288
Net unrealized gain on hedge derivatives (Note 6)	274		811
Net unrealized gain on investments available for sale and restricted investments available for sale (Notes 3 and 4)	0		2
Total stockholders’ equity	145,701		165,969
Total liabilities and stockholders’ equity	185,263		219,611
Common Class A [Member]
STOCKHOLDERS’ EQUITY
Share Value	300		300
Common Class B [Member]
STOCKHOLDERS’ EQUITY
Share Value	$ 80		$ 80

[1] Long-lived assets consist of property, plant and equipment, net.

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Note 6 - Financial Risk Management and Derivatives (Detail) - The Fair Value of the Company’s Derivatives (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Foreign exchange contracts	$ 211	$ 1,321
Foreign exchange contracts	$ 525	$ 306

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Consolidated Statements of Cash Flows (Dollar amounts in thousands) (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities:
Net loss from continuing operations	$ (20,263)	$ (39,648)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation/amortization	2,761	2,694
Change in contingent purchase price	(1,830)	198
Net loss on disposal of property, plant and equipment	25	33
Deferred income taxes	851	133
Stock-based compensation	796	1,319
Increase in accounts receivable	(7,616)	(19,175)
Decrease/(Increase) in inventories	25,376	(27,564)
Decrease in income taxes receivable	770	770
Decrease in prepaid expenses and other assets	131	1,933
Decrease in accounts payable and accrued liabilities	(8,047)	(886)
Net cash used in operating activities from continuing operations	(7,046)	(80,193)
Net cash used in discontinued operations	0	(3,797)
Net cash used in operating activities	(7,046)	(83,990)
Cash flows from investing activities:
Change in restricted cash and cash equivalents	13,249	(5,643)
Purchase of investments available for sale and restricted investments available for sale	0	(6,310)
Proceeds from the maturity or sale of available for sale securities and restricted investments available for sale	11,028	70,666
Purchase of intangible assets	(35)	0
Purchase of property, plant and equipment	(1,276)	(2,261)
Proceeds from disposal of property, plant and equipment	4	41
Net cash provided by investing activities	22,970	56,493
Cash flows from financing activities:
Borrowings under bank lines of credit and capital leases	17,863	31,057
Repayments on bank lines of credit, long-term debt and capital leases	(22,264)	(16,528)
Proceeds from stock options exercised	2	1,059
Net cash (used in)/provided by financing activities	(4,399)	15,588
Effect of exchange rate changes on cash	(375)	164
Net increase/(decrease) in cash and cash equivalents	11,150	(11,745)
Cash and cash equivalents at beginning of period	28,701	49,164
Cash and cash equivalents at end of period	39,851	37,419
Cash paid during the period for:
Interest	135	181
Income taxes	$ 715	$ 572

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Note 9 - Income Taxes (Detail) - Income Tax Expense (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income tax expense	$ 144	$ 342	$ 2,014	$ 1,904

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Note 3 - Restricted Cash and Cash Equivalents and Restricted Investments Available for Sale (Detail) - Gross Unrealized Holding Gains And Losses (USD $) In Thousands, unless otherwise specified	Sep. 30, 2011
Gross unrealized holding gains	$ 18
Gross unrealized holding losses	$ 5

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Note 12 - Palladium Contingent Purchase Price (Detail)	3 Months Ended		9 Months Ended								0 Months Ended
	Sep. 30, 2012 USD ($)	Sep. 30, 2011 USD ($)	Sep. 30, 2012 USD ($)	Sep. 30, 2011 USD ($)	Jun. 30, 2012 USD ($)	Dec. 31, 2011 USD ($)	Jun. 30, 2011 USD ($)	Dec. 31, 2010 USD ($)	Dec. 31, 2012 Contingent Purchase Price Amended Minimum [Member] EUR (€)	Dec. 31, 2012 Contingent Purchase Price Additional Minimum [Member] EUR (€)	Jul. 12, 2012 Contingent Purchase Price Payment Euros [Member] EUR (€)	Jul. 12, 2012 Contingent Purchase Price Payment US Dollar [Member] USD ($)
Business Acquisition, Contingent Consideration, Potential Cash Payment	$ 1,909,000	$ 3,886,000	$ 1,909,000	$ 3,886,000	$ 3,702,000	$ 3,739,000	$ 4,148,000	$ 3,689,000	€ 1,500,000	€ 500,000
Business Acquisition Contingent Consideration Payment	$ 1,776,000	$ 0	$ 1,776,000	$ 0							€ 1,443,000	$ 1,776,000

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Note 3 - Restricted Cash and Cash Equivalents and Restricted Investments Available for Sale (Tables)

9 Months Ended

Sep. 30, 2012

Restricted Cash And Investments Current Item Description [Table Text Block]

	September 30, 2012		December 31, 2011
Restricted cash and cash equivalents	$	200	$	13,449
Restricted investments available for sale:
U.S. Treasury Notes		0		5,007
Corporate Notes and Bonds		0		4,062
Accrued interest income		0		84
Total restricted investments available for sale		0		9,153
Total restricted cash and cash equivalents and restricted investments available for sale	$	200	$	22,602

Unrealized Gain Loss On Restricted Investments [Table Text Block]

	September 30, 2011
Gross unrealized holding gains	$	18
Gross unrealized holding losses		5

Schedule Of Comprehensive Income Loss Restricted Investments [Table Text Block]

	Nine Months Ended September 30,						Three Months Ended September 30,
	2012			2011			2012		2011
Decrease in comprehensive income	$	(3	)	$	(25	)	$	0	$	(12	)

Realized Gains And Proceeds From Sale Of Restricted Investments [Table Text Block]

	Nine Months Ended September 30, 2012
Proceeds from sale of restricted investments	$	2,015
Realized gain on sale of restricted investments		3

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Note 3 - Restricted Cash and Cash Equivalents and Restricted Investments Available for Sale (Detail) - Change In Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Decrease in comprehensive income	$ 0	$ (12)	$ (3)	$ (25)

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Note 5 - Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Indefinite-Lived Intangible Assets [Table Text Block]

	September 30, 2012			December 31, 2011
Trademarks	$	12,587		$	12,569
Less accumulated amortization		(1,087	)		(1,087	)
Total intangible assets	$	11,500		$	11,482

Change In Carrying Value Of Intangible Assets

	Nine Months Ended September 30, 2012			Three Months Ended September 30, 2012
Beginning Balance	$	11,482		$	11,433
Trademarks acquired		35			35
Foreign currency translation effects		(17	)		32
Ending Balance	$	11,500		$	11,500

