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+10-K
+1
+t10k-1773a.txt
+10-K
+UNITED STATES
+SECURITIES AND EXCHANGE COMMISSION
+WASHINGTON, DC 20549
+FORM 10-K
+(Mark One)
+[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
+ACT OF 1934
+[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
+EXCHANGE ACT OF 1934
+FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
+Commission File No. 1-8726
+RPC, INC.
+DELAWARE 58-1550825
+(State of Incorporation) (I.R.S. Employer Identification No.)
+2170 PIEDMONT ROAD, NE
+ATLANTA, GEORGIA 30324
+(404) 321-2140
+Securities registered pursuant to Section 12(b) of the Act:
+TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
+COMMON STOCK, $0.10 PAR VALUE THE NEW YORK STOCK EXCHANGE
+Securities registered pursuant to Section 12(g) of the Act:
+NONE
+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. [X] Yes [ ]No
+Indicate by check mark whether the registrant is an accelerated filer (as
+defined in Rule 12b-2 of the Act): [X] Yes [ ] No
+The aggregate market value of RPC, Inc. Common Stock held by non-affiliates on
+June 30, 2003 was $104,778,630 based on the closing price on the New York Stock
+Exchange on June 30, 2003 the last business day of the registrant's most
+recently completed second fiscal quarter of $11.00 per share.
+RPC, Inc. had 28,633,524 shares of Common Stock outstanding as of February 27,
+2004.
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
+of Regulation S-K is not contained herein, and will not be contained, to the
+best of registrant's knowledge, in definitive proxy or information statements
+incorporated by reference in Part III of this Form 10-K or any amendment to this
+Form 10-K. [ ]
+Documents Incorporated by Reference
+Portions of the Proxy Statement for the 2004 Annual Meeting of Stockholders of
+RPC, Inc. are incorporated by reference into Part III, Items 10 through 14 of
+this report.
+PART I
+Throughout this report, we refer to RPC, Inc., together with its subsidiaries,
+as "we," "us," "RPC" or "the Company."
+Forward-Looking Statements
+Certain statements made in this report that are not historical facts are
+"forward-looking statements" under the Private Securities Litigation Reform Act
+of 1995. Such forward-looking statements may include, without limitation,
+statements that relate to our business strategy, plans and objectives, and our
+beliefs and expectations regarding future demand for our products and services
+and other events and conditions that may influence the oilfield services market
+and our performance in the future.
+The words "may," "will," "expect," "believe," "anticipate," "project,"
+"estimate," and similar expressions generally identify forward-looking
+statements. Such statements are based on certain assumptions and analyses made
+by our management in light of its experience and its perception of historical
+trends, current conditions, expected future developments and other factors it
+believes to be appropriate. We caution you that such statements are only
+predictions and not guarantees of future performance and that actual results,
+developments and business decisions may differ from those envisioned by the
+forward-looking statements. See "Risk Factors" contained in Item 1.
+ITEM 1. BUSINESS
+ORGANIZATION
+RPC is a Delaware corporation originally organized in 1984 as a holding company
+for several oilfield services companies and is headquartered in Atlanta,
+Georgia. Effective February 28, 2001, RPC completed the spin-off of its
+powerboat manufacturing business through a distribution of shares of Marine
+Products Corporation ("Marine Products") (MPX:AMEX).
+OVERVIEW
+RPC provides a broad range of specialized oilfield services and equipment
+primarily to independent and major oil and gas companies engaged in the
+exploration, production and development of oil and gas properties throughout the
+United States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and in selected international markets. The services and
+equipment provided include, among other things, (1) pressure pumping services,
+(2) snubbing services, (3) coiled tubing services, (4) nitrogen services, (5)
+the rental of drill pipe and other specialized oilfield equipment, (6)
+firefighting and well control, and (7) marine services. RPC acts as a holding
+company for its operating business units, Cudd Pressure Control, Patterson
+Services, Bronco Oilfield Services (acquired in April 2003), Thru-Tubing
+Solutions, Well Control School, International Hammer and others.
+BUSINESS SEGMENTS
+RPC's service lines have been aggregated into two reportable oil and gas
+services business segments - Technical Services and Support Services - because
+of the similarities between the financial performance and approach to managing
+the service lines within each of the segments, as well as the economic and
+business conditions impacting their business activity levels. The Other business
+segment aggregates information concerning RPC's business units that do not
+qualify for separate segment reporting, including an overhead crane fabricator
+and an interactive training software developer.
+Technical Services include RPC's oil and gas service lines that utilize people
+and equipment to perform value-added completion, production and maintenance
+services directly to a customer's well. The demand for these services is
+generally influenced by customers' decisions to invest capital toward initiating
+production in an oil or natural gas well, improving production flows in an
+existing formation, or to address well control issues. This business segment
+consists primarily of pressure pumping, snubbing, coiled tubing, nitrogen, well
+control, down-hole tools, wire line, fluid pumping and casing installation
+services. The principal markets for this business segment include the United
+States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and international locations including primarily Africa, Latin
+America, Middle East, and Canada. Customers include major multi-national and
+independent oil and gas producers, and selected nationally owned oil companies.
+Support Services include RPC's oil and gas service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling,
+inspection and storage services, work platform marine vessels and oilfield
+training services. The demand for these services tends to be influenced
+primarily by customer drilling-related activity levels. The principal markets
+2
+for this segment include the United States, Gulf of Mexico and mid-continent
+regions. Customers primarily include domestic operations of major multi-national
+and independent oil and gas producers.
+TECHNICAL SERVICES
+The following is a description of the primary service lines conducted within the
+Technical Services business segment:
+PRESSURE PUMPING. Pressure pumping services, which accounted for approximately
+29 percent of revenues during 2003, are provided to customers throughout the
+Gulf Coast and mid-continent regions of the United States and are generally
+utilized in production. Pressure pumping services involve using complex, truck
+or skid-mounted equipment designed and constructed for each specific pumping
+service offered. The mobility of this equipment permits pressure pumping
+services to be performed in varying geographic areas. Principal materials
+utilized in the pressure pumping business include fracturing proppants, acid and
+bulk chemical additives. Generally, these items are available from several
+suppliers, and the Company utilizes more than one supplier for each item.
+Pressure pumping services offered include:
+Fracturing - Fracturing services are performed to stimulate production of
+oil and natural gas by increasing the permeability of a formation. The
+fracturing process consists of pumping a fluid gel into a cased well at
+sufficient pressure to fracture the formation at desired depths. Sand,
+bauxite or synthetic proppant, which is suspended in the gel, is pumped
+into the fracture. When the pressure is released at the surface, the fluid
+gel returns to the well, but the proppant remain in the fracture, thus
+keeping it open so that oil and natural gas can flow through the fracture
+into the well. In some cases, fracturing is performed in formations with a
+high amount of carbonate rock by an acid solution pumped under pressure
+without a proppant or with small amounts of proppant.
+Acidizing - Acidizing services are also performed to stimulate production
+of oil and natural gas, but they are used in wells that have undergone
+formation damage due to the buildup of various materials that block the
+formation. Acidizing entails pumping large volumes of specially formulated
+acids into reservoirs to dissolve barriers and enlarge crevices in the
+formation, thereby eliminating obstacles to the flow of oil and natural
+gas. Acidizing services can also enhance production in limestone
+formations.
+SNUBBING. Snubbing, which accounted for approximately 11 percent of 2003
+revenues, involves using a hydraulic workover rig that permits an operator to
+repair damaged casing, production tubing and down-hole production equipment in a
+high-pressure environment. A snubbing unit makes it possible to remove and
+replace down-hole equipment in a pressurized environment. Customers benefit
+because these operations can be performed without removing the pressure from the
+well, which stops production and can damage the formation, and because a
+snubbing rig can perform many applications at a lower cost than other
+alternatives. Since snubbing is a very hazardous process that entails high risk,
+the snubbing segment of the oil and gas services industry is limited to a
+relatively few operators who have the experience and knowledge required to
+perform such services safely and efficiently.
+COILED TUBING. Coiled tubing services, which accounted for approximately 11
+percent of 2003 revenues, involve the injection of coiled tubing into wells to
+perform various applications and functions for use principally in well-servicing
+operations. Coiled tubing is a flexible steel pipe with a diameter of less than
+five inches manufactured in continuous lengths of thousands of feet and wound or
+coiled around a large reel. It can be inserted through existing production
+tubing and used to perform workovers without using a larger, more costly
+workover rig. Principal advantages of employing coiled tubing in a workover
+include: (i) not having to "shut-in" the well during such operations, (ii) the
+ability to reel continuous coiled tubing in and out of a well significantly
+faster than conventional pipe, (iii) the ability to direct fluids into a
+wellbore with more precision, and (iv) enhanced access to remote or offshore
+fields due to the smaller size and mobility of a coiled tubing unit.
+NITROGEN. There are a number of uses for nitrogen, an inert, non-combustible
+element, in providing services to oilfield customers and industrial users
+outside of the oilfield. For our oilfield customers, nitrogen can be used to
+clean drilling and production pipe and displace fluids in various drilling
+applications. It also can be used to create a fire-retardant environment in
+hazardous blowout situations and as a fracturing medium for our fracturing
+service line. In addition to fracturing, nitrogen serves as a complement to our
+snubbing and coiled tubing service lines. For non-oilfield industrial users,
+nitrogen can be used to purge pipelines and create a non-combustible
+environment. RPC stores and transports nitrogen and has a number of pumping unit
+configurations that inject nitrogen in its various applications. Some of these
+pumping units are set up for use on offshore platforms or inland waters. RPC
+purchases its nitrogen in liquid form from several suppliers and believes that
+these sources of supply are adequate.
+WELL CONTROL. Cudd Pressure Control specializes in responding to and controlling
+oil and gas well emergencies, including blowouts and well fires domestically and
+internationally. In connection with these services, Cudd, along with Patterson
+Services, has the capacity to supply the equipment, expertise and personnel
+3
+necessary to restore affected oil and gas wells to production. In the last seven
+years, the Company has responded to well control situations in several
+international locations including Argentina, Australia, Bolivia, Colombia,
+Egypt, India, Peru, Taiwan and Venezuela.
+The Company's professional firefighting staff has more than 300 years of
+aggregate industry experience in responding to well fires and blowouts. This
+team of 16 experts responds to well control projects where hydrocarbons are
+escaping from a well bore, regardless of whether a fire has occurred. In the
+most critical situations, there are explosive fires, the destruction of drilling
+and production facilities, substantial environmental damage and the loss of
+hundreds of thousands of dollars per day in well operators' production revenue.
+Since these events ordinarily arise from equipment failures or human error, it
+is impossible to predict accurately the timing or scope of this work.
+Additionally, less critical events frequently occur in connection with the
+drilling of new wells in high-pressure reservoirs. In these situations, the
+Company is called upon to supervise and assist in the well control effort so
+that drilling operations can resume as promptly as safety permits.
+DOWN-HOLE TOOLS. ThruTubing Solutions ("TTS"), a division of the Company,
+provides services and proprietary down-hole motors and fishing tools to
+operators and service companies in drilling and production operations. TTS'
+experience providing reliable tool services allows it to work in a pressure
+environment with virtually any coiled tubing unit or snubbing unit that is
+equipped for the task.
+WIRELINE SERVICES. A wireline unit is a spooled wire that can be unwound and
+lowered into a well carrying various types of tools. Wireline services are used
+for a variety of purposes, such as accessing a well to assist in data
+acquisition or logging activities, fishing tool operations to retrieve lost or
+broken equipment, pipe recovery and remedial activities. In addition, wireline
+services are an integral part of the plug and abandonment process, near the end
+of the life cycle of a well.
+CASING AND LAYDOWN. Casing and laydown principally consists of installing casing
+and production tubing into a wellbore. Casing is run to protect the structural
+integrity of the wellbore and to seal various production zones in the well.
+These services are normally provided during the drilling phase of a well.
+Production tubing is then run inside the casing. Oil and natural gas are
+produced through the tubing. These services are provided during the completion
+or workover phases of a well.
+TORQUE-TURN. Torque-Turn is used on casing and tubing in the deeper, higher
+pressure gas wells where connection integrity and leak resistance are most
+critical. By monitoring the makeup of connections with both torque and turns
+simultaneously, optimum bearing pressure is achieved between the connection. The
+level of bearing pressure directly affects the leak resistance of the
+connection. The use of the torque-turn system allows the maximum bearing
+pressure to be achieved without permanently deforming the tubular material.
+FISHING. The Company started a fishing service line in late 2003. Fishing
+involves the use of specialized tools and procedures to retrieve lost equipment
+from a well. It is a service required by oil and gas operators who have lost
+equipment in a well. Well production typically ceases until the lost equipment
+can be retrieved. In some cases, the Company creates customized tools to perform
+a fishing operation. The customized tools are maintained by the Company after
+the particular fishing job for future use if a similar need arises.
+SUPPORT SERVICES
+The following is a description of the primary service lines conducted within the
+Support Services business segment:
+RENTAL TOOLS. RPC rents specialized equipment for use with onshore and offshore
+oil and gas well drilling, completion and workover activities. The drilling and
+operation of oil and gas wells generally require a variety of equipment. The
+equipment needed is in large part determined by the geological features of the
+production zone and the size of the well itself. As a result, operators and
+drilling contractors often find it more economical to supplement their tool and
+tubulars inventories with rental items instead of owning a complete inventory.
+RPC is strategically located to serve the major staging points for oil and gas
+activities in the Gulf of Mexico and mid-continent regions.
+RPC, through Patterson Rental Tools, offers a broad range of rental tools
+including:
+Blowout Preventors High Pressure Manifolds
+Coflexip Hoses Hydraulic Torque Wrenches
+Drill Collars Power Tongs
+Drill Pipe Pressure Control Equipment
+Production Related Rental Tools Test Pumps
+Gravel Pack Equipment Tubing
+Handling Tools Tubulars
+Hevi-wate Pipe Tubular Handling Tools
+4
+MARINE SERVICES. A liftboat is a self-propelled, self-elevating work platform
+with legs, cranes and living accommodations. Our fleet consists of four
+liftboats, two of which have leg lengths of 200 feet. Upon arriving at a
+destination, a liftboat hydraulically lowers its legs until they are positioned
+on the ocean floor, and then jacks up until the work platform is sufficiently
+above the water level. Once positioned, the stability, open deck area, crane
+capacity, and relatively low cost of operation make liftboats ideal work
+platforms for a wide range of offshore activities, including platform
+construction, plug and abandonment services, and other non-oilfield related
+construction work. Our liftboats have either one or two cranes with lift
+capacities up to 75 tons. A liftboat's capability to reposition at a work site
+or to move to another work location within a short timeframe adds to its
+versatility. In addition, liftboat services are also highly complementary to
+RPC's service lines within the Technical Services business segment as it relates
+to providing services offshore.
+PIPE INSPECTION AND HANDLING SERVICES. Pipe inspection services involve the
+inspection and testing of the integrity of pipe used in oil and gas wells. These
+services are provided primarily at RPC's inspection yards located on a water
+channel near Houston, Texas, and in Morgan City, Louisiana. Customers rely on
+tubular inspection services to avoid failure of in-service tubing, casing,
+flowlines, and drill pipe. Such tubular failures are expensive and, in some
+cases, catastrophic. RPC's yard in Houston, Texas is equipped with bulkhead
+waterfronts, large capacity cranes, specially designed forklifts and a
+computerized inventory system to serve a variety of other storage and handling
+services that can serve both oilfield and non-oilfield customers.
+WELL CONTROL SCHOOL. Well Control School provides industry and government
+accredited training for the oil and gas industry both in the United States and
+in several international locations. Well Control School provides this training
+in various formats including conventional classroom training, interactive
+computer training and mobile simulator training. Well Control School also
+develops customized training solutions for clients.
+ENERGY PERSONNEL INTERNATIONAL. Energy Personnel International provides drilling
+and production engineers, project management specialists and workover
+specialists on a consulting basis to the oil and gas industry to meet customers'
+needs for staff engineering and wellsite management.
+INDUSTRY
+UNITED STATES. RPC provides its services to its domestic customers through a
+network of locations strategically positioned to serve the Gulf of Mexico, the
+mid-continent, the southwest and the Rocky Mountains production fields. Demand
+for RPC's services in the U.S. tends to be extremely volatile and fluctuates
+with current and projected price levels of oil and natural gas and activity
+levels in the oil and gas industry. Customer activity levels are influenced by
+their decisions about capital investment toward the development and production
+of oil and gas reserves.
+Due to aging oilfields and lower-cost sources of oil internationally, drilling
+activity in the U.S. has declined more than 75 percent from its peak in 1981.
+Record low drilling activity levels were experienced in 1986, 1992 and again in
+1999, with April 1999 recording the lowest U.S. drilling rig count in the
+industry's history.
+At the end of 2002, there were 862 domestic working drilling rigs, down 33
+percent from the third quarter 2001 peak. U.S. domestic drilling activity in
+2003 declined in the beginning of the first quarter, but began a gradual
+recovery in the first quarter and rose during the year to a high at the end of
+the year of 1,126. This represents a 31 percent increase over the beginning of
+2003, but was still 13 percent lower than the 2001 peak. The price of natural
+gas rose by 64 percent during 2003 and the price of oil rose by 19 percent
+during the period, but drilling activity was not as highly correlated with these
+increases in commodity prices as in past cycles.
+Historically, gas drilling rigs have typically represented just over 50 percent
+of the total drilling rig count. However, gas-directed drilling rigs averaged
+approximately 85 percent of the total domestic drilling rig count during 2003.
+Demand for natural gas is continuing to rise, primarily as a result of increased
+emphasis on gas-fired power generation. Also, unlike oil, foreign imports do not
+compete with domestic production. This lack of foreign competition tends to keep
+prices high. Based on the current demand for natural gas as well as the high
+well depletion rates experienced over the past several years, it is anticipated
+that gas-directed drilling will represent at least 80 percent of the total
+drilling rig count in the foreseeable future. The demand for RPC's services is
+driven more by gas-directed drilling than oil-directed drilling, because our
+services are more applicable to deeper, higher pressure wells, which tend to be
+the wells that produce natural gas.
+Thus, in North America the demand for our services and products associated with
+natural gas development is currently more robust than demand related to oil
+drilling. Drilling activity and demand for our services has started to increase
+and is expected to continue to increase as the domestic economy improves and
+current storage levels of natural gas decrease.
+5
+INTERNATIONAL. RPC has operated in several countries including the major
+international oil and natural gas producing areas of Algeria, Argentina,
+Bolivia, Canada, Cameroon, Colombia, Gabon, Indonesia, Mexico and Venezuela.
+During 2003, RPC performed well control work in Colombia and snubbing work in
+Cameroon, Canada and Gabon, and realized an immaterial amount of revenues
+through Well Control School in Venezuela and Argentina. We are evaluating new
+business opportunities in each of these markets and may resume our operations in
+one or all of these markets.
+Beginning in the second quarter of 2002 and throughout 2003, the Company had
+less international revenues than it had in the previous five years. As part of a
+focus on developing other international opportunities, the Company is beginning
+work in Kuwait and Egypt during the first quarter of 2004.
+RPC provides services to its international customers through wholly-owned
+foreign subsidiaries or branch locations. The international market is somewhat
+less volatile than the U.S. market although prone to political uncertainties,
+including the risk of civil unrest and conflicts. Due to the significant
+investment requirement and complexity of international projects, customers'
+drilling decisions relating to such projects tend to be evaluated and monitored
+with a longer-term perspective with regard to oil and natural gas pricing.
+Additionally, the international market is dominated by major oil companies and
+national oil companies which tend to have different objectives and more
+operating stability than the typical independent oil and gas producer in the
+U.S. Pursuing selective international opportunities for revenue growth continues
+to be a strong emphasis for RPC. Refer to Note 13 in the Notes to Consolidated
+Financial Statements for further information on international operations.
+GROWTH STRATEGIES
+RPC's primary objective is to generate excellent long-term returns on investment
+through the effective and conservative management of its invested capital, thus
+yielding strong cash flow and asset appreciation. This objective will be pursued
+through strategic investments and opportunities designed to enhance the
+long-term value of RPC while improving market share, product offerings and the
+profitability of existing businesses. Growth strategies are focused on selected
+areas and markets in which we believe there exist opportunities for higher
+growth, market penetration, or enhanced returns achieved through consolidations
+or through providing proprietary value-added products and services. RPC intends
+to focus on specific market segments in which it believes that it has a
+competitive advantage or there exists significant growth potential.
+RPC seeks to expand its service capabilities through a combination of internal
+growth, acquisitions, joint ventures and strategic alliances. Because of the
+fragmented nature of the oil and gas services industry, RPC believes a number of
+attractive acquisition opportunities exist.
+CUSTOMERS
+Demand for RPC's services and products depends primarily upon the number of oil
+and natural gas wells being drilled, the depth and drilling conditions of such
+wells, the number of well completions and the level of workover activity
+worldwide. RPC's principal customers consist of major and independent oil and
+natural gas producing companies. During 2003, RPC provided oilfield services to
+several hundred customers, none of which accounted for more than 10 percent of
+consolidated revenues. While the loss of certain of RPC's largest customers
+could have a material adverse effect on Company revenues and operating results
+in the near term, management believes RPC would be able to obtain other
+customers for its services in the event of a loss of any of its largest
+customers. Sales are generated by RPC's sales force and through referrals from
+existing customers. With the exception of certain international customers, there
+are no long-term written contracts for services or equipment. Due to the short
+lead time between ordering services or equipment and providing services or
+delivering equipment, there is no significant sales backlog.
+COMPETITION
+RPC operates in highly competitive areas of the oilfield services industry. The
+products and services of each of RPC's principal industry segments are sold in
+highly competitive markets, and its revenues and earnings are affected by
+changes in prices for our services, fluctuations in the level of activity in
+major markets, general economic conditions and governmental regulation. RPC
+competes with many large and small oilfield industry competitors, including the
+largest integrated oilfield services companies. RPC believes that the principal
+competitive factors in the market areas that it serves are product and service
+quality and availability, reputation for safety and technical proficiency and
+price.
+The oil and gas services business includes a small number of dominant global
+competitors including Halliburton Energy Services, a division of Halliburton
+Company, and Schlumberger Ltd., and a significant number of locally oriented
+businesses, many of which tend to be viable acquisition targets.
+6
+FACILITIES/EQUIPMENT
+RPC's equipment consists primarily of oil and gas services equipment used either
+in servicing customer wells or provided on a rental basis for customer use.
+Substantially all of this equipment is Company owned and unencumbered. RPC both
+owns and leases regional and district facilities from which its oilfield
+services are provided to land-based and offshore customers. RPC's principal
+executive offices in Atlanta, Georgia are leased. The Company has two
+administrative buildings, one in Houston, Texas that includes the Company's
+operations, sales and marketing headquarters, and one in Houma, Louisiana that
+houses certain administrative functions. RPC believes that its facilities are
+adequate for its current operations. RPC also owns and operates four offshore
+liftboats. For additional information with respect to RPC's lease commitments,
+see Note 10 of the Notes to Consolidated Financial Statements.
+GOVERNMENTAL REGULATION
+RPC's business is significantly affected by state, federal and foreign laws and
+other regulations relating to the oil and gas industry, as well as laws and
+regulations relating to worker safety and environmental protection. RPC cannot
+predict the level of enforcement of existing laws and regulations or how such
+laws and regulations may be interpreted by enforcement agencies or court
+rulings, whether additional laws and regulations will be adopted, or the effect
+such changes may have on it, its businesses or financial condition.
+In addition, our customers are affected by laws and regulations relating to the
+exploration for and production of natural resources such as oil and natural gas.
+These regulations are subject to change, and new regulations may curtail or
+eliminate our customers' activities in certain areas where we currently operate.
+We cannot determine the extent to which new legislation may impact our
+customers' activity levels, and ultimately, the demand for our services.
+INTELLECTUAL PROPERTY
+RPC uses several patented items in its operations, which management believes are
+important but are not indispensable to RPC's operations. Although RPC
+anticipates seeking patent protection when possible, it relies to a greater
+extent on the technical expertise and know-how of its personnel to maintain its
+competitive position.
+AVAILABILITY OF FILINGS
+RPC makes available, free of charge, on its website, WWW.RPC.NET, its annual
+report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
+8-K, and all amendments to those reports on the same day as they are filed with
+the Securities and Exchange Commission and has done so since November 15, 2002.
+RISK FACTORS
+DEMAND FOR OUR PRODUCTS AND SERVICES IS AFFECTED BY THE VOLATILITY OF OIL
+PRICES.
+Oil prices affect demand throughout the oil and natural gas industry, including
+the demand for our products and services. Our business depends in large part on
+the conditions of the oil and gas industry, and specifically on the capital
+investments of our customers related to the exploration and production of oil
+and natural gas. When these capital investments decline, our customers' demand
+for our services declines.
+Although the production sector of the oil and gas industry is less immediately
+affected by changing prices, and, as a result, less volatile than the
+exploration sector, producers react to declining oil and gas prices by
+curtailing capital spending, which would adversely affect our business. A
+prolonged low level of activity in the oil and gas industry will adversely
+affect the demand for our products and services and our financial condition and
+results of operations.
+THE RELATIONSHIP BETWEEN THE PRICES OF OIL AND NATURAL GAS AND OUR CUSTOMERS'
+DRILLING AND PRODUCTION ACTIVITIES MAY NOT BE HIGHLY CORRELATED IN THE FUTURE.
+Historically, a rise in the prices of oil and natural gas has led to an
+immediate increase in our customers' drilling and production activities as
+measured by the domestic rig count. During 2003, the price of natural gas rose
+by 64 percent and the price of oil rose by 19 percent. Although drilling
+activity rose as well, it was not as highly correlated with the prices of oil
+and natural gas as in past industry cycles. If this correlation continues to be
+weak in the future, then it is possible that increases in the prices of oil and
+natural gas will not lead to an increase in our customers' activities, and our
+future operating results could be negatively impacted.
+WE MAY BE UNABLE TO COMPETE IN THE HIGHLY COMPETITIVE OIL AND GAS INDUSTRY IN
+THE FUTURE.
+We operate in highly competitive areas of the oilfield services industry. The
+products and services of each of our principal industry segments are sold in
+highly competitive markets, and our revenues and earnings may be affected by the
+following factors: changes in competitive prices, fluctuations in the level of
+activity in major markets, general economic conditions, and governmental
+regulation. We compete with the oil and gas industry's many large and small
+industry competitors, including the largest integrated oilfield service
+providers. We believe that the principal competitive factors in the market
+7
+areas that we serve are product and service quality and availability, reputation
+for safety, technical proficiency and price. Although we believe that our
+reputation for safety and quality service is good, we cannot assure you that we
+will be able to maintain our competitive position.
+WE MAY BE UNABLE TO IDENTIFY OR COMPLETE ACQUISITIONS.
+Acquisitions have been and will continue to be a key element of our business
+strategy. We cannot assure you that we will be able to identify and acquire
+acceptable acquisition candidates on terms favorable to us in the future. We may
+be required to incur substantial indebtedness to finance future acquisitions and
+also may issue equity securities in connection with such acquisitions. The
+issuance of additional equity securities could result in significant dilution to
+our stockholders. We cannot assure you that we will be able to consolidate
+successfully the operations and assets of any acquired business with our own
+business. Any inability on our part to consolidate and manage the growth from
+acquired businesses could have a material adverse effect on our results of
+operations and financial condition.
+OUR OPERATIONS ARE AFFECTED BY ADVERSE WEATHER CONDITIONS.
+Our operations are directly affected by the weather conditions in the Gulf of
+Mexico and Gulf Coast regions. Due to seasonal differences in weather patterns,
+our crews may operate more days in some periods than others. Rainy weather,
+hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf
+Coast throughout the year may also affect our operations. Accordingly, our
+operating results may vary from quarter to quarter, depending on factors outside
+of our control.
+OUR INABILITY TO ATTRACT AND RETAIN SKILLED WORKERS MAY IMPAIR GROWTH POTENTIAL
+AND PROFITABILITY.
+Our ability to remain productive and profitable will depend substantially on our
+ability to attract and retain skilled workers. Our ability to expand our
+operations is in part impacted by our ability to increase our labor force. The
+demand for skilled oilfield employees is high, and the supply is very limited. A
+significant increase in the wages paid by competing employers could result in a
+reduction in our skilled labor force, increases in the wage rates paid by us, or
+both. If either of these events occurred, our capacity and profitability could
+be diminished, and our growth potential could be impaired.
+OUR CONCENTRATION OF CUSTOMERS IN ONE INDUSTRY MAY IMPACT OVERALL EXPOSURE TO
+CREDIT RISK.
+Substantially all of our customers are engaged in the energy industry. This
+concentration of customers in one industry may impact our overall exposure to
+credit risk, either positively or negatively, in that customers may be similarly
+affected by changes in economic and industry conditions. We perform ongoing
+credit evaluations of our customers and do not generally require collateral in
+support of our trade receivables.
+OUR BUSINESS HAS POTENTIAL LIABILITY FOR LITIGATION, PERSONAL INJURY AND
+PROPERTY DAMAGE CLAIMS ASSESSMENTS.
+Our operations involve the use of heavy equipment and exposure to inherent
+risks, including blowouts, explosions and fires. If any of these events were to
+occur, it could result in liability for personal injury and property damage,
+pollution or other environmental hazards or loss of production. Litigation may
+arise from a catastrophic occurrence at a location where our equipment and
+services are used. This litigation could result in large claims for damages. The
+frequency and severity of such incidents will affect our operating costs,
+insurability and relationships with customers, employees and regulators. These
+occurrences could have a material adverse effect on us. We maintain what we
+believe is prudent insurance protection. We cannot assure you that we will be
+able to maintain adequate insurance in the future at rates we consider
+reasonable or that our insurance coverage will be adequate to cover future
+claims and assessments that may arise.
+OUR OPERATIONS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO COMPLY WITH
+REGULATORY AND ENVIRONMENTAL LAWS.
+Our business is significantly affected by stringent environmental laws and other
+regulations relating to the oil and gas industry and by changes in such laws and
+the level of enforcement of such laws. We are unable to predict the level of
+enforcement of existing laws and regulations, how such laws and regulations may
+be interpreted by enforcement agencies or court rulings, or whether additional
+laws and regulations will be adopted. The adoption of laws and regulations
+curtailing exploration and development of oil and gas fields in our areas of
+operations for economic, environmental or other policy reasons would adversely
+affect our operations by limiting demand for our services. We also have
+potential environmental liabilities with respect to our offshore and onshore
+operations, and could be liable for cleanup costs, or environmental and natural
+resource damage due to conduct that was lawful at the time it occurred, but is
+later ruled to be unlawful. We also may be subject to claims for personal injury
+and property damage due to the generation of hazardous substances in connection
+with our operations. We believe that our present operations substantially comply
+with applicable federal and state pollution control and environmental protection
+laws and regulations. We also believe that compliance with such laws has had no
+material adverse effect on our operations to date. However, such environmental
+laws are changed frequently. We are unable to predict whether environmental laws
+will, in the future, materially adversely affect our operations and financial
+condition. Penalties for noncompliance with these laws may include cancellation
+of permits, fines, and other corrective actions, which would negatively affect
+our future financial results.
+8
+OUR INTERNATIONAL OPERATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
+BUSINESS.
+Our operations in various countries including, but not limited to, Africa,
+Canada and Latin America are subject to risk. These risks include, but are not
+limited to, political changes, expropriation, currency restrictions and changes
+in currency exchange rates, taxes, and boycotts and other civil disturbances.
+Although it is impossible to predict the likelihood of such occurrences or their
+effect on our operations, our management believes that these risks are
+acceptable. However, the occurrence of any one of these events could have a
+material adverse effect on our operations.
+OUR COMMON STOCK PRICE HAS BEEN VOLATILE.
+Historically, the market price of common stock of companies engaged in the oil
+and gas services industry has been highly volatile. Likewise, the market price
+of our common stock has varied significantly in the past.
+OUR MANAGEMENT HAS A SUBSTANTIAL OWNERSHIP INTEREST, AND PUBLIC SHAREHOLDERS MAY
+HAVE NO EFFECTIVE VOICE IN THE MANAGEMENT OF THE COMPANY.
+The Company has elected the "Controlled Corporation" exemption under Rule 303A
+of the New York Stock Exchange ("NYSE") Company Guide. The Company is a
+"Controlled Corporation" because a group that includes the Company's Chairman of
+the Board, R. Randall Rollins and his brother, Gary W. Rollins, who is also a
+director of the Company, and certain companies under their control, controls in
+excess of fifty percent of the Company's voting power. As a "Controlled
+Corporation", the Company need not comply with certain NYSE rules including
+those requiring a majority of independent directors.
+RPC's executive officers, directors and their affiliates hold directly or
+through indirect beneficial ownership, in the aggregate, approximately 65
+percent of RPC's outstanding common stock. As a result, these stockholders
+effectively control the operations of RPC, including the election of directors
+and approval of significant corporate transactions such as acquisitions. This
+concentration of ownership could also have the effect of delaying or preventing
+a third party from acquiring control over the Company at a premium. In addition,
+the availability of RPC's common stock to the investing public may be limited to
+those shares not held by the executive officers, directors and their affiliates,
+which could negatively impact RPC's stock trading prices and affect the ability
+of minority stockholders to sell their shares. Future sales by executive
+officers, directors and their affiliates of all or a portion of their shares
+could also negatively affect the trading price of our common stock.
+ITEM 2. PROPERTIES
+RPC owns or leases 61 offices and operating facilities. In addition, RPC leases
+6,165 square feet of office space in Atlanta, Georgia that serves as its
+headquarters. The lease agreement on the headquarters is effective through May
+2007. RPC believes its current operating facilities are suitable and adequate to
+meet current and reasonably anticipated future needs. Descriptions of the major
+facilities used in our operations are as follows:
+OWNED LOCATIONS
+Houma, Louisiana - Oil and gas administrative office
+Houston, Texas - Pipe storage terminal, inspection shed, and pipe coating
+facility
+Houston, Texas - Operations, sales and administrative office
+Irving, Texas - Crane fabrication plant
+Morgan City, Louisiana - Pipe cleaning facility
+LEASED LOCATIONS
+Seminole, Oklahoma - Pumping services facility
+Kilgore, Texas - Pumping services facility
+ITEM 3. LEGAL PROCEEDINGS
+RPC is a party to various routine legal proceedings primarily involving
+commercial claims, workers' compensation claims and claims for personal injury.
+RPC insures against these risks to the extent deemed prudent by its management,
+but no assurance can be given that the nature and amount of such insurance will,
+in every case, fully indemnify RPC against liabilities arising out of pending
+and future legal proceedings related to its business activities. While the
+outcome of these lawsuits, legal proceedings and claims cannot be predicted with
+certainty, management believes that the outcome of all such proceedings, even if
+determined adversely, would not have a material adverse effect on RPC's business
+or financial condition.
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
+There were no matters submitted to a vote of security holders during the fourth
+quarter of 2003.
+9
+ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
+Each of the executive officers of RPC was elected by the Board of Directors to
+serve until the Board of Directors' meeting immediately following the next
+annual meeting of stockholders or until his or her earlier removal by the Board
+of Directors or his or her resignation. The following table lists the executive
+officers of RPC and their ages, offices, and terms of office with RPC.
+Date First Elected
+------------------
+Name and Office with Registrant Age to Present Office
+------------------------------- --- -----------------
+R. Randall Rollins (1) 72 1/24/84
+Chairman of the Board
+Richard A. Hubbell (2)
+President and
+Chief Executive Officer 59 4/22/03
+Linda H. Graham (3)
+Vice President and
+Secretary 67 1/27/87
+Ben M. Palmer (4)
+Vice President
+Chief Financial Officer and Treasurer 43 7/8/96
+(1) R. Randall Rollins began working for Rollins, Inc. (consumer services) in
+1949. At the time of the spin-off of RPC from Rollins, in 1984, Mr. Rollins
+was elected Chairman of the Board and Chief Executive Officer of RPC. He
+remains Chairman of RPC, Inc. and stepped down as the Chief Executive
+Officer of RPC effective April 21, 2003. He has served as Chairman of the
+Board for Marine Products Corporation (boat manufacturing) since it was
+spun off in February 2001 and Chairman of the Board of Rollins, Inc. since
+October 1991. He is also on the boards of SunTrust Banks, Inc., SunTrust
+Banks of Georgia, Dover Downs Gaming and Entertainment, Inc., and Dover
+Motorsports, Inc.
+(2) Richard A. Hubbell has been the President of RPC, Inc. since 1987 and CEO
+since April 2003. He has also been the President and Chief Executive
+Officer of Marine Products Corporation since it was spun off in February
+2001. Mr. Hubbell serves on the Board of Directors for both of these
+companies.
+(3) Linda H. Graham has been Vice President and Secretary of RPC, Inc. since
+1987 and the Vice President and Secretary of Marine Products Corporation
+since it was spun off in February 2001. Ms. Graham serves on the Board of
+Directors for both of these companies.
+(4) Ben M. Palmer has been Vice President, Chief Financial Officer and
+Treasurer of RPC, Inc. since 1996 and has served the same roles at Marine
+Products Corporation since it was spun off in February 2001.
+10
+PART II
+ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
+ISSUER PURCHASES OF EQUITY SECURITIES
+RPC's common stock is listed for trading on the New York Stock Exchange under
+the symbol RES. At the close of business on February 27, 2004, there were
+approximately 2,123 holders of record of the Company's common stock. The
+following table sets forth the high and low prices of RPC's common stock for
+each quarter in the years ended December 31, 2003 and 2002 and the quarterly
+dividends paid in those periods:
+2003 2002
+---------------------------------- ---------------------------------
+Quarter High Low Dividends High Low Dividends
+----------------------------------------------------------------------------------------------------
+First $ 12.34 $ 9.00 $ 0.025 $ 17.80 $ 12.77 $ 0.025
+Second 11.70 9.34 0.025 16.70 8.50 0.025
+Third 12.25 9.37 0.025 14.30 9.70 0.025
+Fourth 11.17 9.59 0.025 12.75 8.80 0.025
+----------------------------------------------------------------------------------------------------
+The Company has paid cash dividends since the third quarter of 1997. The Company
+expects to continue to pay cash dividends to the common stockholders, subject to
+the earnings and financial condition of the Company and other relevant factors.
+11
+ITEM 6. SELECTED FINANCIAL DATA
+The following summary financial data of RPC highlights selected historical
+financial and other data and should be read in conjunction with the consolidated
+financial statements included elsewhere in this document.
+STATEMENT OF OPERATIONS DATA:
+Years Ended December 31, 2003 2002 2001 2000 1999
+----------------------------------------------------------------------------------------------------------------------------
+(in thousands, except employee and per share amounts)
+Revenues $ 270,527 $ 209,030 $ 284,521 $ 201,958 $ 119,908
+Cost of services rendered and goods sold 168,766 143,362 168,152 124,989 83,762
+Selling, general and administrative expenses 52,268 44,852 52,873 37,076 24,722
+Depreciation and amortization 33,094 31,242 25,434 17,805 15,837
+----------------------------------------------------------------------------------------------------------------------------
+Operating profit (loss) 16,399 (10,426) 38,062 22,088 (4,413)
+Interest expense (income) 153 74 65 (1,443) (1,485)
+Other income, net 1,324 2,346 3,126 2,446 1,358
+----------------------------------------------------------------------------------------------------------------------------
+Income (loss) from continuing operations
+before income taxes 17,570 (8,154) 41,123 25,977 (1,570)
+Income tax provision (benefit) 6,677 (2,894) 15,627 9,850 (603)
+----------------------------------------------------------------------------------------------------------------------------
+Income (loss) from continuing operations 10,893 (5,260) 25,496 16,127 (967)
+Income from discontinued operation,
+net of income taxes - - 1,486 13,961 9,118
+----------------------------------------------------------------------------------------------------------------------------
+Net income (loss) $ 10,893 $ (5,260) $ 26,982 $ 30,088 $ 8,151
+----------------------------------------------------------------------------------------------------------------------------
+Earnings (loss) per share - basic:
+Income (loss) from continuing operations 0.38 (0.19) 0.91 0.58 (0.03)
+Income from discontinued operation - - 0.05 0.50 0.32
+----------------------------------------------------------------------------------------------------------------------------
+Net income (loss) $ 0.38 $ (0.19) $ 0.96 $ 1.08 $ 0.29
+----------------------------------------------------------------------------------------------------------------------------
+Earnings (loss) per share - diluted:
+Income (loss) from continuing operations 0.38 (0.19) 0.89 0.57 (0.03)
+Income from discontinued operation - - 0.05 0.49 0.32
+----------------------------------------------------------------------------------------------------------------------------
+Net income (loss) $ 0.38 $ (0.19) $ 0.94 $ 1.06 $ 0.29
+----------------------------------------------------------------------------------------------------------------------------
+Dividends paid per share $ 0.10 $ 0.10 $ 0.11 $ 0.14 $ 0.14
+----------------------------------------------------------------------------------------------------------------------------
+OTHER DATA:
+Operating margin percent 6.1% (5.0%) 13.4% 10.9% (3.7%)
+Net cash provided by continuing operations $ 50,631 $ 27,556 $ 55,938 $ 11,272 $ 16,419
+Net cash used for investing activities (34,670) (21,831) (46,357) (19,890) (16,352)
+Net cash used for financing activities (5,192) (4,927) (4,283) (4,392) (9,388)
+Depreciation and amortization(a) 33,182 31,342 25,536 17,995 15,962
+Capital expenditures $ 30,356 $ 22,481 $ 45,850 $ 35,526 $ 20,319
+Employees at end of period(b) 1,529 1,419 1,533 1,487 1,066
+BALANCE SHEET DATA AT END OF YEAR:
+Accounts receivable, net $ 53,719 $ 40,168 $ 46,928 $ 55,485 $ 33,454
+Working capital 63,226 52,646 42,513 47,794 25,851
+Property, plant and equipment, net 109,163 105,338 115,046 85,032 68,758
+Total assets(c) 226,750 195,954 202,402 277,915 235,715
+Long-term debt 4,800 2,410 2,937 848 1,547
+Total stockholders' equity(c) $ 151,106 $ 145,081 $ 156,436 $ 169,319 $ 142,808
+(a) Depreciation and amortization was derived from the statements of cash
+flows. This amount differs from depreciation and amortization presented in
+the statements of operations due to depreciation related to the
+manufacturing of goods which is included in cost of services rendered and
+goods sold.
+(b) Represents employees of continuing operations for all periods presented.
+(c) Includes assets and stockholders' equity associated with the discontinued
+operation prior to 2001.
+12
+ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
+OF OPERATIONS
+OVERVIEW
+RPC provides a broad range of specialized oilfield services primarily to
+independent and major oilfield companies engaged in exploration, production and
+development of oil and gas properties throughout the United States, including
+the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and
+selected international locations. RPC's business is affected by geopolitical
+factors such as political instability in the petroleum-producing regions of the
+world, overall economic conditions and weather in the United States, the prices
+of oil and natural gas, and our customers' drilling and production activities.
+The Company's revenues are earned by providing equipment and services to
+customers who operate oil and gas properties and invest capital to drill new
+wells and enhance production or perform maintenance on existing wells. RPC's
+management is presently focused on opportunities to increase its revenues and
+earnings through expansion in the Middle East and selected domestic markets, as
+well as assessing current operations and focusing on means to reduce costs. The
+Company's management also continues to monitor factors that impact the level of
+current and expected customer activities, such as the price of oil and natural
+gas, among other factors.
+The following discussion should be read in conjunction with "Selected Financial
+Data," and the "Consolidated Financial Statements" included elsewhere in this
+document. See also "FORWARD-LOOKING STATEMENTS" on page 2.
+OUTLOOK
+Drilling activity in the U.S. domestic oilfield, as measured by the rotary rig
+count, is stronger than it has been during the past 12 months, but the outlook
+continues to be uncertain. The overall domestic rig count during the first two
+months of 2004 is approximately 28 percent higher than in the comparable period
+in 2003, and all of the increase is attributed to an increase in the rig count
+related to drilling for natural gas. This is a favorable trend for the Company's
+revenues and earnings because our services tend to be better suited for deep,
+high pressure wells, which tend to be the types of wells that produce natural
+gas. However, drilling activity in the Gulf of Mexico remains weak, which is an
+unfavorable trend because of the Company's presence in this geographic market.
+In addition, the prices of oil and natural gas are slightly lower in the first
+two months of 2004 than in the comparable period in 2003. If this trend
+continues, the result may be lower activity levels among our customers, which
+would have a negative impact on our near-term results. The Company's response to
+these known uncertainties has been to maintain a high cash balance and make
+selective capital expenditures in areas where we believe there is a higher
+likelihood of strong customer activity, such as the Rocky Mountains and in
+selected markets in the Middle East.
+In addition to these known uncertainties impacting the near-term outlook for our
+business, our results could also be impacted by the strength of the recovery in
+the U.S. economy, renewed tensions in the Middle East and other oil-producing
+nations, and the weather in the United States during 2004.
+CRITICAL ACCOUNTING POLICIES
+The consolidated financial statements are prepared in accordance with accounting
+principles generally accepted in the United States, which require significant
+judgment by management in selecting the appropriate assumptions for calculating
+accounting estimates. These judgments are based on our historical experience,
+terms of existing contracts, trends in the industry, and information available
+from other outside sources, as appropriate. The Company believes that, of its
+significant accounting policies, the following involve a higher degree of
+judgment and complexity:
+Allowance for doubtful accounts - Accounts receivable are reduced by an
+allowance for amounts that may not be collected in the future. Substantially all
+of the Company's receivables are due from oil and gas exploration and production
+companies in the United States, selected international locations and foreign,
+nationally owned oil companies. We have established credit evaluation procedures
+that seek to minimize the amount of business we conduct with higher risk
+customers. Our customers' ability to pay is directly related to their ability to
+generate cash flow on their projects and is significantly affected by the
+volatility in the price of oil and natural gas. The estimated allowance for
+doubtful accounts is based on management's evaluation of the overall trends in
+the oil and gas industry, financial condition of our customers, our historical
+experience, and in the case of foreign customers, our judgments about the
+economic and political environment of the related country and region.
+Historically, we have had favorable collections experience with most of our
+customers.
+13
+Income taxes - The determination of our income tax provision is complex due to
+operations in several tax jurisdictions outside the United States which may be
+subject to certain risks that ordinarily would not be expected in the United
+States. Tax regimes in certain jurisdictions are subject to significant changes,
+which may be applied on a retroactive basis. If this were to occur, our tax
+expense could be materially different than the amounts reported. Furthermore, in
+determining the requirement for any valuation allowance related to deferred tax
+assets, we estimate taxable income into the future and determine the magnitude
+of deferred tax assets that are more likely than not to be realized.
+Accrued insurance liabilities - The Company has exposure to various contingent
+liabilities and future claims. The Company self insures, up to specified limits,
+certain risks related to general liability, workers' compensation, vehicle and
+equipment liability, and employee health insurance plan costs. The cost of
+claims under these self-insurance programs is estimated and accrued as the
+claims are incurred, although actual settlement of the claims may not be made
+until future periods. These claims are monitored and the cost estimates are
+revised as developments occur relating to such claims. To estimate the ultimate
+cost of the claims, the Company applies loss development factors to its
+outstanding claims and uses its experience and, where appropriate, the advice of
+outside counsel or other experts. The non-current portion of these estimated
+outstanding claims is classified as long-term accrued insurance expenses. Upon
+the ultimate resolution of these uncertainties, our future financial results
+will be impacted by the difference between our estimates and the actual amounts
+paid to settle the liabilities.
+Depreciable life of assets - The selection of the useful lives of many of the
+assets requires the judgment of our personnel to estimate the length of their
+useful lives. To the extent that the estimate differs from the actual life of
+the assets, our future financial results could be impacted by any changes to the
+depreciable lives. We believe the current estimates of the useful lives are
+reasonable.
+Pension liabilities - Pension costs are actuarially determined and affected by
+assumptions including the discount rate, the estimated future return on plan
+assets and other factors. The Company evaluates assumptions used on a periodic
+basis and makes adjustments to these liabilities as necessary. The Company
+utilizes the Moody's Aa long-term corporate bond yield as a basis for
+determining the discount rate with a yield adjustment made for the longer
+duration of the Company's obligations. The Company evaluates its assumption
+regarding the estimated long-term rate of return on plan assets based on its
+historical experience and future expectation on investment returns and asset
+allocation. The Company chooses a rate of return on plan assets that it believes
+is an appropriate long-term average return. The expected return on plan assets
+takes into account estimated future investment returns for various asset classes
+held in the plans' portfolio. To the extent changes are required in the
+assumptions discussed above, the Company's recorded liabilities may have to be
+adjusted and may result in a material impact to the results of operations.
+14
+RESULTS OF OPERATIONS
+-------------------------------------------------------------------------------------------------------------------------
+YEARS ENDED DECEMBER 31, 2003 2002 2001
+-------------------------------------------------------------------------------------------------------------------------
+Consolidated revenues [IN THOUSANDS] $ 270,527 $ 209,030 $ 284,521
+Revenues by business segment [IN THOUSANDS] :
+Technical $ 216,321 $ 163,593 $ 214,361
+Support 43,909 35,784 57,932
+Other 10,297 9,653 12,228
+Consolidated operating profit (loss) [IN THOUSANDS] $ 16,399 $ (10,426) $ 38,062
+Operating profit (loss) by business segment [IN THOUSANDS] :
+Technical $ 22,433 $ (1,162) $ 33,455
+Support 2,641 (3,154) 10,136
+Other (1,355) (1,603) (1,096)
+Corporate expenses $ (7,320) $ (4,507) $ (4,433)
+Percentage cost of services rendered & goods sold to revenues 62% 69% 59%
+Percentage selling, general & administrative expenses to
+revenues 19% 21% 19%
+Percentage depreciation and amortization expense to revenues 12% 15% 9%
+Average U.S. domestic rig count 1,029 830 1,156
+Average natural gas price (per thousand cubic feet (mcf)) $ 5.41 $ 3.29 $ 3.92
+Average oil price (per barrel) $ 31.23 $ 26.16 $ 26.00
+-------------------------------------------------------------------------------------------------------------------------
+YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
+REVENUES. For the year ended December 31, 2003, consolidated revenues increased
+29 percent compared to last year as a result of higher utilization of equipment
+and personnel, increased pricing in most of our service lines and the impact of
+the Bronco Oilfield Services acquisition completed at the beginning of the
+second quarter. During 2003, the average domestic rig count increased 24 percent
+compared to 2002. The average price of natural gas increased 64 percent during
+2003 compared to 2002, while the average price of oil increased 19 percent
+during the same period. This increase in oil and gas prices had a positive
+impact on our financial results especially the greater increase in gas prices,
+because we believe that our activity levels are affected more by natural gas
+prices than by the price of oil. Although the prices of oil and natural gas in
+2003 were significantly higher than in 2002, the higher prices and the increase
+in drilling activity did not correlate as closely as in past cycles. If this
+continues, then it is possible that rising oil and gas prices in the future may
+not necessarily indicate an increase in our activity levels, as they have
+historically.
+Technical Services revenues increased 32 percent for the year ended December 31,
+2003 compared to the prior year as a result of higher utilization of equipment
+and personnel, increased pricing in most service lines and the impact of the
+Bronco Oilfield Services acquisition completed at the beginning of the second
+quarter. Support Services revenues increased 23 percent for the year ended
+December 31, 2003 compared to the prior year, as a result of higher utilization
+of equipment slightly offset by a decrease in pricing. Part of this revenue
+increase was due to increased utilization of the Company's marine liftboats,
+which were involved in a long term, non-oilfield related project during most of
+2003. Support Services revenues experienced a relatively lower revenue increase
+than Technical Services due to this segment's presence in the Gulf of Mexico
+geographic market. Drilling activity in the Gulf of Mexico was much weaker than
+in other parts of the U.S. domestic market, and as measured by the rig count,
+declined during 2003 as compared to 2002.
+COST OF SERVICES RENDERED AND GOODS SOLD. Cost of services rendered and goods
+sold was $168,766,000 in 2003 compared to $143,362,000 in 2002, an 18 percent
+increase. As a percentage of revenues, these costs decreased from 69 percent in
+2002 to 62 percent in 2003 because of higher utilization of equipment and
+personnel. Cost of services rendered and goods sold for Technical Services was
+$134,476,000 in 2003 compared to $109,786,000 in 2002, a 22 percent increase.
+This increase was due to higher customer activity levels in 2003 compared to
+2002, because many of these costs vary directly with activity levels. In
+particular, materials and supplies expense within this segment increased in 2003
+compared to 2002, because of increases in revenues in several service lines
+within the Technical Services segment which require a large amount of materials
+for their operations, including Pressure Pumping and Coiled Tubing. Cost of
+15
+services rendered and goods sold in the Support Services segment was $24,543,000
+in 2003 compared to $23,635,000 in 2002, a 4 percent increase. This increase was
+due to increases in insurance expense, particularly related to the marine
+liftboats, and higher overtime personnel expense. Cost of services rendered and
+goods sold in this segment increased less than in Technical Services due to the
+relatively fixed nature of some of the personnel and equipment expenses in many
+of the services within Support Services.
+SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
+administrative expenses were $52,268,000 in 2003 compared to $44,852,000 in
+2002. This increase of $7,416,000, or 17 percent, was due to higher personnel
+and incentive compensation expense consistent with increased activity levels and
+profitability, and increased pension expense relating to the Company's pension
+plan obligation. Selling, general and administrative expenses as a percent of
+revenues decreased from 21 percent in 2002 to 19 percent in 2003 due to improved
+operating leverage.
+DEPRECIATION AND AMORTIZATION. Depreciation and amortization were $33,094,000 in
+2003, an increase of $1,852,000 or 6 percent compared to $31,242,000 in 2002.
+The increase in depreciation and amortization resulted from the cumulative
+effect of the higher levels of growth capital expenditures.
+OPERATING PROFIT (LOSS). Operating profit was $16,399,000 in 2003, an increase
+of $26,825,000, compared to an operating loss of $10,426,000 in 2002. This
+significant increase in operating results was due mainly to an overall
+improvement in industry operating conditions, and the resulting increased
+revenues, as discussed above.
+INTEREST EXPENSE (INCOME), NET. Interest expense increased 107% in 2003 compared
+to 2002. RPC's interest expense relates primarily to notes payable to the former
+owners of acquired businesses, and is offset by interest income from investment
+of its available cash. The Company's available cash is primarily invested in
+short-term marketable debt securities. The increase in interest expense, net of
+interest income, was due to new notes payable associated with an acquisition
+consummated in 2003, lower investment returns due to declining interest rates,
+and lower cash and marketable securities balances during 2003. See "Liquidity
+and Capital Resources" for additional explanations.
+OTHER INCOME, NET. Other income, net was $1,324,000 in 2003, a decrease of
+$1,022,000, compared to other income, net of $2,346,000 in 2002. During 2003,
+other income includes a gain from the settlement of an insurance claim of
+$410,000, proceeds from a settlement of a dispute with a vendor of $200,000, and
+gains related to the sale of operating equipment, partially offset by the
+recognition of a loss sustained on damaged operating equipment of $289,000.
+During 2002, other income included primarily gains relating to the sale of
+operating equipment, proceeds from the settlement of a lawsuit, and a gain from
+the sale of a small business unit.
+INCOME TAX PROVISION (BENEFIT). The effective income tax rate for 2003 was 38
+percent while the rate for 2002 was 35.5 percent. The slight increase in the
+book effective tax rate is due to the effect of permanent differences between
+book and taxable income.
+NET INCOME (LOSS). RPC's net income during 2003 was $10,893,000, an increase of
+$16,153,000, compared to a net loss of $5,260,000 in 2002. This increase is
+consistent with the increases in operating profit and other various factors as
+discussed above.
+YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
+REVENUES. RPC generated revenues of $209,030,000 in 2002 compared to
+$284,521,000 in 2001, a decrease of $75,491,000 or 27 percent. Revenues
+decreased as a result of weak drilling activity domestically and the shut down
+of operations in Algeria and Venezuela early in the second quarter, which were
+previously our largest international operations. The assets and personnel
+involved in these operations related to both the Technical and Support Services
+business segments and were re-deployed to the extent possible in our domestic
+market areas. The domestic rig count continued the decline begun in the fourth
+quarter of 2001 and hit a low of 738 early in the second quarter of 2002. The
+average domestic rig count was 830 in 2002 compared to 1,156 in 2001, a 28
+percent decrease.
+Although oil prices increased 29 percent from the first quarter 2002 to the
+fourth quarter 2002 and natural gas prices rose 65 percent during the same
+period, the rise in commodity prices failed to lead to a significant increase in
+drilling activity during the year. Some of the factors causing this continued
+depressed activity during 2002 were U.S. domestic economic weakness, global
+political uncertainty, and a warmer than average winter.
+COST OF SERVICES RENDERED AND GOODS SOLD. Cost of services rendered and goods
+sold was $143,362,000 in 2002 compared to $168,152,000 in 2001, a 15 percent
+decrease. This decrease was due to lower customer activity levels and RPC's cost
+reduction efforts. Cost of services rendered and goods sold increased from 59
+16
+percent of revenues in 2001 to 69 percent in 2002. This percentage increase
+resulted from lower utilization of equipment and personnel during the period and
+because of the fixed nature of many of these expenses. The rate of decline in
+cost of services rendered and goods sold was lower than the corresponding rate
+of decline in revenues, because of weaker industry conditions, resulting in
+significantly lower pricing for our services. Beginning in the fourth quarter of
+2001 and continuing throughout 2002, the Company made efforts to reduce its
+costs of providing services including reducing its employee headcount.
+SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
+administrative expenses were $44,852,000 in 2002 compared to $52,873,000 in
+2001. This decrease of $8,021,000, or 15 percent, was primarily the result of
+decreased employment costs from expense reduction efforts prompted by reduced
+revenues and reduction in activity. Selling, general and administrative expenses
+as a percent of revenues increased from 19 percent in 2001 to 21 percent in
+2002. The decrease also resulted from the elimination of several small
+non-oilfield business units which did not incur expenses during 2002. Selling,
+general and administrative expenses also declined as a result of the shut down
+of our operations in Algeria and Venezuela and the deployment of those resources
+to lower cost operating environments. However, the rate of decline in selling,
+general and administrative expenses was lower than the rate of decline in
+revenues, due to the fixed nature of many of these expenses.
+DEPRECIATION AND AMORTIZATION. Depreciation and amortization were $31,242,000
+in 2002, an increase of $5,808,000 or 23 percent compared to $25,434,000 in
+2001. The increase in depreciation and amortization resulted from the cumulative
+effect of the higher levels of growth capital expenditures made during the past
+few years, offset slightly by relatively lower capital expenditures during 2002
+and the cessation of goodwill amortization. Beginning in 2002, RPC ceased
+amortizing goodwill pursuant to SFAS 142. In 2001, the amortization of goodwill
+was approximately $382,000.
+OPERATING PROFIT (LOSS). Operating loss was $10,426,000 in 2002, a decrease of
+$48,488,000, compared to an operating profit of $38,062,000 in 2001. This
+significant decline resulted from an overall weakening in industry conditions,
+offset somewhat by RPC's cost reduction efforts, as discussed above.
+INTEREST EXPENSE (INCOME), NET. Interest expense was $74,000 in 2002 compared to
+$65,000 in 2001. RPC's interest expense relates to notes payable to the former
+owners of acquired businesses, and is offset by interest income from investment
+of its available cash. RPC's available cash is invested in short-term marketable
+debt securities. The increase in interest expense, net of interest income, was
+due to notes associated with acquisitions consummated in 2001, lower investment
+returns due to declining interest rates, and lower cash and marketable
+securities balances during 2002. See "Liquidity and Capital Resources" for
+additional explanations.
+OTHER INCOME, NET. Other income, net was $2,346,000 in 2002, a decrease of
+$780,000, compared to other income, net of $3,126,000 in 2001. During 2002,
+other income included primarily gains relating to the sale of operating
+equipment, proceeds from the settlement of a lawsuit, and a gain from the sale
+of a small business unit. During 2001, other income included primarily gains
+relating to the sale of operating equipment and settlements from various
+property claims.
+INCOME TAX PROVISION (BENEFIT). The effective income tax rate for 2002 was 35.5
+percent while the rate for 2001 was 38 percent. The slight decrease in the
+effective tax rate is due to the effect of permanant tax differences between
+book and taxable income.
+INCOME (LOSS) FROM CONTINUING OPERATIONS (NET OF INCOME TAXES). RPC's loss from
+continuing operations was $5,260,000, a decrease of $30,756,000 compared to an
+income of $25,496,000 in 2001. This decline is consistent with the decreases in
+operating profit.
+INCOME FROM DISCONTINUED OPERATION (NET OF INCOME TAXES). RPC realized no income
+or loss from the discontinued operation in 2002, compared to net income from
+discontinued operation of $1,486,000 in 2001. This decrease is due to the
+spin-off of RPC's powerboat manufacturing segment in February 2001, which was
+classified as a discontinued operation during 2001.
+17
+LIQUIDITY AND CAPITAL RESOURCES
+--------------------------------------------------------------------------------------------------------
+(IN THOUSANDS) 2003 2002 2001
+--------------------------------------------------------------------------------------------------------
+Net cash provided by operating activities $ 50,631 $ 27,556 $ 55,938
+Net cash (used for) investing activities (34,670) (21,831) (46,357)
+Net cash used for financing activities $ (5,192) $ (4,927) $ (4,283)
+--------------------------------------------------------------------------------------------------------
+In February 2001, the Company spun off its powerboat manufacturing segment in a
+tax-free spin-off. Historically, the powerboat manufacturing segment generated
+more cash than it needed to fund its operations and the excess was transferred
+to RPC. Subsequent to the spin-off, any excess cash generated by the spun-off
+segment is no longer available to the Company.
+The Company's decisions about the amount of cash to be used for investing and
+financing purposes are influenced by our capital position and the amount of cash
+expected to be provided by operations. The Company's available liquidity is used
+to fund expansion of our working capital as business activity levels increase,
+to fund growth and maintenance capital expenditures and to fund acquisitions of
+businesses. In addition, the Company uses its liquidity to pay dividends to its
+common stockholders and to repurchase common stock on the open market.
+Our primary sources of liquidity have been cash provided from operations and
+debt financing provided by sellers of acquired businesses, supplemented where
+needed, by access to a $25 million credit facility, of which $11 million is
+currently available, with a financial institution encompassing letters of credit
+and a demand note. The credit facility is renewable annually with interest
+payable monthly on outstanding advances under the demand note generally at LIBOR
+plus 50 basis points. The portion of the credit facility that is not currently
+available supports letters of credits relating to self-insurance programs or
+contract bids. There were no outstanding borrowings under the credit facility at
+February 27, 2004. Generally we have not maintained balances under this bank
+note for extended periods of time. Unless we were to make a large, strategic
+business acquisition, we do not currently anticipate maintaining large
+outstanding debt balances in the future. Beginning in the fourth quarter of 2001
+and throughout 2002, the Company reduced its capital expenditure levels in
+response to weaker industry conditions and uncertainty with regard to the
+timing of a recovery in customer activity levels. During 2003, the Company
+increased its capital expenditures for operating equipment in order to take
+advantage of improving industry conditions. In addition, the Company has been
+assessing current operations and focusing on reducing costs to enhance the
+Company's financial performance. Due to improving industry conditions and the
+corresponding ability to generate more cash from operating activities, the
+Company anticipates increasing its capital expenditures to approximately $40
+million during 2004, however, based on industry conditions management will
+adjust the level of expenditures to the extent it deems advisable.
+Cash provided by operating activities in 2003 increased $23,075,000, or 84
+percent, compared to 2002. Cash provided by operating activities increased
+primarily due to improved operating results coupled with receipt of a tax refund
+in the third quarter of 2003 resulting from carryback of prior year net
+operating losses. These increases were partially offset by higher working
+capital requirements during the current year including an increase in accounts
+receivable due to higher revenues partially offset by an increase in accounts
+payable and other liabilities consistent with higher business activity levels.
+Cash used in investing activities for 2003 increased $12,839,000, or 59 percent,
+compared to 2002, primarily as a result of increased capital expenditures with
+improved business conditions and the acquisition completed during the second
+quarter of 2003. In accordance with the respective purchase agreements of
+certain business acquisitions, earnout payments to sellers of acquired
+businesses may be paid on an annual basis and are recorded as goodwill when the
+earnout payment amounts are determinable. Earnout payments were made to sellers
+of acquired businesses totaling $1,885,000 in 2002 and $286,000 in 2001, and
+were recorded as an increase to the purchase price of the respective business.
+Estimated earnouts totaling $2,835,000 have been recorded as of December 31,
+2003 as additional goodwill and will be paid in early 2004.
+Cash used in financing activities for 2003 increased $265,000, or 5 percent,
+compared to 2002. The increase is primarily as a result of lower debt service
+requirements partially offset by higher repurchases in the open market of the
+Company's stock. The Company purchased 185,600 shares of its common stock on the
+open market during 2003. Under a plan authorized by its Board of Directors, the
+Company has purchased an aggregate of 1,839,000 shares of its common stock on
+the open market during the current and prior periods and can purchase up to
+161,000 additional shares. At the January 27, 2004 Board of Directors' Meeting,
+the Board approved a 20 percent increase in the quarterly cash dividend, from
+$0.025 to $0.03 to common shareholders of record on February 10, 2004 payable
+March 10, 2004. At this meeting, the Board also approved an increase of 1.5
+million shares to the previous stock repurchase program.
+18
+The prices for oil and natural gas remain historically strong, but until
+recently, have failed to lead to an increase in drilling activity. Prices have
+also been volatile in the last several quarters, due to uncertainties over the
+conflict in the Middle East and fluctuating natural gas storage levels. Although
+the weekly domestic rig count has increased, the Company still believes that the
+operating environment for our services is uncertain in the near term. As a
+result of this uncertainty, RPC is monitoring customer exploration and
+production activity levels very closely, and is only making capital expenditures
+to support known customer requirements or to maintain our existing fleet of
+operating equipment.
+The Company's Retirement Income Plan, a trusteed defined benefit pension plan,
+provides monthly benefits upon retirement at age 65 to eligible employees. In
+conjunction with the spin off of Chaparral in February 2001, the Company and
+Marine Products entered into an employee benefits agreement that provides for
+Marine Products to continue participating in the Plan. As of February 28, 2001,
+the plan became a multiple employer plan, with Marine Products as an adopting
+employer. In the first quarter of 2002, the Company's Board of Directors
+approved a resolution to cease all future retirement benefit accruals under the
+Retirement Income Plan effective March 31, 2002. However, the adverse conditions
+in the equity markets, along with the low interest rate environment, have had an
+unfavorable impact on the funded status of the Company's defined benefit pension
+plan. Additional contributions to the pension plan of approximately $4,800,000
+will be required in 2004 to achieve the Company's funding objectives.
+We believe the liquidity provided by our existing cash, cash equivalents and
+marketable securities, and cash expected to be generated from operations, will
+be sufficient to meet our liquidity requirements through at least December 31,
+2004. We believe our liquidity and overall strong capital position will allow us
+to continue to grow and provide the opportunity to take advantage of business
+opportunities that may arise.
+ACQUISITION
+On April 1, 2003, RPC purchased all of the assets of Bronco Oilfield Services,
+Inc. ("Bronco"), a privately-held company, specializing in surface pressure
+control services and equipment. The aggregate purchase price was $11,033,000,
+including $5,533,000 of cash, $3,500,000 in seller financed debt and RPC common
+stock valued at $2,000,000. Interest on the seller financed debt accrues at 6
+percent, with principal to be repaid over five years in equal annual
+installments. Additionally, Bronco's former owners, who have remained as
+employees, are eligible for an earnout to be paid in cash and stock, based upon
+future earnings in accordance with the agreement on an annual basis. The results
+of Bronco's acquisition have been included in the consolidated financial
+statements since the date of acquisition. Further information related to the
+acquisition has been included in the accompanying notes to the consolidated
+financial statements.
+OFF BALANCE SHEET ARRANGEMENTS
+The Company does not have any material off balance sheet arrangements.
+CONTRACTUAL OBLIGATIONS
+The Company's obligations and commitments that require future payments include
+notes payable in connection with acquisitions, a bank demand note, certain
+non-cancelable operating leases, purchase obligations and other long-term
+liabilities. The following table summarizes the Company's contractual
+obligations as of December 31, 2003:
+Contractual obligations Payments due by period
+------------------------------------------------------------------------------------------------
+Less than 1-3 3-5 More than
+[IN THOUSANDS] Total 1 year years years 5 years
+------------------------------------------------------------------------------------------------
+Long-term debt $ 5,910 $ 1,110 $ 4,100 $ 700 $ -
+Capital lease obligations - - - - -
+Operating leases (1) 3,614 1,579 1,961 74 -
+Purchase obligations (2) - - - - -
+Other long-term liabilities (3) 2,835 2,835 - - -
+------------------------------------------------------------------------------------------------
+Total contractual obligations $ 12,359 $ 5,524 $ 6,061 $ 774 $ -
+------------------------------------------------------------------------------------------------
+(1) Operating leases represent agreements for various office locations and
+equipment.
+(2) As part of the normal course of business the Company enters into
+purchase commitments to manage its various operating needs. However,
+the Company does not have any obligations that are non-cancelable or
+subject to a penalty if canceled.
+(3) Long-term liabilities on the balance sheet primarily represent pension
+obligations, deferred taxes and earnout payments. Minimum pension
+funding contributions are not included as such amounts have not been
+determined. The Company expects to make a contribution to the multiple
+employer pension plan of approximately $4,800,000 in 2004 which it
+expects to fund with available cash or from cash generated from
+operating activities. Estimated earnout payments to be paid in 2004
+are based on 2003 results of certain acquired businesses and total
+$2,835,000.
+19
+RELATED PARTY TRANSACTIONS
+Effective February 28, 2001, the Company began providing certain administrative
+services to Marine Products. The service agreements are more fully described in
+Note 2 to the consolidated financial statements. Charges from the Company (or
+from corporations that are subsidiaries of the Company) for such services
+aggregated approximately $496,000 in 2003, $588,000 in 2002 and $868,000 in
+2001. The Company's directors are also directors of Marine Products and certain
+officers are employees of both the Company and Marine Products.
+The Company periodically purchases in the ordinary course of business products
+or services from vendors who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. Total amounts paid to these affiliated
+parties were approximately $1,058,000 in 2003 and $502,000 in 2002. In addition,
+the overhead crane fabrication division of RPC recorded revenues of $171,000 in
+2003 and $332,000 in 2002 from Marine Products related to the sale, installation
+and service of overhead cranes.
+RPC sponsors a multiple employer plan that includes Marine Products. Following
+the spin-off, RPC charged Marine Products for, and Marine Products has been
+obligated to pay, its allocable share of pension costs and the associated
+funding obligation related to the prior service liabilities of Chaparral
+employees. Effective December 2003, the related prior service liabilities
+totaling $3,314,000 and pension assets totaling $2,517,000 were transferred
+within the multiple employer plan from RPC to Marine Products.
+NEW ACCOUNTING STANDARDS
+In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
+Interpretation (FIN) No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES. The
+Interpretation requires that a variable interest entity, as defined, be
+consolidated by a company if that company is subject to a majority of the risk
+of loss from the variable interest entity's activities or entitled to receive a
+majority of the entity's residual returns or both. The consolidation
+requirements of FIN 46 apply immediately to variable interest entities created
+after January 31, 2003. The consolidation requirements apply to entities created
+prior to January 31, 2003 in the first fiscal year or interim period beginning
+after December 15, 2003. Certain of the disclosure requirements apply in all
+financial statements issued after January 31, 2003, regardless of when the
+variable interest entity was established. The Company has not entered into any
+agreements subject to FIN 46 since January 31, 2003 and does not have any
+agreements in place that were executed prior to January 31, 2003 that will be
+subject to the Interpretation's provisions when it becomes fully effective in
+the first quarter of 2004. As a result, the Company believes the adoption of
+the Interpretation will not have an impact on the financial position, results of
+operations or liquidity of the Company.
+In December 2003, the FASB reissued Statement of Financial Accounting Standard
+("SFAS") 132, "Employers' Disclosures about Pension and Other Postretirement
+Benefits," that replaced the existing pronouncement. The revised SFAS does not
+change the measurement or recognition provisions; however, it requires
+additional disclosures about assets, obligations, cash flows and net periodic
+benefit cost of defined benefit pension plans and other post retirement benefit
+plans. The disclosure rules apply to annual financial statements for fiscal
+years ending after December 15, 2003. In addition, there are additional
+disclosure requirements for the interim-period financial reports starting the
+first quarter of 2004. The Company has adopted the provisions of SFAS 132 and
+presented the additional disclosures in the notes to the consolidated financial
+statements. The adoption of SFAS 132 did not have a material effect on the
+financial position, results of operations or liquidity of the Company.
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
+RPC maintains an investment portfolio, comprised of U.S. Government, corporate
+and municipal debt securities, which is subject to interest rate risk exposure.
+As of December 31, 2003, we are not subject to material interest rate risk
+exposure on these securities since they are highly liquid with maturities of
+three months or less. The Company has been affected by the impact of lower
+interest rates on interest income from its short-term investments. This risk is
+managed through conservative policies to invest in high-quality obligations.
+Also, as of December 31, 2003, RPC had debt with variable interest rates that
+exposes RPC to certain market risks. RPC has performed an interest rate
+sensitivity analysis related to the debt instruments using a duration model over
+the near term of the securities and the term of the debt with a 10 percent
+change in interest rates. RPC is not subject to material interest rate risk
+exposure based on this analysis, and no material changes in market risk
+exposures or how those risks are managed is expected.
+As of December 31, 2003, RPC had accounts receivable of approximately $54
+million (net of an allowance for doubtful accounts of approximately $2.5
+million). RPC is subject to a concentration of credit risk because most of the
+accounts receivable are due from companies in the oil and gas industry.
+20
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
+CONSOLIDATED BALANCE SHEETS
+RPC, INC. AND SUBSIDIARIES
+(IN THOUSANDS EXCEPT SHARE INFORMATION)
+DECEMBER 31, 2003 2002
+------------------------------------------------------------------------------------------------------------------------
+ASSETS
+Cash and cash equivalents $ 22,302 $ 11,533
+Accounts receivable, net 53,719 40,168
+Inventories 10,057 9,206
+Deferred income taxes 6,394 5,873
+Income taxes receivable 4,149 8,817
+Prepaid expenses and other current assets 3,614 3,478
+------------------------------------------------------------------------------------------------------------------------
+Current assets 100,235 79,075
+------------------------------------------------------------------------------------------------------------------------
+Property, plant and equipment, net 109,163 105,338
+Intangibles, net 15,488 9,609
+Other assets 1,864 1,932
+------------------------------------------------------------------------------------------------------------------------
+Total assets $226,750 $195,954
+========================================================================================================================
+LIABILITIES AND STOCKHOLDERS' EQUITY
+Accounts payable $ 19,603 $ 12,280
+Accrued payroll and related expenses 8,526 7,641
+Accrued insurance expenses 2,852 2,800
+Accrued state, local and other taxes 1,549 1,659
+Current portion of long-term debt 1,110 552
+Other accrued expenses 3,369 1,497
+------------------------------------------------------------------------------------------------------------------------
+Current liabilities 37,009 26,429
+------------------------------------------------------------------------------------------------------------------------
+Long-term accrued insurance expenses 5,856 4,898
+Long-term debt 4,800 2,410
+Long-term pension liability 12,972 6,931
+Deferred income taxes 13,296 8,888
+Other long-term liabilities 1,711 1,317
+------------------------------------------------------------------------------------------------------------------------
+Total liabilities 75,644 50,873
+------------------------------------------------------------------------------------------------------------------------
+Commitments and contingencies
+Preferred stock, $.10 par value, 1,000,000 shares authorized, none issued
+Common stock, $.10 par value, 79,000,000 shares authorized,
+28,626,320 shares issued in 2003 and 28,607,601 shares issued in 2002 2,862 2,861
+Capital in excess of par value 26,796 26,431
+Retained earnings 128,824 120,805
+Deferred compensation (1,076) (1,186)
+Accumulated other comprehensive loss (6,300) (3,830)
+------------------------------------------------------------------------------------------------------------------------
+Total stockholders' equity 151,106 145,081
+------------------------------------------------------------------------------------------------------------------------
+Total liabilities and stockholders' equity $226,750 $195,954
+========================================================================================================================
+THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
+21
+CONSOLIDATED STATEMENTS OF OPERATIONS
+RPC, INC. AND SUBSIDIARIES
+(IN THOUSANDS EXCEPT PER SHARE DATA)
+YEARS ENDED DECEMBER 31, 2003 2002 2001
+-------------------------------------------------------------------------------------------------------------------------
+REVENUES $270,527 $209,030 $284,521
+COSTS AND EXPENSES:
+Cost of services rendered and goods sold 168,766 143,362 168,152
+Selling, general and administrative expenses 52,268 44,852 52,873
+Depreciation and amortization 33,094 31,242 25,434
+-------------------------------------------------------------------------------------------------------------------------
+Operating profit (loss) 16,399 (10,426) 38,062
+Interest expense, net 153 74 65
+Other income, net 1,324 2,346 3,126
+-------------------------------------------------------------------------------------------------------------------------
+Income (loss) from continuing operations before income taxes 17,570 (8,154) 41,123
+Income tax provision (benefit) 6,677 (2,894) 15,627
+-------------------------------------------------------------------------------------------------------------------------
+Income (loss) from continuing operations 10,893 (5,260) 25,496
+Income from discontinued operation, net of income
+taxes of $834 in 2001 - - 1,486
+-------------------------------------------------------------------------------------------------------------------------
+Net income (loss) $ 10,893 $(5,260) $ 26,982
+=========================================================================================================================
+EARNINGS (LOSS) PER SHARE - BASIC
+Income (loss) from continuing operations $ 0.38 $ (0.19) $ 0.91
+Income from discontinued operation - - 0.05
+-------------------------------------------------------------------------------------------------------------------------
+Net income (loss) $ 0.38 $ (0.19) $ 0.96
+=========================================================================================================================
+EARNINGS (LOSS) PER SHARE - DILUTED
+Income (loss) from continuing operations $ 0.38 $ (0.19) $ 0.89
+Income from discontinued operation - - 0.05
+-------------------------------------------------------------------------------------------------------------------------
+Net income (loss) $ 0.38 $ (0.19) $ 0.94
+=========================================================================================================================
+Dividends paid per share $ 0.10 $ 0.10 $ 0.11
+=========================================================================================================================
+THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
+22
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
+RPC, INC. AND SUBSIDIARIES (IN THOUSANDS)
+Common Stock
+================= Accumulated
+Comprehensive Capital in Other
+Three Years Ended Income Excess of Deferred Retained Comprehensive
+December 31, 2003 (Loss) Shares Amount Par Value Compensation Earnings Loss Total
+===========================================================================================================================
+Balance,
+December 31, 2000 28,303 $2,830 $ 22,541 $ (1,337) $ 145,285 $ - $ 169,319
+---------------------------------------------------------------------------------------------------------------------------
+Stock issued for stock
+incentive plans, net 169 17 1,489 (298) - - 1,208
+Stock purchased and
+retired (61) (6) (820) - - - (826)
+Spin-off of Marine
+Products Corporation - - (51) (40,199) - (40,250)
+Stock issued in
+connection with
+purchase of business 280 28 3,972 - - - 4,000
+Net income $ 26,982 - - - 26,982 - 26,982
+Minimum pension
+liability adjustment,
+net of taxes of $528 (861) - - - - (861) (861)
+----------
+Comprehensive income $ 26,121
+==========
+Dividends declared - - - (3,136) - (3,136)
+---------------------------------------------------------------------------------------------------------------------------
+Balance,
+December 31, 2001 28,691 2,869 27,182 (1,686) 128,932 (861) 156,436
+---------------------------------------------------------------------------------------------------------------------------
+Stock issued for stock
+incentive plans, net 1 1 122 500 - - 623
+Stock purchased and
+retired (85) (9) (873) - - - (882)
+Net loss $ (5,260) - - - (5,260) - (5,260)
+Minimum pension
+liability adjustment,
+net of taxes of $1,909 (3,114) - - - - (3,114) (3,114)
+Unrealized gain on
+securities, net of
+taxes of $90 145 145 145
+----------
+Comprehensive loss $ (8,229)
+==========
+Dividends declared - - - (2,867) - (2,867)
+---------------------------------------------------------------------------------------------------------------------------
+Balance,
+December 31, 2002 28,607 2,861 26,431 (1,186) 120,805 (3,830) 145,081
+---------------------------------------------------------------------------------------------------------------------------
+Stock issued for stock 29 3 233 110 - - 346
+incentive plans, net
+Stock purchased and
+retired (189) (20) (1,850) - - - (1,870)
+Stock issued in
+connection with
+purchase of business 179 18 1,982 - - - 2,000
+Net income $ 10,893 - - - 10,893 - 10,893
+Minimum pension
+liability adjustment,
+net of taxes of $1,534 (2,503) - - - - (2,503) (2,503)
+Unrealized gain on
+securities, net of
+taxes of $20 33 33 33
+----------
+Comprehensive income $ 8,423
+==========
+Dividends declared - - - (2,874) - (2,874)
+---------------------------------------------------------------------------------------------------------------------------
+Balance,
+December 31, 2003 28,626 $2,862 $ 26,796 $ (1,076) $ 128,824 $ (6,300) $ 151,106
+===========================================================================================================================
+THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
+23
+CONSOLIDATED STATEMENTS OF CASH FLOWS
+RPC, INC. AND SUBSIDIARIES
+(IN THOUSANDS)
+YEARS ENDED DECEMBER 31, 2003 2002 2001
+-----------------------------------------------------------------------------------------------------------------------
+OPERATING ACTIVITIES
+Net income (loss) $ 10,893 $ (5,260) $ 26,982
+Noncash charges (credits) to earnings:
+Depreciation and amortization 33,182 31,342 25,536
+Gain on sale of equipment and property (36) (1,353) (1,642)
+Deferred income tax provision 5,401 9,193 1,400
+Income from discontinued operation - - (1,486)
+(Increase) decrease in assets:
+Accounts receivable (13,551) 6,760 8,557
+Income taxes receivable 4,668 (6,564) (2,072)
+Inventories (455) (794) (883)
+Prepaid expenses and other current assets (117) 461 (1,382)
+Other noncurrent assets 497 (501) (234)
+Increase (decrease) in liabilities:
+Accounts payable 7,323 205 1,838
+Income taxes payable - - (2,717)
+Accrued payroll and related expenses 2,888 (2,482) 4,061
+Accrued insurance expenses 1,010 (2,403) (833)
+Accrued state, local and other taxes (110) (1,237) (1,187)
+Other accrued expenses (962) 189 -
+-----------------------------------------------------------------------------------------------------------------------
+Net cash provided by continuing operations 50,631 27,556 55,938
+-----------------------------------------------------------------------------------------------------------------------
+INVESTING ACTIVITIES
+Capital expenditures (30,356) (22,481) (45,850)
+Purchase of businesses (6,210) (1,885) (8,391)
+Proceeds from sale of assets 1,896 2,535 3,961
+Net sale of marketable securities - - 17,756
+Transfer of cash and marketable securities to discontinued operation - - (13,833)
+-----------------------------------------------------------------------------------------------------------------------
+Net cash used for investing activities (34,670) (21,831) (46,357)
+-----------------------------------------------------------------------------------------------------------------------
+FINANCING ACTIVITIES
+Payment of dividends (2,874) (2,867) (3,136)
+Payments on debt (552) (1,365) (241)
+Cash paid for common stock purchased and retired (1,870) (882) (826)
+Proceeds received upon exercise of stock options 104 187 534
+Payment to discontinued operation - - (614)
+-----------------------------------------------------------------------------------------------------------------------
+Net cash used for financing activities (5,192) (4,927) (4,283)
+Net increase in cash and cash equivalents 10,769 798 5,298
+-----------------------------------------------------------------------------------------------------------------------
+Cash and cash equivalents at beginning of year 11,533 10,735 5,437
+-----------------------------------------------------------------------------------------------------------------------
+Cash and cash equivalents at end of year $ 22,302 $ 11,533 $ 10,735
+=======================================================================================================================
+THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
+24
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+RPC, INC. AND SUBSIDIARIES
+YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
+NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
+PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
+The consolidated financial statements include the accounts of RPC, Inc. and its
+wholly-owned subsidiaries ("RPC" or the "Company"). All significant intercompany
+accounts and transactions have been eliminated. On February 28, 2001, the
+Company distributed its powerboat manufacturing segment to RPC stockholders
+through a tax-free spin-off transaction (the "spin-off"). Accordingly, as
+discussed in Note 2, this segment has been accounted for as a discontinued
+operation and the accompanying consolidated financial statements for 2001 have
+been restated to report separately the cashflows and operating results of this
+discontinued operation.
+NATURE OF OPERATIONS
+RPC provides a broad range of specialized oilfield services and equipment
+primarily to independent and major oil and gas companies engaged in the
+exploration, production and development of oil and gas properties throughout the
+United States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and in selected international markets. The services and
+equipment provided include Technical Services such as pressure pumping services,
+snubbing services, coiled tubing services, nitrogen services, and firefighting
+and well control, and Support Services such as the rental of drill pipe and
+other specialized oilfield equipment, marine services, and oilfield training.
+USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
+The preparation of financial statements in conformity with accounting principles
+generally accepted in the United States requires management to make estimates
+and assumptions that affect the reported amounts of assets and liabilities and
+disclosure of contingent assets and liabilities at the date of the financial
+statements and the reported amounts of revenues and expenses during the
+reporting period. Actual results could differ from those estimates.
+Significant estimates are used in the determination of the allowance for
+doubtful accounts, income taxes, accrued insurance expenses, depreciable lives
+of assets, and pension liabilities.
+REVENUES
+The Company recognizes revenue in accordance with the Securities and Exchange
+Commission's Staff Accounting Bulletin No. 104, "Revenue Recognition," which
+clarifies the basic criteria for recognizing revenue. RPC recognizes revenue
+when an agreement exists, prices are determinable, services and products are
+delivered and collectibility is reasonably assured.
+During 2002, the Company adopted Emerging Issues Task Force ("EITF") No. 01-14
+"Income Statement Characterization of Reimbursements Received for
+'Out-of-Pocket' Expenses Incurred," which clarifies that the classification of
+such expenses be reported gross in the statement of operations. The effect of
+this adoption was to increase revenues and cost of services rendered and goods
+sold by $3,312,000 and $4,595,000 for the years ended December 31, 2002 and
+2001. In conjunction with the adoption of EITF No. 01-14 in the fourth quarter
+of 2002, the Company determined that certain other pass through costs and
+expenses billable to customers are more appropriately classified as gross in the
+statement of operations. This change resulted in a corresponding increase in
+revenues and cost of services rendered and goods sold of $10,192,000 in 2002 and
+$14,984,000 in 2001. These changes in presentation had no impact on operating
+profit, net income, or earnings per share.
+RECLASSIFICATIONS
+Certain prior year balances have been reclassified to conform with the current
+year presentation.
+CONCENTRATION OF CREDIT RISK
+Substantially all of the Company's customers are engaged in the oil and gas
+industry. This concentration of customers may impact overall exposure to credit
+risk, either positively or negatively, in that customers may be similarly
+affected by changes in economic and industry conditions.
+25
+CASH AND CASH EQUIVALENTS
+Highly liquid investments with original maturities of three months or less when
+acquired are considered to be cash equivalents. RPC maintains cash equivalents
+and investments in several large, well-capitalized financial institutions, and
+RPC's policy restricts investment in any securities rated less than "investment
+grade" by national rating services.
+INVESTMENTS
+Investments classified as available-for-sale are stated at their fair values,
+with the unrealized gains and losses, net of tax, reported in a separate
+component of stockholders' equity. Realized gains and losses and declines in
+value judged to be other than temporary with respect to available-for-sale
+securities are included in interest income. The cost of securities sold is based
+on the specific identification method. Interest and dividends on securities
+classified as available-for-sale are included in interest income. The Company
+did not realize any gains on securities during 2003, 2002 and 2001. Management
+determines the appropriate classification of debt securities at the time of
+purchase and re-evaluates such designations as of each balance sheet date.