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Note 13 - Form Athletics (Detail) - Change in the Form Athletics Contingent Purchase Price (USD $)			9 Months Ended
	Sep. 30, 2011	Dec. 31, 2010	Sep. 30, 2011 Form Athletics [Member]
Beginning balance	$ 0	$ 2,110,000
Change in net present value of the Form CPP			(2,110,000)
Ending balance	$ 0	$ 2,110,000

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Note 1 - Basis of Presentation

9 Months Ended

Sep. 30, 2012

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

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 notes 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, 2012 and the results of its operations and its cash flows for the nine and three months ended September 30, 2012 and 2011 have been included for the periods presented.  The results of operations and cash flows for the nine and three months ended September 30, 2012 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, 2011 has been derived from the audited financial statements at that date but does not include all the information and notes 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, 2011, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

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Consolidated Balance Sheets (Dollar amounts in thousands) (Unaudited) (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Allowance for doubtful accounts (in Dollars)	$ 1,771	$ 1,678
Preferred Stock – authorized shares	2,000,000	2,000,000
Preferred Stock – par value (in Dollars per share)	$ 0.01	$ 0.01
Preferred Stock – shares issued	0	0
Preferred Stock – shares outstanding	0	0
Common Class A [Member]
Authorized Shares	90,000,000	90,000,000
Par Value (in Dollars per share)	$ 0.01	$ 0.01
Shares Issued	29,984,255	29,982,254
Shares Outstanding	27,562,638	27,560,637
Class A – shares held in treasury	2,421,617	2,421,617
Common Class B [Member]
Authorized Shares	18,000,000	18,000,000
Par Value (in Dollars per share)	$ 0.01	$ 0.01
Shares Issued	8,039,524	8,039,524
Shares Outstanding	8,039,524	8,039,524

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Note 11 - Other Income/Expense

9 Months Ended

Sep. 30, 2012

Other Income and Other Expense Disclosure [Text Block]

11.          Other Income/Expense

During the nine months ended September 30, 2011, the Company and one of its international distributors entered into a mutual settlement and termination agreement in which the Company agreed to an early termination of this distributor’s contracts for $3,000,000.  The contracts with this distributor were terminated as a result of this distributor not performing in accordance with their contracts, and there was no litigation.  The loss of this distributor did not have a significant impact on the Company’s revenues or gross margin.  The Company is in the process of securing another distributor for this region.

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Document And Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 31, 2012 Common Class A [Member]	Oct. 31, 2012 Common Class B [Member]
Entity Registrant Name	K SWISS INC
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		27,567,971	8,039,524
Amendment Flag	false
Entity Central Index Key	0000862480
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

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Note 12 - Palladium Contingent Purchase Price

9 Months Ended

Sep. 30, 2012

Contingent Purchase Price Disclosure Text Box

12.          Palladium Contingent Purchase Price

The change in the CPP for the nine and three months ended September 30, 2012 and 2011 was as follows (in thousands):

	Nine Months Ended September 30,					Three Months Ended September 30,
	2012			2011		2012			2011
Beginning balance	$	3,739		$	3,689	$	3,702		$	4,148
Payment		(1,776	)		0		(1,776	)		0
Change in net present value of the CPP		(54	)		197		(17	)		(262	)
Ending balance	$	1,909		$	3,886	$	1,909		$	3,886

On July 9, 2012, the Company entered into Amendment No. 3 to the Share Purchase and Shareholders’ Rights Agreement which required an upfront payment and revised the terms of the remaining future purchase price for Palladium payable in 2013 to be equal to €1,500,000 plus up to €500,000 based on an amount calculated in accordance with a formula driven by Palladium’s EBITDA for the twelve months ended December 31, 2012.  As a result, on July 12, 2012, the Company made a payment of €1,443,000, or $1,776,000.

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Consolidated Statements of Earnings/Loss and Comprehensive Earnings/Loss (Dollar amounts in thousands Shares in thousands, except per share amounts) (Unaudited) (USD $) Share data in Thousands, except Per Share data, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011		Sep. 30, 2012		Sep. 30, 2011
Revenues (Note 10)	$ 67,551,000	[1]	$ 80,456,000	[1]	$ 181,621,000	[1]	$ 218,194,000	[1]
Cost of goods sold	43,509,000		51,631,000		117,777,000		138,413,000
Gross profit	24,042,000		28,825,000		63,844,000		79,781,000
Selling, general and administrative expenses	25,805,000		42,357,000		82,031,000		120,620,000
Operating loss (Note 10)	(1,763,000)		(13,532,000)		(18,187,000)		(40,839,000)
Other income (Note 11)	0		0		0		3,000,000
Interest (expense)/income, net	(19,000)		242,000		(62,000)		95,000
Loss before income taxes and discontinued operations	(1,782,000)		(13,290,000)		(18,249,000)		(37,744,000)
Income tax expense (Note 9)	144,000		342,000		2,014,000		1,904,000
Loss from continuing operations	(1,926,000)		(13,632,000)		(20,263,000)		(39,648,000)
Loss from discontinued operations, less applicable income taxes of $0 and $0 for the nine and three months ended September 30, 2011, respectively (Note 13)	0		(1,786,000)		0		(5,638,000)
Net Loss	(1,926,000)		(15,418,000)		(20,263,000)		(45,286,000)
Basic:
Loss from continuing operations (in Dollars per share)	$ (0.05)		$ (0.38)		$ (0.57)		$ (1.12)
Loss from discontinued operations (in Dollars per share)	$ 0.00		$ (0.05)		$ 0.00		$ (0.16)
Net Loss (in Dollars per share)	$ (0.05)		$ (0.43)		$ (0.57)		$ (1.28)
Diluted:
Loss from continuing operations (in Dollars per share)	$ (0.05)		$ (0.38)		$ (0.57)		$ (1.12)
Loss from discontinued operations (in Dollars per share)	$ 0.00		$ (0.05)		$ 0.00		$ (0.16)
Net Loss (in Dollars per share)	$ (0.05)		$ (0.43)		$ (0.57)		$ (1.28)
Weighted average number of shares outstanding (Note 2)
Basic (in Shares)	35,601		35,572		35,601		35,480
Diluted (in Shares)	35,601		35,572		35,601		35,480
Dividends declared per common share (in Dollars per share)	$ 0		$ 0		$ 0		$ 0
Net Loss	(1,926,000)		(15,418,000)		(20,263,000)		(45,286,000)
Other Comprehensive (Loss)/Earnings, net of tax:
Foreign currency translation adjustments, net of income taxes of $0 and $0 for the nine months ended September 30, 2012 and 2011, respectively, and net of income taxes of $0 and $0 for the three months ended September 30, 2012 and 2011, respectively	803,000		(2,948,000)		(264,000)		388,000
Change in deferred (loss)/gain on hedge derivatives, net of income taxes of $0 and $0 for the nine months ended September 30, 2012 and 2011, respectively, and net of income taxes of $0 and $0 for the three months ended September 30, 2012 and 2011, respectively	(832,000)		840,000		(537,000)		61,000
Change in deferred loss on investments available for sale and restricted investments available for sale, net of income tax benefit of $(1) and $(44) for the nine months ended September 30, 2012 and 2011, respectively, and net of income tax benefit of $0 and $(14) for the three months ended September 30, 2012 and 2011, respectively	0		(28,000)		(2,000)		(86,000)
Comprehensive Loss	$ (1,955,000)		$ (17,554,000)		$ (21,066,000)		$ (44,923,000)

[1] Revenue is attributable to geographic regions based on the location of the Company's subsidiaries.

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Note 6 - Financial Risk Management and Derivatives

9 Months Ended

Sep. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Text Block]

6.             Financial Risk Management and Derivatives

Sales denominated in currencies other than the U.S. dollar, which are primarily sales to customers in Europe, expose the Company to market risk from material movements in foreign exchange rates between the U.S. dollar and the foreign currency.  The Company’s primary risk exposures are from changes in the rates between the U.S. dollar and the Euro and between the Euro and the Pound Sterling.  In 2012 and 2011, the Company entered into forward foreign exchange contracts to exchange Euros for U.S. dollars and Pound Sterling for Euros.  The extent to which forward foreign exchange contracts are used is modified periodically in response to management’s estimate of market conditions and the terms and length of specific sales contracts.

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

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

At September 30, 2012, forward foreign exchange contracts with a notional value of $27,802,000 were outstanding to exchange various currencies with maturities ranging from October 2012 to June 2013, to sell the equivalent of approximately $4,002,000 in foreign currencies at contracted rates and to buy approximately $23,800,000 in foreign currencies at contracted rates.  These contracts have been designated as cash flow hedges.  Cash flows from these forward foreign exchange contracts are classified in the same category as the cash flows from the items being hedged on the Consolidated Statements of Cash Flows.  At September 30, 2012, the Company did not have any forward foreign exchange contracts that do not qualify as hedges.

The fair value of the Company’s derivatives on its Consolidated Balance Sheets were as follows (in thousands):

	Asset Derivatives					Liability Derivatives
	Balance Sheet	September 30, 2012		December 31, 2011		Balance Sheet	September 30, 2012		December 31, 2011
	Location	Fair Value		Fair Value		Location	Fair Value		Fair Value
Derivatives Designated as Hedging Instruments
Foreign exchange contracts	Prepaid expenses and other current assets	$	211	$	1,321	Accrued liabilities	$	525	$	306

The effect of the Company’s derivatives on its Consolidated Statements of Earnings/Loss for the nine months ended September 30, 2012 and 2011 were as follows (in thousands):

Derivatives in	Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings (“OCE”) on Derivative (Effective Portion)					Location of Gain/(Loss) Reclassified from OCE	Amount of Gain/(Loss) Reclassified from OCE into Income (Effective Portion)						Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount	Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Cash Flow Hedging	Nine Months Ended September 30,					into Income (Effective	Nine Months Ended September 30,						Excluded from Effectiveness	Nine Months Ended September 30,
Relationships	2012			2011		Portion)	2012			2011			Testing)	2012			2011
Foreign exchange contracts	$	(537	)	$	61	Cost of goods sold	$	(150	)	$	(78	)	Selling, general and administrative expenses	$	(55	)	$	(20	)

The effect of the Company’s derivatives on its Consolidated Statements of Earnings/Loss for the three months ended September 30, 2012 and 2011 were as follows (in thousands):

Derivatives in	Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings (“OCE”) on Derivative (Effective Portion)					Location of Gain/(Loss) Reclassified from OCE	Amount of Gain/(Loss) Reclassified from OCE into Income (Effective Portion)				Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount	Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Cash Flow Hedging	Three Months Ended September 30,					into Income (Effective	Three Months Ended September 30,				Excluded from Effectiveness	Three Months Ended September 30,
Relationships	2012			2011		Portion)	2012		2011		Testing)	2012			2011
Foreign exchange contracts	$	(832	)	$	840	Cost of goods sold	$	387	$	46	Selling, general and administrative expenses	$	(107	)	$	5

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Note 5 - Intangible Assets

9 Months Ended

Sep. 30, 2012

Intangible Assets Disclosure [Text Block]

5.             Intangible Assets

Intangible assets consist of the following (in thousands):

	September 30, 2012			December 31, 2011
Trademarks	$	12,587		$	12,569
Less accumulated amortization		(1,087	)		(1,087	)
Total intangible assets	$	11,500		$	11,482

The change in the carrying amount of intangible assets during the nine and three months ended September 30, 2012 was as follows (in thousands):

	Nine Months Ended September 30, 2012			Three Months Ended September 30, 2012
Beginning Balance	$	11,482		$	11,433
Trademarks acquired		35			35
Foreign currency translation effects		(17	)		32
Ending Balance	$	11,500		$	11,500

During the nine and three months ended September 30, 2012, the Company purchased a foreign country trademark right which it did not own for the Palladium brand.  The Company performed the annual reassessment and impairment test as of October 1, 2011 of its Palladium intangible assets related to trademarks and determined there was no impairment of its intangible assets.  See the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.  The Company does not believe that a triggering event has occurred through September 30, 2012 to require an updated impairment test.

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Note 4 - Investments Available for Sale (Tables)

9 Months Ended

Sep. 30, 2012

Available-for-sale Securities [Table Text Block]

	December 31, 2011
Corporate Notes and Bonds	$	2,024
Accrued interest income		33
Total investments available for sale	$	2,057

Unrealized Gain (Loss) on Investments [Table Text Block]

	September 30, 2011
Gross unrealized holding gains	$	2
Gross unrealized holding losses		3

Schedule of Comprehensive Income (Loss) [Table Text Block]

	Nine Months Ended September 30,					Three Months Ended September 30,
	2012		2011			2012		2011
Increase/(decrease) in comprehensive income	$	1	$	(61	)	$	0	$	(16	)

Realized Gains And Proceeds From Sale Of Investments [Table Text Block]

	Nine Months Ended September 30,
	2012		2011
Proceeds from sale of investments	$	1,013	$	23,812
Realized gain on sale of investments		0		12

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Note 13 - Form Athletics

9 Months Ended

Sep. 30, 2012

Discontinued Operations And Contingent Purchase Price Disclosure [Text Block]