+ALLOWANCE FOR DOUBTFUL ACCOUNTS
+Accounts receivable are carried at the amount owed by customers, reduced by an
+allowance for estimated amounts that may not be collectible in the future. The
+allowance for doubtful accounts is estimated based upon historical write-off
+percentages, known problem accounts, and current economic conditions. Accounts
+are written off against the allowance for doubtful accounts when the Company
+determines that amounts are uncollectible and recoveries of previously
+written-off accounts are recorded when collected.
+INVENTORIES
+Inventories, which consist principally of (i) products that are consumed in
+RPC's services provided to customers, (ii) spare parts for equipment used in
+providing these services and (iii) manufactured components and attachments for
+equipment used in providing services, are recorded at the lower of weighted
+average cost or market value. Market value is determined based on replacement
+cost for material and supplies and net realizable value for work in process and
+finished goods. The Company regularly reviews inventory quantities on hand and
+records provisions for excess or obsolete inventory based primarily on its
+estimated forecast of product demand, market conditions, production requirements
+and technological developments.
+PROPERTY, PLANT AND EQUIPMENT
+Property, plant and equipment, including software costs, are reported at cost
+less accumulated depreciation and amortization, which is generally provided on a
+straight-line basis over the estimated useful lives of the assets. Costs of
+developing software for sale are charged to expense when incurred until
+technological feasibility has been established for the product. Thereafter,
+until the software is ready for general release to customers the costs are
+capitalized. Annual provisions for depreciation and amortization are computed
+using the following useful lives: operating equipment, 3 to 10 years; buildings
+and leasehold improvements, 15 to 30 years; furniture and fixtures, 5 to 7
+years; software, 5 years; and vehicles, 3 to 5 years. The cost of assets retired
+or otherwise disposed of and the related accumulated depreciation and
+amortization are eliminated from the accounts in the year of disposal with the
+resulting gain or loss credited or charged to income. Expenditures for
+additions, major renewals, and betterments are capitalized. Expenditures for
+restoring an identifiable asset to working condition or for maintaining the
+asset in good working order constitute repairs and maintenance and are expensed
+as incurred.
+RPC records impairment losses on long-lived assets used in operations when
+events and circumstances indicate that the assets might be impaired and the
+undiscounted cash flows estimated to be generated by those assets are less than
+the carrying amount of those assets. The Company periodically reviews the values
+assigned to long-lived assets, such as property, plant and equipment and other
+assets, to determine if any impairments should be recorded. Management believes
+that the long-lived assets in the accompanying balance sheets are appropriately
+valued.
+INTANGIBLES
+Intangibles consist primarily of goodwill and non-compete agreements related to
+businesses acquired. Goodwill represents the excess of the purchase price over
+the fair value of net assets of businesses acquired. The carrying amount of
+goodwill was $15,396,000 at December 31, 2003 and $9,476,000 at December 31,
+2002. During 2001, the values assigned to all intangible assets, including
+goodwill, were amortized on a straight-line basis over the estimated useful
+lives of the assets, which did not exceed 20 years. In connection with the
+adoption of SFAS No. 142, "Goodwill and Other Intangible Assets", the Company
+reviewed the classification of its goodwill and other intangible assets.
+Goodwill is no longer amortized to earnings, but instead is subject to an annual
+test for impairment. The Company completed an initial impairment analysis upon
+adoption of SFAS No. 142 and a subsequent analysis during the fourth quarter of
+2003. Based upon the results of these analyses, the Company has concluded that
+no impairment of its goodwill has occurred.
+26
+Non-compete agreements are amortized on a straight-line basis over the period of
+the agreement, as this method best estimates the ratio that current revenues
+bear to the total of current and anticipated revenues, based on the estimated
+useful life.
+The carrying amount and accumulated amortization for non-compete agreements are
+as follows:
+December 31, 2003 2002
+----------------------------------------------------------------------
+Non-compete agreements $ 450,000 $ 450,000
+Less: accumulated amortization (371,683) (331,675)
+----------------------------------------------------------------------
+$ 78,317 $ 118,325
+======================================================================
+Had the Company adopted the provisions of SFAS No. 142 as of January 1, 2001,
+the effects on income from continuing operations, discontinued operation and net
+income would have been as follows:
+Years ended December 31, 2003 2002 2001
+---------------------------------------------------------------------------------------------
+(IN THOUSANDS)
+Income (loss) from continuing operations $ 10,893 $ (5,260) $ 25,496
+Income from discontinued operation - - 1,486
+---------------------------------------------------------------------------------------------
+Net income (loss) - as reported 10,893 (5,260) 26,982
+Effect of goodwill amortization, net of taxes:
+Continuing operations - - 237
+Discontinued operation - - 71
+---------------------------------------------------------------------------------------------
+Pro forma net income (loss) $ 10,893 $ (5,260) $ 27,290
+=============================================================================================
+Pro forma basic (loss) income per share:
+Continuing operations $ 0.38 $ (0.19) $ 0.92
+Discontinued operation - - 0.06
+---------------------------------------------------------------------------------------------
+Net income (loss) $ 0.38 $ (0.19) $ 0.98
+=============================================================================================
+Pro forma diluted (loss) income per share:
+Continuing operations $ 0.38 $ (0.19) $ 0.90
+Discontinued operation - - 0.05
+---------------------------------------------------------------------------------------------
+Net income (loss) $ 0.38 $ (0.19) $ 0.95
+=============================================================================================
+Amortization of non-compete agreements was approximately $40,000 in 2003,
+$80,000 in 2002, and $43,000 in 2001. Goodwill amortization was $382,000 in
+2001. Estimated amortization for the remaining useful lives of non-compete
+agreements is as follows:
+2004 $ 40,000
+2005 28,300
+2006 10,000
+INSURANCE EXPENSES
+RPC self insures, up to certain policy-specified limits, certain risks related
+to general liability, product liability, workers' compensation, vehicle and
+equipment liability, and employee health insurance plan costs. The estimated
+cost of claims under these self-insurance programs are accrued as the claims are
+incurred (although actual settlement of the claims may not be made until future
+periods) and may subsequently be revised based on developments relating to such
+claims. The portion of these estimated outstanding claims expected to be paid
+more than one year in the future is classified as long-term accrued insurance
+expenses.
+INCOME TAXES
+Deferred tax liabilities and assets are determined based on the difference
+between the financial and tax bases of assets and liabilities using enacted tax
+rates in effect for the year in which the differences are expected to reverse.
+The Company establishes a valuation allowance against the carrying value of
+deferred tax assets when the Company determines that it is more likely than not
+that the asset will not be realized through future taxable income.
+EARNINGS PER SHARE
+SFAS No. 128, "Earnings Per Share," requires a basic earnings per share and
+diluted earnings per share presentation. The two calculations differ as a result
+of the dilutive effect of stock options and time lapse restricted and
+performance restricted
+27
+shares included in diluted earnings per share, but excluded from basic earnings
+per share. A reconciliation of the weighted shares outstanding is as follows:
+2003 2002 2001
+------------------------------------------------------------------------------------------------
+Basic 28,370,148 28,262,016 28,077,514
+Dilutive effect of stock options and
+restricted shares 399,323 - 515,288
+------------------------------------------------------------------------------------------------
+Diluted 28,769,471 28,262,016 28,592,802
+================================================================================================
+The effect of the Company's stock options and restricted shares have been
+excluded from the calculation of diluted earnings per share in 2002, as their
+effect would have been antidilutive.
+FAIR VALUE OF FINANCIAL INSTRUMENTS
+The Company's financial instruments consist primarily of cash and cash
+equivalents, accounts receivable, accounts payable and notes payable. The
+carrying value of cash, accounts receivable and accounts payable approximate
+their fair value due to the short-term nature of such instruments. The carrying
+value of long-term debt approximates fair value since the interest rates are
+market based and are generally adjusted annually.
+NEW ACCOUNTING STANDARDS In January 2003, the Financial Accounting Standards
+Board ("FASB") issued FASB Interpretation (FIN) No. 46, "Consolidation of
+Variable Interest Entities." The Interpretation requires that a variable
+interest entity, as defined, be consolidated by a company if that company is
+subject to a majority of the risk of loss from the variable interest entity's
+activities or entitled to receive a majority of the entity's residual returns or
+both. The consolidation requirements of FIN 46 apply immediately to variable
+interest entities created after January 31, 2003. The consolidation requirements
+apply to entities created prior to January 31, 2003 in the first fiscal year or
+interim period ending after December 15, 2003. Certain of the disclosure
+requirements apply in all financial statements issued after January 31, 2003,
+regardless of when the variable interest entity was established. The Company has
+not entered into any agreements subject to FIN 46 since January 31, 2003 and
+does not have any agreements in place that were executed prior to January 31,
+2003 that will be subject to the Interpretation's provisions when it becomes
+fully effective in the first quarter of 2004. As a result, the Company believes
+that the adoption of the Interpretation will not have an impact on the financial
+position, results of operations or liquidity of the Company.
+In December 2003, the FASB reissued Statement of Financial Accounting Standard
+("SFAS") No. 132, "Employers' Disclosures about Pension and Other Postretirement
+Benefits," that replaced the existing pronouncement. The revised SFAS does not
+change the measurement or recognition provisions; however, it requires
+additional disclosures about assets, obligations, cash flows and net periodic
+benefit cost of defined benefit pension plans and other post retirement benefit
+plans. The disclosure rules apply to annual financial statements for fiscal
+years ending after December 15, 2003. In addition, there are additional
+disclosure requirements for the interim-period financial reports starting the
+first quarter of 2004. The Company has adopted the provisions of SFAS 132 and
+presented the additional disclosures in Note 11 to the consolidated financial
+statements. The adoption of SFAS 132 did not have a material effect on the
+financial position, results of operations or liquidity of the Company.
+STOCK-BASED COMPENSATION
+RPC accounts for the stock incentive plan using the intrinsic value method
+prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
+for Stock Issued to Employees." RPC records deferred compensation related to the
+restricted stock grants based on the fair market value of the shares at the
+issue date and amortizes such amounts over the vesting period for the shares.
+RPC recorded amortization of deferred compensation totaling $241,000 in 2003,
+$255,000 in 2002, and $455,000 in 2001 related to these restricted stock grants.
+If RPC had accounted for the stock incentive plans in accordance with the
+provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", the total
+fair value of awards granted would be amortized over the vesting period of the
+awards, and RPC's reported net income (loss) and diluted net income (loss) per
+share would have been as follows:
+28
+Years ended December 31, 2003 2002 2001
+--------------------------------------------------------------------------------------------------------------
+(IN THOUSANDS)
+Income (loss) from continuing operations $ 10,893 $ (5,260) $ 25,496
+Income from discontinued operation - - 1,486
+--------------------------------------------------------------------------------------------------------------
+Net income (loss) - as reported 10,893 (5,260) 26,982
+Add: Stock-based employee compensation
+expense included in reported net income, net
+of related tax 150 164 282
+Deduct: Total stock-based employee
+compensation expense determined under fair
+value based method for all awards, net of
+related tax effect 957 767 728
+--------------------------------------------------------------------------------------------------------------
+Pro forma net income (loss) $ 10,086 $ (5,863) $ 26,536
+==============================================================================================================
+Basic (loss) income per share as reported:
+Continuing operations $ 0.38 $ (0.19) $ 0.91
+Discontinued operation - - 0.05
+Net income (loss) $ 0.38 $ (0.19) $ 0.96
+Pro forma basic (loss) income per share:
+Continuing operations $ 0.36 $ (0.21) $ 0.89
+Discontinued operation - - 0.05
+--------------------------------------------------------------------------------------------------------------
+Net income (loss) $ 0.36 $ (0.21) $ 0.94
+==============================================================================================================
+Diluted (loss) income per share as reported:
+Continuing operations $ 0.38 $ (0.19) $ 0.89
+Discontinued operation - - 0.05
+--------------------------------------------------------------------------------------------------------------
+Net income (loss) $ 0.38 $ (0.19) $ 0.94
+==============================================================================================================
+Pro forma diluted (loss) income per share:
+Continuing operations $ 0.35 $ (0.21) $ 0.88
+Discontinued operation - - 0.05
+--------------------------------------------------------------------------------------------------------------
+Net income (loss) $ 0.35 $ (0.21) $ 0.93
+==============================================================================================================
+The Company has computed for pro forma disclosure purposes the value of all
+options granted during 2003, 2002, and 2001 using the Black-Scholes option
+pricing model as prescribed by SFAS No. 123 using the following weighted average
+assumptions for grants:
+2003 2002 2001
+------------------------------------------------------------------------------
+Risk-free interest rate 1.1% 2.9% 4.9%
+Expected dividend yield 1% 1% 1%
+Expected lives 7 years 7 years 7 years
+Expected volatility 43-46% 43-46% 43-46%
+==============================================================================
+The total fair value of options granted to RPC employees were $2,534,000 in
+2003, $663,000 in 2002 and $2,913,000 in 2001.
+NOTE 2: DISCONTINUED OPERATION
+In January 2000, the Board of Directors of RPC announced that it planned to
+spin-off to stockholders the business conducted through Chaparral Boats, Inc.
+("Chaparral"), RPC's powerboat manufacturing segment. The spin-off transaction
+was approved by RPC's Board of Directors on February 12, 2001. RPC accomplished
+the spin-off by contributing 100 percent of the issued and outstanding stock of
+Chaparral to Marine Products Corporation (a Delaware corporation) ("Marine
+Products"), a newly formed wholly-owned subsidiary of RPC, and then distributing
+the common stock of Marine
+29
+Products to RPC stockholders. RPC stockholders received 0.6 shares of Marine
+Products common stock for each share of RPC common stock owned as of the record
+date. Based on an Internal Revenue Service Private Letter ruling, the spin-off
+was tax-free to RPC and RPC stockholders, except for cash received for any
+fractional shares. The spin-off was consummated on February 28, 2001, with
+17,012,277 shares of Marine Products common stock distributed to RPC
+stockholders.
+For the first two months of 2001, the powerboat manufacturing segment of RPC has
+been accounted for as a discontinued operation and, accordingly, the
+accompanying consolidated financial statements of RPC have been restated to
+report separately the operating results of this discontinued operation.
+30
+A summary of the operating results of RPC's powerboat manufacturing segment for
+the two months in 2001 is as follows:
+YEARS ENDED DECEMBER 31, 2001
+--------------------------------------------------------------
+(IN THOUSANDS)
+Revenues $ 24,092
+Operating income 2,747
+Income before income taxes 2,320
+Income tax provision 834
+--------------------------------------------------------------
+Net income $ 1,486
+==============================================================
+The Transition Support Services Agreement executed in connection with the
+spin-off stipulates that RPC provide certain services, including financial
+reporting and income tax administration, acquisition assistance, etc. to Marine
+Products until the agreement is terminated by either party. RPC charged Marine
+Products $496,000 in 2003, $588,000 in 2002 and $868,000 in 2001 for these
+services. Certain costs allocated by RPC to Marine Products in 2001 are now
+incurred directly by Marine Products.
+Refer to Note 12 for details regarding certain officers being employees of both
+RPC and Marine Products.
+NOTE 3: ACQUISITIONS
+On April 1, 2003, RPC purchased all of the assets of Bronco Oilfield Services,
+Inc. ("Bronco"), a privately-held company, specializing in surface pressure
+control services and equipment. During 2001, the Company completed two
+acquisitions. All acquisitions were accounted for under the purchase method of
+accounting. Pro forma results of operations have not been presented for these
+acquisitions because the effects of them were not material to the Company on
+either an individual or aggregate basis. The results of operations of each
+acquisition are included in the Company's consolidated statements of operations
+from the respective dates of acquisition. All goodwill related to these
+acquisitions has been assigned to the Technical Services segment.
+A summary of the Company's purchase transactions is included in the following
+table (in thousands, except share amounts):
+Entity
+Name
+and
+Description Operating Other
+of Business equipment Non-compete fixed
+Acquired Date Consideration Inventory and vehicles Goodwill agreements assets Form of consideration
+--------------------------------------------------------------------------------------------------------------------------------
+Bronco >$5,533 in cash
+Oilfield 4/03 $ 11,033 $ 395 $ 8,189 $ 2,449 $ - $ - >179,191 restricted
+Services, shares valued at $2,000
+Inc. >$3,500 in promissory
+(Production note payable in five
+Rental annual installments
+Equipment) plus interest at 6
+percent fixed rate
+>Potential earnout
+Mathews 7/01 $ 11,000 $ - $ 7,396 $ 2,856 $ 100 $ 648 >$5,000 in cash
+Energy >280,446 restricted
+Services, shares valued at $4,000
+Inc. >$2,000 in promissory
+(Pressure note, payable in full
+Pumping) after four years,
+plus interest payable
+quarterly at prime rate
+>Potential earnout
+Sooner 2/01 $ 4,355 $ 317 $ 2,788 $ 1,250 $ - $ - >$3,105 in cash
+Testing, Inc. >$1,250 in promissory
+(Pressure note payable in three
+Pumping) annual installments
+plus interest at
+prime rate
+>Potential earnout
+31
+Earnout payments to sellers of acquired businesses may have to be paid in
+accordance with the respective agreements on an annual basis and are recorded as
+goodwill when the earnout payment amounts are determinable. The consolidated
+statements of cash flows for the year ended December 31, 2003 excludes the
+$3,500,000 of promissory notes payable and the $2,000,000 common stock issued in
+connection with the Bronco acquisition. The consolidated statements of cash
+flows for the year ended December 31, 2001 excludes the $3,250,000 of promissory
+notes payable in connection with these acquisitions and the $4,000,000 common
+stock issuance. Earnout payments due to sellers of acquired businesses totaled
+$286,000 in 2001 and $1,885,000 in 2002. These payments which were paid
+subsequent to each respective year end, were recorded as goodwill. Estimated
+earnouts relating to 2003 operating results totaling $2,835,000 have been
+recorded as of December 31, 2003 and included in goodwill and other accrued
+expenses. No earnouts were payable in 2003 related to 2002 operating results.
+NOTE 4: ACCOUNTS RECEIVABLE
+Accounts receivable are stated net of allowances for doubtful accounts of
+$2,539,000 at December 31, 2003 and $2,461,000 at December 31, 2002.
+NOTE 5: INVENTORIES
+Inventories consist of the following:
+December 31, 2003 2002
+--------------------------------------------------------------------------------------------------------
+(IN THOUSANDS)
+Raw materials and supplies $ 8,251 $6,920
+Work in process 317 428
+Finished goods 1,489 1,858
+--------------------------------------------------------------------------------------------------------
+Total inventories $10,057 $9,206
+========================================================================================================
+NOTE 6: PROPERTY, PLANT AND EQUIPMENT
+Property, plant and equipment are presented at cost net of accumulated
+depreciation and consist of the following:
+December 31, 2003 2002
+--------------------------------------------------------------------------------------------------------
+(IN THOUSANDS)
+Land $ 5,464 $ 5,298
+Buildings and leasehold improvements 30,444 28,789
+Operating equipment 221,770 206,016
+Capitalized software 11,556 10,676
+Furniture and fixtures 2,710 2,010
+Vehicles 47,124 40,337
+Construction in progress 3,449 850
+--------------------------------------------------------------------------------------------------------
+Gross property, plant and equipment 322,517 293,976
+Less: accumulated depreciation 213,354 188,638
+--------------------------------------------------------------------------------------------------------
+Net property, plant and equipment $109,163 $105,338
+========================================================================================================
+Depreciation expense was $32,901,000 in 2003, $31,007,000 in 2002, and
+$24,656,000 in 2001. The original cost of equipment under capital lease was
+$846,000, and accumulated depreciation at December 31, 2002 was $357,000. There
+are no capital leases outstanding as of December 31, 2003.
+32
+NOTE 7: INCOME TAXES
+The following table lists the components of the provision (benefit) for income taxes from continuing operations:
+Years ended December 31, 2003 2002 2001
+--------------------------------------------------------------------------------------------------------
+(IN THOUSANDS)
+Current:
+Federal $ 925 $ (11,882) $12,119
+State 164 (380) 1,271
+Foreign 187 175 837
+Deferred:
+Federal 4,975 8,467 1,289
+State 426 726 111
+--------------------------------------------------------------------------------------------------------
+Total income tax provision (benefit) $6,677 $ (2,894) $15,627
+========================================================================================================
+Reconciliation between the federal statutory rate and RPC's effective tax rate is as follows:
+Years ended December 31, 2003 2002 2001
+--------------------------------------------------------------------------------------------------------
+Federal statutory rate 35.0% 34.0% 35.0%
+State income taxes 4.8 3.1 3.0
+Other (1.8) (1.6) -
+--------------------------------------------------------------------------------------------------------
+Effective tax rate 38.0% 35.5% 38.0%
+========================================================================================================
+Significant components of the Company's deferred tax assets and liabilities are as follows:
+December 31, 2003 2002
+--------------------------------------------------------------------------------------------------------
+(IN THOUSANDS)
+Deferred tax assets:
+Self-insurance $ 3,848 $ 3,221
+Pension 4,153 1,924
+State net operating loss carryforwards 2,421 1,431
+Bad debts 1,046 803
+Accrued payroll 492 380
+All others 355 607
+Valuation allowance (977) (978)
+--------------------------------------------------------------------------------------------------------
+Gross deferred tax assets 11,338 7,388
+--------------------------------------------------------------------------------------------------------
+Deferred tax liabilities:
+Depreciation $(17,657) (9,619)
+Stock-based compensation (34) (35)
+All others (549) (749)
+--------------------------------------------------------------------------------------------------------
+Gross deferred tax liabilities (18,240) (10,403)
+--------------------------------------------------------------------------------------------------------
+--------------------------------------------------------------------------------------------------------
+Net deferred tax liabilities $ (6,902) $ (3,015)
+--------------------------------------------------------------------------------------------------------
+The Company and Marine Products Corporation have entered into a tax-sharing and indemnification agreement
+whereby any subsequent income tax adjustment resulting in a change in income tax assets or liabilities of
+either RPC or Marine Products prior to the spin-off will be settled through an exchange of cash. No
+settlements occurred in 2003 and approximately $140,000 was paid by RPC in settlements in 2002.
+Undistributed earnings of the Company's foreign subsidiaries are considered indefinitely reinvested and,
+accordingly, no provision for U.S. federal income taxes has been accrued. Upon distribution of those
+earnings in the form of dividends or otherwise, RPC would be subject to both U.S. income taxes (subject
+to an adjustment for foreign tax credits) and withholding taxes payable to the various countries.
+Determining the amount of unrecognized deferred U.S. income tax liability is not practicable.
+33
+RPC has net operating loss carryforwards related to state income taxes of
+approximately $2.4 million that expire in 2003 through 2017. The Company has
+booked a valuation allowance of approximately $1.0 million against this amount
+that represents carryforwards that the Company does not expect to utilize.
+Total income tax (refunds) payments, net, were $(3,263,000) in 2003,
+($4,097,000) in 2002 and $15,615,000 in 2001.
+NOTE 8: LONG-TERM DEBT
+At December 31, 2003, future minimum payments on long-term debt were as follows:
+(IN THOUSANDS)
+--------------------------------------------------------------------------------
+2004 $1,110
+2005 2,700
+2006 700
+2007 700
+2008 700
+--------------------------------------------------------------------------------
+Total minimum principal payments $5,910
+================================================================================
+Cash interest paid was approximately $79,000 in 2003, $266,000 in 2002 and
+$262,000 in 2001.
+The Company has access to a $25 million credit facility with a financial
+institution encompassing letters of credit and a demand note. The credit
+facility requires interest payments monthly on outstanding advances generally at
+LIBOR plus 50 basis points. Any outstanding advances are due upon demand by the
+lender and the facility remains outstanding until cancelled by either party.
+Under this facility, there were letters of credit relating to self insurance
+programs and contract bids outstanding for $13,390,000 as of December 31, 2003
+and for $10,587,000 as of December 31, 2002.
+The long-term debt of RPC as of December 31, 2003 and 2002 is summarized as
+follows:
+(IN THOUSANDS)
+------------------------------------------------------------------------------------------------
+Maturity Range of
+Type Dates Interest Rates 2003 2002
+------------------------------------------------------------------------------------------------
+Notes payable related to acquisitions 2004 - 2008 Prime $ 5,910 $ 2,830
+Capital lease 2003 11.76% - 132
+------------------------------------------------------------------------------------------------
+Total debt 5,910 2,962
+Less: current portion 1,110 552
+------------------------------------------------------------------------------------------------
+Long-term debt $ 4,800 $ 2,410
+================================================================================================
+NOTE 9: ACCUMULATED OTHER COMPREHENSIVE LOSS
+Accumulated other comprehensive loss consists of the following (in thousands):
+Minimum Unrealized Total
+pension gain (loss) on
+liability securities
+-------------------------------------------------------------------------------------------------------------------------
+Balance at December 31, 2001 $ (861) $ - $ (861)
+Change during 2002:
+Before-tax amount (5,023) 235 (4,788)
+Tax (expense) benefit 1,909 (90) 1,819
+-------------------------------------------------------------------------------------------------------------------------
+Total activity in 2002 (3,114) 145 (2,969)
+-------------------------------------------------------------------------------------------------------------------------
+Balance at December 31, 2002 (3,975) 145 (3,830)
+-------------------------------------------------------------------------------------------------------------------------
+Change during 2003:
+Before-tax amount (4,037) 53 (3,984)
+Tax (expense) benefit 1,534 (20) 1,514
+-------------------------------------------------------------------------------------------------------------------------
+Total activity in 2003 (2,503) 33 (2,470)
+-------------------------------------------------------------------------------------------------------------------------
+Balance at December 31, 2003 $ (6,478) $ 178 $ (6,300)
+=========================================================================================================================
+34
+NOTE 10: COMMITMENTS AND CONTINGENCIES
+Minimum annual rentals, principally for noncancelable real estate leases with
+terms in excess of one year, in effect at December 31, 2003, are summarized in
+the following table:
+(IN THOUSANDS)
+--------------------------------------------------------------------------------
+2004 $1,579
+2005 1,211
+2006 514
+2007 236
+2008 74
+--------------------------------------------------------------------------------
+Total rental commitments $3,614
+================================================================================
+Total rental expense charged to operations was approximately $4,120,000 in 2003,
+$3,930,000 in 2002, and $4,164,000 in 2001.
+RPC is a defendant in a number of lawsuits that allege that plaintiffs have been
+damaged as a result of the rendering of services by RPC personnel and equipment.
+RPC is vigorously contesting these actions. Management, after consultation with
+legal counsel, is of the opinion that the outcome of these lawsuits will not
+have a material adverse effect on the financial position, results of operations
+or liquidity of RPC.
+NOTE 11: EMPLOYEE BENEFIT PLANS
+RETIREMENT PLAN
+The Company's Retirement Income Plan, a trusteed defined benefit pension plan,
+provides monthly benefits upon retirement at age 65 to eligible employees. In
+conjunction with the spin-off of Chaparral in February 2001, the Company and
+Marine Products entered into an employee benefits agreement that provides for
+Marine Products to continue participating in the Plan. As of February 28, 2001,
+the plan became a multiple employer plan, with Marine Products as an adopting
+employer. Following the spin-off, RPC charged Marine Products for, and Marine
+Products has been obligated to pay, its allocable share of pension costs and the
+associated funding obligation related to the prior service liabilities of
+Chaparral employees. Effective December 2003, the related prior service
+liabilities totaling $3,314,000 and pension assets totaling $2,517,000 were
+transferred within the multiple employer plan from RPC to Marine Products.
+In the first quarter of 2002, the Company's Board of Directors approved a
+resolution to cease all future retirement benefit accruals under the Retirement
+Income Plan effective March 31, 2002. In lieu thereof, the Company began
+providing enhanced benefits in the form of cash contributions for certain longer
+serviced employees that had not reached the normal retirement age of 65 as of
+March 31, 2002. The contributions are discretionary and made annually based on
+continued employment over a seven year period beginning in 2002. These
+discretionary contributions are expected to be made over a seven year period
+beginning in 2002 to either a non-qualified Supplemental Executive Retirement
+Plan ("SERP") established by the Company or to the 401(k) plan for each employee
+that is entitled to the enhanced benefit. The expense related to the enhanced
+benefits was $479,000 for 2003 and $437,000 for 2002. The Company permits
+eligible employees to defer a portion of their compensation into the
+nonqualified plan.
+The following table sets forth the funded status of the retirement income plan
+and the amounts recognized in RPC's consolidated balance sheets:
+35
+December 31, 2003 2002
+-------------------------------------------------------------------------------
+(IN THOUSANDS)
+CHANGE IN BENEFIT OBLIGATION:
+Benefit obligation at beginning of year $ 24,368 $ 24,984
+Service cost - 332
+Interest cost 1,937 1,749
+Amendments - 154
+Actuarial loss 7,079 4,039
+Liability transfer (3,314) -
+Benefits paid (1,100) (929)
+Curtailments - (5,961)
+-------------------------------------------------------------------------------
+Benefit obligation at end of year $ 28,970 $ 24,368
+-------------------------------------------------------------------------------
+CHANGE IN PLAN ASSETS:
+Fair value of plan assets at beginning of year $ 17,682 $ 18,794
+Actual return on plan assets 2,546 (1,475)
+Asset transfer (2,517) -
+Employer contribution - 1,258
+Benefits paid (1,100) (929)
+-------------------------------------------------------------------------------
+Fair value of plan assets at end of year 16,611 17,648
+-------------------------------------------------------------------------------
+Funded status (12,359) (6,720)
+Unrecognized net loss 10,450 6,412
+-------------------------------------------------------------------------------
+Net accrued cost $ (1,909) $ (308)
+===============================================================================
+The accumulated benefit obligation for the defined benefit pension plan was
+$28,970,000 at December 31, 2003 and $24,368,000 at December 31, 2002. The
+Company uses a December 31 measurement date for its qualified plan.
+Pursuant to the provisions of SFAS No. 87, "Employers' Accounting for Pensions,"
+the Company recorded an additional pretax minimum pension liability of
+$4,037,000 in 2003 and $5,023,000 in 2002. As there were no previously
+unrecognized prior service costs as of December 31, 2003 and 2002, the full
+amount of the adjustments, net of related deferred tax benefits, are reflected
+as a reduction of stockholders' equity. Amounts recognized in the consolidated
+balance sheets consist of:
+December 31, 2003 2002
+-------------------------------------------------------------------------
+(IN THOUSANDS)
+-------------------------------------------------------------------------
+Net accrued benefit cost $ (1,909) $ (308)
+Minimum pension liability (10,450) (6,412)
+SERP employer contributions (465) (211)
+SERP employee deferrals (148) -
+-------------------------------------------------------------------------
+Net amount recognized $ (12,972) $ (6,931)
+=========================================================================
+RPC's funding policy is to contribute to the retirement income plan the amount
+required, if any, under the Employee Retirement Income Security Act of 1974. RPC
+contributed $0 in 2003, $1,258,000 in 2002, and $118,000 in 2001.
+The components of net periodic benefit cost are summarized as follows:
+Years ended December 31, 2003 2002 2001
+--------------------------------------------------------------------------------
+(IN THOUSANDS)
+Service cost for benefits earned
+during the period $ - $ 332 $ 954
+Interest cost on projected
+benefit obligation 1,937 1,749 1,751
+Expected return on plan assets (1,363) (1,622) (1,836)
+Net amortization and deferral 1,027 72 (176)
+Curtailments - 150 -
+--------------------------------------------------------------------------------
+Net periodic benefit cost $ 1,601 $ 681 $ 693
+================================================================================
+36
+The weighted average assumptions as of December 31 used to determine the
+projected benefit obligation and net benefit cost were as follows:
+December 31, 2003 2002
+------------------------------------------------------------------------
+PROJECTED BENEFIT OBLIGATION:
+Discount rate 6.250% 6.875%
+Rate of compensation increase N/A N/A
+Net Benefit Cost:
+Discount rate 6.875% 7.375%
+Expected return on plan assets 8.000% 8.000%
+Rate of compensation increase N/A N/A
+========================================================================
+The Company's expected return on assets assumption is derived from a detailed
+periodic assessment conducted by its management and its investment adviser. It
+includes a review of anticipated future long-term performance of individual
+asset classes and consideration of the appropriate asset allocation strategy
+given the anticipated requirements of the plan to determine the average rate of
+earnings expected on the funds invested to provide for the pension plan
+benefits. While the study gives appropriate consideration to recent fund
+performance and historical returns, the rate of return assumption is derived
+primarily from a long-term, prospective view. Based on its recent assessment,
+the Company has concluded that its expected long-term return assumption of eight
+percent is reasonable.
+At December 31, 2003 and 2002, the Plan's assets were comprised of listed common
+stocks and U.S. government and corporate securities. The Plan's weighted average
+asset allocation at December 31, 2003 and 2002 by asset category along with the
+target allocation for 2004 are as follows:
+Target Percentage of Percentage of
+Allocations Plan Assets as of Plan Assets as of
+Asset Category for 2004 December 31, 2003 December 31, 2002
+-----------------------------------------------------------------------------------------------
+Equity Securities 52.0% 53.2% 51.1%
+Debt Securities - core fixed income 41.0% 41.4% 42.6%
+Debt Securities - high yield 0% 0% 0%
+Real Estate 0% 0% 0%
+Other 7.0% 5.4% 6.3%
+-----------------------------------------------------------------------------------------------
+Total 100.0% 100.0% 100.0%
+-----------------------------------------------------------------------------------------------
+The Company's investment strategy for its pension plan is to maximize the
+long-term rate of return on plan assets within an acceptable level of risk in
+order to minimize the cost of providing pension benefits. The investment policy
+establishes a target allocation for each asset class, which is rebalanced as
+required. The Company utilizes a number of investment approaches, including
+individual market securities, equity and fixed income funds in which the
+underlying securities are marketable, and debt funds to achieve this target
+allocation. The Company expects to contribute approximately $4,800,000 to the
+pension plan in 2004.
+401(K) PLAN
+RPC sponsors a defined contribution 401(k) plan that is available to
+substantially all full-time employees with more than six months of service. This
+plan allows employees to make tax-deferred contributions from one to 25 percent
+of their annual compensation, not exceeding the permissible contribution imposed
+by the Internal Revenue Code. RPC matches 50 percent of each employee's
+contributions that do not exceed six percent of the employee's compensation.
+Employees vest in the RPC contributions after three years of service. The
+Company's matching contributions were $884,000 in 2003, $858,000 in 2002, and
+$380,000 in 2001.
+STOCK INCENTIVE PLANS
+RPC has an Employee Incentive Stock Option Plan (the "1984 Plan") under which
+1,000,000 shares of common stock were reserved for issuance. The 1984 Plan
+expired in October 1994. On January 25, 1994, RPC adopted a new 10-year Employee
+Stock Incentive Plan (the "1994 Plan") under which 1,000,000 shares of common
+stock were reserved for issuance. During 1997, an additional 1,600,000 shares
+were reserved for issuance under this plan. These plans provide for the issuance
+37
+of various forms of stock incentives, including, among others, incentive and
+non-qualified stock options and restricted stock. Historically, certain RPC
+employees, including employees of Marine Products, have participated in these
+RPC Stock Incentive Plans (the "RPC SIP"). The options generally vest over five
+years and expire in 10 years.
+On January 27, 2004, the RPC, Inc.'s Board of Directors recommended adopting a
+new 10-year Stock Incentive Plan (the "2004 Plan") under which 1,500,000 shares
+of common stock have been reserved for issuance. The 2004 Plan is to be voted
+upon at the Annual Meeting of Stockholders to be held on April 27, 2004. This
+plan provides for the issuance of various forms of stock incentives, including,
+among others, incentive and non-qualified stock options and restricted stock.
+Following the spin-off, outstanding stock option grants under the RPC SIP held
+by Marine Products employees who did not also become RPC employees were replaced
+with the Marine Products Stock Incentive Plan stock option grants. After the
+spin-off, 180,464 RPC SIP stock options held by Marine Products employees were
+replaced with Marine Products Stock Incentive Plan stock option grants. As of
+December 31, 2003, there were 378,581 shares available for the granting of
+options or other awards under the RPC SIP.
+STOCK OPTIONS
+Transactions involving the RPC SIP were as follows:
+-------------------------------------------------------------------------
+Weighted
+Total Average
+Shares Price
+-------------------------------------------------------------------------
+Outstanding December 31, 2000 678,475 $ 8.26
+Granted 457,500 13.10
+Spin-off adjustments (119,935) 9.80
+Canceled (8,405) 8.77
+Exercised (92,053) 5.80
+-------------------------------------------------------------------------
+Outstanding December 31, 2001 915,582 $10.25
+Granted 104,500 14.06
+Canceled (130,241) 11.33
+Exercised (27,243) 6.89
+-------------------------------------------------------------------------
+Outstanding December 31, 2002 862,598 $10.65
+Granted 637,500 9.57
+Canceled (15,081) 11.86
+Exercised (16,462) 6.26
+-------------------------------------------------------------------------
+Outstanding December 31, 2003 1,468,555 $10.22
+=========================================================================
+As of December 31, 2003, the options outstanding and the range of exercise
+prices together with the weighted-average remaining contractual life are as
+follows:
+Weighted average
+Weighted average remaining
+Range of exercise prices Number of Options exercise prices contractual life
+-----------------------------------------------------------------------------------------------------
+Total Exercisable Total Exercisable
+-----------------------------------------------------------------------------------------------------
+$ 3.52 - $ 3.91 61,295 61,295 $ 3.74 $ 3.74 1.3 years
+$ 6.06 - $ 6.61 188,040 154,712 $ 6.19 $ 6.22 4.6 years
+$ 9.49 - $ 14.06 1,219,220 304,720 $11.16 $12.25 7.9 years
+-----------------------------------------------------------------------------------------------------
+1,468,555 520,727 $10.22 $ 9.45 7.3 years
+=====================================================================================================
+38
+2003 2002 2001
+--------------------------------------------------------------------------------
+Exercisable at December 31, 520,727 364,496 280,923
+Weighted average exercise price of
+exercisable options $9.45 $8.51 $7.22
+================================================================================
+RESTRICTED STOCK
+RPC has granted employees two forms of restricted stock: performance restricted
+and time lapse restricted. The performance restricted shares are granted, but
+not earned and issued, until certain five-year tiered performance criteria are
+met. The performance criteria are predetermined market prices of RPC stock. On
+the date the stock appreciates to each level (determination date), 20 percent of
+performance shares are earned. Once earned, the performance shares vest five
+years from the determination date. After the determination date, the grantee
+will receive all dividends declared and also voting rights to the shares. Time
+lapse restricted shares vest 10 years from the grant date. During these 10
+years, grantees receive all dividends declared and retain voting rights for the
+granted shares. Units granted under these restricted stock programs were 25,000
+in 2003, 0 in 2002, and 87,000 in 2001. Under the plans, employees earned
+performance shares of 3,000 shares in 2003, 5,700 shares in 2002 and 17,385
+shares in 2001. Employees forfeited 11,350 shares in 2003, 30,404 shares in 2002
+and 0 shares in 2001. The fair market value of the stock, on the date of
+issuance, is being amortized and charged to income over the respective vesting
+periods.
+The agreements under which the restricted stock is issued provide that shares
+awarded may not be sold or otherwise transferred until restrictions established
+under the RPC SIP have lapsed. Upon termination of employment from RPC or, in
+certain cases, termination of employment from Marine Products or Chaparral,
+shares with restrictions must be returned to RPC. Restricted stock vested and
+were released to the applicable employees as follows: 0 shares in 2003, 56,400
+shares in 2002, and 60,800 shares in 2001.
+NOTE 12: RELATED PARTY TRANSACTIONS
+Effective with the spin-off, the Company established a cash balance at Marine
+Products of approximately $15 million by transferring a total of $13.8 million
+in cash and marketable securities. Effective February 28, 2001, the Company
+began providing certain administrative services to Marine Products. The service
+agreements are more fully described in Note 2. Charges from the Company (or from
+corporations that are subsidiaries of the Company) for such services aggregated
+approximately $496,000 in 2003, $588,000 in 2002 and $868,000 in 2001. The
+Company's directors are also directors of Marine Products and certain officers
+are employees of both the Company and Marine Products.
+The Company periodically purchases in the ordinary course of business products
+or services from vendors, who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $1,058,000 in 2003 and $502,000 in 2002.
+In addition, during 2003 and 2002, the overhead crane fabrication division of
+RPC recorded $171,000 and $332,000 in revenues from the powerboat manufacturing
+segment that is now a subsidiary of Marine Products pursuant to the spin-off,
+related to the sale, installation and service of overhead cranes.
+RPC sponsors a multiple employer plan that includes Marine Products. Following
+the spin-off, RPC charged Marine Products for, and Marine Products has been
+obligated to pay, its allocable share of pension costs and the associated
+funding obligation related to the prior service liabilities of Chaparral
+employees. Effective December 2003, the related prior service liabilities
+totaling $3,314,000 and pension assets totaling $2,517,000 were transferred
+within the multiple employer plan from RPC to Marine Products.
+NOTE 13: BUSINESS SEGMENT INFORMATION
+RPC's service lines have been aggregated into two reportable oil and gas
+services segments - Technical Services and Support Services - because of the
+similarities between the financial performance and approach to managing the
+service lines within each of the segments, as well as the economic and business
+conditions impacting their business activity levels. The other business segment
+includes information concerning RPC's business units that do not qualify for
+separate segment reporting. These business units include an overhead crane
+fabricator and an interactive training software producer. Corporate includes
+selected administrative costs incurred by the Company.
+Technical Services include RPC's oilfield service lines that utilize people and
+equipment to perform value-added completion, production and maintenance services
+directly to a customer's well. These services include fracturing and acidizing
+pressure pumping services, snubbing, coiled tubing, nitrogen pumping, well
+control consulting and firefighting, down-hole tools, wireline, fluid pumping,
+and casing installation services. These Technical Services are primarily used in
+39
+the completion, production and maintenance of oil and gas wells. The principal
+markets for this segment include the United States, including the Gulf of
+Mexico, the mid-continent, southwest and Rocky Mountain regions, and
+international locations including primarily Africa, Canada and Latin America.
+Customers include major multi-national and independent oil and gas producers,
+and selected nationally-owned oil companies.
+Support Services include RPC's oilfield service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling,
+inspection and storage services, work platform marine vessels, and oilfield
+training services. The demand for these services tends to be influenced
+primarily by customer drilling-related activity levels. The principal markets
+for this segment include the United States, including the Gulf of Mexico and the
+mid-continent regions. Customers include domestic operations of major
+multi-national and independent oil and gas producers.
+The accounting policies of the reportable segments are the same as those
+described in Note 1 to these consolidated financial statements. RPC evaluates
+the performance of its segments based on revenues and operating profits.
+Summarized financial information concerning RPC's reportable segments from
+continuing operations for the years ended December 31, 2003, 2002 and 2001 are
+shown in the following table.
+Technical Support
+(IN THOUSANDS) Services Services Other Corporate Total
+-------------------------------------------------------------------------------------------------------------------
+2003
+Revenues $216,321 $43,909 $ 10,297 $ - $270,527
+Operating profit (loss) 22,433 2,641 (1,355) (7,320) 16,399
+Capital expenditures (1) 19,445 8,234 37 2,640 30,356
+Depreciation and amortization 24,382 7,220 336 1,244 33,182
+Identifiable assets 111,718 65,026 5,051 44,955 226,750
+2002
+Revenues $163,593 $35,784 $ 9,653 $ - $209,030
+Operating profit (loss) (1,162) (3,154) (1,603) (4,507) (10,426)
+Capital expenditures (1) 11,222 7,370 312 3,577 22,481
+Depreciation and amortization 22,742 7,394 224 982 31,342
+Identifiable assets 105,586 47,243 5,629 37,496 195,954
+2001
+Revenues $214,361 $57,932 $ 12,228 $ - $284,521
+Operating profit (loss) 33,455 10,136 (1,096) (4,433) 38,062
+Capital expenditures (1) 36,236 7,649 544 1,421 45,850
+Depreciation and amortization 17,331 6,954 149 1,102 25,536
+Identifiable assets 123,498 46,617 5,520 26,767 202,402
+-------------------------------------------------------------------------------------------------------------------
+(1) Excludes assets acquired as part of purchases of new businesses during the year.
+The following summarizes selected information between the United States and all
+international locations combined for the years ended December 31, 2003, 2002 and
+2001. The revenues are presented based on the location of the use of the product
+40
+or service. Assets related to international operations are less than 10 percent
+of RPC's consolidated assets, and therefore are not presented.
+Years ended December 31, 2003 2002 2001
+----------------------------------------------------------------------------
+(IN THOUSANDS)
+United States
+Revenues $263,684 $198,944 $259,532
+International
+Revenues 6,843 10,086 24,989
+--------------------------------------------------------------------------------
+$270,527 $209,030 $284,521
+================================================================================
+41
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
+FINANCIAL DISCLOSURE
+None.
+ITEM 9A. CONTROLS AND PROCEDURES
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES - The Company maintains
+disclosure controls and procedures that are designed to ensure that information
+required to be disclosed in its Exchange Act reports is recorded, processed,
+summarized and reported within the time periods specified in the Commission's
+rules and forms, and that such information is accumulated and communicated to
+its management, including the Chief Executive Officer and Chief Financial
+Officer, as appropriate, to allow timely decisions regarding required
+disclosure.
+As of the end of the period covered by this report, December 31, 2003 (the
+"Evaluation Date"), the Company carried out an evaluation, under the supervision
+and with the participation of its management, including the Chief Executive
+Officer and Chief Financial Officer, of the effectiveness of the design and
+operation of its disclosure controls and procedures. Based upon this evaluation,
+the President and Chief Executive Officer and the Chief Financial Officer
+concluded that the Company's disclosure controls and procedures were effective
+as of the Evaluation Date.
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING - There were no changes in
+the Company's internal control over financial reporting that occurred during the
+Company's most recent fiscal quarter that have materially affected, or are
+reasonably likely to materially affect, the Company's internal control over
+financial reporting.
+42
+PART III
+ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
+Information concerning directors and executive officers is included in the RPC
+Proxy for its 2004 Annual Meeting of Stockholders, in the section titled
+"Election of Directors". This information is incorporated herein by reference.
+Information about executive officers is contained on page 10 of this document.
+AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT
+Information concerning the Audit Committee of the Company and the Audit
+Committee Financial Expert(s) is included in the RPC Proxy for its 2004 Annual
+Meeting of Stockholders, in the section titled "Corporate Governance and Board
+of Directors Compensation, Committees and Meetings." This information is
+incorporated herein by reference.
+CODE OF ETHICS
+RPC, Inc. has adopted a Code of Business Conduct that applies to all employees.
+In addition, the Company has adopted a Supplemental Code of Business Conduct and
+Ethics for Directors, the Principal Executive Officer and Principal Financial
+and Accounting Officer. Both of these documents are available on the Company's
+website at WWW.RPC.NET.
+SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
+Information regarding compliance with Section 16(a) of the Exchange Act is
+included under "Section 16(a) Beneficial Ownership Reporting Compliance" in the
+Company's Proxy for its 2004 Annual Meeting of Stockholders, which is
+incorporated herein by reference.
+ITEM 11. EXECUTIVE COMPENSATION
+Information concerning executive compensation is included in the RPC Proxy for
+its 2004 Annual Meeting of Stockholders, in the section titled, "Executive
+Compensation." This information is incorporated herein by reference.
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
+Information concerning security ownership is included in the RPC Proxy Statement
+for its 2004 Annual Meeting of Stockholders, in the sections titled, "Capital
+Stock" and "Election of Directors." This information is incorporated herein by
+reference.
+Information regarding RPC's equity compensation plans including plans approved
+by security holders and plans not approved by security holders is included in
+the section titled, "Executive Compensation" in the RPC Proxy Statement for its
+2004 Annual Meeting of Stockholders, which is incorporated herein by reference.
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
+Information concerning certain relationships and related party transactions is
+included in the RPC Proxy for its 2004 Annual Meeting of Stockholders, in the
+sections titled, "Certain Relationships and Related Party Transactions" and
+"Compensation Committee Interlocks and Insider Participation." This information
+is incorporated herein by reference.
+ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
+Information regarding principal accountant fees and services is included in the
+section titled, "Independent Public Accountants" in the RPC Proxy for its 2004
+Annual Meeting of Stockholders. This information is incorporated herein by
+reference.
+43
+PART IV
+ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
+CONSOLIDATED FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND EXHIBITS.
+1. Consolidated financial statements listed in the accompanying Index to
+Consolidated Financial Statements and Schedule are filed as part of this
+report.
+2. The financial statement schedule listed in the accompanying Index to
+Consolidated Financial Statements and Schedule is filed as part of this
+report.
+3. Exhibits listed in the accompanying Index to Exhibits are filed as part of
+this report. The following such exhibits are management contracts or
+compensatory plans or arrangements:
+10.1 RPC's 1994 Employees Stock Incentive Plan (incorporated herein by
+reference to Exhibit A of the definitive Proxy Statement dated
+March 20, 1994).
+10.6 Form of stock option grant agreement (incorporated herein by
+reference to Exhibit 10.6 to Form 10-K filed on March 21, 2003).
+10.7 Form of time lapse restricted stock grant agreement (incorporated
+herein by reference to Exhibit 10.7 to Form 10-K filed on March 21,
+2003).
+10.8 Form of performance restricted stock grant agreement (incorporated
+herein by reference to Exhibit 10.8 to Form 10-K filed on March 21,
+2003).
+44
+EXHIBITS (INCLUSIVE OF ITEM 3 ABOVE):
+EXHIBIT
+NUMBER DESCRIPTION
+----------------------------------------------------------------------------------------------------------------------------------
+3.1 Restated certificate of incorporation of RPC, Inc. (incorporated herein by reference to exhibit 3.1 to the Annual
+Report on Form 10-K for the fiscal year ended December 31, 1999).
+3.2 Bylaws of RPC, Inc.
+4 Form of Stock Certificate (incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year
+ended December 31, 1998).
+10.1 RPC's 1994 Employees Stock Incentive Plan (incorporated herein by reference to Exhibit A of the definitive Proxy
+Statement dated March 20, 1994).
+10.2 Agreement Regarding Distribution and Plan of Reorganization, dated February 12, 2001, by and between RPC, Inc. and
+Marine Products Corporation (incorporated herein by reference to Exhibit 10.2 to the Form 10 filed on February 13,
+2001).
+10.3 Employee Benefits Agreement dated February 12, 2001, by and between RPC, Inc., Chaparral Boats, Inc. and Marine
+Products Corporation (incorporated herein by reference to Exhibit 10.3 to the Form 10 filed on February 13, 2001).
+10.4 Transition Support Services Agreement dated February 12, 2001 by and between RPC, Inc. and Marine Products
+Corporation (incorporated herein by reference to Exhibit 10.4 to the Form 10 filed on February 13, 2001).
+10.5 Tax Sharing Agreement dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated
+herein by reference to Exhibit 10.5 to the Form 10 filed on February 13, 2001).
+10.6 Form of stock option grant agreement (incorporated herein by reference to Exhibit 10.6 to Form 10-K filed on March
+21, 2003).
+10.7 Form of time lapse restricted stock grant agreement (incorporated herein by reference to Exhibit 10.7 to Form 10-K
+filed on March 21, 2003).
+10.8 Form of performance restricted stock grant agreement (incorporated herein by reference to Exhibit 10.8 to Form 10-K
+filed on March 21, 2003).
+21 Subsidiaries of RPC.
+23 Consent of Ernst & Young LLP.
+24 Powers of Attorney for Directors.
+31.1 Section 302 certification for Chief Executive Officer
+31.2 Section 302 certification for Chief Financial Officer
+32.1 Section 906 certifications for Chief Executive Officer and Chief Financial Officer
+45
+REPORTS ON FORM 8-K
+--------------------------------------------------------------------------------------------------------------------
+DATE OF
+DATE FILED EARLIEST EVENT DESCRIPTION OF EVENT
+--------------------------------------------------------------------------------------------------------------------
+October 29, 2003 October 29, 2003 Item 5 and Item 7: Press release announcing 2003 Third Quarter results
+--------------------------------------------------------------------------------------------------------------------
+October 29, 2003 October 29, 2003 Item 5 and Item 7: Press release announcing Third Quarter Cash Dividend
+--------------------------------------------------------------------------------------------------------------------
+October 29, 2003 October 29, 2003 Item 5 and Item 7: Press release announcing appointment of Dr. David
+Tannich to the position of President of Well Control School
+--------------------------------------------------------------------------------------------------------------------
+46
+SIGNATURES
+Pursuant to the requirements of Section 13 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.
+RPC Corporation
+By: /s/ RICHARD A. HUBBELL
+---------------------------------
+Richard A. Hubbell
+President and Chief Executive Officer
+March 5, 2004
+Pursuant to the requirements of the Securities Exchange Act of 1934, this report
+has been signed by the following persons on behalf of the Registrant and in the
+capacities and on the dates indicated.
+--------------------------------------------------------------------------------------------------------
+NAME TITLE DATE
+---- ----- ----
+--------------------------------------------------------------------------------------------------------
+--------------------------------------------------------------------------------------------------------
+/s/ RICHARD A. HUBBELL President and Chief Executive Officer March 5, 2004
+--------------------------------------------------------------------------------------------------------
+Richard A. Hubbell (Principal Executive Officer)
+--------------------------------------------------------------------------------------------------------
+--------------------------------------------------------------------------------------------------------
+/s/ BEN M. PALMER Chief Financial Officer March 5, 2004
+--------------------------------------------------------------------------------------------------------
+Ben M. Palmer (Principal Financial and Accounting Officer)
+--------------------------------------------------------------------------------------------------------
+--------------------------------------------------------------------------------------------------------
+The Directors of RPC (listed below) executed a power of attorney, appointing
+Richard A. Hubbell their attorney-in-fact, empowering him to sign this report on
+their behalf.
+R. Randall Rollins, Director James B. Williams, Director
+Wilton Looney, Director James A. Lane, Jr., Director
+Gary W. Rollins, Director Linda H. Graham, Director
+Henry B. Tippie, Director
+/s/ RICHARD A. HUBBELL
+--------------------------------
+Richard A. Hubbell
+Director and as Attorney-in-fact
+March 5, 2004
+47
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE (ITEM 15(a))
+FINANCIAL STATEMENTS PAGE
+-----------------------------------------------------------------------------------------------------------------------
+Consolidated Balance Sheets as of December 31, 2003 and 2002 22
+Consolidated Statements of Operations for the three years ended December 31, 2003 23
+Consolidated Statements of Stockholders' Equity for the three years ended December 31, 2003 24
+Consolidated Statements of Cash Flows for the three years ended December 31, 2003 25
+Notes to Consolidated Financial Statements 26-41
+SCHEDULES
+-----------------------------------------------------------------------------------------------------------------------
+Schedule II - Valuation and Qualifying Accounts 49
+Schedules not listed above have been omitted because they are not applicable or the required informatioin is included
+in the consolidated financial statements or notes thereto.
+SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
+RPC, INC. AND SUBSIDIARIES
+(IN THOUSANDS)
+Balance at Charged to Deductions Balance
+Beginning Costs and (Recoveries) at End of
+of Period Expenses Period
+For the years ended December 31, 2003, 2002 and 2001
+-----------------------------------------------------------------------------------------------------------------------
+Year ended December 31, 2003
+Allowance for doubtful accounts $ 2,461 $ (765) $ 843 (1) $ 2,539
+Inventory reserves $ 130 $ 55 $ (51) (2) $ 134
+Deferred tax valuation allowance $ 978 $ 0 $ (1) $ 977
+Year ended December 31, 2002
+Allowance for doubtful accounts $ 4,118 $ (400) $ (1,257) (1) $ 2,461
+Inventory reserves $ 350 $ 53 $ (273) (2) $ 130
+Deferred tax valuation allowance $ 0 $ 978 $ 0 $ 978
+Year ended December 31, 2001
+Allowance for doubtful accounts $ 4,994 $ 300 $ (1,176) (1) $ 4,118
+Inventory reserves $ 219 $ 55 $ 76 (2) $ 350
+Deferred tax valuation allowance $ 0 $ 0 $ 0 $ 0
+-----------------------------------------------------------------------------------------------------------------------
+(1) Deductions in the allowance for doubtful accounts principally reflect the write off of previously reserved
+accounts net of recoveries.
+(2) Deductions in the reserve for inventory obsolescence and adjustment principally reflect the sale or disposal of
+related inventory.
+48
+REPORT OF INDEPENDENT AUDITORS
+The Board of Directors and Stockholders
+RPC, Inc.
+We have audited the accompanying consolidated balance sheets of RPC, Inc. and
+Subsidiaries as of December 31, 2003 and 2002, and the related consolidated
+statements of operations, stockholders' equity and comprehensive income (loss)
+and cash flows for the years then ended. Our audits also included the financial
+statement schedule for the years ended December 31, 2003 and 2002, listed in the
+Index at Item 15(a). These financial statements and schedule are the
+responsibility of the Company's management. Our responsibility is to express an
+opinion on these financial statements and schedule based on our audits. The
+consolidated financial statements and schedule of RPC, Inc. and Subsidiaries for
+the year ended December 31, 2001, were audited by other auditors who have ceased
+operations and whose report dated February 28, 2002 expressed an unqualified
+opinion on those statements and schedule before the restatement adjustments
+reflected on the balance sheet and statements of cash flows and in Notes 1, 7
+and 13.
+We conducted our audits in accordance with auditing standards generally accepted
+in the United States. Those standards require that we plan and perform the audit
+to obtain reasonable assurance about whether the financial statements are free
+of material misstatement. An audit includes examining, on a test basis, evidence
+supporting the amounts and disclosures in the financial statements. An audit
+also includes assessing the accounting principles used and significant estimates
+made by management, as well as evaluating the overall financial statement
+presentation. We believe that our audits provide a reasonable basis for our
+opinion.
+In our opinion, the 2003 and 2002 financial statements referred to above present
+fairly, in all material respects, the consolidated financial position of RPC,
+Inc. and Subsidiaries at December 31, 2003 and 2002, and the consolidated
+results of their operations and their cash flows for the years then ended, in
+conformity with accounting principles generally accepted in the United States.
+Also, in our opinion, the related financial statement schedule for the years
+ended December 31, 2003 and 2002, when considered in relation to the basic
+financial statements taken as a whole, presents fairly in all material respects
+the information set forth therein.
+As described in Note 1 to the consolidated financial statements, effective
+January 1, 2002, the Company changed its method of accounting for goodwill and
+other intangible assets to conform with Statement of Financial Accounting
+Standard No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS.
+As discussed above, the consolidated financial statements and schedule of RPC,
+Inc. and Subsidiaries for the year ended December 31, 2001 were audited by other
+auditors who have ceased operations. In the 2001 statement of cash flows
+presented, the Company reclassified certain investments previously classified as
+marketable securities to cash and cash equivalents and reflected such changes in
+the statement of cash flows. Our audit procedures with respect to the
+restatements of these amounts in the 2001 statement of cash flows included
+(a) agreeing the investment balance to the investment statement and verifying
+maturity dates to determine proper classification, (b) agreeing the changes to
+the statement of cash flows to the changes in the balance sheet and (c) testing
+the mathematical accuracy of the restatement of the amounts in the statements of
+cash flows.
+The disclosures in Note 7 of the consolidated financial statements of RPC, Inc.
+and Subsidiaries for the year ended December 31, 2001 have been revised to
+disclose additional detail with respect to the components of the provision for
+income taxes. Our audit procedures with respect to the disclosures in Note 7
+49
+with respect to 2001 included agreeing the components of the provision for
+income taxes to the Company's underlying records obtained from management.
+As described in Note 1, the statements of operations for the year ended December
+31, 2001 have been restated to present certain costs and expenses billable to
+customers gross in the statement of operations. Our audit procedures with
+respect to the restatements of these amounts in the statement of operations and
+the corresponding disclosures in Note 1 and Note 13 for 2001 included (a)
+agreeing revenue restatements to the Company's underlying records and (b)
+testing the mathematical accuracy of the restatements.
+As also discussed in Note 1, the consolidated financial statements of RPC, Inc.
+and Subsidiaries for the year ended December 31, 2001 have been revised to
+include the transitional disclosures required by Statement of Financial
+Accounting Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, which was
+adopted by the Company as of January 1, 2002. Our audit procedures with respect
+to the disclosures in Note 1 with respect to 2001 included (a) agreeing the
+previously reported net income to the previously issued financial statements,
+(b) agreeing the adjustments to reported net income representing amortization
+expense (including any related tax effects) recognized in 2001 related to
+goodwill that is no longer being amortized as a result of initially applying
+Statement No. 142 (including any related tax effects) to the Company's
+underlying records obtained from management, (c) agreeing all 2001 expense
+balances as disclosed for individual intangibles to the Company's underlying
+accounting records obtained from management, and (d) testing the mathematical
+accuracy of the reconciliation of pro forma net income to reported net income.
+As also discussed in Note 1, the consolidated financial statements of RPC, Inc.
+and Subsidiaries for the year ended December 31, 2001 have been revised to
+include the disclosures required by Statement of Financial Accounting Standards
+No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURE,
+which was adopted by the Company as of December 31, 2002. Our audit procedures
+with respect to the disclosures in Note 1 for 2001 included (a) agreeing the
+previously reported net income to the previously issued financial statements,
+(b) agreeing the adjustments to reported net income representing compensation
+expense and pro forma compensation expense (including any related tax effects)
+related to 2001 to the Company's underlying records obtained from management and
+(c) testing the mathematical accuracy of the reconciliation of pro forma net
+income to reported net income and related earnings per share amounts.
+In our opinion, the adjustments and disclosures for 2001 in the statements of
+operations and cash flows and in Notes 1, 7 and 13 with respect to the matters
+referred to in the preceding five paragraphs are appropriate. However, we were
+not engaged to audit, review, or apply any procedures to the 2001 consolidated
+financial statements of the Company other than with respect to such adjustments
+and disclosures and, accordingly, we do not express an opinion or any other form
+of assurance on the 2001 consolidated financial statements taken as a whole.
+Ernst & Young LLP
+Atlanta, Georgia
+February 27, 2004
+50
+NOTE: THE FOLLOWING REPORT OF ARTHUR ANDERSEN LLP ("ANDERSEN") IS A COPY OF THE
+REPORT PREVIOUSLY ISSUED BY ANDERSEN ON FEBRUARY 28, 2002. THE REPORT OF
+ANDERSEN IS INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO RULE 2-02(E)
+OF REGULATION S-X. THE COMPANY HAS NOT BEEN ABLE TO OBTAIN A REISSUED REPORT
+FROM ANDERSEN. ANDERSEN HAS NOT CONSENTED TO THE INCLUSION OF ITS REPORT IN THIS
+ANNUAL REPORT ON FORM 10-K. BECAUSE ANDERSEN HAS NOT CONSENTED TO THE INCLUSION
+OF ITS REPORT IN THIS ANNUAL REPORT, IT MAY BE DIFFICULT TO SEEK REMEDIES
+AGAINST ANDERSEN, AND THE ABILITY TO SEEK RELIEF AGAINST ANDERSEN MAY BE
+IMPAIRED.
+REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
+To RPC, Inc.:
+We have audited the accompanying consolidated balance sheets of RPC, Inc. (a
+Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the
+related consolidated statements of income, stockholders' equity, and cash flows
+for each of the three years in the period ended December 31, 2001. These
+financial statements and the schedule referred to below are the responsibility
+of the Company's management. Our responsibility is to express an opinion on
+these financial statements and schedule based on our audits.
+We conducted our audits in accordance with auditing standards generally accepted
+in the United States. Those standards require that we plan and perform the audit
+to obtain reasonable assurance about whether the financial statements are free
+from material misstatement. An audit includes examining, on a test basis,
+evidence supporting the amounts and disclosures in the financial statements. An
+audit also includes assessing the accounting principles used and significant
+estimates made by management, as well as evaluating the overall financial
+statement presentation. We believe that our audits provide a reasonable basis
+for our opinion.
+In our opinion, the financial statements referred to above present fairly, in
+all material respects, the financial position of RPC, Inc. and subsidiaries as
+of December 31, 2001 and 2000, and the results of their operations and their
+cash flows for each of the three years in the period ended December 31, 2001, in
+conformity with accounting principles generally accepted in the United States.
+Our audit was made for the purpose of forming an opinion on the basic financial
+statements taken as a whole. The schedule listed in Item 14 is presented for the
+purposes of complying with the Securities and Exchange Commission's rules and is
+not part of the basic financial statements. This schedule has been subjected to
+the auditing procedures applied in our audit of the basic financial statements
+and, in our opinion, fairly states in all material respects, the financial data
+required to be set forth therein in relation to the basic financial statements
+taken as a whole.
+Atlanta, Georgia Arthur Andersen LLP
+February 28, 2002
+51
+SELECTED QUARTERLY FINANCIAL DATA
+Quarters Ended March 31 June 30 September 30 December 31
+------------------------------------------------------------------------------------------------------------
+(IN THOUSANDS EXCEPT PER SHARE DATA)
+2003
+Revenues $ 60,700 $ 70,864 $ 69,244 $ 69,719
+Net income (loss) $ 305 $ 4,705 $ 2,577 $ 3,306
+============================================================================================================
+Net income (loss) per share - basic: $ 0.01 $ 0.17 $ 0.09 $ 0.12
+Net income (loss) per share - diluted: 0.01 0.16 0.09 0.11**
+============================================================================================================
+2002
+Revenues $ 50,766 $ 49,821 $ 53,370 $ 55,073
+Net income (loss) $ (1,167) $(1,953) $ (1,040) $(1,100)
+============================================================================================================
+Net income (loss) per share - basic: $ (0.04) $ (0.07) $ (0.04) $ (0.04)
+Net income (loss) per share - diluted: (0.04) (0.07) (0.04) (0.04)
+============================================================================================================
+** The sum of the earnings per share for the four quarters differs from annual
+earnings per share due to the required method of computing the weighted average
+shares in interim periods.
+52
\ No newline at end of file
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diff --git a/raw/filings/0000742278/2003/0001188112-04-000303/item1.txt b/raw/filings/0000742278/2003/0001188112-04-000303/item1.txt
new file mode 100644
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@@ -0,0 +1,549 @@
+ITEM 1. BUSINESS
+ORGANIZATION
+RPC is a Delaware corporation originally organized in 1984 as a holding company
+for several oilfield services companies and is headquartered in Atlanta,
+Georgia. Effective February 28, 2001, RPC completed the spin-off of its
+powerboat manufacturing business through a distribution of shares of Marine
+Products Corporation ("Marine Products") (MPX:AMEX).
+OVERVIEW
+RPC provides a broad range of specialized oilfield services and equipment
+primarily to independent and major oil and gas companies engaged in the
+exploration, production and development of oil and gas properties throughout the
+United States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and in selected international markets. The services and
+equipment provided include, among other things, (1) pressure pumping services,
+(2) snubbing services, (3) coiled tubing services, (4) nitrogen services, (5)
+the rental of drill pipe and other specialized oilfield equipment, (6)
+firefighting and well control, and (7) marine services. RPC acts as a holding
+company for its operating business units, Cudd Pressure Control, Patterson
+Services, Bronco Oilfield Services (acquired in April 2003), Thru-Tubing
+Solutions, Well Control School, International Hammer and others.
+BUSINESS SEGMENTS
+RPC's service lines have been aggregated into two reportable oil and gas
+services business segments - Technical Services and Support Services - because
+of the similarities between the financial performance and approach to managing
+the service lines within each of the segments, as well as the economic and
+business conditions impacting their business activity levels. The Other business
+segment aggregates information concerning RPC's business units that do not
+qualify for separate segment reporting, including an overhead crane fabricator
+and an interactive training software developer.
+Technical Services include RPC's oil and gas service lines that utilize people
+and equipment to perform value-added completion, production and maintenance
+services directly to a customer's well. The demand for these services is
+generally influenced by customers' decisions to invest capital toward initiating
+production in an oil or natural gas well, improving production flows in an
+existing formation, or to address well control issues. This business segment
+consists primarily of pressure pumping, snubbing, coiled tubing, nitrogen, well
+control, down-hole tools, wire line, fluid pumping and casing installation
+services. The principal markets for this business segment include the United
+States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and international locations including primarily Africa, Latin
+America, Middle East, and Canada. Customers include major multi-national and
+independent oil and gas producers, and selected nationally owned oil companies.
+Support Services include RPC's oil and gas service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling,
+inspection and storage services, work platform marine vessels and oilfield
+training services. The demand for these services tends to be influenced
+primarily by customer drilling-related activity levels. The principal markets
+2
+for this segment include the United States, Gulf of Mexico and mid-continent
+regions. Customers primarily include domestic operations of major multi-national
+and independent oil and gas producers.
+TECHNICAL SERVICES
+The following is a description of the primary service lines conducted within the
+Technical Services business segment:
+PRESSURE PUMPING. Pressure pumping services, which accounted for approximately
+29 percent of revenues during 2003, are provided to customers throughout the
+Gulf Coast and mid-continent regions of the United States and are generally
+utilized in production. Pressure pumping services involve using complex, truck
+or skid-mounted equipment designed and constructed for each specific pumping
+service offered. The mobility of this equipment permits pressure pumping
+services to be performed in varying geographic areas. Principal materials
+utilized in the pressure pumping business include fracturing proppants, acid and
+bulk chemical additives. Generally, these items are available from several
+suppliers, and the Company utilizes more than one supplier for each item.
+Pressure pumping services offered include:
+Fracturing - Fracturing services are performed to stimulate production of
+oil and natural gas by increasing the permeability of a formation. The
+fracturing process consists of pumping a fluid gel into a cased well at
+sufficient pressure to fracture the formation at desired depths. Sand,
+bauxite or synthetic proppant, which is suspended in the gel, is pumped
+into the fracture. When the pressure is released at the surface, the fluid
+gel returns to the well, but the proppant remain in the fracture, thus
+keeping it open so that oil and natural gas can flow through the fracture
+into the well. In some cases, fracturing is performed in formations with a
+high amount of carbonate rock by an acid solution pumped under pressure
+without a proppant or with small amounts of proppant.
+Acidizing - Acidizing services are also performed to stimulate production
+of oil and natural gas, but they are used in wells that have undergone
+formation damage due to the buildup of various materials that block the
+formation. Acidizing entails pumping large volumes of specially formulated
+acids into reservoirs to dissolve barriers and enlarge crevices in the
+formation, thereby eliminating obstacles to the flow of oil and natural
+gas. Acidizing services can also enhance production in limestone
+formations.
+SNUBBING. Snubbing, which accounted for approximately 11 percent of 2003
+revenues, involves using a hydraulic workover rig that permits an operator to
+repair damaged casing, production tubing and down-hole production equipment in a
+high-pressure environment. A snubbing unit makes it possible to remove and
+replace down-hole equipment in a pressurized environment. Customers benefit
+because these operations can be performed without removing the pressure from the
+well, which stops production and can damage the formation, and because a
+snubbing rig can perform many applications at a lower cost than other
+alternatives. Since snubbing is a very hazardous process that entails high risk,
+the snubbing segment of the oil and gas services industry is limited to a
+relatively few operators who have the experience and knowledge required to
+perform such services safely and efficiently.
+COILED TUBING. Coiled tubing services, which accounted for approximately 11
+percent of 2003 revenues, involve the injection of coiled tubing into wells to
+perform various applications and functions for use principally in well-servicing
+operations. Coiled tubing is a flexible steel pipe with a diameter of less than
+five inches manufactured in continuous lengths of thousands of feet and wound or
+coiled around a large reel. It can be inserted through existing production
+tubing and used to perform workovers without using a larger, more costly
+workover rig. Principal advantages of employing coiled tubing in a workover
+include: (i) not having to "shut-in" the well during such operations, (ii) the
+ability to reel continuous coiled tubing in and out of a well significantly
+faster than conventional pipe, (iii) the ability to direct fluids into a
+wellbore with more precision, and (iv) enhanced access to remote or offshore
+fields due to the smaller size and mobility of a coiled tubing unit.
+NITROGEN. There are a number of uses for nitrogen, an inert, non-combustible
+element, in providing services to oilfield customers and industrial users
+outside of the oilfield. For our oilfield customers, nitrogen can be used to
+clean drilling and production pipe and displace fluids in various drilling
+applications. It also can be used to create a fire-retardant environment in
+hazardous blowout situations and as a fracturing medium for our fracturing
+service line. In addition to fracturing, nitrogen serves as a complement to our
+snubbing and coiled tubing service lines. For non-oilfield industrial users,
+nitrogen can be used to purge pipelines and create a non-combustible
+environment. RPC stores and transports nitrogen and has a number of pumping unit
+configurations that inject nitrogen in its various applications. Some of these
+pumping units are set up for use on offshore platforms or inland waters. RPC
+purchases its nitrogen in liquid form from several suppliers and believes that
+these sources of supply are adequate.
+WELL CONTROL. Cudd Pressure Control specializes in responding to and controlling
+oil and gas well emergencies, including blowouts and well fires domestically and
+internationally. In connection with these services, Cudd, along with Patterson
+Services, has the capacity to supply the equipment, expertise and personnel
+3
+necessary to restore affected oil and gas wells to production. In the last seven
+years, the Company has responded to well control situations in several
+international locations including Argentina, Australia, Bolivia, Colombia,
+Egypt, India, Peru, Taiwan and Venezuela.
+The Company's professional firefighting staff has more than 300 years of
+aggregate industry experience in responding to well fires and blowouts. This
+team of 16 experts responds to well control projects where hydrocarbons are
+escaping from a well bore, regardless of whether a fire has occurred. In the
+most critical situations, there are explosive fires, the destruction of drilling
+and production facilities, substantial environmental damage and the loss of
+hundreds of thousands of dollars per day in well operators' production revenue.
+Since these events ordinarily arise from equipment failures or human error, it
+is impossible to predict accurately the timing or scope of this work.
+Additionally, less critical events frequently occur in connection with the
+drilling of new wells in high-pressure reservoirs. In these situations, the
+Company is called upon to supervise and assist in the well control effort so
+that drilling operations can resume as promptly as safety permits.
+DOWN-HOLE TOOLS. ThruTubing Solutions ("TTS"), a division of the Company,
+provides services and proprietary down-hole motors and fishing tools to
+operators and service companies in drilling and production operations. TTS'
+experience providing reliable tool services allows it to work in a pressure
+environment with virtually any coiled tubing unit or snubbing unit that is
+equipped for the task.
+WIRELINE SERVICES. A wireline unit is a spooled wire that can be unwound and
+lowered into a well carrying various types of tools. Wireline services are used
+for a variety of purposes, such as accessing a well to assist in data
+acquisition or logging activities, fishing tool operations to retrieve lost or
+broken equipment, pipe recovery and remedial activities. In addition, wireline
+services are an integral part of the plug and abandonment process, near the end
+of the life cycle of a well.
+CASING AND LAYDOWN. Casing and laydown principally consists of installing casing
+and production tubing into a wellbore. Casing is run to protect the structural
+integrity of the wellbore and to seal various production zones in the well.
+These services are normally provided during the drilling phase of a well.
+Production tubing is then run inside the casing. Oil and natural gas are
+produced through the tubing. These services are provided during the completion
+or workover phases of a well.
+TORQUE-TURN. Torque-Turn is used on casing and tubing in the deeper, higher
+pressure gas wells where connection integrity and leak resistance are most
+critical. By monitoring the makeup of connections with both torque and turns
+simultaneously, optimum bearing pressure is achieved between the connection. The
+level of bearing pressure directly affects the leak resistance of the
+connection. The use of the torque-turn system allows the maximum bearing
+pressure to be achieved without permanently deforming the tubular material.
+FISHING. The Company started a fishing service line in late 2003. Fishing
+involves the use of specialized tools and procedures to retrieve lost equipment
+from a well. It is a service required by oil and gas operators who have lost
+equipment in a well. Well production typically ceases until the lost equipment
+can be retrieved. In some cases, the Company creates customized tools to perform
+a fishing operation. The customized tools are maintained by the Company after
+the particular fishing job for future use if a similar need arises.
+SUPPORT SERVICES
+The following is a description of the primary service lines conducted within the
+Support Services business segment:
+RENTAL TOOLS. RPC rents specialized equipment for use with onshore and offshore
+oil and gas well drilling, completion and workover activities. The drilling and
+operation of oil and gas wells generally require a variety of equipment. The
+equipment needed is in large part determined by the geological features of the
+production zone and the size of the well itself. As a result, operators and
+drilling contractors often find it more economical to supplement their tool and
+tubulars inventories with rental items instead of owning a complete inventory.
+RPC is strategically located to serve the major staging points for oil and gas
+activities in the Gulf of Mexico and mid-continent regions.
+RPC, through Patterson Rental Tools, offers a broad range of rental tools
+including:
+Blowout Preventors High Pressure Manifolds
+Coflexip Hoses Hydraulic Torque Wrenches
+Drill Collars Power Tongs
+Drill Pipe Pressure Control Equipment
+Production Related Rental Tools Test Pumps
+Gravel Pack Equipment Tubing
+Handling Tools Tubulars
+Hevi-wate Pipe Tubular Handling Tools
+4
+MARINE SERVICES. A liftboat is a self-propelled, self-elevating work platform
+with legs, cranes and living accommodations. Our fleet consists of four
+liftboats, two of which have leg lengths of 200 feet. Upon arriving at a
+destination, a liftboat hydraulically lowers its legs until they are positioned
+on the ocean floor, and then jacks up until the work platform is sufficiently
+above the water level. Once positioned, the stability, open deck area, crane
+capacity, and relatively low cost of operation make liftboats ideal work
+platforms for a wide range of offshore activities, including platform
+construction, plug and abandonment services, and other non-oilfield related
+construction work. Our liftboats have either one or two cranes with lift
+capacities up to 75 tons. A liftboat's capability to reposition at a work site
+or to move to another work location within a short timeframe adds to its
+versatility. In addition, liftboat services are also highly complementary to
+RPC's service lines within the Technical Services business segment as it relates
+to providing services offshore.
+PIPE INSPECTION AND HANDLING SERVICES. Pipe inspection services involve the
+inspection and testing of the integrity of pipe used in oil and gas wells. These
+services are provided primarily at RPC's inspection yards located on a water
+channel near Houston, Texas, and in Morgan City, Louisiana. Customers rely on
+tubular inspection services to avoid failure of in-service tubing, casing,
+flowlines, and drill pipe. Such tubular failures are expensive and, in some
+cases, catastrophic. RPC's yard in Houston, Texas is equipped with bulkhead
+waterfronts, large capacity cranes, specially designed forklifts and a
+computerized inventory system to serve a variety of other storage and handling
+services that can serve both oilfield and non-oilfield customers.
+WELL CONTROL SCHOOL. Well Control School provides industry and government
+accredited training for the oil and gas industry both in the United States and
+in several international locations. Well Control School provides this training
+in various formats including conventional classroom training, interactive
+computer training and mobile simulator training. Well Control School also
+develops customized training solutions for clients.
+ENERGY PERSONNEL INTERNATIONAL. Energy Personnel International provides drilling
+and production engineers, project management specialists and workover
+specialists on a consulting basis to the oil and gas industry to meet customers'
+needs for staff engineering and wellsite management.
+INDUSTRY
+UNITED STATES. RPC provides its services to its domestic customers through a
+network of locations strategically positioned to serve the Gulf of Mexico, the
+mid-continent, the southwest and the Rocky Mountains production fields. Demand
+for RPC's services in the U.S. tends to be extremely volatile and fluctuates
+with current and projected price levels of oil and natural gas and activity
+levels in the oil and gas industry. Customer activity levels are influenced by
+their decisions about capital investment toward the development and production
+of oil and gas reserves.
+Due to aging oilfields and lower-cost sources of oil internationally, drilling
+activity in the U.S. has declined more than 75 percent from its peak in 1981.
+Record low drilling activity levels were experienced in 1986, 1992 and again in
+1999, with April 1999 recording the lowest U.S. drilling rig count in the
+industry's history.
+At the end of 2002, there were 862 domestic working drilling rigs, down 33
+percent from the third quarter 2001 peak. U.S. domestic drilling activity in
+2003 declined in the beginning of the first quarter, but began a gradual
+recovery in the first quarter and rose during the year to a high at the end of
+the year of 1,126. This represents a 31 percent increase over the beginning of
+2003, but was still 13 percent lower than the 2001 peak. The price of natural
+gas rose by 64 percent during 2003 and the price of oil rose by 19 percent
+during the period, but drilling activity was not as highly correlated with these
+increases in commodity prices as in past cycles.
+Historically, gas drilling rigs have typically represented just over 50 percent
+of the total drilling rig count. However, gas-directed drilling rigs averaged
+approximately 85 percent of the total domestic drilling rig count during 2003.
+Demand for natural gas is continuing to rise, primarily as a result of increased
+emphasis on gas-fired power generation. Also, unlike oil, foreign imports do not
+compete with domestic production. This lack of foreign competition tends to keep
+prices high. Based on the current demand for natural gas as well as the high
+well depletion rates experienced over the past several years, it is anticipated
+that gas-directed drilling will represent at least 80 percent of the total
+drilling rig count in the foreseeable future. The demand for RPC's services is
+driven more by gas-directed drilling than oil-directed drilling, because our
+services are more applicable to deeper, higher pressure wells, which tend to be
+the wells that produce natural gas.
+Thus, in North America the demand for our services and products associated with
+natural gas development is currently more robust than demand related to oil
+drilling. Drilling activity and demand for our services has started to increase
+and is expected to continue to increase as the domestic economy improves and
+current storage levels of natural gas decrease.
+5
+INTERNATIONAL. RPC has operated in several countries including the major
+international oil and natural gas producing areas of Algeria, Argentina,
+Bolivia, Canada, Cameroon, Colombia, Gabon, Indonesia, Mexico and Venezuela.
+During 2003, RPC performed well control work in Colombia and snubbing work in
+Cameroon, Canada and Gabon, and realized an immaterial amount of revenues
+through Well Control School in Venezuela and Argentina. We are evaluating new
+business opportunities in each of these markets and may resume our operations in
+one or all of these markets.
+Beginning in the second quarter of 2002 and throughout 2003, the Company had
+less international revenues than it had in the previous five years. As part of a
+focus on developing other international opportunities, the Company is beginning
+work in Kuwait and Egypt during the first quarter of 2004.
+RPC provides services to its international customers through wholly-owned
+foreign subsidiaries or branch locations. The international market is somewhat
+less volatile than the U.S. market although prone to political uncertainties,
+including the risk of civil unrest and conflicts. Due to the significant
+investment requirement and complexity of international projects, customers'
+drilling decisions relating to such projects tend to be evaluated and monitored
+with a longer-term perspective with regard to oil and natural gas pricing.
+Additionally, the international market is dominated by major oil companies and
+national oil companies which tend to have different objectives and more
+operating stability than the typical independent oil and gas producer in the
+U.S. Pursuing selective international opportunities for revenue growth continues
+to be a strong emphasis for RPC. Refer to Note 13 in the Notes to Consolidated
+Financial Statements for further information on international operations.
+GROWTH STRATEGIES
+RPC's primary objective is to generate excellent long-term returns on investment
+through the effective and conservative management of its invested capital, thus
+yielding strong cash flow and asset appreciation. This objective will be pursued
+through strategic investments and opportunities designed to enhance the
+long-term value of RPC while improving market share, product offerings and the
+profitability of existing businesses. Growth strategies are focused on selected
+areas and markets in which we believe there exist opportunities for higher
+growth, market penetration, or enhanced returns achieved through consolidations
+or through providing proprietary value-added products and services. RPC intends
+to focus on specific market segments in which it believes that it has a
+competitive advantage or there exists significant growth potential.
+RPC seeks to expand its service capabilities through a combination of internal
+growth, acquisitions, joint ventures and strategic alliances. Because of the
+fragmented nature of the oil and gas services industry, RPC believes a number of
+attractive acquisition opportunities exist.
+CUSTOMERS
+Demand for RPC's services and products depends primarily upon the number of oil
+and natural gas wells being drilled, the depth and drilling conditions of such
+wells, the number of well completions and the level of workover activity
+worldwide. RPC's principal customers consist of major and independent oil and
+natural gas producing companies. During 2003, RPC provided oilfield services to
+several hundred customers, none of which accounted for more than 10 percent of
+consolidated revenues. While the loss of certain of RPC's largest customers
+could have a material adverse effect on Company revenues and operating results
+in the near term, management believes RPC would be able to obtain other
+customers for its services in the event of a loss of any of its largest
+customers. Sales are generated by RPC's sales force and through referrals from
+existing customers. With the exception of certain international customers, there
+are no long-term written contracts for services or equipment. Due to the short
+lead time between ordering services or equipment and providing services or
+delivering equipment, there is no significant sales backlog.
+COMPETITION
+RPC operates in highly competitive areas of the oilfield services industry. The
+products and services of each of RPC's principal industry segments are sold in
+highly competitive markets, and its revenues and earnings are affected by
+changes in prices for our services, fluctuations in the level of activity in
+major markets, general economic conditions and governmental regulation. RPC
+competes with many large and small oilfield industry competitors, including the
+largest integrated oilfield services companies. RPC believes that the principal
+competitive factors in the market areas that it serves are product and service
+quality and availability, reputation for safety and technical proficiency and
+price.
+The oil and gas services business includes a small number of dominant global
+competitors including Halliburton Energy Services, a division of Halliburton
+Company, and Schlumberger Ltd., and a significant number of locally oriented
+businesses, many of which tend to be viable acquisition targets.
+6
+FACILITIES/EQUIPMENT
+RPC's equipment consists primarily of oil and gas services equipment used either
+in servicing customer wells or provided on a rental basis for customer use.
+Substantially all of this equipment is Company owned and unencumbered. RPC both
+owns and leases regional and district facilities from which its oilfield
+services are provided to land-based and offshore customers. RPC's principal
+executive offices in Atlanta, Georgia are leased. The Company has two
+administrative buildings, one in Houston, Texas that includes the Company's
+operations, sales and marketing headquarters, and one in Houma, Louisiana that
+houses certain administrative functions. RPC believes that its facilities are
+adequate for its current operations. RPC also owns and operates four offshore
+liftboats. For additional information with respect to RPC's lease commitments,
+see Note 10 of the Notes to Consolidated Financial Statements.
+GOVERNMENTAL REGULATION
+RPC's business is significantly affected by state, federal and foreign laws and
+other regulations relating to the oil and gas industry, as well as laws and
+regulations relating to worker safety and environmental protection. RPC cannot
+predict the level of enforcement of existing laws and regulations or how such
+laws and regulations may be interpreted by enforcement agencies or court
+rulings, whether additional laws and regulations will be adopted, or the effect
+such changes may have on it, its businesses or financial condition.
+In addition, our customers are affected by laws and regulations relating to the
+exploration for and production of natural resources such as oil and natural gas.
+These regulations are subject to change, and new regulations may curtail or
+eliminate our customers' activities in certain areas where we currently operate.
+We cannot determine the extent to which new legislation may impact our
+customers' activity levels, and ultimately, the demand for our services.
+INTELLECTUAL PROPERTY
+RPC uses several patented items in its operations, which management believes are
+important but are not indispensable to RPC's operations. Although RPC
+anticipates seeking patent protection when possible, it relies to a greater
+extent on the technical expertise and know-how of its personnel to maintain its
+competitive position.
+AVAILABILITY OF FILINGS
+RPC makes available, free of charge, on its website, WWW.RPC.NET, its annual
+report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
+8-K, and all amendments to those reports on the same day as they are filed with
+the Securities and Exchange Commission and has done so since November 15, 2002.
+RISK FACTORS
+DEMAND FOR OUR PRODUCTS AND SERVICES IS AFFECTED BY THE VOLATILITY OF OIL
+PRICES.
+Oil prices affect demand throughout the oil and natural gas industry, including
+the demand for our products and services. Our business depends in large part on
+the conditions of the oil and gas industry, and specifically on the capital
+investments of our customers related to the exploration and production of oil
+and natural gas. When these capital investments decline, our customers' demand
+for our services declines.