13.          Form Athletics

During the second quarter of 2011, after a review of sales, backlog, cash flows and marketing strategy, the Company determined that its investment in the Form Athletics goodwill and trademark was impaired and recognized impairment losses of $3,689,000 and reversed the Form CPP liability of $2,110,000, which is included in the loss from discontinued operations as interest income.  The change in the Form CPP for the nine months ended September 30, 2011 is as follows (in thousands):

	Nine Months Ended September 30,
	2011
Beginning balance	$	2,110
Change in net present value of the Form CPP		(2,110	)
Ending balance	$	0

The operations for Form Athletics for the nine and three months ended September 30, 2011 were as follows (in thousands):

	Nine Months Ended September 30, 2011			Three Months Ended September 30, 2011
Revenues	$	555		$	131
Cost of goods sold		905			558
Gross loss		(350	)		(427	)
Selling, general and administrative expenses		3,709			1,359
Impairment on intangibles and goodwill		3,689			0
Operating loss		(7,748	)		(1,786	)
Interest income, net		2,110			0
Net loss from discontinued operations	$	(5,638	)	$	(1,786	)

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Note 9 - Income Taxes

9 Months Ended

Sep. 30, 2012

Income Tax Disclosure [Text Block]

9.            Income Taxes

Income tax expense was as follows (in thousands):

	Nine Months Ended September 30,				Three Months Ended September 30,
	2012		2011		2012		2011
Income tax expense	$	2,014	$	1,904	$	144	$	342

The Company evaluates its deferred tax assets, including net operating losses and tax credits, to determine if a valuation allowance is required.  The Company assesses whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard.  In making such judgments, significant weight is given to evidence that can be objectively verified.  A cumulative loss in recent years is significant negative evidence in considering whether deferred tax assets are realizable.

At September 30, 2012, the Company's valuation allowance was $49,064,000.  At September 30, 2012, the Company had a net deferred tax asset after valuation allowance of $2,043,000 which consisted of U.S. foreign tax credits of $35,000 for the eventual carryback of foreign tax credits to the 2006 tax year as the Company believes it is more-likely-than-not that it will be utilized and foreign net operating losses of $2,008,000 which is related to the pre-acquisition losses of Palladium, a French company, which has an unlimited carryforward period and therefore the Company believes it is more-likely-than-not that the loss carryforward will be utilized.  The ultimate realization of this loss carryforward is dependent upon the generation of future taxable income in France during the periods in which those temporary differences become deductible.  This assessment could change in future periods if the Company does not achieve taxable income in France or projections of future taxable income decline.  Changes in existing tax laws could also affect actual tax results and the valuation of deferred tax assets over time.  The accounting for deferred taxes is based upon an estimate of future operating results.  Differences between the anticipated and actual outcomes of these future tax consequences could have a material impact on the Company’s consolidated results of operations or financial position.  If an increase in the valuation allowance in future periods is required, this would result in an increase in the Company’s income tax expense and could materially impact the effective income tax rate in the period recorded.

At September 30, 2012, uncertain tax positions and the related interest, which are included in other liabilities on the Consolidated Balance Sheet, were $7,707,000 and $1,431,000, respectively, all of which would affect the income tax rate if reversed.  Income tax expense related to uncertain tax positions was as follows (in thousands):

	Nine Months Ended September 30,				Three Months Ended September 30,
	2012		2011		2012		2011
Income tax expense related to uncertain tax positions	$	595	$	640	$	168	$	210
Interest expense related to uncertain tax positions		159		185		54		63
Total income tax expense related to uncertain tax positions	$	754	$	825	$	222	$	273

The federal income tax returns for 2006 through 2009 and certain state returns for 2007 and 2008 are currently under various stages of audit by the applicable taxing authorities.  The Company received a Notice of Proposed Adjustment from the Internal Revenue Service (“IRS”) for tax years 2006 and 2007 of $7,114,000 (which includes $1,186,000 in penalties).  Interest will be assessed, and at this time it is estimated at approximately $1,812,000.  This issue, which relates to intercompany transfer pricing, has been sent to the IRS Appeal’s office for further consideration.  The Company does not believe that an additional tax accrual is required at this time.

In January 2012, the Company received a Notice of Proposed Adjustment for the 2008 tax year, also regarding intercompany transfer pricing.  The 2008 proposed adjustment is $251,000.  Interest will be assessed, and at this time it is estimated at approximately $37,000.  This issue has been sent to the IRS Appeal’s office for further consideration.  This will not create any additional financial statement impact due to the available U.S. tax losses that may be carried back from the 2010 tax year to the 2008 tax year.

Also in January 2012, the Company received a Notice of Proposed Adjustment for the 2009 tax year of $496,000 related to the gain on sale of certain Royal Elastics assets.  Interest will not be assessed as the adjustment will reduce the Company’s net operating loss for 2009.  The Company has agreed to this adjustment. The IRS did not propose an adjustment to the Company's 2009 intercompany transfer pricing even though the Company's intercompany transfer pricing methodology has been the same during the 2006 to 2009 period.

The Company does not agree with the 2006 through 2008 adjustments and plans to vigorously defend its position.  The amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.  The Company’s material tax jurisdiction is the United States.

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Note 9 - Income Taxes (Detail) - Uncertain Tax Positions Income Tax Expense (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income tax expense related to uncertain tax positions	$ 168	$ 210	$ 595	$ 640
Interest expense related to uncertain tax positions	54	63	159	185
Total income tax expense related to uncertain tax positions	$ 222	$ 273	$ 754	$ 825

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Note 7 - Bank Lines of Credit and Other Debt

9 Months Ended

Sep. 30, 2012

Debt Disclosure [Text Block]

7.             Bank Lines of Credit and Other Debt

The Company’s bank lines of credit, long-term debt, long-term capital leases and outstanding letters of credit were as follows (in thousands):

	September 30, 2012		December 31, 2011
Bank lines of credit	$	5,323	$	9,716
Long-term debt		148		398
Long-term capital leases		221		0
Total bank lines of credit, long-term debt and long-term capital leases	$	5,692	$	10,114
Outstanding letters of credit, not included above	$	294	$	280

Bank Lines of Credit

Outstanding bank lines of credit were as follows (dollars and Euros in thousands):

	September 30, 2012		December 31, 2011
Secured Variable Rate Lines of Credit with Financial Institutions:
Credit Facility of $35,000 at an interest rate of 4.50% at September 30, 2012, due April 23, 2016 (1)	$	0	$	0
Bank line of credit of $21,000 at an interest rate of 2.69% at December 31, 2011, due July 1, 2013 (2)		0		9,716
Facility of €4,000, or approximately $5,141, at September 30, 2012, at an interest rate of 0.98%, due December 31, 2012 and approximately $5,182, at December 31, 2011, at an interest rate of 2.13%, due December 31, 2012 (3)		5,323		0
Facilities of €1,200, or approximately $1,542, at September 30, 2012, at interest rates ranging from 1.42% to 2.60%, due December 31, 2012 and facilities of €1,000, or approximately $1,296, at December 31, 2011, at interest rates ranging from 2.56% to 3.12%, due December 31, 2011 (3) (4)		0		0
Total bank lines of credit	$	5,323	$	9,716
Outstanding letters of credit, not included above	$	294	$	280

(1) Secured by all assets of K•Swiss Inc., K•Swiss Sales Corp. and K•Swiss Direct Inc.  The amount available to borrow on this line of credit at September 30, 2012 was $19,162.  See further discussion below.