+Although the production sector of the oil and gas industry is less immediately
+affected by changing prices, and, as a result, less volatile than the
+exploration sector, producers react to declining oil and gas prices by
+curtailing capital spending, which would adversely affect our business. A
+prolonged low level of activity in the oil and gas industry will adversely
+affect the demand for our products and services and our financial condition and
+results of operations.
+THE RELATIONSHIP BETWEEN THE PRICES OF OIL AND NATURAL GAS AND OUR CUSTOMERS'
+DRILLING AND PRODUCTION ACTIVITIES MAY NOT BE HIGHLY CORRELATED IN THE FUTURE.
+Historically, a rise in the prices of oil and natural gas has led to an
+immediate increase in our customers' drilling and production activities as
+measured by the domestic rig count. During 2003, the price of natural gas rose
+by 64 percent and the price of oil rose by 19 percent. Although drilling
+activity rose as well, it was not as highly correlated with the prices of oil
+and natural gas as in past industry cycles. If this correlation continues to be
+weak in the future, then it is possible that increases in the prices of oil and
+natural gas will not lead to an increase in our customers' activities, and our
+future operating results could be negatively impacted.
+WE MAY BE UNABLE TO COMPETE IN THE HIGHLY COMPETITIVE OIL AND GAS INDUSTRY IN
+THE FUTURE.
+We operate in highly competitive areas of the oilfield services industry. The
+products and services of each of our principal industry segments are sold in
+highly competitive markets, and our revenues and earnings may be affected by the
+following factors: changes in competitive prices, fluctuations in the level of
+activity in major markets, general economic conditions, and governmental
+regulation. We compete with the oil and gas industry's many large and small
+industry competitors, including the largest integrated oilfield service
+providers. We believe that the principal competitive factors in the market
+7
+areas that we serve are product and service quality and availability, reputation
+for safety, technical proficiency and price. Although we believe that our
+reputation for safety and quality service is good, we cannot assure you that we
+will be able to maintain our competitive position.
+WE MAY BE UNABLE TO IDENTIFY OR COMPLETE ACQUISITIONS.
+Acquisitions have been and will continue to be a key element of our business
+strategy. We cannot assure you that we will be able to identify and acquire
+acceptable acquisition candidates on terms favorable to us in the future. We may
+be required to incur substantial indebtedness to finance future acquisitions and
+also may issue equity securities in connection with such acquisitions. The
+issuance of additional equity securities could result in significant dilution to
+our stockholders. We cannot assure you that we will be able to consolidate
+successfully the operations and assets of any acquired business with our own
+business. Any inability on our part to consolidate and manage the growth from
+acquired businesses could have a material adverse effect on our results of
+operations and financial condition.
+OUR OPERATIONS ARE AFFECTED BY ADVERSE WEATHER CONDITIONS.
+Our operations are directly affected by the weather conditions in the Gulf of
+Mexico and Gulf Coast regions. Due to seasonal differences in weather patterns,
+our crews may operate more days in some periods than others. Rainy weather,
+hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf
+Coast throughout the year may also affect our operations. Accordingly, our
+operating results may vary from quarter to quarter, depending on factors outside
+of our control.
+OUR INABILITY TO ATTRACT AND RETAIN SKILLED WORKERS MAY IMPAIR GROWTH POTENTIAL
+AND PROFITABILITY.
+Our ability to remain productive and profitable will depend substantially on our
+ability to attract and retain skilled workers. Our ability to expand our
+operations is in part impacted by our ability to increase our labor force. The
+demand for skilled oilfield employees is high, and the supply is very limited. A
+significant increase in the wages paid by competing employers could result in a
+reduction in our skilled labor force, increases in the wage rates paid by us, or
+both. If either of these events occurred, our capacity and profitability could
+be diminished, and our growth potential could be impaired.
+OUR CONCENTRATION OF CUSTOMERS IN ONE INDUSTRY MAY IMPACT OVERALL EXPOSURE TO
+CREDIT RISK.
+Substantially all of our customers are engaged in the energy industry. This
+concentration of customers in one industry may impact our overall exposure to
+credit risk, either positively or negatively, in that customers may be similarly
+affected by changes in economic and industry conditions. We perform ongoing
+credit evaluations of our customers and do not generally require collateral in
+support of our trade receivables.
+OUR BUSINESS HAS POTENTIAL LIABILITY FOR LITIGATION, PERSONAL INJURY AND
+PROPERTY DAMAGE CLAIMS ASSESSMENTS.
+Our operations involve the use of heavy equipment and exposure to inherent
+risks, including blowouts, explosions and fires. If any of these events were to
+occur, it could result in liability for personal injury and property damage,
+pollution or other environmental hazards or loss of production. Litigation may
+arise from a catastrophic occurrence at a location where our equipment and
+services are used. This litigation could result in large claims for damages. The
+frequency and severity of such incidents will affect our operating costs,
+insurability and relationships with customers, employees and regulators. These
+occurrences could have a material adverse effect on us. We maintain what we
+believe is prudent insurance protection. We cannot assure you that we will be
+able to maintain adequate insurance in the future at rates we consider
+reasonable or that our insurance coverage will be adequate to cover future
+claims and assessments that may arise.
+OUR OPERATIONS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO COMPLY WITH
+REGULATORY AND ENVIRONMENTAL LAWS.
+Our business is significantly affected by stringent environmental laws and other
+regulations relating to the oil and gas industry and by changes in such laws and
+the level of enforcement of such laws. We are unable to predict the level of
+enforcement of existing laws and regulations, how such laws and regulations may
+be interpreted by enforcement agencies or court rulings, or whether additional
+laws and regulations will be adopted. The adoption of laws and regulations
+curtailing exploration and development of oil and gas fields in our areas of
+operations for economic, environmental or other policy reasons would adversely
+affect our operations by limiting demand for our services. We also have
+potential environmental liabilities with respect to our offshore and onshore
+operations, and could be liable for cleanup costs, or environmental and natural
+resource damage due to conduct that was lawful at the time it occurred, but is
+later ruled to be unlawful. We also may be subject to claims for personal injury
+and property damage due to the generation of hazardous substances in connection
+with our operations. We believe that our present operations substantially comply
+with applicable federal and state pollution control and environmental protection
+laws and regulations. We also believe that compliance with such laws has had no
+material adverse effect on our operations to date. However, such environmental
+laws are changed frequently. We are unable to predict whether environmental laws
+will, in the future, materially adversely affect our operations and financial
+condition. Penalties for noncompliance with these laws may include cancellation
+of permits, fines, and other corrective actions, which would negatively affect
+our future financial results.
+8
+OUR INTERNATIONAL OPERATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
+BUSINESS.
+Our operations in various countries including, but not limited to, Africa,
+Canada and Latin America are subject to risk. These risks include, but are not
+limited to, political changes, expropriation, currency restrictions and changes
+in currency exchange rates, taxes, and boycotts and other civil disturbances.
+Although it is impossible to predict the likelihood of such occurrences or their
+effect on our operations, our management believes that these risks are
+acceptable. However, the occurrence of any one of these events could have a
+material adverse effect on our operations.
+OUR COMMON STOCK PRICE HAS BEEN VOLATILE.
+Historically, the market price of common stock of companies engaged in the oil
+and gas services industry has been highly volatile. Likewise, the market price
+of our common stock has varied significantly in the past.
+OUR MANAGEMENT HAS A SUBSTANTIAL OWNERSHIP INTEREST, AND PUBLIC SHAREHOLDERS MAY
+HAVE NO EFFECTIVE VOICE IN THE MANAGEMENT OF THE COMPANY.
+The Company has elected the "Controlled Corporation" exemption under Rule 303A
+of the New York Stock Exchange ("NYSE") Company Guide. The Company is a
+"Controlled Corporation" because a group that includes the Company's Chairman of
+the Board, R. Randall Rollins and his brother, Gary W. Rollins, who is also a
+director of the Company, and certain companies under their control, controls in
+excess of fifty percent of the Company's voting power. As a "Controlled
+Corporation", the Company need not comply with certain NYSE rules including
+those requiring a majority of independent directors.
+RPC's executive officers, directors and their affiliates hold directly or
+through indirect beneficial ownership, in the aggregate, approximately 65
+percent of RPC's outstanding common stock. As a result, these stockholders
+effectively control the operations of RPC, including the election of directors
+and approval of significant corporate transactions such as acquisitions. This
+concentration of ownership could also have the effect of delaying or preventing
+a third party from acquiring control over the Company at a premium. In addition,
+the availability of RPC's common stock to the investing public may be limited to
+those shares not held by the executive officers, directors and their affiliates,
+which could negatively impact RPC's stock trading prices and affect the ability
+of minority stockholders to sell their shares. Future sales by executive
+officers, directors and their affiliates of all or a portion of their shares
+could also negatively affect the trading price of our common stock.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2003/0001188112-04-000303/item13.txt b/raw/filings/0000742278/2003/0001188112-04-000303/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a2cbaa1b134750a07ab1223e8f5aefcde94eeef6
--- /dev/null
+++ b/raw/filings/0000742278/2003/0001188112-04-000303/item13.txt
@@ -0,0 +1,6 @@
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
+Information concerning certain relationships and related party transactions is
+included in the RPC Proxy for its 2004 Annual Meeting of Stockholders, in the
+sections titled, "Certain Relationships and Related Party Transactions" and
+"Compensation Committee Interlocks and Insider Participation." This information
+is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2003/0001188112-04-000303/item9a.txt b/raw/filings/0000742278/2003/0001188112-04-000303/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..cb5fcdb76e60cb654bb31dc5fe11321b6434b04f
--- /dev/null
+++ b/raw/filings/0000742278/2003/0001188112-04-000303/item9a.txt
@@ -0,0 +1,24 @@
+ITEM 9A. CONTROLS AND PROCEDURES
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES - The Company maintains
+disclosure controls and procedures that are designed to ensure that information
+required to be disclosed in its Exchange Act reports is recorded, processed,
+summarized and reported within the time periods specified in the Commission's
+rules and forms, and that such information is accumulated and communicated to
+its management, including the Chief Executive Officer and Chief Financial
+Officer, as appropriate, to allow timely decisions regarding required
+disclosure.
+As of the end of the period covered by this report, December 31, 2003 (the
+"Evaluation Date"), the Company carried out an evaluation, under the supervision
+and with the participation of its management, including the Chief Executive
+Officer and Chief Financial Officer, of the effectiveness of the design and
+operation of its disclosure controls and procedures. Based upon this evaluation,
+the President and Chief Executive Officer and the Chief Financial Officer
+concluded that the Company's disclosure controls and procedures were effective
+as of the Evaluation Date.
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING - There were no changes in
+the Company's internal control over financial reporting that occurred during the
+Company's most recent fiscal quarter that have materially affected, or are
+reasonably likely to materially affect, the Company's internal control over
+financial reporting.
+42
+PART III
\ No newline at end of file
diff --git a/raw/filings/0000742278/2003/0001188112-04-000303/rp_note.txt b/raw/filings/0000742278/2003/0001188112-04-000303/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fceb5c5ac7fc1ae04406703af0eff867a2c48c2d
--- /dev/null
+++ b/raw/filings/0000742278/2003/0001188112-04-000303/rp_note.txt
@@ -0,0 +1,25 @@
+NOTE 12: RELATED PARTY TRANSACTIONS
+Effective with the spin-off, the Company established a cash balance at Marine
+Products of approximately $15 million by transferring a total of $13.8 million
+in cash and marketable securities. Effective February 28, 2001, the Company
+began providing certain administrative services to Marine Products. The service
+agreements are more fully described in Note 2. Charges from the Company (or from
+corporations that are subsidiaries of the Company) for such services aggregated
+approximately $496,000 in 2003, $588,000 in 2002 and $868,000 in 2001. The
+Company's directors are also directors of Marine Products and certain officers
+are employees of both the Company and Marine Products.
+The Company periodically purchases in the ordinary course of business products
+or services from vendors, who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $1,058,000 in 2003 and $502,000 in 2002.
+In addition, during 2003 and 2002, the overhead crane fabrication division of
+RPC recorded $171,000 and $332,000 in revenues from the powerboat manufacturing
+segment that is now a subsidiary of Marine Products pursuant to the spin-off,
+related to the sale, installation and service of overhead cranes.
+RPC sponsors a multiple employer plan that includes Marine Products. Following
+the spin-off, RPC charged Marine Products for, and Marine Products has been
+obligated to pay, its allocable share of pension costs and the associated
+funding obligation related to the prior service liabilities of Chaparral
+employees. Effective December 2003, the related prior service liabilities
+totaling $3,314,000 and pension assets totaling $2,517,000 were transferred
+within the multiple employer plan from RPC to Marine Products.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2003/0001188112-04-000303/rpt_disclosure.txt b/raw/filings/0000742278/2003/0001188112-04-000303/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2c5119d5f12459933ea645c1a17057ec811f9a78
--- /dev/null
+++ b/raw/filings/0000742278/2003/0001188112-04-000303/rpt_disclosure.txt
@@ -0,0 +1,28 @@
+CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
+Effective February 28, 2001, the Company began providing certain
+administrative services to Marine Products. The service agreements between
+Marine Products and the Company provide for the provision of services on a cost
+reimbursement basis and may be terminated upon six months notice. The services
+covered by these agreements include administration of certain employee benefit
+programs and other administrative services. Charges from the Company (or from
+corporations which are subsidiaries of the Company) for such services aggregated
+approximately $496,000 in 2003. During 2003, a division of RPC conducted
+business with Chaparral Boats, Inc. ("Chaparral"), a subsidiary of Marine
+Products. The Company recorded $171,000 in revenues from Chaparral related to
+the sale, installation and service of overhead cranes.
+During 2003, a subsidiary of RPC conducted business with companies owned by
+LOR, Inc. The officers, directors and stockholders of LOR, Inc. include Mr.
+Randall Rollins, Chairman, and Mr. Gary W. Rollins,
+10
+Director. In 2003, payments totaling approximately $871,000 were made to these
+LOR, Inc. companies for the purchase of parts and repair services related to
+certain of RPC's oilfield operating equipment. RPC believes the charges incurred
+by its subsidiary are at least as favorable as the charges that would have been
+incurred for similar services from unaffiliated third parties.
+RPC sponsors a multiple employer benefit plan that includes Marine
+Products. Following the spin-off, RPC charged Marine Products for, and Marine
+Products has been obligated to pay, its allocable share of pension costs and the
+associated funding obligation related to the prior service liabilities of
+Chaparral employees. Effective December 2003, the related prior service
+liabilities totaling $3,314,000 and pension assets totaling $2,517,000 were
+transferred within the multiple employer plan from RPC to Marine Products.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2004/0001167966-05-000383/filing.txt b/raw/filings/0000742278/2004/0001167966-05-000383/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..919ab2fc9c3da490a8beea8859790ae0a0928284
--- /dev/null
+++ b/raw/filings/0000742278/2004/0001167966-05-000383/filing.txt
@@ -0,0 +1,6232 @@
+10-K
+1
+t5161_10k.htm
+RPC, INC. FORM 10-K
+RPC, Inc. Form 10-K
+UNITED
+STATES 
+SECURITIES
+AND EXCHANGE COMMISSION 
+WASHINGTON,
+D.C. 20549 
+________ 
+FORM
+10-K 
+(Mark
+One) 
+[X] 
+Annual
+report pursuant to Section 13 or 15(d) of the Securities
+Exchange 
+Act of 1934 
+[ ] 
+Transition
+report pursuant to Section 13 or 15(d) of the Securities
+Exchange 
+Act of 1934 
+For
+the fiscal year ended December 31, 2004 
+Commission
+File No. 1-8726 
+RPC,
+INC. 
+Delaware 
+(State
+of Incorporation) 
+58-1550825 
+(I.R.S.
+Employer Identification No.) 
+2170
+PIEDMONT ROAD, NE 
+ATLANTA,
+GEORGIA 30324 
+(404)
+321-2140 
+Securities
+registered pursuant to Section 12(b) of the Act: 
+Title
+of each class 
+COMMON
+STOCK, $0.10 PAR VALUE 
+Name
+of each exchange on which registered 
+THE
+NEW YORK STOCK EXCHANGE 
+Securities
+registered pursuant to Section 12(g) of the Act: 
+NONE 
+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 if disclosure of delinquent filers pursuant to Item 405 of
+Regulation S-K is not contained herein, and will not be contained, to the best
+of registrant’s knowledge, in definitive proxy or information statements
+incorporated by reference in Part III of this Form 10-K or any amendment to this
+Form 10-K. [ ] 
+Indicate
+by check mark whether the registrant is an accelerated filer (as defined in Rule
+12b-2 of the Act): Yes [X] No [ ] 
+The
+aggregate market value of RPC, Inc. Common Stock held by non-affiliates on June
+30, 2004, the last business day of the registrant’s most recently completed
+second fiscal quarter, was $147,960,621 based on the closing price on the New
+York Stock Exchange on June 30, 2004 of $10.53 (adjusted for the three-for-two
+stock split payable March 10, 2005) per share. 
+RPC, Inc.
+had 43,466,183 (adjusted for the three-for-two stock split payable March 10,
+2005) shares of Common Stock outstanding as of February 23, 2005. 
+Documents
+Incorporated by Reference 
+Portions
+of the Proxy Statement for the 2005 Annual Meeting of Stockholders of RPC, Inc.
+are incorporated by reference into Part III, Items 10 through 14 of this
+report. 
+1 
+PART
+I 
+Throughout
+this report, we refer to RPC, Inc., together with its subsidiaries, as “we,”
+“us,” “RPC” or “the Company.” 
+Forward-Looking
+Statements 
+Certain
+statements made in this report that are not historical facts are
+“forward-looking statements” under the Private Securities Litigation Reform Act
+of 1995. Such forward-looking statements may include, without limitation,
+statements that relate to our business strategy, plans and objectives, and our
+beliefs and expectations regarding future demand for our products and services
+and other events and conditions that may influence the oilfield services market
+and our performance in the future. Forward-looking statements made elsewhere in
+this report include without limitation statements regarding continued demand for
+natural gas and increases in gas-directed drilling activity, our expectation for
+increased financial performance in 2005, anticipated cash requirements for 2005,
+our future investments in higher yielding assets and increased spending in 2005,
+our ability to meet capital requirements, opportunities for higher growth in
+selected markets and attractive acquisitions, our ability to obtain additional
+customers, and improvements in business and industry conditions. 
+The words
+“may,” “will,” “expect,” “believe,” “anticipate,” “project,” “estimate,” and
+similar expressions generally identify forward-looking statements. Such
+statements are based on certain assumptions and analyses made by our management
+in light of its experience and its perception of historical trends, current
+conditions, expected future developments and other factors it believes to be
+appropriate. We caution you that such statements are only predictions and not
+guarantees of future performance and that actual results, developments and
+business decisions may differ from those envisioned by the forward-looking
+statements. See “Risk Factors” contained in Item 1. 
+Item
+1. Business 
+Organization
+RPC is a
+Delaware corporation originally organized in 1984 as a holding company for
+several oilfield services companies and is headquartered in Atlanta, Georgia.
+Effective February 28, 2001, RPC completed the spin-off of its powerboat
+manufacturing business through a distribution of shares of Marine Products
+Corporation (“Marine Products”) (AMEX:MPX). 
+Overview
+RPC
+provides a broad range of specialized oilfield services and equipment primarily
+to independent and major oil and gas companies engaged in the exploration,
+production and development of oil and gas properties throughout the United
+States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and in selected international markets. The services and
+equipment provided include, among other things, (1) pressure pumping services,
+(2) snubbing services, (3) coiled tubing services, (4) nitrogen services, (5)
+the rental of drill pipe and other specialized oilfield equipment, and (6)
+firefighting and well control. RPC acts as a holding company for its operating
+units, Cudd Pressure Control, Cudd Pumping Services, Patterson Rental Tools,
+Bronco Oilfield Services (acquired in April 2003), Thru-Tubing Solutions, Well
+Control School, International Hammer and others. As of December 31, 2004, RPC
+had approximately 1,600 employees. 
+Business
+Segments 
+RPC’s
+service lines have been aggregated into two reportable oil and gas services
+business segments, Technical Services and Support Services, because of the
+similarities between the financial performance and approach to managing the
+service lines within each of the segments, as well as the economic and business
+conditions impacting their business activity levels. The Other business segment
+aggregates information concerning RPC’s business units that do not qualify for
+separate segment reporting, including an interactive training software developer
+and an overhead crane fabricator (disposed of in April 2004). 
+2 
+Technical
+Services include RPC’s oil and gas service lines that utilize people and
+equipment to perform value-added completion, production and maintenance services
+directly to a customer’s well. The demand for these services is generally
+influenced by customers’ decisions to invest capital toward initiating
+production in a new oil or natural gas well, improving production flows in an
+existing formation, or to address well control issues. This business segment
+consists primarily of pressure pumping, snubbing, coiled tubing, nitrogen, well
+control, down-hole tools, wireline, fluid pumping and
+casing installation services. The principal markets for this business segment
+include the United States, including the Gulf of Mexico, mid-continent,
+southwest and Rocky Mountain regions, and international locations including
+primarily Africa, Canada, China, Latin America and the Middle East. Customers
+include major multi-national and independent oil and gas producers, and selected
+nationally owned oil companies. 
+Support
+Services include RPC’s oil and gas service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling,
+inspection and storage services, work platform marine vessels and oilfield
+training services. The demand for these services tends to be influenced
+primarily by customer drilling-related activity levels. The principal markets
+for this segment include the United States, Gulf of Mexico and mid-continent
+regions and international locations including primarily Canada, Latin America
+and the Middle East. Customers primarily include domestic operations of major
+multi-national and independent oil and gas producers, and selected nationally
+owned oil companies. 
+Technical
+Services 
+The
+following is a description of the primary service lines conducted within the
+Technical Services business segment: 
+Pressure
+Pumping .
+Pressure pumping services, which accounted for approximately 31 percent of
+revenues during 2004, are provided to customers throughout the Gulf Coast and
+mid-continent regions of the United States and are generally utilized to
+initiate or enhance production in existing customer wells. Pressure pumping
+services involve using complex, truck or skid-mounted equipment designed and
+constructed for each specific pumping service offered. The mobility of this
+equipment permits pressure pumping services to be performed in varying
+geographic areas. Principal materials utilized in the pressure pumping business
+include fracturing proppants, acid and bulk chemical additives. Generally, these
+items are available from several suppliers, and the Company utilizes more than
+one supplier for each item. Pressure pumping services offered include:
+Fracturing
+— Fracturing services are performed to stimulate production of oil and natural
+gas by increasing the permeability of a formation. The fracturing process
+consists of pumping a fluid gel into a cased well at sufficient pressure to
+fracture the formation at desired depths. Sand, bauxite or synthetic proppant,
+which is suspended in the gel, is pumped into the fracture. When the pressure is
+released at the surface, the fluid gel returns to the well, but the proppant
+remain in the fracture, thus keeping it open so that oil and natural gas can
+flow through the fracture into the well. In some cases, fracturing is performed
+in formations with a high amount of carbonate rock by an acid solution pumped
+under pressure without a proppant or with small amounts of proppant.
+Acidizing
+— Acidizing services are also performed to stimulate production of oil and
+natural gas, but they are used in wells that have undergone formation damage due
+to the buildup of various materials that block the formation. Acidizing entails
+pumping large volumes of specially formulated acids into reservoirs to dissolve
+barriers and enlarge crevices in the formation, thereby eliminating obstacles to
+the flow of oil and natural gas. Acidizing services can also enhance production
+in limestone formations. 
+Snubbing .
+Snubbing, which accounted for approximately 12 percent of 2004 revenues,
+involves using a hydraulic workover rig that permits an operator to repair
+damaged casing, production tubing and down-hole production equipment in a
+high-pressure environment. A snubbing unit makes it possible to remove and
+replace down-hole equipment while maintaining pressure in the well. Customers
+benefit because these operations can be performed without removing the pressure
+from the well, which stops production and can damage the formation, and because
+a snubbing rig can perform many applications at a lower cost than other
+alternatives. Since snubbing is a very hazardous process that entails high risk,
+the snubbing segment of the oil and gas services industry is limited to a
+relatively few operators who have the experience and knowledge required to
+perform such services safely and efficiently. 
+Coiled
+Tubing . Coiled
+tubing services, which accounted for approximately 11 percent of 2004 revenues,
+involve the injection of coiled tubing into wells to perform various
+applications and functions for use principally in well-servicing operations.
+Coiled tubing is a flexible steel pipe with a diameter of less than four inches
+manufactured in continuous lengths of thousands of feet and wound or coiled
+around a large reel. It can be inserted through existing production tubing and
+used to perform workovers without using a larger, more costly workover rig.
+Principal advantages of employing coiled tubing in a workover operation include:
+(i) not having to “shut-in” the well during such operations, (ii) the ability to
+reel continuous coiled tubing in and out of a well significantly faster than
+conventional pipe, (iii) the ability to direct fluids into a wellbore with more
+precision, and (iv) enhanced access to remote or offshore fields due to the
+smaller size and mobility of a coiled tubing unit. There are several
+manufacturers of flexible steel pipe used in coiled tubing services, and the
+Company believes that its sources of supply are adequate. 
+3 
+Nitrogen .
+Nitrogen accounted for approximately nine percent of 2004 revenues. There are a
+number of uses for nitrogen, an inert, non-combustible element, in providing
+services to oilfield customers and industrial users outside of the oilfield. For
+our oilfield customers, nitrogen can be used to clean drilling and production
+pipe and displace fluids in various drilling applications. It also can be used
+to create a fire-retardant environment in hazardous blowout situations and as a
+fracturing medium for our fracturing service line. In addition, nitrogen can be
+complementary to our snubbing and coiled tubing service lines, because it is a
+non-corrosive medium and is frequently injected into a well using coiled tubing.
+For non-oilfield industrial users, nitrogen can be used to purge pipelines and
+create a non-combustible environment. RPC stores and transports nitrogen and has
+a number of pumping unit configurations that inject nitrogen in its various
+applications. Some of these pumping units are set up for use on offshore
+platforms or inland waters. RPC purchases its nitrogen in liquid form from
+several suppliers and believes that these sources of supply are adequate.
+Well
+Control . Cudd
+Pressure Control specializes in responding to and controlling oil and gas well
+emergencies, including blowouts and well fires, domestically and
+internationally. In connection with these services, Cudd, along with Patterson
+Services, has the capacity to supply the equipment, expertise and personnel
+necessary to restore affected oil and gas wells to production. In the last seven
+years, the Company has responded to well control situations in several
+international locations including Algeria, Argentina, Australia, Bolivia,
+Canada, Colombia, Egypt, India, Kuwait, Peru, Qatar, Taiwan, Trinidad and
+Venezuela. 
+The
+Company’s professional firefighting staff has more than 300 years of aggregate
+industry experience in responding to well fires and blowouts. This team of 20
+experts responds to well control projects where hydrocarbons are escaping from a
+well bore, regardless of whether a fire has occurred. In the most critical
+situations, there are explosive fires, the destruction of drilling and
+production facilities, substantial environmental damage and the loss of hundreds
+of thousands of dollars per day in well operators’ production revenue. Since
+these events ordinarily arise from equipment failures or human error, it is
+impossible to predict accurately the timing or scope of this work. Additionally,
+less critical events frequently occur in connection with the drilling of new
+wells in high-pressure reservoirs. In these situations, the Company is called
+upon to supervise and assist in the well control effort so that drilling
+operations can resume as promptly as safety permits. 
+Down-hole
+Tools .
+ThruTubing Solutions (“TTS”), a division of the Company, provides services and
+proprietary down-hole motors and fishing tools to operators and service
+companies in drilling and production operations. TTS’ experience providing
+reliable tool services allows it to work in a pressurized environment with
+virtually any coiled tubing unit or snubbing unit that is equipped for the task.
+Wireline
+Services . A
+wireline unit is a spooled wire that can be unwound and lowered into a well
+carrying various types of tools. Wireline services are used for a variety of
+purposes, such as accessing a well to assist in data acquisition or logging
+activities, fishing tool operations to retrieve lost or broken equipment, pipe
+recovery and remedial activities. In addition, wireline services are an integral
+part of the plug and abandonment process, near the end of the life cycle of a
+well. 
+Casing
+and Laydown . Casing
+and laydown principally consists of installing casing and production tubing into
+a wellbore. Casing is run to protect the structural integrity of the wellbore
+and to seal various production zones in the well. These services are normally
+provided during the drilling phase of a well. Production tubing is then run
+inside the casing. Oil and natural gas are produced through the production
+tubing. These services are provided during the completion or workover phases of
+a well. 
+Torque-Turn .
+Torque-Turn is used on casing and tubing in the deeper, higher pressure gas
+wells where connection integrity and leak resistance are most critical. By
+monitoring the makeup of connections with both torque and turns simultaneously,
+optimum bearing pressure is achieved between the connection. The level of
+bearing pressure directly affects the leak resistance of the connection. The use
+of the torque-turn system allows the maximum bearing pressure to be achieved
+without permanently deforming the tubular material. 
+Fishing .
+Fishing, a new service line which began in February 2004, involves the use of
+specialized tools and procedures to retrieve lost equipment from a well. It is a
+service required by oil and gas operators who have lost equipment in a well.
+Well production typically ceases until the lost equipment can be retrieved. In
+some cases, the Company creates customized tools to perform a fishing operation.
+The customized tools are maintained by the Company after the particular fishing
+job for future use if a similar need arises. 
+Support
+Services 
+The
+following is a description of the primary service lines conducted within the
+Support Services business segment: 
+4 
+Rental
+Tools . Rental
+tools accounted for approximately 11 percent of 2004 revenues. The Company rents
+specialized equipment for use with onshore and offshore oil and gas well
+drilling, completion and workover activities. The drilling and subsequent
+operation of oil and gas wells generally require a variety of equipment. The
+equipment needed is in large part determined by the geological features of the
+production zone and the size of the well itself. As a result, operators and
+drilling contractors often find it more economical to supplement their tool and
+tubulars inventories with rental items instead of owning a complete inventory.
+The Company’s facilities are strategically located to serve the major staging
+points for oil and gas activities in the Gulf of Mexico and mid-continent
+regions. 
+Patterson
+Rental Tools offers a broad range of rental tools including: 
+Blowout
+Preventors 
+High
+Pressure Manifolds 
+Coflexip
+Hoses 
+Hydraulic
+Torque Wrenches 
+Drill
+Collars 
+Power
+Tongs 
+Drill
+Pipe 
+Pressure
+Control Equipment 
+Production
+Related Rental Tools 
+Test
+Pumps 
+Gravel
+Pack Equipment 
+Tubing
+Handling
+Tools 
+Tubulars
+Hevi-wate
+Pipe 
+Tubular
+Handling Tools 
+Pipe
+Inspection and Handling Services. Pipe
+inspection services involve the inspection and testing of the integrity of pipe
+used in oil and gas wells. These services are provided primarily at the
+Company’s inspection yards located on a water channel near Houston, Texas, and
+in Morgan City, Louisiana. Customers rely on tubular inspection services to
+avoid failure of in-service tubing, casing, flowlines, and drill pipe. Such
+tubular failures are expensive and, in some cases, catastrophic. The yard in
+Houston, Texas is equipped with bulkhead waterfronts, large capacity cranes,
+specially designed forklifts and a computerized inventory system to serve a
+variety of other storage and handling services that can serve both oilfield and
+non-oilfield customers. 
+Well
+Control School . Well
+Control School provides industry and government accredited training for the oil
+and gas industry both in the United States and in several international
+locations. Well Control School provides this training in various formats
+including conventional classroom training, interactive computer training and
+mobile simulator training. Well Control School also develops customized training
+solutions for clients. 
+Energy
+Personnel International . Energy
+Personnel International provides drilling and production engineers, project
+management specialists and workover specialists on a consulting basis to the oil
+and gas industry to meet customers’ needs for staff engineering and wellsite
+management. 
+Marine
+Services . The
+Company's Marine services are provided by liftboats, which are sea-going vessels
+with legs which allow the vessel to elevate itself above the water's surface
+upon arriving at a customer's work site. In this configuration the vessel
+becomes a stable work platform from which a variety of offshore services can be
+performed, including both oilfield and non-oilfield related work. During 2004,
+RPC received offers for, and sold, three of its four liftboats. RPC's sole
+remaining liftboat is located in Venezuela, and may be sold to a prospective
+purchaser. RPC decided to accept the offers to sell its domestic liftboat fleet
+due to continued low demand in the Gulf of Mexico offshore market, and our
+belief that we can invest the proceeds from the sale of these assets into other
+assets which will yield higher financial returns. 
+Industry
+United
+States . RPC
+provides its services to its domestic customers through a network of facilities
+strategically located to serve the Gulf of Mexico, the mid-continent, the
+southwest and the Rocky Mountains production fields. Demand for RPC’s services
+in the U.S. tends to be extremely volatile and fluctuates with current and
+projected price levels of oil and natural gas and activity levels in the oil and
+gas industry. Customer activity levels are influenced by their decisions about
+capital investment toward the development and production of oil and gas
+reserves. 
+Due to
+aging oilfields and lower-cost sources of oil internationally, drilling activity
+in the U.S. has declined more than 75 percent from its peak in 1981. Record low
+drilling activity levels were experienced in 1986, 1992, 1999 (with April 1999
+recording the lowest U.S. drilling rig count in the industry’s history) and
+again in 2002. 
+5 
+At the
+beginning of 2004, there were 1,126 domestic working drilling rigs, down 13
+percent from the third quarter 2001 peak during that industry cycle. U.S.
+domestic drilling activity steadily rose during 2004 and peaked in the fourth
+quarter at a rig count of 1,268, which was two percent lower than the third
+quarter 2001 peak. At the end of 2004 the rig count was 1,243, an increase of
+over 10 percent compared to the beginning of 2004. The price of natural gas rose
+by nine percent during 2004, and the price of oil rose by 32 percent. The
+increase in the domestic rig count was more highly correlated with the change in
+the price of natural gas, possibly due to the fact that the majority of U.S.
+drilling relates to natural gas rather than oil. 
+Gas
+drilling rigs have represented an increasing percentage of the total drilling
+rig count, and have represented at least 80 percent of the drilling rig count
+each year since 2001. In 2004, gas drilling rigs represented 86 percent of total
+drilling activity. Demand for natural gas is continuing to rise, primarily as a
+result of increased emphasis on gas-fired power generation. Also, unlike oil,
+foreign imports of natural gas do not compete with domestic production. This
+lack of foreign competition tends to keep prices high. Based on the current
+demand for natural gas as well as the high oil and gas well depletion rates
+experienced over the past several years, it is anticipated that gas-directed
+drilling will represent at least 80 percent of the total drilling rig count in
+the foreseeable future. The demand for RPC’s services is driven more by
+gas-directed drilling than oil-directed drilling, because our services are more
+applicable to deeper, higher pressure wells, which tend to be the wells that
+produce natural gas. 
+Thus, in
+North America the demand for our services and products associated with natural
+gas development is currently more robust than demand related to oil drilling.
+Drilling activity and demand for our services has started to increase and is
+expected to continue to increase with domestic economy improvements and as
+current storage levels of natural gas decrease. 
+International.
+RPC has
+historically operated in several countries outside of the United States,
+although international revenues have never accounted for more than 10 percent of
+total revenues. As the result of a focus on developing international
+opportunities, however, RPC's international revenues increased during 2004 by
+slightly more than 100 percent compared to the prior year. During 2004 RPC
+performed snubbing work in Kuwait, China, Cameroon and Gabon, among other
+countries. We also provided rental tools, well control services, downhole
+motors, fishing tool services and oilfield training to customers located in
+Algeria, Argentina, Australia, Bahrain, Bolivia, Canada, Chile, China, Ecuador,
+Equatorial Guinea, India, Indonesia, Mexico, Peru, the United Kingdom and
+Venezuela. We continue to focus on the development of international
+opportunities in these and other markets. In early 2005 we continued our
+operations in all of the countries shown above except for Algeria, Australia,
+Chile, Ecuador, India, Peru, the United Kingdom and Venezuela, and realized a
+small amount of revenues in Qatar and South Africa. 
+RPC
+provides services to its international customers through branch locations or
+wholly-owned foreign subsidiaries. The international market is prone to
+political uncertainties, including the risk of civil unrest and conflicts.
+However, due to the significant investment requirement and complexity of
+international projects, customers’ drilling decisions relating to such projects
+tend to be evaluated and monitored with a longer-term perspective with regard to
+oil and natural gas pricing, and therefore tend to be more stable than most U.S.
+domestic operations. Additionally, the international market is dominated by
+major oil companies and national oil companies which tend to have different
+objectives and more operating stability than the typical independent oil and gas
+producer in the U.S. Pursuing selective international opportunities for revenue
+growth continues to be a strong emphasis for RPC. Refer to Note 12 in the Notes
+to Consolidated Financial Statements for further information on our
+international operations. 
+Growth
+Strategies 
+RPC’s
+primary objective is to generate excellent long-term returns on investment
+through the effective and conservative management of its invested capital, thus
+yielding strong cash flow and asset appreciation. This objective will be pursued
+through strategic investments and opportunities designed to enhance the
+long-term value of RPC while improving market share, product offerings and the
+profitability of existing businesses. Growth strategies are focused on selected
+areas and markets in which we believe there exist opportunities for higher
+growth, market penetration, or enhanced returns achieved through consolidations
+or through providing proprietary value-added products and services. RPC intends
+to focus on specific market segments in which it believes that it has a
+competitive advantage or there exists significant growth potential.
+RPC seeks
+to expand its service capabilities through a combination of internal growth,
+acquisitions, joint ventures and strategic alliances. Because of the fragmented
+nature of the oil and gas services industry, RPC believes a number of attractive
+acquisition opportunities exist. 
+6 
+Customers
+Demand
+for RPC’s services and products depends primarily upon the number of oil and
+natural gas wells being drilled, the depth and drilling conditions of such
+wells, the number of well completions and the level of production enhancement
+activity worldwide. RPC’s principal customers consist of major and independent
+oil and natural gas producing companies. During 2004, RPC provided oilfield
+services to several hundred customers, none of which accounted for more than 10
+percent of consolidated revenues. While the loss of certain of RPC’s largest
+customers could have a material adverse effect on Company revenues and operating
+results in the near term, management believes RPC would be able to obtain other
+customers for its services in the event of a loss of any of its largest
+customers. Sales are generated by RPC’s sales force and through referrals from
+existing customers. With the exception of certain international customers, there
+are no long-term written contracts for services or equipment. Due to the short
+lead time between ordering services or equipment and providing services or
+delivering equipment, there is no significant sales backlog in most of our
+service lines. 
+Competition
+RPC
+operates in highly competitive areas of the oilfield services industry. The
+products and services of each of RPC’s principal industry segments are sold in
+highly competitive markets, and its revenues and earnings are affected by
+changes in prices for our services, fluctuations in the level of customer
+activity in major markets, general economic conditions and governmental
+regulation. RPC competes with many large and small oilfield industry
+competitors, including the largest integrated oilfield services companies. RPC
+believes that the principal competitive factors in the market areas that it
+serves are product and service quality and availability, reputation for safety
+and technical proficiency, and price. 
+The oil
+and gas services business includes a small number of dominant global competitors
+including Halliburton Energy Services Group, a division of Halliburton Company,
+and Schlumberger Ltd., and a significant number of locally oriented businesses,
+many of which tend to be viable acquisition targets. 
+Facilities/Equipment
+RPC’s
+equipment consists primarily of oil and gas services equipment used either in
+servicing customer wells or provided on a rental basis for customer use.
+Substantially all of this equipment is Company owned and unencumbered. RPC both
+owns and leases regional and district facilities from which its oilfield
+services are provided to land-based and offshore customers. RPC’s principal
+executive offices in Atlanta, Georgia are leased. The Company has two
+administrative buildings, one in Houston, Texas that includes the Company’s
+operations, sales and marketing headquarters, and one in Houma, Louisiana that
+houses certain administrative functions. RPC believes that its facilities are
+adequate for its current operations. For additional information with respect to
+RPC’s lease commitments, see Note 9 of the Notes to Consolidated Financial
+Statements. 
+Governmental
+Regulation 
+RPC’s
+business is significantly affected by state, federal and foreign laws and other
+regulations relating to the oil and gas industry, as well as laws and
+regulations relating to worker safety and environmental protection. RPC cannot
+predict the level of enforcement of existing laws and regulations or how such
+laws and regulations may be interpreted by enforcement agencies or court
+rulings, whether additional laws and regulations will be adopted, or the effect
+such changes may have on it, its businesses or financial condition.
+In
+addition, our customers are affected by laws and regulations relating to the
+exploration for and production of natural resources such as oil and natural gas.
+These regulations are subject to change, and new regulations may curtail or
+eliminate our customers’ activities in certain areas where we currently operate.
+We cannot determine the extent to which new legislation may impact our
+customers’ activity levels, and ultimately, the demand for our services.
+Intellectual
+Property 
+RPC uses
+several patented items in its operations, which management believes are
+important but are not indispensable to RPC’s success. Although RPC anticipates
+seeking patent protection when possible, it relies to a greater extent on the
+technical expertise and know-how of its personnel to maintain its competitive
+position. 
+Availability
+of Filings 
+RPC makes
+available, free of charge, on its website, www.rpc.net, its annual report on
+Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all
+amendments to those reports on the same day as they are filed with the
+Securities and Exchange Commission. 
+7 
+Risk
+Factors 
+Demand
+for our products and services is affected by the volatility of oil and natural
+gas prices. 
+Oil
+prices affect demand throughout the oil and natural gas industry, including the
+demand for our products and services. Our business depends in large part on the
+conditions of the oil and gas industry, and specifically on the capital
+investments of our customers related to the exploration and production of oil
+and natural gas. When these capital investments decline, our customers’ demand
+for our services declines. 
+Although
+the production sector of the oil and gas industry is less immediately affected
+by changing prices, and, as a result, less volatile than the exploration sector,
+producers react to declining oil and gas prices by curtailing capital spending,
+which would adversely affect our business. A prolonged low level of customer
+activity in the oil and gas industry will adversely affect the demand for our
+products and services and our financial condition and results of operations.
+The
+relationship between the prices of oil and natural gas and our customers’
+drilling and production activities may not be highly correlated in the future.
+Historically,
+a rise in the prices of oil and natural gas has led to an immediate increase in
+our customers’ drilling and production activities as measured by the domestic
+rig count. However, this relationship has not been as strong in the recent past
+as it was historically. For example, during 2004 the price of natural gas rose
+by nine percent and the price of oil rose by 32 percent, but the drilling rig
+count only rose by 16 percent. If this correlation continues to be weak in the
+future, then it is possible that increases in the prices of oil and natural gas
+will not lead to an increase in our customers’ activities, and our future
+operating results could be negatively impacted. 
+We
+may be unable to compete in the highly competitive oil and gas industry in the
+future. 
+We
+operate in highly competitive areas of the oilfield services industry. The
+products and services of each of our principal industry segments are sold in
+highly competitive markets, and our revenues and earnings may be affected by the
+following factors: changes in competitive prices, fluctuations in the level of
+activity in major markets, general economic conditions, and governmental
+regulation. We compete with the oil and gas industry’s many large and small
+industry competitors, including the largest integrated oilfield service
+providers. We believe that the principal competitive factors in the market areas
+that we serve are product and service quality and availability, reputation for
+safety, technical proficiency and price. Although we believe that our reputation
+for safety and quality service is good, we cannot assure you that we will be
+able to maintain our competitive position. 
+We
+may be unable to identify or complete acquisitions. 
+Acquisitions
+have been and will continue to be a key element of our business strategy. We
+cannot assure you that we will be able to identify and acquire acceptable
+acquisition candidates on terms favorable to us in the future. We may be
+required to incur substantial indebtedness to finance future acquisitions and
+also may issue equity securities in connection with such acquisitions. The
+issuance of additional equity securities could result in significant dilution to
+our stockholders. We cannot assure you that we will be able to consolidate
+successfully the operations and assets of any acquired business with our own
+business. Any inability on our part to consolidate and manage the growth from
+acquired businesses could have a material adverse effect on our results of
+operations and financial condition. 
+Our
+operations are affected by adverse weather conditions. 
+Our
+operations are directly affected by the weather conditions in several domestic
+regions, including the Gulf of Mexico, the Gulf Coast, and the mid continent.
+Due to seasonal differences in weather patterns, our crews may operate more days
+in some periods than others. Hurricanes and other storms prevalent in the Gulf
+of Mexico and along the Gulf Coast during certain times of the year may also
+affect our operations, and prolonged rain or snow in our mid continent locations
+may temporarily prevent our crews and equipment from reaching customer work
+sites. Accordingly, our operating results may vary from quarter to quarter,
+depending on the impact of these weather conditions. 
+Our
+inability to attract and retain skilled workers may impair growth potential and
+profitability. 
+Our
+ability to remain productive and profitable will depend substantially on our
+ability to attract and retain skilled workers. Our ability to expand our
+operations is in part impacted by our ability to increase our labor force. The
+demand for skilled oilfield employees is high, and the supply is very limited. A
+significant increase in the wages paid by competing employers could result in a
+reduction in our skilled labor force, increases in the wage rates paid by us, or
+both. If either of these events occurred, our capacity and profitability could
+be diminished, and our growth potential could be impaired. 
+8 
+Our
+concentration of customers in one industry may impact overall exposure to credit
+risk. 
+Substantially
+all of our customers are engaged in the energy industry. This concentration of
+customers in one industry may impact our overall exposure to credit risk, either
+positively or negatively, in that customers may be similarly affected by changes
+in economic and industry conditions. We perform ongoing credit evaluations of
+our customers and do not generally require collateral in support of our trade
+receivables. 
+Our
+business has potential liability for litigation, personal injury and property
+damage claims assessments. 
+Our
+operations involve the use of heavy equipment and exposure to inherent risks,
+including blowouts, explosions and fires. If any of these events were to occur,
+it could result in liability for personal injury and property damage, pollution
+or other environmental hazards or loss of production. Litigation may arise from
+a catastrophic occurrence at a location where our equipment and services are
+used. This litigation could result in large claims for damages. The frequency
+and severity of such incidents will affect our operating costs, insurability and
+relationships with customers, employees and regulators. These occurrences could
+have a material adverse effect on us. We maintain what we believe is prudent
+insurance protection. We cannot assure you that we will be able to maintain
+adequate insurance in the future at rates we consider reasonable or that our
+insurance coverage will be adequate to cover future claims and assessments that
+may arise. 
+Our
+operations may be adversely affected if we are unable to comply with regulatory
+and environmental laws. 
+Our
+business is significantly affected by stringent environmental laws and other
+regulations relating to the oil and gas industry and by changes in such laws and
+the level of enforcement of such laws. We are unable to predict the level of
+enforcement of existing laws and regulations, how such laws and regulations may
+be interpreted by enforcement agencies or court rulings, or whether additional
+laws and regulations will be adopted. The adoption of laws and regulations
+curtailing exploration and development of oil and gas fields in our areas of
+operations for economic, environmental or other policy reasons would adversely
+affect our operations by limiting demand for our services. We also have
+potential environmental liabilities with respect to our offshore and onshore
+operations, and could be liable for cleanup costs, or environmental and natural
+resource damage due to conduct that was lawful at the time it occurred, but is
+later ruled to be unlawful. We also may be subject to claims for personal injury
+and property damage due to the generation of hazardous substances in connection
+with our operations. We believe that our present operations substantially comply
+with applicable federal and state pollution control and environmental protection
+laws and regulations. We also believe that compliance with such laws has had no
+material adverse effect on our operations to date. However, such environmental
+laws are changed frequently. We are unable to predict whether environmental laws
+will, in the future, materially adversely affect our operations and financial
+condition. Penalties for noncompliance with these laws may include cancellation
+of permits, fines, and other corrective actions, which would negatively affect
+our future financial results. 
+Our
+international operations could have a material adverse effect on our business.
+Our
+operations in various countries including, but not limited to, Africa, Canada,
+Latin America and the Middle East are subject to risk. These risks include, but
+are not limited to, political changes, expropriation, currency restrictions and
+changes in currency exchange rates, taxes, and boycotts and other civil
+disturbances. Although it is impossible to predict the likelihood of such
+occurrences or their effect on our operations, our management believes that
+these risks are acceptable. However, the occurrence of any one of these events
+could have a material adverse effect on our operations. 
+Our
+common stock price has been volatile. 
+Historically,
+the market price of common stock of companies engaged in the oil and gas
+services industry has been highly volatile. Likewise, the market price of our
+common stock has varied significantly in the past. 
+Our
+management has a substantial ownership interest, and public shareholders may
+have no effective voice in the management of the Company. 
+The
+Company has elected the “Controlled Corporation” exemption under Rule 303A of
+the New York Stock Exchange (“NYSE”) Company Guide. The Company is a “Controlled
+Corporation” because a group that includes the Company’s Chairman of the Board,
+R. Randall Rollins and his brother, Gary W. Rollins, who is also a director of
+the Company, and certain companies under their control, controls in excess of
+fifty percent of the Company’s voting power. As a “Controlled Corporation”, the
+Company need not comply with certain NYSE rules including those requiring a
+majority of independent directors. 
+9 
+RPC’s
+executive officers, directors and their affiliates hold directly or through
+indirect beneficial ownership, in the aggregate, approximately 66 percent of
+RPC’s outstanding shares of common stock. As a result, these stockholders
+effectively control the operations of RPC, including the election of directors
+and approval of significant corporate transactions such as acquisitions. This
+concentration of ownership could also have the effect of delaying or preventing
+a third party from acquiring control over the Company at a premium.
+Our
+management has a substantial ownership interest, and the availability of the
+Company’s common stock to the investing public may be
+limited. 
+The
+availability of RPC’s common stock to the investing public may be limited to
+those shares not held by the executive officers, directors and their affiliates,
+which could negatively impact RPC’s stock trading prices and affect the ability
+of minority stockholders to sell their shares. Future sales by executive
+officers, directors and their affiliates of all or a portion of their shares
+could also negatively affect the trading price of our common stock.
+Provisions
+in RPC's
+Certificate of Incorporation and Bylaws May Inhibit a Takeover of
+RPC 
+RPC’s
+certificate of incorporation, bylaws and other documents contain provisions
+including advance notice requirements for shareholder proposals and staggered
+terms of office for the Board of Directors. These provisions may make a tender
+offer, change in control or takeover attempt that is opposed by RPC’s Board of
+Directors more difficult or expensive. 
+10 
+Item
+2. Properties 
+RPC owns
+or leases approximately 70 offices and operating facilities. The Company leases
+approximately 7,800 square feet of office space in Atlanta, Georgia that serves
+as its headquarters, a portion of which is allocated and charged to Marine
+Products Corporation. See “Related Party Transactions” contained in Item 7. The
+lease agreement on the headquarters is effective through May, 2007. RPC believes
+its current operating facilities are suitable and adequate to meet current and
+reasonably anticipated future needs. Descriptions of the major facilities used
+in our operations are as follows: 
+Owned
+Locations 
+Houma,
+Louisiana — Administrative office 
+Houston,
+Texas — Pipe storage terminal and inspection sheds 
+Houston,
+Texas — Operations, sales and administrative office 
+Morgan
+City, Louisiana — Pipe cleaning facility 
+Elk City,
+Oklahoma — Operations, sales and equipment storage yard 
+Rock
+Springs, Wyoming — Operations, sales and equipment storage yard 
+Leased
+Locations 
+Seminole,
+Oklahoma — Pumping services facility 
+Elk City,
+Oklahoma — Equipment storage yard 
+Kilgore,
+Texas — Pumping services facility 
+The
+Company’s crane fabrication plant in Irving, Texas was sold in April
+2004. 
+Item
+3. Legal Proceedings 
+RPC is a
+party to various routine legal proceedings primarily involving commercial
+claims, workers’ compensation claims and claims for personal injury. RPC insures
+against these risks to the extent deemed prudent by its management, but no
+assurance can be given that the nature and amount of such insurance will, in
+every case, fully indemnify RPC against liabilities arising out of pending and
+future legal proceedings related to its business activities. While the outcome
+of these lawsuits, legal proceedings and claims cannot be predicted with
+certainty, management believes that the outcome of all such proceedings, even if
+determined adversely, would not have a material adverse effect on RPC’s business
+or financial condition. 
+11 
+Item
+4. Submission of Matters to a Vote of Security Holders 
+There
+were no matters submitted to a vote of security holders during the fourth
+quarter of 2004. 
+Item
+4A. Executive Officers of the Registrant 
+Each of
+the executive officers of RPC was elected by the Board of Directors to serve
+until the Board of Directors’ meeting immediately following the next annual
+meeting of stockholders or until his or her earlier removal by the Board of
+Directors or his or her resignation. The following table lists the executive
+officers of RPC and their ages, offices, and terms of office with RPC.
+Name
+and Office with Registrant 
+Age 
+Date
+First Elected to Present Office 
+R.
+Randall Rollins (1) 
+73 
+1/24/84
+Chairman
+of the Board 
+Richard
+A. Hubbell (2) 
+60 
+4/22/03
+President
+and 
+Chief
+Executive Officer 
+Linda
+H. Graham (3) 
+68 
+1/27/87
+Vice
+President and 
+Secretary 
+Ben
+M. Palmer (4) 
+44 
+7/8/96 
+Vice
+President, 
+Chief
+Financial Officer and 
+Treasurer
+(1) 
+R.
+Randall Rollins began working for Rollins, Inc. (consumer services) in
+1949. At the time of the spin-off of RPC from Rollins, in 1984, Mr.
+Rollins was elected Chairman of the Board and Chief Executive Officer of
+RPC. He remains Chairman of RPC, Inc. and stepped down as the Chief
+Executive Officer of RPC effective April 22, 2003. He has served as
+Chairman of the Board for Marine Products Corporation (boat manufacturing)
+since it was spun off in February 2001 and Chairman of the Board of
+Rollins, Inc. since October 1991. He is also on the boards of Dover Downs
+Gaming and Entertainment, Inc., and Dover Motorsports, Inc. and, until
+April 2004, he was on the boards of SunTrust Banks, Inc. and SunTrust
+Banks of Georgia. 
+(2) 
+Richard
+A. Hubbell has been the President of RPC since 1987 and Chief Executive
+Officer since April 22, 2003. He has also been the President and Chief
+Executive Officer of Marine Products Corporation since it was spun off in
+February 2001. Mr. Hubbell serves on the Board of Directors for both of
+these companies. 
+(3) 
+Linda
+H. Graham has been the Vice President and Secretary of RPC since 1987. She
+has also been the Vice President and Secretary of Marine Products
+Corporation since it was spun off in February 2001. Ms. Graham serves on
+the Board of Directors for both of these companies. 
+(4) 
+Ben
+M. Palmer has been the Vice President, Chief Financial Officer and
+Treasurer of RPC since 1996. He has also been the Vice President, Chief
+Financial Officer and Treasurer at Marine Products Corporation since it
+was spun off in February 2001. 
+12 
+PART
+II 
+Item
+5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
+Purchases of Equity Securities 
+RPC’s
+common stock is listed for trading on the New York Stock Exchange under the
+symbol RES. All share and dividends per share data disclosed below have been
+restated for the three-for-two stock split payable March 10, 2005, to
+stockholders of record on February 10, 2005. At February 23, 2005, there were
+43,466,183 (adjusted for the three-for-two stock split) shares of common stock
+outstanding. 
+As of
+February 23, 2005, there were approximately 3,175 holders of record of common
+stock. The following table sets forth the high and low prices of RPC’s common
+stock for each quarter in the years ended December 31, 2004 and 2003 and the
+quarterly dividends paid in those periods: 
+2004 
+2003 
+Quarter 
+High 
+Low 
+Dividends 
+High 
+Low 
+Dividends
+First 
+$ 
+8.17 
+$ 
+7.05 
+$ 
+0.020 
+$ 
+8.23 
+$ 
+6.00 
+$ 
+0.017 
+Second 
+10.65 
+7.17 
+0.020 
+7.80 
+6.23 
+0.017
+Third 
+11.97 
+9.11 
+0.020 
+8.17 
+6.25 
+0.017
+Fourth 
+18.90 
+11.53 
+0.020 
+7.45 
+6.39 
+0.017 
+On
+January 25, 2005 the Board of Directors approved a 100 percent increase in the
+quarterly cash dividend, from $0.02 to $0.04, as adjusted for the three-for-two
+stock split. The
+Company expects to continue to pay cash dividends to the common stockholders,
+subject to the earnings and financial condition of the Company and other
+relevant factors. 
+Issuer
+Purchases of Equity Securities 
+Shares
+repurchased in the fourth quarter of 2004 are outlined below. All share and per
+share data have been restated for the three-for-two stock split effective
+February 10, 2005 payable March 10, 2005. 
+Period 
+Total
+Number of Shares (or Units) Purchased 
+Average
+Price Paid Per Share (or Unit) 
+Total
+number of Shares (or Units) Purchased as Part of Publicly Announced Plans
+or Programs 
+Maximum
+Number (or Approximate Dollar Value) of Shares (or Units) that May Yet be
+Purchased Under the Plans or Programs 
+October
+1, 2004 to 
+October
+31, 2004 
+11,400 
+(1 
+) 
+$ 
+13.29 
+- 
+2,491,500 
+November
+1, 2004 to 
+November
+30, 2004 
+12,714 
+(1 
+) 
+16.87 
+- 
+2,491,500 
+December
+1, 2004 to 
+December
+31, 2004 
+- 
+- 
+- 
+2,491,500 
+Totals 
+24,114 
+$ 
+15.18 
+- 
+2,491,500 
+(1) 
+All
+shares shown were tendered to the Company in connection with option
+exercises. 
+The
+Company’s Board of Directors announced a stock buyback program in March 1998
+authorizing the repurchase of 5,250,000 shares. The program does not have a
+predetermined expiration date. 
+13 
+Item
+6. Selected Financial Data 
+The
+following table summarizes certain selected financial data of the Company. The
+historical information may not be indicative of the Company’s future results of
+operations. The information set forth below should be read in conjunction with
+“Management’s Discussion and Analysis of Financial Condition and Results of
+Operations” and the Consolidated Financial Statements and the notes thereto
+included elsewhere in this document. 
+All
+earnings per share and dividends per share have been restated for the
+three-for-two stock split effective March 10, 2005 for shares held on February
+10, 2005. 
+STATEMENT
+OF OPERATIONS DATA: 
+Years
+Ended December 31, 
+2004 
+2003 
+2002 
+2001 
+2000 
+(in
+thousands, except employee and per share amounts)
+Revenues 
+$ 
+339,792 
+$ 
+270,527 
+$ 
+209,030 
+$ 
+284,521 
+$ 
+201,958 
+Cost
+of services rendered and goods sold 
+193,659 
+168,766 
+143,362 
+168,152 
+124,989 
+Selling,
+general and administrative expenses 
+65,871 
+52,268 
+44,852 
+52,873 
+37,076 
+Depreciation
+and amortization 
+34,473 
+33,094 
+31,242 
+25,434 
+17,805 
+Operating
+profit (loss) 
+45,789 
+16,399 
+(10,426 
+) 
+38,062 
+22,088 
+Interest
+expense (income) 
+68 
+153 
+74 
+65 
+(1,443 
+) 
+Other
+income, net (a) 
+7,482 
+1,324 
+2,346 
+3,126 
+2,446 
+Income
+(loss) from continuing operations before income taxes 
+53,203 
+17,570 
+(8,154 
+) 
+41,123 
+25,977 
+Income
+tax provision (benefit) 
+18,430 
+6,677 
+(2,894 
+) 
+15,627 
+9,850 
+Income
+(loss) from continuing operations 
+34,773 
+10,893 
+(5,260 
+) 
+25,496 
+16,127 
+Income
+from discontinued operation, net of income taxes 
+— 
+— 
+— 
+1,486 
+13,961 
+Net
+income (loss) 
+$ 
+34,773 
+$ 
+10,893 
+$ 
+(5,260 
+) 
+$ 
+26,982 
+$ 
+30,088 
+Earnings
+(loss) per share — basic: 
+Income
+(loss) from continuing operations 
+0.82 
+0.26 
+(0.12 
+) 
+0.61 
+0.39 
+Income
+from discontinued operation 
+— 
+— 
+— 
+0.03 
+0.33 
+Net
+income (loss) 
+$ 
+0.82 
+$ 
+0.26 
+$ 
+(0.12 
+) 
+$ 
+0.64 
+$ 
+0.72 
+Earnings
+(loss) per share — diluted: 
+Income
+(loss) from continuing operations 
+0.80 
+0.25 
+(0.12 
+) 
+0.59 
+0.38 
+Income
+from discontinued operation 
+— 
+— 
+— 
+0.04 
+0.33 
+Net
+income (loss) 
+$ 
+0.80 
+$ 
+0.25 
+$ 
+(0.12 
+) 
+$ 
+0.63 
+$ 
+0.71 
+Dividends
+paid per share 
+$ 
+0.08 
+$ 
+0.07 
+$ 
+0.07 
+$ 
+0.07 
+$ 
+0.09 
+OTHER
+DATA: 
+Operating
+margin percent 
+13.5 
+% 
+6.1 
+% 
+(5.0 
+%) 
+13.4 
+% 
+10.9 
+% 
+Net
+cash provided by continuing operations 
+$ 
+50,374 
+$ 
+50,631 
+$ 
+27,556 
+$ 
+55,938 
+$ 
+11,272 
+Net
+cash used for investing activities 
+(37,215 
+) 
+(34,670 
+) 
+(21,831 
+) 
+(46,357 
+) 
+(19,890 
+) 
+Net
+cash used for financing activities 
+(5,825 
+) 
+(5,192 
+) 
+(4,927 
+) 
+(4,283 
+) 
+(4,392 
+) 
+Depreciation
+and amortization (b) 
+34,500 
+33,182 
+31,342 
+25,536 
+17,995 
+Capital
+expenditures 
+$ 
+49,869 
+$ 
+30,356 
+$ 
+22,481 
+$ 
+45,850 
+$ 
+35,526 
+Employees
+at end of period (c) 
+1,596 
+1,529 
+1,419 
+1,533 
+1,487 
+BALANCE
+SHEET DATA AT END OF YEAR: 
+Accounts
+receivable, net 
+$ 
+75,793 
+$ 
+53,719 
+$ 
+40,168 
+$ 
+46,928 
+$ 
+55,485 
+Working
+capital 
+77,509 
+63,226 
+52,646 
+42,513 
+47,794 
+Property,
+plant and equipment, net 
+114,222 
+109,163 
+105,338 
+115,046 
+85,032 
+Total
+assets (d) 
+262,942 
+226,864 
+195,954 
+202,402 
+277,915 
+Current
+portion of long-term debt 
+2,700 
+1,110 
+552 
+1,390 
+470 
+Long-term
+debt 
+2,100 
+4,800 
+2,410 
+2,937 
+848 
+Total
+stockholders’ equity (d) 
+$ 
+181,423 
+$ 
+151,106 
+$ 
+145,081 
+$ 
+156,436 
+$ 
+169,319 
+14 
+(a) 
+Other
+income in 2004 includes a $3.3 million pretax gain ($0.05 after tax per
+diluted share) on sale of certain operating assets. 
+(b) 
+Depreciation
+and amortization differs from depreciation and amortization presented in
+the statements of operations due to depreciation related to the
+manufacturing of goods which is included in cost of services rendered and
+goods sold. 
+(c) 
+Represents
+employees of continuing operations for all periods presented.
+(d) 
+Includes
+assets and stockholders’ equity associated with the discontinued operation
+prior to 2001. 
+15 
+Item
+7. Management’s Discussion and Analysis of Financial Condition and Results of
+Operations 
+Overview
+The
+following discussion should be read in conjunction with “Selected Financial
+Data,” and the Consolidated Financial Statements included elsewhere in this
+document. See also “Forward-Looking Statements” on page 2. 
+RPC, Inc.
+(“RPC”) provides a broad range of specialized oilfield services primarily to
+independent and major oilfield companies engaged in exploration, production and
+development of oil and gas properties throughout the United States, including
+the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and
+selected international locations. The Company’s revenues and profits are
+generated by providing equipment and services to customers who operate oil and
+gas properties and invest capital to drill new wells and enhance production or
+perform maintenance on existing wells. 
+Our key
+business and financial strategies are: 
+- 
+To
+focus our management resources on and invest our capital in equipment and
+geographic markets that we believe will earn high returns on capital, and
+maintain a conservative capital structure including low debt
+levels. 
+- 
+To
+maintain a flexible cost structure that can respond quickly to volatile
+industry conditions and business activity
+levels. 
+- 
+To
+deliver equipment and services to our customers
+safely. 
+- 
+To
+maximize shareholder return by optimizing the balance between cash
+invested in the Company's productive assets, the payment of dividends to
+shareholders, and the repurchase of its common stock on the open
+market. 
+- 
+To
+align the interests of our management and
+shareholders. 
+In
+assessing the outcomes of these strategies and RPC’s financial condition and
+operating performance, management generally reviews periodic forecast data,
+monthly actual results, and other similar information. We also consider trends
+related to certain key financial data, including revenues, utilization of our
+equipment and personnel, pricing for our services and equipment, profit margins,
+selling, general and administrative expenses and cash flows. We continuously
+monitor factors that impact the level of current and expected customer activity
+levels, such as the price of oil and natural gas, changes in pricing and
+utilization. Our financial results are affected by geopolitical factors such as
+political instability in the petroleum-producing regions of the world, overall
+economic conditions and weather in the United States, the prices of oil and
+natural gas, and our customers’ drilling and production activities.
+Current
+industry conditions include historically high but stable natural gas prices,
+historically high, volatile oil prices, and a gradually increasing domestic rig
+count. These trends in 2004 resulted in increased utilization of our equipment
+and personnel followed by increased pricing for the Company's services and
+equipment. Improved results have also allowed us to make higher capital
+expenditures, which has led to an increase in capacity for providing services to
+our customers. 
+The
+results of our strategies are reflected in our 2004 financial and operational
+performance. We generated record revenues and profitability in 2004 because of
+better industry conditions, increased capacity, and growth in the utilization of
+our personnel and equipment. Revenues in 2004 of $339.8 million increased 25.6
+percent compared to the prior year. The growth in revenues resulted primarily
+from increased utilization consistent with higher customer activity levels and
+to a lesser extent, our ability to increase our pricing for our equipment and
+services. International revenues for all of 2004 grew by 132.1 percent mainly
+due to our focus on several international business opportunities. We continue to
+focus on developing international growth opportunities; however, it is difficult
+to predict when contracts and projects will be initiated and their ultimate
+duration. Based on current industry conditions and trends during the first two
+months of 2005, we expect consolidated revenues for 2005 to increase, although
+the volatility in our industry makes accurate near-term forecasts unreliable.
+During
+the fourth quarter, we sold certain non-core operating assets generating
+proceeds of approximately $10 million and a pretax gain of approximately $3.3
+million, or $0.05 (adjusted for the three-for-two stock split) per diluted
+share. Earnings before income taxes increased to $53.2 million in 2004 compared
+to $17.6 million in the prior year. The effective tax rate in 2004 of 34.6
+percent was lower than the rate of 38.0 percent in 2003 because we recognized
+previously reserved foreign tax credits and made adjustments to liabilities for
+foreign taxes. Diluted earnings per share increased to $0.80 (adjusted for the
+three-for-two stock split) in 2004 compared to $0.25 (adjusted for the
+three-for-two stock split) in the prior year. Cash flows from operating
+activities were $50.4 million compared to $50.6 million in the prior year, and
+cash and cash equivalents were $29.6 million at December 31, 2004, an increase
+of $7.3 million compared to the prior year. This increase in cash and cash
+equivalents resulted primarily from improved operating results coupled with $10
+million of proceeds generated from the sale of liftboats in the fourth quarter
+of 2004, offset by increased capital expenditures and contributions to the
+defined benefit pension plan. Our financial condition remains strong as our debt
+to capitalization remains at less than three percent as of December 31, 2004.
+16 
+Cost of
+services rendered and goods sold as a percentage of revenues decreased
+approximately five percent in 2004 compared to 2003. This improvement was due to
+leveraging our direct costs with higher revenues as a result of increased
+utilization and improved pricing. 
+Selling,
+general and administrative expenses as a percentage of revenues remained
+relatively stable at 19 percent, but increased consistent with the increase
+in revenues due to increased incentive compensation costs and increased
+headcount related to higher activity levels and the expansion of
+our safety program, the implementation of additional information technology to
+support operational efficiencies at higher activity levels, and an increase in
+bad debt expense. 
+Consistent
+with our strategy to selectively grow our capacity and maintain our existing
+fleet of high demand equipment, capital expenditures were $49.9 million in 2004.
+The actual amount of 2005 expenditures will depend primarily on equipment
+maintenance requirements and expansion opportunities, although we currently
+expect capital expenditures to be approximately $60 million in 2005. Consistent
+with 2004, we expect these expenditures to be primarily directed toward our
+larger, core service lines including pressure pumping, snubbing, nitrogen, and
+rental tools. 
+Outlook
+Drilling
+activity in the U.S. domestic oilfields, as measured by the rotary drilling rig
+count, has been stable or gradually increasing for several years, and the
+overall domestic rig count during the first two months of 2005 is approximately
+13 percent higher than in the comparable period in 2004. The price of oil has
+risen by approximately 36 percent and the price of natural gas has risen by
+approximately 10 percent during this period as well. While the overall drilling
+rig count has increased, drilling activity in the Gulf of Mexico remains weak,
+which is unfavorable because of the Company’s historical presence in this
+geographic market. The Company has responded to these trends by emphasizing
+investments in more robust domestic markets and making only selective
+investments in the Gulf of Mexico market. In spite of relatively stable industry
+conditions, the Company understands that factors influencing the industry are
+unpredictable. Our response to the industry's potential uncertainty is to
+maintain sufficient liquidity and a conservative capital structure. 
+On
+January 25, 2005, RPC's Board of Directors declared a three-for-two stock split
+of the Company's common shares. The additional shares were distributed on March
+10, 2005 to stockholders of record on February 10, 2005. All share, earning per
+share, and dividends per share data have been adjusted to reflect this stock
+split. 
+Our
+ability to sustain our recent growth in revenues and profitability will depend
+upon a number of factors, including our ability to expand the business generated
+by our core service lines (including geographic expansion) and continue to
+improve operating efficiencies and organizational effectiveness. Numerous
+factors can affect our ability to achieve these goals, including without
+limitation, U.S. and global economic conditions, increased competition from
+other oilfield service companies, increased cost of equipment, delays in
+receiving equipment, availability and cost of qualified personnel, tensions in
+the Middle East and other oil-producing nations, demand for oil in rapidly
+industrializing economies such as China and India, and the weather in the United
+States during 2005. 
+17 
+Results
+of Operations 
+Years
+Ended December 31, 
+2004 
+2003 
+2002
+Consolidated
+revenues 
+$ 
+339,792 
+$ 
+270,527 
+$ 
+209,030 
+Revenues
+by business segment: 
+Technical 
+$ 
+279,070 
+$ 
+216,321 
+$ 
+163,593 
+Support 
+56,917 
+43,909 
+35,784 
+Other 
+3,805 
+10,297 
+9,653 
+Consolidated
+operating profit (loss) 
+$ 
+45,789 
+$ 
+16,399 
+$ 
+(10,426 
+) 
+Operating
+profit (loss) by business segment: 
+Technical 
+$ 
+47,027 
+$ 
+22,433 
+$ 
+(1,162 
+) 
+Support 
+8,287 
+2,641 
+(3,154 
+) 
+Other 
+(975 
+) 
+(1,355 
+) 
+(1,603 
+) 
+Corporate
+expenses 
+$ 
+(8,550 
+) 
+$ 
+(7,320 
+) 
+$ 
+(4,507 
+) 
+Net
+income (loss) 
+$ 
+34,773 
+$ 
+10,893 
+$ 
+(5,260 
+) 
+Earnings
+(loss) per share — diluted (adjusted for three-for-two stock
+split) 
+$ 
+0.80 
+$ 
+0.25 
+$ 
+(0.12 
+) 
+Percentage
+cost of services rendered and goods sold to revenues 
+57 
+% 
+62 
+% 
+69 
+% 
+Percentage
+selling, general and administrative expenses to revenues 
+19 
+% 
+19 
+% 
+21 
+% 
+Percentage
+depreciation and amortization expense to revenues 
+10 
+% 
+12 
+% 
+15 
+% 
+Effective
+income tax rate 
+34.6 
+% 
+38.0 
+% 
+35.5 
+% 
+Average
+U.S. domestic rig count 
+1,190 
+1,029 
+830 
+Average
+natural gas price (per thousand cubic feet (mcf)) 
+$ 
+5.88 
+$ 
+5.41 
+$ 
+3.29 
+Average
+oil price (per barrel) 
+$ 
+41.35 
+$ 
+31.23 
+$ 
+26.16 
+Year
+Ended December 31, 2004 Compared To Year Ended December 31, 2003
+Revenues. Revenues
+for 2004 increased 25.6 percent compared to 2003. Domestic
+revenues increased due to higher customer drilling and production enhancement
+activity. Our growth in revenues was higher than the domestic rig count growth,
+principally because of the effect of increased international revenues, of an
+acquisition closed during 2003 and of our new fishing tool service line which
+began operations in 2004. These increases were partially offset by continued
+weakness in the Gulf of Mexico market, exacerbated by the hurricanes in the area
+during the third quarter 2004, heavy rains during the fourth quarter impacting
+mid-continent operations, and the sale of one of our non-oilfield businesses
+during the second quarter of 2004. 
+The
+average price of natural gas increased 8.7 percent during 2004 compared to 2003,
+and the average price of oil increased 32.4 percent during the same period. The
+average U.S. domestic rig count increased by 15.6 percent during 2004 compared
+to 2003. This increase in oil and gas prices and resulting increase in drilling
+activity had a positive impact on our financial results. We believe that our
+activity levels are affected more by natural gas prices than by the price of
+oil, because the majority of U.S. domestic drilling activity relates to natural
+gas, and many of our services are more appropriate for gas wells than oil wells.
+The correlation between the changes in the price of oil and natural gas and U.S.
+domestic drilling activity were more highly correlated in 2004 than in 2003.
+This higher correlation is consistent with past industry cycles. 
+The
+Technical Services segment revenues for 2004 increased 29.0 percent due
+primarily to increased
+customer activity levels and demand for our services, additional equipment
+capacity, higher pricing levels in most of our service lines and a shift in the
+mix of pressure pumping work towards higher revenue generating jobs.
+The
+Support Services segment revenues for 2004 increased 29.6 percent as a
+result of higher equipment utilization, additional capacity and slightly higher
+pricing in rental tools, which is the largest service line within this segment,
+partially offset by lower utilization and reduced pricing for our marine
+liftboats. 
+Cost
+of services rendered and goods sold . Cost of
+services rendered and goods sold, as a percentage of revenues, decreased five
+percentage points in 2004 compared to 2003 as a result of improved operating
+leverage due to overall higher utilization of personnel and operating equipment,
+and better pricing. Cost of services rendered and goods sold increased 14.8
+percent
+due primarily to increased direct employment costs, and variable operational
+expenses such as equipment maintenance, materials and supplies, sub-rental
+expense and fuel costs . 
+18 
+Selling,
+general and administrative expenses .
+Selling, general and administrative expenses increased by 26.0 percent to $65.9
+million in 2004 from $52.3 million in 2003, however as a percentage of revenues,
+remained relatively stable at 19 percent. The increase was due to increased
+incentive compensation costs and increased headcount related to higher activity
+levels and the expansion of our safety program. The increase was also due to the
+implementation of additional information technology to support operational
+efficiencies at higher activity levels and an increase in bad debt
+expense. 
+Depreciation
+and amortization .
+Depreciation and amortization were $34.5 million in 2004, a 4.2 percent increase
+compared to $33.1 million in 2003. This increase in depreciation and
+amortization resulted from various maintenance and growth capital expenditures
+within Support Services and Technical Services, and from the effect of the
+acquisition completed during the second quarter of 2003. As a percentage of
+revenues these costs declined due to their fixed nature. 
+Other
+income, net . Other
+income, net for 2004 includes a gain of approximately $3.3 million related to
+the sale of the Company’s domestic liftboat fleet during the fourth quarter of
+2004. This transaction generated proceeds of approximately $10 million. Other
+income also includes gains in 2004 and 2003 related to miscellaneous real
+property dispositions, sales to customers of lost or damaged rental equipment,
+and gains from various legal and insurance claim settlements. 
+Interest
+expense, net .
+Interest expense, net was $68 thousand in 2004 compared to $153 thousand in
+2003. 
+Income
+tax provision. The
+effective tax rate in 2004 was 34.6 percent, a reduction from 38.0 percent in
+2003, primarily because of an aggregate reduction in the tax provision of
+approximately $1.1 million related to the recognition of previously reserved
+foreign tax credit carryovers and an adjustment to the liabilities for foreign
+taxes. 
+Net
+income and diluted earnings per share . Net
+income for 2004 was $34.8 million, or $0.80 (adjusted for three-for-two stock
+split) diluted earnings per share. This included the $2.2 million after tax
+gain, or $0.05 (adjusted for three-for-two stock split) per diluted share,
+related to the sale of the liftboats and $1.1 million, or $0.03 (adjusted for
+three-for-two stock split) per diluted share, related to the tax provision
+adjustments. Net income for 2003 was $10.9 million or $0.25 (adjusted for
+three-for-two stock split) diluted earnings per share. 
+Year
+Ended December 31, 2003 Compared To Year Ended December 31, 2002
+Revenues .
+Revenues for 2003 increased 29.4 percent compared to 2002 as a result of higher
+utilization of equipment and personnel, increased pricing in most of our service
+lines and the impact of the Bronco Oilfield Services acquisition completed at
+the beginning of the second quarter of 2003. During 2003, the average domestic
+rig count increased 24.0 percent compared to 2002. The average price of natural
+gas increased 64.4 percent during 2003 compared to 2002, while the average price
+of oil increased 19.4 percent during the same period. This increase in oil and
+gas prices had a positive impact on our financial results especially the greater
+increase in gas prices, because we believe that our activity levels are affected
+more by natural gas prices than by the price of oil. Although the prices of oil
+and natural gas in 2003 were significantly higher than in 2002, the higher
+prices and the increase in drilling activity did not correlate as closely as in
+past cycles. If this continues, then it is possible that rising oil and gas
+prices in the future may not necessarily indicate an increase in our activity
+levels, as they have historically. 
+Technical
+Services revenues increased 32.2 percent in 2003 compared to 2002 as a result of
+higher utilization of equipment and personnel, increased pricing in most service
+lines and the impact of the Bronco Oilfield Services acquisition completed at
+the beginning of the second quarter of 2003. Support Services revenues increased
+22.7 percent in 2003 compared to the prior year, as a result of higher
+utilization of equipment slightly offset by a decrease in pricing. Part of this
+revenue increase was due to increased utilization of the Company’s marine
+liftboats, which were involved in a long term, non-oilfield related project
+during most of 2003. Support Services revenues experienced a relatively lower
+revenue increase than Technical Services due to this segment’s presence in the
+Gulf of Mexico geographic market. Drilling activity in the Gulf of Mexico was
+much weaker than in other parts of the U.S. domestic market, and as measured by
+the rig count, declined during 2003 compared to 2002. 
+Cost
+of services rendered and goods sold . Cost of
+services rendered and goods sold, as a percentage of revenues, decreased seven
+percentage points because of higher utilization of equipment and personnel. Cost
+of services rendered and goods sold increased 17.7 percent due to higher
+customer activity levels, because many of these costs vary directly with
+activity. In particular, materials and supplies expense, insurance and overtime
+personnel expense increased compared to 2002. 
+19 
+Selling,
+general and administrative expenses .
+Selling, general and administrative expenses were $52.3 million in 2003 compared
+to $44.9 million in 2002, an increase of 16.5 percent. These expenses increased
+primarily because of higher personnel and incentive compensation expense
+consistent with increased activity levels and profitability, and increased
+pension expense relating to the Company’s pension plan obligation. As a
+percentage of revenues, these costs decreased two percentage points due to
+improved operating leverage. 
+Depreciation
+and amortization .
+Depreciation and amortization were $33.1 million in 2003, a six percent increase
+compared to $31.2 million in 2002. The increase in depreciation and amortization
+resulted from the cumulative effect of the higher levels of growth capital
+expenditures. 
+Interest
+expense (Income), net .
+Interest expense was $153 thousand in 2003 compared to $74 thousand in
+2002. 
+Other
+income, net . Other
+income, net in 2003 includes a gain from the settlement of an insurance claim,
+proceeds from a settlement of a dispute with a vendor, and gains related to the
+sale of operating equipment, partially offset by the recognition of a loss
+sustained on damaged operating equipment. During 2002, other income included
+primarily gains relating to the sale of operating equipment, proceeds from the
+settlement of a lawsuit, and a gain from the sale of a small business unit.
+Income
+tax provision (benefit) . The
+effective income tax rate for 2003 was 38.0 percent while the rate for 2002 was
+35.5 percent. The slight increase in the book effective tax rate is due to the
+effect of permanent differences between book and taxable income. 
+Liquidity
+and Capital Resources 
+Cash
+Flows 
+The
+following table sets forth the historical cash flows for the twelve months ended
+December 31: 
+(in
+thousands) 
+2004 
+2003 
+2002 
+Net
+cash provided by operating activities 
+$ 
+50,374 
+$ 
+50,631 
+$ 
+27,556 
+Net
+cash used for investing activities 
+37,215 
+34,670 
+21,831 
+Net
+cash used for financing activities 
+5,825 
+5,192 
+4,927 
+2004 
+Cash
+provided by operating activities was $50.4 million in 2004 compared to $50.6
+million in 2003. The large improvement in operating results was offset by a $4.2
+million cash contribution to the defined benefit pension plan, receipt of large
+income tax refunds in 2003 that did not recur in 2004, and higher working
+capital requirements. Increased revenues resulted in an increase in accounts
+receivable which was partially offset by an increase in accounts payable and
+other liabilities. 
+Cash used
+in investing activities for 2004 increased by $2.5 million compared to 2003,
+primarily as a result of an increase in capital expenditures partially offset by
+an increase in proceeds from sale of property and equipment, including the sale
+of the liftboats, and a decrease in cash used for purchases of businesses. Cash
+used for purchases of businesses in 2004 includes earnout payments of $3.3
+million related to 2003 operating results. Cash used for purchases of businesses
+in 2003 included a business acquisition; there were no earnout payments in
+2003. 
+Cash used
+in financing activities for 2004 increased by $0.6 million compared to 2003, due
+to increases in dividends paid per share and debt service requirements,
+partially offset by increases in proceeds received from the exercise of stock
+options. 
+2003 
+Cash
+provided by operating activities for 2003 increased $23.1 million, or 84
+percent, compared to 2002. The increase was primarily due to improved operating
+results coupled with receipt of a tax refund in 2003 resulting from carryback of
+prior year net operating losses. These increases were partially offset by higher
+working capital requirements including an increase in accounts receivable due to
+higher revenues partially offset by an increase in accounts payable and other
+liabilities consistent with higher business activity levels. 
+Cash used
+in investing activities for 2003 increased $12.8 million, or 59 percent,
+compared to 2002, primarily as a result of an increase in capital expenditures
+and a business acquisition. 
+20 
+Cash used
+in financing activities for 2003 increased $0.3 million, or 5 percent, compared
+to 2002. The increase is primarily a result of lower debt service requirements
+partially offset by higher repurchases in the open market of the Company’s
+stock. The
+Company purchased 185,600 shares of its common stock on the open market during
+2003. 
+Financial
+Condition and Liquidity 
+The
+Company’s financial condition as of December 31, 2004, was strong. We believe
+the liquidity provided by our existing cash and cash equivalents, our overall
+strong capitalization, which includes access to a $25 million credit facility
+with a financial institution, of which $9.9 million was available as of December
+31, 2004, and cash expected to be generated from operations, will provide
+sufficient capital to meet our requirements for at least the next twelve months.
+The portion of the credit facility that is not currently available supports
+letters of credit relating to self-insurance programs or contract bids.
+The
+Company’s decisions about the amount of cash to be used for investing and
+financing purposes are influenced by its capital position and the expected
+amount of cash to be provided by operations. We believe our liquidity will allow
+us to grow our asset base and revenues as improvements occur in business
+conditions and customer activity levels. 
+Cash
+Requirements 
+Capital
+expenditures were $49.9 million in 2004, and we currently expect capital
+expenditures to be approximately $60 million in 2005. The actual amount of 2005
+expenditures will depend primarily on equipment maintenance requirements and
+expansion opportunities. 
+We expect
+that additional contributions to the defined benefit pension plan of
+approximately $1.6 million will be required in 2005 to achieve the Company’s
+funding objective. 
+On
+January 25, 2005, the Board of Directors approved a 100 percent increase in the
+quarterly cash dividend, from $0.02 to $0.04 to be paid March 10, 2005 to
+shareholders of record on February 10, 2005. Based on the shares outstanding on
+December 31, 2004, the aggregate annual amount would be approximately $6.9
+million. The
+Company expects to continue to pay cash dividends to the common stockholders,
+subject to the earnings and financial condition of the Company and other
+relevant factors. 
+In
+accordance with the respective purchase agreements, earnout payments to sellers
+of acquired businesses may be paid on an annual basis. The Company anticipates
+that earnout payments of approximately $4.3 million will be made in 2005 related
+to 2004 operating results. 
+In
+February 2005, the Company prepaid a promissory note totaling $2.8 million.
+Contractual
+Obligations 
+The
+Company’s obligations and commitments that require future payments include notes
+payable in connection with acquisitions, a bank demand note, certain
+non-cancelable operating leases, purchase obligations and other long-term
+liabilities. The following table summarizes the Company’s significant
+contractual obligations as of December 31, 2004: 
+Contractual
+obligations 
+Payments
+due by period 
+(in
+thousands) 
+Total 
+Less
+than 
+1
+year 
+1-3 
+years 
+3-5 
+years 
+More
+than 
+5
+years 
+Long-term
+debt (1) 
+$ 
+4,800 
+$ 
+2,700 
+$ 
+2,100 
+$ 
+— 
+$ 
+— 
+Capital
+lease obligations 
+— 
+— 
+— 
+— 
+—
+Operating
+leases (2) 
+4,869 
+2,131 
+2,579 
+159 
+—
+Purchase
+obligations (3) 
+— 
+— 
+— 
+— 
+—
+Other
+long-term liabilities (4) 
+11,466 
+11,466 
+— 
+— 
+—
+Total
+contractual obligations 
+$ 
+21,135 
+$ 
+16,297 
+$ 
+4,679 
+$ 
+159 
+$ 
+— 
+(1) 
+In
+February 2005, the Company prepaid a $2.8 million promissory note which
+extinguished a portion of this debt. 
+(2) 
+Operating
+leases include agreements for various office locations, office equipment,
+and certain operating equipment. 
+(3) 
+As
+part of the normal course of business the Company enters into purchase
+commitments to manage its various operating needs. However, the Company
+does not have any obligations that are non-cancelable or subject to a
+penalty if canceled. 
+(4) 
+Includes
+expected cash payments for long-term liabilities reflected on the balance
+sheet where the timing of the payments are known. These amounts include
+primarily known pension plan funding obligations, earnout payments, and
+incentive compensation. These amounts exclude pension obligations with
+uncertain funding requirements and deferred compensation liabilities.
+21 
+Inflation 
+The
+Company purchases its equipment and materials from suppliers who provide
+competitive prices. Due to the recent increases in activity in the domestic
+oilfield, the Company has experienced some upward wage pressures in the labor
+markets from which it hires employees. If inflation in the general economy
+increases, the Company’s costs for equipment, materials and labor could increase
+as well. During 2004, the price of steel, for both the commodity and for
+products manufactured with steel, rose dramatically due to increased worldwide
+demand. This affected the Company's operations through delays in scheduled
+deliveries of new equipment and price quotations that were only valid for a
+limited period of time. Steel prices remained high as of December 31, 2004. If
+steel prices remain high, delays in scheduled deliveries of new equipment will
+continue, and it is likely that the cost of the Company's new equipment will
+increase. These increases would result in higher capital expenditures and
+depreciation expense. RPC may not be able to recover such increased costs
+through price increases to its customers, thereby reducing the Company's future
+profits. 
+Off
+Balance Sheet Arrangements 
+The
+Company does not have any material off balance sheet arrangements. 
+Related
+Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun-off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC
+accomplished the spin-off by contributing 100 percent of the issued and
+outstanding stock of Chaparral to Marine Products Corporation (a Delaware
+corporation) (“Marine Products”), a newly formed wholly-owned subsidiary of RPC,
+and then distributing the common stock of Marine Products to RPC stockholders.
+In conjunction with the spin-off, RPC and Marine Products entered into various
+agreements that define the companies’ relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance, etc.,
+to Marine Products. Charges from the Company (or from corporations that are
+subsidiaries of the Company) for such services aggregated approximately $546,000
+in 2004, $496,000 in 2003 and $588,000 in 2002. The Company’s directors are also
+directors of Marine Products and all of the executive officers are employees of
+both the Company and Marine Products. 
+The
+Employee Benefits Agreement provides for, among other things, Marine Products to
+participate in two RPC sponsored benefit plans, specifically, the defined
+contribution 401(k) plan and the defined benefit retirement income plan.
+Following the spin-off, RPC charged Marine Products for, and Marine Products has
+been obligated to pay, its allocable share of pension costs and the associated
+funding obligation related to the prior service liabilities of Chaparral
+employees. Effective December 2003, the related prior service liabilities
+totaling $3,314,000 and pension assets totaling $2,517,000 were transferred
+within the multiple employer plan from RPC to Marine Products. Accordingly,
+during 2004, the pension costs and funding obligations were incurred directly by
+Marine Products. 
+The Tax
+Sharing and Indemnification Agreement provides for, among other things, the
+treatment of income tax matters for periods through the date of the spin-off and
+responsibility for any adjustments as a result of audit by any taxing authority.
+The general terms provide for the indemnification for any tax detriment incurred
+by one party caused by the other party’s action. The amounts transferred as
+settlements from RPC to Marine Products totaled approximately $19,000 in 2004,
+$0 in 2003 and $140,000 in 2002. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products or
+services from suppliers, who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $529,000 in 2004 and $1,058,000 in 2003.
+In addition, the overhead crane fabrication division of RPC recorded $171,000 in
+2003 and $332,000 in 2002 in revenues from the powerboat manufacturing segment
+that is now a subsidiary of Marine Products pursuant to the spin-off, related to
+the sale, installation and service of overhead cranes. 
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman). The service
+agreements between Rollins, Inc. and the Company provide for the provision of
+services on a cost reimbursement basis and are terminable on six months notice.
+The services covered by these agreements include office space, administration of
+certain employee benefit programs, and other administrative services. Charges to
+the Company (or to corporations which are subsidiaries of the Company) for such
+services and rent aggregated $76,000 in 2004 and $105,000 in 2003. 
+22 
+Critical
+Accounting Policies 
+The
+consolidated financial statements are prepared in accordance with accounting
+principles generally accepted in the United States, which require significant
+judgment by management in selecting the appropriate assumptions for calculating
+accounting estimates. These judgments are based on our historical experience,
+terms of existing contracts, trends in the industry, and information available
+from other outside sources, as appropriate. Senior management has discussed the
+development, selection and disclosure of its critical accounting estimates with
+the Audit Committee of our Board of Directors. The Company believes the
+following critical accounting policies involve estimates that require a higher
+degree of judgment and complexity: 
+Allowance
+for doubtful accounts —
+Substantially all of the Company’s receivables are due from oil and gas
+exploration and production companies in the United States, selected
+international locations and foreign, nationally owned oil companies. Our
+allowance for doubtful accounts is determined using a combination of factors to
+ensure that our receivables are not overstated due to uncollectibility. Our
+established credit evaluation procedures seek to minimize the amount of business
+we conduct with higher risk customers. Our customers’ ability to pay is directly
+related to their ability to generate cash flow on their projects and is
+significantly affected by the volatility in the price of oil and natural gas.
+Provisions for doubtful accounts are recorded in selling, general and
+administrative expenses. Accounts are written-off against the allowance for
+doubtful accounts when the Company determines that amounts are uncollectible and
+recoveries of amounts previously written off are recorded when collected.
+Significant recoveries will generally reduce the required provision in the
+period of recovery. Therefore, the provision for doubtful accounts can fluctuate
+significantly from period to period. In 2002 and 2003, the Company recorded four
+large recoveries of previously charged off amounts from three different
+customers. There were no large recoveries in 2004. 
+We record
+specific provisions when we become aware of a customer's inability to meet its
+financial obligations to us, such as in the case of bankruptcy filings or
+deterioration in the customer's operating results or financial position. If
+circumstances related to customers change, our estimates of the realizability of
+receivables would be further adjusted, either upward or downward. 
+The
+estimated allowance for doubtful accounts is based on our evaluation of the
+overall trends in the oil and gas industry, financial condition of our
+customers, our historical write-off experience, current economic conditions, and
+in the case of international customers, our judgments about the economic and
+political environment of the related country and region. In addition to reserves
+established for specific customers, we establish general reserves by using
+different percentages depending on the age of the receivables. Excluding the
+effect of the recoveries referred to above, the annual provisions for doubtful
+accounts have ranged from 0.06 percent to 0.34 percent of revenues over the last
+three years. Increasing or decreasing the estimated general reserve percentages
+by 0.50 percentage points as of December 31, 2004 would have resulted in a
+change of approximately $0.4 million to the allowance for doubtful accounts and
+a corresponding change to selling, general and administrative expenses.
+Income
+taxes — The
+effective income tax rates were 34.6 percent in 2004, 38.0 percent in 2003, and
+35.5 percent in 2002. Our effective tax rates vary due to changes in estimates
+of our future taxable income, fluctuations in the tax jurisdictions in which our
+earnings and deductions are realized, and favorable or unfavorable adjustments
+to our estimated tax liabilities related to proposed or probable assessments. As
+a result, our effective tax rate may fluctuate significantly on a quarterly or
+annual basis. 
+We
+establish a valuation allowance against the carrying value of deferred tax
+assets when we determine that it is more likely than not that the asset will not
+be realized through future taxable income. Such amounts are charged to earnings
+in the period in which we make such determination. Likewise, if we later
+determine that it is more likely than not that the net deferred tax assets would
+be realized, we would reverse the applicable portion of the previously provided
+valuation allowance. We have considered future market growth, forecasted
+earnings, future taxable income, the mix of earnings in the jurisdictions in
+which we operate, and prudent and feasible tax planning strategies in
+determining the need for a valuation allowance. 
+We
+calculate our current and deferred tax provision based on estimates and
+assumptions that could differ from the actual results reflected in income tax
+returns filed during the subsequent year. Adjustments based on filed returns are
+recorded when identified, which is generally in the third quarter of the
+subsequent year for U.S. federal and state provisions. Deferred tax liabilities
+and assets are determined based on the differences between the financial and tax
+bases of assets and liabilities using enacted tax rates in effect in the year
+the differences are expected to reverse. 
+23 
+The
+amount of income taxes we pay is subject to ongoing audits by federal, state and
+foreign tax authorities, which often result in proposed assessments. Our
+estimate for the potential outcome for any uncertain tax issue is highly
+judgmental. We believe we have adequately provided for any reasonably
+foreseeable outcome related to these matters. However, our future results may
+include favorable or unfavorable adjustments to our estimated tax liabilities in
+the period the assessments are made or resolved or when statutes of limitation
+on potential assessments expire. Additionally, the jurisdictions in which our
+earnings or deductions are realized may differ from our current estimates.
+During
+2004 the Company re-evaluated its estimated tax exposures in various
+international tax jurisdictions based on our projected international business
+development opportunities. Based on this review, we reduced our liabilities for
+foreign taxes and our tax provision by $0.6 million to reflect the estimated
+change which lowered the 2004 effective tax rate by approximately 1.2 percentage
+points. 
+Insurance
+expenses - The
+Company self insures, up to certain policy-specified limits, certain risks
+related to general liability, workers’ compensation, vehicle and equipment
+liability. The cost of claims under these self-insurance programs is estimated
+and accrued using individual case-based valuations and statistical analysis and
+is based upon judgment and historical experience; however, the ultimate cost of
+many of these claims may not be known for several years. These claims are
+monitored and the cost estimates are revised as developments occur relating to
+such claims. The Company has retained an independent third party actuary to
+assist in the calculation of a range of exposure for these claims. As of
+December 31, 2004, the Company estimates the range of exposure to be from $8.6
+million to $11.6 million. The Company has recorded liabilities at December 31,
+2004 of approximately $10.3 million which represents management’s best estimate
+of probable loss. 
+Depreciable
+life of assets — RPC’s
+net property, plant and equipment at December 31, 2004 was $114.2 million
+representing 43.4 percent of the Company’s consolidated assets. Depreciation and
+amortization expenses for the year ended December 31, 2004 were $34.5 million,
+or 11.7 percent of total operating costs. Management judgment is required in the
+determination of the estimated useful lives used to calculate the annual and
+accumulated depreciation and amortization expense. 
+Property,
+plant and equipment are reported at cost less accumulated depreciation and
+amortization, which is generally provided on a straight-line basis over the
+estimated useful lives of the assets. The estimated useful life represents the
+projected period of time that the asset will be productively employed by the
+Company and is determined by management based on many factors including
+historical experience with similar assets. Assets are monitored to ensure
+changes in asset lives, are identified and prospective depreciation and
+amortization expense is adjusted accordingly. We have not made any changes to
+the estimated lives of assets resulting in a material impact in the last three
+years. 
+Defined
+benefit pension plan - In
+2002, the Company ceased all future benefit accruals under the defined benefit
+plan, although the Company remains obligated to provide employees benefits
+earned through March 2002. The Company accounts for the defined benefit plan in
+accordance with the provisions of SFAS 87, “Employers’ Accounting for Pensions”
+and engages an outside actuary to calculate its obligations and costs. With the
+assistance of the actuary, the Company evaluates the significant assumptions
+used on a periodic basis including the estimated future return on plan assets,
+the discount rate, and other factors, and makes adjustments to these liabilities
+as necessary. 
+The
+Company chooses an expected rate of return on plan assets based on historical
+results for similar allocations among asset classes, the investments strategy,
+and the views of our investment adviser. Differences between the expected
+long-term return on plan assets and the actual return are amortized over future
+years. Therefore, the net deferral of past asset gains (losses) ultimately
+affects future pension expense. The Company’s assumption for the expected return
+on plan assets is 8.0 percent which is unchanged from the prior
+year. 
+The
+discount rate reflects the current rate at which the pension liabilities could
+be effectively settled at the end of the year. In estimating this rate, the
+Company utilizes the Moody’s Aa long-term corporate bond yield with a yield
+adjustment made for the longer duration of the Company’s obligations. A lower
+discount rate increases the present value of benefit obligations. The Company
+determined a discount rate of 5.75 percent as of December 31, 2004, compared to
+a discount rate of 6.25 percent in 2003 and 6.875 percent in 2002. 
+In 2004,
+the change in the minimum pension liability within accumulated other
+comprehensive loss decreased stockholders’ equity by $0.6 million after tax.
+Holding all other factors constant, a decrease in the discount rate used to
+measure plan liabilities by 0.25 percentage points would result in an after-tax
+increase of approximately $0.9 million in accumulated other comprehensive loss
+and an increase in the discount rate used to measure plan liabilities by 0.25
+percentage points would result in an after-tax decrease of approximately $0.5
+million in accumulated other comprehensive loss. 
+The
+Company recognized pretax pension expense of $1.2 million in 2004, $1.6 million
+in 2003, and $0.7 million in 2002. Pension expense is anticipated to remain
+relatively unchanged at approximately $1.2 million in 2005. Holding all other
+factors constant, a change in the expected long-term rate of return on plan
+assets by 0.50 percentage points would result in an increase or decrease in
+pension expense of approximately $0.10 million in 2005. Holding all other
+factors constant, a change in the discount rate used to measure plan liabilities
+by 0.25 percentage points would result in an increase or decrease in pension
+expense of approximately $0.12 million in 2005. 
+24 
+New
+Accounting Standards 
+In
+December 2003, the FASB issued Statement of Financial Accounting Standard No.
+132 (revised 2003) (“SFAS 132R”), “Employers’ Disclosures about Pensions and
+Other Post-Retirement Benefits.” SFAS 132R does not change the measurement or
+recognition provisions for defined benefit pensions and other post-retirement
+benefits; however, it requires additional annual disclosures about assets,
+obligations, cash flows, net periodic benefit cost and projected benefit
+payments of those plans. The Company has adopted the provisions of SFAS 132R and
+presented the disclosures in Note 10 to the consolidated financial
+statements. 
+In March
+2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No.
+03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to
+Certain Investments.” EITF 03-1 applies to investments accounted for under SFAS
+No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and
+SFAS No. 124, “Accounting for Certain Investments Held by Not-for-Profit
+Organizations.” In September 2004, the FASB delayed the accounting provisions of
+EITF No. 03-1; however, qualitative and quantitative disclosures are effective
+for the fiscal year ending December 31, 2004. The adoption of EITF 03-1 did not
+have a material impact on the financial position, results of operations or
+liquidity of the Company. 
+In
+November 2004, the FASB issued SFAS No. 151, "Inventory Costs—An
+Amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends
+the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
+the accounting for abnormal amounts of idle facility expense, freight, handling
+costs, and wasted material (spoilage). Among other provisions, the new rule
+requires that items such as idle facility expense, excessive spoilage, double
+freight, and rehandling costs be recognized as current-period charges regardless
+of whether they meet the criterion of "so abnormal" as stated in ARB
+No. 43. Additionally, SFAS 151 requires that the allocation of fixed
+production overheads to the costs of conversion be based on the normal capacity
+of the production facilities. SFAS 151 is effective for fiscal years
+beginning after June 15, 2005 and is required to be adopted by the Company
+in the first quarter of fiscal 2006, beginning on January 1, 2006. The Company
+is currently evaluating the effect that the adoption of SFAS 151 will have
+on its consolidated results of operations and financial condition but does not
+expect SFAS 151 to have a material impact. 
+In
+December 2004, the FASB issued SFAS No. 123 (revised 2004),
+"Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123,
+"Accounting for Stock-Based Compensation," ("SFAS 123") and supersedes APB
+Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R
+requires all share-based payments to employees, including grants of employee
+stock options, to be recognized in the financial statements based on their fair
+values beginning with the first interim or annual period that begins after
+June 15, 2005, with early adoption encouraged. The pro forma disclosures
+previously permitted under SFAS 123 no longer will be an alternative to
+financial statement recognition. The Company is required to adopt SFAS 123R
+in the third quarter of fiscal 2005. Under SFAS 123R, the Company must
+determine the appropriate fair value model to be used for valuing share-based
+payments, the amortization method for compensation cost and the transition
+method to be used at date of adoption. The transition methods include the
+modified prospective application and the modified retrospective
+application. Under the modified retrospective application, prior periods
+may be restated either as of the beginning of the year of adoption or for all
+periods presented. The modified prospective application requires that
+compensation expense be recorded for all unvested stock options and restricted
+stock at the beginning of the first quarter of adoption of SFAS 123R, while
+the modified retrospective application would record compensation expense
+for all unvested stock options and restricted stock beginning with the first
+period restated. The Company is currently evaluating the impact of applying the
+various provisions of SFAS 123R. 
+In
+December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
+Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
+Transactions" ("SFAS 153"). The amendments made by SFAS 153 are based on the
+principle that exchanges of nonmonetary assets should be measured based on the
+fair value of the assets exchanged. Further, the amendments eliminate the narrow
+exception for non-monetary exchanges of similar productive assets and replace it
+with a broader exception for exchanges of nonmonetary assets that do not have
+commercial substance. Previously, Opinion 29 required that the accounting for an
+exchange of productive asset for a similar productive asset or an equivalent
+interest in the same or similar productive asset should be based on the recorded
+amount of the asset relinquished. By focusing the exception on exchanges that
+lack commercial substance, SFAS 153 intends to produce financial reporting that
+more faithfully represents the economics of the transaction. SFAS 153 is
+effective for the fiscal periods beginning after June 15, 2005 with earlier
+application permitted for nonmonetay exchanges occurring in fiscal periods
+beginning after the date of issuance. The provisions are to be applied
+prospectively. The Company is currently evaluating the effect that the adoption
+of SFAS 153 will have on its consolidated results of operations and
+financial condition but does not expect it to have a material impact.
+25 
+FASB
+Staff Position ("FSP") No. 109-2, "Accounting and Disclosure Guidance for
+the Foreign Earnings Repatriation Provision within the American Jobs Creation
+Act of 2004" ("FSP 109-2"), issued in December 2004, is intended to provide
+limited relief in the application of the indefinite reinvestment criterion due
+to ambiguities surrounding the implementation of the Act. The Jobs Act was
+enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed
+time beyond the financial reporting period of enactment to evaluate the effect
+of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings
+for purposes of applying FASB Statement No. 109. RPC has not yet completed
+evaluating the impact of the repatriation provisions. 
+26 
+Item
+7A. Quantitative and Qualitative Disclosures about Market Risk
+As of
+December 31, 2004, cash and cash equivalents were primarily invested in
+overnight U.S. treasury bills and money market accounts which are highly liquid
+with maturities of three months or less. As a result, we are not subject to
+material interest rate risk exposure on these investments. The Company has been
+affected by the impact of lower interest rates on interest income from its
+short-term investments. This risk is managed through conservative policies to
+invest in high-quality obligations. Also, as of December 31, 2004, RPC had debt
+with a variable interest rate that exposes RPC to certain market risks; however,
+all outstanding debt will either be prepaid or mature in 2005, therefore, RPC is
+not subject to material interest rate risk exposure. For additional information
+with respect to RPC’s long term debt, see Note 7 of the Notes to
+Consolidated Financial Statements. 
+As of
+December 31, 2004, RPC had accounts receivable of approximately $76 million (net
+of an allowance for doubtful accounts of approximately $2.6 million). RPC is
+subject to a concentration of credit risk because most of the accounts
+receivable are due from companies in the oil and gas industry. 
+27 
+MANAGEMENT’S
+REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 
+To the
+Stockholders of RPC, Inc.: 
+The
+management of RPC, Inc. is responsible for establishing and maintaining adequate
+internal control over financial reporting for the Company. RPC, Inc. maintains a
+system of internal accounting controls designed to provide reasonable assurance,
+at a reasonable cost, that assets are safeguarded against loss or unauthorized
+use and that the financial records are adequate and can be relied upon to
+produce financial statements in accordance with accounting principles generally
+accepted in the United States of America. The internal control system is
+augmented by written policies and procedures, an internal audit program and the
+selection and training of qualified personnel. This system includes policies
+that require adherence to ethical business standards and compliance with all
+applicable laws and regulations. 
+There are
+inherent limitations to the effectiveness of any controls system. A controls
+system, no matter how well designed and operated, can provide only reasonable,
+not absolute, assurance that the objectives of the controls system are met.
+Also, no evaluation of controls can provide absolute assurance that all control
+issues and any instances of fraud, if any, within the Company will be detected.
+Further, the design of a controls system must reflect the fact that there are
+resource constraints, and the benefits of controls must be considered relative
+to their costs. The Company intends to continually improve and refine its
+internal controls. 
+Under the
+supervision and with the participation of our Management, including our
+principal executive officer and principal financial officer, we conducted an
+evaluation of the effectiveness of the design and operations of our disclosure
+controls and procedures, as required by Rules 13a-15 and 15d under the
+Securities Exchange Act of 1934, as of December 31, 2004 based on criteria
+established in Internal Control—Integrated Framework issued by the Committee of
+Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
+management’s assessment is that RPC, Inc. maintained effective internal control
+over financial reporting as of December 31, 2004. 
+The
+independent registered public accounting firm, Grant Thornton LLP, has audited
+the consolidated financial statements for the year ended December 31, 2004, and
+has also issued their report on management’s assessment of the Company’s
+internal control over financial reporting, included in this report on page
+29. 
+/s/
+Richard A. Hubbell 
+/s/
+Ben M. Palmer 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+Ben
+M. Palmer 
+Chief
+Financial Officer and Treasurer 
+Atlanta,
+Georgia 
+March 11,
+2005 
+28 
+REPORT OF
+INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+ON
+INTERNAL CONTROL OVER FINANCIAL REPORTING 
+Board
+of Directors and Stockholders of RPC,
+Inc. 
+We have
+audited management’s assessment included in Management’s Report on Internal
+Control Over Financial Reporting included in RPC, Inc.’s Form 10-K for 2004,
+that RPC, Inc. (a Delaware Corporation) maintained effective internal control
+over financial reporting as of December 31, 2004 based on criteria established
+in Internal Control—Integrated Framework issued by the Committee of Sponsoring
+Organizations of the Treadway Commission (COSO). RPC, Inc.’s management is
+responsible for maintaining effective internal control over financial reporting
+and for its assessment of the effectiveness of internal control over financial
+reporting. Our responsibility is to express an opinion on management’s
+assessment and an opinion on the effectiveness of the company’s internal control
+over financial reporting based on our audit. 
+We
+conducted our audit in accordance with the standards of the Public Company
+Accounting Oversight Board (United States). Those standards require that
+we plan and perform the audit to obtain reasonable assurance about whether
+effective internal control over financial reporting was maintained in all
+material respects. Our audit included obtaining an understanding of
+internal control over financial reporting, evaluating management’s assessment,
+testing and evaluating the design and operating effectiveness of internal
+control, and performing such other procedures as we considered necessary in the
+circumstances. We believe that our audit provides a reasonable basis for
+our opinions. 
+A
+company’s internal control over financial reporting is a process designed 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. A company’s internal
+control over financial reporting includes those policies and procedures that (1)
+pertain to the maintenance of records that, in reasonable detail, accurately and
+fairly reflect the transactions and dispositions of the assets of the company;
+(2) provide reasonable assurance that transactions are recorded as necessary to
+permit preparation of financial statements in accordance with generally accepted
+accounting principles, and that receipts and expenditures of the company are
+being made only in accordance with authorizations of management and directors of
+the company; and (3) provide reasonable assurance regarding prevention or timely
+detection of unauthorized acquisition, use, or disposition of the company’s
+assets that could have a material effect on the financial
+statements. 
+Because
+of its inherent limitations, internal control over financial reporting may not
+prevent or detect misstatements. Also, projections of any evaluation of
+effectiveness to future periods are subject to the risk that controls may become
+inadequate because of changes in conditions, or that the degree of compliance
+with the policies or procedures may deteriorate. 
+In our
+opinion, management’s assessment that RPC, Inc. maintained effective internal
+control over financial reporting as of December 31, 2004, is fairly stated, in
+all material respects, based on criteria established in Internal
+Control—Integrated Framework issued by the COSO. Also in our opinion, RPC,
+Inc. maintained, in all material respects, effective internal control over
+financial reporting as of December 31, 2004, based on criteria established in
+Internal Control—Integrated Framework issued by the COSO. 
+We have
+also audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), the consolidated balance sheet of RPC, Inc. and
+subsidiaries as of December 31, 2004, and the related consolidated statements of
+operations, stockholders’ equity, and cash flows for the year ended December 31,
+2004 and our report dated March 11, 2005 expressed an unqualified opinion on
+those financial statements. 
+/s/ Grant
+Thornton LLP 
+Atlanta,
+Georgia 
+March 11,
+2005 
+29 
+Item 8. Financial Statements and
+Supplementary Data 
+CONSOLIDATED
+BALANCE SHEETS 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands except share information) 
+December
+31, 
+2004 
+2003 
+ASSETS 
+Cash
+and cash equivalents 
+$ 
+29,636 
+$ 
+22,302 
+Accounts
+receivable, net 
+75,793 
+53,719 
+Inventories 
+10,587 
+10,057 
+Deferred
+income taxes 
+6,144 
+6,394 
+Income
+taxes receivable 
+- 
+4,263 
+Prepaid
+expenses and other current assets 
+3,638 
+3,614 
+Current
+assets 
+125,798 
+100,349 
+Property,
+plant and equipment, net 
+114,222 
+109,163 
+Goodwill
+and other intangibles, net 
+20,183 
+15,488 
+Other
+assets 
+2,739 
+1,864 
+Total
+assets 
+$ 
+262,942 
+$ 
+226,864 
+LIABILITIES
+AND STOCKHOLDERS’ EQUITY 
+Accounts
+payable 
+$ 
+23,389 
+$ 
+19,603 
+Accrued
+payroll and related expenses 
+10,842 
+8,526 
+Accrued
+insurance expenses 
+3,875 
+2,852 
+Accrued
+state, local and other taxes 
+2,183 
+1,663 
+Income
+taxes payable 
+113 
+- 
+Current
+portion of long-term debt 
+2,700 
+1,110 
+Other
+accrued expenses 
+5,187 
+3,369 
+Current
+liabilities 
+48,289 
+37,123 
+Long-term
+accrued insurance expenses 
+6,451 
+5,856 
+Long-term
+debt 
+2,100 
+4,800 
+Long-term
+pension liability 
+11,379 
+12,972 
+Deferred
+income taxes 
+11,945 
+13,296 
+Other
+long-term liabilities 
+1,355 
+1,711 
+Total
+liabilities 
+81,519 
+75,758 
+Commitments
+and contingencies 
+Preferred
+stock, $.10 par value, 1,000,000 shares authorized, none
+issued 
+Common stock, $.10 par value, 79,000,000 shares authorized,
+43,215,368 and 42,939,480 shares issued and outstanding in 2004 and 
+2003, respectively 
+4,321 
+4,293 
+Capital
+in excess of par value 
+27,326 
+25,365 
+Retained
+earnings 
+160,189 
+128,824 
+Deferred
+compensation 
+(3,527 
+) 
+(1,076 
+) 
+Accumulated
+other comprehensive loss 
+(6,886 
+) 
+(6,300 
+) 
+Total
+stockholders’ equity 
+181,423 
+151,106 
+Total
+liabilities and stockholders’ equity 
+$ 
+262,942 
+$ 
+226,864 
+The
+accompanying notes are an integral part of these statements. 
+30 
+CONSOLIDATED
+STATEMENTS OF OPERATIONS 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands except per share data) 
+Years
+ended December 31, 
+2004 
+2003 
+2002 
+REVENUES
+$ 
+339,792 
+$ 
+270,527 
+$ 
+209,030 
+COSTS
+AND EXPENSES: 
+Cost
+of services rendered and goods sold 
+193,659 
+168,766 
+143,362 
+Selling,
+general and administrative expenses 
+65,871 
+52,268 
+44,852 
+Depreciation
+and amortization 
+34,473 
+33,094 
+31,242 
+Operating
+profit (loss) 
+45,789 
+16,399 
+(10,426 
+) 
+Interest
+expense, net 
+68 
+153 
+74 
+Other
+income, net 
+7,482 
+1,324 
+2,346 
+Income
+(loss) before income taxes 
+53,203 
+17,570 
+(8,154 
+) 
+Income
+tax provision (benefit) 
+18,430 
+6,677 
+(2,894 
+) 
+Net
+income (loss) 
+$ 
+34,773 
+$ 
+10,893 
+$ 
+(5,260 
+) 
+EARNINGS
+(LOSS) PER SHARE 
+Basic 
+$ 
+0.82 
+$ 
+0.26 
+$ 
+(0.12 
+) 
+Diluted 
+$ 
+0.80 
+$ 
+0.25 
+$ 
+(0.12 
+) 
+Dividends
+paid per share 
+$ 
+0.08 
+$ 
+0.07 
+$ 
+0.07 
+The
+accompanying notes are an integral part of these statements. 
+31 
+CONSOLIDATED
+STATEMENTS OF STOCKHOLDERS’ EQUITY 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands) 
+Common
+Stock 
+Capital 
+in 
+Excess
+of 
+Accumulated 
+Other 
+Three
+Years Ended 
+December
+31, 2004 
+Comprehensive 
+Income
+(Loss) 
+Shares 
+Amount 
+Par
+Value 
+Deferred 
+Compensation 
+Retained 
+Earnings 
+Comprehensive 
+Loss 
+Total 
+Balance,
+December 31, 2001 
+28,691 
+$ 
+2,869 
+$ 
+27,182 
+$ 
+(1,686 
+) 
+$ 
+128,932 
+$ 
+(861 
+) 
+$ 
+156,436 
+Stock
+issued for stock incentive plans, net 
+1 
+1 
+122 
+500 
+— 
+— 
+623
+Stock
+purchased and retired 
+(85 
+) 
+(9 
+) 
+(873 
+) 
+— 
+— 
+— 
+(882 
+) 
+Net
+loss 
+$ 
+(5,260 
+) 
+— 
+— 
+— 
+(5,260 
+) 
+— 
+(5,260 
+) 
+Minimum
+pension liability, net of taxes of $1,909 
+(3,114 
+) 
+— 
+— 
+— 
+— 
+(3,114 
+) 
+(3,114 
+) 
+Unrealized
+gain on securities, net of taxes of $90 
+145 
+145 
+145
+Comprehensive
+loss 
+$ 
+(8,229 
+) 
+Dividends
+declared 
+— 
+— 
+— 
+(2,867 
+) 
+— 
+(2,867 
+) 
+Three-for-two
+stock split 
+14,304 
+1,430 
+(1,430 
+) 
+— 
+Balance,
+December 31, 2002 
+42,911 
+4,291 
+25,001 
+(1,186 
+) 
+120,805 
+(3,830 
+) 
+145,081
+Stock
+issued for stock incentive plans, net 
+29 
+3 
+233 
+110 
+— 
+— 
+346
+Stock
+purchased and retired 
+(189 
+) 
+(20 
+) 
+(1,850 
+) 
+— 
+— 
+— 
+(1,870 
+) 
+Stock
+issued in connection with purchase of business 
+179 
+18 
+1,982 
+— 
+— 
+— 
+2,000
+Net
+income 
+$ 
+10,893 
+— 
+— 
+— 
+10,893 
+— 
+10,893
+Minimum
+pension liability, net of taxes of $1,534 
+(2,503 
+) 
+— 
+— 
+— 
+— 
+(2,503 
+) 
+(2,503 
+) 
+Unrealized
+gain on securities, net of taxes of $20 
+33 
+33 
+33
+Comprehensive
+income 
+$ 
+8,423 
+Dividends
+declared 
+— 
+— 
+— 
+(2,874 
+) 
+— 
+(2,874 
+) 
+Three-for-two
+stock split 
+9 
+1 
+(1 
+) 
+— 
+Balance,
+December 31, 2003 
+42,939 
+4,293 
+25,365 
+(1,076 
+) 
+128,824 
+(6,300 
+) 
+151,106 
+Stock
+issued for stock incentive plans, net 
+354 
+36 
+4,282 
+(2,451 
+) 
+— 
+— 
+1,867 
+Stock
+purchased and retired 
+(170 
+) 
+(17 
+) 
+(2,312 
+) 
+— 
+— 
+— 
+(2,329 
+) 
+Net
+income 
+$ 
+34,773 
+— 
+— 
+— 
+34,773 
+— 
+34,773
+Minimum
+pension liability, net of taxes of $370 
+(605 
+) 
+— 
+— 
+— 
+— 
+(605 
+) 
+(605 
+) 
+Unrealized
+gain on securities, net of taxes of $12 
+19 
+19 
+19 
+Comprehensive
+income 
+$ 
+34,187 
+Dividends
+declared 
+— 
+— 
+— 
+(3,408 
+) 
+— 
+(3,408 
+) 
+Three-for-two
+stock split 
+92 
+9 
+(9 
+) 
+— 
+Balance,
+December 31, 2004 
+43,215 
+$ 
+4,321 
+$ 
+27,326 
+$ 
+(3,527 
+) 
+$ 
+160,189 
+$ 
+(6,886 
+) 
+$ 
+181,423 
+The
+accompanying notes are an integral part of these statements. 
+32 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+RPC,
+Inc. and Subsidiaries 
+(in
+thousands) 
+Years
+ended December 31, 
+2004 
+2003 
+2002 
+OPERATING
+ACTIVITIES 
+Net
+income (loss) 
+$ 
+34,773 
+$ 
+10,893 
+$ 
+(5,260 
+) 
+Non-cash
+charges (credits) to earnings: 
+Depreciation
+and amortization and other non-cash charges 
+35,054 
+33,182 
+31,342 
+Gain
+on sale of equipment and property 
+(5,551 
+) 
+(36 
+) 
+(1,353 
+) 
+Deferred
+income tax (benefit) provision 
+(756 
+) 
+5,401 
+9,193 
+(Increase)
+decrease in assets: 
+Accounts
+receivable 
+(22,074 
+) 
+(13,551 
+) 
+6,760 
+Income
+taxes receivable 
+4,472 
+4,554 
+(6,564 
+) 
+Inventories 
+(530 
+) 
+(455 
+) 
+(794 
+) 
+Prepaid
+expenses and other current assets 
+41 
+(117 
+) 
+461 
+Other
+non-current assets 
+(875 
+) 
+103 
+(501 
+) 
+Increase
+(decrease) in liabilities: 
+Accounts
+payable 
+3,786 
+7,323 
+205 
+Income
+taxes payable 
+113 
+- 
+- 
+Accrued
+payroll and related expenses 
+2,316 
+885 
+(2,482 
+) 
+Accrued
+insurance expenses 
+1,618 
+1,010 
+(2,403 
+) 
+Accrued
+state, local and other taxes 
+520 
+4 
+(1,237 
+) 
+Other
+accrued expenses 
+391 
+(962 
+) 
+189 
+Pension
+liabilities 
+(2,568 
+) 
+2,003 
+— 
+Other
+non-current liabilities 
+(356 
+) 
+394 
+— 
+Net
+cash provided by operating activities 
+50,374 
+50,631 
+27,556 
+INVESTING
+ACTIVITIES 
+Capital
+expenditures 
+(49,869 
+) 
+(30,356 
+) 
+(22,481 
+) 
+Purchase
+of businesses 
+(3,310 
+) 
+(6,210 
+) 
+(1,885 
+) 
+Proceeds
+from sale of assets 
+15,964 
+1,896 
+2,535 
+Net
+cash used for investing activities 
+(37,215 
+) 
+(34,670 
+) 
+(21,831 
+) 
+FINANCING
+ACTIVITIES 
+Payment
+of dividends 
+(3,408 
+) 
+(2,874 
+) 
+(2,867 
+) 
+Payments
+on debt 
+(1,110 
+) 
+(552 
+) 
+(1,365 
+) 
+Cash
+paid for common stock purchased and retired 
+(1,728 
+) 
+(1,870 
+) 
+(882 
+) 
+Proceeds
+received upon exercise of stock options 
+421 
+104 
+187 
+Net
+cash used for financing activities 
+(5,825 
+) 
+(5,192 
+) 
+(4,927 
+) 
+Net
+increase in cash and cash equivalents 
+7,334 
+10,769 
+798 
+Cash
+and cash equivalents at beginning of year 
+22,302 
+11,533 
+10,735 
+Cash
+and cash equivalents at end of year 
+$ 
+29,636 
+$ 
+22,302 
+$ 
+11,533 
+The
+accompanying notes are an integral part of these statements. 
+33 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+Note
+1: Significant Accounting Policies 
+Principles
+of Consolidation and Basis of Presentation 
+The
+consolidated financial statements include the accounts of RPC, Inc. and its
+wholly-owned subsidiaries (“RPC” or the “Company”). All significant intercompany
+accounts and transactions have been eliminated. 
+Nature
+of Operations 
+RPC
+provides a broad range of specialized oilfield services and equipment primarily
+to independent and major oil and gas companies engaged in the exploration,
+production and development of oil and gas properties throughout the United
+States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and in selected international markets. The services and
+equipment provided include Technical Services such as pressure pumping services,
+snubbing services, coiled tubing services, nitrogen services, and firefighting
+and well control, and Support Services such as the rental of drill pipe and
+other specialized oilfield equipment, marine services, and oilfield training.
+Dividends 
+On
+January 25, 2005 the Board of Directors approved a 100 percent increase in the
+quarterly cash dividend, from $0.02 to $0.04, as adjusted for the three-for-two
+stock split, which will be payable March 10, 2005 to stockholders of record at
+the close of business February 10, 2005. 
+Use
+of Estimates in the Preparation of Financial Statements 
+The
+preparation of financial statements in conformity with accounting principles
+generally accepted in the United States requires management to make estimates
+and assumptions that affect the reported amounts of assets and liabilities and
+disclosure of contingent assets and liabilities at the date of the financial
+statements and the reported amounts of revenues and expenses during the
+reporting period. Actual results could differ from those estimates.
+Significant
+estimates are used in the determination of the allowance for doubtful accounts,
+income taxes, accrued insurance expenses, depreciable lives of assets, and
+pension liabilities. 
+Revenues
+RPC
+recognizes revenue when an agreement exists, prices are determinable, services
+and products are delivered and collectibility is reasonably assured.
+Reclassifications
+Certain
+prior year balances have been reclassified to conform with the current year
+presentation. 
+Concentration
+of Credit Risk 
+Substantially
+all of the Company’s customers are engaged in the oil and gas industry. This
+concentration of customers may impact overall exposure to credit risk, either
+positively or negatively, in that customers may be similarly affected by changes
+in economic and industry conditions. The Company provided oilfield services to
+several hundred customers, none of which accounted for more than 10 percent of
+consolidated revenues. 
+Cash
+and Cash Equivalents 
+Highly
+liquid investments with original maturities of three months or less when
+acquired are considered to be cash equivalents. RPC maintains cash equivalents
+and investments in one or more large, well-capitalized financial institutions,
+and RPC’s policy restricts investment in any securities rated less than
+“investment grade” by national rating services. 
+34 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+Investments
+Investments
+classified as available-for-sale are stated at their fair values, with the
+unrealized gains and losses, net of tax, reported in a separate component of
+stockholders’ equity. The cost of securities sold is based on the specific
+identification method. Realized gains and losses, declines in value judged to be
+other than temporary, interest, and dividends with respect to available-for-sale
+securities are included in interest income. The Company did not realize any
+gains on securities during 2004, 2003 and 2002. In 2004, the Company reclassed
+approximately $59,000 from other comprehensive income as a result of the
+securities that are held in a Supplemental Retirement Plan being classified as
+trading. This reclassification of securities from available-for-sale to trading
+was due to a change in the frequency of participant directed investment choices.
+Management
+determines the appropriate classification of investments at the time of purchase
+and re-evaluates such designations as of each balance sheet date. 
+Allowance
+for Doubtful Accounts 
+Accounts
+receivable are carried at the amount owed by customers, reduced by an allowance
+for estimated amounts that may not be collectible in the future. The estimated
+allowance for doubtful accounts is based on our evaluation of industry trends,
+financial condition of our customers, our historical write-off experience,
+current economic conditions, and in the case of our international customers, our
+judgments about the economic and political environment of the related country
+and region. Accounts are written off against the allowance for doubtful accounts
+when the Company determines that amounts are uncollectible and recoveries of
+previously written-off accounts are recorded when collected. 
+Inventories
+Inventories,
+which consist principally of (i) products that are consumed in RPC’s services
+provided to customers, (ii) spare parts for equipment used in providing these
+services and (iii) manufactured components and attachments for equipment used in
+providing services, are recorded at the lower of weighted average cost or market
+value. Market value is determined based on replacement cost for material and
+supplies and net realizable value for work in process and finished goods. The
+Company regularly reviews inventory quantities on hand and records provisions
+for excess or obsolete inventory based primarily on its estimated forecast of
+product demand, market conditions, production requirements and technological
+developments. 
+Property,
+Plant and Equipment 
+Property,
+plant and equipment, including software costs, are reported at cost less
+accumulated depreciation and amortization, which is generally provided on a
+straight-line basis over the estimated useful lives of the assets. Costs of
+developing software for sale are charged to expense when incurred until
+technological feasibility has been established for the product. Thereafter,
+until the software is ready for general release to customers the costs are
+capitalized. Annual depreciation and amortization expense is computed using the
+following useful lives: operating equipment, 3 to 10 years; buildings and
+leasehold improvements, 15 to 30 years; furniture and fixtures, 5 to 7 years;
+software, 5 years; and vehicles, 3 to 5 years. The cost of assets retired or
+otherwise disposed of and the related accumulated depreciation and amortization
+are eliminated from the accounts in the year of disposal with the resulting gain
+or loss credited or charged to income. Expenditures for additions, major
+renewals, and betterments are capitalized. Expenditures for restoring an
+identifiable asset to working condition or for maintaining the asset in good
+working order constitute repairs and maintenance and are expensed as incurred.
+RPC
+records impairment losses on long-lived assets used in operations when events
+and circumstances indicate that the assets might be impaired and the
+undiscounted cash flows estimated to be generated by those assets are less than
+the carrying amount of those assets. The Company periodically reviews the values
+assigned to long-lived assets, such as property, plant and equipment and other
+assets, to determine if any impairments should be recognized. Management
+believes that the long-lived assets in the accompanying balance sheets have not
+been impaired. 
+. 
+35 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+Goodwill
+and Other Intangibles 
+Goodwill
+represents the excess of the purchase price over the fair value of net assets of
+businesses acquired. The carrying amount of goodwill was $20,133,000 at December
+31, 2004 and $15,396,000 at December 31, 2003. Goodwill is reviewed annually for
+impairment in accordance with the provisions of Statement of Financial
+Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” In
+reviewing goodwill for impairment, potential impairment is measured
+by comparing the estimated fair value of a reporting unit with its
+carrying value. Based upon the results of these analyses, the Company has
+concluded that no impairment of its goodwill has occurred. 
+Other
+intangibles primarily represent non-compete agreements related to businesses
+acquired. Non-compete agreements are amortized on a straight-line basis over the
+period of the agreement, as this method best estimates the ratio that current
+revenues bear to the total of current and anticipated revenues. The carrying
+amount and accumulated amortization for non-compete agreements are as follows:
+December
+31, 
+2004 
+2003 
+Non-compete
+agreements 
+$ 
+450,000 
+$ 
+450,000 
+Less:
+accumulated amortization 
+(411,691 
+) 
+(371,683 
+) 
+$ 
+38,309 
+$ 
+78,317 
+Amortization
+of non-compete agreements was approximately $40,000 in 2004, $40,000 in 2003,
+and $80,000 in 2002. Estimated amortization for the remaining useful lives of
+non-compete agreements is as follows: 
+2005 
+28,309 
+2006 
+10,000 
+Insurance
+Expenses 
+RPC self
+insures, up to certain policy-specified limits, certain risks related to general
+liability, workers’ compensation, vehicle and equipment liability, and employee
+health insurance plan costs. The estimated cost of claims under these
+self-insurance programs is estimated and accrued as the claims are incurred
+(although actual settlement of the claims may not be made until future periods)
+and may subsequently be revised based on developments relating to such claims.
+The portion of these estimated outstanding claims expected to be paid more than
+one year in the future is classified as long-term accrued insurance expenses.
+Income
+Taxes 
+Deferred
+tax liabilities and assets are determined based on the difference between the
+financial and tax bases of assets and liabilities using enacted tax rates in
+effect for the year in which the differences are expected to reverse. The
+Company establishes a valuation allowance against the carrying value of deferred
+tax assets when the Company determines that it is more likely than not that the
+asset will not be realized through future taxable income. 
+Defined
+Benefit Pension Plan 
+The
+Company has a defined benefit pension plan that provides monthly benefits upon
+retirement at age 65 to eligible employees. See Note 10 for a full description
+of this plan and the related accounting and funding policies. 
+Earnings
+per Share 
+SFAS No.
+128, “Earnings Per Share,” requires a basic earnings per share and diluted
+earnings per share presentation. The two calculations differ as a result of the
+dilutive effect of stock options and time lapse restricted and performance
+restricted shares included in diluted earnings per share, but excluded from
+basic earnings per share. A reconciliation of the weighted
+shares outstanding (adjusted for three-for-two stock split) is as follows:
+36 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+2004 
+2003 
+2002 
+Basic 
+42,464,193 
+42,555,222 
+42,393,024 
+Dilutive
+effect of stock options and restricted shares 
+965,246 
+598,985 
+--
+Diluted 
+43,429,439 
+43,154,207 
+42,393,024 
+The
+effect of the Company’s stock options and restricted shares have been excluded
+from the calculation of diluted earnings per share in 2002, as their effect
+would have been antidilutive. 
+Fair
+Value of Financial Instruments 
+The
+Company’s financial instruments consist primarily of cash and cash equivalents,
+accounts receivable, accounts payable and debt. The carrying value of cash,
+accounts receivable and accounts payable approximate their fair value due to the
+short-term nature of such instruments. The carrying value of debt approximates
+fair value since the interest rates are market based and are generally adjusted
+annually. 
+New
+Accounting Standards 
+In
+December 2003, the FASB issued Statement of Financial Accounting Standard No.
+132 (revised 2003) (“SFAS 132R”), “Employers’ Disclosures about Pensions and
+Other Post-Retirement Benefits.” SFAS 132R does not change the measurement or
+recognition provisions for defined benefit pensions and other post-retirement
+benefits; however, it requires additional annual disclosures about assets,
+obligations, cash flows, net periodic benefit cost and projected benefit
+payments of those plans. The Company has adopted the provisions of SFAS 132R and
+presented the disclosures in Note 10 to the consolidated financial
+statements. 
+In March
+2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No.
+03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to
+Certain Investments.” EITF 03-1 applies to investments accounted for under SFAS
+No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and
+SFAS No. 124, “Accounting for Certain Investments Held by Not-for-Profit
+Organizations.” In September 2004, the FASB delayed the accounting provisions of
+EITF No. 03-1; however, qualitative and quantitative disclosures are effective
+for the fiscal year ending December 31, 2004. The adoption of EITF 03-1 did not
+have a material impact on the financial position, results of operations or
+liquidity of the Company. 
+In
+November 2004, the FASB issued SFAS No. 151, "Inventory Costs—An
+Amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends
+the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
+the accounting for abnormal amounts of idle facility expense, freight, handling
+costs, and wasted material (spoilage). Among other provisions, the new rule
+requires that items such as idle facility expense, excessive spoilage, double
+freight, and rehandling costs be recognized as current-period charges regardless
+of whether they meet the criterion of "so abnormal" as stated in ARB
+No. 43. Additionally, SFAS 151 requires that the allocation of fixed
+production overheads to the costs of conversion be based on the normal capacity
+of the production facilities. SFAS 151 is effective for fiscal years
+beginning after June 15, 2005 and is required to be adopted by the Company
+in the first quarter of fiscal 2006, beginning on January 1, 2006. The Company
+is currently evaluating the effect that the adoption of SFAS 151 will have
+on its consolidated results of operations and financial condition but does not
+expect SFAS 151 to have a material impact. 
+In
+December 2004, the FASB issued SFAS No. 123 (revised 2004),
+"Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123,
+"Accounting for Stock-Based Compensation," ("SFAS 123") and supersedes APB
+Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R
+requires all share-based payments to employees, including grants of employee
+stock options, to be recognized in the financial statements based on their fair
+values beginning with the first interim or annual period that begins after
+June 15, 2005, with early adoption encouraged. The pro forma disclosures
+previously permitted under SFAS 123 no longer will be an alternative to
+financial statement recognition. The Company is required to adopt SFAS 123R
+in the third quarter of fiscal 2005. Under SFAS 123R, the Company must
+determine the appropriate fair value model to be used for valuing share-based
+payments, the amortization method for compensation cost and the transition
+method to be used at date of adoption. The transition methods include
+prospective and retroactive adoption options. Under the retroactive option,
+prior periods may be restated either as of the beginning of the year of adoption
+or for all periods presented. The prospective method requires that compensation
+expense be recorded for all unvested stock options and
+restricted stock at the beginning of the first quarter of adoption of
+SFAS 123R, while the retroactive methods would record compensation expense
+for all unvested stock options and restricted stock beginning with the first
+period restated. The Company is currently evaluating the impact of applying the
+various provisions of SFAS 123R. 
+37 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+In
+December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
+Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
+Transactions" ("SFAS 153"). The amendments made by SFAS 153 are based on the
+principle that exchanges of nonmonetary assets should be measured based on the
+fair value of the assets exchanged. Further, the amendments eliminate the narrow
+exception for non-monetary exchanges of similar productive assets and replace it
+with a broader exception for exchanges of nonmonetary assets that do not have
+commercial substance. Previously, Opinion 29 required that the accounting for an
+exchange of productive asset for a similar productive asset or an equivalent
+interest in the same or similar productive asset should be based on the recorded
+amount of the asset relinquished. By focusing the exception on exchanges that
+lack commercial substance, SFAS 153 intends to produce financial reporting that
+more faithfully represents the economics of the transaction. SFAS 153 is
+effective for the fiscal periods beginning after June 15, 2005 with earlier
+application permitted for nonmonetay exchanges occurring in fiscal periods
+beginning after the date of issuance. The provisions are to be applied
+prospectively. The Company is currently evaluating the effect that the adoption
+of SFAS 153 will have on its consolidated results of operations and
+financial condition but does not expect it to have a material impact.
+FASB
+Staff Position ("FSP") No. 109-2, "Accounting and Disclosure Guidance for
+the Foreign Earnings Repatriation Provision within the American Jobs Creation
+Act of 2004" ("FSP 109-2"), issued in December 2004, is intended to provide
+limited relief in the application of the indefinite reinvestment criterion due
+to ambiguities surrounding the implementation of the Act. The Jobs Act was
+enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed
+time beyond the financial reporting period of enactment to evaluate the effect
+of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings
+for purposes of applying FASB Statement No. 109. RPC has not yet completed
+evaluating the impact of the repatriation provisions. 
+Stock-Based
+Compensation 
+RPC
+accounts for the stock incentive plan using the intrinsic value method
+prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting
+for Stock Issued to Employees.” RPC records deferred compensation related to the
+restricted stock grants based on the fair market value of the shares at the
+issue date and amortizes such amounts ratably over the vesting period for the
+shares. Fair value of restricted shares granted was $3,273,000 in 2004, $132,000
+in 2003 and $93,000 in 2002. RPC recorded amortization of deferred compensation
+totaling $822,000 in 2004, $241,000 in 2003 and $255,000 in 2002 related to
+these restricted stock grants. 
+If RPC
+had accounted for the stock incentive plans in accordance with the provisions of
+SFAS No. 123, “Accounting for Stock-Based Compensation” the total fair value of
+awards granted would be amortized over the vesting period of the awards, and
+RPC’s reported net income (loss) and diluted net income (loss) per share would
+have been as follows: 
+Years
+ended December 31, 
+2004 
+2003 
+2002 
+(in
+thousands) 
+Net
+income (loss) — as reported 
+$ 
+34,773 
+$ 
+10,893 
+$ 
+(5,260 
+) 
+Add:
+Stock-based employee compensation expense included in reported net income
+(loss), net of related tax 
+510 
+150 
+164 
+Deduct:
+Total stock-based employee compensation expense determined under fair
+value based method for all awards, net of related tax
+effect 
+1,193 
+957 
+767 
+Pro
+forma net income (loss) 
+$ 
+34,090 
+$ 
+10,086 
+$ 
+(5,863 
+) 
+Pro
+forma income (loss) per share would have been as follows: 
+Basic
+- as reported 
+$ 
+0.82 
+$ 
+0.26 
+$ 
+(0.12 
+) 
+Basic
+- pro forma 
+$ 
+0.80 
+$ 
+0.24 
+$ 
+(0.14 
+) 
+Diluted
+- as reported 
+$ 
+0.80 
+$ 
+0.25 
+$ 
+(0.12 
+) 
+Diluted
+- pro forma 
+$ 
+0.78 
+$ 
+0.23 
+$ 
+(0.14 
+) 
+38 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+The
+Company has computed, for pro forma disclosure purposes, the value of all
+options granted during 2003 and 2002 using the Black-Scholes option pricing
+model as prescribed by SFAS No. 123 using the following weighted average
+assumptions for grants: 
+2004 
+2003 
+2002 
+Risk-free
+interest rate 
+N/A 
+1.1 
+% 
+2.9 
+% 
+Expected
+dividend yield 
+N/A 
+1 
+% 
+1 
+% 
+Expected
+lives 
+N/A 
+7
+years 
+7
+years 
+Expected
+volatility 
+N/A 
+43-46 
+% 
+43-46 
+% 
+The total
+fair value of options granted to RPC employees were $0 in 2004, $2,534,000 in
+2003 and $663,000 in 2002. 
+Three-for-Two
+Stock Split 
+The Board
+of Directors, at their quarterly meeting on January 25, 2005, authorized a
+three-for-two stock split by the issuance on March 10, 2005 of one additional
+common share for every two common shares held of record as of February 10, 2005.
+Accordingly, the par value of additional shares issued will be adjusted between
+common stock and capital in excess of par value, and fractional shares resulting
+from the stock split will be settled in cash. All share and per share data
+appearing in the consolidated financial statements and related footnotes have
+been retroactively adjusted for this split. 
+Note
+2: Acquisitions 
+On April
+1, 2003, RPC purchased all of the assets of Bronco Oilfield Services, Inc.
+(“Bronco”), a privately-held company, specializing in surface pressure control
+services and equipment. The acquisition was accounted for under the purchase
+method of accounting. Pro forma results of operations have not been presented
+for this acquisition because the effect was not material to the Company. The
+results of operations of the acquisition are included in the Company’s
+consolidated statements of operations from the date of acquisition. Goodwill
+related to the acquisition has been assigned to the Technical Services segment.
+A summary
+of the Company’s purchase transaction is included in the following table (in
+thousands, except share amounts): 
+Entity
+Name and 
+Description
+of 
+Business
+Acquired 
+Date 
+Consideration 
+Inventory 
+Operating 
+Equipment 
+and 
+Vehicles 
+Goodwill 
+Form
+of Consideration 
+Bronco
+Oilfield 
+Services,
+Inc. 
+(Production
+Rental Equipment) 
+4/03 
+$ 
+11,033 
+$ 
+395 
+$ 
+8,189 
+$ 
+2,449 
+• 
+$ 5,533
+in cash 
+• 
+179,191
+restricted shares valued at $2,000 
+• 
+$ 3,500
+in promissory note payable in five annual installments plus interest at 6
+percent fixed rate 
+• 
+Potential
+earnout 
+The
+consolidated statement of cash flows for the year ended December 31, 2003
+excludes the $3,500,000 of promissory notes payable and the $2,000,000 common
+stock issued in connection with the Bronco acquisition. Earnout payments to
+sellers of acquired businesses may have to be paid in accordance with the
+respective agreements on an annual basis and are recorded as goodwill when the
+earnout payment amounts are determinable. Earnout payments made to sellers of
+acquired businesses totaled $3,310,000 in 2004, based on 2003 operating results.
+There were no earnouts paid in 2003, based on 2002 operating results and
+$1,885,000 was paid in 2002, based on 2001 operating results. Estimated earnouts
+based on 2004 operating results totaling $4,262,000 are reflected in other
+accrued expenses in the consolidated balance sheet. 
+Note
+3: Accounts Receivable 
+Accounts
+receivable are stated net of allowances for doubtful accounts of $2,576,000 at
+December 31, 2004 and $2,539,000 at December 31, 2003. 
+39 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+Note
+4: Inventories 
+Inventories
+consist of the following: 
+December
+31, 
+2004 
+2003 
+(in
+thousands) 
+Raw
+materials and supplies 
+$ 
+10,587 
+$ 
+8,251 
+Work
+in process 
+- 
+317
+Finished
+goods 
+- 
+1,489
+Total
+inventories 
+$ 
+10,587 
+$ 
+10,057 
+Work in
+process and finished goods balances at December 31, 2003 represented inventory
+held by a subsidiary which was sold during the second quarter of
+2004. 
+Note
+5: Property, Plant and Equipment 
+Property,
+plant and equipment are presented at cost net of accumulated depreciation and
+consist of the following: 
+December
+31, 
+2004 
+2003 
+(in
+thousands) 
+Land 
+$ 
+5,022 
+$ 
+5,464 
+Buildings
+and leasehold improvements 
+31,509 
+30,444 
+Operating
+equipment 
+234,647 
+221,770 
+Capitalized
+software 
+12,212 
+11,556 
+Furniture
+and fixtures 
+2,938 
+2,710 
+Vehicles 
+51,869 
+47,124 
+Construction
+in progress 
+2,407 
+3,449 
+Gross
+property, plant and equipment 
+340,604 
+322,517 
+Less:
+accumulated depreciation 
+226,382 
+213,354 
+Net
+property, plant and equipment 
+$ 
+114,222 
+$ 
+109,163 
+Depreciation
+expense was $34,397,000 in 2004, $32,901,000 in 2003 and $31,007,000 in 2002.
+There are no capital leases outstanding as of December 31, 2004 and December 31,
+2003. 
+Note
+6: Income Taxes 
+The
+following table lists the components of the provision (benefit) for income
+taxes: 
+Years
+ended December 31, 
+2004
+2003 
+2002 
+(in
+thousands) 
+Current
+provision (benefit): 
+Federal 
+$ 
+16,028 
+$ 
+925 
+$ 
+(11,882 
+) 
+State 
+2,300 
+164 
+(380 
+) 
+Foreign 
+858 
+187 
+175 
+Deferred
+(benefit) provision: 
+Federal 
+(1,210 
+) 
+4,975 
+8,467 
+State 
+454 
+426 
+726 
+Total
+income tax provision (benefit) 
+$ 
+18,430 
+$ 
+6,677 
+$ 
+(2,894 
+) 
+40 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+Reconciliation
+between the federal statutory rate and RPC’s effective tax rate is as follows:
+Years
+ended December 31, 
+2004 
+2003 
+2002 
+Federal
+statutory rate 
+35.0 
+% 
+35.0 
+% 
+34.0 
+% 
+State
+income taxes 
+5.2 
+4.8 
+3.1
+Tax
+credits 
+(3.0 
+) 
+(2.1 
+) 
+(3.6 
+) 
+Adjustments
+to foreign tax liabilities 
+(1.2 
+) 
+0.0 
+0.0 
+Other 
+(1.4 
+) 
+0.3 
+2.0
+Effective
+tax rate 
+34.6 
+% 
+38.0 
+% 
+35.5 
+% 
+Significant
+components of the Company’s deferred tax assets and liabilities are as follows:
+December
+31, 
+2004 
+2003 
+(in
+thousands) 
+Deferred
+tax assets: 
+Self-insurance 
+$ 
+4,312 
+$ 
+3,848 
+Pension 
+4,399 
+4,153 
+State
+net operating loss carryforwards 
+1,875 
+2,421 
+Bad
+debts 
+1,065 
+1,046 
+Accrued
+payroll 
+1,081 
+492 
+Stock-based
+compensation 
+520 
+0 
+Foreign
+tax credits 
+1,292 
+0 
+All
+others 
+247 
+355 
+Valuation
+allowance 
+(2,451 
+) 
+(977 
+) 
+Total
+deferred tax assets 
+12,340 
+11,338 
+Deferred
+tax liabilities: 
+Depreciation 
+(16,971 
+) 
+(17,657 
+) 
+Stock-based
+compensation 
+0 
+(34 
+) 
+Goodwill 
+(1,049 
+) 
+(549 
+) 
+All
+others 
+(121 
+) 
+0 
+Total
+deferred tax liabilities 
+(18,141 
+) 
+(18,240 
+) 
+Net
+deferred tax liabilities 
+$ 
+(5,801 
+) 
+$ 
+(6,902 
+) 
+Undistributed
+earnings of the Company’s foreign subsidiaries are considered indefinitely
+reinvested and, accordingly, no provision for U.S. federal income taxes has been
+accrued. Upon distribution of those earnings in the form of dividends or
+otherwise, RPC would be subject to both U.S. income taxes (subject to an
+adjustment for foreign tax credits) and withholding taxes payable to the various
+countries. Determining the amount of unrecognized deferred U.S. income tax
+liability is not practicable. 
+The
+Company has filed amended federal and state tax returns for the years 1999, 2000
+and 2001 to claim higher deductions for certain expenses and additional foreign
+tax credits representing potential tax benefits totaling up to approximately
+$3.5 million. These returns are currently being reviewed by the Internal Revenue
+Service before going to Joint Committee. There is significant uncertainty
+surrounding the amount and timing of the tax benefits that will be ultimately
+realized. The Company believes it has supportable positions for claiming these
+deductions and credits, but the amounts are subject to Joint Committee approval.
+Accordingly, the Company has not reflected these potential tax benefits in its
+financial statements. No tax benefits will be recognized in the financial
+statements until these gain contingencies are resolved through the eventual
+disposition with the respective tax authorities. 
+The
+Company has remaining foreign tax credit carryforwards of approximately $1.3
+million that expire in 2012 and 2013. During 2004, the Company recognized $0.5
+million of previously unutilized foreign tax credits generated in prior years.
+As of December 31, 2004, the valuation allowance and deferred tax assets were
+increased by $1.3 million to reflect foreign tax credit carryforwards and a
+corresponding valuation allowance on a gross rather than a net basis. The
+valuation allowance for these foreign tax credit carryforwards has been
+established because the Company does not expect to utilize these credit
+carryforwards. 
+41 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+The
+Company has net operating loss carryforwards related to state income taxes of
+approximately $43.8 million that expire in 2005 through 2017. A valuation
+allowance of approximately $1.2 million, representing the tax affected amount of
+loss carryforwards that the Company does not expect to utilize, has been
+established against the corresponding deferred tax asset. 
+Total
+income tax payments (refunds), net were $14,692,000 in 2004, $(3,263,000) in
+2003 and $(4,097,000) in 2002. 
+Note
+7: Long-Term Debt 
+At
+December 31, 2004, future minimum payments on long-term debt were as follows:
+(in
+thousands) 
+2005 
+$ 
+2,700 
+2006 
+700
+2007 
+700
+2008 
+700
+Total
+minimum principal payments 
+$ 
+4,800 
+Cash
+interest paid was approximately $309,000 in 2004, $79,000 in 2003 and $266,000
+in 2002. 
+The
+Company has access to a $25 million credit facility with a financial institution
+encompassing letters of credit and a demand note. The credit facility requires
+interest payments monthly on outstanding advances generally at LIBOR plus 50
+basis points. Any outstanding advances are due upon demand by the lender and the
+facility remains outstanding until cancelled by either party. Under this
+facility, there were letters of credit relating to self insurance programs and
+contract bids outstanding for $15,067,000 as of December 31, 2004 and for
+$13,390,000 as of December 31, 2003. 
+The
+long-term debt of RPC as of December 31, 2004 and 2003 is summarized as
+follows: 
+Type 
+Maturity 
+Dates 
+Range
+of 
+Interest
+Rates 
+2004 
+2003 
+(in
+thousands) 
+Notes
+payable related to acquisitions: 
+2005-2008 
+6% 
+$ 
+2,800 
+$ 
+3,910 
+2005 
+Prime 
+2,000 
+2,000 
+4,800 
+5,910 
+Less:
+current portion 
+2,700 
+1,110 
+Long-term
+debt 
+$ 
+2,100 
+$ 
+4,800 
+Subsequent
+to December 31, 2004, the Company prepaid a $2.8 million promissory note which
+extinguished a portion of the total outstanding debt. 
+42 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+Note
+8: Accumulated Other Comprehensive (Loss) Income 
+Accumulated
+other comprehensive (loss) income consists of the following (in thousands):
+Minimum 
+Pension 
+Liability 
+Unrealized 
+Gain
+(Loss) On 
+Securities 
+Total 
+Balance
+at December 31, 2002 
+$ 
+(3,975 
+) 
+$ 
+145 
+$ 
+(3,830 
+) 
+Change
+during 2003: 
+Before-tax
+amount 
+(4,037 
+) 
+53 
+(3,984 
+) 
+Tax
+(expense) benefit 
+1,534 
+(20 
+) 
+1,514
+Total
+activity in 2003 
+(2,503 
+) 
+33 
+(2,470 
+) 
+Balance
+at December 31, 2003 
+(6,478 
+) 
+178 
+(6,300 
+) 
+Change
+during 2004: 
+Before-tax
+amount 
+(975 
+) 
+125 
+(850 
+) 
+Tax
+(expense) benefit 
+370 
+(47 
+) 
+323
+Reclassification
+adjustment, net of taxes 
+- 
+(59 
+) 
+(59 
+) 
+Total
+activity in 2004 
+(605 
+) 
+19 
+(586 
+) 
+Balance
+at December 31, 2004 
+$ 
+(7,083 
+) 
+$ 
+197 
+$ 
+(6,886 
+) 
+Note
+9: Commitments and Contingencies 
+Minimum
+annual rentals, principally for noncancelable real estate leases with terms in
+excess of one year, in effect at December 31, 2004, are summarized in the
+following table: 
+(in
+thousands) 
+2005 
+$ 
+1,597 
+2006 
+1,231
+2007 
+822
+2008 
+526 
+2009 
+159 
+Total
+rental commitments 
+$ 
+4,335 
+Total
+rental expense charged to operations was approximately $4,203,000 in 2004,
+$4,120,000 in 2003 and $3,930,000 in 2002. 
+In
+accordance with the respective purchase agreements, earnout payments to sellers
+of acquired businesses may be paid on an annual basis. The Company accrued
+estimated earnout payments of approximately $4.3 million to be made in 2005
+related to 2004 operating results. 
+RPC is a
+party to various routine legal proceedings primarily involving commercial
+claims, workers’ compensation claims and claims for personal injury. RPC insures
+against these risks to the extent deemed prudent by its management, but no
+assurance can be given that the nature and amount of such insurance will, in
+every case, fully indemnify RPC against liabilities arising out of pending and
+future legal proceedings related to its business activities. While the outcome
+of these lawsuits, legal proceedings and claims cannot be predicted with
+certainty, management, after consultation with legal counsel, believes that the
+outcome of all such proceedings, even if determined adversely, would not have a
+material adverse effect on the Company’s business or financial condition.
+43 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+Note
+10: Employee Benefit Plans 
+Defined
+Benefit Pension Plan 
+The
+Company’s Retirement Income Plan, a trusteed defined benefit pension plan,
+provides monthly benefits upon retirement at age 65 to eligible employees. As of
+February 28, 2001, the plan became a multiple employer plan, with Marine
+Products as an adopting employer. Following the spin-off, RPC charged Marine
+Products for, and Marine Products has been obligated to pay, its allocable share
+of pension costs and the associated funding obligation related to the prior
+service liabilities of Chaparral employees. Effective December 2003, the related
+prior service liabilities totaling $3,314,000 and pension assets totaling
+$2,517,000 were transferred within the multiple employer plan from RPC to Marine
+Products. 
+In the
+first quarter of 2002, the Company’s Board of Directors approved a resolution to
+cease all future retirement benefit accruals under the defined benefit pension
+plan effective March 31, 2002. In lieu thereof, the Company began providing
+enhanced benefits in the form of cash contributions for certain longer serviced
+employees that had not reached the normal retirement age of 65 as of March 31,
+2002. The contributions are discretionary and made annually based on continued
+employment over a seven year period beginning in 2002. These discretionary
+contributions are made to either a non-qualified Supplemental Retirement Plan
+(“SERP”) established by the Company or to the 401(k) plan for each employee that
+is entitled to the enhanced benefit. The expense related to the enhanced
+benefits was $415,000 for 2004, $479,000 for 2003 and $437,000 for 2002.
+Beginning
+late in 2002, the Company began permitting selected highly compensated employees
+to defer a portion of their compensation into the nonqualified SERP. The SERP
+assets are marked to market and totaled $994,000 as of December 31, 2004 and
+$608,000 as of December 31, 2003. The assets are reported in other assets on the
+balance sheet and changes related to the fair value of assets are recorded in
+the consolidated statement of income as part of other income, net. The SERP
+deferrals and the contributions are recorded on the balance sheet in pension
+liabilities with any change in the fair value of the liabilities recorded as
+compensation cost in the statement of income. 
+44 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+The
+following table sets forth the funded status of the retirement income plan and
+the amounts recognized in RPC’s consolidated balance sheets: 
+December
+31, 
+2004
+2003
+(in
+thousands) 
+CHANGE
+IN BENEFIT OBLIGATION: 
+Benefit
+obligation at beginning of year 
+$ 
+28,970 
+$ 
+24,368 
+Service
+cost 
+— 
+— 
+Interest
+cost 
+1,747 
+1,937 
+Amendments 
+— 
+— 
+Actuarial
+loss 
+1,711 
+7,079 
+Liability
+transfer 
+— 
+(3,314 
+) 
+Benefits
+paid 
+(1,158 
+) 
+(1,100 
+) 
+Benefit
+obligation at end of year 
+$ 
+31,270 
+$ 
+28,970 
+CHANGE
+IN PLAN ASSETS: 
+Fair
+value of plan assets at beginning of year 
+$ 
+16,611 
+$ 
+17,682 
+Actual
+return on plan assets 
+1,259 
+2,546 
+Asset
+transfer 
+— 
+(2,517 
+) 
+Employer
+contribution 
+4,176 
+— 
+Benefits
+paid 
+(1,158 
+) 
+(1,100 
+) 
+Fair
+value of plan assets at end of year 
+20,888 
+16,611 
+Funded
+status 
+(10,382 
+) 
+(12,359 
+) 
+Unrecognized
+net loss 
+11,425 
+10,450 
+Net
+prepaid (accrued) benefit cost 
+$ 
+1,043 
+$ 
+(1,909 
+) 
+The
+accumulated benefit obligation for the defined benefit pension plan at December
+31, 2004 and 2003 has been disclosed above. The Company uses a December 31
+measurement date for its qualified plan. 
+Pursuant
+to the provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” the
+Company recorded an additional pretax minimum pension liability of $975,000 in
+2004 and $4,037,000 in 2003. As there were no previously unrecognized prior
+service costs as of December 31, 2004 and 2003, the full amount of the
+adjustments, net of related deferred tax benefits, are reflected as a reduction
+of stockholders’ equity. Amounts recognized in the consolidated balance sheets
+consist of: 
+December
+31, 
+2004 
+2003 
+(in
+thousands) 
+Net
+prepaid (accrued) benefit cost 
+$ 
+1,043 
+$ 
+(1,909 
+) 
+Minimum
+pension liability 
+(11,425 
+) 
+(10,450 
+) 
+SERP
+employer contributions 
+(738 
+) 
+(465 
+) 
+SERP
+employee deferrals 
+(259 
+) 
+(148 
+) 
+Net
+amount recognized 
+$ 
+(11,379 
+) 
+$ 
+(12,972 
+) 
+RPC’s
+funding policy is to contribute to the defined benefit pension plan the amount
+required, if any, under the Employee Retirement Income Security Act of 1974. RPC
+contributed $4,176,000 in 2004 and $0 in 2003. The components
+of net periodic benefit cost are summarized as follows: 
+45 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+Years
+ended December 31, 
+2004 
+2003 
+2002 
+(in
+thousands) 
+Service
+cost for benefits earned during the period 
+$ 
+— 
+$ 
+— 
+$ 
+332 
+Interest
+cost on projected benefit obligation 
+1,747 
+1,937 
+1,749 
+Expected
+return on plan assets 
+(1,445 
+) 
+(1,363 
+) 
+(1,622 
+) 
+Net
+amortization and deferral 
+922 
+1,027 
+72 
+Curtailments 
+— 
+— 
+150 
+Net
+periodic benefit cost 
+$ 
+1,224 
+$ 
+1,601 
+$ 
+681 
+The
+weighted average assumptions as of December 31 used to determine the projected
+benefit obligation and net benefit cost were as follows: 
+December
+31, 
+2004 
+2003 
+Projected
+Benefit Obligation : 
+Discount
+rate 
+5.750 
+% 
+6.250 
+% 
+Rate
+of compensation increase 
+N/A 
+N/A
+Net
+Benefit Cost: 
+Discount
+rate 
+6.250 
+% 
+6.875 
+% 
+Expected
+return on plan assets 
+8.000 
+% 
+8.000 
+% 
+Rate
+of compensation increase 
+N/A 
+N/A 
+The
+Company’s expected return on assets assumption is derived from a detailed
+periodic assessment conducted by its management and its investment adviser. It
+includes a review of anticipated future long-term performance of individual
+asset classes and consideration of the appropriate asset allocation strategy
+given the anticipated requirements of the plan to determine the average rate of
+earnings expected on the funds invested to provide for the pension plan
+benefits. While the study gives appropriate consideration to recent fund
+performance and historical returns, the rate of return assumption is derived
+primarily from a long-term, prospective view. Based on its recent assessment,
+the Company has concluded that its expected long-term return assumption of eight
+percent is reasonable. 
+At
+December 31, 2004 and 2003, the Plan’s assets were comprised of listed common
+stocks and U.S. Government and corporate securities. The Plan’s weighted average
+asset allocation at December 31, 2004 and 2003 by asset category along with the
+target allocation for 2005 are as follows: 
+Asset
+Category 
+Target 
+Allocation 
+for
+2005 
+Percentage
+of 
+Plan
+Assets 
+as
+of 
+December
+31, 
+2004 
+Percentage
+of 
+Plan
+Assets 
+as
+of 
+December
+31, 
+2003
+Equity
+Securities 
+53.0 
+% 
+51.2 
+% 
+53.2 
+% 
+Debt
+Securities — Core Fixed Income 
+25.0 
+% 
+29.5 
+% 
+41.4 
+% 
+Tactical
+— Fund of Equity and Debt Securities 
+5.0 
+% 
+2.7 
+% 
+0 
+% 
+Real
+Estate 
+5.0 
+% 
+5.1 
+% 
+0 
+% 
+Other 
+12.0 
+% 
+11.5 
+% 
+5.4 
+% 
+Total 
+100.0 
+% 
+100.0 
+% 
+100.0 
+% 
+The
+Company’s investment strategy for its defined benefit pension plan is to
+maximize the long-term rate of return on plan assets within an acceptable level
+of risk in order to minimize the cost of providing pension benefits. The
+investment policy establishes a target allocation for each asset class, which is
+rebalanced as required. The Company utilizes a number of investment approaches,
+including individual market securities, equity and fixed income funds in
+which the underlying securities are marketable, and debt
+funds to achieve this target allocation. The Company expects to contribute
+approximately $1,600,000 to the defined benefit pension plan in
+2005. 
+46 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+The
+Company estimates that the future benefits payable for the defined benefit
+pension plan over the next ten years are as follows: $1,332,000 in 2005,
+$1,390,000 in 2006, $1,455,000 in 2007, $1,555,000 in 2008, $1,597,000 in 2009
+and $9,000,000 for 2010 through 2014. 
+401(k)
+Plan 
+RPC
+sponsors a defined contribution 401(k) plan that is available to substantially
+all full-time employees with more than six months of service. This plan allows
+employees to make tax-deferred contributions from one to 25 percent of their
+annual compensation, not exceeding the permissible contribution imposed by the
+Internal Revenue Code. RPC matches 50 percent of each employee’s contributions
+that do not exceed six percent of the employee’s compensation, as defined by the
+plan. Employees vest in the RPC contributions after three years of service. The
+charges to expense for the Company’s contributions to the 401(k) plan were
+approximately $990,000 in 2004, $884,000 in 2003 and $858,000 in 2002.
+Stock
+Incentive Plans 
+On
+January 25, 1994, RPC adopted a 10-year Employee Stock Incentive Plan (the “1994
+Plan”) under which shares of common stock were reserved for issuance including
+1,500,000 shares in 1994 and an additional 2,400,000 shares in 1997.
+This plan expired in January 2004 and provided for the issuance of various forms
+of stock incentives. On April 27, 2004, the Company adopted a new 10-year Stock
+Incentive Plan (the “2004 Plan”) under which 2,250,000 shares of common stock
+have been reserved for issuance. This plan provides for the issuance of various
+forms of stock incentives, including, among others, incentive and non-qualified
+stock options and restricted stock. As of December 31, 2004, 1,930,500 shares
+were available for grants under the 2004 Plan. 
+Stock
+Options 
+Transactions
+involving the RPC stock options were as follows: 
+Total 
+Shares 
+Weighted 
+Average 
+Price 
+Outstanding
+December 31, 2001 
+1,373,373 
+$ 
+6.83 
+Granted 
+156,750 
+9.37
+Canceled 
+(195,362 
+) 
+7.55
+Exercised 
+(40,864 
+) 
+4.59
+Outstanding
+December 31, 2002 
+1,293,897 
+$ 
+7.10 
+Granted 
+956,250 
+6.38
+Canceled 
+(22,621 
+) 
+7.91
+Exercised 
+(24,693 
+) 
+4.17
+Outstanding
+December 31, 2003 
+2,202,833 
+$ 
+6.81 
+Granted 
+- 
+-
+Canceled 
+(55,260 
+) 
+8.12
+Exercised 
+(216,996 
+) 
+4.71
+Outstanding
+December 31, 2004 
+1,930,577 
+$ 
+7.01 
+Options
+exercised during 2004 include transactions that involved exchange of shares and
+cash. The fair value of shares tendered to exercise employee stock options
+totaled approximately $602,000 and has been excluded from the consolidated
+statement of cash flows. There were no expirations of stock options during 2004,
+2003 and 2002. As of December 31, 2004, the options outstanding and the
+range of exercise prices together with the weighted-average remaining
+contractual life are as follows: 
+47 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+Number
+of Options 
+Weighted
+Average 
+Exercise
+Prices 
+Weighted 
+Average 
+Remaining 
+Contractual 
+Life
+Range
+of Exercise Prices 
+Total 
+Exercisable 
+Total 
+Exercisable 
+$2.61 
+45,404 
+45,404 
+$ 
+2.61 
+$ 
+2.61 
+1.1
+years 
+$4.04
+-
+$4.41 
+177,812 
+177,812 
+$ 
+4.14 
+$ 
+4.14 
+3.5
+years 
+$6.33
+-
+$9.37 
+1,707,361 
+697,352 
+$ 
+7.43 
+$ 
+7.89 
+6.8
+years 
+1,930,577 
+920,568 
+$ 
+7.01 
+$ 
+6.90 
+6.3
+years 
+2004 
+2003 
+2002 
+Exercisable
+at December 31, 
+920,568 
+781,091 
+546,744
+Weighted
+average exercise price of 
+exercisable
+options 
+$ 
+6.90 
+$ 
+6.30 
+$ 
+5.67 
+Restricted
+Stock 
+RPC has
+granted employees two forms of restricted stock: performance restricted and time
+lapse restricted. 
+Performance
+restricted shares 
+The
+performance restricted shares are granted, but not earned and issued, until
+certain five-year tiered performance criteria are met. The performance criteria
+are predetermined market prices of RPC stock. On the date the stock appreciates
+to each level (determination date), 20 percent of performance shares are earned.
+Once earned, the performance shares vest five years from the determination date.
+After the determination date, the grantee will receive all dividends declared
+and also
+voting rights to the shares. Under the plans, employees earned performance
+shares totaling 22,500 shares in 2004, 4,500 shares in 2003 and 8,550 shares in
+2002. 
+Time
+lapse restricted shares 
+Time
+lapse restricted shares vest after certain stipulated number of years from the
+grant date, depending on the terms of the issue. The Company has issued time
+lapse restricted shares that vest over ten years in prior years; however, in
+2004 the Company issued time lapse restricted shares that vest in 20 percent
+increments starting with the second anniversary of the grant, over the six year
+period beginning on the date of grant. Grantees receive all dividends declared
+and retain voting rights for the granted shares. 
+Units
+granted under these restricted stock programs totaled 319,500 in 2004, 37,500 in
+2003, and 0 in 2002. Employees forfeited 27,510 shares in 2004, 17,025 shares in
+2003 and 45,606 shares in 2002. Compensation cost on restricted shares is
+recorded at the fair value on the date of issuance and amortized ratably over
+the respective vesting periods. Shares of restricted stock that vested and were
+released to the applicable employees totaled 208,800 in 2004, 0 in 2003 and
+84,600 in 2002. The tax benefit aggregating $466,000 for compensation tax
+deductions in excess of compensation expense was credited to capital in excess
+of par value and has been excluded from the consolidated statement of cash flows
+for the year ended December 31, 2004. 
+The
+agreements under which the restricted stock is issued provide that shares
+awarded may not be sold or otherwise transferred until restrictions established
+under the stock plans have lapsed. Upon termination of employment from RPC or,
+in certain cases, termination of employment from Marine Products or Chaparral,
+shares with restrictions must be returned to RPC. 
+48 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+Note
+11: Related Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun-off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC
+accomplished the spin-off by contributing 100 percent of the issued and
+outstanding stock of Chaparral to Marine Products Corporation (a Delaware
+corporation) (“Marine Products”), a newly formed wholly-owned subsidiary of RPC,
+and then distributing the common stock of Marine Products to RPC stockholders.
+In conjunction with the spin-off, RPC and Marine Products entered into various
+agreements that define the companies’ relationship. 
+In
+accordance with a Transition Support Services Agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance, etc.,
+to Marine Products. Charges from the Company (or from corporations that are
+subsidiaries of the Company) for such services aggregated approximately $546,000
+in 2004, $496,000 in 2003 and $588,000 in 2002. The Company’s directors are also
+directors of Marine Products and certain officers are employees of both the
+Company and Marine Products. 
+The
+Employee Benefits Agreement provides for, among other things, Marine Products to
+participate in two RPC sponsored benefit plans, specifically, the defined
+contribution 401(k) plan and the defined benefit pension plan. 
+The Tax
+Sharing and Indemnification Agreement provides for, among other things, the
+treatment of income tax matters for periods through the date of the spin-off and
+responsibility for any adjustments as a result of audit by any taxing authority.
+The general terms provide for the indemnification for any tax detriment incurred
+by one party caused by the other party’s action. The amounts transferred as
+settlements from RPC to Marine
+Products totaled approximately $19,000 in 2004, $0 in 2003 and $140,000
+in 2002. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products or
+services from suppliers, who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $529,000 in 2004, $1,058,000 in 2003 and
+$502,000 in 2002. In addition, the overhead crane fabrication division of RPC
+recorded $171,000 in 2003 and $332,000 in 2002 in revenues from the powerboat
+manufacturing segment that is now a subsidiary of Marine Products pursuant to
+the spin-off, related to the sale, installation and service of overhead cranes.
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman). The service
+agreements between Rollins, Inc. and the Company provide for the provision of
+services on a cost reimbursement basis and are terminable on six months notice.
+The services covered by these agreements include office space, administration of
+certain employee benefit programs, and other administrative services. Charges to
+the Company (or to corporations which are subsidiaries of the Company) for such
+services and rent aggregated $76,000 in 2004 and $105,000 in 2003. 
+Note
+12: Business Segment Information 
+RPC’s
+service lines have been aggregated into two reportable oil and gas services
+segments — Technical Services and Support Services — because of the similarities
+between the financial performance and approach to managing the service lines
+within each of the segments, as well as the economic and business conditions
+impacting their business activity levels. The other business segment includes
+information concerning RPC’s business units that do not qualify for separate
+segment reporting. These business units include an interactive training software
+developer and an overhead crane fabricator, prior to its disposition in April
+2004. Corporate includes selected administrative costs incurred by the Company.
+49 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+Technical
+Services include RPC’s oil and gas service lines that utilize people and
+equipment to perform value-added completion, production and maintenance services
+directly to a customer’s well. These services include pressure pumping services,
+snubbing, coiled tubing, nitrogen pumping, well control consulting and
+firefighting, down-hole tools, wireline, fluid pumping, and casing installation
+services. These Technical Services are primarily used in the completion,
+production and
+maintenance of oil and gas wells. The principal markets for this segment include
+the United States, including the Gulf of Mexico, the mid-continent, southwest
+and Rocky Mountain regions, and international locations including primarily
+Africa, Canada, China, Latin America and the Middle East. Customers include
+major multi-national and independent oil and gas producers, and selected
+nationally-owned oil companies. 
+Support
+Services include RPC’s oil and gas service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling,
+inspection and storage services, work platform marine vessels, and oilfield
+training services. The demand for these services tends to be influenced
+primarily by customer drilling-related activity levels. The principal markets
+for this segment include the United States, including the Gulf of Mexico and the
+mid-continent regions, and international locations, including primarily Canada,
+Latin America, and the Middle East. Customers include domestic operations of
+major multi-national and independent oil and gas producers, and selected
+nationally-owned oil companies. 
+The
+accounting policies of the reportable segments are the same as those described
+in Note 1 to these consolidated financial statements. RPC evaluates the
+performance of its segments based on revenue s,
+operating profits and return on invested capital. 
+Summarized
+financial information concerning RPC’s reportable segments for the years ended
+December 31, 2004, 2003 and 2002 are shown in the following table. 
+Technical 
+Services 
+Support 
+Services 
+Other 
+Corporate 
+Total 
+(in
+thousands) 
+2004 
+Revenues 
+$ 
+279,070 
+$ 
+56,917 
+$ 
+3,805 
+$ 
+— 
+$ 
+339,792 
+Operating
+profit (loss) 
+47,027 
+8,287 
+(975 
+) 
+(8,550 
+) 
+45,789 
+Capital
+expenditures (1) 
+34,765 
+14,026 
+— 
+1,078 
+49,869
+Depreciation
+and amortization 
+25,161 
+7,785 
+302 
+1,252 
+34,500 
+Identifiable
+assets 
+145,196 
+69,399 
+661 
+47,686 
+262,942
+2003 
+Revenues 
+$ 
+216,321 
+$ 
+43,909 
+$ 
+10,297 
+$ 
+— 
+$ 
+270,527 
+Operating
+profit (loss) 
+22,433 
+2,641 
+(1,355 
+) 
+(7,320 
+) 
+16,399
+Capital
+expenditures (1) 
+19,445 
+8,234 
+37 
+2,640 
+30,356
+Depreciation
+and amortization 
+24,382 
+7,220 
+336 
+1,244 
+33,182
+Identifiable
+assets 
+111,718 
+65,026 
+5,051 
+45,069 
+226,864
+2002 
+Revenues 
+$ 
+163,593 
+$ 
+35,784 
+$ 
+9,653 
+$ 
+— 
+$ 
+209,030 
+Operating
+profit (loss) 
+(1,162 
+) 
+(3,154 
+) 
+(1,603 
+) 
+(4,507 
+) 
+(10,426 
+) 
+Capital
+expenditures (1) 
+11,222 
+7,370 
+312 
+3,577 
+22,481
+Depreciation
+and amortization 
+22,742 
+7,394 
+224 
+982 
+31,342
+Identifiable
+assets 
+105,586 
+47,243 
+5,629 
+37,496 
+195,954
+(1) 
+Excludes
+assets acquired as part of purchases of new businesses during the year.
+The
+following summarizes selected information between the United States and all
+international locations combined for the years ended December 31, 2004, 2003 and
+2002. The revenues are presented based on the location of the use of the product
+or service. Assets related to international operations are less than 10 percent
+of RPC’s consolidated assets, and therefore are not presented. 
+50 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2004, 2003 and 2002 
+Years
+ended December 31, 
+2004 
+2003 
+2002 
+(in
+thousands) 
+United
+States Revenues 
+$ 
+323,910 
+$ 
+263,684 
+$ 
+198,944 
+International
+Revenues 
+15,882
+6,843
+10,086
+$ 
+339,792 
+$ 
+270,527 
+$ 
+209,030 
+51 
+Item
+9. Changes in and Disagreements with Accountants on Accounting and Financial
+Disclosure 
+None.
+Item
+9A. Controls and Procedures 
+Evaluation
+of disclosure controls and procedures — The
+Company maintains disclosure controls and procedures that are designed to ensure
+that information required to be disclosed in its Exchange Act reports is
+recorded, processed, summarized and reported within the time periods specified
+in the Commission’s rules and forms, and that such information is accumulated
+and communicated to its management, including the Chief Executive Officer and
+Chief Financial Officer, as appropriate, to allow timely decisions regarding
+required disclosure. 
+As of the
+end of the period covered by this report, December 31, 2004 (the “Evaluation
+Date”), the Company carried out an evaluation, under the supervision and with
+the participation of its management, including the Chief Executive Officer and
+Chief Financial Officer, of the effectiveness of the design and operation of its
+disclosure controls and procedures. Based upon this evaluation, the Chief
+Executive Officer and the Chief Financial Officer concluded that the Company’s
+disclosure controls and procedures were effective as of the Evaluation Date.