(2) Fully secured by cash (or the Company’s restricted cash and cash equivalents and restricted investments available for sale, see Note 3).  This facility was fully paid off on April 25, 2012.  See further discussion below.

(3) These lines of credit are secured by Palladium’s assets including accounts receivable and/or intellectual property rights (i.e. trademarks), as well as Palladium common stock.

(4) These lines of credit are renewable every six months.

On April 25, 2012, the Company and two of its subsidiaries, K•Swiss Sales Corp. and K•Swiss Direct Inc. (collectively with the Company, the “Borrowers”) entered into a Credit Agreement (the “Credit Facility”) with Wells Fargo Bank, National Association and Wells Fargo Capital Finance, LLC (collectively as “Wells Fargo” or the “Lenders”).  The Credit Facility consists of revolving loans of up to $35,000,000 (subject to the limitations described below) available in U.S. Dollars, Euro and Pound Sterling, and up to $5,000,000 of which may be drawn in the form of letters of credit.  The Credit Facility matures April 23, 2016.

Loans made under the Credit Facility bear interest at:

(1) the greatest of (i) the Federal Funds Rate plus 0.5%, (ii) the LIBOR Rate plus 1%, and (iii) Wells Fargo’s prime rate (the “Base Rate”); or

(2) the rate per annum appearing on Bloomberg L.P.’s Page BBAM1/Official BBA USD Dollar Libor Fixings two Business Days prior to the commencement of the requested Interest Period, for a term and in an amount comparable to the interest period and the amount requested (the “LIBOR Rate”); or

(3) for loans made in Euros or Pound Sterling, the LIBOR Rate;

plus, in each case, the “Applicable Margin.”

If the average use of the Credit Facility is less than 50% of the Maximum Revolver Amount (as defined below) during the previous fiscal quarter, the Applicable Margin is 1.25% for Base Rate loans, 2.25% for U.S. Dollar LIBOR Rate loans, and 3.00% for loans made in Euros or Pound Sterling.  If the average use of the Credit Facility is more than 50% of the Maximum Revolver Amount, the Applicable Margin is 1.50% for Base Rate loans, 2.50% for U.S. Dollar LIBOR Rate loans, and 3.25% for loans made in Euros or Pound Sterling.

The “Maximum Revolver Amount” is $35,000,000; provided that the amount of revolving loans and letters of credit under the Credit Facility may not exceed (a) 85% of Eligible Accounts (as defined in the Credit Facility) plus the lesser of (i) 85% of Eligible Accounts that are Extended Pay Accounts (as defined in the Credit Facility) and (ii) $1,500,000 (minus any dilution reserve), plus (b) the lesser of (i) $20,000,000 or (ii) an amount equal to (x) the lesser of (1) 65% of Eligible Inventory or (2) 85% of Net Recovery Percentage (each as defined in the Credit Facility), minus (y) a reserve of $3,500,000 and any other reserves established by Wells Fargo in its permitted discretion.

The financial covenants contained in the Credit Facility are as follows (in each case, with respect to the Company and its subsidiaries on a consolidated basis):

· The Company must achieve Minimum EBITDA specified in the Credit Facility for each month through November 30, 2013.

· The Company must maintain a Fixed Charge Coverage Ratio for each twelve month fiscal period, commencing for the fiscal period ending on December 31, 2013, of not less than 1.0:1.0.

· The Company must limit Capital Expenditures for each fiscal year to $2,400,000, except with the Lender’s consent.

These financial covenants apply on the date that Excess Availability (as defined in the Credit Facility) has fallen below 20% of the Maximum Revolver Amount and ends on the date that Excess Availability has been greater than 20% of the Maximum Revolver Amount for any period of thirty consecutive days thereafter.

The obligations of the Borrowers under the Credit Facility are guaranteed by four of the Company’s other domestic subsidiaries (the “Guarantors”) pursuant to a Guaranty and Security Agreement, dated April 25, 2012 (the “Guaranty and Security Agreement”).  Pursuant to the Guaranty and Security Agreement, the Borrowers and the Guarantors pledged substantially all of their respective assets as collateral security for the loans to be made pursuant to the Credit Facility.  The foreign subsidiaries of the Borrowers did not guaranty the Credit Facility or pledge any of their directly-owned assets.  The Company has also granted a security interest in its real property to the Lenders, consisting of a deed of trust securing its corporate headquarters building.

The Credit Facility contains other certain affirmative and negative covenants, as well as event of default provisions.  The affirmative covenants include certain reporting requirements, maintenance of properties, payment of taxes and insurance, compliance with laws, environmental compliance, and other provisions customary in such agreements.  Negative covenants limit or restrict, among other things, dividends, secured and unsecured indebtedness, mergers and fundamental changes, asset sales, investments and acquisitions, liens and encumbrances, transactions with affiliates, redemption distributions to former employees, officers or directors, and other matters customarily restricted in such agreements.

Wells Fargo and its affiliates are permitted to make loans to, issue letters of credit, accept deposits, provide Bank Products (as defined in the Credit Facility) to, acquire equity interests in, and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with the Company, its subsidiaries and affiliates.

At September 30, 2012, the Company was in compliance with its covenants under the Credit Facility.

On April 25, 2012, the Company drew down approximately $9,924,000 under the Credit Facility to repay in full all indebtedness outstanding under its previous line of credit with Bank of America and to pay fees and expenses related to the Credit Facility. The Company intends to utilize the Credit Facility for working capital, to issue letters of credit in connection with purchases of inventory and other general corporate purposes.