+Management’s
+report on internal control over financial reporting — 
+Management is responsible for establishing and maintaining adequate internal
+control over financial reporting, as such term is defined in Exchange Act Rules
+13a-15(f) and 15d-15(f). Management’s report on internal control over financial
+reporting is included on page 28 of this report. Grant Thornton LLP, the
+Company’s independent registered public accounting firm, has audited
+management’s assessment of the effectiveness of internal control as of December
+31, 2004 and issued a report thereon which is included on page 29 of this
+report. 
+Changes
+in internal control over financial reporting — During
+the fourth quarter of 2004, the Company implemented enhanced system access
+controls within several of its key financial systems. Also, the Company
+completed the initial implementation of a new automated job activity and
+customer billing system (“new billing system”) that is used to invoice and
+record revenues in areas of the Company that generate approximately 70 percent
+of consolidated revenues. Benefits expected to be realized with the billing
+system are: 
+· 
+Reduction
+in manual processing 
+· 
+Reduced
+invoicing time 
+· 
+Enhanced
+billing system access controls 
+· 
+Improved
+analytical capabilities surrounding
+revenues 
+Planned
+development of this new billing system and related processes include expanding
+the use of electronic approvals and integration of the capturing, recording and
+approving of earned, but unbilled revenues. 
+Item
+9B. Other Information 
+None.
+52 
+PART
+III 
+Item
+10. Directors and Executive Officers of the Registrant 
+Information
+concerning directors and executive officers will be included in the RPC Proxy
+for its 2005 Annual Meeting of Stockholders, in the section titled “Election of
+Directors.” This information is incorporated herein by reference. Information
+about executive officers is contained on page 12 of this document. 
+Audit
+Committee and Audit Committee Financial Expert 
+Information
+concerning the Audit Committee of the Company and the Audit Committee Financial
+Expert(s) will be included in the RPC Proxy Statement for its 2005 Annual
+Meeting of Stockholders, in the section titled “Corporate Governance and Board
+of Directors Compensation, Committees and Meetings.” This information is
+incorporated herein by reference. 
+Code
+of Ethics 
+RPC, Inc.
+has a Code of Business Conduct that applies to all employees. In addition, the
+Company has a Supplemental Code of Business Conduct and Ethics for Directors,
+the Principal Executive Officer and Principal Financial and Accounting Officer.
+Both of these documents are available on the Company’s website at www.rpc.net . Copies
+are available at no charge by writing to Attention: Human Resources, RPC Inc.,
+2170 Piedmont Road, N.E., Atlanta, GA 30324. 
+Section
+16(a) Beneficial Ownership Reporting Compliance 
+Information
+regarding compliance with Section 16(a) of the Exchange Act will be included
+under “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s
+Proxy Statement for its 2005 Annual Meeting of Stockholders, which is
+incorporated herein by reference. 
+Item
+11. Executive Compensation 
+Information
+concerning executive compensation will be included in the RPC Proxy Statement
+for its 2005 Annual Meeting of Stockholders, in the section titled, “Executive
+Compensation.” This information is incorporated herein by reference.
+Item
+12. Security Ownership of Certain Beneficial Owners and Management
+Information
+concerning security ownership will be included in the RPC Proxy Statement for
+its 2005 Annual Meeting of Stockholders, in the sections titled, “Capital Stock”
+and “Election of Directors.” This information is incorporated herein by
+reference. 
+Information
+regarding RPC’s equity compensation plans including plans approved by security
+holders and plans not approved by security holders will be included in the
+section titled, “Executive Compensation” in the RPC Proxy Statement for its 2005
+Annual Meeting of Stockholders, which is incorporated herein by reference.
+Item
+13. Certain Relationships and Related Party Transactions 
+Information
+concerning certain relationships and related party transactions will be included
+in the RPC Proxy Statement for its 2005 Annual Meeting of Stockholders, in the
+sections titled, “Certain Relationships and Related Party Transactions” and
+“Compensation Committee Interlocks and Insider Participation.” This information
+is incorporated herein by reference. 
+Item
+14. Principal Accountant Fees and Services 
+Information
+regarding principal accountant fees and services will be included in the section
+titled, “Independent Public Accountants” in the RPC Proxy Statement for its 2005
+Annual Meeting of Stockholders. This information is incorporated herein by
+reference. 
+53 
+PART
+IV 
+Item
+15. Exhibits and Financial Statement Schedules 
+Consolidated
+Financial Statements, Financial Statement Schedule and Exhibits .
+1.   Consolidated
+financial statements listed in the accompanying Index to Consolidated Financial
+Statements and Schedule are filed as part of this report. 
+2.   The
+financial statement schedule listed in the accompanying Index to Consolidated
+Financial Statements and Schedule is filed as part of this report. 
+3.   Exhibits
+listed in the accompanying Index to Exhibits are filed as part of this report.
+The following such exhibits are management contracts or compensatory plans or
+arrangements: 
+10.1 
+2004
+Stock Incentive Plan (incorporated herein by reference to Appendix B to
+the Registrant’s definitive Proxy Statement filed on March 24, 2004).
+10.6 
+Form
+of stock option grant agreement (incorporated herein by reference to
+Exhibit 10.1 to Form 10-Q filed on November 2, 2004). 
+10.7 
+Form
+of time lapse restricted stock grant agreement (incorporated herein by
+reference to Exhibit 10.2 to Form 10-Q filed on November 2, 2004).
+10.8 
+Form
+of performance restricted stock grant agreement (incorporated herein by
+reference to Exhibit 10.3 to Form 10-Q filed on November 2,
+2004). 
+10.9 
+Summary
+of ‘at will’ compensation arrangements with the Executive
+Officers. 
+10.10
+Summary
+of compensation arrangements with the Directors. 
+10.11 
+Supplemental
+Retirement Plan. 
+54 
+Exhibits
+(inclusive of item 3 above): 
+Exhibit 
+Number
+Description
+3.1 
+Restated
+certificate of incorporation of RPC, Inc. (incorporated herein by
+reference to exhibit 3.1 to the Annual Report on Form 10-K for the fiscal
+year ended December 31, 1999). 
+3.2
+Bylaws
+of RPC, Inc. (incorporated herein by reference to Exhibit 3.2 to the Form
+10-Q filed on May 5, 2004). 
+4 
+Form
+of Stock Certificate (incorporated herein by reference to the Annual
+Report on Form 10-K for the fiscal year ended December 31, 1998).
+10.1
+2004
+Stock Incentive Plan (incorporated herein by reference to Appendix B to
+the Registrant’s definitive Proxy Statement filed on March 24,
+2004). 
+10.2
+Agreement
+Regarding Distribution and Plan of Reorganization, dated February 12,
+2001, by and between RPC, Inc. and Marine Products Corporation
+(incorporated herein by reference to Exhibit 10.2 to the Form 10 filed on
+February 13, 2001). 
+10.3
+Employee
+Benefits Agreement dated February 12, 2001, by and between RPC, Inc.,
+Chaparral Boats, Inc. and Marine Products Corporation (incorporated herein
+by reference to Exhibit 10.3 to the Form 10 filed on February 13, 2001).
+10.4
+Transition
+Support Services Agreement dated February 12, 2001 by and between RPC,
+Inc. and Marine Products Corporation (incorporated herein by reference to
+Exhibit 10.4 to the Form 10 filed on February 13, 2001).
+10.5
+Tax
+Sharing Agreement dated February 12, 2001, by and between RPC, Inc. and
+Marine Products Corporation (incorporated herein by reference to Exhibit
+10.5 to the Form 10 filed on February 13, 2001). 
+10.6 
+Form
+of stock option grant agreement (incorporated herein by reference to
+Exhibit 10.1 to the Form 10-Q filed on November 2,
+2004). 
+10.7 
+Form
+of time lapse restricted stock grant agreement (incorporated herein by
+reference to Exhibit 10.2 to the Form 10-Q filed on November 2,
+2004). 
+10.8 
+Form
+of performance restricted stock grant agreement (incorporated herein by
+reference to Exhibit 10.3 to the Form 10-Q filed on November 2,
+2004). 
+10.9 
+Summary
+of ‘at will’ compensation arrangements with the Executive
+Officers. 
+10.10 
+Summary
+of compensation arrangements with the Directors. 
+10.11 
+Supplemental
+Retirement Plan. 
+21 
+Subsidiaries
+of RPC. 
+23.1 
+Consent
+of Grant Thornton LLP. 
+23.2 
+Consent
+of Ernst & Young LLP. 
+24 
+Powers
+of Attorney for Directors. 
+31.1 
+Section
+302 certification for Chief Executive Officer 
+31.2 
+Section
+302 certification for Chief Financial Officer 
+32.1 
+Section
+906 certifications for Chief Executive Officer and Chief Financial
+Officer 
+55 
+SIGNATURES
+Pursuant
+to the requirements of Section 13 or 15(d) 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. 
+RPC, Inc. 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+(Principal
+Executive Officer) 
+March
+14, 2005 
+Pursuant
+to the requirements of the Securities Exchange Act of 1934, this report has been
+signed below by the following persons on behalf of the Registrant and in the
+capacities and on the dates indicated. 
+Name 
+Title 
+Date
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+(Principal
+Executive Officer) 
+March
+14, 2005 
+Ben
+M. Palmer 
+Chief
+Financial Officer 
+(Principal
+Financial and Accounting Officer) 
+March
+14, 2005 
+The
+Directors of RPC (listed below) executed a power of attorney, appointing Richard
+A. Hubbell their attorney-in-fact, empowering him to sign this report on their
+behalf. 
+R.
+Randall Rollins, Director 
+James
+B. Williams, Director 
+Wilton
+Looney, Director 
+James
+A. Lane, Jr., Director 
+Gary
+W. Rollins, Director 
+Linda
+H. Graham, Director 
+Henry
+B. Tippie, Director 
+Bill
+J. Dismuke, Director 
+Richard
+A. Hubbell 
+Director
+and as Attorney-in-fact 
+March 14,
+2005 
+56 
+INDEX
+TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND
+SCHEDULE 
+The
+following documents are filed as part of this report. 
+FINANCIAL
+STATEMENTS AND REPORTS 
+PAGE 
+Management's
+Report on Internal Control Over Financial Reporting 
+28 
+Report
+of Independent Registered Public Accounting Firm on Internal Control Over
+Financial Reporting 
+29 
+Consolidated
+Balance Sheets as of December 31, 2004 and 2003 
+30 
+Consolidated
+Statements of Operations for the three years ended December 31,
+2004 
+31 
+Consolidated
+Statements of Stockholders' Equity for the three years ended December 31,
+2004 
+32 
+Consolidated
+Statements of Cash Flows for the three years ended December 31,
+2004 
+33 
+Notes
+to Consolidated Financial Statements 
+34 -
+51 
+Report
+of Independent Registered Public Accounting Firm on Consolidated Financial
+Statements (for 2004) 
+58 
+Report
+of Independent Registered Public Accounting Firm on Consolidated Financial
+Statements (for 2003 and 2002) 
+59 
+SCHEDULE 
+Schedule
+II — Valuation and Qualifying
+Accounts 
+57 
+Schedules
+not listed above have been omitted because they are not applicable or the
+required information is included in the consolidated financial statements or
+notes thereto. 
+SCHEDULE
+II — VALUATION AND QUALIFYING ACCOUNTS 
+RPC,
+Inc. and Subsidiaries 
+For
+the years ended 
+December
+31, 2004, 2003 and 2002 
+Balance
+at 
+Beginning 
+of
+Period 
+Charged
+to 
+Costs
+and 
+Expenses 
+Net 
+(Deductions) 
+Recoveries 
+Balance 
+at
+End of 
+Period
+(in
+thousands) 
+Year
+ended December 31, 2004 
+Allowance
+for doubtful accounts 
+$ 
+2,539 
+$ 
+1,155 
+$ 
+(1,118 
+) 
+(1 
+) 
+$ 
+2,576 
+Inventory
+reserves 
+$ 
+134 
+$ 
+0 
+$ 
+(134 
+) 
+(2 
+) 
+$ 
+0 
+Deferred
+tax asset valuation allowance 
+$ 
+977 
+$ 
+190 
+$ 
+1,284 
+(3 
+) 
+$ 
+2,451 
+Year
+ended December 31, 2003 
+Allowance
+for doubtful accounts 
+$ 
+2,461 
+$ 
+(765 
+) 
+$ 
+843 
+(1 
+) 
+$ 
+2,539 
+Inventory
+reserves 
+$ 
+130 
+$ 
+55 
+$ 
+(51 
+) 
+(2 
+) 
+$ 
+134 
+Deferred
+tax asset valuation allowance 
+$ 
+978 
+$ 
+0 
+$ 
+(1 
+) 
+$ 
+977 
+Year
+ended December 31, 2002 
+Allowance
+for doubtful accounts 
+$ 
+4,118 
+$ 
+(400 
+) 
+$ 
+(1,257 
+) 
+(1 
+) 
+$ 
+2,461 
+Inventory
+reserves 
+$ 
+350 
+$ 
+53 
+$ 
+(273 
+) 
+(2 
+) 
+$ 
+130 
+Deferred
+tax asset valuation allowance 
+$ 
+0 
+$ 
+978 
+$ 
+0 
+$ 
+978 
+(1)
+Deductions in the allowance for doubtful accounts principally reflect the
+write-off of previously reserved accounts net of recoveries. 
+(2)
+Deductions in the reserve for inventory obsolescence and adjustment principally
+reflect the sale or disposal of related inventory. Balance represented allowance
+for inventory held by a subsidiary which was sold during the second quarter of
+2004. 
+(3)
+Allowance was increased $1,292,000 during 2004 to reflect foreign tax credit
+carryforwards on a gross rather than a net basis. Amount includes addition of
+$1,770,000 representing previously unutilized foreign tax credits generated in
+prior years and a deduction of $478,000 for those credits utilized during
+2004. 
+57 
+REPORT OF
+INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED 
+FINANCIAL
+STATEMENTS 
+Board
+of Directors and Stockholders of RPC,
+Inc. 
+We have
+audited the accompanying consolidated balance sheet of RPC, Inc. (a Delaware
+corporation) and subsidiaries as of December 31, 2004, and the related
+consolidated statements of operations, stockholders’ equity, and cash flows for
+the year then ended. These financial statements are the responsibility of
+the Company’s management. Our responsibility is to express an opinion on
+these financial statements based on our audit. 
+We
+conducted our audit in accordance with the standards of the Public Company
+Accounting Oversight Board (United States). Those standards require that
+we plan and perform the audit to obtain reasonable assurance about whether the
+financial statements are free of material misstatement. An audit includes
+examining, on a test basis, evidence supporting the amounts and disclosures in
+the financial statements. An audit also includes assessing the accounting
+principles used and significant estimates made by management, as well as
+evaluating the overall financial statement presentation. We believe that
+our audit provides a reasonable basis for our opinion. 
+In our
+opinion, the consolidated financial statements referred to above present fairly,
+in all material respects, the financial position of RPC, Inc. and subsidiaries
+as of December 31, 2004, and the results of their operations and their cash
+flows for the year then ended in conformity with accounting principles generally
+accepted in the United States of America. 
+Our audit
+was conducted for the purpose of forming an opinion on the basic consolidated
+financial statements taken as a whole. Schedule II for the year ended
+December 31, 2004, listed in the Index, is presented for purposes of additional
+analysis and is not a required part of the basic financial statements. 
+This schedule has been subjected to the auditing procedures applied in the audit
+of the basic consolidated financial statements and, in our opinion, is fairly
+stated in all material respects in relation to the basic consolidated financial
+statements taken as a whole. 
+We also
+have audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), the effectiveness of RPC, Inc.’s internal
+control over financial reporting as of December 31, 2004, based on criteria
+established in Internal Control—Integrated Framework issued by the Committee of
+Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
+March 11, 2005 expressed an unqualified opinion. 
+/s/ Grant
+Thornton LLP 
+Atlanta,
+Georgia 
+March 11,
+2005 
+58 
+REPORT
+OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+The Board
+of Directors and Stockholders 
+RPC, Inc.
+We have
+audited the accompanying consolidated balance sheet of RPC, Inc. and
+Subsidiaries as of December 31, 2003, and the related consolidated statements of
+operations, stockholders’ equity and comprehensive income (loss) and cash flows
+for each of the two years in the period ended December 31, 2003. Our audits also
+included the financial statement schedule for each of the two years in the
+period ended December 31, 2003, listed in the Index. These financial statements
+and schedule are the responsibility of the Company’s management. Our
+responsibility is to express an opinion on these financial statements and
+schedule based on our audits. 
+We
+conducted our audits in accordance with the standards of the Public Company
+Accounting Oversight Board (United States). Those standards require that we plan
+and perform the audit to obtain reasonable assurance about whether the financial
+statements are free of material misstatement. An audit includes examining, on a
+test basis, evidence supporting the amounts and disclosures in the financial
+statements. An audit also includes assessing the accounting principles used and
+significant estimates made by management, as well as evaluating the overall
+financial statement presentation. We believe that our audits provide a
+reasonable basis for our opinion. 
+In our
+opinion, the financial statements referred to above present fairly, in all
+material respects, the consolidated financial position of RPC, Inc. and
+Subsidiaries at December 31, 2003, and the consolidated results of their
+operations and their cash flows for each of the two years in the period ended
+December 31, 2003, in conformity with U.S. generally accepted accounting
+principles. Also, in our opinion, the related financial statement schedule for
+each of the two years in the period ended December 31, 2003, when considered in
+relation to the basic financial statements taken as a whole, presents fairly in
+all material respects the information set forth therein. 
+/s/ Ernst & Young LLP 
+Atlanta,
+Georgia 
+February
+27, 2004 except for the matter discussed in the last paragraph 
+of Note
+1, as to which the date is March 11, 2005 
+59 
+SELECTED
+QUARTERLY FINANCIAL DATA 
+Quarters
+ended 
+March
+31 
+June
+30 
+September
+30 
+December
+31 
+(in
+thousands except per share data) 
+Restated
+for the three-for-two stock split effective March 10, 2005 for shares held
+on February 10, 2005 
+2004 
+Revenues
+$ 
+80,002 
+$ 
+85,426 
+$ 
+88,721 
+$ 
+85,643 
+Net
+income 
+$ 
+5,801 
+$ 
+7,474 
+$ 
+10,237 
+$ 
+11,261 
+Net
+income per share — basic: 
+$ 
+0.14 
+$ 
+0.18 
+$ 
+0.24 
+$ 
+0.26 
+Net
+income per share — diluted: 
+$ 
+0.13 
+$ 
+0.17 
+$ 
+0.24 
+$ 
+0.26 
+2003 
+Revenues
+$ 
+60,700 
+$ 
+70,864 
+$ 
+69,244 
+$ 
+69,719 
+Net
+income 
+$ 
+305 
+$ 
+4,705 
+$ 
+2,577 
+$ 
+3,306 
+Net
+income per share — basic: 
+$ 
+0.01 
+$ 
+0.11 
+$ 
+0.06 
+$ 
+0.08 
+Net
+income per share — diluted: 
+$ 
+0.01 
+$ 
+0.11 
+$ 
+0.06 
+$ 
+0.08 
+** 
+**   The
+sum of the earnings per share for the four quarters differs from annual earnings
+per share due to the required method of computing the weighted average shares in
+interim periods. 
+60
\ No newline at end of file
diff --git a/raw/filings/0000742278/2004/0001167966-05-000383/filing_metadata.csv b/raw/filings/0000742278/2004/0001167966-05-000383/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..ce3a6850032571fd3d5bbbc8776bedb330b861c1
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+++ b/raw/filings/0000742278/2004/0001167966-05-000383/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000742278,RES,RPC INC,10-K,2005-03-16,2004-12-31,2005-03-16T21:00:56.000Z,0001167966-05-000383,t5161_10k.htm,"RPC, INC. FORM 10-K",1755448,0,0,https://www.sec.gov/Archives/edgar/data/742278/000116796605000383/t5161_10k.htm,https://www.sec.gov/Archives/edgar/data/742278/000116796605000383/,2004,2004,1
diff --git a/raw/filings/0000742278/2004/0001167966-05-000383/item1.txt b/raw/filings/0000742278/2004/0001167966-05-000383/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2004/0001167966-05-000383/item13.txt b/raw/filings/0000742278/2004/0001167966-05-000383/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2004/0001167966-05-000383/item9a.txt b/raw/filings/0000742278/2004/0001167966-05-000383/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2004/0001167966-05-000383/rp_note.txt b/raw/filings/0000742278/2004/0001167966-05-000383/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..427d3c4ae37aaac38176f5f75dc15ced0966bd95
--- /dev/null
+++ b/raw/filings/0000742278/2004/0001167966-05-000383/rp_note.txt
@@ -0,0 +1,54 @@
+11: Related Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun-off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC
+accomplished the spin-off by contributing 100 percent of the issued and
+outstanding stock of Chaparral to Marine Products Corporation (a Delaware
+corporation) (“Marine Products”), a newly formed wholly-owned subsidiary of RPC,
+and then distributing the common stock of Marine Products to RPC stockholders.
+In conjunction with the spin-off, RPC and Marine Products entered into various
+agreements that define the companies’ relationship. 
+In
+accordance with a Transition Support Services Agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance, etc.,
+to Marine Products. Charges from the Company (or from corporations that are
+subsidiaries of the Company) for such services aggregated approximately $546,000
+in 2004, $496,000 in 2003 and $588,000 in 2002. The Company’s directors are also
+directors of Marine Products and certain officers are employees of both the
+Company and Marine Products. 
+The
+Employee Benefits Agreement provides for, among other things, Marine Products to
+participate in two RPC sponsored benefit plans, specifically, the defined
+contribution 401(k) plan and the defined benefit pension plan. 
+The Tax
+Sharing and Indemnification Agreement provides for, among other things, the
+treatment of income tax matters for periods through the date of the spin-off and
+responsibility for any adjustments as a result of audit by any taxing authority.
+The general terms provide for the indemnification for any tax detriment incurred
+by one party caused by the other party’s action. The amounts transferred as
+settlements from RPC to Marine
+Products totaled approximately $19,000 in 2004, $0 in 2003 and $140,000
+in 2002. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products or
+services from suppliers, who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $529,000 in 2004, $1,058,000 in 2003 and
+$502,000 in 2002. In addition, the overhead crane fabrication division of RPC
+recorded $171,000 in 2003 and $332,000 in 2002 in revenues from the powerboat
+manufacturing segment that is now a subsidiary of Marine Products pursuant to
+the spin-off, related to the sale, installation and service of overhead cranes.
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman). The service
+agreements between Rollins, Inc. and the Company provide for the provision of
+services on a cost reimbursement basis and are terminable on six months notice.
+The services covered by these agreements include office space, administration of
+certain employee benefit programs, and other administrative services. Charges to
+the Company (or to corporations which are subsidiaries of the Company) for such
+services and rent aggregated $76,000 in 2004 and $105,000 in 2003. 
+Note
\ No newline at end of file
diff --git a/raw/filings/0000742278/2004/0001167966-05-000383/rpt_disclosure.txt b/raw/filings/0000742278/2004/0001167966-05-000383/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6bc505e20d64e5d1800f2caa02bb41e462c80c81
--- /dev/null
+++ b/raw/filings/0000742278/2004/0001167966-05-000383/rpt_disclosure.txt
@@ -0,0 +1,16 @@
+CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 
+Effective with the spin-off in 2001, the Company
+began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the
+provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include
+administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are
+subsidiaries of the Company) for such services aggregated approximately $546,000 in 2004. 
+During 2004, a subsidiary of RPC conducted business
+with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director are officers, directors and controlling
+stockholders of LOR, Inc. In 2004, payments totaling approximately $529,000 were made to these LOR, Inc. companies for the purchase of parts and repair
+services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable
+as the charges that would have been incurred for similar services from unaffiliated third parties. 
+RPC receives certain administrative services
+including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on
+a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of
+certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company)
+for such services and rent aggregated $76,000 in 2004.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2005/0001188112-06-000661/filing.txt b/raw/filings/0000742278/2005/0001188112-06-000661/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f751cba92bce57b60971842444704d87fb857d65
--- /dev/null
+++ b/raw/filings/0000742278/2005/0001188112-06-000661/filing.txt
@@ -0,0 +1,7204 @@
+10-K
+1
+t9288.htm
+FORM 10-K
+Form 10-K
+UNITED
+STATES 
+SECURITIES
+AND EXCHANGE COMMISSION 
+WASHINGTON,
+D.C. 20549 
+FORM
+10-K 
+(Mark
+One) 
+[X] 
+Annual
+report pursuant to Section 13 or 15(d) of the Securities Exchange
+Act
+of 1934 
+[ ] 
+Transition
+report pursuant to Section 13 or 15(d) of the Securities Exchange
+Act 
+of 1934 
+For
+the fiscal year ended December 31, 2005 
+Commission
+File No. 1-8726 
+RPC,
+INC. 
+Delaware 
+(State
+of Incorporation) 
+58-1550825 
+(I.R.S.
+Employer Identification
+No.) 
+2170
+PIEDMONT ROAD, NE 
+ATLANTA,
+GEORGIA 30324 
+(404)
+321-2140 
+Securities
+registered pursuant to Section 12(b) of the Act: 
+Title
+of each class 
+COMMON
+STOCK, $0.10 PAR VALUE 
+Name
+of each exchange on which registered 
+NEW
+YORK STOCK EXCHANGE 
+Securities
+registered pursuant to Section 12(g) of the Act: NONE 
+Indicate
+by check mark if the registrant is a well-known seasoned issuer, as defined
+in
+Rule 405 of the Securities Act. [
+]
+Yes [X] No 
+Indicate
+by check mark if the registrant is not required to file reports pursuant to
+Section 13 or Section 15(d) of the Act. [ ] Yes [X] No 
+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 if disclosure of delinquent filers pursuant to Item 405 of
+Regulation S-K is not contained herein, and will not be contained, to the best
+of registrant’s knowledge, in definitive proxy or information statements
+incorporated by reference in Part III of this Form 10-K or any amendment to
+this
+Form 10-K. [ X ] 
+Indicate
+by check mark whether the registrant is a large accelerated filer, an
+accelerated filer, or a non-accelerated filer. See definition of “accelerated
+filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
+one): 
+Larger
+accelerated filer [ ] 
+Accelerated
+filer [X] 
+Non-accelerated
+filer [ ] 
+Indicate
+by check mark whether the registrant is a shell company (as defined in Rule
+12b-2 of the Exchange Act). Yes [ ] No [X] 
+The
+aggregate market value of RPC, Inc. Common Stock held by non-affiliates on
+June
+30, 2005, the last business day of the registrant’s most recently completed
+second fiscal quarter, was $230,796,363 based on the closing price on the New
+York Stock Exchange on June 30, 2005 of $11.28 per share. 
+RPC,
+Inc.
+had 64,743,051 shares of Common Stock outstanding as of February 24, 2006.
+Documents
+Incorporated by Reference 
+Portions
+of the Proxy Statement for the 2006 Annual Meeting of Stockholders of RPC,
+Inc.
+are incorporated by reference into Part III, Items 10 through 14 of this
+report. 
+1 
+PART
+I 
+Throughout
+this report, we refer to RPC, Inc., together with its subsidiaries, as “we,”
+“us,” “RPC” or “the Company.” 
+Forward-Looking
+Statements 
+Certain
+statements made in this report that are not historical facts are
+“forward-looking statements” under the Private Securities Litigation Reform Act
+of 1995. Such forward-looking statements may include, without limitation,
+statements that relate to our business strategy, plans and objectives, and
+our
+beliefs and expectations regarding future demand for our products and services
+and other events and conditions that may influence the oilfield services market
+and our performance in the future. Forward-looking statements made elsewhere
+in
+this report include without limitation statements regarding continued demand
+for
+natural gas and increases in gas-directed drilling activity, our expectations
+regarding continued increases in drilling activity and demand for our services,
+our ability to obtain other customers in the event of a loss of our largest
+customers, the adequacy of our insurance coverage, our expectation for continued
+strong financial performance and increased revenues in 2006, anticipated cash
+requirements and capital expenditures for 2006, the adequacy of our capital
+resources, estimates made with respect to our critical accounting policies,
+the
+effect of new accounting standards, our future investments in higher yielding
+assets and increased spending in 2006, our ability to fund capital requirements,
+opportunities for higher growth in selected markets, our ability to obtain
+additional customers, and improvements in business and industry conditions.
+The
+words
+“may,” “will,” “expect,” “believe,” “anticipate,” “project,” “estimate,” and
+similar expressions generally identify forward-looking statements. Such
+statements are based on certain assumptions and analyses made by our management
+in light of its experience and its perception of historical trends, current
+conditions, expected future developments and other factors it believes to be
+appropriate. We caution you that such statements are only predictions and not
+guarantees of future performance and that actual results, developments and
+business decisions may differ from those envisioned by the forward-looking
+statements. See “Risk Factors” contained in Item 1A. for a discussion of factors
+that may cause actual results to differ from our projections. 
+Item
+1. Business 
+Organization
+RPC
+is a
+Delaware corporation originally organized in 1984 as a holding company for
+several oilfield services companies and is headquartered in Atlanta, Georgia.
+Effective February 28, 2001, RPC completed the spin-off of its powerboat
+manufacturing business through a distribution of shares of Marine Products
+Corporation (“Marine Products”) (NYSE:MPX). 
+Overview
+RPC
+provides a broad range of specialized oilfield services and equipment primarily
+to independent and major oil and gas companies engaged in the exploration,
+production and development of oil and gas properties throughout the United
+States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and in selected international markets. The services and
+equipment provided include, among others, (1) pressure pumping services, (2)
+snubbing services (also referred to as hydraulic workover services), (3) coiled
+tubing services, (4) nitrogen services, (5) the rental of drill pipe and other
+specialized oilfield equipment, and (6) firefighting and well control. RPC
+acts
+as a holding company for its operating units, Cudd Pressure Control, Cudd
+Pumping Services, Patterson Rental and Fishing Tools, Bronco Oilfield Services
+(acquired in April 2003), Thru-Tubing Solutions, Well Control School, and
+others. As of December 31, 2005, RPC had approximately 1,600
+employees. 
+Business
+Segments 
+RPC’s
+service lines have been aggregated into two reportable oil and gas services
+business segments, Technical Services and Support Services, because of the
+similarities between the financial performance and approach to managing the
+service lines within each of the segments, as well as the economic and business
+conditions impacting their business activity levels. The Other business segment
+aggregates information concerning RPC’s business units that do not qualify for
+separate segment reporting, including an interactive training software developer
+(until its sale in May 2005) and an overhead crane fabricator (until its sale
+in
+April 2004). 
+2 
+Technical
+Services include RPC’s oil and gas service lines that utilize people and
+equipment to perform value-added completion, production and maintenance services
+directly to a customer’s well. The demand for these services is generally
+influenced by customers’ decisions to invest capital toward initiating
+production in a new oil or natural gas well, improving production flows in
+an
+existing formation, or to address well control issues. This business segment
+consists primarily of pressure pumping, snubbing, coiled tubing, nitrogen,
+well
+control, down-hole tools, wireline, fluid pumping and casing installation
+services (until its sale in August 2005). The principal markets for this
+business segment include the United States, including the Gulf of Mexico,
+mid-continent, southwest and Rocky Mountain regions, and international locations
+including primarily Africa, Canada, China, Latin America and the Middle East.
+Customers include major multi-national and independent oil and gas producers,
+and selected nationally owned oil companies. 
+Support
+Services include RPC’s oil and gas service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling,
+pipe
+inspection and storage services, work platform marine vessels (until its sale
+in
+October 2004) and oilfield training services. The demand for these services
+tends to be influenced primarily by customer drilling-related activity levels.
+The principal markets for this segment include the United States, including
+the
+Gulf of Mexico, mid-continent and Rocky Mountain regions and international
+locations including primarily Canada, Latin America and the Middle East.
+Customers primarily include domestic operations of major multi-national and
+independent oil and gas producers, and selected nationally owned oil companies.
+Technical
+Services 
+The
+following is a description of the primary service lines conducted within the
+Technical Services business segment: 
+Pressure
+Pumping .
+Pressure pumping services, which accounted for approximately 37 percent of
+2005
+revenues, 31 percent of 2004 revenues and 29 percent of 2003 revenues, are
+provided to customers throughout the Gulf Coast and mid-continent regions of
+the
+United States and are generally utilized to initiate or enhance production
+in
+existing customer wells. Pressure pumping services involve using complex, truck
+or skid-mounted equipment designed and constructed for each specific pumping
+service offered. The mobility of this equipment permits pressure pumping
+services to be performed in varying geographic areas. Principal materials
+utilized in the pressure pumping business include fracturing proppants, acid
+and
+bulk chemical additives. Generally, these items are available from several
+suppliers, and the Company utilizes more than one supplier for each item.
+Pressure pumping services offered include: 
+Fracturing
+— Fracturing services are performed to stimulate production of oil and natural
+gas by increasing the permeability of a formation. The fracturing process
+consists of pumping a fluid gel into a cased well at sufficient pressure to
+fracture the formation at desired depths. Sand, bauxite or synthetic proppant,
+which is suspended in the gel, is pumped into the fracture. When the pressure
+is
+released at the surface, the fluid gel returns to the well, but the proppant
+remain in the fracture, thus keeping it open so that oil and natural gas can
+flow through the fracture into the well. In some cases, fracturing is performed
+in formations with a high amount of carbonate rock by an acid solution pumped
+under pressure without a proppant or with small amounts of proppant.
+Acidizing
+— Acidizing services are also performed to stimulate production of oil and
+natural gas, but they are used in wells that have undergone formation damage
+due
+to the buildup of various materials that block the formation. Acidizing entails
+pumping large volumes of specially formulated acids into reservoirs to dissolve
+barriers and enlarge crevices in the formation, thereby eliminating obstacles
+to
+the flow of oil and natural gas. Acidizing services can also enhance production
+in limestone formations. 
+Snubbing .
+Snubbing (also referred to as hydraulic workover services), which accounted
+for
+approximately 11 percent of 2005 revenues, 12 percent of 2004 revenues and
+11
+percent of 2003 revenues, involves using a hydraulic workover rig that permits
+an operator to repair damaged casing, production tubing and down-hole production
+equipment in a high-pressure environment. A snubbing unit makes it possible
+to
+remove and replace down-hole equipment while maintaining pressure in the well.
+Customers benefit because these operations can be performed without removing
+the
+pressure from the well, which stops production and can damage the formation,
+and
+because a snubbing rig can perform many applications at a lower cost than other
+alternatives. Because this service involves a very hazardous process that
+entails high risk, the snubbing segment of the oil and gas services industry
+is
+limited to a relatively few operators who have the experience and knowledge
+required to perform such services safely and efficiently. 
+Coiled
+Tubing .
+Coiled
+tubing services, which accounted for approximately 10 percent of 2005 revenues,
+11 percent of 2004 and 2003 revenues, involve the injection of coiled tubing
+into wells to perform various applications and functions for use principally
+in
+well-servicing operations. Coiled tubing is a flexible steel pipe with a
+diameter of less than four inches manufactured in continuous lengths of
+thousands of feet and wound or coiled around a large reel. It can be inserted
+through existing production tubing and used to perform workovers without using
+a
+larger, more costly workover rig. 
+3 
+Principal
+advantages of employing coiled tubing in a workover operation include: (i)
+not
+having to “shut-in” the well during such operations, (ii) the ability to reel
+continuous coiled tubing in and out of a well significantly faster than
+conventional pipe, (iii) the ability to direct fluids into a wellbore with
+more
+precision, and (iv) enhanced access to remote or offshore fields due to the
+smaller size and mobility of a coiled tubing unit compared to a workover rig.
+There are several manufacturers of flexible steel pipe used in coiled tubing
+services, and the Company believes that its sources of supply are
+adequate. 
+Nitrogen .
+Nitrogen accounted for approximately eight percent of 2005 revenues and nine
+percent of 2004 and 2003 revenues. There are a number of uses for nitrogen,
+an
+inert, non-combustible element, in providing services to oilfield customers
+and
+industrial users outside of the oilfield. For our oilfield customers, nitrogen
+can be used to clean drilling and production pipe and displace fluids in various
+drilling applications. It also can be used to create a fire-retardant
+environment in hazardous blowout situations and as a fracturing medium for
+our
+fracturing service line. In addition, nitrogen can be complementary to our
+snubbing and coiled tubing service lines, because it is a non-corrosive medium
+and is frequently injected into a well using coiled tubing. Nitrogen is
+complementary to our pressure pumping service line as well, because foam-based
+nitrogen stimulation is appropriate in certain sensitive formations in which
+the
+fluids used in fracturing or acidizing would damage a customer ’ s well.
+For
+non-oilfield industrial users, nitrogen can be used to purge pipelines and
+create a non-combustible environment. RPC stores and transports nitrogen and
+has
+a number of pumping unit configurations that inject nitrogen in its various
+applications. Some of these pumping units are set up for use on offshore
+platforms or inland waters. RPC purchases its nitrogen in liquid form from
+several suppliers and believes that these sources of supply are adequate.
+Well
+Control .
+Cudd
+Pressure Control specializes in responding to and controlling oil and gas well
+emergencies, including blowouts and well fires, domestically and
+internationally. In connection with these services, Cudd, along with Patterson
+Services, has the capacity to supply the equipment, expertise and personnel
+necessary to restore affected oil and gas wells to production. In the last
+seven
+years, the Company has responded to well control situations in several
+international locations including Algeria, Argentina, Australia, Bolivia,
+Canada, Colombia, Egypt, India, Kuwait, Peru, Qatar, Taiwan, Trinidad and
+Venezuela. 
+The
+Company’s professional firefighting staff has more than 400 years of aggregate
+industry experience in responding to well fires and blowouts. This team of
+17
+experts responds to well control situations where hydrocarbons are escaping
+from
+a well bore, regardless of whether a fire has occurred. In the most critical
+situations, there are explosive fires, the destruction of drilling and
+production facilities, substantial environmental damage and the loss of hundreds
+of thousands of dollars per day in well operators’ production revenue. Since
+these events ordinarily arise from equipment failures or human error, it is
+impossible to predict accurately the timing or scope of this work. Additionally,
+less critical events frequently occur in connection with the drilling of new
+wells in high-pressure reservoirs. In these situations, the Company is called
+upon to supervise and assist in the well control effort so that drilling
+operations can resume as promptly as safety permits. 
+Down-hole
+Tools .
+ThruTubing Solutions (“TTS”), a division of the Company, provides services and
+proprietary down-hole motors and fishing tools to operators and service
+companies in drilling and production operations. TTS’ experience providing
+reliable tool services allows it to work in a pressurized environment with
+virtually any coiled tubing unit or snubbing unit that is equipped for the
+task.
+Wireline
+Services .
+A
+wireline unit is a spooled wire that can be unwound and lowered into a well
+carrying various types of tools. Wireline services are used for a variety of
+purposes, such as accessing a well to assist in data acquisition or logging
+activities, fishing tool operations to retrieve lost or broken equipment, pipe
+recovery and remedial activities. In addition, wireline services are an integral
+part of the plug and abandonment process, near the end of the life cycle of
+a
+well. 
+Fishing .
+Fishing
+involves the use of specialized tools and procedures to retrieve lost equipment
+from a well. It is a service required by oil and gas operators who have lost
+equipment in a well. Oil and natural gas production from an affected well
+typically ceases until the lost equipment can be retrieved. In some cases,
+the
+Company creates customized tools to perform a fishing operation. The customized
+tools are maintained by the Company after the particular fishing job for future
+use if a similar need arises. 
+Support
+Services 
+The
+following is a description of the primary service lines conducted within the
+Support Services business segment: 
+Rental
+Tools .
+Rental
+tools accounted for approximately 10 percent of 2005 revenues, 11 percent of
+2004 revenues and nine percent of 2003 revenues. The Company rents specialized
+equipment for use with onshore and offshore oil and 
+4 
+gas
+well
+drilling, completion and workover activities. The drilling and subsequent
+operation of oil and gas wells generally require a variety of equipment. The
+equipment needed is in large part determined by the geological features of
+the
+production zone and the size of the well itself. As a result, operators and
+drilling contractors often find it more economical to supplement their tool
+and
+tubular inventories with rental items instead of owning a complete inventory.
+The Company’s facilities are strategically located to serve the major staging
+points for oil and gas activities in the Gulf of Mexico, mid-continent region
+and Rocky Mountains. 
+Patterson
+Rental Tools offers a broad range of rental tools including: 
+Blowout
+Preventors 
+High
+Pressure Manifolds 
+Coflexip
+Hoses 
+Hydraulic
+Torque Wrenches 
+Drill
+Collars 
+Power
+Tongs 
+Drill
+Pipe 
+Pressure
+Control Equipment 
+Production
+Related Rental Tools 
+Test
+Pumps 
+Gravel
+Pack Equipment 
+Tubing
+Handling
+Tools 
+Tubulars
+Hevi-wate
+Pipe 
+Tubular
+Handling Tools 
+Pipe
+Inspection and Handling Services. 
+Pipe
+inspection services involve the inspection and testing of the integrity of
+pipe
+used in oil and gas wells. These services are provided primarily at the
+Company’s inspection yards located on a water channel near Houston, Texas, and
+in Morgan City, Louisiana. Customers rely on tubular inspection services to
+avoid failure of in-service tubing, casing, flowlines, and drill pipe. Such
+tubular failures are expensive and, in some cases, catastrophic. Our facility
+in
+Houston, Texas is equipped with bulkhead waterfronts, large capacity cranes,
+specially designed forklifts and a computerized inventory system to serve a
+variety of storage and handling services for both oilfield and non-oilfield
+customers. 
+Well
+Control School .
+Well
+Control School provides industry and government accredited training for the
+oil
+and gas industry both in the United States and in several international
+locations. Well Control School provides this training in various formats
+including conventional classroom training, interactive computer training and
+mobile simulator training. Well Control School also develops customized training
+solutions for clients. 
+Energy
+Personnel International .
+Energy
+Personnel International provides drilling and production engineers, project
+management specialists and workover specialists on a consulting basis to the
+oil
+and gas industry to meet customers’ needs for staff engineering and wellsite
+management. 
+Refer
+to
+Note 12 in the Notes to the Consolidated Financial Statements for additional
+financial information on our business segments. 
+Industry
+United
+States .
+RPC
+provides its services to its domestic customers through a network of facilities
+strategically located to serve the Gulf of Mexico, the mid-continent, the
+southwest and the Rocky Mountains production fields. Demand for RPC’s services
+in the U.S. tends to be extremely volatile and fluctuates with current and
+projected price levels of oil and natural gas and activity levels in the oil
+and
+gas industry. Customer activity levels are influenced by their decisions about
+capital investment toward the development and production of oil and gas
+reserves. 
+Due
+to
+aging oilfields and lower-cost sources of oil internationally, drilling activity
+in the U.S. has declined more than 67 percent from its peak in 1981. Record
+low
+drilling activity levels were experienced in 1986, 1992, 1999 (with April 1999
+recording the lowest U.S. drilling rig count in the industry’s history) and
+again in 2002. 
+At
+the
+beginning of 2005, there were 1,242 domestic working drilling rigs, down four
+percent from the third quarter 2001 peak during that industry cycle. U.S.
+domestic drilling activity steadily rose during 2005 and peaked in the fourth
+quarter at a rig count of 1,491, which was 15 percent higher than the third
+quarter 2001 peak. At the end of 2005 the rig count was 1,471, an increase
+of
+over 18 percent compared to the beginning of 2005. The price of natural gas
+rose
+by 63 percent during 2005, and the price of oil rose by 34 percent. The increase
+in the domestic rig count was more highly correlated with the change in the
+price of natural gas, possibly due to the fact that the majority of U.S.
+drilling relates to natural gas rather than oil. 
+5 
+Gas
+drilling rigs have represented an increasing percentage of the total drilling
+rig count, and have represented at least 80 percent of the drilling rig count
+each year since 2001. In 2005, gas drilling rigs represented 86 percent of
+total
+drilling activity. Demand for natural gas is continuing to rise, primarily
+as a
+result of increased emphasis on gas-fired power generation. Also, unlike oil,
+foreign imports of natural gas do not compete with domestic production. This
+lack of foreign competition tends to keep prices high. Based on current demand
+levels for natural gas as well as the high oil and gas well depletion rates
+experienced over the past several years, it is anticipated that gas-directed
+drilling will represent at least 80 percent of the total drilling rig count
+in
+the foreseeable future. The demand for RPC’s services is driven more by
+gas-directed drilling than oil-directed drilling, because our services are
+more
+applicable to deeper, higher pressure wells, which tend to be the wells that
+produce natural gas. 
+Thus,
+in
+North America the demand for our services and products associated with natural
+gas development is currently more robust than demand related to oil drilling.
+Drilling activity and demand for our services have continued to increase and
+are
+expected to continue increasing with domestic economic improvements.
+International.
+RPC
+has
+historically operated in several countries outside of the United States,
+although international revenues have never accounted for more than 10 percent
+of
+total revenues. Over the past several years, RPC has increased its focus on
+developing international opportunities. As a result of this focus, international
+revenues in most of our locations increased during 2005, and at the end of
+the
+year we began a new operation in Turkmenistan. However, overall international
+revenues declined by approximately 10 percent in 2005 compared to the prior
+year, due to a large decline in revenues from our operation in Kuwait. During
+2005, RPC performed snubbing work in Cameroon, China, Gabon and Kuwait, among
+other countries. We also provided rental tools, well control services, downhole
+motors, fishing tool services and oilfield training to customers located in
+Algeria, Angola, Argentina, Australia, Bahrain, Bolivia, Canada, Chile, China,
+Ecuador, Equatorial Guinea, India, Indonesia, Mexico, Peru, Qatar, the United
+Kingdom and Venezuela. We continue to focus on the development of international
+opportunities in these and other markets. 
+RPC
+provides services to its international customers through branch locations or
+wholly-owned foreign subsidiaries. The international market is prone to
+political uncertainties, including the risk of civil unrest and conflicts.
+However, due to the significant investment requirement and complexity of
+international projects, customers’ drilling decisions relating to such projects
+tend to be evaluated and monitored with a longer-term perspective with regard
+to
+oil and natural gas pricing, and therefore tend to be more stable than most
+U.S.
+domestic operations. Additionally, the international market is dominated by
+major oil companies and national oil companies which tend to have different
+objectives and more operating stability than the typical independent oil and
+gas
+producer in the U.S. Predicting the timing and duration of contract work is
+not
+possible. Pursuing selective international opportunities for revenue growth
+continues to be a strong emphasis for RPC. Refer to Note 12 in the Notes to
+Consolidated Financial Statements for further information on our international
+operations. 
+Growth
+Strategies 
+RPC’s
+primary objective is to generate excellent long-term returns on investment
+through the effective and conservative management of its invested capital,
+thus
+yielding strong cash flow and asset appreciation. This objective will be pursued
+through strategic investments and opportunities designed to enhance the
+long-term value of RPC while improving market share, product offerings and
+the
+profitability of existing businesses. Growth strategies are focused on selected
+areas and markets in which we believe there exist opportunities for higher
+growth, market penetration, or enhanced returns achieved through consolidations
+or through providing proprietary value-added products and services. RPC intends
+to focus on specific market segments in which it believes that it has a
+competitive advantage or there exists significant growth potential.
+RPC
+seeks
+to expand its service capabilities through a combination of internal growth,
+acquisitions, joint ventures and strategic alliances. Because of the fragmented
+nature of the oil and gas services industry, RPC believes a number of attractive
+acquisition opportunities exist. Although current price expectation reduce
+the
+near-term possibility of completing a transaction, we believe we generate better
+returns growing organically in service lines and geographic locations in which
+we have experience and presence. 
+Customers
+Demand
+for RPC’s services and products depends primarily upon the number of oil and
+natural gas wells being drilled, the depth and drilling conditions of such
+wells, the number of well completions and the level of production enhancement
+activity worldwide. RPC’s principal customers consist of major and independent
+oil and natural gas producing companies. During 2005, RPC provided oilfield
+services to several hundred customers, none of which 
+6 
+accounted
+for more than 10 percent of consolidated revenues. While the loss of certain
+of
+RPC’s largest customers could have a material adverse effect on Company revenues
+and operating results in the near term, management believes RPC would be able
+to
+obtain other customers for its services in the event of a loss of any of its
+largest customers. Sales are generated by RPC’s sales force and through
+referrals from existing customers. With the exception of certain international
+customers, there are no long-term written contracts for services or equipment.
+Due to the short lead time between ordering services or equipment and providing
+services or delivering equipment, there is no significant sales backlog in
+most
+of our service lines. 
+Competition
+RPC
+operates in highly competitive areas of the oilfield services industry. Our
+products and services are sold in highly competitive markets, and its revenues
+and earnings are affected by changes in prices for our services, fluctuations
+in
+the level of customer activity in major markets, general economic conditions
+and
+governmental regulation. RPC competes with many large and small oilfield
+industry competitors, including the largest integrated oilfield services
+companies. RPC believes that the principal competitive factors in the market
+areas that it serves are product and service quality and availability,
+reputation for safety and technical proficiency, and price. 
+The
+oil
+and gas services industry includes a small number of dominant global competitors
+including, among others, Halliburton Energy Services Group, a division of
+Halliburton Company, and Schlumberger Ltd., and a significant number of locally
+oriented businesses. 
+Facilities/Equipment
+RPC’s
+equipment consists primarily of oil and gas services equipment used either
+in
+servicing customer wells or provided on a rental basis for customer use.
+Substantially all of this equipment is Company owned and unencumbered. RPC
+purchases oilfield service equipment from a limited number of manufacturers.
+These manufacturers of our oilfield service equipment may not be able to meet
+our requests for timely delivery during periods of high demand which may result
+in delayed deliveries of equipment and higher prices for equipment. 
+RPC
+both
+owns and leases regional and district facilities from which its oilfield
+services are provided to land-based and offshore customers. RPC’s principal
+executive offices in Atlanta, Georgia are leased. The Company has two primary
+administrative buildings, one in Houston, Texas that includes the Company’s
+operations, sales and marketing headquarters, and one in Houma, Louisiana that
+includes certain administrative functions. RPC believes that its facilities
+are
+adequate for its current operations but as the business continues to grow,
+we
+are evaluating the need for additional facilities. For additional information
+with respect to RPC’s lease commitments, see Note 9 of the Notes to Consolidated
+Financial Statements. 
+Governmental
+Regulation 
+RPC’s
+business is affected by state, federal and foreign laws and other regulations
+relating to the oil and gas industry, as well as laws and regulations relating
+to worker safety and environmental protection. RPC cannot predict the level
+of
+enforcement of existing laws and regulations or how such laws and regulations
+may be interpreted by enforcement agencies or court rulings, whether additional
+laws and regulations will be adopted, or the effect such changes may have on
+it,
+its businesses or financial condition. 
+In
+addition, our customers are affected by laws and regulations relating to the
+exploration for and production of natural resources such as oil and natural
+gas.
+These regulations are subject to change, and new regulations may curtail or
+eliminate our customers’ activities in certain areas where we currently operate.
+We cannot determine the extent to which new legislation may impact our
+customers’ activity levels, and ultimately, the demand for our services.
+Intellectual
+Property 
+RPC
+uses
+several patented items in its operations, which management believes are
+important but are not indispensable to RPC’s success. Although RPC anticipates
+seeking patent protection when possible, it relies to a greater extent on the
+technical expertise and know-how of its personnel to maintain its competitive
+position. 
+Availability
+of Filings 
+RPC
+makes
+available, free of charge, on its website, www.rpc.net, its annual report on
+Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
+all
+amendments to those reports on the same day as they are filed with the
+Securities and Exchange Commission. 
+7 
+1A.
+Risk Factors 
+Demand
+for our products and services is affected by the volatility of oil and natural
+gas prices. 
+Oil
+prices affect demand throughout the oil and natural gas industry, including
+the
+demand for our products and services. Our business depends in large part on
+the
+conditions of the oil and gas industry, and specifically on the capital
+investments of our customers related to the exploration and production of oil
+and natural gas. When these capital investments decline, our customers’ demand
+for our services declines. 
+Although
+the production sector of the oil and gas industry is less immediately affected
+by changing prices, and, as a result, less volatile than the exploration sector,
+producers react to declining oil and gas prices by curtailing capital spending,
+which would adversely affect our business. A prolonged low level of customer
+activity in the oil and gas industry will adversely affect the demand for our
+products and services and our financial condition and results of operations.
+The
+relationship between the prices of oil and natural gas and our customers’
+drilling and production activities may not be highly correlated in the future.
+Historically,
+a rise in the prices of oil and natural gas has led to an immediate increase
+in
+our customers’ drilling and production activities as measured by the domestic
+rig count. However, this relationship has not been as strong in the recent
+past
+as it was historically, due in part to limited drilling rig capacity in the
+United States. For example, during 2005 the price of natural gas rose by 63
+percent and the price of oil rose by 34 percent, but the drilling rig count
+only
+rose by 18 percent. If this correlation is weak in the future, then it is
+possible that increases in the prices of oil and natural gas will not lead
+to an
+increase in our customers’ activities, and our future operating results could be
+negatively impacted. 
+We
+may be unable to compete in the highly competitive oil and gas industry in
+the
+future. 
+We
+operate in highly competitive areas of the oilfield services industry. The
+products and services in our industry segments are sold in highly competitive
+markets, and our revenues and earnings may be affected by the following factors:
+changes in competitive prices, fluctuations in the level of activity in major
+markets, general economic conditions, and governmental regulation. We compete
+with the oil and gas industry’s many large and small industry competitors,
+including the largest integrated oilfield service providers. We believe that
+the
+principal competitive factors in the market areas that we serve are product
+and
+service quality and availability, reputation for safety, technical proficiency
+and price. Although we believe that our reputation for safety and quality
+service is good, we cannot assure you that we will be able to maintain our
+competitive position. 
+We
+may be unable to identify or complete acquisitions. 
+Acquisitions
+have been and will continue to be a key element of our business strategy. We
+cannot assure you that we will be able to identify and acquire acceptable
+acquisition candidates on terms favorable to us in the future. We may be
+required to incur substantial indebtedness to finance future acquisitions and
+also may issue equity securities in connection with such acquisitions. The
+issuance of additional equity securities could result in significant dilution
+to
+our stockholders. We cannot assure you that we will be able to integrate
+successfully the operations and assets of any acquired business with our own
+business. Any inability on our part to integrate and manage the growth from
+acquired businesses could have a material adverse effect on our results of
+operations and financial condition. 
+Our
+operations are affected by adverse weather conditions. 
+Our
+operations are directly affected by the weather conditions in several domestic
+regions, including the Gulf of Mexico, the Gulf Coast, the mid-continent and
+the
+Rocky Mountains. Hurricanes and other storms prevalent in the Gulf of Mexico
+and
+along the Gulf Coast during certain times of the year may also affect our
+operations, and severe hurricanes such as those that occurred in 2005 may affect
+our customers ’ activities
+for a
+period of several years. While the impact of these storms may increase the
+need
+for certain of our services over a longer period of time, such storms can also
+decrease our customers ’ activities
+immediately after they occur. Such hurricanes may also affect the prices of
+oil
+and natural gas by disrupting supplies in the short term, which may increase
+demand for our services in geographic areas not damaged by the storms. Prolonged
+rain or snow in our mid-continent locations may temporarily prevent our crews
+and equipment from reaching customer work sites. Due to seasonal differences
+in
+weather patterns, our crews may operate more days in some periods than others.
+Accordingly, our operating results may vary from quarter to quarter, depending
+on the impact of these weather conditions. 
+8 
+Our
+inability to attract and retain skilled workers may impair growth potential
+and
+profitability. 
+Our
+ability to remain productive and profitable will depend substantially on our
+ability to attract and retain skilled workers. Our ability to expand our
+operations is in part impacted by our ability to increase our labor force.
+The
+demand for skilled oilfield employees is high, and the supply is very limited.
+A
+significant increase in the wages paid by competing employers could result
+in a
+reduction in our skilled labor force, increases in the wage rates paid by us,
+or
+both. If either of these events occurred, our capacity and profitability could
+be diminished, and our growth potential could be impaired. 
+Our
+concentration of customers in one industry may impact overall exposure to credit
+risk. 
+Substantially
+all of our customers operate in the energy industry. This concentration of
+customers in one industry may impact our overall exposure to credit risk, either
+positively or negatively, in that customers may be similarly affected by changes
+in economic and industry conditions. We perform ongoing credit evaluations
+of
+our customers and do not generally require collateral in support of our trade
+receivables. 
+Our
+business has potential liability for litigation, personal injury and property
+damage claims assessments. 
+Our
+operations involve the use of heavy equipment and exposure to inherent risks,
+including blowouts, explosions and fires. If any of these events were to occur,
+it could result in liability for personal injury and property damage, pollution
+or other environmental hazards or loss of production. Litigation may arise
+from
+a catastrophic occurrence at a location where our equipment and services are
+used. This litigation could result in large claims for damages. The frequency
+and severity of such incidents will affect our operating costs, insurability
+and
+relationships with customers, employees and regulators. These occurrences could
+have a material adverse effect on us. We maintain what we believe is prudent
+insurance protection. We cannot assure you that we will be able to maintain
+adequate insurance in the future at rates we consider reasonable or that our
+insurance coverage will be adequate to cover future claims and assessments
+that
+may arise. 
+Our
+operations may be adversely affected if we are unable to comply with regulatory
+and environmental laws. 
+Our
+business is significantly affected by stringent environmental laws and other
+regulations relating to the oil and gas industry and by changes in such laws
+and
+the level of enforcement of such laws. We are unable to predict the level of
+enforcement of existing laws and regulations, how such laws and regulations
+may
+be interpreted by enforcement agencies or court rulings, or whether additional
+laws and regulations will be adopted. The adoption of laws and regulations
+curtailing exploration and development of oil and gas fields in our areas of
+operations for economic, environmental or other policy reasons would adversely
+affect our operations by limiting demand for our services. We also have
+potential environmental liabilities with respect to our offshore and onshore
+operations, and could be liable for cleanup costs, or environmental and natural
+resource damage due to conduct that was lawful at the time it occurred, but
+is
+later ruled to be unlawful. We also may be subject to claims for personal injury
+and property damage due to the generation of hazardous substances in connection
+with our operations. We believe that our present operations substantially comply
+with applicable federal and state pollution control and environmental protection
+laws and regulations. We also believe that compliance with such laws has had
+no
+material adverse effect on our operations to date. However, such environmental
+laws are changed frequently. We are unable to predict whether environmental
+laws
+will, in the future, materially adversely affect our operations and financial
+condition. Penalties for noncompliance with these laws may include cancellation
+of permits, fines, and other corrective actions, which would negatively affect
+our future financial results. 
+Our
+international operations could have a material adverse effect on our business.
+Our
+operations in various countries including, but not limited to, Africa, Canada,
+Latin America and the Middle East are subject to risk. These risks include,
+but
+are not limited to, political changes, expropriation, currency restrictions
+and
+changes in currency exchange rates, taxes, and boycotts and other civil
+disturbances. The occurrence of any one of these events could have a material
+adverse effect on our operations. 
+Our
+common stock price has been volatile. 
+Historically,
+the market price of common stock of companies engaged in the oil and gas
+services industry has been highly volatile. Likewise, the market price of our
+common stock has varied significantly in the past. 
+Our
+management has a substantial ownership interest, and public shareholders may
+have no effective voice in the management of the Company. 
+The
+Company has elected the “Controlled Corporation” exemption under Rule 303A of
+the New York Stock Exchange (“NYSE”) Company Guide. The Company is a “Controlled
+Corporation” because a group that includes the 
+9 
+Company’s
+Chairman of the Board, R. Randall Rollins and his brother, Gary W. Rollins,
+who
+is also a director of the Company, and certain companies under their control,
+controls in excess of fifty percent of the Company’s voting power. As a
+“Controlled Corporation,” the Company need not comply with certain NYSE rules
+including those requiring a majority of independent directors. 
+RPC’s
+executive officers, directors and their affiliates hold directly or through
+indirect beneficial ownership, in the aggregate, approximately 66 percent of
+RPC’s outstanding shares of common stock. As a result, these stockholders
+effectively control the operations of RPC, including the election of directors
+and approval of significant corporate transactions such as acquisitions and
+other matters requiring stockholder approval. This concentration of ownership
+could also have the effect of delaying or preventing a third party from
+acquiring control over the Company at a premium. 
+Our
+management has a substantial ownership interest, and the availability of the
+Company’s common stock to the investing public may be
+limited. 
+The
+availability of RPC’s common stock to the investing public may be limited to
+those shares not held by the executive officers, directors and their affiliates,
+which could negatively impact RPC’s stock trading prices and affect the ability
+of minority stockholders to sell their shares. Future sales by executive
+officers, directors and their affiliates of all or a portion of their shares
+could also negatively affect the trading price of our common stock.
+Provisions
+in RPC ’ s
+Certificate of
+Incorporation and Bylaws may inhibit a takeover of RPC. 
+RPC’s
+certificate of incorporation, bylaws and other documents contain provisions
+including advance notice requirements for shareholder proposals and staggered
+terms of office for the Board of Directors. These provisions may make a tender
+offer, change in control or takeover attempt that is opposed by RPC’s Board of
+Directors more difficult or expensive. 
+Some
+of our equipment and several types of materials used in providing our services
+are available from a limited number of suppliers. 
+There
+are
+a limited number of suppliers for certain materials used in pressure pumping
+services, our largest service line. While these materials are generally
+available, supply disruptions can occur due to factors beyond our control.
+We
+purchase equipment provided by a limited number of manufacturers who specialize
+in oilfield service equipment. During periods of high demand, these
+manufacturers may not be able to meet our requests for timely delivery,
+resulting in delayed deliveries of equipment and higher prices for equipment.
+Such disruptions, delayed deliveries, and higher prices can limit our ability
+to
+provide services, or increase the costs of providing services, thus reducing
+our
+revenues and profits. 
+If
+the market conditions for our services remain strong, we may decide to seek
+outside financing to accomplish our growth strategy, and outside financing
+may
+not be available to us. 
+Our
+business requires a great deal of capital in order to maintain our equipment
+and
+increase our fleet of equipment to expand our operations. Historically, we
+have
+funded this growth through cash provided by operating activities, and a credit
+line provided by a bank. In the future, however, we may need to raise additional
+funds through public debt or equity financings to maintain our equipment and
+continue our growth. Such additional financing sources may not be available
+when
+we need them, or may not be available on favorable terms. If we fund our growth
+through the issuance of public equity, the holdings of shareholders will be
+diluted. If capital generated either by cash provided by operating activities
+or
+outside financing is not available or sufficient for our needs, we may be unable
+to maintain our equipment, expand our fleet of equipment, or take advantage
+of
+other potentially profitable business opportunities, which could reduce our
+future revenues and profits. 
+Item
+1B. Unresolved Staff Comments 
+None. 
+10 
+Item
+2. Properties 
+RPC
+owns
+or leases approximately 75 offices and operating facilities. The Company leases
+approximately 7,800 square feet of office space in Atlanta, Georgia that serves
+as its headquarters, a portion of which is allocated and charged to Marine
+Products Corporation. See “Related Party Transactions” contained in Item 7. The
+lease agreement on the headquarters is effective through May 2007. RPC believes
+its current operating facilities are suitable and adequate to meet current
+and
+reasonably anticipated future needs although as our business continues to grow
+we are evaluating the need for additional facilities. Descriptions of the major
+facilities used in our operations are as follows: 
+Owned
+Locations 
+Houma,
+Louisiana — Administrative office 
+Houston,
+Texas — Pipe storage terminal and inspection sheds 
+Houston,
+Texas — Operations, sales and administrative office 
+Morgan
+City, Louisiana — Pipe cleaning facility 
+Elk
+City,
+Oklahoma — Operations, sales and equipment storage yards 
+Rock
+Springs, Wyoming — Operations, sales and equipment storage yards 
+Leased
+Locations 
+Seminole,
+Oklahoma — Pumping services facility 
+Elk
+City,
+Oklahoma — Operations, sales and equipment storage yards 
+Kilgore,
+Texas — Pumping services facility 
+Item
+3. Legal Proceedings 
+RPC
+is a
+party to various routine legal proceedings primarily involving commercial
+claims, workers’ compensation claims and claims for personal injury. RPC insures
+against these risks to the extent deemed prudent by its management, but no
+assurance can be given that the nature and amount of such insurance will, in
+every case, fully indemnify RPC against liabilities arising out of pending
+and
+future legal proceedings related to its business activities. While the outcome
+of these lawsuits, legal proceedings and claims cannot be predicted with
+certainty, management believes that the outcome of all such proceedings, even
+if
+determined adversely, would not have a material adverse effect on RPC’s business
+or financial condition. 
+11 
+Item
+4. Submission of Matters to a Vote of Security Holders 
+There
+were no matters submitted to a vote of security holders during the fourth
+quarter of 2005. 
+Item
+4A. Executive Officers of the Registrant 
+Each
+of
+the executive officers of RPC was elected by the Board of Directors to serve
+until the Board of Directors’ meeting immediately following the next annual
+meeting of stockholders or until his or her earlier removal by the Board of
+Directors or his or her resignation. The following table lists the executive
+officers of RPC and their ages, offices, and terms of office with RPC.
+Name
+and Office with Registrant 
+Age 
+Date
+First Elected to Present Office 
+R.
+Randall Rollins (1) 
+74 
+1/24/84
+Chairman
+of the Board 
+Richard
+A. Hubbell (2) 
+61 
+4/22/03
+President
+and 
+Chief
+Executive Officer 
+Linda
+H. Graham (3) 
+69 
+1/27/87
+Vice
+President and 
+Secretary 
+Ben
+M. Palmer (4) 
+45 
+7/8/96 
+Vice
+President, 
+Chief
+Financial Officer and 
+Treasurer
+(1) 
+R.
+Randall Rollins began working for Rollins, Inc. (consumer services)
+in
+1949. At the time of the spin-off of RPC from Rollins, in 1984, Mr.
+Rollins was elected Chairman of the Board and Chief Executive Officer
+of
+RPC. He remains Chairman of RPC and stepped down as the Chief Executive
+Officer effective April 22, 2003. He has served as Chairman of the
+Board
+of Marine Products Corporation (boat manufacturing) since it was
+spun-off
+in February 2001 and Chairman of the Board of Rollins, Inc. since
+October
+1991. He is also a director of Dover Downs Gaming and Entertainment,
+Inc.
+and Dover Motorsports, Inc. and, until April 2004, he served as a
+director
+of SunTrust Banks, Inc. and SunTrust Banks of
+Georgia. 
+(2) 
+Richard
+A. Hubbell has been the President of RPC since 1987 and Chief Executive
+Officer since April 22, 2003. He has also been the President and
+Chief
+Executive Officer of Marine Products Corporation since it was spun-off
+in
+February 2001. Mr. Hubbell serves on the Board of Directors for both
+of
+these companies. 
+(3) 
+Linda
+H. Graham has been the Vice President and Secretary of RPC since
+1987. She
+has also been the Vice President and Secretary of Marine Products
+Corporation since it was spun-off in February 2001. Ms. Graham serves
+on
+the Board of Directors for both of these companies.
+(4) 
+Ben
+M. Palmer has been the Vice President, Chief Financial Officer and
+Treasurer of RPC since 1996. He has also been the Vice President,
+Chief
+Financial Officer and Treasurer of Marine Products Corporation since
+it
+was spun-off in February 2001. 
+12 
+PART
+II 
+Item
+5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
+Purchases of Equity Securities 
+RPC’s
+common stock is listed for trading on the New York Stock Exchange under the
+symbol RES. At February 24, 2006, there were 64,743,051 shares of common stock
+outstanding and approximately 6,500 holders of record of common stock. The
+following table sets forth the high and low prices of RPC’s common stock for
+each quarter in the years ended December 31, 2005 and 2004: 
+2005 
+2004 
+Quarter 
+High 
+Low 
+Dividends 
+High 
+Low 
+Dividends
+First 
+$13.36 
+$9.33 
+$0.027
+$5.45
+$4.70
+$0.013
+Second 
+11.65 
+8.77 
+0.027
+7.10 
+4.78 
+0.013
+Third 
+17.58 
+11.10 
+0.027
+7.98 
+6.07 
+0.013
+Fourth 
+26.88 
+14.03 
+0.027
+12.60 
+7.69 
+0.013
+On
+January 24, 2006 the Board of Directors approved an increase in the quarterly
+cash dividend per common share, from $0.027 to $0.05, payable March 10, 2006
+to
+stockholders of record at the close of business February 10, 2006. The Company
+expects to continue to pay cash dividends to the common stockholders, subject
+to
+the earnings and financial condition of the Company and other relevant
+factors. 
+Issuer
+Purchases of Equity Securities 
+Shares
+repurchased in the fourth quarter of 2005 are outlined below. 
+Period 
+Total
+Number 
+of
+Shares (or 
+Units) 
+Purchased 
+Average 
+Price
+Paid 
+Per
+Share 
+(or
+Unit) 
+Total
+Number of 
+Shares
+(or Units) 
+Purchased
+as 
+Part
+of Publicly 
+Announced 
+Plans
+or 
+Programs 
+Maximum
+Number 
+(or
+Approximate 
+Dollar
+Value) of 
+Shares
+(or Units) that 
+May
+Yet Be 
+Purchased
+Under the 
+Plans
+or Programs 
+Month
+#1 
+October
+1, 2005 to October 31, 2005 
+1,772
+(1) 
+$
+15.15 
+-
+2,711,310
+Month
+#2 
+November
+1, 2005 to November 30, 2005 
+11,208
+(1) 
+20.52
+-
+2,711,310
+Month
+#3 
+December
+1, 2005 to December 31, 2005 
+1,674
+(1) 
+27.46
+-
+2,711,310
+Totals 
+14,654
+$
+20.67 
+-
+2,711,310
+(1) 
+All
+shares shown were tendered to the Company in connection with employee
+stock option exercises. 
+The
+Company’s Board of Directors announced a stock buyback program in March 1998
+authorizing the repurchase of 7,875,000 shares in the open market. During the
+fourth quarter of 2005, there were no open market purchases of the Company’s
+shares. Currently the program does not have 
+a
+predetermined expiration date. 
+13 
+Item
+6. Selected Financial Data 
+The
+following table summarizes certain selected financial data of the Company.
+The
+historical information may not be indicative of the Company’s future results of
+operations. The information set forth below should be read in conjunction with
+“Management’s Discussion and Analysis of Financial Condition and Results of
+Operations” and the Consolidated Financial Statements and the notes thereto
+included elsewhere in this document. 
+14 
+STATEMENT
+OF OPERATIONS DATA: 
+Years
+Ended December 31, 
+2005 
+2004 
+2003 
+2002 
+2001 
+(in
+thousands, except employee and per share amounts)
+Revenues 
+$ 
+427,643 
+$ 
+339,792 
+$ 
+270,527 
+$ 
+209,030 
+$ 
+284,521 
+Cost
+of services rendered and goods sold 
+227,492 
+193,659 
+168,766 
+143,362 
+168,152 
+Selling,
+general and administrative expenses 
+75,478 
+65,871 
+52,268 
+44,852 
+52,873 
+Depreciation
+and amortization 
+39,129 
+34,473 
+33,094 
+31,242 
+25,434 
+Gain
+on disposition of assets, net (a) 
+(12,169 
+) 
+(5,551 
+) 
+(36 
+) 
+(1,597 
+) 
+(1,065 
+) 
+Operating
+profit (loss) 
+97,713 
+51,340 
+16,435 
+(8,829 
+) 
+39,127 
+Interest
+income (expense), net 
+950 
+(68 
+) 
+(153 
+) 
+(74 
+) 
+(65 
+) 
+Other
+income, net 
+2,077 
+1,931 
+1,288 
+749 
+2,061 
+Income
+(loss) from continuing operations before income taxes 
+100,740 
+53,203 
+17,570 
+(8,154 
+) 
+41,123 
+Income
+tax provision (benefit) (b) 
+34,256 
+18,430 
+6,677 
+(2,894 
+) 
+15,627 
+Income
+(loss) from continuing operations 
+66,484 
+34,773 
+10,893 
+(5,260 
+) 
+25,496 
+Income
+from discontinued operation, net of income taxes 
+— 
+— 
+— 
+— 
+1,486 
+Net
+income (loss) 
+(b) 
+$ 
+66,484 
+$ 
+34,773 
+$ 
+10,893 
+$ 
+(5,260 
+) 
+$ 
+26,982 
+Earnings
+(loss) per share — basic: 
+Income
+(loss) from continuing operations 
+1.05 
+0.55 
+0.17 
+(0.08 
+) 
+0.41 
+Income
+from discontinued operation 
+— 
+— 
+— 
+— 
+0.02 
+Net
+income (loss) 
+$ 
+1.05 
+$ 
+0.55 
+$ 
+0.17 
+$ 
+(0.08 
+) 
+$ 
+0.43 
+Earnings
+(loss) per share — diluted: 
+Income
+(loss) from continuing operations 
+1.01 
+0.53 
+0.17 
+(0.08 
+) 
+0.40 
+Income
+from discontinued operation 
+— 
+— 
+— 
+— 
+0.02 
+Net
+income (loss) 
+$ 
+1.01 
+$ 
+0.53 
+$ 
+0.17 
+$ 
+(0.08 
+) 
+$ 
+0.42 
+Dividends
+paid per share 
+$ 
+0.11 
+$ 
+0.05 
+$ 
+0.04 
+$ 
+0.04 
+$ 
+0.05 
+OTHER
+DATA: 
+Operating
+margin percent 
+22.8 
+% 
+15.1 
+% 
+6.1 
+% 
+(4.2 
+%) 
+13.8 
+% 
+Net
+cash provided by continuing operations 
+$ 
+66,362 
+$ 
+50,374 
+$ 
+50,631 
+$ 
+27,556 
+$ 
+55,938 
+Net
+cash used for investing activities 
+(62,415 
+) 
+(37,215 
+) 
+(34,670 
+) 
+(21,831 
+) 
+(46,357 
+) 
+Net
+cash used for financing activities 
+(20,774 
+) 
+(5,825 
+) 
+(5,192 
+) 
+(4,927 
+) 
+(4,283 
+) 
+Depreciation
+and amortization (c) 
+39,129 
+34,500 
+33,182 
+31,342 
+25,536 
+Capital
+expenditures 
+$ 
+72,808 
+$ 
+49,869 
+$ 
+30,356 
+$ 
+22,481 
+$ 
+45,850 
+Employees
+at end of period 
+1,649 
+1,596 
+1,529 
+1,419 
+1,533 
+BALANCE
+SHEET DATA AT END OF YEAR: 
+Accounts
+receivable, net 
+$ 
+107,428 
+$ 
+75,793 
+$ 
+53,719 
+$ 
+40,168 
+$ 
+46,928 
+Working
+capital 
+92,888 
+77,509 
+63,226 
+52,646 
+42,513 
+Property,
+plant and equipment, net 
+141,218 
+114,222 
+109,163 
+105,338 
+115,046 
+Total
+assets 
+311,785 
+262,942 
+226,864 
+195,954 
+202,402 
+Current
+portion of long-term debt (d) 
+— 
+2,700 
+1,110 
+552 
+1,390 
+Long-term
+debt (d) 
+— 
+2,100 
+4,800 
+2,410 
+2,937 
+Total
+stockholders’ equity 
+$ 
+232,501 
+$ 
+181,423 
+$ 
+151,106 
+$ 
+145,081 
+$ 
+156,436 
+(a) 
+Gain
+on disposition of assets, net in 2005 includes a $10.7 million pre-tax
+gain ($0.11 after tax per diluted share) on the sale of
+certain assets during third quarter of 2005. In 2004 the gain on
+disposition, net includes a $3.3 million pre-tax gain ($0.03 after
+tax per
+diluted share) on the sale of certain operating assets during the
+fourth
+quarter of 2004. 
+(b) 
+During
+the fourth quarter of 2005, the income tax provision and net income
+reflect the receipt of tax refunds of $3.5 million related to the
+successful resolution of certain tax matters, which had a positive
+impact
+of $0.05 after tax per diluted
+share. 
+(c) 
+Prior
+to the sale of our overhead crane fabricator in April 2004, depreciation
+and amortization differed from depreciation and amortization presented
+in
+the statements of operations. This difference is due to
+depreciation related to the manufacturing of goods which was included
+in
+cost of services rendered and goods sold.
+(d) 
+In
+February 2005, the Company prepaid a $2.8 million promissory note.
+The
+remaining balance was paid in full upon maturity of a promissory
+note in
+July 2005. 
+15 
+Item
+7. Management’s Discussion and Analysis of Financial Condition and Results of
+Operations 
+Overview
+The
+following discussion should be read in conjunction with “Selected Financial
+Data,” and the Consolidated Financial Statements included elsewhere in this
+document. See also “Forward-Looking Statements” on page 2. 
+RPC,
+Inc.
+(“RPC”) provides a broad range of specialized oilfield services primarily to
+independent and major oilfield companies engaged in exploration, production
+and
+development of oil and gas properties throughout the United States, including
+the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and
+selected international locations. The Company’s revenues and profits are
+generated by providing equipment and services to customers who operate oil
+and
+gas properties and invest capital to drill new wells and enhance production
+or
+perform maintenance on existing wells. 
+Our
+key
+business and financial strategies are: 
+- 
+To
+focus our management resources on and invest our capital in equipment
+and
+geographic markets that we believe will earn high returns on capital,
+and
+maintain an appropriate capital
+structure. 
+- 
+To
+maintain a flexible cost structure that can respond quickly to volatile
+industry conditions and business activity
+levels. 
+- 
+To
+deliver equipment and services to our customers
+safely. 
+- 
+To
+maximize shareholder return by optimizing the balance between cash
+invested in the Company ’ s
+productive
+assets, the payment of dividends to shareholders, and the repurchase
+of
+our common stock on the open
+market. 
+- 
+To
+align the interests of our management and
+shareholders. 
+In
+assessing the outcomes of these strategies and RPC’s financial condition and
+operating performance, management generally reviews periodic forecast data,
+monthly actual results, and other similar information. We also consider trends
+related to certain key financial data, including revenues, utilization of our
+equipment and personnel, pricing for our services and equipment, profit margins,
+selling, general and administrative expenses, cash flows and the return on
+our
+invested capital. We continuously monitor factors that impact the level of
+current and expected customer activity levels, such as the price of oil and
+natural gas, changes in pricing for our services and equipment and utilization
+of our equipment and personnel. Our financial results are affected by
+geopolitical factors such as political instability in the petroleum-producing
+regions of the world, overall economic conditions and weather in the United
+States, the prices of oil and natural gas, and our customers’ drilling and
+production activities. 
+Current
+industry conditions include historically high, volatile natural gas prices,
+historically high, rising oil prices, and a steadily increasing domestic rig
+count. During 2005, the price of natural gas increased dramatically at the
+end
+of the third quarter as a result of the severe hurricanes in the Gulf of Mexico,
+which significantly disrupted U.S. natural gas production. The price of oil
+increased steadily during the year, due to increased worldwide demand and
+concerns about supply disruption in many of the world ’ s oil-producing
+regions. The rig count increased as well, but current and future increases
+are
+constrained by the available supply of domestic drilling rigs. These trends
+in
+2005 resulted in increased utilization of our equipment and personnel followed
+by increased pricing for the Company ’ s services
+and
+equipment. Improved results have also allowed us to make higher capital
+expenditures, which has led to an increase in capacity for providing services
+to
+our customers. 
+The
+results of our strategies are reflected in our 2005 financial and operational
+performance. We generated record revenues and profitability in 2005 because
+of
+better industry conditions, increased capacity, improved pricing and growth
+in
+the utilization of our personnel and equipment. Revenues in 2005 of $427.6
+million increased 25.9 percent compared to the prior year. The growth in
+revenues resulted primarily from increased capacity due to our expenditures
+for
+new equipment and maintenance on existing equipment, improved pricing for our
+equipment and services, and increased utilization consistent with higher
+customer activity levels. The increase in prices is partially attributable
+to
+the issuance of new price books during the third quarter of 2005. International
+revenues declined by 9.8 percent in 2005 compared to the prior year. Although
+international revenues increased in most of our locations due to our focus
+on
+developing international
+opportunities, these increases were offset by a large decline in revenues from
+our operation in Kuwait. This decline was due to the sporadic nature of our
+work
+in that country as well as other customer-imposed delays. We continue to focus
+on developing international growth opportunities; however, it is difficult
+to
+predict when contracts and projects will be initiated and their ultimate
+duration. Based on current industry conditions and trends during 2006 and our
+planned capital expenditures, we expect consolidated revenues for 2006 to
+increase compared to 2005, although the volatility in our industry makes
+accurate near-term forecasts unreliable. 
+16 
+In
+the
+third quarter we sold certain assets of the Company’s hammer, casing, laydown
+and casing torque-turn service lines generating proceeds of approximately $15.7
+million and a pre-tax gain of approximately $10.7 million. This sale resulted
+in
+an after tax gain of approximately $7.1 million or $0.11 diluted earnings per
+share. Income before income taxes was $100.7 million in 2005 compared to $53.2
+million in the prior year. The effective tax rate for 2005 was 34.0 percent
+compared to 34.6 percent in the prior year. The effective tax rates reflect
+tax
+benefits of 3.5 percent in 2005 related to income tax refunds and 3.2 percent
+in
+2004 primarily related to adjustments for foreign tax credit carryovers and
+liabilities. Diluted earnings per share increased to $1.01 in 2005 compared
+to
+$0.53 for the prior year. Cash flows from operating activities were $66.4
+million in 2005 compared to $50.4 million in the prior year, and cash and cash
+equivalents were $12.8 million at December 31, 2005, a decrease of $16.8 million
+compared to December 31, 2004. This decrease in cash and cash equivalents
+occurred despite improved operating results and higher proceeds from the sale
+of
+assets, primarily due to increased capital expenditures and increased share
+repurchases. As of December 31, 2005, we had no long-term debt. 
+Cost
+of
+services rendered and goods sold as a percentage of revenues decreased
+approximately 3.8 percentage points in 2005 compared to 2004. This improvement
+was due to higher equipment and personnel utilization, improved pricing and
+the
+leverage of our fixed costs over higher revenues. 
+Selling,
+general and administrative expenses as a percentage of revenues decreased by
+1.7
+percentage points to 17.7 percent, which was due primarily to the leverage
+of these costs over higher revenues. The costs increased due to additions to
+field administrative personnel consistent with higher activity levels, and
+costs
+to implement additional information technology to support operational
+efficiencies at higher activity levels. 
+Consistent
+with our strategy to selectively grow our capacity and maintain our existing
+fleet of high demand equipment, capital expenditures were $72.8 million in
+2005.
+Although we currently expect capital expenditures to be approximately $100
+million during 2006, the total amount of 2006 expenditures will depend primarily
+on equipment maintenance requirements, expansion opportunities and the ultimate
+delivery dates for equipment on order. We expect these expenditures to be
+primarily directed toward our larger, core service lines including pressure
+pumping, snubbing, nitrogen, and rental tools. 
+On
+October 25, 2005, RPC’s Board of Directors declared a three-for-two stock split
+of the Company’s common shares. The additional shares were distributed on
+December 12, 2005, to shareholders of record on November 11, 2005. All share,
+earnings per share, and dividends per share data presented throughout this
+document including the accompanying financial statements and management’s
+discussion and analysis have been adjusted to reflect this stock
+split. 
+Outlook
+Drilling
+activity in the U.S. domestic oilfields, as measured by the rotary drilling
+rig
+count, has been stable or gradually increasing since the second quarter of
+2002,
+and the overall domestic rig count during the first two months of 2006 is
+approximately 19 percent higher than in the comparable period in 2005. The
+price
+of oil has risen by approximately 32 percent and the price of natural gas has
+risen by approximately 27 percent during the first two months of 2006 as well.
+While the overall drilling rig count has increased, drilling activity in the
+Gulf of Mexico has steadily declined since the third quarter of 2001, which
+is
+unfavorable because of the Company’s historical presence in this geographic
+market. At the beginning of March, 2006 the Gulf of Mexico rig count was
+approximately 11 percent lower than in the comparable period in 2005, and much
+of this decline is attributable to the damage caused by the hurricanes in the
+third quarter of 2005. The Company has responded to the sustained increase
+in
+overall industry activity by making investments in our geographic market areas
+where we currently operate, but we have emphasized the more robust domestic
+markets and have made only selective investments in the Gulf of Mexico market.
+In spite of the current robust industry conditions, the Company understands
+that
+factors influencing the industry are unpredictable. Our response to the
+industry ’ s
+potential uncertainty is to maintain sufficient liquidity to withstand periodic
+industry downturns, and a balanced capital structure that allows us to expand
+during periods of industry expansion. 
+17 
+Results
+of Operations 
+Years
+Ended December 31, 
+2005 
+2004 
+2003 
+Consolidated
+revenues 
+$ 
+427,643 
+$ 
+339,792 
+$ 
+270,527 
+Revenues
+by business segment: 
+Technical 
+$ 
+363,139 
+$ 
+279,070 
+$ 
+216,321 
+Support 
+64,487 
+56,917 
+43,909 
+Other 
+17 
+3,805 
+10,297 
+Consolidated
+operating profit 
+$ 
+97,713 
+$ 
+51,340 
+$ 
+16,435 
+Operating
+profit by business segment: 
+Technical 
+$ 
+84,048 
+$ 
+47,027 
+$ 
+22,433 
+Support 
+11,990 
+8,287 
+2,641 
+Other 
+(273 
+) 
+(975 
+) 
+(1,355 
+) 
+Corporate
+expenses 
+(10,221 
+) 
+(8,550 
+) 
+(7,320 
+) 
+Gain
+on disposition of assets, net 
+12,169 
+5,551 
+36 
+Net
+income 
+$ 
+66,484 
+$ 
+34,773 
+$ 
+10,893 
+Earnings
+per share — diluted 
+$ 
+1.01 
+$ 
+0.53 
+$ 
+0.17 
+Percentage
+of cost of services rendered and goods sold to revenues 
+53 
+% 
+57 
+% 
+62 
+% 
+Percentage
+of selling, general and administrative expenses to
+revenues 
+18 
+% 
+19 
+% 
+19 
+% 
+Percentage
+of depreciation and amortization expense to revenues 
+9 
+% 
+10 
+% 
+12 
+% 
+Effective
+income tax rate 
+34.0 
+% 
+34.6 
+% 
+38.0 
+% 
+Average
+U.S. domestic rig count 
+1,383 
+1,190 
+1,029 
+Average
+natural gas price (per thousand cubic feet (mcf)) 
+$ 
+8.86 
+$ 
+5.88 
+$ 
+5.41 
+Average
+oil price (per barrel) 
+$ 
+56.61 
+$ 
+41.35 
+$ 
+31.23 
+Year
+Ended December 31, 200 5
+Compared To Year Ended December 31, 2004 
+Revenues.
+Revenues
+for 2005 increased $88 million or 25.9 percent compared to 2004. The Technical
+Services segment revenues for 2005 increased 30.1 percent from the prior year
+due primarily to increases in capacity driven by higher capital expenditures,
+improved utilization, and increased pricing driven by higher customer demand
+for
+our services. This increase was partially offset by the disposal of our casing
+installation services in the third quarter of 2005. The Support Services segment
+revenues for 2005 increased 13.3 percent from the prior year as a result of
+higher capacity, equipment utilization and increased pricing in rental tools,
+which is the largest service line within this segment. The growth in this
+segment was lower than the change in the domestic rig count and in Technical
+Services due to this segment ’ s exposure
+to the
+Gulf of Mexico, a region in which activity has been very weak since the
+hurricanes in the third quarter of 2005. In addition, these increases were
+also
+offset by the lack of revenues for 2005 from our marine liftboat division,
+which
+was sold in the fourth quarter of 2004. The marine liftboat division generated
+revenues of $3.3 million in 2004. 
+Domestic
+revenues increased during 2005 due to increased customer demand for our
+services, which we were able to meet with increases in capacity, utilization
+and
+improved pricing as a result of new
+price
+books issued during the third quarter of 2005 .