Long-term Debt

Long-term debt outstanding were as follows (dollars and Euros in thousands):

	September 30, 2012		December 31, 2011
Secured Fixed Rate Term Loans with Financial Institutions of €800, or approximately $1,028, at September 30, 2012, at an interest rate of 5.42%, due February 2013 and €1,320, or approximately $1,710, at December 31, 2011, with interest rates ranging from 5.42% to 5.84%, due between February 2012 and February 2013 (1)	$	147	$	394
Accrued interest		1		4
Total long-term debt	$	148	$	398
Current portion of long-term debt	$	148	$	250
Long-term debt	$	0	$	148

(1) These are secured by Palladium’s assets including accounts receivable and/or intellectual property rights (i.e. trademarks), as well as Palladium common stock.

Long-term Capital Leases

Long-term capital leases outstanding were as follows (dollars in thousands):

	September 30, 2012
Capital leases for information systems, with interest rates ranging from 2.01% to 5.05%, due between June 2014 and December 2016	$	221
Current portion of long-term capital leases	$	82
Long-term capital leases	$	139
Leased property – Information systems, net	$	273

Interest expense

Interest expense incurred on the Company’s bank loans, lines of credit and capital leases and amortization of loan origination costs on the Wells Fargo credit facility were as follows (in thousands):

	Nine Months Ended September 30,				Three Months Ended September 30,
	2012		2011		2012		2011
Interest expense	$	200	$	177	$	60	$	106

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Note 8 - Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Text Block]

8.             Fair Value of Financial Instruments

On January 1, 2012, the Company adopted Accounting Standards Update (“ASU”) 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” which ensures U.S. generally accepted accounting principles are aligned with international accounting standards.  ASU 2011-04 does not modify the requirements for when fair value measurements apply, but rather clarifies how to measure and disclose fair value.  The adoption of ASU 2011-04 did not have a material impact on the Company’s financial position and results of operations.  For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, outstanding borrowings under the lines of credit, current portion of long-term debt, current portion of long-term capital leases, accounts payable and accrued liabilities, the carrying amounts approximate fair value due to their short maturities.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis at September 30, 2012 (in thousands):

			Fair Value Measurements Using
	Total Carrying Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Forward exchange contracts – assets	$	211	$	0	$	211	$	0
Forward exchange contracts – liabilities		525		0		525		0
Contingent purchase price (“CPP”) – Palladium		1,909		0		0		1,909

The Company’s counterparty (“Counterparty”) to a majority of its forward exchange contracts is a major financial institution. These forward exchange contracts are measured at fair value by the Counterparty based on a variety of pricing factors, which include the market price of the derivative instrument available in the dealer-market.

The Palladium CPP will be equal to the net present value of €1,500,000 plus up to €500,000 based on an amount calculated in accordance with a formula driven by Palladium’s EBITDA for the twelve months ended December 31, 2012.  The €500,000 CPP will be determined each quarter based on the current quarter’s projection of Palladium’s EBITDA for the twelve months ended December 31 of the current year.  See Note 12 for further discussion.

During the nine and three months ended September 30, 2012 there were no transfers between Level 1, Level 2 and Level 3 measurements.  In addition, there were no changes in the valuation technique of assets and liabilities measured on a recurring basis during the nine and three months ended September 30, 2012.

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Note 10 - Segment Information

9 Months Ended

Sep. 30, 2012

Segment Reporting Disclosure [Text Block]

10.           Segment Information

The Company’s predominant business is the design, development and distribution of athletic footwear.  The Company has identified its footwear products business to be its only segment as 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, Middle East and Africa (“EMEA”) and Other International.  The Company’s Other International geographic region includes the Company’s operations in Asia.  Certain reclassifications have been made to the 2011 presentation to conform to the 2012 presentation.  The following tables summarize information by geographic region of the Company’s footwear segment (in thousands):

	Nine Months Ended September 30,						Three Months Ended September 30,
	2012			2011			2012			2011
Revenues from unrelated entities (1):
United States	$	61,861		$	96,360		$	22,301		$	32,676
EMEA		73,524			74,772			28,660			32,048
Other International		46,236			47,062			16,590			15,732
Total revenues from unrelated entities	$	181,621		$	218,194		$	67,551		$	80,456
Inter-geographic revenues:
United States	$	4,783		$	4,210		$	1,226		$	1,646
EMEA		47			1,441			21			(5	)
Other International		124			165			58			29
Total inter-geographic revenues	$	4,954		$	5,816		$	1,305		$	1,670
Total revenues:
United States	$	66,644		$	100,570		$	23,527		$	34,322
EMEA		73,571			76,213			28,681			32,043
Other International		46,360			47,227			16,648			15,761
Less inter-geographic revenues		(4,954	)		(5,816	)		(1,305	)		(1,670	)
Total revenues	$	181,621		$	218,194		$	67,551		$	80,456
Operating (loss)/profit:
United States	$	(15,755	)	$	(29,074	)	$	(3,223	)	$	(12,841	)
EMEA		1,288			(9,534	)		2,509			(677	)
Other International		3,839			7,076			1,601			1,754
Less corporate expenses (2)		(8,695	)		(10,782	)		(2,924	)		(3,114	)
Eliminations		1,136			1,475			274			1,346
Total operating loss	$	(18,187	)	$	(40,839	)	$	(1,763	)	$	(13,532	)

	September 30, 2012		December 31, 2011
Long-lived assets (3):
United States	$	15,147	$	16,719
EMEA		1,604		1,519
Other International		1,345		1,355
Total long-lived assets	$	18,096	$	19,593

(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 and legal which benefit the entire Company and are not segment/region specific.  Corporate expenses for the nine and three months ended September 30, 2012 decreased as a result of decreases in compensation and data processing expenses and, in addition, for the nine months ended September 30, 2012, a decrease in legal expenses.  The decrease in compensation expenses, which includes bonus/incentive related expenses and employee recruiting and relocation expenses, resulted from a reduction in salary related expenses, stock option compensation expenses and interest expense related to the Company’s deferred compensation plan which was terminated in October 2011.  The decrease in data processing expenses was a result of decreases in on-going maintenance expenses.  The decrease in legal expenses was a result of decreases in expenses incurred to defend the Company’s trademarks.

(3) Long-lived assets consist of property, plant and equipment, net.

During the nine and three months ended September 30, 2012 and 2011, there were no customers that accounted for more than 10% of revenues.  At September 30, 2012, approximately 9% of accounts receivable was from one customer.  At December 31, 2011, approximately 10% of accounts receivable was from one customer.