+The
+average domestic rig count during 2005 was 16 percent higher than the same
+period in 2004. In addition, the average price of natural gas increased by
+approximately 51 percent and the average price of oil increased by approximately
+37 percent during 2005 compared to the prior year. This
+increase in oil and gas prices and the resulting increase in drilling activity
+had a positive impact on our financial results. These
+increases were partially offset by continued weakness in the Gulf of Mexico
+market, which was especially weak in the third and fourth quarters as a result
+of the hurricanes that occurred in the third quarter. Foreign revenues decreased
+from $15.9 million in 2004 to $14.3 million in 2005 due to a large decline
+in
+our Kuwait operation . 
+This
+decline was due to the sporadic nature of the contract as well as
+customer-imposed delays. This decline was offset by increases in almost all
+of
+our other international locations as well as the inception of a new contract
+in
+Turkmenistan. These increases were due to our increased focus on international
+business and our business development efforts. 
+18 
+Cost
+of services rendered and goods sold. Costs
+of
+services rendered and goods sold in 2005 was $227.5 million compared to $193.7
+million in 2004, an increase of $33.8 million or 17.5 percent. The increase
+in
+these costs was due to the variable nature of many of these expenses, including
+compensation, materials and supplies, maintenance and repair, and fuel costs
+and
+the increase in the price of fuel. Cost of services rendered and goods sold,
+as
+a percent of revenues, decreased to 53.2 percent in 2005 from 57.0 percent
+in
+2004 as a result of higher utilization of personnel and operating equipment,
+improved pricing, and the leveraging of fixed costs over higher revenues.
+Selling,
+general and administrative ex penses.
+Selling,
+general and administrative expenses increased
+14.6 percent to $75.5 million in 2005 compared to $65.9 million in 2004, however
+as a percentage of revenues, decreased 1.7 percentage points to 17.7 percent.
+The increase was primarily due to higher employment costs associated with
+additions to field administrative personnel to handle higher business activity
+levels and costs to implement additional information technology to support
+operational efficiencies. 
+Depreciation
+and amortization. Depreciation
+and amortization were $39.1 million in 2005, an increase of $4.6 million or
+13.5
+percent compared to $34.5 million in 2004. This increase in depreciation and
+amortization resulted from various capital expenditures made during recent
+quarters within Support Services and Technical Services. A larger percentage
+of
+the increase in depreciation and amortization was due to capital expenditures
+made in the Support Service segment than the Technical Service segment, despite
+its smaller relative revenues and total assets, because of investments made
+in
+the rental tools service line, the largest service line within Support Services,
+and a new Support Services operational facility that was constructed in
+2005. 
+Gain
+on disposition of assets, net. Gain
+on
+the disposition of assets, net increased primarily due to the sale of certain
+assets of the hammer, casing, laydown and casing torque-turn service lines
+for
+net proceeds of $15.7 million which generated a pre-tax gain of $10.7 million,
+or $0.11 after tax gain per diluted share. The gain on disposition of assets
+in
+2004 was due primarily to the pre-tax gain of $3.3 million on the sale of the
+domestic liftboat fleet which occurred during the fourth quarter of 2004. The
+remaining gain on disposition of assets, net in 2005 and 2004 also includes
+gains or losses related to various real property and equipment dispositions
+or
+sales to customers of lost or damaged rental equipment. 
+Other
+income, net.
+Other
+income, net in 2005 of $2.1 million primarily includes proceeds of approximately
+$1.3 million from a litigation settlement in the first quarter of 2005. The
+remaining other income, net in 2005 and 2004 also includes gains from various
+other legal and insurance claims. 
+Interest
+income (expense), net. Net
+interest income was $950 thousand in 2005 compared to net interest expense
+of
+$68 thousand in 2004. The increase in net interest income resulted primarily
+from the reduction in outstanding debt through annual principal payments made
+during 2004 and 2005, and $412 thousand of interest income related to income
+tax
+refunds received during the fourth quarter of 2005. 
+Income
+tax provision. The
+effective tax rate was 34.0 percent in 2005 and 34.6 percent in 2004.
+Adjustments of $3.5 million in 2005 resulted in an income tax benefit of 3.4
+percent related to income tax refunds received primarily during the fourth
+quarter of 2005. Adjustments of $1.1 million in 2004 resulted in an income
+tax
+benefit of 3.2 percent primarily related to the recognition of previously
+reserved foreign tax credit carryovers and an adjustment to the liability for
+foreign taxes. 
+Net
+income and diluted earnings per share .
+Net
+income for 2005 was $66.5 million, or $1.01 earnings per diluted share. This
+included a $7.1 million after tax gain, or $0.11 per diluted share, related
+to
+the sale of the operating and intangible assets of the hammer, casing, laydown
+and casing torque-turn service lines. Net income for 2004 was $34.8 million
+or
+$0.53 earnings per diluted share, and included a pre-tax gain of $3.3 million
+related to the sale of the domestic liftboat fleet. 
+Year
+Ended December 31, 2004 Compared To Year Ended December 31, 2003
+Revenues.
+Revenues
+for 2004 increased 25.6 percent compared to 2003. Domestic
+revenues increased due to higher customer drilling and production enhancement
+activity. Our growth in revenues was higher than the domestic rig count growth,
+principally because of the effect of increased international revenues, of an
+acquisition closed during 2003, and of our fishing tool service line which
+began
+operations in 2004. These increases were partially offset by continued weakness
+in the Gulf of Mexico market, exacerbated by the hurricanes in the area during
+the third quarter 2004, heavy rains during the fourth quarter impacting
+mid-continent operations, and the sale of one of our non-oilfield businesses
+during the second quarter of 2004. 
+The
+average price of natural gas increased 8.7 percent during 2004 compared to
+2003,
+and the average price of oil increased 32.4 percent during the same period.
+The
+average U.S. domestic rig count increased by 15.6 percent during 2004 compared
+to 2003. This increase in oil and gas prices and resulting increase in drilling
+activity had a positive impact on our financial results. We believe that our
+activity levels are affected more by the price of natural gas than by the price
+of oil, because the majority of U.S. domestic drilling activity relates to
+natural gas, and many of our services are more 
+19 
+appropriate
+for gas wells than oil wells. The correlation between the changes in the price
+of oil and natural gas and U.S. domestic drilling activity were more highly
+correlated in 2004 than in 2003. This higher correlation is consistent with
+past
+industry cycles. 
+The
+Technical Services segment revenues for 2004 increased 29.0 percent due
+primarily to increased
+customer activity levels and demand for our services, additional equipment
+capacity, higher pricing levels in most of our service lines and a shift in
+the
+mix of pressure pumping work towards higher revenue generating jobs.
+The
+Support Services segment revenues for 2004 increased 29.6 percent as
+a
+result of higher equipment utilization, additional capacity and slightly higher
+pricing in rental tools, which is the largest service line within this segment,
+partially offset by lower utilization and reduced pricing for the marine
+liftboats. 
+Cost
+of services rendered and goods sold .
+Cost of
+services rendered and goods sold, as a percentage of revenues, decreased five
+percentage points in 2004 compared to 2003 as a result of improved operating
+leverage due to overall higher utilization of personnel and operating equipment,
+and better pricing. Cost of services rendered and goods sold increased 14.8
+percent
+due primarily to increased direct employment costs, and variable operational
+expenses such as equipment maintenance, materials and supplies, sub-rental
+expense and fuel costs . 
+Selling,
+general and administrative expenses .
+Selling, general and administrative expenses increased by 26.0 percent to $65.9
+million in 2004 from $52.3 million in 2003, however as a percentage of revenues,
+remained relatively stable at 19 percent. The increase was due to increased
+incentive compensation costs and increased headcount related to higher activity
+levels and the expansion of our safety program. The increase was also due to
+the
+implementation of additional information technology to support operational
+efficiencies at higher activity levels and an increase in bad debt
+expense. 
+Depreciation
+and amortization .
+Depreciation and amortization were $34.5 million in 2004, a 4.2 percent increase
+compared to $33.1 million in 2003. This increase in depreciation and
+amortization resulted from various maintenance and growth capital expenditures
+within Support Services and Technical Services, and from the effect of the
+acquisition completed during the second quarter of 2003. As a percentage of
+revenues these costs declined due to their fixed nature. 
+Gain
+on disposition of assets, net .
+In
+the
+fourth quarter of 2004, we sold the Company’s domestic liftboat fleet which
+generated a pre-tax gain of $3.3 million. This transaction generated proceeds
+of
+approximately $10 million. Gain on disposition of assets, net also includes
+gains in 2004 and 2003 related to miscellaneous real property dispositions
+and
+sales to customers of lost or damaged rental equipment . 
+Other
+income, net .
+Other
+income, net was $1.9 million in 2004 and $1.3 million in 2003 and primarily
+includes gains from various legal and insurance claim settlements. 
+Interest
+expense, net .
+Interest expense, net was $68 thousand in 2004 compared to $153 thousand in
+2003. 
+Income
+tax provision. The
+effective tax rate in 2004 was 34.6 percent, a reduction from 38.0 percent
+in
+2003, primarily because of an aggregate reduction in the tax provision of
+approximately $1.1 million related to the recognition of previously reserved
+foreign tax credit carryovers and an adjustment to the liabilities for foreign
+taxes. 
+Net
+income and diluted earnings per share .
+Net
+income for 2004 was $34.8 million, or $0.53 earnings per diluted share. This
+included the $2.2 million after tax gain, or $0.03 per diluted share, related
+to
+the sale of the liftboats and $1.1 million, or $0.02 per diluted share, related
+to the tax provision adjustments. Net income for 2003 was $10.9 million or
+$0.17
+earnings per diluted share. 
+Liquidity
+and Capital Resources 
+Cash
+and Cash Flows 
+The
+Company’s cash and cash equivalents were $12.8 million as of December 31, 2005,
+$29.6 million as of December 31, 2004 and $22.3 million as of December 31,
+2003.
+The
+following table sets forth the historical cash flows for the year ended
+December 31: 
+(in
+thousands) 
+2005 
+2004 
+2003 
+Net
+cash provided by operating activities 
+$66,362 
+$50,374 
+$50,631 
+Net
+cash used for investing activities 
+(62,415 
+) 
+(37,215 
+) 
+(34,670 
+) 
+Net
+cash used for financing activities 
+(20,774 
+) 
+(5,825 
+) 
+(5,192 
+) 
+20 
+2005 
+Cash
+provided by operating activities was $66.4 million compared to $50.4 million
+in
+2004. The large improvement in operating results and increased gains on sale
+of
+assets was partially offset by higher working capital requirements and a lower
+cash contribution to the defined benefit pension plan in 2005 compared to 2004.
+Increased business activity levels and revenues resulted in increased accounts
+receivable and inventories which was partially offset by higher accounts
+payable. Also, the company received income tax refunds of $3.5 million in 2005
+that did not occur in 2004. 
+Cash
+used
+for investing activities in 2005 increased by $25.2 million compared to 2004,
+primarily as a result of an increase in capital expenditures to increase
+capacity and maintain our existing equipment and an increase of $5.5 million
+in
+2005 compared to 2004 in earnout payments for acquisitions. These increases
+were
+partially offset by higher proceeds from the sale of assets. 
+Cash
+used
+for financing activities in 2005 increased by $14.9 million compared to 2004,
+due to increased cost of open market share repurchases of Company common stock,
+a 100 percent increase in dividends paid to common shareholders, and principal
+repayments totaling $4.8 million during the first and third quarters of
+2005. 
+2004 
+Cash
+provided by operating activities was $50.4 million in 2004 compared to $50.6
+million in 2003. The large improvement in operating results was offset by a
+$4.2
+million cash contribution to the defined benefit pension plan, receipt of large
+income tax refunds in 2003 that did not recur in 2004, and higher working
+capital requirements. Increased revenues resulted in an increase in accounts
+receivable which was partially offset by an increase in accounts payable and
+other liabilities. 
+Cash
+used
+in investing activities for 2004 increased by $2.5 million compared to 2003,
+primarily as a result of an increase in capital expenditures partially offset
+by
+an increase in proceeds from sale of property and equipment, including the
+sale
+of the liftboats, and a decrease in cash used for purchases of businesses.
+Cash
+used for purchases of businesses in 2004 includes earnout payments of $3.3
+million related to 2003 operating results. Cash used for purchases of businesses
+in 2003 included a business acquisition; there were no earnout payments in
+2003. 
+Cash
+used
+in financing activities for 2004 increased by $0.6 million compared to 2003,
+due
+to increases in dividends paid per share and debt service requirements,
+partially offset by increases in proceeds received from the exercise of stock
+options. 
+Financial
+Condition and Liquidity 
+The
+Company’s financial condition as of December 31, 2005, remains strong. We
+believe the liquidity provided by our existing cash and cash equivalents, our
+overall strong capitalization, and cash expected to be generated from
+operations, will provide sufficient capital to meet our requirements for at
+least the next twelve months. The portion of the credit facility that is not
+currently available supports letters of credit relating to self-insurance
+programs or contract bids. 
+Subsequent
+to year-end, the Company sought and received an increase in its available credit
+facility from $25 million to $50 million with a financial institution. As of
+December 31, 2005, $15.9 million of our facility was allocated to letters of
+credit supporting self-insurance programs or performance bonds. For additional
+information with respect to RPC’s credit facility, see Note 7 of the Notes to
+Consolidated Financial Statements. 
+The
+Company’s decisions about the amount of cash to be used for investing and
+financing purposes are influenced by its capital position, availability of
+credit facilities, and the expected amount of cash to be provided by operations.
+We believe our liquidity will continue to provide the opportunity to grow our
+asset base and revenues during periods with positive business conditions and
+strong customer activity levels. 
+Cash
+Requirements 
+Capital
+expenditures were $72.8 million in 2005, and we currently expect capital
+expenditures to be approximately $100 million in 2006. We expect these
+expenditures to be primarily directed towards revenue-producing equipment in
+our
+larger, core service lines including pressure pumping, snubbing, nitrogen,
+and
+rental tools. The actual amount of 2006 expenditures will depend primarily
+on
+equipment maintenance requirements, expansion opportunities, and equipment
+delivery schedules. 
+21 
+The
+Company’s Retirement Income Plan, a multiple employer trusteed defined benefit
+pension plan, provides monthly benefits upon retirement at age 65 to eligible
+employees. During
+the first quarter of 2005, the Company contributed $1.6 million to the
+pension
+plan. We expect that additional contributions to the defined benefit pension
+plan of approximately $1.1 million will be required in 2006 to achieve the
+Company’s funding objective. 
+The
+Company’s Board of Directors announced a stock buyback program on March 9, 1998
+authorizing the repurchase of 7,875,000 shares. The Company expects to continue
+repurchasing outstanding common shares periodically based on market conditions
+and our capital allocation strategies. The program does not have a predetermined
+expiration date. 
+On
+January 24, 2006 the Board of Directors approved an increase in the quarterly
+cash dividend per common share, from $0.027 to $0.05, payable March 10, 2006
+to
+stockholders of record at the close of business February 10, 2006. Based on
+the
+shares outstanding on December 31, 2005, the aggregate annual dividends expected
+to be paid would be approximately $12.9 million in 2006. The Company expects
+to
+continue to pay cash dividends to common stockholders, subject to the earnings
+and financial condition of the Company and other relevant factors. 
+In
+accordance with the respective purchase agreements, earnout payments to sellers
+of two businesses previously acquired by the Company have been paid on an annual
+basis and were paid on an interim period ending during 2005. The Company made
+earnout payments of $4.6 million in April 2005 related to 2004 operating
+results. Final earnout payments of $2.4 million in the second quarter of 2005
+and $1.9 million in the fourth quarter of 2005 were made to the sellers of
+acquired businesses based on the results for the interim period ended June
+30,
+2005. As of December 31, 2005, all earnout obligations under these purchase
+agreements have been recognized and paid. 
+Contractual
+Obligations 
+The
+Company’s obligations and commitments that require future payments include a
+bank demand note, certain non-cancelable operating leases, purchase obligations
+and other long-term liabilities. The following table summarizes the Company’s
+significant contractual obligations as of December 31, 2005: 
+Contractual
+obligations 
+Payments
+due by period 
+(in
+thousands) 
+Total 
+Less
+than 
+1
+year 
+1-3 
+years 
+3-5 
+years 
+More
+than 
+5
+years 
+Long-term
+debt 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+Capital
+lease obligations 
+— 
+— 
+— 
+— 
+—
+Operating
+leases (1) 
+6,644 
+2,221 
+3,512 
+529 
+382 
+Purchase
+obligations (2) 
+525 
+525 
+— 
+— 
+—
+Other
+long-term liabilities (3) 
+5,912 
+5,912 
+— 
+— 
+—
+Total
+contractual obligations 
+$ 
+13,081 
+$ 
+8,658 
+$ 
+3,512 
+$ 
+529 
+$ 
+382 
+(1) 
+Operating
+leases include agreements for various office locations, office equipment,
+and certain operating equipment. 
+(2) 
+As
+part of the normal course of business the Company enters into purchase
+commitments to manage its various operating needs.
+(3) 
+Includes
+expected cash payments for long-term liabilities reflected on the
+balance
+sheet where the timing of the payments are known. These amounts include
+primarily known pension plan funding obligations and incentive
+compensation. These amounts exclude pension obligations with uncertain
+funding requirements and deferred compensation liabilities.
+Inflation 
+The
+Company purchases its equipment and materials from suppliers who provide
+competitive prices. Due to the recent increases in activity in the domestic
+oilfield, the Company has experienced some upward wage pressures in the labor
+markets from which it hires employees. If inflation in the general economy
+increases, the Company’s costs for equipment, materials and labor could increase
+as well. Also the price of steel, for both the commodity and for products
+manufactured with steel, has increased dramatically due to increased worldwide
+demand. Although prices have moderated, they remain high by historical
+standards. This factor has affected the Company ’ s operations
+through delays in scheduled deliveries of new equipment and price quotations
+that were only valid for a limited period of time. If this factor continues,
+it
+is possible that the cost of the Company ’ s new equipment
+will increase which would result in higher capital expenditures and depreciation
+expense. RPC may not be able to recover such increased costs through price
+increases to its customers, thereby reducing the Company ’ s future
+profits.
+Off
+Balance Sheet Arrangements 
+The
+Company does not have any material off balance sheet arrangements. 
+22 
+Related
+Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun-off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC
+accomplished the spin-off by contributing 100 percent of the issued and
+outstanding stock of Chaparral to Marine Products Corporation (a Delaware
+corporation) (“Marine Products”), a newly formed wholly-owned subsidiary of RPC,
+and then distributing the common stock of Marine Products to RPC stockholders.
+In conjunction with the spin-off, RPC and Marine Products entered into various
+agreements that define the companies’ relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance,
+etc.,
+to Marine Products. Charges from the Company (or from corporations that are
+subsidiaries of the Company) for such services aggregated approximately $616,000
+in 2005, $546,000 in 2004 and $496,000 in 2003. The Company’s directors are also
+directors of Marine Products and all of the executive officers are employees
+of
+both the Company and Marine Products. 
+The
+Tax
+Sharing and Indemnification Agreement provides for, among other things, the
+treatment of income tax matters for periods through February 28, 2001, the
+date
+of the spin-off, and responsibility for any adjustments as a result of audits
+by
+any taxing authority. The general terms provide for the indemnification for
+any
+tax detriment incurred by one party caused by the other party’s action. In
+accordance with the agreement, RPC transferred approximately $19,000 in 2004
+to
+Marine Products for tax settlements. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products
+or
+services from suppliers, who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $926,000 in 2005, $529,000 in 2004 and
+$1,058,000 in 2003. In addition, the overhead crane fabrication division of
+RPC
+(sold April 2004) recorded $171,000 in 2003 in revenues from the powerboat
+manufacturing segment that is now a subsidiary of Marine Products pursuant
+to
+the spin-off, related to the sale, installation and service of overhead cranes.
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which
+is
+otherwise affiliated with RPC). The service agreements between Rollins, Inc.
+and
+the Company provide for the provision of services on a cost reimbursement basis
+and are terminable on six months notice. The services covered by these
+agreements include office space, administration of certain employee benefit
+programs, and other administrative services. Charges to the Company (or to
+corporations which are subsidiaries of the Company) for such services and rent
+totaled to $71,000 in 2005, $76,000 in 2004 and $105,000 in 2003. 
+Critical
+Accounting Policies 
+The
+consolidated financial statements are prepared in accordance with accounting
+principles generally accepted in the United States, which require significant
+judgment by management in selecting the appropriate assumptions for calculating
+accounting estimates. These judgments are based on our historical experience,
+terms of existing contracts, trends in the industry, and information available
+from other outside sources, as appropriate. Senior management has discussed
+the
+development, selection and disclosure of its critical accounting estimates
+with
+the Audit Committee of our Board of Directors. The Company believes the
+following critical accounting policies involve estimates that require a higher
+degree of judgment and complexity: 
+Allowance
+for doubtful accounts —
+Substantially all of the Company’s receivables are due from oil and gas
+exploration and production companies in the United States, selected
+international locations and foreign, nationally owned oil companies. Our
+allowance for doubtful accounts is determined using a combination of factors
+to
+ensure that our receivables are not overstated due to uncollectibility. Our
+established credit evaluation procedures seek to minimize the amount of business
+we conduct with higher risk customers. Our customers’ ability to pay is directly
+related to their ability to generate cash flow on their projects and is
+significantly affected by the volatility in the price of oil and natural gas.
+Provisions for doubtful accounts are recorded in selling, general and
+administrative expenses. Accounts are written-off against the allowance for
+doubtful accounts when the Company determines that amounts are uncollectible
+and
+recoveries of amounts previously written off are recorded when collected.
+Significant recoveries will generally reduce the required provision in the
+period of recovery. Therefore, the provision for doubtful accounts can fluctuate
+significantly from period 
+23 
+to
+period. In 2003, the Company recorded two large recoveries of previously charged
+off amounts. There were no large recoveries in 2005 and 2004. 
+We
+record
+specific provisions when we become aware of a customer ’ s inability
+to
+meet its financial obligations to us, such as in the case of bankruptcy filings
+or deterioration in the customer ’ s operating
+results or financial position. If circumstances related to customers change,
+our
+estimates of the realizability of receivables would be further adjusted, either
+upward or downward. 
+The
+estimated allowance for doubtful accounts is based on our evaluation of the
+overall trends in the oil and gas industry, financial condition of our
+customers, our historical write-off experience, current economic conditions,
+and
+in the case of international customers, our judgments about the economic and
+political environment of the related country and region. In addition to reserves
+established for specific customers, we establish general reserves by using
+different percentages depending on the age of the receivables. Excluding the
+effect of the recoveries referred to above, the annual provisions for doubtful
+accounts have ranged from 0.06 percent to 0.40 percent of revenues over the
+last
+three years. Increasing or decreasing the estimated general reserve percentages
+by 0.50 percentage points as of December 31, 2005 would have resulted in a
+change of approximately $0.6 million to the allowance for doubtful accounts
+and
+a corresponding change to selling, general and administrative expenses.
+Income
+taxes —
+The
+effective income tax rates were 34.0 percent in 2005, 34.6 percent in 2004,
+and
+38.0 percent in 2003. Our effective tax rates vary due to changes in estimates
+of our future taxable income, fluctuations in the tax jurisdictions in which
+our
+earnings and deductions are realized, and favorable or unfavorable adjustments
+to our estimated tax liabilities related to proposed or probable assessments.
+As
+a result, our effective tax rate may fluctuate significantly on a quarterly
+or
+annual basis. 
+We
+establish a valuation allowance against the carrying value of deferred tax
+assets when we determine that it is more likely than not that the asset will
+not
+be realized through future taxable income. Such amounts are charged to earnings
+in the period in which we make such determination. Likewise, if we later
+determine that it is more likely than not that the net deferred tax assets
+would
+be realized, we would reverse the applicable portion of the previously provided
+valuation allowance. We have considered future market growth, forecasted
+earnings, future taxable income, the mix of earnings in the jurisdictions in
+which we operate, and prudent and feasible tax planning strategies in
+determining the need for a valuation allowance. 
+We
+calculate our current and deferred tax provision based on estimates and
+assumptions that could differ from the actual results reflected in income tax
+returns filed during the subsequent year. Adjustments based on filed returns
+are
+recorded when identified, which is generally in the third quarter of the
+subsequent year for U.S. federal and state provisions. Deferred tax liabilities
+and assets are determined based on the differences between the financial and
+tax
+bases of assets and liabilities using enacted tax rates in effect in the year
+the differences are expected to reverse. 
+The
+amount of income taxes we pay is subject to ongoing audits by federal, state
+and
+foreign tax authorities, which often result in proposed assessments. Our
+estimate for the potential outcome for any uncertain tax issue is highly
+judgmental. We believe we have adequately provided for any reasonably
+foreseeable outcome related to these matters. However, our future results may
+include favorable or unfavorable adjustments to our estimated tax liabilities
+in
+the period the assessments are made or resolved or when statutes of limitation
+on potential assessments expire. Additionally, the jurisdictions in which our
+earnings or deductions are realized may differ from our current estimates.
+Insurance
+expenses — 
+The Company self
+insures, up to certain policy-specified limits, certain risks related to general
+liability, workers’ compensation, vehicle and equipment liability. The cost of
+claims under these self-insurance programs is estimated and accrued using
+individual case-based valuations and statistical analysis and is based upon
+judgment and historical experience; however, the ultimate cost of many of these
+claims may not be known for several years. These claims are monitored and the
+cost estimates are revised as developments occur relating to such claims. The
+Company has retained an independent third party actuary to assist in the
+calculation of a range of exposure for these claims. As of December 31, 2005,
+the Company estimates the range of exposure to be from $8.6 million to $11.1
+million. The Company has recorded liabilities at December 31, 2005 of
+approximately $9.9 million which represents management’s best estimate of
+probable loss. 
+Depreciable
+life of assets —
+RPC’s
+net property, plant and equipment at December 31, 2005 was $141.2 million
+representing 45.3 percent of the Company’s consolidated assets. Depreciation and
+amortization expenses for the year ended December 31, 2005 were $39.1 million,
+or 11.4 percent of total operating costs. Management judgment is required in
+the
+determination of the estimated useful lives used to calculate the annual and
+accumulated depreciation and amortization expense. 
+24 
+Property,
+plant and equipment are reported at cost less accumulated depreciation and
+amortization, which is generally provided on a straight-line basis over the
+estimated useful lives of the assets. The estimated useful life represents
+the
+projected period of time that the asset will be productively employed by the
+Company and is determined by management based on many factors including
+historical experience with similar assets. Assets are monitored to ensure
+changes in asset lives, are identified and prospective depreciation and
+amortization expense is adjusted accordingly. We have not made changes to the
+estimated lives of assets resulting in a material impact in the last three
+years. 
+Defined
+benefit pension plan -
+In
+2002, the Company ceased all future benefit accruals under the defined benefit
+plan, although the Company remains obligated to provide employees benefits
+earned through March 2002. The Company accounts for the defined benefit plan
+in
+accordance with the provisions of SFAS 87, “Employers’ Accounting for Pensions”
+and engages an outside actuary to calculate its obligations and costs. With
+the
+assistance of the actuary, the Company evaluates the significant assumptions
+used on a periodic basis including the estimated future return on plan assets,
+the discount rate, and other factors, and makes adjustments to these liabilities
+as necessary. 
+The
+Company chooses an expected rate of return on plan assets based on historical
+results for similar allocations among asset classes, the investments strategy,
+and the views of our investment adviser. Differences between the expected
+long-term return on plan assets and the actual return are amortized over future
+years. Therefore, the net deferral of past asset gains (losses) ultimately
+affects future pension expense. The Company’s assumption for the expected return
+on plan assets is 8.0 percent which is unchanged from the prior
+year. 
+The
+discount rate reflects the current rate at which the pension liabilities could
+be effectively settled at the end of the year. In estimating this rate, the
+Company utilizes the Moody’s Aa long-term corporate bond yield with a yield
+adjustment made for the longer duration of the Company’s obligations. A lower
+discount rate increases the present value of benefit obligations. The Company
+determined a discount rate of 5.50 percent as of December 31, 2005, compared
+to
+a discount rate of 5.75 percent in 2004 and 6.25 percent in 2003. 
+In
+2005,
+the change in the minimum pension liability within accumulated other
+comprehensive loss decreased stockholders’ equity by $987 thousand after tax.
+Holding all other factors constant, a decrease in the discount rate used to
+measure plan liabilities by 0.25 percentage points would result in an after
+tax
+increase of approximately $0.8 million in accumulated other comprehensive loss
+and an increase in the discount rate used to measure plan liabilities by 0.25
+percentage points would result in an after tax decrease of approximately $0.7
+million in accumulated other comprehensive loss. 
+The
+Company recognized pre-tax pension expense of $1.1 million in 2005, $1.2 million
+in 2004, and $1.6 million in 2003. Pension expense is anticipated to increase
+slightly to approximately $1.3 million in 2006. Holding all other factors
+constant, a change in the expected long-term rate of return on plan assets
+by
+0.50 percentage points would result in an increase or decrease in pension
+expense of approximately $0.11 million in 2006. Holding all other factors
+constant, a change in the discount rate used to measure plan liabilities by
+0.25
+percentage points would result in an increase or decrease in pension expense
+of
+approximately $0.12 million in 2006. 
+New
+Accounting Standards 
+In
+November 2004, the FASB issued SFAS No. 151, “Inventory
+Costs—An Amendment of ARB No. 43, Chapter 4” (“SFAS 151”).
+SFAS 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory
+Pricing,” to clarify the accounting for abnormal amounts of idle facility
+expense, freight, handling costs, and wasted material (spoilage). Among other
+provisions, the new rule requires that items such as idle facility expense,
+excessive spoilage, double freight, and rehandling costs be recognized as
+current-period charges regardless of whether they meet the criterion of “so
+abnormal” as stated in ARB No. 43. Additionally, SFAS 151 requires
+that the allocation of fixed production overheads to the costs of conversion
+be
+based on the normal capacity of the production facilities. SFAS 151 is
+effective for fiscal years beginning after June 15, 2005. The Company plans
+to adopt SFAS 151 in the first quarter of fiscal 2006, beginning on January
+1,
+2006. Adoption of SFAS 151 is not expected to have a material impact on the
+Company’s consolidated results of operations and financial condition.
+In
+December 2004, the FASB issued SFAS No. 123 (revised 2004),
+“Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123,
+“Accounting for Stock-Based Compensation,” (“SFAS 123”) and supersedes APB
+Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R
+requires all share-based payments to employees, including grants of employee
+stock options, to be recognized in the financial statements based on their
+fair
+values. The pro forma disclosures previously permitted under SFAS 123 will
+no longer be an alternative to financial statement recognition. Under
+SFAS 123R, the Company must determine the appropriate fair value model to
+be used for valuing share-based payments, the amortization method for
+compensation cost and the transition method to be used at date of adoption.
+The
+transition methods available are the modified prospective application and the
+modified retrospective application. Under the modified retrospective
+application, prior periods may be
+restated either as of the beginning of the year of adoption or for all periods
+presented. The modified 
+25 
+prospective
+application requires that compensation expense be recorded for all unvested
+stock options and restricted stock at the beginning of the first quarter of
+adoption of SFAS 123R, while the modified retrospective application would
+record compensation expense for all unvested stock options and restricted stock
+beginning with the first period restated. SFAS No. 123R states that the
+requirement is to adopt the provisions in the first interim or annual period
+beginning after June 15, 2005. However, the Securities and Exchange Commission
+(“SEC”) issued a new rule that allows companies to implement Statement No. 123R
+at the beginning of their next fiscal year, instead of the next reporting
+period, that begins after June 15, 2005. In March 2005, the SEC issued Staff
+Accounting Bulletin No. 107 (“SAB 107”) regarding the interaction between SFAS
+123R and certain SEC rules and regulations and provides the staff’s view
+regarding the valuation of shared-based payment arrangements for public
+companies. In
+November 2005, the FASB issued FASB Staff Position (“FSP”) FAS 123R-3,
+“Transition Election Related to Accounting for the Tax Effects of Share-Based
+Payment Awards” (“FAS 123R-3”). FAS 123R-3 provides for a practical
+transition election related to accounting for the tax effects of share-based
+payment awards to employees. Companies may elect either the guidance in
+SFAS No. 123R or this alternative transition method up to one year
+from the later of its initial adoption of SFAS No. 123R or the
+effective date of this FSP to make this one time election. 
+The
+Company will implement the provisions of SFAS 123R in the first quarter of
+2006
+using the modified prospective method. As
+permitted by SFAS No. 123, the Company currently uses APB 25’s intrinsic
+value method and recognizes no compensation cost for employee stock options.
+The
+Company currently utilizes a standard option pricing model (i.e., Black-Scholes)
+to measure the fair value of stock options granted to employees and will
+continue to use the Black-Scholes model for option valuation. The impact of
+SFAS
+123R would have approximated the impact of SFAS No. 123 as described in the
+disclosure of pro forma net income and earnings per share in Note 1 to our
+audited financial statements, if we had adopted it earlier. SFAS No. 123R
+also requires the benefits of tax deductions in excess of recognized
+compensation cost to be reported as a financing cash flow, rather than as an
+operating cash flow. This requirement will reduce net operating cash flows
+and
+increase net financing cash flows in periods after
+adoption. T he
+Company cannot estimate what those amounts will be in the future partly because
+the Company cannot predict the stock prices when i) the employees exercise
+non-qualified options or ii) the restricted stock vests. Also, under
+the provision of FAS 123R, unearned compensation related to unvested restricted
+stock awards are not recorded. Accordingly, any remaining unearned compensation
+related to unvested restricted stock awards and the corresponding amount in
+paid-in capital will no longer be included in stockholders’ equity beginning
+January 1, 2006. Based on stock options and restricted stock granted to
+employees through December 31, 2005, the Company expects that the adoption
+of SFAS 123R on January 1, 2006, will reduce first quarter net income
+by approximately $170,000. See Note 10 for further information on the Company’s
+stock-based compensation plans. The cumulative amount of excess tax deductions
+related to share-based payment awards to employees computed in accordance with
+the provisions of SFAS 123R is approximately $660,000 as of December 31,
+2005. 
+In
+December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary
+Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
+Transactions” (“SFAS 153”). The amendments made by SFAS 153 are based on the
+principle that exchanges of nonmonetary assets should be measured based on
+the
+fair value of the assets exchanged. Further, the amendments eliminate the narrow
+exception for non-monetary exchanges of similar productive assets and replace
+it
+with a broader exception for exchanges of nonmonetary assets that do not have
+commercial substance. Previously, Opinion 29 required that the accounting for
+an
+exchange of a productive asset for a similar productive asset or an equivalent
+interest in the same or similar productive asset should be based on the recorded
+amount of the asset relinquished. By focusing the exception on exchanges that
+lack commercial substance, SFAS 153 intends to produce financial reporting
+that
+more faithfully represents the economics of the transaction. SFAS 153 is
+effective for the fiscal periods beginning after June 15, 2005 and the
+provisions are to be applied prospectively. The Company has adopted the
+provisions of SFAS 153 resulting in no material impact on its consolidated
+results of operations and financial condition. 
+FASB
+Staff Position ( “ FSP ” )
+No. 109-2,
+“ Accounting
+and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
+the American Jobs Creation Act of 2004 ” ( “ FSP 109-2 ” ),
+issued in
+December 2004, is intended to 
+provide
+limited relief in the application of the indefinite reinvestment criterion
+due
+to ambiguities surrounding the implementation of the Act. The Jobs Act was
+enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed
+time beyond the financial reporting period of enactment to evaluate the effect
+of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings
+for purposes of applying FASB Statement No. 109. 
+The
+Company has completed its evaluation of FSP 109-2 and has repatriated earnings
+of approximately $1.2 million. The cash distribution will be treated as an
+extraordinary dividend and will qualify for the 85 percent Dividends Received
+Deduction ( “ DRD ” )
+within the
+meaning of Code Section 965. The Company implemented its repatriation plan
+late
+in the fourth quarter of 2005 starting with the reinvestment of the money back
+into the United States. 
+In
+March
+2005, the FASB issued FIN 47, “ Accounting
+for
+Conditional Asset Retirement Obligations, an interpretation of FASB Statement
+No. 143 ” 
+( “ FIN 47 ” ),
+which requires
+an entity to recognize a liability for the fair value 
+26 
+of
+a
+conditional asset retirement obligation when incurred if the liability ’ s fair
+value can
+be reasonably estimated. FIN 47 is effective for fiscal years ending after
+December 15, 2005 and has been adopted by the Company in the fiscal year
+ended December 31, 2005. Adoption of FIN 47 did not have a material impact
+on the consolidated results of operations and financial condition of the
+Company. 
+In
+May
+2005, the FASB has issued FASB Statement No. 154, Accounting Changes and Error
+Corrections ” 
+(“SFAS 154”) which replaces APB Opinion No. 20, Accounting Changes, and FASB
+Statement No. 3, “ Reporting
+Accounting Changes in Interim Financial Statements. ” Among
+other
+changes, SFAS 154 requires that a voluntary change in accounting principle
+or a
+change required by a new accounting pronouncement that does not include specific
+transition provisions be applied retrospectively with all prior period financial
+statements presented based on the new accounting principle, unless it is
+impracticable to do so. SFAS 154 also provides that (1) a change in method
+of
+depreciating or amortizing a long-lived nonfinancial asset be accounted for
+as a
+change in estimate (prospectively) that was effected by a change in accounting
+principle, and (2) correction of errors in previously issued financial
+statements should be termed a restatement. ” SFAS 154
+is
+effective for accounting changes and correction of errors made in fiscal years
+beginning after December 15, 2005 with early adoption permitted for accounting
+changes and correction of errors made in fiscal years beginning after June
+1,
+2005. Accordingly,
+the Company plans to adopt the provisions of SFAS 154 in the first quarter
+of
+fiscal 2006, beginning on January 1, 2006 and does not expect it to have a
+material impact on its consolidated results of operations and financial
+condition of the Company. 
+Item
+7A. Quantitative and Qualitative Disclosures about Market Risk
+During
+the third quarter of 2005, RPC repaid its debt with a variable interest
+rate. As of December 31, 2005, RPC is no longer exposed to any
+interest rate risk on debt. The Company is also subject to interest rate risk
+exposure through borrowings on its $25.0 million credit facility which was
+recently increased to $50 million subsequent to year end. As of December 31,
+2005, there are no outstanding borrowings on our credit facilities. For
+additional information with respect to RPC’s long term debt, see Note 7 of the
+Notes to Consolidated Financial Statements. 
+27 
+MANAGEMENT’S
+REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 
+To
+the
+Stockholders of RPC, Inc.: 
+The
+management of RPC, Inc. is responsible for establishing and maintaining adequate
+internal control over financial reporting for the Company. RPC, Inc. maintains
+a
+system of internal accounting controls designed to provide reasonable assurance,
+at a reasonable cost, that assets are safeguarded against loss or unauthorized
+use and that the financial records are adequate and can be relied upon to
+produce financial statements in accordance with accounting principles generally
+accepted in the United States of America. The internal control system is
+augmented by written policies and procedures, an internal audit program and
+the
+selection and training of qualified personnel. This system includes policies
+that require adherence to ethical business standards and compliance with all
+applicable laws and regulations. 
+There
+are
+inherent limitations to the effectiveness of any controls system. A controls
+system, no matter how well designed and operated, can provide only reasonable,
+not absolute, assurance that the objectives of the controls system are met.
+Also, no evaluation of controls can provide absolute assurance that all control
+issues and any instances of fraud, if any, within the Company will be detected.
+Further, the design of a controls system must reflect the fact that there are
+resource constraints, and the benefits of controls must be considered relative
+to their costs. The Company intends to continually improve and refine its
+internal controls. 
+Under
+the
+supervision and with the participation of our management, including our
+principal executive officer and principal financial officer, we conducted an
+evaluation of the effectiveness of the design and operations of our internal
+control over financial reporting as of December 31, 2005 based on criteria
+established in Internal Control—Integrated Framework issued by the Committee of
+Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
+management’s assessment is that RPC, Inc. maintained effective internal control
+over financial reporting as of December 31, 2005. 
+The
+independent registered public accounting firm, Grant Thornton LLP, has audited
+the consolidated financial statements as of and for the year ended December
+31,
+2005, and has also issued their report on management’s assessment of the
+Company’s internal control over financial reporting, included in this report on
+page 29. 
+/s/
+Richard A. Hubbell 
+/s/
+Ben M. Palmer 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+Ben
+M. Palmer 
+Chief
+Financial Officer and Treasurer 
+Atlanta,
+Georgia 
+March
+8,
+2006 
+28 
+REPORT
+OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
+FINANCIAL REPORTING 
+Board
+of
+Directors and Stockholders of RPC, Inc. 
+We
+have
+audited management ’ s assessment
+included in Management’s Report on Internal Control Over Financial Reporting
+included in RPC Inc.’s Form 10-K for 2005 that RPC, Inc. (a Delaware
+corporation) maintained effective internal control over financial reporting
+as
+of December 31, 2005, based on criteria established in Internal
+Control—Integrated Framework issued by the Committee of Sponsoring Organizations
+of the Treadway Commission (COSO). RPC, Inc. ’ s management
+is
+responsible for maintaining effective internal control over financial reporting
+and for its assessment of the effectiveness of internal control over financial
+reporting. Our responsibility is to express an opinion on management ’ s assessment
+and
+an opinion on the effectiveness of the Company ’ s internal
+control
+over financial reporting based on our audit. 
+We
+conducted our audit in accordance with the standards of the Public Company
+Accounting Oversight Board (United States). Those standards require that we
+plan
+and perform the audit to obtain reasonable assurance about whether effective
+internal control over financial reporting was maintained in all material
+respects. Our audit included obtaining an understanding of internal
+control over financial reporting, evaluating management ’ s assessment,
+testing and evaluating the design and operating effectiveness of internal
+control, and performing such other procedures as we considered necessary in
+the
+circumstances. We believe that our audit provides a reasonable basis for
+our opinion. 
+A
+company ’ s
+internal control over financial reporting is a process designed 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. A company ’ s internal
+control
+over financial reporting includes those policies and procedures that (1) pertain
+to the maintenance of records that, in reasonable detail, accurately and fairly
+reflect the transactions and dispositions of the assets of the company; (2)
+provide reasonable assurance that transactions are recorded as necessary to
+permit preparation of financial statements in accordance with generally accepted
+accounting principles, and that receipts and expenditures of the company are
+being made only in accordance with authorizations of management and directors
+of
+the company; and (3) provide reasonable assurance regarding prevention or timely
+detection of unauthorized acquisition, use, or disposition of the company ’ s assets
+that
+could have a material effect on the financial statements. 
+Because
+of its inherent limitations, internal control over financial reporting may
+not
+prevent or detect misstatements. Also, projections of any evaluation of
+effectiveness to future periods are subject to the risk that controls may become
+inadequate because of changes in conditions, or that the degree of compliance
+with the policies or procedures may deteriorate . 
+In
+our
+opinion, management ’ s assessment
+that
+RPC, Inc. maintained effective internal control over financial reporting as
+of
+December 31, 2005, is fairly stated, in all material respects, based on criteria
+established in Internal Control—Integrated Framework issued by the COSO. 
+Also in our opinion, RPC, Inc. maintained, in all material respects, effective
+internal control over financial reporting as of December 31, 2005, based on
+criteria established in Internal Control—Integrated Framework issued by the
+COSO . 
+We
+have
+also audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), the consolidated balance sheets of RPC, Inc.
+and subsidiaries as of December 31, 2005 and 2004, and the related consolidated
+statements of operations, stockholders ’ equity
+and cash
+flows for each of the two years in the period ended December 31, 2005 and our
+report dated March 8, 2006 expressed an unqualified opinion on those financial
+statements. 
+/s/
+GRANT
+THORNTON LLP 
+Atlanta,
+Georgia 
+March
+8,
+2006 
+29 
+Item
+8. Financial Statements and Supplementary Data 
+CONSOLIDATED
+BALANCE SHEETS 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands except share information) 
+December
+31, 
+2005 
+2004
+ASSETS 
+Cash
+and cash equivalents 
+$ 
+12,809 
+$ 
+29,636 
+Accounts
+receivable, net 
+107,428 
+75,793 
+Inventories 
+13,298 
+10,587 
+Deferred
+income taxes 
+5,304 
+6,144 
+Prepaid
+expenses and other current assets 
+4,004 
+3,638 
+Current
+assets 
+142,843 
+125,798 
+Property,
+plant and equipment, net 
+141,218 
+114,222 
+Goodwill
+and other intangibles, net 
+24,114 
+20,183 
+Other
+assets 
+3,610 
+2,739 
+Total
+assets 
+$ 
+311,785 
+$ 
+262,942 
+LIABILITIES
+AND STOCKHOLDERS’ EQUITY 
+LIABILITIES 
+Accounts
+payable 
+$ 
+30,437 
+$ 
+23,389 
+Accrued
+payroll and related expenses 
+11,903 
+10,842 
+Accrued
+insurance expenses 
+3,695 
+3,875 
+Accrued
+state, local and other taxes 
+2,585 
+2,183 
+Income
+taxes payable 
+791 
+113 
+Current
+portion of long-term debt 
+- 
+2,700 
+Other
+accrued expenses 
+544 
+5,187 
+Current
+liabilities 
+49,955 
+48,289 
+Long-term
+accrued insurance expenses 
+6,168 
+6,451 
+Long-term
+debt 
+- 
+2,100 
+Long-term
+pension liability 
+13,614 
+11,379 
+Deferred
+income taxes 
+8,758 
+11,945 
+Other
+long-term liabilities 
+789 
+1,355 
+Total
+liabilities 
+79,284 
+81,519 
+Commitments
+and contingencies 
+STOCKHOLDERS’
+EQUITY 
+Preferred
+stock, $0.10 par value, 1,000,000 shares authorized, none
+issued 
+Common
+stock, $0.10 par value, 79,000,000 shares authorized, 64,452,506
+and
+64,823,051 shares issued and outstanding in 2005 and 2004, respectively
+6,445 
+6,482 
+Capital
+in excess of par value 
+19,235 
+25,165 
+Retained
+earnings 
+219,907 
+160,189 
+Deferred
+compensation 
+(5,391 
+) 
+(3,527 
+) 
+Accumulated
+other comprehensive loss 
+(7,695 
+) 
+(6,886 
+) 
+Total
+stockholders’ equity 
+232,501 
+181,423 
+Total
+liabilities and stockholders’ equity 
+$ 
+311,785 
+$ 
+262,942 
+The
+accompanying notes are an integral part of these statements. 
+30 
+CONSOLIDATED
+STATEMENTS OF OPERATIONS 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands except per share data) 
+Years
+ended December 31, 
+2005 
+2004 
+2003 
+REVENUES
+$ 
+427,643 
+$ 
+339,792 
+$ 
+270,527 
+COSTS
+AND EXPENSES: 
+Cost
+of services rendered and goods sold 
+227,492 
+193,659 
+168,766 
+Selling,
+general and administrative expenses 
+75,478 
+65,871 
+52,268 
+Depreciation
+and amortization 
+39,129 
+34,473 
+33,094 
+Gain
+on disposition of assets, net 
+(12,169 
+) 
+(5,551 
+) 
+(36 
+) 
+Operating
+profit 
+97,713 
+51,340 
+16,435 
+Interest
+income (expense), net 
+950 
+(68 
+) 
+(153 
+) 
+Other
+income, net 
+2,077 
+1,931 
+1,288 
+Income
+before income taxes 
+100,740 
+53,203 
+17,570 
+Income
+tax provision 
+34,256 
+18,430 
+6,677 
+Net
+income 
+$ 
+66,484 
+$ 
+34,773 
+$ 
+10,893 
+EARNINGS
+PER SHARE 
+Basic 
+$ 
+1.05 
+$ 
+0.55 
+$ 
+0.17 
+Diluted 
+$ 
+1.01 
+$ 
+0.53 
+$ 
+0.17 
+Dividends
+paid per share 
+$ 
+0.11 
+$ 
+0.05 
+$ 
+0.04 
+The
+accompanying notes are an integral part of these statements. 
+31 
+CONSOLIDATED
+STATEMENTS OF STOCKHOLDERS’ EQUITY 
+RPC,
+INC. AND SUBSIDIARIES 
+(in
+thousands) 
+Three
+Years Ended 
+Comprehensive 
+Common
+Stock 
+Capital 
+in 
+Excess
+of 
+Deferred 
+Retained 
+Accumulated 
+Other 
+Comprehensive 
+December
+31, 2005 
+Income
+(Loss) 
+Shares 
+Amount 
+Par
+Value 
+Compensation 
+Earnings 
+Loss 
+Total 
+Balance,
+December 31, 2002 
+42,911 
+$ 
+4,291 
+$ 
+25,001 
+$ 
+(1,186 
+) 
+$ 
+120,805 
+$ 
+(3,830 
+) 
+$ 
+145,081 
+Stock
+issued for stock incentive plans, net 
+29
+3
+233
+110
+— 
+— 
+346
+Stock
+purchased and retired 
+(189 
+) 
+(20 
+) 
+(1,850 
+) 
+— 
+— 
+— 
+(1,870 
+) 
+Stock
+issued in connection with purchase of business 
+179
+18
+1,982
+— 
+— 
+— 
+2,000
+Net
+income 
+$ 
+10,893 
+— 
+— 
+— 
+10,893
+— 
+10,893
+Minimum
+pension liability, net of taxes of $1,534 
+(2,503 
+) 
+— 
+— 
+— 
+— 
+(2,503 
+) 
+(2,503 
+) 
+Unrealized
+gain on securities, net of taxes of $20 
+33
+33
+33
+Comprehensive
+income 
+$ 
+8,423 
+Dividends
+declared 
+— 
+— 
+— 
+(2,874 
+) 
+— 
+(2,874 
+) 
+Three-for-two
+stock split 
+21,479
+2,149
+(2,149 
+) 
+— 
+Balance,
+December 31, 2003 
+64,409
+6,441
+23,217
+(1,076 
+) 
+128,824
+(6,300 
+) 
+151,106
+Stock
+issued for stock incentive plans, net 
+354
+36
+4,282
+(2,451 
+) 
+— 
+— 
+1,867
+Stock
+purchased and retired 
+(170 
+) 
+(17 
+) 
+(2,312 
+) 
+— 
+— 
+— 
+(2,329 
+) 
+Net
+income 
+$ 
+34,773 
+— 
+— 
+— 
+34,773
+— 
+34,773
+Minimum
+pension liability, net of taxes of $370 
+(605 
+) 
+— 
+— 
+— 
+— 
+(605 
+) 
+(605 
+) 
+Unrealized
+gain on securities, net of taxes of $12 
+19
+19
+19
+Comprehensive
+income 
+$ 
+34,187 
+Dividends
+declared 
+— 
+— 
+— 
+(3,408 
+) 
+— 
+(3,408 
+) 
+Three-for-two
+stock split 
+230
+22
+(22 
+) 
+— 
+Balance,
+December 31, 2004 
+64,823
+6,482
+25,165
+(3,527 
+) 
+160,189
+(6,886 
+) 
+181,423
+Stock
+issued for stock incentive plans, net 
+417
+42
+5,397
+(1,864 
+) 
+— 
+— 
+3,575
+Stock
+purchased and retired 
+(739 
+) 
+(74 
+) 
+(11,332 
+) 
+— 
+— 
+— 
+(11,406 
+) 
+Net
+income 
+$ 
+66,484 
+— 
+— 
+— 
+66,484
+— 
+66,484
+Minimum
+pension liability, net of taxes of $605 
+(987 
+) 
+— 
+— 
+— 
+— 
+(987 
+) 
+(987 
+) 
+Unrealized
+gain on securities, net of taxes of $108 
+178
+178
+178
+Comprehensive
+income 
+$ 
+65,675 
+Dividends
+declared 
+— 
+— 
+— 
+(6,766 
+) 
+— 
+(6,766 
+) 
+Three-for-two
+stock split 
+(48 
+) 
+(5 
+) 
+5
+— 
+Balance,
+December 31, 2005 
+64,453
+$ 
+6,445 
+$ 
+19,235 
+$ 
+(5,391 
+) 
+$ 
+219,907 
+$ 
+(7,695 
+) 
+$ 
+232,501 
+The
+accompanying notes are an integral part of these statements.
+32 
+CONSOLIDATED
+STATEMENTS OF CASH FLOWS 
+RPC,
+Inc. and Subsidiaries 
+(in
+thousands) 
+Years
+ended December 31, 
+2005 
+2004 
+2003 
+OPERATING
+ACTIVITIES 
+Net
+income 
+$ 
+66,484 
+$ 
+34,773 
+$ 
+10,893 
+Non-cash
+charges (credits) to earnings: 
+Depreciation
+and amortization and other non-cash charges 
+40,390 
+35,054 
+33,182 
+Gain
+on disposition of assets 
+(12,169 
+) 
+(5,551 
+) 
+(36 
+) 
+Deferred
+income tax (benefit) provision 
+(1,851 
+) 
+(756 
+) 
+5,401 
+Changes
+in current assets and liabilities: 
+Accounts
+receivable 
+(31,635 
+) 
+(22,074 
+) 
+(13,551 
+) 
+Income
+taxes receivable 
+- 
+4,472 
+4,554 
+Inventories 
+(2,445 
+) 
+(530 
+) 
+(455 
+) 
+Prepaid
+expenses and other current assets 
+(81 
+) 
+41 
+(117 
+) 
+Accounts
+payable 
+7,048 
+3,786 
+7,323 
+Income
+taxes payable 
+796 
+113 
+- 
+Accrued
+payroll and related expenses 
+1,061 
+2,316 
+885 
+Accrued
+insurance expenses 
+(180 
+) 
+1,023 
+(1,263 
+) 
+Accrued
+state, local and other taxes 
+402 
+520 
+4 
+Other
+accrued expenses 
+(381 
+) 
+391 
+(962 
+) 
+Changes
+in working capital 
+(25,415 
+) 
+(9,942 
+) 
+(3,582 
+) 
+Changes
+in other assets and liabilities: 
+Pension
+liabilities 
+643 
+(2,568 
+) 
+2,003 
+Accrued
+insurance expenses 
+(283 
+) 
+595 
+2,273 
+Other
+non-current assets 
+(871 
+) 
+(875 
+) 
+103 
+Other
+non-current liabilities 
+(566 
+) 
+(356 
+) 
+394 
+Net
+cash provided by operating activities 
+66,362 
+50,374 
+50,631 
+INVESTING
+ACTIVITIES 
+Capital
+expenditures 
+(72,808 
+) 
+(49,869 
+) 
+(30,356 
+) 
+Purchase
+of businesses 
+(8,836 
+) 
+(3,310 
+) 
+(6,210 
+) 
+Proceeds
+from sale of assets 
+19,229 
+15,964 
+1,896 
+Net
+cash used for investing activities 
+(62,415 
+) 
+(37,215 
+) 
+(34,670 
+) 
+FINANCING
+ACTIVITIES 
+Payment
+of dividends 
+(6,766 
+) 
+(3,408 
+) 
+(2,874 
+) 
+Payments
+on debt 
+(4,800 
+) 
+(1,110 
+) 
+(552 
+) 
+Cash
+paid for common stock purchased and retired 
+(10,268 
+) 
+(1,728 
+) 
+(1,870 
+) 
+Proceeds
+received upon exercise of stock options 
+1,060 
+421 
+104 
+Net
+cash used for financing activities 
+(20,774 
+) 
+(5,825 
+) 
+(5,192 
+) 
+Net
+(decrease) increase in cash and cash equivalents 
+(16,827 
+) 
+7,334 
+10,769 
+Cash
+and cash equivalents at beginning of year 
+29,636 
+22,302 
+11,533 
+Cash
+and cash equivalents at end of year 
+$ 
+12,809 
+$ 
+29,636 
+$ 
+22,302 
+The
+accompanying notes are an integral part of these statements. 
+33 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+Note
+1: Significant Accounting Policies 
+Principles
+of Consolidation and Basis of Presentation 
+The
+consolidated financial statements include the accounts of RPC, Inc. and its
+wholly-owned subsidiaries (“RPC” or the “Company”). All significant intercompany
+accounts and transactions have been eliminated. 
+Nature
+of Operations 
+RPC
+provides a broad range of specialized oilfield services and equipment primarily
+to independent and major oil and gas companies engaged in the exploration,
+production and development of oil and gas properties throughout the United
+States, including the Gulf of Mexico, mid-continent, southwest and Rocky
+Mountain regions, and in selected international markets. The services and
+equipment provided include Technical Services such as pressure pumping services,
+snubbing services (also referred to as hydraulic workover services), coiled
+tubing services, nitrogen services, and firefighting and well control, and
+Support Services such as the rental of drill pipe and other specialized oilfield
+equipment and oilfield training. 
+Dividends 
+On
+January 24, 2006, the Board of Directors approved an increase in the quarterly
+cash dividend per common share, from $0.027 to $0.05, payable March 10, 2006
+to
+stockholders of record at the close of business February 10, 2006. 
+Use
+of Estimates in the Preparation of Financial Statements 
+The
+preparation of financial statements in conformity with accounting principles
+generally accepted in the United States requires management to make estimates
+and assumptions that affect the reported amounts of assets and liabilities
+and
+disclosure of contingent assets and liabilities at the date of the financial
+statements and the reported amounts of revenues and expenses during the
+reporting period. Actual results could differ from those estimates.
+Significant
+estimates are used in the determination of the allowance for doubtful accounts,
+income taxes, accrued insurance expenses, depreciable lives of assets, and
+pension liabilities. 
+Revenues
+RPC
+recognizes revenue when an agreement exists, prices are determinable, services
+and products are delivered and collectibility is reasonably assured.
+Reclassifications
+Certain
+prior year balances have been reclassified to conform with the current year
+presentation. 
+Concentration
+of Credit Risk 
+Substantially
+all of the Company’s customers are engaged in the oil and gas industry. This
+concentration of customers may impact overall exposure to credit risk, either
+positively or negatively, in that customers may be similarly affected by changes
+in economic and industry conditions. The Company provided oilfield services
+to
+several hundred customers, none of which accounted for more than 10 percent
+of
+consolidated revenues. 
+Cash
+and Cash Equivalents 
+Highly
+liquid investments with original maturities of three months or less when
+acquired are considered to be cash equivalents. RPC maintains cash equivalents
+and investments in one or more large, well-capitalized financial institutions,
+and RPC’s policy restricts investment in any securities rated less than
+“investment grade” by national rating services. 
+34 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+Investments
+Investments
+classified as available-for-sale are stated at their fair values, with the
+unrealized gains and losses, net of tax, reported in a separate component of
+stockholders’ equity. The cost of securities sold is based on the specific
+identification method. Realized gains and losses, declines in value judged
+to be
+other than temporary, interest, and dividends with respect to available-for-sale
+securities are included in interest income. The Company did not realize any
+gains on securities during 2005, 2004 and 2003 on its available for sale
+securities. In 2004, the Company reclassed approximately $59,000 from other
+comprehensive income as a result of the securities that are held in a
+Supplemental Retirement Plan being classified as trading. This reclassification
+of securities from available-for-sale to trading was due to a change in the
+frequency of participant directed investment choices. The investment income
+earned on trading securities is presented in other income on the consolidated
+statement of operations. 
+Management
+determines the appropriate classification of investments at the time of purchase
+and re-evaluates such designations as of each balance sheet date. 
+Accounts
+Receivable 
+The
+majority of the Company’s accounts receivable are due principally from major and
+independent oil and natural gas exploration and production companies. Credit
+is
+extended based on evaluation of a customer ’ s financial
+condition and, generally, collateral is not required. Accounts receivable are
+considered past due after 60 days and are stated at amounts due from customers,
+net of an allowance for doubtful accounts. 
+Allowance
+for Doubtful Accounts 
+Accounts
+receivable are carried at the amount owed by customers, reduced by an allowance
+for estimated amounts that may not be collectible in the future. The estimated
+allowance for doubtful accounts is based on our evaluation of industry trends,
+financial condition of our customers, our historical write-off experience,
+current economic conditions, and in the case of our international customers,
+our
+judgments about the economic and political environment of the related country
+and region. Accounts are written off against the allowance for doubtful accounts
+when the Company determines that amounts are uncollectible and recoveries of
+previously written-off accounts are recorded when collected. 
+Inventories
+Inventories,
+which consist principally of (i) products that are consumed in RPC’s services
+provided to customers, (ii) spare parts for equipment used in providing these
+services and (iii) manufactured components and attachments for equipment used
+in
+providing services, are recorded at the lower of weighted average cost or market
+value. Market value is determined based on replacement cost for material and
+supplies and net realizable value for work in process and finished goods. The
+Company regularly reviews inventory quantities on hand and records provisions
+for excess or obsolete inventory based primarily on its estimated forecast
+of
+product demand, market conditions, production requirements and technological
+developments. 
+Property,
+Plant and Equipment 
+Property,
+plant and equipment, including software costs, are reported at cost less
+accumulated depreciation and amortization, which is generally provided on a
+straight-line basis over the estimated useful lives of the assets. Annual
+depreciation and amortization expense is computed using the following useful
+lives: operating equipment, 3 to 10 years; buildings and leasehold improvements,
+15 to 30 years; furniture and fixtures, 5 to 7 years; software, 5 years; and
+vehicles, 3 to 5 years. The cost of assets retired or otherwise disposed of
+and
+the related accumulated depreciation and amortization are eliminated from the
+accounts in the year of disposal with the resulting gain or loss credited or
+charged to income from operations. Expenditures for additions, major renewals,
+and betterments are capitalized. Expenditures for restoring an identifiable
+asset to working condition or for maintaining the asset in good working order
+constitute repairs and maintenance and are expensed as incurred. 
+RPC
+records impairment losses on long-lived assets used in operations when events
+and circumstances indicate that the assets might be impaired and the
+undiscounted cash flows estimated to be generated by those assets are less
+than
+the 
+35 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+carrying
+amount of those assets. The Company periodically reviews the values assigned
+to
+long-lived assets, such as property, plant and equipment and other assets,
+to
+determine if any impairments should be recognized. Management believes that
+the
+long-lived assets in the accompanying balance sheets have not been impaired.
+Goodwill
+and Other Intangibles 
+Goodwill
+represents the excess of the purchase price over the fair value of net assets
+of
+businesses acquired. Earnout payments to sellers of acquired businesses may
+have
+to be paid in accordance with the respective agreements on an annual or interim
+basis and are recorded as goodwill when the earnout payment amounts are
+determinable. For additional information with respect to earnout payments,
+see
+Note 2 of the Notes to Consolidated Financial Statements. The carrying amount
+of
+goodwill was $24,093,000 at December 31, 2005 and $20,133,000 at December 31,
+2004. Goodwill is reviewed annually for impairment in accordance with the
+provisions of Statement of Financial Accounting Standard (“SFAS”) No. 142,
+“Goodwill and Other Intangible Assets.” In reviewing goodwill for impairment,
+potential impairment is measured by comparing the estimated fair value of a
+reporting unit with its carrying value. Based upon the results of these
+analyses, the Company has concluded that no impairment of its goodwill has
+occurred. 
+Other
+intangibles primarily represent non-compete agreements related to businesses
+acquired. Non-compete agreements are amortized on a straight-line basis over
+the
+period of the agreement, as this method best estimates the ratio that current
+revenues bear to the total of current and anticipated revenues. The carrying
+amount and accumulated amortization for non-compete agreements are as follows:
+December
+31, 
+2005 
+2004 
+Non-compete
+agreements 
+$ 
+300,000 
+$ 
+450,000 
+Less:
+accumulated amortization 
+(290,016 
+) 
+(411,691 
+) 
+$ 
+9,984 
+$ 
+38,309 
+Amortization
+of non-compete agreements was approximately $28,000 in 2005, $40,000 in 2004,
+and $40,000 in 2003. 
+Insurance
+Expenses 
+RPC
+self
+insures, up to certain policy-specified limits, certain risks related to general
+liability, workers’ compensation, vehicle and equipment liability, and employee
+health insurance plan costs. The estimated cost of claims under these
+self-insurance programs is estimated and accrued as the claims are incurred
+(although actual settlement of the claims may not be made until future periods)
+and may subsequently be revised based on developments relating to such claims.
+The portion of these estimated outstanding claims expected to be paid more
+than
+one year in the future is classified as long-term accrued insurance expenses.
+Income
+Taxes 
+Deferred
+tax liabilities and assets are determined based on the difference between the
+financial and tax bases of assets and liabilities using enacted tax rates in
+effect for the year in which the differences are expected to reverse. The
+Company establishes a valuation allowance against the carrying value of deferred
+tax assets when the Company determines that it is more likely than not that
+the
+asset will not be realized through future taxable income. 
+Defined
+Benefit Pension Plan 
+The
+Company has a defined benefit pension plan that provides monthly benefits upon
+retirement at age 65 to eligible employees. See Note 10 for a full description
+of this plan and the related accounting and funding policies. 
+Share
+Repurchases 
+The
+Company records the cost of share repurchases in stockholders’ equity as a
+reduction to common stock to the extent of par value of the shares acquired
+and
+the remainder is allocated to capital in excess of par value. 
+36 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+Earnings
+per Share 
+SFAS
+No.
+128, “Earnings Per Share,” requires a basic earnings per share and diluted
+earnings per share presentation. The two calculations differ as a result
+of the
+dilutive effect of stock options and time lapse restricted and performance
+restricted shares included in diluted earnings per share, but excluded from
+basic earnings per share. A reconciliation of the weighted
+shares outstanding is as follows: 
+2005 
+2004 
+2003 
+Basic 
+63,368,188 
+63,696,290 
+63,832,833 
+Dilutive
+effect of stock options and restricted shares 
+2,304,722 
+1,447,868 
+898,478 
+Diluted 
+65,672,910 
+65,144,158 
+64,731,311 
+Fair
+Value of Financial Instruments 
+The
+Company’s financial instruments consist primarily of cash and cash equivalents,
+accounts receivable, accounts payable and debt. The carrying value of cash,
+accounts receivable and accounts payable approximate their fair value due to
+the
+short-term nature of such instruments. The carrying value of debt as of December
+31, 2004 approximated fair value since the interest rates are market based
+and
+are generally adjusted annually. 
+New
+Accounting Standards 
+In
+November 2004, the FASB issued SFAS No. 151, “Inventory
+Costs—An Amendment of ARB No. 43, Chapter 4” (“SFAS 151”).
+SFAS 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory
+Pricing,” to clarify the accounting for abnormal amounts of idle facility
+expense, freight, handling costs, and wasted material (spoilage). Among other
+provisions, the new rule requires that items such as idle facility expense,
+excessive spoilage, double freight, and rehandling costs be recognized as
+current-period charges regardless of whether they meet the criterion of “so
+abnormal” as stated in ARB No. 43. Additionally, SFAS 151 requires
+that the allocation of fixed production overheads to the costs of conversion
+be
+based on the normal capacity of the production facilities. SFAS 151 is
+effective for fiscal years beginning after June 15, 2005. The Company plans
+to adopt SFAS 151 in the first quarter of fiscal 2006, beginning on January
+1,
+2006. Adoption of SFAS 151 is not expected to have a material impact on the
+Company’s consolidated results of operations and financial condition.
+In
+December 2004, the FASB issued SFAS No. 123 (revised 2004),
+“Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123,
+“Accounting for Stock-Based Compensation,” (“SFAS 123”) and supersedes APB
+Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R
+requires all share-based payments to employees, including grants of employee
+stock options, to be recognized in the financial statements based on their
+fair
+values. The pro forma disclosures previously permitted under SFAS 123 will
+no longer be an alternative to financial statement recognition. Under
+SFAS 123R, the Company must determine the appropriate fair value model to
+be used for valuing share-based payments, the amortization method for
+compensation cost and the transition method to be used at date of adoption.
+The
+transition methods available are the modified prospective application and the
+modified retrospective application. Under the modified retrospective
+application, prior periods may be
+restated either as of the beginning of the year of adoption or for all periods
+presented. The modified prospective application requires that compensation
+expense be recorded for all unvested stock options and restricted stock at
+the
+beginning of the first quarter of adoption of SFAS 123R, while the modified
+retrospective application would record compensation expense for all unvested
+stock options and restricted stock beginning with the first period restated.
+SFAS No. 123R states that the requirement is to adopt the provisions in the
+first interim or annual period beginning after June 15, 2005. However, the
+Securities and Exchange Commission (“SEC”) issued a new rule that allows
+companies to implement Statement No. 123R at the beginning of their next fiscal
+year, instead of the next reporting period, that begins after June 15, 2005.
+In
+March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”)
+regarding the interaction between SFAS 123R and certain SEC rules and
+regulations and provides the staff’s view regarding the valuation of
+shared-based payment arrangements for public companies. In
+November 2005, the FASB issued FASB Staff Position (“FSP”) FAS 123R-3,
+“Transition Election Related to Accounting for the Tax Effects of Share-Based
+Payment Awards” (“FAS 123R-3”). FAS 123R-3 provides for a practical
+transition election related to accounting for the tax effects of share-based
+payment awards to employees. Companies may elect either the guidance in
+SFAS No. 123R or this alternative transition method up to one year
+from the later of its initial adoption of SFAS No. 123R or the
+effective date of this FSP to make this one time election. 
+The
+Company will implement the provisions of SFAS 123R in the first quarter of
+2006
+using the modified prospective method. As
+permitted by SFAS No. 123, the Company currently uses APB 25’s intrinsic
+value method and recognizes no compensation cost for employee stock options.
+The
+Company currently utilizes a standard option pricing model (i.e., Black-Scholes)
+to measure the fair value of stock options granted to employees and will
+continue to use the Black-Scholes model for option valuation. The impact of
+SFAS
+123R would have approximated the impact of SFAS No. 123 as described in the
+disclosure of pro forma net income and earnings per share in Note 1 to our
+audited financial statements, if we had adopted it 
+37 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+earlier.
+SFAS No. 123R also requires the benefits of tax deductions in excess of
+recognized compensation cost to be reported as a financing cash flow, rather
+than as an operating cash flow. This requirement will reduce net operating
+cash
+flows and increase net financing cash flows in periods after
+adoption. T he
+Company cannot estimate what those amounts will be in the future partly because
+the Company cannot predict the stock prices when i) the employees exercise
+non-qualified options or ii) the restricted stock vests. Also, under
+the provision of FAS 123R, unearned compensation related to unvested restricted
+stock awards are not recorded. Accordingly, any remaining unearned compensation
+related to unvested restricted stock awards and the corresponding amount in
+paid-in capital will no longer be included in stockholders’ equity beginning
+January 1, 2006. Based on stock options and restricted stock granted to
+employees through December 31, 2005, the Company expects that the adoption
+of SFAS 123R on January 1, 2006, will reduce first quarter net income
+by approximately $170,000. See Note 10 for further information on the Company’s
+stock-based compensation plans. The cumulative amount of excess tax deductions
+related to share-based payment awards to employees computed in accordance with
+the provisions of SFAS 123R is approximately $660,000 as of December 31,
+2005. 
+In
+December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary
+Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
+Transactions” (“SFAS 153”). The amendments made by SFAS 153 are based on the
+principle that exchanges of nonmonetary assets should be measured based on
+the
+fair value of the assets exchanged. Further, the amendments eliminate the narrow
+exception for non-monetary exchanges of similar productive assets and replace
+it
+with a broader exception for exchanges of nonmonetary assets that do not have
+commercial substance. Previously, Opinion 29 required that the accounting for
+an
+exchange of a productive asset for a similar productive asset or an equivalent
+interest in the same or similar productive asset should be based on the recorded
+amount of the asset relinquished. By focusing the exception on exchanges that
+lack commercial substance, SFAS 153 intends to produce financial reporting
+that
+more faithfully represents the economics of the transaction. SFAS 153 is
+effective for the fiscal periods beginning after June 15, 2005 and the
+provisions are to be applied prospectively. The Company has adopted the
+provisions of SFAS 153 resulting in no material impact on its consolidated
+results of operations and financial condition. 
+FASB
+Staff Position ( “ FSP ” )
+No. 109-2,
+“ Accounting
+and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
+the American Jobs Creation Act of 2004 ” ( “ FSP 109-2 ” ),
+issued in
+December 2004, is intended to 
+provide
+limited relief in the application of the indefinite reinvestment criterion
+due
+to ambiguities surrounding the implementation of the Act. The Jobs Act was
+enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed
+time beyond the financial reporting period of enactment to evaluate the effect
+of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings
+for purposes of applying FASB Statement No. 109. 
+The
+Company has completed its evaluation of FSP 109-2 and has repatriated earnings
+of approximately $1.2 million. The cash distribution will be treated as an
+extraordinary dividend and will qualify for the 85 percent Dividends Received
+Deduction ( “ DRD ” )
+within the
+meaning of Code Section 965. The Company implemented its repatriation plan
+late
+in the fourth quarter of 2005 starting with the reinvestment of the money back
+into the United States. 
+In
+March
+2005, the FASB issued FIN 47, “ Accounting
+for
+Conditional Asset Retirement Obligations, an interpretation of FASB Statement
+No. 143 ” 
+( “ FIN 47 ” ),
+which requires
+an entity to recognize a liability for the fair value of a conditional asset
+retirement obligation when incurred if the liability ’ s fair
+value can
+be reasonably estimated. FIN 47 is effective for fiscal years ending after
+December 15, 2005 and has been adopted by the Company in the fiscal year
+ended December 31, 2005. Adoption of FIN 47 did not have a material impact
+on the consolidated results of operations and financial condition of the
+Company. 
+In
+May
+2005, the FASB has issued FASB Statement No. 154, “ Accounting
+Changes
+and Error Corrections ” (“SFAS 154”)
+which replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No.
+3,
+“ Reporting
+Accounting Changes in Interim Financial Statements. ” Among
+other
+changes, SFAS 154 requires that a voluntary change in accounting principle
+or a
+change required by a new accounting pronouncement that does not include specific
+transition provisions be applied retrospectively with all prior period financial
+statements presented based on the new accounting principle, unless it is
+impracticable to do so. SFAS 154 also provides that (1) a change in method
+of
+depreciating or amortizing a long-lived nonfinancial asset be accounted for
+as a
+change in estimate (prospectively) that was effected by a change in accounting
+principle, and (2) correction of errors in previously issued financial
+statements should be termed a “ restatement. ” 
+SFAS 154 is
+effective for accounting changes and correction of errors made in fiscal years
+beginning after December 15, 2005 with early adoption permitted for accounting
+changes and correction of errors made in fiscal years beginning after June
+1,
+2005. Accordingly,
+the Company plans to adopt the provisions of SFAS 154 in the first quarter
+of
+38 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and 
+Years
+ended December 31, 2005, 2004 and 2003 
+fiscal
+2006, beginning on January 1, 2006 and does not expect it to have a material
+impact on its consolidated results of operations and financial condition of
+the
+Company. 
+Stock-Based
+Compensation 
+RPC
+accounts for the stock incentive plan using the intrinsic value method
+prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting
+for Stock Issued to Employees.” RPC records deferred compensation related to the
+restricted stock grants based on the fair market value of the shares at the
+issue date and amortizes such amounts ratably over the vesting period for the
+shares. Fair value of restricted shares granted was $3,151,000 in 2005,
+$3,273,000 in 2004, and $132,000 in 2003. RPC recorded amortization of deferred
+compensation totaling $1,259,000 in 2005, $822,000 in 2004, and $241,000 in
+2003
+related to these restricted stock grants. 
+If
+RPC
+had accounted for the stock incentive plans in accordance with the provisions
+of
+SFAS No. 123, “Accounting for Stock-Based Compensation” the total fair value of
+awards granted would be amortized over the vesting period of the awards, and
+RPC’s reported net income and diluted net income per share would have been as
+follows: 
+Years
+ended December 31, 
+2005 
+2004 
+2003
+(in
+thousands) 
+Net
+income — as reported 
+$ 
+66,484 
+$ 
+34,773 
+$ 
+10,893 
+Add:
+Stock-based employee compensation expense included in reported net
+income,
+net of related tax effect 
+781 
+510 
+150 
+Deduct:
+Total stock-based employee compensation expense determined under
+fair
+value based method for all awards, net of related tax
+effect 
+(1,859 
+) 
+(1,193 
+) 
+(957 
+) 
+Pro
+forma net income 
+$ 
+65,406 
+$ 
+34,090 
+$ 
+10,086 
+Pro
+forma income per share would have been as follows: 
+Basic
+- as reported 
+$ 
+1.05 
+$ 
+0.55 
+$ 
+0.17 
+Basic
+- pro forma 
+$ 
+1.03 
+$ 
+0.54 
+$ 
+0.16 
+Diluted
+- as reported 
+$ 
+1.01 
+$ 
+0.53 
+$ 
+0.17 
+Diluted
+- pro forma 
+$ 
+1.00 
+$ 
+0.52 
+$ 
+0.16 
+The
+Company has computed, for pro forma disclosure purposes, the value of all
+options granted during 2003 using the Black-Scholes option pricing model as
+prescribed by SFAS No. 123 using the following weighted average assumptions
+for
+grants: 
+2005 
+2004 
+2003 
+Risk-free
+interest rate 
+N/A 
+N/A 
+1.1 
+% 
+Expected
+dividend yield 
+N/A 
+N/A 
+1 
+% 
+Expected
+lives 
+N/A 
+N/A 
+7
+years 
+Expected
+volatility 
+N/A 
+N/A 
+43-46 
+% 
+There
+were no options granted to RPC employees in 2005 and 2004. The total fair value
+of options granted to RPC employees were $2,534,000 in 2003. 
+Three-for-Two
+Stock Split 
+On
+October 25, 2005, RPC’s Board of Directors declared a three-for-two stock split
+of the Company’s common shares. The additional shares were distributed on
+December 12, 2005, to shareholders of record on November 11, 2005. All share,
+earning per share, and dividends per share data presented in the accompanying
+financial statements have been adjusted to reflect this stock
+split. 
+39 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+Note
+2: Acquisitions 
+On
+April
+1, 2003, RPC purchased all of the assets of Bronco Oilfield Services, Inc.
+(“Bronco”), a privately-held company, specializing in surface pressure control
+services and equipment. The acquisition was accounted for under the purchase
+method of accounting. Pro forma results of operations have not been presented
+for this acquisition because the effect was not material to the Company. The
+results of operations of the acquisition are included in the Company’s
+consolidated statements of operations from the date of acquisition. Goodwill
+related to the acquisition has been assigned to the Technical Services segment.
+A
+summary
+of the Company’s purchase transaction is included in the following table (in
+thousands, except share amounts): 
+Entity
+Name and 
+Description
+of 
+Business
+Acquired 
+Date 
+Consideration 
+Inventory 
+Operating 
+Equipment 
+and 
+Vehicles 
+Goodwill 
+Form
+of Consideration 
+Bronco
+Oilfield 
+Services,
+Inc. 
+(Production
+Rental Equipment) 
+4/03 
+$11,033 
+$395 
+$8,189 
+$2,449 
+•   $5,533
+in cash 
+•   179,191
+restricted shares valued at $2,000 
+•   $3,500
+in promissory note payable in five annual installments plus interest
+at 6
+percent fixed rate 
+•   Potential
+earnout 
+The
+consolidated statement of cash flows for the year ended December 31, 2003
+excludes the $3.5 million of promissory notes payable and the $2.0 million
+common stock issued in connection with the Bronco acquisition. Earnout payments
+to sellers of acquired businesses are paid in accordance with the respective
+agreements on an annual or interim basis and are recorded as goodwill when
+the
+earnout payment amounts are determinable. The Company made earnout payments
+of
+$4,600,000 in April 2005 related to 2004 operating results. Final earnout
+payments of $2,400,000 in the second quarter of 2005 and $1,900,000 in the
+fourth quarter of 2005 were made to the sellers of acquired business based
+on
+the results for the interim period ended June 30, 2005. Earnout payments made
+to
+sellers of acquired businesses totaled $3,310,000 in 2004, based on 2003
+operating results. There were no earnouts paid in 2003, based on 2002 operating
+results. As of December 31, 2005, all earnout obligations under these purchase
+agreements have been recognized and paid. 
+Note
+3: Accounts Receivable 
+Accounts
+receivable, net consist of the following: 
+December
+31, 
+2005 
+2004 
+(in
+thousands) 
+Trade
+receivables: 
+Billed 
+$ 
+91,635 
+$ 
+61,068 
+Unbilled 
+18,878 
+16,502 
+Other
+receivables 
+995 
+799 
+Total 
+111,508 
+78,369 
+Less:
+Allowance for doubtful accounts 
+(4,080 
+) 
+(2,576 
+) 
+Accounts
+receivable, net 
+$ 
+107,428 
+$ 
+75,793 
+Trade
+receivables relate to sale of our services and products, for which credit is
+extended based on the customer’s credit history. Other receivables consist
+primarily of amounts due from purchasers of company property and rebates from
+suppliers. 
+Changes
+in the Company’s allowance for doubtful accounts are as follows: 
+40 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+Years
+Ended December 31, 
+2005 
+2004 
+(in
+thousands) 
+Beginning
+balance 
+$ 
+2,576 
+$ 
+2,539 
+Bad
+debt expense 
+1,618 
+1,155 
+Accounts
+written-off 
+(230 
+) 
+(1,329 
+) 
+Recoveries 
+116 
+211 
+Ending
+balance 
+$ 
+4,080 
+$ 
+2,576 
+Note
+4: Inventories 
+Inventories
+are $13,298,000 at December 31, 2005 and $10,587,000 at December 31, 2004 and
+consist of raw materials and supplies. 
+Note
+5: Property, Plant and Equipment 
+Property,
+plant and equipment are presented at cost net of accumulated depreciation and
+consist of the following: 
+December
+31, 
+2005 
+2004 
+(in
+thousands) 
+Land 
+$ 
+5,085 
+$ 
+5,022 
+Buildings
+and leasehold improvements 
+31,836 
+31,509 
+Operating
+equipment 
+257,030 
+234,647 
+Capitalized
+software 
+12,651 
+12,212 
+Furniture
+and fixtures 
+3,080 
+2,938 
+Vehicles 
+63,413 
+51,869 
+Construction
+in progress 
+3,699 
+2,407 
+Gross
+property, plant and equipment 
+376,794 
+340,604 
+Less:
+accumulated depreciation 
+235,576 
+226,382 
+Net
+property, plant and equipment 
+$ 
+141,218 
+$ 
+114,222 
+Depreciation
+expense was $39,100,000 in 2005, $34,397,000 in 2004 and $32,901,000 in 2003.
+There are no capital leases outstanding as of December 31, 2005 and December
+31,
+2004. 
+41 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+Note
+6: Income Taxes 
+The
+following table lists the components of the provision (benefit) for income
+taxes: 
+Years
+ended December 31, 
+2005
+2004
+2003 
+(in
+thousands) 
+Current
+provision: 
+Federal 
+$ 
+31,563 
+$ 
+16,028 
+$ 
+925 
+State 
+4,305 
+2,300 
+164 
+Foreign 
+239 
+858 
+187 
+Deferred
+(benefit) provision: 
+Federal 
+(1,890 
+) 
+(1,210 
+) 
+4,975 
+State 
+39 
+454 
+426 
+Total
+income tax provision 
+$ 
+34,256 
+$ 
+18,430 
+$ 
+6,677 
+Reconciliation
+between the federal statutory rate and RPC’s effective tax rate is as follows:
+Years
+ended December 31, 
+2005 
+2004 
+2003 
+Federal
+statutory rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State
+income taxes, net of federal benefit 
+2.9 
+3.4 
+3.1 
+Tax
+credits 
+(1.1 
+) 
+(3.0 
+) 
+(2.1 
+) 
+Federal
+and state refunds 
+(3.4 
+) 
+(0.6 
+) 
+- 
+Adjustments
+to foreign tax liabilities 
+(0.7 
+) 
+(1.2 
+) 
+- 
+Other 
+1.3 
+1.0 
+2.0 
+Effective
+tax rate 
+34.0 
+% 
+34.6 
+% 
+38.0 
+% 
+Significant
+components of the Company’s deferred tax assets and liabilities are as follows:
+December
+31, 
+2005 
+2004 
+(in
+thousands) 
+Deferred
+tax assets: 
+Self-insurance 
+$ 
+4,106 
+$ 
+4,312 
+Pension 
+5,238 
+4,399 
+State
+net operating loss carryforwards 
+1,802 
+1,875 
+Bad
+debts 
+1,629 
+1,065 
+Accrued
+payroll 
+787 
+1,081 
+Stock-based
+compensation 
+980 
+520 
+Foreign
+tax credit 
+657 
+1,292 
+All
+others 
+296 
+247 
+Valuation
+allowance 
+(1,945 
+) 
+(2,451 
+) 
+Gross
+deferred tax assets 
+13,550 
+12,340 
+Deferred
+tax liabilities: 
+Depreciation 
+(15,168 
+) 
+(16,971 
+) 
+Goodwill 
+(1,606 
+) 
+(1,049 
+) 
+All
+others 
+(230 
+) 
+(121 
+) 
+Gross
+deferred tax liabilities 
+(17,004 
+) 
+(18,141 
+) 
+Net
+deferred tax liabilities 
+$ 
+(3,454 
+) 
+$ 
+(5,801 
+) 
+42 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+Historically,
+undistributed earnings of the Company’s foreign subsidiaries were considered
+indefinitely reinvested and, accordingly, no provision for U.S. federal income
+taxes was recorded. Deferred taxes are provided for earnings outside the United
+States when those earnings are not considered indefinitely reinvested.
+The
+American Jobs Creation Act of 2004 created a temporary incentive for U.S.
+multinationals to repatriate accumulated income earned outside the United
+States. As a result, the Company revisited its policy of indefinite reinvestment
+of foreign earnings and repatriated approximately $1.1 million in 2005. The
+Company recorded a one-time income tax provision of $65,000 attributable to
+these earnings. 
+The
+Company filed amended federal and state tax returns for the years 1999, 2000
+and
+2001 to claim higher deductions for certain expenses and additional foreign
+tax
+credits representing potential tax benefits. During the fourth quarter of 2005,
+the Company received tax refunds totaling approximately $4.0 million including
+$400,000 of interest recorded as interest income. Of the tax refunds received,
+$3.1 million was recorded in 2005 as a tax provision reduction because such
+amounts had not been previously recorded due to uncertainty surrounding the
+amount and timing of the tax benefits to be realized. 
+As
+of
+December 31, 2005, the Company has remaining foreign tax credit carryforwards
+of
+approximately $657,000 that expire in 2012 and 2013. During 2005, the Company
+recognized $0.6 million of previously unutilized foreign tax credits generated
+in prior years. As of December 31, 2004, the valuation allowance and deferred
+tax assets were increased by $1.3 million to reflect foreign tax credit
+carryforwards and a corresponding valuation allowance on a gross rather than
+a
+net basis. The valuation allowance for these foreign tax credit carryforwards
+has been established because the Company does not expect to utilize these credit
+carryforwards. 
+As
+of
+December 31, 2005, the Company has net operating loss carryforwards related
+to
+state income taxes of approximately $41.6 million that expire in 2006 through
+2025. A valuation allowance of approximately $1.3 million, representing the
+tax
+affected amount of loss carryforwards that the Company does not expect to
+utilize, has been established against the corresponding deferred tax asset.
+Total
+income tax payments (refunds), net were $36,031,000 in 2005, $14,692,000 in
+2004
+and $(3,263,000) in 2003. 
+Note
+7: Long-Term Debt 
+The
+Company has access to a $25 million credit facility with a financial institution
+encompassing letters of credit and a demand note. The credit facility requires
+interest payments monthly on outstanding advances generally at LIBOR plus a
+margin ranging between 0.875% and 1.50%. Any outstanding advances are due
+upon demand by the lender and the facility remains outstanding until cancelled
+by either party. Under this facility, there were letters of credit relating
+to
+self-insurance programs and contract bids outstanding for $15,892,000 as of
+December 31, 2005 and $15,067,000 as of December 31, 2004. Subsequent to
+December 31, 2005, the Company increased the credit facility from $25 million
+to
+$50 million. 