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Note 11 - Other Income/Expense (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Other Nonoperating Income (Expense)	$ 0	$ 0	$ 0	$ 3,000,000

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Note 12 - Palladium Contingent Purchase Price (Detail) - Change In The Contingent Purchase Price (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Beginning balance	$ 3,702,000	$ 4,148,000	$ 3,739,000	$ 3,689,000
Ending balance	1,909,000	3,886,000	1,909,000	3,886,000
Payment	(1,776,000)	0	(1,776,000)	0
Palladium [Member]
Change in net present value of the CPP	$ (17,000)	$ (262,000)	$ (54,000)	$ 197,000

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Note 10 - Segment Information (Detail) - Long-lived Assets by Geographic Area (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Long-lived assets (3):
Total long-lived assets	$ 18,096	[1]	$ 19,593	[1]
United States [Member]
Long-lived assets (3):
Long-lived assets	15,147	[1]	16,719	[1]
EMEA [Member]
Long-lived assets (3):
Long-lived assets	1,604	[1]	1,519	[1]
Other International [Member]
Long-lived assets (3):
Long-lived assets	$ 1,345	[1]	$ 1,355	[1]

[1] Long-lived assets consist of property, plant and equipment, net.

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Note 3 - Restricted Cash and Cash Equivalents and Restricted Investments Available for Sale (Detail) - Summary of Restricted Cash Equivalents and Investments (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Restricted cash and cash equivalents	$ 200	$ 13,449
Total restricted cash and cash equivalents and restricted investments available for sale	200	22,602
US Treasury Securities [Member]
Restricted Investments Available for Sale	0	5,007
Corporate Notes and Bonds [Member]
Restricted Investments Available for Sale	0	4,062
Accrued Interest Income [Member]
Restricted Investments Available for Sale	0	84
Total Restricted Investments Available for Sale [Member]
Restricted Investments Available for Sale	0	9,153
Total [Member]
Total restricted cash and cash equivalents and restricted investments available for sale	$ 200	$ 22,602

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Note 7 - Bank Lines of Credit and Other Debt (Detail) - Summary of Long-Term Debt Outstanding (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Secured Fixed Rate Term Loans with Financial Institutions of €800, or approximately $1,028, at September 30, 2012, at an interest rate of 5.42%, due February 2013 and €1,320, or approximately $1,710, at December 31, 2011, with interest rates ranging from 5.42% to 5.84%, due between February 2012 and February 2013 (1)	$ 147	[1]	$ 394	[1]
Accrued interest	1		4
Total long-term debt	148		398
Current portion of long-term debt	148		250
Long-term debt	$ 0		$ 148

[1] These are secured by Palladium's assets including accounts receivable and/or intellectual property rights (i.e. trademarks), as well as Palladium common stock.

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Note 2 - Loss per Share (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Earnings Per Share Reconciliation [Table Text Block]

	Nine Months Ended September 30,										Three Months Ended September 30,
	2012					2011					2012					2011
	Shares		Per Share Amount			Shares		Per Share Amount			Shares		Per Share Amount			Shares		Per Share Amount
Basic EPS		35,601	$	(0.57	)		35,480	$	(1.28	)		35,601	$	(0.05	)		35,572	$	(0.43	)
Effect of Dilutive Stock Options		0		0.00			0		0.00			0		0.00			0		0.00
Diluted EPS		35,601	$	(0.57	)		35,480	$	(1.28	)		35,601	$	(0.05	)		35,572	$	(0.43	)

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Nine Months Ended September 30,				Three Months Ended September 30,
	2012		2011		2012		2011
Options to purchase shares of common stock		3,771		1,480		3,771		1,712
Exercise price range
Low	$	2.76	$	9.77	$	2.76	$	5.12
High	$	34.75	$	34.75	$	34.75	$	34.75
Expiration date range
Earliest	December 2012		May 2012		December 2012		May 2012
Latest	August 2022		August 2021		August 2022		September 2021

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Note 7 - Bank Lines of Credit and Other Debt (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Debt [Table Text Block]

	September 30, 2012		December 31, 2011
Bank lines of credit	$	5,323	$	9,716
Long-term debt		148		398
Long-term capital leases		221		0
Total bank lines of credit, long-term debt and long-term capital leases	$	5,692	$	10,114
Outstanding letters of credit, not included above	$	294	$	280

Schedule of Line of Credit Facilities [Table Text Block]

	September 30, 2012		December 31, 2011
Secured Variable Rate Lines of Credit with Financial Institutions:
Credit Facility of $35,000 at an interest rate of 4.50% at September 30, 2012, due April 23, 2016 (1)	$	0	$	0
Bank line of credit of $21,000 at an interest rate of 2.69% at December 31, 2011, due July 1, 2013 (2)		0		9,716
Facility of €4,000, or approximately $5,141, at September 30, 2012, at an interest rate of 0.98%, due December 31, 2012 and approximately $5,182, at December 31, 2011, at an interest rate of 2.13%, due December 31, 2012 (3)		5,323		0
Facilities of €1,200, or approximately $1,542, at September 30, 2012, at interest rates ranging from 1.42% to 2.60%, due December 31, 2012 and facilities of €1,000, or approximately $1,296, at December 31, 2011, at interest rates ranging from 2.56% to 3.12%, due December 31, 2011 (3) (4)		0		0
Total bank lines of credit	$	5,323	$	9,716
Outstanding letters of credit, not included above	$	294	$	280

Schedule of Term Debt Outstanding [Table Text Block]

	September 30, 2012		December 31, 2011
Secured Fixed Rate Term Loans with Financial Institutions of €800, or approximately $1,028, at September 30, 2012, at an interest rate of 5.42%, due February 2013 and €1,320, or approximately $1,710, at December 31, 2011, with interest rates ranging from 5.42% to 5.84%, due between February 2012 and February 2013 (1)	$	147	$	394
Accrued interest		1		4
Total long-term debt	$	148	$	398
Current portion of long-term debt	$	148	$	250
Long-term debt	$	0	$	148

Schedule Of Capital Leases [Table Text Block]

	September 30, 2012
Capital leases for information systems, with interest rates ranging from 2.01% to 5.05%, due between June 2014 and December 2016	$	221
Current portion of long-term capital leases	$	82
Long-term capital leases	$	139
Leased property – Information systems, net	$	273

Schedule Of Interest Expense [Table Text Block]

	Nine Months Ended September 30,				Three Months Ended September 30,
	2012		2011		2012		2011
Interest expense	$	200	$	177	$	60	$	106

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Note 7 - Bank Lines of Credit and Other Debt (Detail) - Summary of Outstanding Bank Lines of Credit (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Total bank lines of credit	$ 5,323		$ 9,716
Outstanding letters of credit, not included above	294		280
Bank Line Of Credit One [Member]
Lines of Credit	0	[1]	0	[1]
Bank Line Of Credit Two [Member]
Lines of Credit	0	[2]	9,716	[2]
BankLineOfCreditThree[Member]
Lines of Credit	5,323	[3]	0	[3]
Bank Line Of Credit Four [Member]
Lines of Credit	0	[3],[4]	0	[3],[4]
Total [Member]
Total bank lines of credit	5,323		9,716
Outstanding Letters Of Credit [Member]
Outstanding letters of credit, not included above	$ 294		$ 280

[1] Secured by all assets of KSwiss Inc., KSwiss Sales Corp. and KSwiss Direct Inc. The amount available to borrow on this line of credit at September 30, 2012 was $19,162. See further discussion below.