+Cash
+interest paid was approximately $204,000 in 2005, $309,000 in 2004 and $79,000
+in 2003. The long-term debt of RPC as of December 31, 2004 is summarized as
+follows: 
+Type 
+Maturity 
+Dates 
+Range
+of 
+Interest
+Rates 
+2004 
+(in
+thousands) 
+Notes
+payable related to acquisitions: 
+2005-2008 
+6% 
+$
+2,800 
+2005 
+Prime 
+2,000 
+4,800 
+Less:
+current portion 
+2,700 
+Long-term
+debt 
+$
+2,100 
+In
+February 2005, the Company prepaid a $2.8 million promissory note. The remaining
+note related to an acquisition was paid in full upon maturity in July
+2005. 
+43 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+Note
+8: Accumulated Other Comprehensive (Loss) Income 
+Accumulated
+other comprehensive (loss) income consists of the following (in thousands):
+Minimum 
+Pension 
+Liability 
+Unrealized 
+Gain
+(Loss) On 
+Securities 
+Total 
+Balance
+at December 31, 2003 
+$ 
+(6,478 
+) 
+$ 
+178 
+$ 
+(6,300 
+) 
+Change
+during 2004: 
+Before-tax
+amount 
+(975 
+) 
+125 
+(850 
+) 
+Tax
+(expense) benefit 
+370 
+(47 
+) 
+323
+Reclassification
+adjustment, net of taxes 
+- 
+(59 
+) 
+(59 
+) 
+Total
+activity in 2004 
+(605 
+) 
+19 
+(586 
+) 
+Balance
+at December 31, 2004 
+(7,083 
+) 
+197 
+(6,886 
+) 
+Change
+during 2005: 
+Before-tax
+amount 
+(1,592 
+) 
+286 
+(1,306 
+) 
+Tax
+(expense) benefit 
+605 
+(108 
+) 
+497 
+Total
+activity in 2005 
+(987 
+) 
+178 
+(809 
+) 
+Balance
+at December 31, 2005 
+$ 
+(8,070 
+) 
+$ 
+375 
+$ 
+(7,695 
+) 
+Note
+9: Commitments and Contingencies 
+Lease
+Commitments - 
+Minimum
+annual rentals, principally for noncancelable real estate leases with terms
+in
+excess of one year, in effect at December 31, 2005, are summarized in the
+following table: 
+(in
+thousands) 
+2006 
+$ 
+1,783 
+2007 
+1,594 
+2008 
+1,203 
+2009 
+715 
+2010 
+396 
+Thereafter 
+515 
+Total
+rental commitments 
+$ 
+6,206 
+Total
+rental expense charged to operations was approximately $5,252,000 in 2005,
+$4,203,000 in 2004 and $4,120,000 in 2003. 
+Income
+Taxes - 
+The
+amount of income taxes the Company pays is subject to ongoing audits by federal
+and state tax authorities, which often result in proposed assessments. Other
+long-term liabilities, which were $789,000 as of December 31, 2005 and
+$1,355,000 as of December 31, 2004, consist primarily of the Company’s estimated
+liabilities for the probable assessments payable. 
+Litigation
+- 
+RPC is a
+party to various routine legal proceedings primarily involving commercial
+claims, workers’ compensation claims and claims for personal injury. RPC insures
+against these risks to the extent deemed prudent by its management, but no
+assurance can be given that the nature and amount of such insurance will, in
+every case, fully indemnify RPC against liabilities arising out of pending
+and
+future legal proceedings related to its business activities. While the outcome
+of these lawsuits, legal proceedings and claims cannot be predicted with
+certainty, management, after consultation with legal counsel, believes that
+the
+outcome of all such proceedings, even if determined adversely, would not have
+a
+material adverse effect on the Company’s business or financial condition.
+44 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+Note
+10: Employee Benefit Plans 
+Defined
+Benefit Pension Plan 
+The
+Company’s Retirement Income Plan, a trusteed defined benefit pension plan,
+provides monthly benefits upon retirement at age 65 to substantially all
+employees with at least one year of service prior to 2002. As of February 28,
+2001, the plan became a multiple employer plan, with Marine Products as an
+adopting employer. 
+In
+2002,
+the Company’s Board of Directors approved a resolution to cease all future
+retirement benefit accruals under the defined benefit pension plan. In lieu
+thereof, the Company began providing enhanced benefits in the form of cash
+contributions for certain longer serviced employees that had not reached the
+normal retirement age of 65 as of March 31, 2002. The contributions are
+discretionary and made annually based on continued employment over a seven
+year
+period beginning in 2002. These discretionary contributions are made to either
+a
+non-qualified Supplemental Retirement Plan (“SERP”) established by the Company
+or to the 401(k) plan for each employee that is entitled to the enhanced
+benefit. The expense related to the enhanced benefits was $390,000 for 2005,
+$415,000 for 2004 and $479,000 for 2003. 
+The
+Company permits selected highly compensated employees to defer a portion of
+their compensation into the nonqualified SERP. The SERP assets are marked to
+market and totaled $1,967,000 as of December 31, 2005 and $994,000 as of
+December 31, 2004. The SERP assets are reported in other assets on the balance
+sheet and changes related to the fair value of assets are recorded in the
+consolidated statement of operations as part of other income, net. The SERP
+deferrals and the contributions are recorded on the balance sheet in pension
+liabilities with any change in the fair value of the liabilities recorded as
+compensation cost in the statement of operations. 
+45 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+The
+following table sets forth the funded status of the retirement income plan
+and
+the amounts recognized in RPC’s consolidated balance sheets: 
+December
+31, 
+2005
+2004
+(in
+thousands) 
+CHANGE
+IN BENEFIT OBLIGATION: 
+Benefit
+obligation at beginning of year 
+$ 
+31,270 
+$ 
+28,970 
+Service
+cost 
+— 
+— 
+Interest
+cost 
+1,744 
+1,747 
+Amendments 
+— 
+— 
+Actuarial
+loss 
+2,013 
+1,711 
+Benefits
+paid 
+(1,226 
+) 
+(1,158 
+) 
+Benefit
+obligation at end of year 
+$ 
+33,801 
+$ 
+31,270 
+CHANGE
+IN PLAN ASSETS: 
+Fair
+value of plan assets at beginning of year 
+$ 
+20,888 
+$ 
+16,611 
+Actual
+return on plan assets 
+1,082 
+1,259 
+Employer
+contribution 
+1,600 
+4,176 
+Benefits
+paid 
+(1,226 
+) 
+(1,158 
+) 
+Fair
+value of plan assets at end of year 
+22,344 
+20,888 
+Funded
+status 
+(11,458 
+) 
+(10,382 
+) 
+Unrecognized
+net loss 
+13,017 
+11,425 
+Net
+prepaid benefit cost 
+$ 
+1,559 
+$ 
+1,043 
+The
+accumulated benefit obligation for the defined benefit pension plan at December
+31, 2005 and 2004 has been disclosed above. The Company uses a December 31
+measurement date for its qualified plan. 
+Pursuant
+to the provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” the
+Company recorded an additional pretax minimum pension liability of $1,592,000
+in
+2005 and $975,000 in 2004. As there were no previously unrecognized prior
+service costs as of December 31, 2005 and 2004, the full amount of the
+adjustments, net of taxes, are reflected as a reduction of stockholders’ equity.
+Amounts recognized in the consolidated balance sheets consist of: 
+December
+31, 
+2005 
+2004 
+(in
+thousands) 
+Net
+prepaid benefit cost 
+$ 
+1,559 
+$ 
+1,043 
+Minimum
+pension liability 
+(13,017 
+) 
+(11,425 
+) 
+SERP
+employer contributions 
+(1,054 
+) 
+(738 
+) 
+SERP
+employee deferrals 
+(1,102 
+) 
+(259 
+) 
+Net
+amount recognized 
+$ 
+(13,614 
+) 
+$ 
+(11,379 
+) 
+RPC’s
+funding policy is to contribute to the defined benefit pension plan the amount
+required, if any, under the Employee Retirement Income Security Act of 1974.
+RPC
+contributed $1,600,000 in 2005 and $4,176,000 in 2004. 
+46 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+The
+components of net periodic benefit cost are summarized as follows: 
+Years
+ended December 31, 
+2005 
+2004 
+2003 
+(in
+thousands) 
+Service
+cost for benefits earned during the period 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+Interest
+cost on projected benefit obligation 
+1,744 
+1,747 
+1,937 
+Expected
+return on plan assets 
+(1,714 
+) 
+(1,445 
+) 
+(1,363 
+) 
+Net
+amortization and deferral 
+1,054 
+922 
+1,027 
+Curtailments 
+— 
+— 
+— 
+Net
+periodic benefit cost 
+$ 
+1,084 
+$ 
+1,224 
+$ 
+1,601 
+The
+weighted average assumptions as of December 31 used to determine the projected
+benefit obligation and net benefit cost were as follows: 
+December
+31, 
+2005 
+2004 
+2003 
+Projected
+Benefit Obligation : 
+Discount
+rate 
+5.500 
+% 
+5.750 
+% 
+6.250 
+% 
+Rate
+of compensation increase 
+N/A 
+N/A 
+N/A 
+Net
+Benefit Cost: 
+Discount
+rate 
+5.750 
+% 
+6.250 
+% 
+6.875 
+% 
+Expected
+return on plan assets 
+8.000 
+% 
+8.000 
+% 
+8.000 
+% 
+Rate
+of compensation increase 
+N/A 
+N/A 
+N/A 
+The
+Company’s expected return on assets assumption is derived from a detailed
+periodic assessment conducted by its management and its investment adviser.
+It
+includes a review of anticipated future long-term performance of individual
+asset classes and consideration of the appropriate asset allocation strategy
+given the anticipated requirements of the plan to determine the average rate
+of
+earnings expected on the funds invested to provide for the pension plan
+benefits. While the study gives appropriate consideration to recent fund
+performance and historical returns, the rate of return assumption is derived
+primarily from a long-term, prospective view. Based on its recent assessment,
+the Company has concluded that its expected long-term return assumption of
+eight
+percent is reasonable. 
+At
+December 31, 2005 and 2004, the Plan’s assets were comprised of listed common
+stocks and U.S. Government and corporate securities. The Plan’s weighted average
+asset allocation at December 31, 2005 and 2004 by asset category along with
+the
+target allocation for 2006 are as follows: 
+Asset
+Category 
+Target 
+Allocation 
+for
+2006 
+Percentage
+of 
+Plan
+Assets 
+as
+of 
+December
+31, 
+2005 
+Percentage
+of 
+Plan
+Assets 
+as
+of 
+December
+31, 
+2004
+Equity
+Securities 
+48.9% 
+48.3 
+51.2% 
+Debt
+Securities — Core Fixed Income 
+27.2% 
+28.7 
+29.5% 
+Tactical
+— Fund of Equity and Debt Securities 
+5.4% 
+2.6 
+2.7% 
+Real
+Estate 
+5.4% 
+5.4 
+5.1% 
+Other 
+13.1% 
+15.0 
+11.5% 
+Total 
+100.0% 
+100.0% 
+100.0% 
+The
+Company’s investment strategy for its defined benefit pension plan is to
+maximize the long-term rate of return on plan assets within an acceptable level
+of risk in order to minimize the cost of providing pension benefits. The
+investment policy establishes a target allocation for each asset class, which
+is
+rebalanced as required. The Company utilizes a number of investment approaches,
+including individual marketable securities, equity and fixed income funds in
+47 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+which
+the
+underlying securities are marketable, and debt funds to achieve this target
+allocation. The Company expects to contribute approximately $1,100,000 to the
+defined benefit pension plan in 2006. 
+The
+Company estimates that the future benefits payable for the defined benefit
+pension plan over the next ten years are as follows: 
+(in
+thousands) 
+2006 
+$1,370 
+2007 
+1,450 
+2008 
+1,557 
+2009 
+1,598 
+2010 
+1,681 
+2011-2015 
+9,422 
+401(k)
+Plan 
+RPC
+sponsors a defined contribution 401(k) plan that is available to substantially
+all full-time employees with more than six months of service. This plan allows
+employees to make tax-deferred contributions from one to 25 percent of their
+annual compensation, not exceeding the permissible contribution imposed by
+the
+Internal Revenue Code. RPC matches 50 percent of each employee’s contributions
+that do not exceed six percent of the employee’s compensation, as defined by the
+plan. Employees vest in the RPC contributions after three years of service.
+The
+charges to expense for the Company’s contributions to the 401(k) plan were
+approximately $1,150,000 in 2005, $990,000 in 2004 and $884,000 in 2003.
+Stock
+Incentive Plans 
+On
+January 25, 1994, RPC adopted a 10-year Employee Stock Incentive Plan (the
+“1994
+Plan”) under which shares of common stock were reserved for issuance including
+2,250,000 shares in 1994 and an additional 3,600,000 shares in 1997. This plan
+expired in January 2004 and provided for the issuance of various forms of stock
+incentives. On April 27, 2004, the Company adopted a new 10-year Stock Incentive
+Plan (the “2004 Plan”) under which 3,375,000 shares of common stock have been
+reserved for issuance. This plan provides for the issuance of various forms
+of
+stock incentives, including, among others, incentive and non-qualified stock
+options and restricted stock. As of December 31, 2005, 2,624,625 shares were
+available for grants under the 2004 Plan. 
+Stock
+Options 
+Transactions
+involving the RPC stock options were as follows: 
+Total 
+Shares 
+Weighted 
+Average 
+Price 
+Outstanding
+December 31, 2002 
+1,940,845 
+$4.73 
+Granted 
+1,434,375 
+4.25
+Canceled 
+(33,932 
+) 
+5.27
+Exercised 
+(37,039 
+) 
+2.78
+Outstanding
+December 31, 2003 
+3,304,249 
+$4.54 
+Granted 
+- 
+-
+Canceled 
+(82,890 
+) 
+5.41
+Exercised 
+(325,494 
+) 
+3.14
+Outstanding
+December 31, 2004 
+2,895,865 
+$4.67 
+Granted 
+- 
+-
+Canceled 
+(110,081 
+) 
+4.75 
+Exercised 
+(456,674 
+) 
+4.81 
+Outstanding
+December 31, 2005 
+2,329,110 
+$4.64 
+48 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+Options
+exercised during 2005 include transactions that involved exchange of shares
+and
+cash. The fair value of shares tendered to exercise employee stock options
+totaled approximately $1,138,000 in 2005 and $602,000 in 2004 and has been
+excluded from the consolidated statement of cash flows. There were no
+expirations of stock options during 2005, 2004 and 2003. As of December 31,
+2005, the options outstanding and the range of exercise prices together with
+the
+weighted-average remaining contractual life are as follows: 
+Number
+of Options 
+Weighted
+Average 
+Exercise
+Prices 
+Weighted 
+Average 
+Remaining 
+Contractual 
+Life
+Range
+of Exercise Prices 
+Total 
+Exercisable 
+Total 
+Exercisable 
+$1.74 
+68,104 
+68,104 
+$ 
+1.74 
+$ 
+1.74 
+0.1
+years 
+$2.69   -   $4.04 
+190,952 
+171,909 
+$ 
+2.75 
+$ 
+2.75 
+2.6
+years 
+$4.22   -   $6.33 
+2,070,054 
+1,031,230 
+$ 
+4.91 
+$ 
+5.21 
+5.8
+years 
+2,329,110 
+1,271,243 
+$ 
+4.64 
+$ 
+4.69 
+5.4
+years 
+2005 
+2004 
+2003 
+Exercisable
+at December 31, 
+1,271,243 
+1,380,852 
+1,171,637 
+Weighted
+average exercise price of 
+exercisable
+options 
+$ 
+4.69 
+$ 
+4.60 
+$ 
+4.20 
+Restricted
+Stock 
+RPC
+has
+granted employees two forms of restricted stock: time lapse restricted and
+performance restricted. 
+Time
+lapse restricted shares 
+Time
+lapse restricted shares vest after certain stipulated number of years from
+the
+grant date, depending on the terms of the issue. The Company has issued time
+lapse restricted shares that vest over ten years in prior years; however, in
+2005 and 2004 the Company issued time lapse restricted shares that vest in
+20
+percent increments starting with the second anniversary of the grant, over
+the
+six year period beginning on the date of grant. Grantees receive all dividends
+declared and retain voting rights for the granted shares. 
+Units
+granted under these restricted stock programs totaled 275,625 in 2005, 479,250
+in 2004, and 56,250 in 2003. Employees forfeited 4,500 shares in 2005, 41,265
+shares in 2004 and 25,538 shares in 2003. Compensation cost on restricted shares
+is recorded at the fair value on the date of issuance and amortized ratably
+over
+the respective vesting periods. Shares of restricted stock that vested and
+were
+released to the applicable employees totaled 25,335 in 2005, 313,200 in 2004
+and
+0 in 2003. The tax benefit aggregating $53,000 in 2005, $208,000 in 2004 and
+$0
+in 2003 for compensation tax deductions in excess of compensation expense was
+credited to capital in excess of par value. 
+The
+agreements under which the restricted stock is issued provide that shares
+awarded may not be sold or otherwise transferred until restrictions established
+under the stock plans have lapsed. Upon termination of employment from RPC
+or,
+in certain cases, termination of employment from Marine Products or Chaparral,
+shares with restrictions must be returned to RPC. 
+Performance
+restricted shares 
+The
+performance restricted shares are granted, but not earned and issued, until
+certain five-year tiered performance criteria are met. The performance criteria
+are predetermined market prices of RPC stock. On the date the stock appreciates
+to each level (determination date), 20 percent of performance shares are earned.
+Once earned, the performance shares vest five years from the determination
+date.
+After the determination date, the grantee will receive all dividends declared
+and also voting rights to the shares. Under the plans, employees earned
+performance shares totaling 13,500 shares in 2005, 33,750 shares in 2004 and
+6,750 shares in 2003. 
+49 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+Note
+11: Related Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun-off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC
+accomplished the spin-off by contributing 100 percent of the issued and
+outstanding stock of Chaparral to Marine Products Corporation (a Delaware
+corporation) (“Marine Products”), a newly formed wholly-owned subsidiary of RPC,
+and then distributing the common stock of Marine Products to RPC stockholders.
+In conjunction with the spin-off, RPC and Marine Products entered into various
+agreements that define the companies’ relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance,
+etc.,
+to Marine Products. Charges from the Company (or from corporations that are
+subsidiaries of the Company) for such services aggregated approximately $616,000
+in 2005, $546,000 in 2004 and $496,000 in 2003. The Company’s directors are also
+directors of Marine Products and all of the executive officers are employees
+of
+both the Company and Marine Products. 
+The
+Tax
+Sharing and Indemnification Agreement provides for, among other things, the
+treatment of income tax matters for periods through February 28, 2001, the
+date
+of the spin-off, and responsibility for any adjustments as a result of audits
+by
+any taxing authority. The general terms provide for the indemnification for
+any
+tax detriment incurred by one party caused by the other party’s action. In
+accordance with the agreement, RPC transferred approximately $19,000 in 2004
+to
+Marine Products for tax settlements. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products
+or
+services from suppliers, who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $926,000 in 2005, $529,000 in 2004 and
+$1,058,000 in 2003. In addition, the overhead crane fabrication division of
+RPC
+(sold April 2004) recorded $171,000 in 2003 in revenues from the powerboat
+manufacturing segment that is now a subsidiary of Marine Products pursuant
+to
+the spin-off, related to the sale, installation and service of overhead cranes.
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which
+is
+otherwise affiliated with RPC). The service agreements between Rollins, Inc.
+and
+the Company provide for the provision of services on a cost reimbursement basis
+and are terminable on six months notice. The services covered by these
+agreements include office space, administration of certain employee benefit
+programs, and other administrative services. Charges to the Company (or to
+corporations which are subsidiaries of the Company) for such services and rent
+aggregated to $71,000 in 2005, $76,000 in 2004 and $105,000 in 2003.
+Note
+12: Business Segment Information 
+RPC’s
+service lines have been aggregated into two reportable oil and gas services
+segments — Technical Services and Support Services — because of the similarities
+between the financial performance and approach to managing the service lines
+within each of the segments, as well as the economic and business conditions
+impacting their business activity levels. The Other business segment includes
+information concerning RPC’s business units that do not qualify for separate
+segment reporting. These business units include an interactive training software
+developer, prior to its disposition in May 2005, and an overhead crane
+fabricator, prior to its disposition in April 2004. Corporate includes selected
+administrative costs incurred by the Company. 
+Technical
+Services include RPC’s oil and gas service lines that utilize people and
+equipment to perform value-added completion, production and maintenance services
+directly to a customer’s well. These services include pressure pumping services,
+snubbing, coiled tubing, nitrogen pumping, well control consulting and
+firefighting, down-hole tools, wireline, and fluid pumping services. These
+Technical Services are primarily used in the completion, production
+50 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+and
+maintenance of oil and gas wells. The principal markets for this segment include
+the United States, including the Gulf of Mexico, the mid-continent, southwest
+and Rocky Mountain regions, and international locations including primarily
+Africa, Canada, China, Latin America and the Middle East. Customers include
+major multi-national and independent oil and gas producers, and selected
+nationally-owned oil companies. 
+Support
+Services include RPC’s oil and gas service lines that primarily provide
+equipment for customer use or services to assist customer operations. The
+equipment and services include drill pipe and related tools, pipe handling,
+inspection and storage services, and oilfield training services. The demand
+for
+these services tends to be influenced primarily by customer drilling-related
+activity levels. The principal markets for this segment include the United
+States, including the Gulf of Mexico and the mid-continent regions, and
+international locations, including primarily Canada, Latin America, and the
+Middle East. Customers include domestic operations of major multi-national
+and
+independent oil and gas producers, and selected nationally-owned oil
+companies. 
+In
+August
+of 2005, RPC generated approximately $15.7 million in cash proceeds related
+to
+the sale of certain assets of its hammer, casing, laydown and casing
+torque-turn service lines with a net book value of approximately $5.0 million.
+These service lines, previously reported in the Technical Services segment,
+were
+closely integrated with the operations of other Company service lines.
+Therefore, the pre-tax gain of $10.7 million on this sale has been included
+in
+the gain on disposition of assets, net. 
+The
+accounting policies of the reportable segments are the same as those described
+in Note 1 to these consolidated financial statements. RPC evaluates the
+performance of its segments based on revenues, operating profits and return
+on
+invested capital. 
+Summarized
+financial information concerning RPC’s reportable segments for the years ended
+December 31, 2005, 2004 and 2003 are shown in the following table.
+Technical 
+Services 
+Support 
+Services 
+Other 
+Corporate 
+Gain
+on 
+disposition
+of 
+assets,
+net 
+Total 
+(in
+thousands) 
+2005 
+Revenues 
+$ 
+363,139 
+$ 
+64,487 
+$ 
+17 
+$ 
+— 
+$ 
+— 
+$ 
+427,643 
+Operating
+profit (loss) 
+84,048 
+11,990 
+(273 
+) 
+(10,221 
+) 
+12,169 
+97,713 
+Capital
+expenditures (1) 
+43,626 
+28,280 
+— 
+902 
+— 
+72,808 
+Depreciation
+and amortization 
+27,510 
+10,453 
+— 
+1,166 
+— 
+39,129 
+Identifiable
+assets 
+192,172 
+88,067 
+— 
+31,546 
+— 
+311,785 
+2004 
+Revenues 
+$ 
+279,070 
+$ 
+56,917 
+$ 
+3,805 
+$ 
+— 
+$ 
+— 
+$ 
+339,792 
+Operating
+profit (loss) 
+47,027 
+8,287 
+(975 
+) 
+(8,550 
+) 
+5,551 
+51,340 
+Capital
+expenditures (1) 
+34,765 
+14,026 
+— 
+1,078 
+— 
+49,869
+Depreciation
+and amortization 
+25,161 
+7,785 
+302 
+1,252 
+— 
+34,500 
+Identifiable
+assets 
+145,196 
+69,399 
+661 
+47,686 
+— 
+262,942
+2003 
+Revenues 
+$ 
+216,321 
+$ 
+43,909 
+$ 
+10,297 
+$ 
+— 
+$ 
+— 
+$ 
+270,527 
+Operating
+profit (loss) 
+22,433 
+2,641 
+(1,355 
+) 
+(7,320 
+) 
+36 
+16,435 
+Capital
+expenditures (1) 
+19,445 
+8,234 
+37 
+2,640 
+— 
+30,356
+Depreciation
+and amortization 
+24,382 
+7,220 
+336 
+1,244 
+— 
+33,182
+Identifiable
+assets 
+111,718 
+65,026 
+5,051 
+45,069 
+— 
+226,864
+(1)   Excludes
+assets acquired as part of purchases of new businesses during the year.
+51 
+NOTES
+TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC,
+Inc. and Subsidiaries 
+Years
+ended December 31, 2005, 2004 and 2003 
+The
+following summarizes selected information between the United States and all
+international locations combined for the years ended December 31, 2005, 2004
+and
+2003. The revenues are presented based on the location of the use of the product
+or service. Assets related to international operations are less than 10 percent
+of RPC’s consolidated assets, and therefore are not presented. 
+Years
+ended December 31, 
+2005 
+2004 
+2003 
+(in
+thousands) 
+United
+States Revenues 
+$ 
+413,315 
+$ 
+323,910 
+$ 
+263,684 
+International
+Revenues 
+14,328 
+15,882
+6,843
+$ 
+427,643 
+$ 
+339,792 
+$ 
+270,527 
+52 
+Item
+9. Changes in and Disagreements with Accountants on Accounting and Financial
+Disclosure 
+None.
+Item
+9A. Controls and Procedures 
+Evaluation
+of disclosure controls and procedures - 
+The
+Company maintains disclosure controls and procedures that are designed to ensure
+that information required to be disclosed in its Exchange Act reports is
+recorded, processed, summarized and reported within the time periods specified
+in the Commission’s rules and forms, and that such information is accumulated
+and communicated to its management, including the Chief Executive Officer and
+Chief Financial Officer, as appropriate, to allow timely decisions regarding
+required disclosure. 
+As
+of the
+end of the period covered by this report, December 31, 2005 (the “Evaluation
+Date”), the Company carried out an evaluation, under the supervision and with
+the participation of its management, including the Chief Executive Officer
+and
+Chief Financial Officer, of the effectiveness of the design and operation of
+its
+disclosure controls and procedures. Based upon this evaluation, the Chief
+Executive Officer and the Chief Financial Officer concluded that the Company’s
+disclosure controls and procedures were effective at a reasonable assurance
+level as of the Evaluation Date. 
+Management’s
+report on internal control over financial reporting — Management is
+responsible for establishing and maintaining adequate internal control over
+financial reporting, as such term is defined in Exchange Act Rules 13a-15(f)
+and
+15d-15(f). Management’s report on internal control over financial reporting is
+included on page 28 of this report. Grant Thornton LLP, the Company’s
+independent registered public accounting firm, has audited management’s
+assessment of the effectiveness of internal control as of December 31, 2005
+and
+issued a report thereon which is included on page 29 of this report.
+Changes
+in internal control over financial reporting - 
+Management’s evaluation of changes in internal control did not identify any
+changes in the Company’s internal control over financial reporting that occurred
+during the Company’s most recent fiscal quarter that have materially affected,
+or are reasonably likely to materially affect, the Company’s internal control
+over financial reporting. 
+Item
+9B .
+Other Information 
+On
+March
+10, 2006, the Company entered into an Amended and Restated Credit Agreement
+with
+SunTrust Bank. This credit agreement provides the Company with access to
+a
+$50,000,000 credit facility encompassing letters of credit and a demand note.
+As
+of March 10, 2006, there were letters of credit totaling $15,900,000 outstanding
+under the credit facilities relating to the Company’s self-insurance programs
+and contract bids. The Company has no amounts outstanding under the demand
+note.
+The Company has agreed to pay a letter of credit fee on the face amount of
+each
+letter of credit issued under the credit facility equal to 50 basis points
+per
+annum. Interest accrues for amounts advanced under the credit facility at
+a
+variable rate which approximates, at the Company’s option, the higher of the
+lender’s prime rate or the Federal Funds rate plus 50 basis points, or LIBOR
+plus a margin ranging between 0.875% and 1.50% depending upon the ratio of
+the
+Company’s funded debt to its earnings before interest, taxes, depreciation and
+amortization. The credit facility is unsecured. Any outstanding advances
+are due
+upon demand by the lender and the facility remains outstanding until cancelled
+by either party. 
+53 
+PART
+III 
+Item
+10. Directors and Executive Officers of the Registrant 
+Information
+concerning directors and executive officers will be included in the RPC Proxy
+for its 2006 Annual Meeting of Stockholders, in the section titled “Election of
+Directors.” This information is incorporated herein by reference. Information
+about executive officers is contained on page 12 of this document. 
+Audit
+Committee and Audit Committee Financial Expert 
+Information
+concerning the Audit Committee of the Company and the Audit Committee Financial
+Expert(s) will be included in the RPC Proxy Statement for its 2006 Annual
+Meeting of Stockholders, in the section titled “Corporate Governance and Board
+of Directors Compensation, Committees and Meetings.” This information is
+incorporated herein by reference. 
+Code
+of Ethics 
+RPC,
+Inc.
+has a Code of Business Conduct that applies to all employees. In addition,
+the
+Company has a Supplemental Code of Business Conduct and Ethics for Directors,
+the Principal Executive Officer and Principal Financial and Accounting Officer.
+Both of these documents are available on the Company’s website at www.rpc.net .
+Copies
+are available at no charge by writing to Attention: Human Resources, RPC Inc.,
+2170 Piedmont Road, N.E., Atlanta, GA 30324. 
+Section
+16(a) Beneficial Ownership Reporting Compliance 
+Information
+regarding compliance with Section 16(a) of the Exchange Act will be included
+under “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s
+Proxy Statement for its 2006 Annual Meeting of Stockholders, which is
+incorporated herein by reference. 
+Item
+11. Executive Compensation 
+Information
+concerning executive compensation will be included in the RPC Proxy Statement
+for its 2006 Annual Meeting of Stockholders, in the section titled, “Executive
+Compensation.” This information is incorporated herein by reference.
+Item
+12. Security Ownership of Certain Beneficial Owners and Management
+Information
+concerning security ownership will be included in the RPC Proxy Statement for
+its 2006 Annual Meeting of Stockholders, in the sections titled, “Capital Stock”
+and “Election of Directors.” This information is incorporated herein by
+reference. 
+Information
+regarding RPC’s equity compensation plans including plans approved by security
+holders and plans not approved by security holders will be included in the
+section titled, “Executive Compensation” in the RPC Proxy Statement for its 2006
+Annual Meeting of Stockholders, which is incorporated herein by reference.
+Item
+13. Certain Relationships and Related Party Transactions 
+Information
+concerning certain relationships and related party transactions will be included
+in the RPC Proxy Statement for its 2006 Annual Meeting of Stockholders, in
+the
+sections titled, “Certain Relationships and Related Party Transactions” and
+“Compensation Committee Interlocks and Insider Participation.” This information
+is incorporated herein by reference. 
+Item
+14. Principal Accounting Fees and Services 
+Information
+regarding principal accountant fees and services will be included in the section
+titled, “Independent Public Accountants” in the RPC Proxy Statement for its 2006
+Annual Meeting of Stockholders. This information is incorporated herein by
+reference. 
+54 
+PART
+IV 
+Item
+15. Exhibits and Financial Statement Schedules 
+Consolidated
+Financial Statements, Financial Statement Schedule and Exhibits .
+1. 
+Consolidated
+financial statements listed in the accompanying Index to Consolidated
+Financial Statements and Schedule are filed as part of this report.
+2. 
+The
+financial statement schedule listed in the accompanying Index to
+Consolidated Financial Statements and Schedule is filed as part of
+this
+report. 
+3. 
+Exhibits
+listed in the accompanying Index to Exhibits are filed as part of
+this
+report. The following such exhibits are management contracts or
+compensatory plans or arrangements:
+10.1 
+2004
+Stock Incentive Plan (incorporated herein by reference to Appendix
+B to
+the Registrant’s definitive Proxy Statement filed on March 24, 2004).
+10.6 
+Form
+of stock option grant agreement (incorporated herein by reference
+to
+Exhibit 10.1 to Form 10-Q filed on November 2, 2004).
+10.7 
+Form
+of time lapse restricted stock grant agreement (incorporated herein
+by
+reference to Exhibit 10.2 to Form 10-Q filed on November 2, 2004).
+10.8 
+Form
+of performance restricted stock grant agreement (incorporated herein
+by
+reference to Exhibit 10.3 to Form 10-Q filed on November 2,
+2004). 
+10.9 
+Summary
+of ‘at will’ compensation arrangements with the Executive
+Officers. 
+10.10
+Summary
+of compensation arrangements with the Directors (incorporated herein
+by
+reference to Exhibit 10.10 to the Form 10-K filed on March 16,
+2005) 
+10.11 
+Supplemental
+Retirement Plan (incorporated herein by reference to Exhibit 10.11
+to the
+Form 10-K filed on March 16, 2005). 
+55 
+Exhibits
+(inclusive of item 3 above): 
+Exhibit 
+Number
+Description
+3.1
+Restated
+certificate of incorporation of RPC, Inc. (incorporated herein by
+reference to exhibit 3.1 to the Annual Report on Form 10-K for the
+fiscal
+year ended December 31, 1999). 
+3.2
+Bylaws
+of RPC, Inc. (incorporated herein by reference to Exhibit 3.2 to
+the Form
+10-Q filed on May 5, 2004). 
+4 
+Form
+of Stock Certificate (incorporated herein by reference to the Annual
+Report on Form 10-K for the fiscal year ended December 31, 1998).
+10.1
+2004
+Stock Incentive Plan (incorporated herein by reference to Appendix
+B to
+the Registrant’s definitive Proxy Statement filed on March 24,
+2004). 
+10.2
+Agreement
+Regarding Distribution and Plan of Reorganization, dated February
+12,
+2001, by and between RPC, Inc. and Marine Products Corporation
+(incorporated herein by reference to Exhibit 10.2 to the Form 10-K
+filed
+on February 13, 2001). 
+10.3
+Employee
+Benefits Agreement dated February 12, 2001, by and between RPC, Inc.,
+Chaparral Boats, Inc. and Marine Products Corporation (incorporated
+herein
+by reference to Exhibit 10.3 to the Form 10-K filed on February 13,
+2001).
+10.4
+Transition
+Support Services Agreement dated February 12, 2001 by and between
+RPC,
+Inc. and Marine Products Corporation (incorporated herein by reference
+to
+Exhibit 10.4 to the Form 10-K filed on February 13, 2001).
+10.5
+Tax
+Sharing Agreement dated February 12, 2001, by and between RPC, Inc.
+and
+Marine Products Corporation (incorporated herein by reference to
+Exhibit
+10.5 to the Form 10-K filed on February 13, 2001). 
+10.6 
+Form
+of stock option grant agreement (incorporated herein by reference
+to
+Exhibit 10.1 to the Form 10-Q filed on November 2,
+2004). 
+10.7 
+Form
+of time lapse restricted stock grant agreement (incorporated herein
+by
+reference to Exhibit 10.2 to the Form 10-Q filed on November 2,
+2004). 
+10.8 
+Form
+of performance restricted stock grant agreement (incorporated herein
+by
+reference to Exhibit 10.3 to the Form 10-Q filed on November 2,
+2004). 
+10.9 
+Summary
+of ‘at will’ compensation arrangements with the Executive
+Officers. 
+10.10 
+Summary
+of compensation arrangements with the Directors (incorporated herein
+by reference to Exhibit 10.10 to the Form 10-K filed on March 16,
+2005). 
+10.11 
+Supplemental
+Retirement Plan (incorporated herein by reference to Exhibit 10.11
+to the
+Form 10-K filed on March 16, 2005). 
+10.12 
+Amended
+and Restated Credit Agreement dated as of March 10, 2006, between
+the
+Company and SunTrust Bank. 
+21 
+Subsidiaries
+of RPC 
+23.1 
+Consent
+of Grant Thornton LLP. 
+23.2 
+Consent
+of Ernst & Young LLP. 
+24 
+Powers
+of Attorney for Directors. 
+31.1 
+Section
+302 certification for Chief Executive Officer 
+31.2 
+Section
+302 certification for Chief Financial Officer 
+32.1 
+Section
+906 certifications for Chief Executive Officer and Chief Financial
+Officer 
+56 
+SIGNATURES
+Pursuant
+to the requirements of Section 13 or 15(d) 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. 
+RPC,
+Inc. 
+/s/
+Richard A. Hubbell 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+(Principal
+Executive Officer) 
+March
+13, 2006 
+Pursuant
+to the requirements of the Securities Exchange Act of 1934, this report has
+been
+signed below by the following persons on behalf of the Registrant and in the
+capacities and on the dates indicated. 
+Name 
+Title 
+Date
+/s/
+Richard A. Hubbell 
+Richard
+A. Hubbell 
+President
+and Chief Executive Officer 
+(Principal
+Executive Officer) 
+March
+13, 2006 
+/s/
+Ben M. Palmer 
+Ben
+M. Palmer 
+Chief
+Financial Officer 
+(Principal
+Financial and Accounting Officer) 
+March
+13, 2006 
+The
+Directors of RPC (listed below) executed a power of attorney, appointing Richard
+A. Hubbell their attorney-in-fact, empowering him to sign this report on their
+behalf. 
+R.
+Randall Rollins, Director 
+James
+B. Williams, Director 
+Wilton
+Looney, Director 
+James
+A. Lane, Jr., Director 
+Gary
+W. Rollins, Director 
+Linda
+H. Graham, Director 
+Henry
+B. Tippie, Director 
+Bill
+J. Dismuke, Director 
+/s/
+Richard A. Hubbell 
+Richard
+A. Hubbell 
+Director
+and as Attorney-in-fact 
+March
+13, 2006 
+57 
+INDEX
+TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND SCHEDULE 
+The
+following documents are filed as part of this report. 
+FINANCIAL
+STATEMENTS AND REPORTS 
+PAGE 
+Management’s
+Report on Internal Control Over Financial Reporting 
+28 
+Report
+of Independent Registered Public Accounting Firm on Internal Control
+Over
+Financial Reporting 
+29 
+Consolidated
+Balance Sheets as of December 31, 2005 and 2004 
+30 
+Consolidated
+Statements of Operations for the three years ended December 31,
+2005 
+31 
+Consolidated
+Statements of Stockholders’ Equity for the three years ended December 31,
+2005 
+32 
+Consolidated
+Statements of Cash Flows for the three years ended December 31,
+2005 
+33 
+Notes
+to Consolidated Financial Statements 
+34
+-
+52 
+Report
+of Independent Registered Public Accounting Firm on Consolidated
+Financial
+Statements (for 2005 and 2004) 
+59 
+Report
+of Independent Registered Public Accounting Firm on Consolidated
+Financial
+Statements (for 2003) 
+60 
+SCHEDULE 
+Schedule
+II — Valuation and Qualifying Accounts 
+58 
+Schedules
+not listed above have been omitted because they are not applicable or the
+required information is included in the consolidated financial statements or
+notes thereto. 
+SCHEDULE
+II — VALUATION AND QUALIFYING ACCOUNTS 
+RPC,
+Inc. and Subsidiaries 
+For
+the years ended 
+December
+31, 2005, 2004 and 2003 
+(in
+thousands) 
+Balance
+at 
+Beginning 
+of
+Period 
+Charged
+to 
+Costs
+and 
+Expenses 
+Net 
+(Deductions) 
+Recoveries 
+Balance 
+at
+End of 
+Period 
+Year
+ended December 31, 2005 
+Allowance
+for doubtful accounts 
+$ 
+2,576 
+$ 
+1,618 
+$ 
+(114 
+) 
+(1) 
+$ 
+4,080 
+Deferred
+tax asset valuation allowance 
+$ 
+2,451 
+$ 
+129 
+$ 
+(635 
+) 
+(2) 
+$ 
+1,945 
+Year
+ended December 31, 2004 
+Allowance
+for doubtful accounts 
+$ 
+2,539 
+$ 
+1,155 
+$ 
+(1,118 
+) 
+(1) 
+$ 
+2,576 
+Inventory
+reserves 
+$ 
+134 
+$ 
+0 
+$ 
+(134 
+) 
+(3) 
+$ 
+0 
+Deferred
+tax asset valuation allowance 
+$ 
+977 
+$ 
+190 
+$ 
+1,284 
+(2) 
+$ 
+2,451 
+Year
+ended December 31, 2003 
+Allowance
+for doubtful accounts 
+$ 
+2,461 
+$ 
+(765 
+) 
+$ 
+843 
+(1) 
+$ 
+2,539 
+Inventory
+reserves 
+$ 
+130 
+$ 
+55 
+$ 
+(51 
+) 
+(3) 
+$ 
+134 
+Deferred
+tax asset valuation allowance 
+$ 
+978 
+$ 
+0 
+$ 
+(1 
+) 
+$ 
+977 
+(1) 
+Deductions
+in the allowance for doubtful accounts principally reflect the write-off
+of previously reserved accounts net of recoveries.
+(2) 
+In
+2005, the deduction totaling $635,000 in the valuation allowance
+reflects
+the estimated amount of previously reserved foreign tax credit
+carryforwards expected to be realized. In 2004, the valuation allowance
+was increased $1,292,000 to reflect foreign tax credit carryforwards
+on a
+gross rather than a net basis. Amount includes addition of $1,770,000
+representing previously unutilized foreign tax credits generated
+in prior
+years and a deduction of $478,000 for those credits utilized during
+2004.
+(3) 
+Deductions
+in the reserve for inventory obsolescence and adjustment principally
+reflect the sale or disposal of related inventory. Balance represented
+allowance for inventory held by a subsidiary which was sold during
+the
+second quarter of 2004. 
+58 
+REPORT
+OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL
+STATEMENTS 
+Board
+of
+Directors and Stockholders of RPC, Inc. 
+We
+have
+audited the accompanying consolidated balance sheets of RPC, Inc. (a Delaware
+corporation) and subsidiaries as of December 31, 2005 and 2004, and the related
+consolidated statements of operations, stockholders ’ equity
+and cash
+flows for each of the two years in the period ended December 31, 2005. These
+financial statements are the responsibility of the Company ’ s management.
+Our
+responsibility is to express an opinion on these financial statements based
+on
+our audits. 
+We
+conducted our audits in accordance with the standards of the Public Company
+Accounting Oversight Board (United States). Those standards require that we
+plan
+and perform the audits to obtain reasonable assurance about whether the
+financial statements are free of material misstatement. An audit includes
+examining, on a test basis, evidence supporting the amounts and disclosures
+in
+the financial statements. An audit also includes assessing the accounting
+principles used and significant estimates made by management, as well as
+evaluating the overall financial statement presentation. We believe that our
+audits provide a reasonable basis for our opinion. 
+In
+our
+opinion, the consolidated financial statements referred to above present fairly,
+in all material respects, the financial position of RPC, Inc. and subsidiaries
+as of December 31, 2005 and 2004, and the results of their operations and their
+cash flows for each of the two years in the period ended December 31, 2005
+in
+conformity with accounting principles generally accepted in the United States
+of
+America. 
+Our
+audits were conducted for the purpose of forming an opinion on the basic
+consolidated financial statements taken as a whole. The Schedule II for
+the years ended December 31, 2005 and 2004, listed in the Index, is presented
+for purposes of additional analysis and is not a required part of the basic
+financial statements. This schedule has been subjected to the auditing
+procedures applied in the audits of the basic consolidated financial statements
+and, in our opinion, is fairly stated in all material respects in relation
+to
+the basic consolidated financial statements taken as a whole. 
+We
+also
+have audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), the effectiveness of RPC, Inc.’s internal
+control over financial reporting as of December 31, 2005, based on criteria
+established in Internal Control—Integrated Framework issued by the Committee of
+Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
+March 8, 2006 expressed an unqualified opinion . 
+/s/
+GRANT
+THORNTON LLP 
+Atlanta,
+Georgia 
+March
+8,
+2006 
+59 
+REPORT
+OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+The
+Board
+of Directors and Stockholders 
+RPC,
+Inc.
+We
+have
+audited the accompanying consolidated statements of operations, stockholders’
+equity and comprehensive income (loss) and cash flows of RPC, Inc. and
+Subsidiaries for the year ended December 31, 2003. Our audit also included
+the
+financial statement schedule for the year ended December 31, 2003, listed in
+the
+Index at Item 15(a). These financial statements and schedule are the
+responsibility of the Company’s management. Our responsibility is to express an
+opinion on these financial statements and schedule based on our audit.
+We
+conducted our audit in accordance with the standards of the Public Company
+Accounting Oversight Board (United States). Those standards require that we
+plan
+and perform the audit to obtain reasonable assurance about whether the financial
+statements are free of material misstatement. An audit includes examining,
+on a
+test basis, evidence supporting the amounts and disclosures in the financial
+statements. An audit also includes assessing the accounting principles used
+and
+significant estimates made by management, as well as evaluating the overall
+financial statement presentation. We believe that our audit provides a
+reasonable basis for our opinion. 
+In
+our
+opinion, the financial statements referred to above present fairly, in all
+material respects, the consolidated results of operations of RPC, Inc. and
+Subsidiaries and their cash flows for the year ended December 31, 2003, in
+conformity with U.S. generally accepted accounting principles. Also, in our
+opinion, the related financial statement schedule for the year ended December
+31, 2003, when considered in relation to the basic financial statements taken
+as
+a whole, presents fairly in all material respects the information set forth
+therein. 
+/s/
+Ernst
+& Young LLP 
+Atlanta,
+Georgia 
+February
+27, 2004, except for the matter discussed in the last 
+paragraph
+of Note 1, as to which the date is March 6, 2006 
+60 
+SELECTED
+QUARTERLY FINANCIAL DATA (UNAUDITED) 
+Quarters
+ended 
+March
+31 
+June
+30 
+September
+30 
+December
+31 
+(in
+thousands except per share data) 
+2005 
+Revenues
+$ 
+92,330 
+$ 
+101,945 
+$ 
+115,801 
+$ 
+117,567 
+Net
+income 
+$ 
+9,927 
+$ 
+11,910 
+$ 
+23,107 
+$ 
+21,540 
+(1) 
+Net
+income per share — basic: 
+$ 
+0.15 
+$ 
+0.19 
+$ 
+0.37 
+$ 
+0.34 
+Net
+income per share — diluted: 
+$ 
+0.15 
+$ 
+0.18 
+$ 
+0.35 
+$ 
+0.33 
+(1) 
+2004 
+Revenues
+$ 
+80,002 
+$ 
+85,426 
+$ 
+88,721 
+$ 
+85,643 
+Net
+income 
+$ 
+5,801 
+$ 
+7,474 
+$ 
+10,237 
+$ 
+11,261 
+(2) 
+Net
+income per share — basic: 
+$ 
+0.09 
+$ 
+0.12 
+$ 
+0.16 
+$ 
+0.18 
+Net
+income per share — diluted: 
+$ 
+0.09 
+$ 
+0.11 
+$ 
+0.16 
+$ 
+0.17 
+(2) 
+(1) 
+The
+fourth quarter reflects receipt of $3.1 million in tax refunds related
+to
+the successful resolution of certain tax matters, which had a
+positive impact of $0.05 after tax per diluted share. Also reflected
+during the fourth quarter 2005 is the gain on sale of certain assets
+of the hammer, casing, laydown and casing torque-turn service lines
+which
+generated a pre-tax gain of $10.7 million, or $0.11 after-tax gain
+per
+diluted share. 
+(2) 
+In the fourth quarter of 2004, net
+income
+included a $2.2 million after tax gain, or $0.03 per diluted share,
+related to the sale of liftboats, and $1.1 million, or $0.02 per
+diluted share, related to tax provision adjustments.
+61
\ No newline at end of file
diff --git a/raw/filings/0000742278/2005/0001188112-06-000661/filing_metadata.csv b/raw/filings/0000742278/2005/0001188112-06-000661/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..516d65825590e729719d9cfbbf42769035959c7e
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@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000742278,RES,RPC INC,10-K,2006-03-13,2005-12-31,2006-03-13T21:08:41.000Z,0001188112-06-000661,t9288.htm,FORM 10-K,2167911,0,0,https://www.sec.gov/Archives/edgar/data/742278/000118811206000661/t9288.htm,https://www.sec.gov/Archives/edgar/data/742278/000118811206000661/,2005,2005,1
diff --git a/raw/filings/0000742278/2005/0001188112-06-000661/item1.txt b/raw/filings/0000742278/2005/0001188112-06-000661/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2005/0001188112-06-000661/item13.txt b/raw/filings/0000742278/2005/0001188112-06-000661/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2005/0001188112-06-000661/item9a.txt b/raw/filings/0000742278/2005/0001188112-06-000661/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000742278/2005/0001188112-06-000661/rp_note.txt b/raw/filings/0000742278/2005/0001188112-06-000661/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0ff6178131de3aef716c525e394eea135985f12e
--- /dev/null
+++ b/raw/filings/0000742278/2005/0001188112-06-000661/rp_note.txt
@@ -0,0 +1,62 @@
+11: Related Party Transactions 
+Marine
+Products Corporation 
+Effective
+February 28, 2001, the Company spun-off the business conducted through Chaparral
+Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC
+accomplished the spin-off by contributing 100 percent of the issued and
+outstanding stock of Chaparral to Marine Products Corporation (a Delaware
+corporation) (“Marine Products”), a newly formed wholly-owned subsidiary of RPC,
+and then distributing the common stock of Marine Products to RPC stockholders.
+In conjunction with the spin-off, RPC and Marine Products entered into various
+agreements that define the companies’ relationship. 
+In
+accordance with a Transition Support Services agreement, which may be terminated
+by either party, RPC provides certain administrative services, including
+financial reporting and income tax administration, acquisition assistance,
+etc.,
+to Marine Products. Charges from the Company (or from corporations that are
+subsidiaries of the Company) for such services aggregated approximately $616,000
+in 2005, $546,000 in 2004 and $496,000 in 2003. The Company’s directors are also
+directors of Marine Products and all of the executive officers are employees
+of
+both the Company and Marine Products. 
+The
+Tax
+Sharing and Indemnification Agreement provides for, among other things, the
+treatment of income tax matters for periods through February 28, 2001, the
+date
+of the spin-off, and responsibility for any adjustments as a result of audits
+by
+any taxing authority. The general terms provide for the indemnification for
+any
+tax detriment incurred by one party caused by the other party’s action. In
+accordance with the agreement, RPC transferred approximately $19,000 in 2004
+to
+Marine Products for tax settlements. 
+Other 
+The
+Company periodically purchases in the ordinary course of business products
+or
+services from suppliers, who are owned by significant officers or shareholders,
+or affiliated with the directors of RPC. The total amounts paid to these
+affiliated parties were approximately $926,000 in 2005, $529,000 in 2004 and
+$1,058,000 in 2003. In addition, the overhead crane fabrication division of
+RPC
+(sold April 2004) recorded $171,000 in 2003 in revenues from the powerboat
+manufacturing segment that is now a subsidiary of Marine Products pursuant
+to
+the spin-off, related to the sale, installation and service of overhead cranes.
+RPC
+receives certain administrative services and rents office space from Rollins,
+Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which
+is
+otherwise affiliated with RPC). The service agreements between Rollins, Inc.
+and
+the Company provide for the provision of services on a cost reimbursement basis
+and are terminable on six months notice. The services covered by these
+agreements include office space, administration of certain employee benefit
+programs, and other administrative services. Charges to the Company (or to
+corporations which are subsidiaries of the Company) for such services and rent
+aggregated to $71,000 in 2005, $76,000 in 2004 and $105,000 in 2003.
+Note
\ No newline at end of file
diff --git a/raw/filings/0000742278/2005/0001188112-06-000661/rpt_disclosure.txt b/raw/filings/0000742278/2005/0001188112-06-000661/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bcd456d96d29ee57f8ed54730828652d16acfbc3
--- /dev/null
+++ b/raw/filings/0000742278/2005/0001188112-06-000661/rpt_disclosure.txt
@@ -0,0 +1,24 @@
+Related Party Transactions Policy provides that related party transactions,
+as
+defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or
+ratified by our Nominating and Corporate Governance Committee. As set forth
+in
+our Code, our Nominating and Corporate Governance Committee has the
+responsibility to ensure that it only approve or ratify related party
+transactions that are in compliance with applicable law, consistent with
+the
+Company’s corporate governance policies (including those relative to conflicts
+of interest and usurpation of corporate opportunities) and on terms that
+are
+deemed to be fair to the Company. The Committee has the authority to hire
+legal,
+accounting, financial or other advisors as it may deem necessary or desirable
+and/or to delegate responsibilities to executive officers of the Company
+in
+connection with discharging its duties. A copy of the Code is available on
+our
+website at www.rpc.net, under the Governance section. All related party
+transactions for fiscal year ended December 31, 2006 were reviewed, approved
+and/or ratified by the Nominating & Corporate Governance Committee in
+accordance with the Code. 
+INDEPENDENT
\ No newline at end of file
diff --git a/raw/filings/0000742278/2007/0001188112-08-000719/filing.txt b/raw/filings/0000742278/2007/0001188112-08-000719/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e50bbceac2892ceaad7b20373b46fb1276d28957
--- /dev/null
+++ b/raw/filings/0000742278/2007/0001188112-08-000719/filing.txt
@@ -0,0 +1,5195 @@
+10-K
+1
+d22770_10-k.htm
+UNITED STATES 
+SECURITIES AND EXCHANGE
+COMMISSION 
+WASHINGTON, D.C. 20549 
+FORM 10-K 
+(Mark
+One) 
+[X] 
+Annual report pursuant to Section 13 or 15(d) of the
+Securities Exchange Act of 1934 
+[ ] 
+Transition report pursuant to Section 13 or 15(d) of the
+Securities Exchange Act of 1934 
+For the fiscal year ended December 31,
+2007 
+Commission File No. 1-8726 
+RPC, INC. 
+Delaware 
+(State of Incorporation) 
+58-1550825 
+(I.R.S. Employer Identification No.) 
+2801 BUFORD HIGHWAY 
+SUITE 520 
+ATLANTA, GEORGIA
+30329 
+(404) 321-2140 
+Securities registered pursuant to Section 12(b) of the
+Act: 
+Title of
+each class 
+COMMON STOCK, $0.10 PAR VALUE 
+Name of each exchange on which registered 
+NEW YORK STOCK EXCHANGE 
+Securities registered pursuant to Section 12(g) of the
+Act: 
+NONE 
+Indicate by check mark if the
+registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 
+Yes [ ] No [X] 
+Indicate by check mark if the
+registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
+Act. Yes [ ] No [X] 
+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 if disclosure of
+delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
+knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
+10-K. [X] 
+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 [ ] 
+Indicate by check mark whether the
+registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] 
+The aggregate market value of RPC, Inc.
+Common Stock held by non-affiliates on June 30, 2007, the last business day of the registrant’s most recently completed second fiscal quarter, was
+$536,455,606 based on the closing price on the New York Stock Exchange on June 29, 2007 of $17.04 per share. 
+RPC, Inc. had 97,929,653 shares of
+Common Stock outstanding as of February 15, 2008. 
+Documents Incorporated by Reference 
+Portions of the Proxy Statement for the
+2008 Annual Meeting of Stockholders of RPC, Inc. are incorporated by reference into Part III, Items 10 through 14 of this report. 
+PART I 
+Throughout this report, we refer to
+RPC, Inc., together with its subsidiaries, as “we,” “us,” “RPC” or “the Company.” 
+Forward-Looking Statements 
+Certain statements made in this report
+that are not historical facts are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Such
+forward-looking statements may include, without limitation, statements that relate to our business strategy, plans and objectives, and our beliefs and
+expectations regarding future demand for our products and services and other events and conditions that may influence the oilfield services market and
+our performance in the future. Forward-looking statements made elsewhere in this report include without limitation statements regarding our
+expectations regarding continued increases in oil and gas exploration and production activities; our belief that drilling activity and demand for our
+services will continue to increase; our expectation to continue to focus on the development of international business opportunities in current and
+other international markets; our belief that the high returns on investments generated by many of our service lines will continue; our ability to
+obtain other customers in the event of a loss of our largest customers; the adequacy of our insurance coverage; the impact of lawsuits, legal
+proceedings and claims on our business and financial condition; our expectations regarding revenues in 2008; our expectations regarding capital
+expenditures in 2008; our ability to maintain sufficient liquidity and a conservative capital structure; our ability to reduce the amount drawn on our
+credit facility over the course of 2008; our expectation regarding the adequacy of funding for our pension plan; our ability to fund capital
+requirements in the future; the adequacy of our liquidity in the future; the estimated amount of our capital expenditures and contractual obligations
+for future periods; our expectation to continue to pay cash dividends; estimates made with respect to our critical accounting policies; and the effect
+of new accounting standards. 
+The words “may,”
+“will,” “expect,” “believe,” “anticipate,” “project,” “estimate,” and similar expressions
+generally identify forward-looking statements. Such statements are based on certain assumptions and analyses made by our management in light of its
+experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate.
+We caution you that such statements are only predictions and not guarantees of future performance and that actual results, developments and business
+decisions may differ from those envisioned by the forward-looking statements. See “Risk Factors” contained in Item 1A. for a discussion of
+factors that may cause actual results to differ from our projections. 
+Item 1. Business 
+Organization and Overview 
+RPC is a Delaware corporation
+originally organized in 1984 as a holding company for several oilfield services companies and is headquartered in Atlanta, Georgia. 
+RPC provides a broad range of
+specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration, production and
+development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions,
+and in selected international markets. The services and equipment provided include, among others, (1) pressure pumping services, (2) snubbing services
+(also referred to as hydraulic workover services), (3) coiled tubing services, (4) nitrogen services, (5) the rental of drill pipe and other
+specialized oilfield equipment, (6) downhole tool rental services and (7) firefighting and well control. RPC acts as a holding company for its
+operating units, Cudd Energy Services, Patterson Rental and Fishing Tools, Bronco Oilfield Services, Thru Tubing Solutions, Well Control School, and
+others. As of December 31, 2007, RPC had approximately 2,370 employees. 
+2 
+Business Segments 
+RPC’s service lines have been
+aggregated into two reportable oil and gas services business segments, Technical Services and Support Services, because of the similarities between the
+financial performance and approach to managing the service lines within each of the segments, as well as the economic and business conditions impacting
+their business activity levels. 
+Technical Services include RPC’s
+oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a
+customer’s well. The demand for these services is generally influenced by customers’ decisions to invest capital toward initiating production
+in a new oil or natural gas well, improving production flows in an existing formation, or to address well control issues. This business segment
+consists primarily of pressure pumping, snubbing, coiled tubing, nitrogen, well control, downhole tools, wireline, fluid pumping and casing
+installation services (until its sale in August 2005). The principal markets for this business segment include the United States, including the Gulf of
+Mexico, mid-continent, southwest and Rocky Mountain regions, and contract or project work in selected international locations in the last three years
+including primarily Africa, Canada, China, Eastern Europe, Latin America and the Middle East. Customers include major multi-national and independent
+oil and gas producers, and selected nationally owned oil companies. 
+Support Services include RPC’s oil
+and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include
+drill pipe and related tools, pipe handling, pipe inspection and storage services, and oilfield training services. The demand for these services tends
+to be influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, including
+the Gulf of Mexico, mid-continent and Rocky Mountain regions and project work in selected international locations in the last three years including
+primarily Canada, Latin America and the Middle East. Customers primarily include domestic operations of major multi-national and independent oil and
+gas producers, and selected nationally owned oil companies. 
+Technical Services 
+The following is a description of the
+primary service lines conducted within the Technical Services business segment: 
+Pressure Pumping. Pressure pumping
+services, which accounted for approximately 40 percent of 2007 revenues, 38 percent of 2006 revenues and 37 percent of 2005 revenues, are provided to
+customers throughout the Gulf Coast, mid-continent and Rocky Mountain regions of the United States and are generally utilized to initiate production in
+new or enhance production in existing customer wells. Pressure pumping services involve using complex, truck or skid-mounted equipment designed and
+constructed for each specific pumping service offered. The mobility of this equipment permits pressure pumping services to be performed in varying
+geographic areas. Principal materials utilized in the pressure pumping business include fracturing proppants, acid and bulk chemical additives.
+Generally, these items are available from several suppliers, and the Company utilizes more than one supplier for each item. Pressure pumping services
+offered include: 
+Fracturing — Fracturing services
+are performed to stimulate production of oil and natural gas by increasing the permeability of a formation. The fracturing process consists of pumping
+nitrogen or a fluid gel into a cased well at sufficient pressure to fracture the formation at desired depths. Sand, bauxite or synthetic proppant,
+which is suspended in the gel, is pumped into the fracture. When the pressure is released at the surface, the fluid gel returns to the well, but the
+proppant remain in the fracture, thus keeping it open so that oil and natural gas can flow through the fracture into the well. In some cases,
+fracturing is performed in formations with a high amount of carbonate rock by an acid solution pumped under pressure without a proppant or with small
+amounts of proppant. 
+Acidizing — Acidizing services are
+also performed to stimulate production of oil and natural gas, but they are used in wells that have undergone formation damage due to the buildup of
+various 
+3 
+materials that block the formation.
+Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in the formation,
+thereby eliminating obstacles to the flow of oil and natural gas. Acidizing services can also enhance production in limestone
+formations. 
+Snubbing. Snubbing (also referred to as
+hydraulic workover services), which accounted for approximately 10 percent of 2007 revenues and 11 percent of 2006 and 2005 revenues, involves using a
+hydraulic workover rig that permits an operator to repair damaged casing, production tubing and downhole production equipment in a high-pressure
+environment. A snubbing unit makes it possible to remove and replace downhole equipment while maintaining pressure in the well. Customers benefit
+because these operations can be performed without removing the pressure from the well, which stops production and can damage the formation, and because
+a snubbing rig can perform many applications at a lower cost than other alternatives. Because this service involves a very hazardous process that
+entails high risk, the snubbing segment of the oil and gas services industry is limited to a relatively few operators who have the experience and
+knowledge required to perform such services safely and efficiently. 
+Coiled Tubing. Coiled tubing services,
+which accounted for approximately nine percent of 2007 revenues and 10 percent of 2006 and 2005 revenues, involve the injection of coiled tubing into
+wells to perform various applications and functions for use principally in well-servicing operations. Coiled tubing is a flexible steel pipe with a
+diameter of less than four inches manufactured in continuous lengths of thousands of feet and wound or coiled around a large reel. It can be inserted
+through existing production tubing and used to perform workovers without using a larger, more costly workover rig. Principal advantages of employing
+coiled tubing in a workover operation include: (i) not having to “shut-in” the well during such operations, (ii) the ability to reel
+continuous coiled tubing in and out of a well significantly faster than conventional pipe, (iii) the ability to direct fluids into a wellbore with more
+precision, and (iv) enhanced access to remote or offshore fields due to the smaller size and mobility of a coiled tubing unit compared to a workover
+rig. There are several manufacturers of flexible steel pipe used in coiled tubing services, and the Company believes that its sources of supply are
+adequate. 
+Nitrogen. Nitrogen accounted for
+approximately seven percent of 2007 revenues, and eight percent of 2006 and 2005 revenues. There are a number of uses for nitrogen, an inert,
+non-combustible element, in providing services to oilfield customers and industrial users outside of the oilfield. For our oilfield customers, nitrogen
+can be used to clean drilling and production pipe and displace fluids in various drilling applications. It also can be used to create a fire-retardant
+environment in hazardous blowout situations and as a fracturing medium for our fracturing service line. In addition, nitrogen can be complementary to
+our snubbing and coiled tubing service lines, because it is a non-corrosive medium and is frequently injected into a well using coiled tubing. Nitrogen
+is complementary to our pressure pumping service line as well, because foam-based nitrogen stimulation is appropriate in certain sensitive formations
+in which the fluids used in fracturing or acidizing would damage a customer’s well. 
+For non-oilfield industrial users,
+nitrogen can be used to purge pipelines and create a non-combustible environment. RPC stores and transports nitrogen and has a number of pumping unit
+configurations that inject nitrogen in its various applications. Some of these pumping units are set up for use on offshore platforms or inland waters.
+RPC purchases its nitrogen in liquid form from several suppliers and believes that these sources of supply are adequate. 
+Well Control. Cudd Pressure Control
+specializes in responding to and controlling oil and gas well emergencies, including blowouts and well fires, domestically and internationally. In
+connection with these services, Cudd, along with Patterson Services, has the capacity to supply the equipment, expertise and personnel necessary to
+restore affected oil and gas wells to production. In the last nine years, the Company has responded to well control situations in several international
+locations including Algeria, Argentina, Australia, Bolivia, Canada, Colombia, Egypt, India, Kuwait, Peru, Qatar, Taiwan, Trinidad and
+Venezuela. 
+The Company’s professional
+firefighting staff has many years of aggregate industry experience in responding to well fires and blowouts. This team of 11 experts responds to well
+control situations where 
+4 
+hydrocarbons are escaping from a
+well bore, regardless of whether a fire has occurred. In the most critical situations, there are explosive fires, the destruction of drilling and
+production facilities, substantial environmental damage and the loss of hundreds of thousands of dollars per day in well operators’ production
+revenue. Since these events ordinarily arise from equipment failures or human error, it is impossible to predict accurately the timing or scope of this
+work. Additionally, less critical events frequently occur in connection with the drilling of new wells in high-pressure reservoirs. In these
+situations, the Company is called upon to supervise and assist in the well control effort so that drilling operations can resume as promptly as safety
+permits. 
+Downhole Tools. Thru Tubing Solutions
+(“TTS”) provides services and proprietary downhole motors, fishing tools and other specialized downhole tools and processes to operators and
+service companies in drilling and production operations. TTS’ experience providing reliable tool services allows it to work in a pressurized
+environment with virtually any coiled tubing unit or snubbing unit that is equipped for the task. 
+Wireline Services. Wireline is
+classified into two types of services: slick or braided line and electric line. In both, a spooled wire is unwound and lowered into a well, conveying
+various types of tools or equipment. Slick or braided line services use a non-conductive line primarily for jarring objects into or out of a well, as
+in fishing or plug-setting operations. Electric line services lower an electrical conductor line into a well allowing the use of electrically-operated
+tools such as perforators, bridge plugs and logging tools. Wireline services can be an integral part of the plug and abandonment process, near the end
+of the life cycle of a well. 
+Fishing. Fishing involves the use of
+specialized tools and procedures to retrieve lost equipment from a well drilling operation and producing wells. It is a service required by oil and gas
+operators who have lost equipment in a well. Oil and natural gas production from an affected well typically declines until the lost equipment can be
+retrieved. In some cases, the Company creates customized tools to perform a fishing operation. The customized tools are maintained by the Company after
+the particular fishing job for future use if a similar need arises. 
+Support Services 
+The following is a description of the
+primary service lines conducted within the Support Services business segment: 
+Rental Tools. Rental tools accounted
+for approximately 13 percent of 2007 and 2006 revenues and 10 percent of 2005 revenues. The Company rents specialized equipment for use with onshore
+and offshore oil and gas well drilling, completion and workover activities. The drilling and subsequent operation of oil and gas wells generally
+require a variety of equipment. The equipment needed is in large part determined by the geological features of the production zone and the size of the
+well itself. As a result, operators and drilling contractors often find it more economical to supplement their tool and tubular inventories with rental
+items instead of owning a complete inventory. The Company’s facilities are strategically located to serve the major staging points for oil and gas
+activities in the Gulf of Mexico, mid-continent region and Rocky Mountains. 
+Patterson Rental Tools offers a broad
+range of rental tools including: 
+Blowout
+Preventors 
+Diverters 
+High Pressure
+Manifolds and valves 
+Drill
+Pipe 
+Hevi-wate Drill
+Pipe 
+Drill
+Collars 
+Tubing 
+Handling Tools 
+Production
+Related Rental Tools 
+Coflexip Hoses 
+Pumps 
+Oilfield Pipe Inspection Services, Pipe
+Management and Pipe Storage. Pipe inspection services include Full Body Electromagnetic and Phased Array Ultrasonic inspection of pipe used in oil and
+gas wells. These services are provided at both the Company’s inspection facilities and at pipe mills in 
+5 
+accordance with negotiated sales
+and/or service contracts. Our customers are major oil companies and steel mills, for which we provide in-house inspection services, inventory
+management and process control of tubing, casing, and drill pipe. Our locations in Channelview, Texas and Morgan City, Louisiana are equipped with
+large capacity cranes, specially designed forklifts and a computerized inventory system to serve a variety of storage and handling services for both
+the oilfield and non-oilfield customers. 
+Well Control School. Well Control
+School provides industry and government accredited training for the oil and gas industry both in the United States and in several international
+locations. Well Control School provides this training in various formats including conventional classroom training, interactive computer training
+including training delivered over the internet, and mobile simulator training. 
+Energy Personnel International. Energy
+Personnel International provides drilling and production engineers, well site supervisors, project management specialists, and workover and completion
+specialists on a consulting basis to the oil and gas industry to meet customers’ needs for staff engineering and wellsite
+management. 
+Refer to Note 12 in the Notes to the
+Consolidated Financial Statements for additional financial information on our business segments. 
+Industry 
+United States. RPC provides its
+services to its domestic customers through a network of facilities strategically located to serve the Gulf of Mexico, the mid-continent, the southwest
+and the Rocky Mountains production fields. Demand for RPC’s services in the U.S. tends to be extremely volatile and fluctuates with current and
+projected price levels of oil and natural gas and activity levels in the oil and gas industry. Customer activity levels are influenced by their
+decisions about capital investment toward the development and production of oil and gas reserves. 
+Due to aging oilfields and lower-cost
+sources of oil internationally, the drilling rig count in the U.S. has declined more than 61 percent from its peak in 1981. Due to enhanced technology,
+however, more wells are being drilled and the domestic production of oil and natural gas remains roughly equivalent to prior years. Record low drilling
+activity levels were experienced in 1986, 1992, 1999 (with April 1999 recording the lowest U.S. drilling rig count in the industry’s history) and
+again in 2002. At the beginning of 2007, there were 1,695 domestic working drilling rigs, up 31 percent from the third quarter 2001 peak during that
+industry cycle. U.S. domestic drilling activity steadily rose during the first three quarters of 2007 and peaked in the third quarter at a rig count of
+1,829, which was 41 percent higher than the third quarter 2001 peak. In 2007 the average rig count of 1,768 increased seven percent compared to the
+prior year. During 2007 the average price of natural gas increased by approximately four percent, and the average price of oil increased by almost 10
+percent. The price of oil increased tremendously during the fourth quarter due to increased demand in developing countries and continued political
+turmoil in many oil-producing regions of the world. The change in domestic drilling activity was consistent with the change in the prices of oil and
+natural gas, especially when the respective percentages of domestic drilling activity which relate to oil and natural gas are considered. We believe
+that the current prices of oil and natural gas are high enough to encourage our customers to undertake exploration and production activities, and that
+our customers believe that in the long-term, the prices of oil and natural gas will remain high enough to yield profitable returns for their
+exploration and production investments. 
+Gas drilling rigs have represented an
+increasing percentage of the total drilling rig count, and have represented at least 80 percent of the drilling rig count each year since 2001. In
+2007, gas drilling rigs represented 83 percent of total drilling activity. Demand for natural gas is continuing to rise, primarily as a result of
+increased emphasis on gas-fired power generation. Also, unlike oil, foreign imports of natural gas do not compete with domestic production. This lack
+of foreign competition tends to keep prices high. Based on current demand levels for natural gas as well as the high oil and gas well depletion rates
+experienced over the past several years, it is anticipated that gas-directed drilling will represent at least 80 percent of the total drilling rig
+count in the foreseeable future. The demand for RPC’s services is driven 
+6 
+more by gas-directed drilling than
+oil-directed drilling, because our services are more applicable to deeper, higher pressure wells, which tend to be the wells that produce natural gas.
+In addition, there are certain types of gas wells being drilled in the U.S. domestic market for which there is a higher demand for RPC’s services.
+Known as either directional or horizontal wells, these natural gas wells are more difficult and costly to complete. Because they are drilled through a
+narrow formation, they require additional stimulation when they are completed, and since they are not drilled in a straight vertical direction from the
+Earth’s surface, they require tools and drilling mechanisms that are flexible, rather than rigid, and can be steered once they are downhole.
+Specifically, these types of wells require RPC’s pressure pumping and coiled tubing services, as well as our downhole tools and
+services. 
+Thus, in North America the demand for
+our services and products associated with natural gas development is currently more robust than demand related to oil drilling. Drilling activity and
+demand for our services remain strong and should continue to be robust if economic conditions remain stable. 
+International. RPC has historically
+operated in several countries outside of the United States, although international revenues have never accounted for more than 10 percent of total
+revenues. Over the past several years, RPC has increased its focus on developing international opportunities, although our equipment investments over
+the last couple of years has emphasized domestic rather than international expansion. International revenues for 2007 increased due to higher customer
+activity levels in Argentina, Canada and Turkmenistan. During 2007, RPC performed snubbing work in Cameroon, China, Egypt, Gabon, Hungary and
+Turkmenistan, among other countries. We also provided rental tools, well control services, downhole motors, fishing tool services and oilfield training
+to customers located in Algeria, Angola, Argentina, Australia, Bolivia, Canada, China, Ecuador, India, Indonesia, Mexico, Peru, Qatar, the United
+Kingdom and Venezuela. We continue to focus on the development of international opportunities in these and other markets, although we believe that it
+will continue to be less than 10 percent of total revenues. 
+RPC provides services to its
+international customers through branch locations or wholly-owned foreign subsidiaries. The international market is prone to political uncertainties,
+including the risk of civil unrest and conflicts. However, due to the significant investment requirement and complexity of international projects,
+customers’ drilling decisions relating to such projects tend to be evaluated and monitored with a longer-term perspective with regard to oil and
+natural gas pricing, and therefore have the potential to be more stable than most U.S. domestic operations. Additionally, the international market is
+dominated by major oil companies and national oil companies which tend to have different objectives and more operating stability than the typical
+independent oil and gas producer in the U.S. Predicting the timing and duration of contract work is not possible. Pursuing selective international
+opportunities for revenue growth continues to be a strong emphasis for RPC. Refer to Note 12 in the Notes to Consolidated Financial Statements for
+further information on our international operations. 
+Growth Strategies 
+RPC’s primary objective is to
+generate excellent long-term returns on investment through the effective and conservative management of its invested capital, thus yielding strong cash
+flow and asset appreciation. This objective continues to be pursued through strategic investments and opportunities designed to enhance the long-term
+value of RPC while improving market share, product offerings and the profitability of existing businesses. Growth strategies are focused on selected
+areas and markets in which we believe there exist opportunities for higher growth, market penetration, or enhanced returns achieved through
+consolidations or through providing proprietary value-added products and services. RPC intends to focus on specific market segments in which it
+believes that it has a competitive advantage or there exists significant growth potential. 
+RPC seeks to expand its service
+capabilities through a combination of internal growth, acquisitions, joint ventures and strategic alliances. Because of the fragmented nature of the
+oil and gas services industry, RPC believes a number of attractive acquisition opportunities exist. Although current price
+expectations 
+7 
+reduce the near-term possibility of
+completing a transaction, we believe we generate better returns growing organically in service lines and geographic locations in which we have
+experience and presence. 
+RPC has traditionally had a
+conservative capital structure with minimal debt. During 2006, however, we established a new revolving credit facility to fund the purchase of
+revenue-producing equipment and other working capital requirements to pursue our growth plan. We pursued this capital source because of the high
+returns on investment that had been generated by many of our service lines during the previous several years, and because of the low cost and ready
+availability of debt capital. By the end of 2007, purchases of revenue-producing equipment under our growth plan were substantially complete, and we
+believe that the high returns on investment generated by many of our service lines will continue, thus justifying the funding of these expenditures
+with debt. At the end of 2007, RPC’s debt levels easily complied with the debt covenants in our revolving credit agreement and were conservative
+compared to a number of our peers. 
+Customers 
+Demand for RPC’s services and
+products depends primarily upon the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of
+well completions and the level of production enhancement activity worldwide. RPC’s principal customers consist of major and independent oil and
+natural gas producing companies. During 2007, RPC provided oilfield services to several hundred customers, none of which accounted for more than 10
+percent of consolidated revenues. While the loss of certain of RPC’s largest customers could have a material adverse effect on Company revenues
+and operating results in the near term, management believes RPC would be able to obtain other customers for its services in the event of a loss of any
+of its largest customers. Sales are generated by RPC’s sales force and through referrals from existing customers. There are long-term written
+contracts for services and equipment with certain international and domestic customers, although revenues earned under such contracts are a small
+percentage of total revenues. Due to the short lead time between ordering services or equipment and providing services or delivering equipment, there
+is no significant sales backlog in most of our service lines. 
+Competition 
+RPC operates in highly competitive
+areas of the oilfield services industry. RPC’s products and services are sold in highly competitive markets, and its revenues and earnings are
+affected by changes in prices for our services, fluctuations in the level of customer activity in major markets, general economic conditions and
+governmental regulation. RPC competes with many large and small oilfield industry competitors, including the largest integrated oilfield services
+companies. RPC believes that the principal competitive factors in the market areas that it serves are product and service quality and availability,
+reputation for safety and technical proficiency, and price. 
+The oil and gas services industry
+includes a small number of dominant global competitors including, among others, Halliburton Energy Services Group, a division of Halliburton Company,
+BJ Services Company and Schlumberger Ltd., and a significant number of locally oriented businesses. 
+Facilities/Equipment 
+RPC’s equipment consists primarily
+of oil and gas services equipment used either in servicing customer wells or provided on a rental basis for customer use. Substantially all of this
+equipment is Company owned. RPC purchases oilfield service equipment from a limited number of manufacturers. These manufacturers of our oilfield
+service equipment may not be able to meet our requests for timely delivery during periods of high demand which may result in delayed deliveries of
+equipment and higher prices for equipment. During 2007, the Company experienced a delay of new equipment deliveries due to high manufacturing backlogs
+resulting from high demand; however, as of the end of 2007 we have received the majority of this equipment and expect to receive the remainder by the
+end of the first quarter of 2008. 
+8 
+RPC both owns and leases regional and
+district facilities from which its oilfield services are provided to land-based and offshore customers. RPC’s principal executive offices in
+Atlanta, Georgia are leased. The Company has two primary administrative buildings, one in Houston, Texas that includes the Company’s operations,
+engineering, sales and marketing headquarters, and one in Houma, Louisiana that includes certain administrative functions. RPC believes that its
+facilities are adequate for its current operations but as the business continues to grow, we are evaluating the need for additional facilities. For
+additional information with respect to RPC’s lease commitments, see Note 9 of the Notes to Consolidated Financial Statements. 
+Governmental Regulation 
+RPC’s business is affected by
+state, federal and foreign laws and other regulations relating to the oil and gas industry, as well as laws and regulations relating to worker safety
+and environmental protection. RPC cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be
+interpreted by enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or the effect such changes may have on
+it, its businesses or financial condition. 
+In addition, our customers are affected
+by laws and regulations relating to the exploration for and production of natural resources such as oil and natural gas. These regulations are subject
+to change, and new regulations may curtail or eliminate our customers’ activities in certain areas where we currently operate. We cannot determine
+the extent to which new legislation may impact our customers’ activity levels, and ultimately, the demand for our services. 
+Intellectual Property 
+RPC uses several patented items in its
+operations, which management believes are important but are not indispensable to RPC’s success. Although RPC anticipates seeking patent protection
+when possible, it relies to a greater extent on the technical expertise and know-how of its personnel to maintain its competitive
+position. 
+Availability of Filings 
+RPC makes available, free of charge, on
+its website, www.rpc.net, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those
+reports on the same day as they are filed with the Securities and Exchange Commission. 
+1A. Risk Factors 
+Demand for our products and services is affected by the
+volatility of oil and natural gas prices. 
+Oil prices affect demand throughout the
+oil and natural gas industry, including the demand for our products and services. Our business depends in large part on the conditions of the oil and
+gas industry, and specifically on the capital investments of our customers related to the exploration and production of oil and natural gas. When these
+capital investments decline, our customers’ demand for our services declines. 
+Although the production sector of the
+oil and gas industry is less immediately affected by changing prices, and, as a result, less volatile than the exploration sector, producers react to
+declining oil and gas prices by curtailing capital spending, which would adversely affect our business. A prolonged low level of customer activity in
+the oil and gas industry will adversely affect the demand for our products and services and our financial condition and results of
+operations. 
+9 
+The relationship between the prices of oil and natural gas and
+our customers’ drilling and production activities may not be highly correlated in the future. 
+Historically, a rise in the prices of
+oil and natural gas has led to an immediate increase in our customers’ drilling and production activities as measured by the domestic rig count.
+However, this relationship has not been as strong in the recent past as it was historically, due in part to limited drilling rig capacity in the United
+States. If this correlation is weak in the future, then it is possible that increases in the prices of oil and natural gas will not lead to an increase
+in our customers’ activities, and our future operating results could be negatively impacted. 
+We may be unable to compete in the highly competitive oil and
+gas industry in the future. 
+We operate in highly competitive areas
+of the oilfield services industry. The products and services in our industry segments are sold in highly competitive markets, and our revenues and
+earnings may be affected by the following factors: changes in competitive prices, fluctuations in the level of activity in major markets, general
+economic conditions, and governmental regulation. We compete with the oil and gas industry’s many large and small industry competitors, including
+the largest integrated oilfield service providers. We believe that the principal competitive factors in the market areas that we serve are product and
+service quality and availability, reputation for safety, technical proficiency and price. Although we believe that our reputation for safety and
+quality service is good, we cannot assure you that we will be able to maintain our competitive position. 
+We may be unable to identify or complete
+acquisitions. 
+Acquisitions have been and will
+continue to be a key element of our business strategy. We cannot assure you that we will be able to identify and acquire acceptable acquisition
+candidates on terms favorable to us in the future. We may be required to incur substantial indebtedness to finance future acquisitions and also may
+issue equity securities in connection with such acquisitions. The issuance of additional equity securities could result in significant dilution to our
+stockholders. We cannot assure you that we will be able to integrate successfully the operations and assets of any acquired business with our own
+business. Any inability on our part to integrate and manage the growth from acquired businesses could have a material adverse effect on our results of
+operations and financial condition. 
+Our operations are affected by adverse weather
+conditions. 
+Our operations are directly affected by
+the weather conditions in several domestic regions, including the Gulf of Mexico, the Gulf Coast, the mid-continent and the Rocky Mountains. Hurricanes
+and other storms prevalent in the Gulf of Mexico and along the Gulf Coast during certain times of the year may also affect our operations, and severe
+hurricanes may affect our customers’ activities for a period of several years. While the impact of these storms may increase the need for certain
+of our services over a longer period of time, such storms can also decrease our customers’ activities immediately after they occur. Such
+hurricanes may also affect the prices of oil and natural gas by disrupting supplies in the short term, which may increase demand for our services in
+geographic areas not damaged by the storms. Prolonged rain, snow or ice in many of our locations may temporarily prevent our crews and equipment from
+reaching customer work sites. Due to seasonal differences in weather patterns, our crews may operate more days in some periods than others.
+Accordingly, our operating results may vary from quarter to quarter, depending on the impact of these weather conditions. 
+Our inability to attract and retain skilled workers may impair
+growth potential and profitability. 
+Our ability to remain productive and
+profitable will depend substantially on our ability to attract and retain skilled workers. Our ability to expand our operations is in part impacted by
+our ability to increase our labor force. The demand for skilled oilfield employees is high, and the supply is very limited. A significant increase in
+the wages paid by competing employers could result in a reduction in our skilled 
+10 
+labor force, increases in the wage
+rates paid by us, or both. If either of these events occurred, our capacity and profitability could be diminished, and our growth potential could be
+impaired. 
+Our concentration of customers in one industry may impact
+overall exposure to credit risk. 
+Substantially all of our customers
+operate in the energy industry. This concentration of customers in one industry may impact our overall exposure to credit risk, either positively or
+negatively, in that customers may be similarly affected by changes in economic and industry conditions. We perform ongoing credit evaluations of our
+customers and do not generally require collateral in support of our trade receivables. 
+Our business has potential liability for litigation, personal
+injury and property damage claims assessments. 
+Our operations involve the use of heavy
+equipment and exposure to inherent risks, including blowouts, explosions and fires. If any of these events were to occur, it could result in liability
+for personal injury and property damage, pollution or other environmental hazards or loss of production. Litigation may arise from a catastrophic
+occurrence at a location where our equipment and services are used. This litigation could result in large claims for damages. The frequency and
+severity of such incidents will affect our operating costs, insurability and relationships with customers, employees and regulators. These occurrences
+could have a material adverse effect on us. We maintain what we believe is prudent insurance protection. We cannot assure you that we will be able to
+maintain adequate insurance in the future at rates we consider reasonable or that our insurance coverage will be adequate to cover future claims and
+assessments that may arise. 
+Our operations may be adversely affected if we are unable to
+comply with regulatory and environmental laws. 
+Our business is significantly affected
+by stringent environmental laws and other regulations relating to the oil and gas industry and by changes in such laws and the level of enforcement of
+such laws. We are unable to predict the level of enforcement of existing laws and regulations, how such laws and regulations may be interpreted by
+enforcement agencies or court rulings, or whether additional laws and regulations will be adopted. The adoption of laws and regulations curtailing
+exploration and development of oil and gas fields in our areas of operations for economic, environmental or other policy reasons would adversely affect
+our operations by limiting demand for our services. We also have potential environmental liabilities with respect to our offshore and onshore
+operations, and could be liable for cleanup costs, or environmental and natural resource damage due to conduct that was lawful at the time it occurred,
+but is later ruled to be unlawful. We also may be subject to claims for personal injury and property damage due to the generation of hazardous
+substances in connection with our operations. We believe that our present operations substantially comply with applicable federal and state pollution
+control and environmental protection laws and regulations. We also believe that compliance with such laws has had no material adverse effect on our
+operations to date. However, such environmental laws are changed frequently. We are unable to predict whether environmental laws will, in the future,
+materially adversely affect our operations and financial condition. Penalties for noncompliance with these laws may include cancellation of permits,
+fines, and other corrective actions, which would negatively affect our future financial results. 
+Our international operations could have a material adverse
+effect on our business. 
+Our operations in various countries
+including, but not limited to, Africa, Canada, China, Eastern Europe, Latin America and the Middle East are subject to risks. These risks include, but
+are not limited to, political changes, expropriation, currency restrictions and changes in currency exchange rates, taxes, and boycotts and other civil
+disturbances. The occurrence of any one of these events could have a material adverse effect on our operations. 
+11 
+Our common stock price has been volatile. 
+Historically, the market price of
+common stock of companies engaged in the oil and gas services industry has been highly volatile. Likewise, the market price of our common stock has
+varied significantly in the past. 
+Our management has a substantial ownership interest, and
+public shareholders may have no effective voice in the management of the Company. 
+The Company has elected the
+“Controlled Corporation” exemption under Rule 303A of the New York Stock Exchange (“NYSE”) Company Guide. The Company is a
+“Controlled Corporation” because a group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother, Gary W.
+Rollins, who is also a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s
+voting power. As a “Controlled Corporation,” the Company need not comply with certain NYSE rules including those requiring a majority of
+independent directors. 
+RPC’s executive officers,
+directors and their affiliates hold directly or through indirect beneficial ownership, in the aggregate, approximately 72 percent of RPC’s
+outstanding shares of common stock. As a result, these stockholders effectively control the operations of RPC, including the election of directors and
+approval of significant corporate transactions such as acquisitions and other matters requiring stockholder approval. This concentration of ownership
+could also have the effect of delaying or preventing a third party from acquiring control over the Company at a premium. 
+Our management has a substantial ownership interest, and the
+availability of the Company’s common stock to the investing public may be limited. 
+The availability of RPC’s common
+stock to the investing public may be limited to those shares not held by the executive officers, directors and their affiliates, which could negatively
+impact RPC’s stock trading prices and affect the ability of minority stockholders to sell their shares. Future sales by executive officers,
+directors and their affiliates of all or a portion of their shares could also negatively affect the trading price of our common stock. 
+Provisions in RPC’s Certificate of Incorporation and
+Bylaws may inhibit a takeover of RPC. 