[2] Fully secured by cash (or the Company's restricted cash and cash equivalents and restricted investments available for sale, see Note 3). This facility was fully paid off on April 25, 2012. See further discussion below.

[3] These lines of credit are secured by Palladium's assets including accounts receivable and/or intellectual property rights (i.e. trademarks), as well as Palladium common stock.

[4] These lines of credit are renewable every six months.

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Note 4 - Investments Available for Sale (Detail) - Sale of Investments and Realized Gains (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Proceeds from sale of investments	$ 1,013	$ 23,812
Realized gain on sale of investments	$ 0	$ 12

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Consolidated Statements of Earnings/Loss and Comprehensive Earnings/Loss (Dollar amounts in thousands Shares in thousands, except per share amounts) (Unaudited) (Parentheticals) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Loss from discontinued operations, income tax expense	$ 0	$ 0	$ 0	$ 0
Foreign currency translation adjustments, income tax expense	0	0	0	0
Change in deferred gain/(loss) on hedge derivatives, income tax expense	0	0	0	0
Change in deferred (loss)/gain on investments available for sale and restricted investments available for sale, income tax expense	$ 0	$ (14)	$ (1)	$ (44)

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Note 4 - Investments Available for Sale

9 Months Ended

Sep. 30, 2012

Available For Sale Investments [Text Block]

4.             Investments Available for Sale

The Company’s investments were classified as available for sale and stated at fair value and were as follows (in thousands):

	December 31, 2011
Corporate Notes and Bonds	$	2,024
Accrued interest income		33
Total investments available for sale	$	2,057

The Company capitalized any premiums paid or discounts received and amortized the premiums or accreted the discounts on a straight-line basis over the remaining term of the security.  Gross unrealized holding gains and losses were as follows (in thousands):

	September 30, 2011
Gross unrealized holding gains	$	2
Gross unrealized holding losses		3

The change in comprehensive income was as follows (in thousands):

	Nine Months Ended September 30,					Three Months Ended September 30,
	2012		2011			2012		2011
Increase/(decrease) in comprehensive income	$	1	$	(61	)	$	0	$	(16	)

The Company received proceeds from the sale of investments available for sale and realized gain on sale as follows (in thousands):

	Nine Months Ended September 30,
	2012		2011
Proceeds from sale of investments	$	1,013	$	23,812
Realized gain on sale of investments		0		12

There were no sales of  investments available for sale during the three months ended September 30, 2012 and 2011.  Realized gains and losses are recognized using the actual cost of the investment.  Realized gains and losses are recognized using the actual cost of the investment.

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Note 9 - Income Taxes (Detail) (USD $)	Sep. 30, 2012	Dec. 31, 2009	Dec. 31, 2008	Dec. 31, 2007
Deferred Tax Assets, Valuation Allowance	$ 49,064,000
Deferred Tax Assets, Net	2,043,000
Deferred Tax Asset Foreign Tax Credit	35,000
Deferred Tax Assets, Operating Loss Carryforwards, Foreign	2,008,000
Unrecognized Tax Benefits	7,707,000
Unrecognized Tax Benefits, Interest on Income Taxes Accrued	1,431,000
Income Tax Examination Proposed Gross Liability		496,000	251,000	7,114,000
Income Tax Examination Proposed Penalty				1,186,000
Income Tax Examination Estimated Interest			$ 37,000	$ 1,812,000

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Note 13 - Form Athletics (Detail) - Results Of Discontinued Operations (USD $)	3 Months Ended					9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011		Jun. 30, 2011	Sep. 30, 2012		Sep. 30, 2011
Revenues	$ 67,551,000	[1]	$ 80,456,000	[1]		$ 181,621,000	[1]	$ 218,194,000	[1]
Cost of goods sold	43,509,000		51,631,000			117,777,000		138,413,000
Gross loss	(24,042,000)		(28,825,000)			(63,844,000)		(79,781,000)
Selling, general and administrative expenses	25,805,000		42,357,000			82,031,000		120,620,000
Impairment on intangibles and goodwill					3,689,000
Operating loss	(1,763,000)		(13,532,000)			(18,187,000)		(40,839,000)
Interest income, net	(19,000)		242,000			(62,000)		95,000
Net loss from discontinued operations	0		(1,786,000)			0		(5,638,000)
Form Athletics [Member]
Revenues			131,000					555,000
Cost of goods sold			558,000					905,000
Gross loss			(427,000)					(350,000)
Selling, general and administrative expenses			1,359,000					3,709,000
Impairment on intangibles and goodwill			0					3,689,000
Operating loss			(1,786,000)					(7,748,000)
Interest income, net			0					2,110,000
Net loss from discontinued operations			$ (1,786,000)					$ (5,638,000)

[1] Revenue is attributable to geographic regions based on the location of the Company's subsidiaries.

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Note 8 - Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

			Fair Value Measurements Using
	Total Carrying Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Forward exchange contracts – assets	$	211	$	0	$	211	$	0
Forward exchange contracts – liabilities		525		0		525		0
Contingent purchase price (“CPP”) – Palladium		1,909		0		0		1,909

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Note 4 - Investments Available for Sale (Detail) - Available for Sale Securities (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Available For Sale Securities	$ 0	$ 2,057
Corporate Debt Securities [Member]
Available For Sale Securities		2,024
Accrued Interest Income [Member]
Available For Sale Securities		33
Total [Member]
Available For Sale Securities		$ 2,057

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Note 14 - Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2012

Description of New Accounting Pronouncements Not yet Adopted [Text Block]

14.           Recent Accounting Pronouncements

On January 1, 2012, the Company adopted ASU 2011-05, “Presentation of Comprehensive Income,” which improves the comparability of financial reporting and ensures that U.S. generally accepted accounting principles are aligned with International Accounting Standards.  The adoption of ASU 2011-05 did not have a material impact on the Company’s financial position and results of operations.