+RPC’s certificate of
+incorporation, bylaws and other documents contain provisions including advance notice requirements for shareholder proposals and staggered terms of
+office for the Board of Directors. These provisions may make a tender offer, change in control or takeover attempt that is opposed by RPC’s Board
+of Directors more difficult or expensive. 
+Some of our equipment and several types of materials used in
+providing our services are available from a limited number of suppliers. 
+We purchase equipment provided by a
+limited number of manufacturers who specialize in oilfield service equipment. During periods of high demand, these manufacturers may not be able to
+meet our requests for timely delivery, resulting in delayed deliveries of equipment and higher prices for equipment. There are a limited number of
+suppliers for certain materials used in pressure pumping services, our largest service line. While these materials are generally available, supply
+disruptions can occur due to factors beyond our control. Such disruptions, delayed deliveries, and higher prices can limit our ability to provide
+services, or increase the costs of providing services, thus reducing our revenues and profits. 
+We have used outside financing to accomplish our growth
+strategy, and outside financing may become unavailable or may be unfavorable to us. 
+Our business requires a great deal of
+capital in order to maintain our equipment and increase our fleet of equipment to expand our operations, and we have access to our $250 million credit
+facility to fund our capital requirements. Our existing credit facility bears interest at a floating rate, which exposes us to 
+12 
+market risks as interest rates
+rise. If our existing capital resources become unavailable, inadequate or unfavorable for purposes of funding our capital requirements, we would need
+to raise additional funds through alternative debt or equity financings to maintain our equipment and continue our growth. Such additional financing
+sources may not be available when we need them, or may not be available on favorable terms. If we fund our growth through the issuance of public
+equity, the holdings of shareholders will be diluted. If capital generated either by cash provided by operating activities or outside financing is not
+available or sufficient for our needs, we may be unable to maintain our equipment, expand our fleet of equipment, or take advantage of other
+potentially profitable business opportunities, which could reduce our future revenues and profits. 
+Item 1B. Unresolved Staff Comments 
+None. 
+Item 2. Properties 
+RPC owns or leases approximately 100
+offices and operating facilities. The Company leases approximately 13,400 square feet of office space in Atlanta, Georgia that serves as its
+headquarters, a portion of which is allocated and charged to Marine Products Corporation. See “Related Party Transactions” contained in Item
+7. The lease agreement on the headquarters is effective through October 2013. RPC believes its current operating facilities are suitable and adequate
+to meet current and reasonably anticipated future needs although as our business continues to grow we are evaluating the need for additional
+facilities. Descriptions of the major facilities used in our operations are as follows: 
+Owned Locations 
+Houma, Louisiana — Administrative
+office 
+Houston, Texas — Pipe storage
+terminal and inspection sheds 
+Houston, Texas — Operations, sales
+and administrative office 
+Elk City, Oklahoma — Operations,
+sales and equipment storage yards 
+Rock Springs, Wyoming —
+Operations, sales and equipment storage yards 
+Lafayette, Louisiana — Operations,
+sales and equipment storage yards 
+Conway, Arkansas — Operations,
+sales and equipment storage yards 
+Fruita, Colorado — Operations,
+sales and equipment storage yards 
+Leased Locations 
+Seminole, Oklahoma — Pumping
+services facility 
+Elk City, Oklahoma — Operations,
+sales and equipment storage yards 
+Kilgore, Texas — Pumping services
+facility 
+Odessa, Texas — Operations, sales
+and equipment storage yards 
+Item 3. Legal Proceedings 
+RPC is a party to various routine legal
+proceedings primarily involving commercial claims, workers’ compensation claims and claims for personal injury. RPC insures against these risks to
+the extent deemed prudent by its management, but no assurance can be given that the nature and amount of such insurance will, in every case, fully
+indemnify RPC against liabilities arising out of pending and future legal proceedings related to its business activities. While the outcome of these
+lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of all such
+proceedings, 
+13 
+even if determined adversely, would
+not have a material adverse effect on RPC’s business or financial condition. 
+Item 4. Submission of Matters to a Vote of Security
+Holders 
+There were no matters submitted to a
+vote of security holders during the fourth quarter of 2007. 
+Item 4A. Executive Officers of the
+Registrant 
+Each of the executive officers of RPC
+was elected by the Board of Directors to serve until the Board of Directors’ meeting immediately following the next annual meeting of stockholders
+or until his or her earlier removal by the Board of Directors or his or her resignation. The following table lists the executive officers of RPC and
+their ages, offices, and terms of office with RPC. 
+Name and Office with Registrant 
+Age 
+Date First Elected to Present Office 
+R. Randall
+Rollins (1) 
+76 
+1/24/84 
+Chairman of
+the Board 
+Richard A.
+Hubbell (2) 
+63 
+4/22/03 
+President
+and 
+Chief Executive Officer 
+Linda H.
+Graham (3) 
+71 
+1/27/87 
+Vice
+President and 
+Secretary 
+Ben M.
+Palmer (4) 
+47 
+7/8/96 
+Vice
+President, 
+Chief Financial Officer and 
+Treasurer 
+(1) 
+R. Randall Rollins began working for Rollins, Inc. (consumer
+services) in 1949. At the time of the spin-off of RPC from Rollins, in 1984, Mr. Rollins was elected Chairman of the Board and Chief Executive Officer
+of RPC. He remains Chairman of RPC and stepped down as the Chief Executive Officer effective April 22, 2003. He has served as Chairman of the Board of
+Marine Products Corporation (boat manufacturing) since it was spun-off in February 2001 and Chairman of the Board of Rollins, Inc. since October 1991.
+He is also a director of Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports, Inc. 
+(2) 
+Richard A. Hubbell has been the President of RPC since 1987 and
+Chief Executive Officer since April 22, 2003. He has also been the President and Chief Executive Officer of Marine Products Corporation since it was
+spun-off in February 2001. Mr. Hubbell serves on the Board of Directors for both of these companies. 
+(3) 
+Linda H. Graham has been the Vice President and Secretary of RPC
+since 1987. She has also been the Vice President and Secretary of Marine Products Corporation since it was spun-off in February 2001. Ms. Graham serves
+on the Board of Directors for both of these companies. 
+(4) 
+Ben M. Palmer has been the Vice President, Chief Financial
+Officer and Treasurer of RPC since 1996. He has also been the Vice President, Chief Financial Officer and Treasurer of Marine Products Corporation
+since it was spun-off in February 2001. 
+14 
+PART II 
+Item 5. Market for Registrant’s Common Equity, Related
+Stockholder Matters and Issuer Purchases of Equity Securities 
+RPC’s common stock is listed for
+trading on the New York Stock Exchange under the symbol RES. At February 15, 2008, there were 97,929,653 shares of common stock outstanding and
+approximately 6,200 holders of record of common stock. The following table sets forth the high and low prices of RPC’s common stock and dividends
+paid for each quarter in the years ended December 31, 2007 and 2006: 
+2007 
+2006 
+Quarter 
+High 
+Low 
+Dividends 
+High 
+Low 
+Dividends 
+First
+$ 
+18.35 
+$ 
+14.20 
+$ 
+0.05 
+$ 
+23.72 
+$ 
+12.33 
+$ 
+0.033 
+Second
+18.94 
+15.77 
+0.05 
+23.19 
+12.83 
+0.033 
+Third
+17.25 
+11.34 
+0.05 
+16.97 
+11.53 
+0.033 
+Fourth 
+14.40 
+10.65 
+0.05 
+17.95 
+11.17 
+0.033 
+On January 22, 2008, the Board of
+Directors approved an increase in the quarterly cash dividend per common share from $0.05 to $0.06, payable March 10, 2008 to stockholders of record at
+the close of business February 8, 2008. The Company expects to continue to pay cash dividends to the common stockholders, subject to the earnings and
+financial condition of the Company and other relevant factors. 
+Issuer Purchases of Equity Securities 
+Shares repurchased in the fourth
+quarter of 2007 are outlined below. 
+Period 
+Total 
+Number 
+of Shares 
+(or Units) 
+Purchased 
+Average 
+Price Paid 
+Per Share 
+(or Unit) 
+Total Number 
+of Shares 
+(or Units) 
+Purchased
+as 
+Part of Publicly 
+Announced Plans 
+or Programs 
+Maximum Number 
+(or Approximate 
+Dollar Value)
+of 
+Shares (or Units) 
+that May Yet be 
+Purchased Under the 
+Plans or Programs 
+October 1,
+2007 to October 31, 2007 
+296,900 
+(1) 
+$ 
+11.10 
+— 
+4,066,965 
+November 1,
+2007 to November 30, 2007 
+1,132,200 
+(1) 
+10.94 
+— 
+4,066,965 
+December 1,
+2007 to December 31, 2007 
+137,300 
+(1) 
+10.92 
+— 
+4,066,965 
+Totals
+1,566,400 
+$ 
+10.97 
+— 
+4,066,965 
+(1) 
+Consists of shares purchased by “affiliated purchasers”
+under Rule 10b - 18 of the Securities Exchange Act in open market transactions. These affiliated purchases were made by RFT Investment Co. LLC of which
+LOR, Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. 
+The Company’s Board of Directors
+announced a stock buyback program in March 1998 authorizing the repurchase of 11,812,500 shares in the open market. During the fourth quarter of 2007,
+there were no open market purchases of the Company’s shares under this stock repurchase program. Currently the program does not have a
+predetermined expiration date. 
+Performance Graph 
+The following graph shows a five year
+comparison of the cumulative total stockholder return based on the performance of the stock of the Company, assuming dividend reinvestment, as compared
+with both a broad equity market index and an industry or peer group index. The indices included in the following graph are the Russell 2000 Index
+(“Russell 2000”), the Philadelphia Stock Exchange’s Oil Service Index (“OSX”), and a peer group which includes companies that
+are considered peers of the Company, as discussed below (the “Peer Group”). The Company has voluntarily chosen to provide both an industry
+and a peer group index. 
+The Russell 2000 is a stock index
+representing small capitalization U.S. stocks. The components of the index had an average market capitalization in 2007 of $1.32 billion, and the
+Company was a 
+15 
+component of the Russell 2000
+during 2007. The Russell 2000 was chosen because it represents companies with comparable market capitalizations to the Company. The OSX is a stock
+index of 15 U.S. companies that provide oil drilling and production services, oilfield equipment, support services and geophysical/reservoir services.
+The Company is not a component of the OSX, but it was chosen because it represents a large group of companies that provide the same or similar products
+and services as the Company. The companies included in the Peer Group are Weatherford International, Inc., BJ Services Company, Superior Energy
+Services, Inc., and Halliburton Company. The companies included in the peer group have been weighted according to each respective issuer’s stock
+market capitalization at the beginning of each year. 
+Item 6. Selected Financial Data 
+The following table summarizes certain
+selected financial data of the Company. The historical information may not be indicative of the Company’s future results of operations. The
+information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of
+Operations” and the Consolidated Financial Statements and the notes thereto included elsewhere in this document. 
+16 
+STATEMENT OF OPERATIONS DATA: 
+Years Ended December 31, 
+2007 
+2006 
+2005 
+2004 
+2003 
+(in thousands, except employee and per share
+amounts) 
+Revenues
+$ 
+690,226 
+$ 
+596,630 
+$ 
+427,643 
+$ 
+339,792 
+$ 
+270,527 
+Cost of
+services rendered and goods sold 
+368,175 
+287,037 
+227,492 
+193,659 
+168,766 
+Selling,
+general and administrative expenses 
+107,800 
+91,051 
+75,478 
+65,871 
+52,268 
+Depreciation
+and amortization 
+78,506 
+46,711 
+39,129 
+34,473 
+33,094 
+Gain on
+disposition of assets, net (a) 
+(6,293 
+) 
+(5,969 
+) 
+(12,169 
+) 
+(5,551 
+) 
+(36 
+) 
+Operating
+profit 
+142,038 
+177,800 
+97,713 
+51,340 
+16,435 
+Interest
+expense 
+(4,179 
+) 
+(356 
+) 
+(127 
+) 
+(311 
+) 
+(284 
+) 
+Interest
+income 
+70 
+319 
+1,077 
+243 
+131 
+Other income,
+net 
+1,905 
+1,085 
+2,077 
+1,931 
+1,288 
+Income before
+income taxes 
+139,834 
+178,848 
+100,740 
+53,203 
+17,570 
+Income tax
+provision (b) 
+52,785 
+68,054 
+34,256 
+18,430 
+6,677 
+Net income (b) 
+$ 
+87,049 
+$ 
+110,794 
+$ 
+66,484 
+$ 
+34,773 
+$ 
+10,893 
+Earnings per
+share: 
+Basic
+$ 
+0.90 
+$ 
+1.16 
+$ 
+0.70 
+$ 
+0.36 
+$ 
+0.11 
+Diluted
+$ 
+0.89 
+$ 
+1.13 
+$ 
+0.67 
+$ 
+0.36 
+$ 
+0.11 
+Dividends paid
+per share 
+$ 
+0.200 
+$ 
+0.133 
+$ 
+0.071 
+$ 
+0.036 
+$ 
+0.030 
+OTHER
+DATA: 
+Operating
+margin percent 
+20.6 
+% 
+29.8 
+% 
+22.8 
+% 
+15.1 
+% 
+6.1 
+% 
+Net cash
+provided by operations 
+$ 
+141,872 
+$ 
+118,228 
+$ 
+66,362 
+$ 
+50,374 
+$ 
+50,631 
+Net cash used
+for investing activities 
+(239,624 
+) 
+(151,085 
+) 
+(62,415 
+) 
+(37,215 
+) 
+(34,670 
+) 
+Net cash
+provided by (used for) financing activities 
+101,361 
+22,777 
+(20,774 
+) 
+(5,825 
+) 
+(5,192 
+) 
+Depreciation
+and amortization (c) 
+78,506 
+46,711 
+39,129 
+34,500 
+33,182 
+Capital
+expenditures 
+$ 
+248,758 
+$ 
+159,831 
+$ 
+72,808 
+$ 
+49,869 
+$ 
+30,356 
+Employees at
+end of period 
+2,370 
+2,000 
+1,649 
+1,596 
+1,529 
+BALANCE SHEET DATA AT END OF YEAR: 
+Accounts
+receivable, net 
+$ 
+176,154 
+$ 
+148,469 
+$ 
+107,428 
+$ 
+75,793 
+$ 
+53,719 
+Working
+capital 
+144,338 
+111,302 
+95,215 
+77,509 
+63,226 
+Property,
+plant and equipment, net 
+433,126 
+262,797 
+141,218 
+114,222 
+109,163 
+Total assets
+701,015 
+478,007 
+311,785 
+262,942 
+226,864 
+Current
+portion of long-term debt 
+— 
+— 
+— 
+2,700 
+1,110 
+Long-term
+debt (d) 
+156,400 
+35,600 
+— 
+2,100 
+4,800 
+Total
+stockholders’ equity 
+$ 
+409,272 
+$ 
+335,287 
+$ 
+232,501 
+$ 
+181,423 
+$ 
+151,106 
+(a) 
+Gain on disposition of assets, net in 2005 includes a $10.7
+million pre-tax gain ($0.07 after tax per diluted share) on the sale of certain assets during third quarter of 2005. In 2004 the gain on disposition,
+net includes a $3.3 million pre-tax gain ($0.02 after tax per diluted share) on the sale of certain operating assets during the fourth quarter of
+2004. 
+(b) 
+During the fourth quarter of 2005, the income tax provision and
+net income reflect the receipt of tax refunds of $3.5 million related to the successful resolution of certain tax matters, which had a positive impact
+of $0.04 after tax per diluted share. 
+(c) 
+Prior to the sale of our overhead crane fabricator in April 2004,
+depreciation and amortization differed from depreciation and amortization presented in the statements of operations. This difference is due to
+depreciation related to the manufacturing of goods which was included in cost of services rendered and goods sold. 
+(d) 
+Effective September 2006, the Company closed on a new revolving
+credit facility for up to $250 million. In 2005, the Company prepaid a $2.8 million promissory note and the remaining balance was paid in full upon
+maturity of a promissory note in July 2005. 
+17 
+Item 7. Management’s Discussion and Analysis of Financial
+Condition and Results of Operations 
+Overview 
+The following discussion should be read
+in conjunction with “Selected Financial Data,” and the Consolidated Financial Statements included elsewhere in this document. See also
+“Forward-Looking Statements” on page 2. 
+RPC, Inc. (“RPC”) provides a
+broad range of specialized oilfield services primarily to independent and major oilfield companies engaged in exploration, production and development
+of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and selected
+international locations. The Company’s revenues and profits are generated by providing equipment and services to customers who operate oil and gas
+properties and invest capital to drill new wells and enhance production or perform maintenance on existing wells. 
+Our key business and financial
+strategies are: 
+• 
+To focus our management resources on and invest our capital in
+equipment and geographic markets that we believe will earn high returns on capital, and maintain an appropriate capital structure. 
+• 
+To maintain a flexible cost structure that can respond quickly
+to volatile industry conditions and business activity levels. 
+• 
+To deliver equipment and services to our customers
+safely. 
+• 
+To maintain and increase market share. 
+• 
+To maximize shareholder return by optimizing the balance between
+cash invested in the Company’s productive assets, the payment of dividends to shareholders, and the repurchase of our common stock on the open
+market. 
+• 
+To align the interests of our management and
+shareholders. 
+• 
+To maintain an efficient, low-cost capital structure, which
+includes an appropriate use of debt. 
+In assessing the outcomes of these
+strategies and RPC’s financial condition and operating performance, management generally reviews periodic forecast data, monthly actual results,
+and other similar information. We also consider trends related to certain key financial data, including revenues, utilization of our equipment and
+personnel, pricing for our services and equipment, profit margins, selling, general and administrative expenses, cash flows and the return on our
+invested capital. We continuously monitor factors that impact the level of current and expected customer activity levels, such as the price of oil and
+natural gas, changes in pricing for our services and equipment and utilization of our equipment and personnel. Our financial results are affected by
+geopolitical factors such as political instability in the petroleum-producing regions of the world, overall economic conditions and weather in the
+United States, the prices of oil and natural gas, and our customers’ drilling and production activities. 
+Current industry conditions include
+natural gas prices that are high by historical levels and much less volatile than in recent years. Oil prices are historically high, having reached
+$100 per barrel in late 2007. In the beginning of 2007, the price of natural gas was lower than at the beginning of 2006, principally because natural
+gas was high in 2006 due to supply disruptions caused by the hurricanes in late 2005. Prices remained steady during the year, and for the entire year
+were slightly higher than 2006. In the beginning of 2008, natural gas prices are rising compared to 2007, and while the price of oil has fallen, it is
+still much higher than at the same time in 2007. The rig count increased slightly in 2007 compared to the prior year, a trend which continues in early
+2008. In addition to the overall rig count, the Company also monitors the number of horizontal and directional wells drilled in the U.S. domestic
+market, because this type of well is more service-intensive than a vertical oil or gas well, thus requiring more of the Company’s services
+provided for a longer period of time. The number of horizontal and directional wells 
+18 
+drilled in the United States
+increased in 2007, and was 44 percent of total wells drilled during the year. During 2007, the supply of oilfield service equipment in the U.S.
+domestic market increased tremendously, both from existing service companies and new entrants to the oilfield services business. This increased
+competition has caused pricing for the Company’s services to decrease, which has had a negative impact on the Company’s financial results and
+returns. The Company has responded by reducing its planned capital expenditures, and closely monitoring its competitors’ activities. In spite of
+increased competition and declining financial results, the Company’s returns are still high by historical standards, and cash flow from operations
+as well as proceeds from our revolving credit facility have allowed us to make significant capital expenditures during 2007. 
+The results of the actions taken under
+our growth plan, current industry conditions, and the more competitive environment for our services are reflected in our 2007 financial and operational
+performance. We generated record revenues in 2007 due to stable industry conditions, a larger fleet of revenue-producing equipment, and several new
+operational locations. Revenues in 2007 of $690.2 million increased 15.7 percent compared to the prior year. International revenues increased due to
+higher customer activity levels in Bolivia, Canada, Egypt, Hungary, Mexico, Turkmenistan and Venezuela, partially offset by lower revenues in Angola,
+Argentina, Kuwait and West Africa. International revenues increased at a greater rate than domestic revenues, but still remain less than 10 percent of
+consolidated revenues. We continue to focus on developing international growth opportunities; however, it is difficult to predict when contracts and
+projects will be initiated and their ultimate duration. Based on current industry conditions and trends in the first quarter of 2008, we expect
+consolidated revenues for 2008 to increase compared to 2007, although the volatility in our industry makes accurate near-term forecasts
+unreliable. 
+Income before income taxes was $139.8
+million in 2007 compared to $178.8 million in the prior year. The effective tax rate for 2007 was 37.7 percent compared to 38.1 percent in the prior
+year. Diluted earnings per share decreased to $0.89 in 2007 compared to $1.13 for the prior year. Cash flows from operating activities were $141.9
+million in 2007 compared to $118.2 million in the prior year, and cash and cash equivalents were $6.3 million at December 31, 2007, an increase of $3.6
+million compared to December 31, 2006. During the third quarter of 2006, we replaced our $50 million credit facility with a new $250 million revolving
+credit facility in order to support our growth plan. As of December 31, 2007, there was $156.4 million in outstanding borrowings on our revolving
+credit facility. 
+Cost of services rendered and goods
+sold as a percentage of revenues increased approximately 5.0 percentage points in 2007 compared to 2006. This increase was due to lower pricing for our
+services due to competition and higher cost for materials and supplies, personnel and fuel. 
+Selling, general and administrative
+expenses as a percentage of revenues increased approximately 0.3 percentage points in 2007 compared to 2006, which was primarily due to an increase in
+employment costs consistent with higher activity levels and geographic expansion under RPC’s long-term growth plan. 
+Consistent with our strategy to
+selectively grow our capacity and maintain our existing fleet of high demand equipment, capital expenditures were $248.8 million in
+2007. 
+Outlook 
+Drilling activity in the U.S. domestic
+oilfields, as measured by the rotary drilling rig count, has been stable or gradually increasing for several years, and the overall domestic rig count
+during the fourth quarter of 2007 was approximately four percent higher than in the comparable period in 2006. The average price of oil rose by
+approximately 52 percent while the average price of natural gas rose by approximately six percent during the fourth quarter compared to the prior year.
+Horizontal and directional wells drilled during 2007 were 44 percent of total domestic activity, an increase from 41 percent in the prior year, and the
+highest percentage of total drilling activity during the time that this data has been reported. The price of oil has risen dramatically due to high
+global demand, especially among newly-industrializing countries such as China and India, and political instability and conflict in the oil-producing
+regions of the Middle East. While the overall drilling rig count has increased, drilling activity in the Gulf of Mexico remains weak. 
+19 
+The Company has responded to this
+situation by emphasizing investments in more robust domestic markets and making only selective investments in the Gulf of Mexico
+market. 
+The Company continues to monitor the
+competitive environment in 2008, and is concerned about the higher level of competition arising from additional equipment being placed in service by
+existing oilfield service providers, new entrants into the oilfield services business, and equipment and personnel that have entered the U.S. domestic
+market from Canada, a market that has been very weak for the past several years. The Company’s response to this highly competitive environment is
+to reduce some of our planned capital expenditures, enhance our sales and marketing efforts, and seek expansion into new geographic markets. The
+Company understands that factors influencing the industry are unpredictable, and our response to the industry’s potential uncertainty is to
+maintain sufficient liquidity and a conservative capital structure. Although we used our bank credit facility to finance our expansion, we will still
+maintain a conservative financial structure, and intend to reduce the amount drawn on this facility over the course of 2008. Based on current industry
+conditions and trends during 2007, as well as our expanded fleet of equipment, we expect consolidated revenues for 2008 to increase compared to
+2007. 
+Results of Operations 
+Years Ended December 31, ($ in thousands except 
+per share data, average natural gas prices, average oil prices) 
+2007 
+2006 
+2005 
+Consolidated
+revenues 
+$ 
+690,226 
+$ 
+596,630 
+$ 
+427,643 
+Revenues by
+business segment: 
+Technical
+$ 
+574,723 
+$ 
+495,090 
+$ 
+363,139 
+Support
+115,503 
+101,540 
+64,487 
+Other
+— 
+— 
+17 
+Consolidated
+operating profit 
+$ 
+142,038 
+$ 
+177,800 
+$ 
+97,713 
+Operating
+profit by business segment: 
+Technical
+$ 
+116,493 
+$ 
+153,126 
+$ 
+84,048 
+Support
+29,955 
+30,953 
+11,990 
+Other
+— 
+— 
+(273 
+) 
+Corporate
+expenses 
+(10,703 
+) 
+(12,248 
+) 
+(10,221 
+) 
+Gain on
+disposition of assets, net 
+6,293 
+5,969 
+12,169 
+Net income
+$ 
+87,049 
+$ 
+110,794 
+$ 
+66,484 
+Earnings per
+share — diluted 
+$ 
+0.89 
+$ 
+1.13 
+$ 
+0.67 
+Percentage of
+cost of services rendered and goods sold to revenues 
+53 
+% 
+48 
+% 
+53 
+% 
+Percentage of
+selling, general and administrative expenses to revenues 
+16 
+% 
+15 
+% 
+18 
+% 
+Percentage of
+depreciation and amortization expense to revenues 
+11 
+% 
+8 
+% 
+9 
+% 
+Effective
+income tax rate 
+37.7 
+% 
+38.1 
+% 
+34.0 
+% 
+Average U.S.
+domestic rig count 
+1,768 
+1,649 
+1,383 
+Average
+natural gas price (per thousand cubic feet (mcf)) 
+$ 
+6.93 
+$ 
+6.65 
+$ 
+8.86 
+Average oil price (per barrel) 
+$ 
+72.78 
+$ 
+66.36 
+$ 
+56.61 
+Year Ended December 31, 2007 Compared To Year Ended December
+31, 2006 
+Revenues. Revenues for 2007 increased
+$93.6 million or 15.7 percent compared to 2006. The Technical Services segment revenues for 2007 increased 16.1 percent from the prior year due
+primarily to increased drilling rig count and increased capacity driven by higher capital expenditures partially offset by lower pricing for services.
+The Support Services segment revenues for 2007 increased 13.8 percent from the prior year due to increased capacity driven by higher capital
+expenditures as well as a more profitable job mix in the rental tool service line, the largest within this segment. 
+20 
+Domestic revenues increased 15 percent
+to $649.1 million during 2007 compared to the prior year due to increased capacity in our largest service lines, such as pressure pumping and rental
+tools. The average price of natural gas increased by four percent and the average price of oil increased by approximately ten percent during 2007
+compared to the prior year. In conjunction with the increase in natural gas prices, the average domestic rig count during 2007 was seven percent higher
+than in 2006. This increase in drilling activity had a positive impact on our financial results. We believe that our activity levels are affected more
+by the price of natural gas than by the price of oil, because the majority of U.S. domestic drilling activity relates to natural gas, and many of our
+services are more appropriate for gas wells than oil wells. Foreign revenues increased from $30.0 million in 2006 to $41.1 million in 2007, or only six
+percent of consolidated revenues. These revenue increases were realized due mainly to higher customer activity levels in Bolivia, Canada, Egypt and
+Turkmenistan compared to the prior year. Our international revenues are impacted by the timing of project initiation and their ultimate
+duration. 
+Cost of services rendered and goods
+sold. Costs of services rendered and goods sold in 2007 was $368.2 million compared to $287.0 million in 2006, an increase of $81.2 million or 28.3
+percent. The increase in these costs was due to the variable nature of many of these expenses, including compensation, materials and supplies, fuel and
+maintenance and repair costs. Cost of services rendered and goods sold, as a percent of revenues, increased in 2007 from 2006 due to upward cost
+pressures for materials and supplies, personnel, and fuel, delays in the delivery of revenue producing equipment and resulting inefficiencies, as well
+as lower pricing for our services, due to increased competition. 
+Selling, general and administrative
+expenses. Selling, general and administrative expenses increased 18.4 percent to $107.8 million in 2007 compared to $91.1 million in 2006. This
+increase was primarily due to higher employment costs consistent with higher activity levels and geographic expansion under RPC’s long-term growth
+plan. As a percentage of revenues, selling, general and administrative expenses increased to 15.6 percent in 2007 compared to 15.3 percent in
+2006. 
+Depreciation and amortization.
+Depreciation and amortization were $78.5 million in 2007, an increase of $31.8 million or 68.1 percent compared to $46.7 million in 2006. This increase
+resulted from a higher level of capital expenditures during recent quarters within both Support Services and Technical Services to increase capacity
+and to maintain our existing equipment. 
+Gain on disposition of assets, net.
+Gain on the disposition of assets, net increased due primarily to gains related to various property and equipment dispositions or sales to customers of
+lost or damaged rental equipment. 
+Other income, net. Other income, net in
+2007 was $1.9 million, an increase of $0.8 million compared to $1.1 million in 2006. Other income includes gains from settlements of various legal and
+insurance claims and royalty payments. 
+Interest expense. Interest expense was
+$4.2 million in 2007 compared to $356 thousand in 2006. The increase is due to higher interest expense in 2007 incurred on outstanding interest bearing
+advances on our revolving line of credit. 
+Interest Income. Interest income
+declined to $70 thousand in 2007 compared to $319 thousand in 2006 as a result of a lower average investable cash balance in 2007 compared to
+2006. 
+Income tax provision. The income tax
+provision decreased to $52.8 million in 2007 from $68.1 million in 2006. The decrease is due to the decline in income before taxes coupled with a
+decrease in the effective tax rate to 37.7 percent in 2007 from 38.1 percent in 2006. 
+Net income and diluted earnings per
+share. Net income decreased 21.4 percent to $87.0 million, or $0.89 earnings per diluted share, compared to $110.8 million, or $1.13 earnings per
+diluted share in 2006. 
+21 
+Year Ended December 31, 2006 Compared To Year Ended December
+31, 2005 
+Revenues. Revenues for 2006 increased
+$169.0 million or 39.5 percent compared to 2005. The Technical Services segment revenues for 2006 increased 36.3 percent from the prior year due
+primarily to improved pricing and increased capacity driven by higher capital expenditures. The Support Services segment revenues for 2006 increased
+57.5 percent from the prior year due to increased capacity driven by higher capital expenditures in the rental tool service line, the largest within
+this segment, as well as improved pricing in the service lines which comprise this segment. 
+Domestic revenues increased 37 percent
+to $566.6 million during 2006 compared to the prior year. The increase in revenues is due to higher pricing and increased capacity in our largest
+service lines, such as pressure pumping and rental tools. The increase in pricing is mostly attributed to price book adjustments effective during the
+third quarter of 2005 and the first and third quarters of 2006 and higher customer demand for our services. The average price of natural gas decreased
+by almost 25 percent and the average price of oil increased by over 17 percent during 2006 compared to the prior year. In spite of the decrease in
+natural gas, the average domestic rig count during 2006 was 19 percent higher than 2005. This increase in drilling activity had a positive impact on
+our financial results. We believe that our activity levels are affected more by the price of natural gas than by the price of oil, because the majority
+of U.S. domestic drilling activity relates to natural gas, and many of our services are more appropriate for gas wells than oil wells. Foreign revenues
+increased from $14.3 million in 2005 to $30.0 million in 2006, or five percent of consolidated revenues. Revenue increases were realized due mainly to
+higher customer activity levels in Angola, Argentina, Canada and Turkmenistan compared to the prior year. Our international revenues are impacted by
+the timing of project initiation and their ultimate duration. 
+Cost of services rendered and goods
+sold. Costs of services rendered and goods sold in 2006 was $287.0 million compared to $227.5 million in 2005, an increase of $59.5 million or 26.2
+percent. The increase in these costs was due to the variable nature of many of these expenses, including compensation, materials and supplies expenses
+and maintenance and repair expenses. Cost of services rendered and goods sold, as a percent of revenues, decreased in 2006 from 2005 due to leveraging
+of fixed costs over higher revenues as a result of improved pricing and increased equipment and personnel utilization. 
+Selling, general and administrative
+expenses. Selling, general and administrative expenses increased 20.6 percent to $91.1 million in 2006 compared to $75.5 million in 2005. This increase
+was primarily due to higher employee headcount consistent with higher activity levels, and increased compensation costs consistent with improved
+profitability. These costs as a percent of revenues, however, decreased due to leveraging of these expenses, most of which are of a fixed nature, over
+higher revenues. 
+Depreciation and amortization.
+Depreciation and amortization were $46.7 million in 2006, an increase of $7.6 million or 19.4 percent compared to $39.1 million in 2005. This increase
+in depreciation and amortization resulted from a higher level of capital expenditures during the latter quarters in 2006 within both Support Services
+and Technical Services to increase capacity and to maintain our existing equipment. 
+Gain on disposition of assets, net.
+Gain on the disposition of assets, net decreased due primarily to the sale of operating and intangible assets related to the hammer, casing, laydown
+and casing torque-turn service lines which generated a pre-tax gain of $10.7 million in the third quarter of 2005. The remaining gain on disposition of
+assets, net during 2006 and 2005 includes gains or losses related to various property and equipment dispositions or sales to customers of lost or
+damaged rental equipment. 
+Other income, net. Other income, net in
+2006 was $1.1 million, a decrease of $1.0 million compared to $2.1 million in 2005. The decrease is primarily due to proceeds from a litigation
+settlement that were realized during the first quarter of 2005. The remaining other income, net primarily includes gains from settlements of various
+other legal and insurance claims. 
+Interest expense and interest income.
+Interest expense was $356 thousand in 2006 compared to $127 thousand in 2005. The increase is due primarily to higher interest expense in 2006 incurred
+on outstanding 
+22 
+interest bearing advances on our
+revolving line of credit. Interest income declined to $319 thousand in 2006 compared to $1.1 million in 2005 as a result of a lower average cash
+balance in 2006 compared to 2005 and $412 thousand of interest income related to income tax refunds received during the fourth quarter of
+2005. 
+Income tax provision. The income tax
+provision increased to $68.1 million in 2006 from $34.3 million in 2005. The increase is due to the increase in income before taxes and an increase in
+the effective tax rate to 38.1 percent in 2006 from 34.0 percent in 2005. Adjustments of $3.5 million in 2005 related to receipt of income tax refunds
+resulted in an income tax benefit of 3.4 percent. 
+Net income and diluted earnings per
+share. Net income increased 66.6 percent to $110.8 million, or $1.13 earnings per diluted share, compared to $66.5 million, or $0.67 earnings per
+diluted share in 2005, which included an after-tax gain on the sale of certain assets in the third quarter of 2005 of $0.07 diluted earnings per
+share. 
+Liquidity and Capital Resources 
+Cash and Cash Flows 
+The Company’s cash and cash
+equivalents were $6.3 million as of December 31, 2007, $2.7 million as of December 31, 2006 and $12.8 million as of December 31, 2005. 
+The following table sets forth the
+historical cash flows for the year ended December 31: 
+(in thousands) 
+2007 
+2006 
+2005 
+Net cash
+provided by operating activities 
+$ 
+141,872 
+$ 
+118,228 
+$ 
+66,362 
+Net cash used
+for investing activities 
+(239,624 
+) 
+(151,085 
+) 
+(62,415 
+) 
+Net cash
+provided by (used for) financing activities 
+101,361 
+22,777 
+(20,774 
+) 
+2007 
+Cash provided by operating activities
+increased by $23.6 million in 2007 compared to the prior year. Although net income decreased $23.7 million in 2007 compared to 2006, cash provided by
+operating activities increased due primarily to an increase in depreciation due to higher capital expenditures, a higher deferred tax provision due to
+accelerated tax depreciation and lower growth in working capital requirements. Increased business activity levels and revenues in 2007 resulted in
+higher accounts receivable, inventories and prepaid expenses partially offset by increased accounts payable and accrued payroll including
+bonuses. 
+Cash used for investing activities in
+2007 increased by $88.5 million compared to 2006, primarily as a result of higher capital expenditures to increase capacity and maintain our existing
+equipment. 
+Cash provided by financing activities
+in 2007 increased by $78.6 million compared to 2006, primarily due to net borrowings from notes payable to banks during 2007, partially offset by a 50
+percent increase in dividends paid per share to common shareholders. 
+2006 
+Cash provided by operating activities
+increased by $51.9 million in 2006 compared to the prior year. This increase is due primarily to the $44.3 million increase in net income partially
+offset by a small increase in working capital requirements. Increased business activity levels and revenues in 2006 resulted in higher accounts
+receivable, inventories and prepaid expenses partially offset by increased accounts payable and accrued payroll. 
+Cash used for investing activities in
+2006 increased by $88.7 million compared to 2005, primarily as a result of higher capital expenditures to increase capacity and maintain our existing
+equipment. This 
+23 
+increase was partially offset by
+earnout payments made in the second and third quarters of 2005 which did not recur in 2006. 
+Cash provided by financing activities
+in 2006 increased by $43.6 million compared to 2005, primarily due to net borrowings from notes payable to banks during the third and fourth quarters
+of 2006, a decrease in repurchases of our common stock in the open market, principal loan repayments made in the first and third quarters of 2005 which
+did not recur in 2006 and excess tax benefits for share-based payments. This increase was partially offset by an 88 percent increase in dividends paid
+per share to common shareholders. 
+Financial Condition and Liquidity 
+The Company’s financial condition
+as of December 31, 2007, remains strong. We believe the liquidity provided by our existing cash and cash equivalents, our overall strong capitalization
+which includes a revolving credit facility and cash expected to be generated from operations will provide sufficient capital to meet our requirements
+for at least the next twelve months. During the third quarter of 2006, the Company replaced its $50 million line of credit with a $250 million
+revolving credit facility (the “Revolving Credit Agreement”), with a term of five years. The Revolving Credit Agreement contains customary
+terms and conditions, including certain financial covenants including covenants restricting RPC’s ability to incur liens, merge or consolidate
+with another entity. A total of $75.6 million was available under our facility as of December 31, 2007; approximately $18.0 million of the credit
+facility supports outstanding letters of credit relating to self-insurance programs or contract bids. For additional information with respect to
+RPC’s credit facility, see Note 7 of the Notes to Consolidated Financial Statements. 
+The Company’s decisions about the
+amount of cash to be used for investing and financing purposes are influenced by its capital position, including access to borrowings under our credit
+facility, and the expected amount of cash to be provided by operations. We believe our liquidity will continue to provide the opportunity to grow our
+asset base and revenues during periods with positive business conditions and strong customer activity levels. The Company’s decisions about the
+amount of cash to be used for investing and financing activities could be influenced by the financial covenants in our credit facility but we do not
+expect the covenants to restrict our planned activities. 
+Cash Requirements 
+Capital expenditures were $248.8
+million in 2007, and we currently expect capital expenditures to be approximately $100 million in 2008. We expect these expenditures to be primarily
+directed towards revenue-producing equipment in our larger, core service lines including pressure pumping, snubbing, nitrogen, and rental tools. The
+actual amount of 2008 expenditures will depend primarily on equipment maintenance requirements, expansion opportunities, and equipment delivery
+schedules. 
+The Company’s Retirement Income
+Plan, a multiple employer trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. During the
+first quarter of 2007, the Company contributed $4.8 million to the pension plan. We do not expect to make any additional contributions to the defined
+benefit pension plan in 2008 to meet our funding objectives. 
+The Company’s Board of Directors
+announced a stock buyback program on March 9, 1998 authorizing the repurchase of up to 11,812,500 shares of which 4,066,965 additional shares were
+available to be repurchased as of December 31, 2007. The program does not have a predetermined expiration date. 
+On January 22, 2008, the Board of
+Directors approved an increase in the quarterly cash dividend per common share, from $0.05 to $0.06, payable March 10, 2008 to stockholders of record
+at the close of business February 8, 2008. The Company expects to continue to pay cash dividends to common stockholders, subject to the earnings and
+financial condition of the Company and other relevant factors. 
+24 
+Contractual Obligations 
+The Company’s obligations and
+commitments that require future payments include a bank demand note, certain non-cancelable operating leases, purchase obligations and other long-term
+liabilities. The following table summarizes the Company’s significant contractual obligations as of December 31, 2007: 
+Contractual obligations 
+Payments due by period 
+(in thousands) 
+Total 
+Less than 
+1 year 
+1–3 
+years 
+3–5 
+years 
+More than 
+5 years 
+Long-term debt
+obligations 
+$ 
+156,400 
+$ 
+— 
+$ 
+— 
+$ 
+156,400 
+$ 
+— 
+Interest on
+long-term debt obligations 
+34,596 
+8,649 
+25,947 
+— 
+— 
+Capital lease
+obligations 
+— 
+— 
+— 
+— 
+— 
+Operating
+leases (1) 
+11,148 
+182 
+7,632 
+2,298 
+1,036 
+Purchase
+obligations (2) 
+34,181 
+34,181 
+— 
+— 
+— 
+Other
+long-term liabilities (3) 
+2,673 
+— 
+2,673 
+— 
+— 
+Total
+contractual obligations 
+$ 
+238,998 
+$ 
+43,012 
+$ 
+36,252 
+$ 
+158,698 
+$ 
+1,036 
+(1) 
+Operating leases include agreements for various office locations,
+office equipment, and certain operating equipment. 
+(2) 
+Includes agreements to purchase goods or services that have been
+approved and that specify all significant terms (pricing, quantity, and timing). As part of the normal course of business the Company enters into
+purchase commitments to manage its various operating needs. 
+(3) 
+Includes expected cash payments for long-term liabilities
+reflected on the balance sheet where the timing of the payments are known. These amounts include incentive compensation. These amounts exclude pension
+obligations with uncertain funding requirements and deferred compensation liabilities. 
+Inflation 
+The Company purchases its equipment and
+materials from suppliers who provide competitive prices, and employs skilled workers from competitive labor markets. If inflation in the general
+economy increases, the Company’s costs for equipment, materials and labor could increase as well. Due to the increases in activity in the domestic
+oilfield over the past several years, as well as a shortage of a skilled work force due to historically low activity in the oilfield, the Company has
+experienced some upward wage pressures in the labor markets from which it hires employees. Also over the past several years, the price of steel, for
+both the commodity and for products manufactured with steel, has increased dramatically. Recently, steel prices have moderated, although they remain
+high by historical standards. This factor has affected the Company’s operations by extending time for deliveries of new equipment and receipt of
+price quotations that may only be valid for a limited period of time. If this factor continues, it is possible that the cost of the Company’s new
+equipment will increase which would result in higher capital expenditures and depreciation expense. RPC attempts to recover such increased costs
+through price increases to its customers. 
+Off Balance Sheet Arrangements 
+The Company does not have any material
+off balance sheet arrangements. 
+Related Party Transactions 
+Marine Products Corporation 
+Effective February 28, 2001, the
+Company spun-off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC
+accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware
+corporation) (“Marine Products”), a newly formed wholly-owned subsidiary of RPC, and then distributing the common stock of Marine Products to
+RPC stockholders. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’
+relationship. 
+25 
+In accordance with a Transition Support
+Services agreement, which may be terminated by either party, RPC provides certain administrative services, including financial reporting and income tax
+administration, acquisition assistance, etc., to Marine Products. Charges from the Company (or from corporations that are subsidiaries of the Company)
+for such services aggregated approximately $957,000 in 2007, $739,000 in 2006 and $616,000 in 2005. The Company’s receivable due from Marine
+Products for these services as of December 31, 2007 and 2006 was approximately $223,000 and $236,000. The Company’s directors are also directors
+of Marine Products and all of the executive officers are employees of both the Company and Marine Products. 
+The Tax Sharing and Indemnification
+Agreement provides for, among other things, the treatment of income tax matters for periods through February 28, 2001, the date of the spin-off, and
+responsibility for any adjustments as a result of audits by any taxing authority. The general terms provide for the indemnification for any tax
+detriment incurred by one party caused by the other party’s action. 
+Other 
+The Company periodically purchases in
+the ordinary course of business products or services from suppliers, who are owned by significant officers or shareholders, or affiliated with the
+directors of RPC. The total amounts paid to these affiliated parties were approximately $1,035,000 in 2007, $1,248,000 in 2006 and $926,000 in
+2005. 
+RPC receives certain administrative
+services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is otherwise affiliated with
+RPC). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are
+terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs,
+and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled
+$72,000 in 2007, $70,000 in 2006 and $71,000 in 2005. 
+Critical Accounting Policies 
+The consolidated financial statements
+are prepared in accordance with accounting principles generally accepted in the United States, which require significant judgment by management in
+selecting the appropriate assumptions for calculating accounting estimates. These judgments are based on our historical experience, terms of existing
+contracts, trends in the industry, and information available from other outside sources, as appropriate. Senior management has discussed the
+development, selection and disclosure of its critical accounting estimates with the Audit Committee of our Board of Directors. The Company believes the
+following critical accounting policies involve estimates that require a higher degree of judgment and complexity: 
+Allowance for doubtful accounts —
+Substantially all of the Company’s receivables are due from oil and gas exploration and production companies in the United States, selected
+international locations and foreign, nationally owned oil companies. Our allowance for doubtful accounts is determined using a combination of factors
+to ensure that our receivables are not overstated due to uncollectibility. Our established credit evaluation procedures seek to minimize the amount of
+business we conduct with higher risk customers. Our customers’ ability to pay is directly related to their ability to generate cash flow on their
+projects and is significantly affected by the volatility in the price of oil and natural gas. Provisions for doubtful accounts are recorded in selling,
+general and administrative expenses. Accounts are written-off against the allowance for doubtful accounts when the Company determines that amounts are
+uncollectible and recoveries of amounts previously written off are recorded when collected. Significant recoveries will generally reduce the required
+provision in the period of recovery. Therefore, the provision for doubtful accounts can fluctuate significantly from period to period. There were no
+large recoveries in 2007, 2006 and 2005. We record specific provisions when we become aware of a customer’s inability to meet its financial
+obligations to us, such as in the case of bankruptcy filings or deterioration in the customer’s 
+26 
+operating results or financial
+position. If circumstances related to customers change, our estimates of the realizability of receivables would be further adjusted, either upward or
+downward. 
+The estimated allowance for doubtful
+accounts is based on our evaluation of the overall trends in the oil and gas industry, financial condition of our customers, our historical write-off
+experience, current economic conditions, and in the case of international customers, our judgments about the economic and political environment of the
+related country and region. In addition to reserves established for specific customers, we establish general reserves by using different percentages
+depending on the age of the receivables. The annual provisions for doubtful accounts have ranged from 0.25 percent to 0.45 percent of revenues over the
+last three years. Increasing or decreasing the estimated general reserve percentages by 0.50 percentage points as of December 31, 2007 would have
+resulted in a change of approximately $1.6 million to the allowance for doubtful accounts and a corresponding change to selling, general and
+administrative expenses. 
+Income taxes — The effective
+income tax rates were 37.7 percent in 2007, 38.1 percent in 2006, and 34.0 percent in 2005. Our effective tax rates vary due to changes in estimates of
+our future taxable income, fluctuations in the tax jurisdictions in which our earnings and deductions are realized, and favorable or unfavorable
+adjustments to our estimated tax liabilities related to proposed or probable assessments. As a result, our effective tax rate may fluctuate
+significantly on a quarterly or annual basis. 
+We establish a valuation allowance
+against the carrying value of deferred tax assets when we determine that it is more likely than not that the asset will not be realized through future
+taxable income. Such amounts are charged to earnings in the period in which we make such determination. Likewise, if we later determine that it is more
+likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation
+allowance. We have considered future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we
+operate, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. 
+We calculate our current and deferred
+tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent
+year. Adjustments based on filed returns are recorded when identified, which is generally in the third quarter of the subsequent year for U.S. federal
+and state provisions. Deferred tax liabilities and assets are determined based on the differences between the financial and tax bases of assets and
+liabilities using enacted tax rates in effect in the year the differences are expected to reverse. 
+The amount of income taxes we pay is
+subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Our estimate for the potential
+outcome for any uncertain tax issue is highly judgmental. We believe we have adequately provided for any reasonably foreseeable outcome related to
+these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the
+assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, the jurisdictions in which our earnings
+or deductions are realized may differ from our current estimates. 
+Insurance expenses — The Company
+self insures, up to certain policy-specified limits, certain risks related to general liability, workers’ compensation, vehicle and equipment
+liability. The cost of claims under these self-insurance programs is estimated and accrued using individual case-based valuations and statistical
+analysis and is based upon judgment and historical experience; however, the ultimate cost of many of these claims may not be known for several years.
+These claims are monitored and the cost estimates are revised as developments occur relating to such claims. The Company has retained an independent
+third party actuary to assist in the calculation of a range of exposure for these claims. As of December 31, 2007, the Company estimates the range of
+exposure to be from $11.4 million to $14.5 million. The Company has recorded liabilities at December 31, 2007 of approximately $12.9 million which
+represents management’s best estimate of probable loss. 
+27 
+Depreciable life of assets —
+RPC’s net property, plant and equipment at December 31, 2007 was $433.1 million representing 61.8 percent of the Company’s consolidated
+assets. Depreciation and amortization expenses for the year ended December 31, 2007 were $78.5 million, or 14.2 percent of total operating costs.
+Management judgment is required in the determination of the estimated useful lives used to calculate the annual and accumulated depreciation and
+amortization expense. 
+Property, plant and equipment are
+reported at cost less accumulated depreciation and amortization, which is generally provided on a straight-line basis over the estimated useful lives
+of the assets. The estimated useful life represents the projected period of time that the asset will be productively employed by the Company and is
+determined by management based on many factors including historical experience with similar assets. Assets are monitored to ensure changes in asset
+lives, are identified and prospective depreciation and amortization expense is adjusted accordingly. We have not made any changes to the estimated
+lives of assets resulting in a material impact in the last three years. 
+Defined benefit pension plan — In
+2002, the Company ceased all future benefit accruals under the defined benefit plan, although the Company remains obligated to provide employees
+benefits earned through March 2002. The Company accounts for the defined benefit plan in accordance with the provisions of Statement of Financial
+Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An
+Amendment of FASB Statements No. 87, 88, 106, and 132(R)” and engages an outside actuary to calculate its obligations and costs. With the
+assistance of the actuary, the Company evaluates the significant assumptions used on a periodic basis including the estimated future return on plan
+assets, the discount rate, and other factors, and makes adjustments to these liabilities as necessary. 
+The Company chooses an expected rate of
+return on plan assets based on historical results for similar allocations among asset classes, the investments strategy, and the views of our
+investment adviser. Differences between the expected long-term return on plan assets and the actual return are amortized over future years. Therefore,
+the net deferral of past asset gains (losses) ultimately affects future pension expense. The Company’s assumption for the expected return on plan
+assets is eight percent which is unchanged from the prior year. 
+The discount rate reflects the current
+rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the Company utilizes a yield curve
+approach. The approach utilizes an economic model whereby the Company’s expected benefit payments over the life of the plan is forecasted and then
+compared to a portfolio of corporate bonds that will mature at the same time that the benefit payments are due in any given year. The economic model
+then calculates the one discount rate to apply to all benefit payments over the life of the plan which will result in the same total lump sum as the
+payments from the corporate bonds. A lower discount rate increases the present value of benefit obligations. The discount rate was 6.25 percent as of
+December 31, 2007 compared to 5.50 percent in 2006 and 2005. 
+As of December 31, 2007, the defined
+benefit plan was over-funded and the recorded change within accumulated other comprehensive loss increased stockholders’ equity by $4.0 million
+before tax. Holding all other factors constant, a decrease in the discount rate used to measure plan liabilities by 0.25 percentage points would result
+in a pre-tax increase of $0.9 million to the net loss related to pension in accumulated other comprehensive loss and an increase in the discount rate
+used to measure plan liabilities by 0.25 percentage points would result in a pre-tax decrease of $1.8 million to the net loss related to pension in
+accumulated other comprehensive loss. 
+The Company recognized pre-tax pension
+expense of $0.3 million in 2007, $0.8 million in 2006, and $1.1 million in 2005. Based on the over-funded status of the defined benefit plan, the
+Company expects to recognize pension income of $0.4 million in 2008. Holding all other factors constant, a change in the expected long-term rate of
+return on plan assets by 0.50 percentage points would result in an increase or decrease in pension expense/income of approximately $0.2 million in
+2008. Holding all other factors 
+28 
+constant, a change in the discount
+rate used to measure plan liabilities by 0.25 percentage points would result in an increase or decrease in pension expense/income of approximately $0.1
+million in 2008. 
+New Accounting Standards 
+In June 2006, the Financial Accounting
+Standards Board (“FASB”) issued Financial Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes —
+an interpretation of FASB Statement 109”. FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement
+recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on
+de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. This interpretation is effective for
+fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not have a significant impact on the Company’s consolidated financial
+statements. See Note 6 to the consolidated financial statements for further information. 
+In September 2006, the FASB issued SFAS
+No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB Statements No. 87, 88,
+106, and 132(R)”. This Statement improves financial reporting by requiring an employer to recognize the over-funded or under-funded status of a
+defined benefit pension plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes
+in that funded status in the year in which the changes occur through comprehensive income. This Statement also requires the Company to measure the
+funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The requirement to recognize the
+funded status of a benefit plan and the disclosure requirements are effective as of the fiscal year ending after December 15, 2006. The requirement to
+measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for
+fiscal years ending after December 15, 2008. Effective December 31, 2006, the Company has adopted the recognition provisions of SFAS 158 which did not
+result in a material impact to its consolidated results of operations and financial condition. The Company currently measures the plan assets and
+benefit obligations as of its fiscal year-end and therefore adoption of the measurement provisions will not have an affect on its consolidated
+financial statements. See Note 10 to the consolidated financial statements for further information. 
+In May 2007, the FASB issued FASB Staff
+Position No. FIN 48-1 (“FSP 48-1”), “Definition of Settlement in FASB Interpretation No. 48.” FSP 48-1 amended FIN 48 to provide
+guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax
+benefits. FSP 48-1 required application upon the initial adoption of FIN 48. The adoption of FSP 48-1 did not affect the Company’s consolidated
+financial statements. 
+In September 2006, the FASB issued SFAS
+No. 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted
+accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial assets and liabilities on January 1,
+2008. The FASB has deferred the implementation of the provisions of SFAS 157 relating to certain nonfinancial assets and liabilities until January 1,
+2009. SFAS 157 is not expected to have a significant impact on the Company’s consolidated financial statements. 
+In February 2007, the FASB issued SFAS
+No. 159, “The Fair Value Option for Financial Assets and Liabilities — Including an Amendment of FASB Statement No. 115,” to permit an
+entity to choose to measure many financial instruments and certain other items at fair value. Most of the provisions in SFAS 159 are elective; however
+the amendment to SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” applies to all entities with
+available-for-sale and trading securities. The fair value option permits all entities to choose to measure eligible items at fair value at specified
+election dates. The fair value option may be applied on an instrument-by-instrument basis, is irrevocable and is to be applied to entire instruments
+and not portions thereof. The Company will adopt SFAS 159 on January 1, 2008 and it is not expected to have a significant impact on the Company’s
+consolidated financial statements. 
+29 
+In June 2007, the FASB ratified a
+consensus opinion reached by the Emerging Issues Task Force (“EITF”) on EITF Issue 06-11, “Accounting for Income Tax Benefits of
+Dividends on Share-Based Payment Awards.” The consensus ratified by the FASB requires that a realized income tax benefit from dividend or dividend
+equivalents that are charged to retained earnings and paid to employees for equity classified nonvested equity shares, nonvested equity share units and
+outstanding share options should be recognized as an increase in additional paid-in-capital. Such amount recognized should be included in the pool of
+excess tax benefits available to absorb potential future tax deficiencies on share-based payment awards. This consensus ratified by the FASB should be
+applied prospectively to the income tax benefits of dividends on equity awards granted to employees that are declared in fiscal years beginning after
+December 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting EITF Issue
+06-11. 
+In December 2007, the FASB issued SFAS
+No. 141 revised, “Business Combinations.” The objective of this Statement is to improve the relevance, representational faithfulness, and
+comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS 141
+revised is effective for the Company on January 1, 2009 and is not expected to have a significant impact on the Company’s consolidated financial
+statements. 
+In December 2007, the SEC staff issued
+Staff Accounting Bulletin (“SAB”) 110, “Share-Based Payment,” which amends SAB 107, “Share-Based Payment,” to permit
+public companies, under certain circumstances, to use the simplified method in SAB 107 for employee option grants after December 31, 2007. Use of the
+simplified method after December 2007 is permitted only for companies whose historical data about their employees’ exercise behavior does not
+provide a reasonable basis for estimating the expected term of the options. The adoption of this pronouncement is not expected to have a material
+effect on the Company’s consolidated financial statements. 
+Item 7A. Quantitative and Qualitative Disclosures about Market
+Risk 
+The Company is subject to interest rate
+risk exposure through borrowings on its credit facility. As of December 31, 2007, there are outstanding interest-bearing advances of $156.4 million on
+our credit facility which bear interest at a floating rate. Based on the balance outstanding at December 31, 2007 a change in the interest rate of one
+percent on the balance outstanding at December 31, 2007 would cause a change of $1.6 million in total annual interest costs. 
+Additionally, the Company is exposed to
+market risk resulting from changes in foreign exchange rates. However, since the majority of the Company’s transactions occur in U.S. currency,
+this risk is not expected to have a material effect on its consolidated results of operations and financial condition. 
+30 
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
+FINANCIAL REPORTING 
+To the Stockholders of RPC, Inc.: 
+The management of RPC, Inc. is
+responsible for establishing and maintaining adequate internal control over financial reporting for the Company. RPC, Inc. maintains a system of
+internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that assets are safeguarded against loss or unauthorized
+use and that the financial records are adequate and can be relied upon to produce financial statements in accordance with accounting principles
+generally accepted in the United States of America. The internal control system is augmented by written policies and procedures, an internal audit
+program and the selection and training of qualified personnel. This system includes policies that require adherence to ethical business standards and
+compliance with all applicable laws and regulations. 
+There are inherent limitations to the
+effectiveness of any controls system. A controls system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance
+that the objectives of the controls system are met. Also, no evaluation of controls can provide absolute assurance that all control issues and any
+instances of fraud, if any, within the Company will be detected. Further, the design of a controls system must reflect the fact that there are resource
+constraints, and the benefits of controls must be considered relative to their costs. The Company intends to continually improve and refine its
+internal controls. 
+Under the supervision and with the
+participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the
+effectiveness of the design and operations of our internal control over financial reporting as of December 31, 2007 based on criteria established in
+Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
+management’s assessment is that RPC, Inc. maintained effective internal control over financial reporting as of December 31, 2007. 
+The independent registered public
+accounting firm, Grant Thornton LLP, has audited the consolidated financial statements as of and for the year ended December 31, 2007, and has also
+issued their report on the effectiveness of the Company’s internal control over financial reporting, included in this report on page
+32. 
+/s/ Richard A.
+Hubbell 
+_______________________________ 
+Richard A. Hubbell 
+President and Chief Executive Officer 
+/s/
+Ben M. Palmer 
+_______________________________ 
+Ben M. Palmer 
+Chief Financial Officer and Treasurer 
+Atlanta, Georgia 
+February 29, 2008 
+31 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
+INTERNAL CONTROL OVER FINANCIAL REPORTING 
+Board of Directors and Stockholders 
+RPC, Inc. 
+We have audited RPC, Inc.’s (a
+Delaware Corporation) and subsidiaries (the “Company”) internal control over financial reporting as of December 31, 2007 based on criteria
+established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
+Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
+effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial
+Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
+audit. 
+We conducted our audit in accordance
+with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
+obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit
+included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
+evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
+necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 
+A company’s internal control over
+financial reporting is a process designed 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. A company’s internal control over
+financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
+fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures
+of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
+regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
+effect on the financial statements. 
+Because of its inherent limitations,
+internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
+periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
+policies or procedures may deteriorate. 
+In our opinion, the Company maintained,
+in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal
+Control — Integrated Framework issued by COSO. 
+We have also audited, in accordance
+with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31,
+2007 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the
+period ended December 31, 2007 and our report dated February 29, 2008 expressed an unqualified opinion on those consolidated financial
+statements. 
+/s/ Grant Thornton
+LLP 
+Atlanta, Georgia 
+February 29, 2008 
+32 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
+CONSOLIDATED FINANCIAL STATEMENTS 
+Board of Directors and Stockholders 
+RPC, Inc. 
+We have audited the accompanying
+consolidated balance sheets of RPC, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the
+related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31,
+2007. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15.
+These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express
+an opinion on these financial statements and financial statement schedule based on our audits. 
+We conducted our audits in accordance
+with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to
+obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
+evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
+significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
+reasonable basis for our opinion. 
+In our opinion, the consolidated
+financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2007 and
+2006, and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended December 31, 2007
+in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement
+schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the
+information set forth therein. 
+As described in Note 1 to the
+consolidated financial statements, the Company adopted the provisions of Financial Interpretation No. 48, “Accounting for Uncertainty in Income
+Taxes — an interpretation of FASB Statement 109” during 2007 and adopted the recognition provisions of Statement of Financial Accounting
+Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87,
+88, 106, and 132(R)” and the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment”
+during 2006. 
+We also have audited, in accordance
+with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over
+financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
+Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 29, 2008 expressed an unqualified opinion
+thereon. 
+/s/ Grant Thornton
+LLP 
+Atlanta, Georgia 
+February 29, 2008 
+33 
+Item 8. Financial Statements and Supplementary
+Data 
+CONSOLIDATED BALANCE SHEETS 
+RPC, INC. AND
+SUBSIDIARIES 
+(in thousands except share
+information) 
+December 31, 
+2007 
+2006 
+ASSETS 
+Cash and cash
+equivalents 
+$ 
+6,338 
+$ 
+2,729 
+Accounts
+receivable, net 
+176,154 
+148,469 
+Inventories 
+29,602 
+21,188 
+Deferred
+income taxes 
+3,974 
+4,384 
+Income taxes
+receivable 
+12,296 
+3,939 
+Prepaid
+expenses and other current assets 
+6,696 
+5,245 
+Current
+assets 
+235,060 
+185,954 
+Property,
+plant and equipment, net 
+433,126 
+262,797 
+Goodwill 
+24,093 
+24,093 
+Other
+assets 
+8,736 
+5,163 
+Total
+assets 
+$ 
+701,015 
+$ 
+478,007 
+LIABILITIES AND STOCKHOLDERS’ EQUITY 
+LIABILITIES 
+Accounts
+payable 
+$ 
+61,371 
+$ 
+50,568 
+Accrued
+payroll and related expenses 
+17,972 
+13,289 
+Accrued
+insurance expenses 
+4,753 
+3,327 
+Accrued state,
+local and other taxes 
+1,719 
+2,797 
+Income taxes
+payable 
+4,340 
+4,217 
+Other accrued
+expenses 
+567 
+454 
+Current
+liabilities 
+90,722 
+74,652 
+Long-term
+accrued insurance expenses 
+8,166 
+6,892 
+Notes payable
+to banks 
+156,400 
+35,600 
+Long-term
+pension liabilities 
+4,527 
+9,185 
+Deferred
+income taxes 
+29,236 
+12,073 
+Other
+long-term liabilities 
+2,692 
+4,318 
+Total
+liabilities 
+291,743 
+142,720 
+Commitments
+and contingencies 
+STOCKHOLDERS’ EQUITY 
+Preferred
+stock, $0.10 par value, 1,000,000 shares authorized, none issued 
+— 
+— 
+Common stock,
+$0.10 par value, 159,000,000 shares authorized, 98,039,336 and 97,213,668 shares issued and outstanding in 2007 and 2006,
+respectively 
+9,804 
+9,721 
+Capital in
+excess of par value 
+16,728 
+13,595 
+Retained
+earnings 
+385,281 
+317,705 
+Accumulated
+other comprehensive loss 
+(2,541 
+) 
+(5,734 
+) 
+Total
+stockholders’ equity 
+409,272 
+335,287 
+Total
+liabilities and stockholders’ equity 
+$ 
+701,015 
+$ 
+478,007 
+The accompanying notes are an integral part of these
+statements. 
+34 
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+RPC, INC. AND
+SUBSIDIARIES 
+(in thousands except per share
+data) 
+Years ended December 31, 
+2007 
+2006 
+2005 
+REVENUES 
+$ 
+690,226 
+$ 
+596,630 
+$ 
+427,643 
+COSTS AND
+EXPENSES: 
+Cost of
+services rendered and goods sold 
+368,175 
+287,037 
+227,492 
+Selling,
+general and administrative expenses 
+107,800 
+91,051 
+75,478 
+Depreciation
+and amortization 
+78,506 
+46,711 
+39,129 
+Gain on
+disposition of assets, net 
+(6,293 
+) 
+(5,969 
+) 
+(12,169 
+) 
+Operating
+profit 
+142,038 
+177,800 
+97,713 
+Interest
+expense 
+(4,179 
+) 
+(356 
+) 
+(127 
+) 
+Interest
+income 
+70 
+319 
+1,077 
+Other
+income, net 
+1,905 
+1,085 
+2,077 
+Income
+before income taxes 
+139,834 
+178,848 
+100,740 
+Income tax
+provision 
+52,785 
+68,054 
+34,256 
+Net
+income 
+$ 
+87,049 
+$ 
+110,794 
+$ 
+66,484 
+EARNINGS
+PER SHARE 
+Basic 
+$ 
+0.90 
+$ 
+1.16 
+$ 
+0.70 
+Diluted 
+$ 
+0.89 
+$ 
+1.13 
+$ 
+0.67 
+Dividends
+paid per share 
+$ 
+0.200 
+$ 
+0.133 
+$ 
+0.071 
+The accompanying notes are an integral part of these
+statements. 
+35 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 
+RPC, INC. AND SUBSIDIARIES 
+(in thousands) 
+Three Years Ended 
+Comprehensive 
+Common Stock 
+Capital in 
+Excess of 
+Deferred 
+Retained 
+Accumulated 
+Other 
+Comprehensive 
+December 31, 2007 
+Income (Loss) 
+Shares 
+Amount 
+Par Value 
+Compensation 
+Earnings 
+Loss 
+Total 
+Balance, December 31, 2004 
+97,234 
+$ 
+9,723 
+$ 
+21,924 
+$ 
+(3,527 
+) 
+$ 
+160,189 
+$ 
+(6,886 
+) 
+$ 
+181,423 
+Stock issued
+for stock incentive plans, net 
+417 
+42 
+5,344 
+(3,125 
+) 
+— 
+— 
+2,261 
+Stock
+purchased and retired 
+(739 
+) 
+(74 
+) 
+(11,332 
+) 
+— 
+— 
+— 
+(11,406 
+) 
+Net
+income 
+$ 
+66,484 
+— 
+— 
+— 
+— 
+66,484 
+— 
+66,484 
+Minimum
+pension liability, net of taxes 
+(987 
+) 
+— 
+— 
+— 
+— 
+— 
+(987 
+) 
+(987 
+) 
+Unrealized
+gain on securities, net of taxes 
+178 
+— 
+— 
+— 
+— 
+— 
+178 
+178 
+Comprehensive income 
+$ 
+65,675 
+Dividends
+declared 
+— 
+— 
+— 
+— 
+(6,766 
+) 
+— 
+(6,766 
+) 
+Stock-based
+compensation 
+— 
+— 
+— 
+1,261 
+— 
+— 
+1,261 
+Excess tax
+benefits for share- based payments 
+— 
+— 
+53 
+— 
+— 
+— 
+53 
+Three-for-two stock split 
+(234 
+) 
+(23 
+) 
+23 
+— 
+— 
+— 
+— 
+Balance, December 31, 2005 
+96,678 
+9,668 
+16,012 
+(5,391 
+) 
+219,907 
+(7,695 
+) 
+232,501 
+Stock issued
+for stock incentive plans, net 
+491 
+49 
+2,533 
+— 
+— 
+— 
+2,582 
+Stock
+purchased and retired 
+(119 
+) 
+(12 
+) 
+(3,252 
+) 
+— 
+— 
+— 
+(3,264 
+) 
+Net
+income 
+$ 
+110,794 
+— 
+— 
+— 
+— 
+110,794 
+— 
+110,794 
+Minimum
+pension liability, net of taxes 
+2,108 
+— 
+— 
+— 
+— 
+— 
+2,108 
+2,108 
+Unrealized
+loss on securities, net of taxes 
+(147 
+) 
+— 
+— 
+— 
+— 
+— 
+(147 
+) 
+(147 
+) 
+Comprehensive income 
+$ 
+112,755 
+Dividends
+declared 
+— 
+— 
+— 
+— 
+(12,996 
+) 
+— 
+(12,996 
+) 
+Stock-based
+compensation 
+— 
+— 
+2,384 
+— 
+— 
+— 
+2,384 
+Excess tax
+benefits for share- based payments 
+— 
+— 
+1,325 
+— 
+— 
+— 
+1,325 
+Adoption of
+SFAS 123(R) 
+— 
+— 
+(5,391 
+) 
+5,391 
+— 
+— 
+— 
+Three-for-two stock split 
+164 
+16 
+(16 
+) 
+— 
+— 
+— 
+— 
+Balance, December 31, 2006 
+97,214 
+9,721 
+13,595 
+— 
+317,705 
+(5,734 
+) 
+335,287 
+Stock issued
+for stock incentive plans, net 
+989 
+99 
+1,654 
+— 
+— 
+— 
+1,753 
+Stock
+purchased and retired 
+(163 
+) 
+(16 
+) 
+(2,838 
+) 
+— 
+— 
+— 
+(2,854 
+) 
+Net
+income 
+$ 
+87,049 
+— 
+— 
+— 
+— 
+87,049 
+— 
+87,049 
+Pension
+adjustment, net of taxes 
+2,535 
+— 
+— 
+— 
+— 
+— 
+2,535 
+2,535 
+Unrealized
+gain on securities, net of taxes 
+486 
+— 
+— 
+— 
+— 
+— 
+486 
+486 
+Foreign
+currency translation, net of taxes 
+172 
+— 
+— 
+— 
+— 
+— 
+172 
+172 
+Comprehensive income 
+$ 
+90,242 
+Dividends
+declared 
+— 
+— 
+— 
+— 
+(19,473 
+) 
+— 
+(19,473 
+) 
+Stock-based
+compensation 
+— 
+— 
+3,189 
+— 
+— 
+— 
+3,189 
+Excess tax benefits for share- based payments 
+— 
+— 
+1,128 
+— 
+— 
+— 
+1,128 
+Balance, December 31, 2007 
+98,040 
+$ 
+9,804 
+$ 
+16,728 
+$ 
+— 
+$ 
+385,281 
+$ 
+(2,541 
+) 
+$ 
+409,272 
+The accompanying notes are an integral part of these
+statements. 
+36 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+RPC, INC. AND
+SUBSIDIARIES 
+(in thousands) 
+Years ended December 31, 
+2007 
+2006 
+2005 
+OPERATING
+ACTIVITIES 
+Net
+income 
+$ 
+87,049 
+$ 
+110,794 
+$ 
+66,484 
+Adjustments to
+reconcile net income to net cash provided by operating activities: 
+Depreciation
+and amortization 
+78,493 
+46,726 
+39,129 
+Stock-based
+compensation 
+3,189 
+2,384 
+1,261 
+Gain on
+disposition of assets, net 
+(6,293 
+) 
+(5,969 
+) 
+(12,169 
+) 
+Deferred
+income tax provision (benefit) 
+15,738 
+2,817 
+(1,851 
+) 
+Excess tax
+benefits for share-based payments 
+(1,128 
+) 
+(1,325 
+) 
+— 
+Changes in
+current assets and liabilities: 
+Accounts
+receivable 
+(27,497 
+) 
+(41,093 
+) 
+(31,635 
+) 
+Income taxes
+receivable 
+(7,229 
+) 
+(1,347 
+) 
+— 
+Inventories 
+(8,316 
+) 
+(7,886 
+) 
+(2,445 
+) 
+Prepaid
+expenses and other current assets 
+(568 
+) 
+(1,463 
+) 
+(81 
+) 
+Accounts
+payable 
+7,826 
+8,958 
+7,048 
+Income taxes
+payable 
+123 
+774 
+796 
+Accrued
+payroll and related expenses 
+4,683 
+3,713 
+(49 
+) 
+Accrued
+insurance expenses 
+1,426 
+(368 
+) 
+(180 
+) 
+Accrued state,
+local and other taxes 
+(1,078 
+) 
+1,597 
+402 
+Other accrued
+expenses 
+46 
+(90 
+) 
+(381 
+) 
+Changes in
+working capital 
+(30,584 
+) 
+(37,205 
+) 
+(26,525 
+) 
+Changes in
+other assets and liabilities: 
+Accrued
+pension 
+(3,067 
+) 
+(802 
+) 
+643 
+Accrued
+insurance expenses 
+1,274 
+724 
+(283 
+) 
+Other
+non-current assets 
+(1,173 
+) 
+(1,118 
+) 
+(871 
+) 
+Other
+non-current liabilities 
+(1,626 
+) 
+1,202 
+544 
+Net cash
+provided by operating activities 
+141,872 
+118,228 
+66,362 
+INVESTING
+ACTIVITIES 
+Capital
+expenditures 
+(248,758 
+) 
+(159,831 
+) 
+(72,808 
+) 
+Purchase of
+businesses 
+— 
+— 
+(8,836 
+) 
+Proceeds from
+sale of assets 
+9,134 
+8,746 
+19,229 
+Net cash used
+for investing activities 
+(239,624 
+) 
+(151,085 
+) 
+(62,415 
+) 
+FINANCING
+ACTIVITIES 
+Payment of
+dividends 
+(19,473 
+) 
+(12,996 
+) 
+(6,766 
+) 
+Borrowings
+from notes payable to banks 
+478,600 
+115,171 
+— 
+Repayments of
+notes payable to banks 
+(357,800 
+) 
+(79,571 
+) 
+— 
+Debt issue
+costs for notes payable to banks 
+— 
+(469 
+) 
+— 
+Payments on
+debt 
+— 
+— 
+(4,800 
+) 
+Excess tax
+benefits for share-based payments 
+1,128 
+1,325 
+— 
+Cash paid for
+common stock purchased and retired 
+(1,730 
+) 
+(2,024 
+) 
+(10,268 
+) 
+Proceeds
+received upon exercise of stock options 
+636 
+1,341 
+1,060 
+Net cash
+provided by (used for) financing activities 
+101,361 
+22,777 
+(20,774 
+) 
+Net increase
+(decrease) in cash and cash equivalents 
+3,609 
+(10,080 
+) 
+(16,827 
+) 
+Cash and cash
+equivalents at beginning of year 
+2,729 
+12,809 
+29,636 
+Cash and cash
+equivalents at end of year 
+$ 
+6,338 
+$ 
+2,729 
+$ 
+12,809 
+The accompanying notes are an integral part of these
+statements. 
+37 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+RPC, Inc.
+and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+Note 1: 
+Significant Accounting Policies 
+Principles of Consolidation and Basis of
+Presentation 
+The consolidated financial statements
+include the accounts of RPC, Inc. and its wholly-owned subsidiaries (“RPC” or the “Company”). All significant intercompany accounts
+and transactions have been eliminated. 
+Nature of Operations 
+RPC provides a broad range of
+specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration, production and
+development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions,
+and in selected international markets. The services and equipment provided include Technical Services such as pressure pumping services, snubbing
+services (also referred to as hydraulic workover services), coiled tubing services, nitrogen services, and firefighting and well control, and Support
+Services such as the rental of drill pipe and other specialized oilfield equipment and oilfield training. 
+Dividends 
+On January 22, 2008, the Board of
+Directors approved an increase in the quarterly cash dividend per common share from $0.05 to $0.06, payable March 10, 2008 to stockholders of record at
+the close of business February 8, 2008. 
+Use of Estimates in the Preparation of Financial
+Statements 
+The preparation of financial statements
+in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the
+reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
+amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 
+Significant estimates are used in the
+determination of the allowance for doubtful accounts, income taxes, accrued insurance expenses, depreciable lives of assets, and pension
+liabilities. 
+Revenues 
+RPC’s revenues are generated from
+services, equipment rentals and product sales. Service revenues and equipment rental are recognized when the services are rendered and collectibility
+is reasonably assured. Revenues from services, equipment rentals and product sales are based on fixed or determinable priced purchase orders or
+contracts with the customer and do not include the right of return. The Company recognizes revenue from product sales when title passes to the
+customer, the customer assumes risks and rewards of ownership, and collectibility is reasonably assured. Rates for services and rentals are priced on a
+per day, per unit of measure, per man hour or similar basis. Sales tax charged to customers is presented on a net basis within the consolidated
+statement of operations and excluded from revenues. 
+Reclassifications 
+Certain prior year amounts have been
+reclassified to conform to the presentation in the current year as follows: 
+1. 
+Federal taxes receivable have been reported gross on the current
+asset section of the balance sheet rather than being netted with state taxes payable. 
+38 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+2. 
+State taxes payable is reported as part of income taxes payable
+on the current liabilities section of the balance sheet rather than being netted with federal taxes receivable. Foreign taxes payable is reported as
+part of income taxes payable on the current liabilities section of the balance sheet rather than as part of accrued state, local and other
+taxes. 
+3. 
+Certain administrative expenses related to investment earnings
+have been presented as part of interest income rather than interest expense on the consolidated statements of operations. 
+These reclassifications had no effect
+on previously reported net earnings or stockholders’ equity. 
+Concentration of Credit Risk 
+Substantially all of the Company’s
+customers are engaged in the oil and gas industry. This concentration of customers may impact overall exposure to credit risk, either positively or
+negatively, in that customers may be similarly affected by changes in economic and industry conditions. The Company provided oilfield services to
+several hundred customers, none of which accounted for more than 10 percent of consolidated revenues. 
+Cash and Cash Equivalents 
+Highly liquid investments with original
+maturities of three months or less when acquired are considered to be cash equivalents. RPC maintains cash equivalents and investments in one or more
+large, well-capitalized financial institutions, and RPC’s policy restricts investment in any securities rated less than “investment
+grade” by national rating services. 
+Investments 
+Investments classified as
+available-for-sale are stated at their fair values, with the unrealized gains and losses, net of tax, reported as a separate component of
+stockholders’ equity. The cost of securities sold is based on the specific identification method. Realized gains and losses, declines in value
+judged to be other than temporary, interest, and dividends with respect to available-for-sale securities are included in interest income. The Company
+did not realize any gains on securities during 2007, 2006 and 2005 on its available-for-sale securities. Securities that are held in the supplemental
+retirement plan are classified as trading. See Note 10 for further information regarding the supplemental retirement plan. The investment income earned
+on trading securities is presented in other income on the consolidated statements of operations. 
+Management determines the appropriate
+classification of investments at the time of purchase and re-evaluates such designations as of each balance sheet date. 
+Accounts Receivable 
+The majority of the Company’s
+accounts receivable are due principally from major and independent oil and natural gas exploration and production companies. Credit is extended based
+on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are considered past due after 60
+days and are stated at amounts due from customers, net of an allowance for doubtful accounts. 
+Allowance for Doubtful Accounts 
+Accounts receivable are carried at the
+amount owed by customers, reduced by an allowance for estimated amounts that may not be collectible in the future. The estimated allowance for doubtful
+accounts is based on our evaluation of industry trends, financial condition of our customers, our historical write-off 
+39 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+experience, current economic
+conditions, and in the case of our international customers, our judgments about the economic and political environment of the related country and
+region. Accounts are written off against the allowance for doubtful accounts when the Company determines that amounts are uncollectible and recoveries
+of previously written-off accounts are recorded when collected. 
+Inventories 
+Inventories, which consist principally
+of (i) raw materials and supplies that are consumed in RPC’s services provided to customers, (ii) spare parts for equipment used in providing
+these services and (iii) manufactured components and attachments for equipment used in providing services, are recorded at the lower of weighted
+average cost or market value. Market value is determined based on replacement cost for material and supplies. The Company regularly reviews inventory
+quantities on hand and records provisions for excess or obsolete inventory based primarily on its estimated forecast of product demand, market
+conditions, production requirements and technological developments. 
+Property, Plant and Equipment 
+Property, plant and equipment,
+including software costs, are reported at cost less accumulated depreciation and amortization, which is generally provided on a straight-line basis
+over the estimated useful lives of the assets. Annual depreciation and amortization expense is computed using the following useful lives: operating
+equipment, 3 to 10 years; buildings and leasehold improvements, 15 to 30 years; furniture and fixtures, 5 to 7 years; software, 5 years; and vehicles,
+3 to 5 years. The cost of assets retired or otherwise disposed of and the related accumulated depreciation and amortization are eliminated from the
+accounts in the year of disposal with the resulting gain or loss credited or charged to income from operations. Expenditures for additions, major
+renewals, and betterments are capitalized. Expenditures for restoring an identifiable asset to working condition or for maintaining the asset in good
+working order constitute repairs and maintenance and are expensed as incurred. 
+RPC records impairment losses on
+long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated
+to be generated by those assets are less than the carrying amount of those assets. The Company periodically reviews the values assigned to long-lived
+assets, such as property, plant and equipment and other assets, to determine if any impairments should be recognized. Management believes that the
+long-lived assets in the accompanying balance sheets have not been impaired. 
+Goodwill and Other Intangibles 
+Goodwill represents the excess of the
+purchase price over the fair value of net assets of businesses acquired. For additional information with respect to earnout payments, see Note 2 of the
+Notes to Consolidated Financial Statements. The carrying amount of goodwill was $24,093,000 at December 31, 2007 and 2006. Goodwill is reviewed
+annually for impairment in accordance with the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and
+Other Intangible Assets.” In reviewing goodwill for impairment, potential impairment is measured by comparing the estimated fair value of a
+reporting unit with its carrying value. Based upon the results of these analyses, the Company has concluded that no impairment of its goodwill has
+occurred for the years ended December 31, 2007, 2006 and 2005. 
+Other intangibles primarily represent
+non-compete agreements related to businesses acquired. Non-compete agreements are amortized on a straight-line basis over the period of the agreement,
+as this method 
+40 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+best estimates the ratio that
+current revenues bear to the total of current and anticipated revenues. The carrying amount and accumulated amortization for non-compete agreements are
+as follows: 
+December 31, 
+2007 
+2006 
+Non-compete
+agreements 
+$ 
+300,000 
+$ 
+300,000 
+Less:
+accumulated amortization 
+(300,000 
+) 
+(300,000 
+) 
+$ 
+— 
+$ 
+— 
+Amortization of non-compete agreements
+was approximately $0 in 2007, $10,000 in 2006 and $28,000 in 2005. 
+Insurance Expenses 
+RPC self insures, up to certain
+policy-specified limits, certain risks related to general liability, workers’ compensation, vehicle and equipment liability, and employee health
+insurance plan costs. The estimated cost of claims under these self-insurance programs is estimated and accrued as the claims are incurred (although
+actual settlement of the claims may not be made until future periods) and may subsequently be revised based on developments relating to such claims.
+The portion of these estimated outstanding claims expected to be paid more than one year in the future is classified as long-term accrued insurance
+expenses. 
+Income Taxes 
+Deferred tax liabilities and assets are
+determined based on the difference between the financial and tax bases of assets and liabilities using enacted tax rates in effect for the year in
+which the differences are expected to reverse. The Company establishes a valuation allowance against the carrying value of deferred tax assets when the
+Company determines that it is more likely than not that the asset will not be realized through future taxable income. 
+Defined Benefit Pension Plan 
+The Company has a defined benefit
+pension plan that provides monthly benefits upon retirement at age 65 to eligible employees. In September 2006, the FASB issued SFAS No. 158,
+“Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB Statements No. 87, 88, 106, and
+132(R).” SFAS 158 requires the Company to recognize the funded status of its defined benefit pension plan in the Company’s consolidated
+balance sheets. Effective for fiscal years ending after December 15, 2008, SFAS 158 also removes the existing option to use a plan measurement date
+that is up to 90 days prior to the date of the balance sheet. The recognition and disclosure provisions of SFAS 158 are effective for fiscal years
+ending after December 15, 2006, for entities with publicly traded equity securities that have defined benefit plans and is to be applied as of the year
+of adoption. Accordingly, the Company has adopted the recognition and disclosure provisions of SFAS 158 as of December 31, 2006 which did not result in
+a material impact to its consolidated financial statements. The Company uses a December 31 measurement date for its pension plan and thus the
+measurement date provisions will not affect the Company. See Note 10 for a full description of this plan and the related accounting and funding
+policies. 
+41 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+Share Repurchases 
+The Company records the cost of share
+repurchases in stockholders’ equity as a reduction to common stock to the extent of par value of the shares acquired and the remainder is
+allocated to capital in excess of par value. 
+Earnings per Share 
+SFAS No. 128, “Earnings Per
+Share,” requires a basic earnings per share and diluted earnings per share presentation. The two calculations differ as a result of the dilutive
+effect of stock options and time lapse restricted and performance restricted shares included in diluted earnings per share, but excluded from basic
+earnings per share. A reconciliation of the weighted shares outstanding is as follows: 
+2007 
+2006 
+2005 
+Basic 
+96,267,732 
+95,242,593 
+95,052,283 
+Dilutive
+effect of stock options and restricted shares 
+2,094,333 
+2,953,428 
+3,457,083 
+Diluted 
+98,362,065 
+98,196,021 
+98,509,366 
+Fair Value of Financial Instruments 
+The Company’s financial
+instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and debt. The carrying value of cash, accounts
+receivable and accounts payable approximate their fair value due to the short-term nature of such instruments. The securities held in the non-qualified
+Supplemental Retirement Plan (“SERP”) are classified as trading and carried at fair value in the accompanying consolidated balance sheets.
+The carrying value of debt as of December 31, 2007 approximated fair value since the interest rates are market based and are adjusted
+periodically. 
+New Accounting Standards 
+In June 2006, the FASB issued Financial
+Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109”. FIN
+48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or
+expected to be taken in a tax return. This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting
+in interim periods, disclosure and transition. This interpretation is effective for fiscal years beginning after December 15, 2006. The adoption of FIN
+48 did not have a significant impact on the Company’s consolidated financial statements. See Note 6 to the consolidated financial statements for
+further information. 
+In May 2007, the FASB issued FASB Staff
+Position No. FIN 48-1 (“FSP 48-1”), “Definition of Settlement in FASB Interpretation No. 48.” FSP 48-1 amended FIN 48 to provide
+guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax
+benefits. FSP 48-1 required application upon the initial adoption of FIN 48. The adoption of FSP 48-1 did not affect the Company’s consolidated
+financial statements. 
+In September 2006, the FASB issued SFAS
+No. 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted
+accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial assets and liabilities on January 1,
+2008. The FASB has deferred the implementation of the provisions of SFAS 157 relating to certain nonfinancial assets and liabilities until January 1,
+2009. SFAS 157 is not expected to have a significant impact on the Company’s consolidated financial statements. 
+42 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+In February 2007, the FASB issued SFAS
+No. 159, “The Fair Value Option for Financial Assets and Liabilities — Including an Amendment of FASB Statement No. 115,” to permit an
+entity to choose to measure many financial instruments and certain other items at fair value. Most of the provisions in SFAS 159 are elective; however
+the amendment to SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” applies to all entities with
+available-for-sale and trading securities. The fair value option permits all entities to choose to measure eligible items at fair value at specified
+election dates. The fair value option may be applied on an instrument-by-instrument basis, is irrevocable and is to be applied to entire instruments
+and not portions thereof. The Company will adopt SFAS 159 on January 1, 2008 and it is not expected to have a significant impact on the Company’s
+consolidated financial statements. 
+In June 2007, the FASB ratified a
+consensus opinion reached by the Emerging Issues Task Force (“EITF”) on EITF Issue 06-11, “Accounting for Income Tax Benefits of
+Dividends on Share-Based Payment Awards.” The consensus ratified by the FASB requires that a realized income tax benefit from dividend or dividend
+equivalents that are charged to retained earnings and paid to employees for equity classified nonvested equity shares, nonvested equity share units and
+outstanding share options should be recognized as an increase in additional paid-in-capital. Such amount recognized should be included in the pool of
+excess tax benefits available to absorb potential future tax deficiencies on share-based payment awards. This consensus ratified by the FASB should be
+applied prospectively to the income tax benefits of dividends on equity awards granted to employees that are declared in fiscal years beginning after
+December 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting EITF Issue
+06-11. 
+In December 2007, the FASB issued SFAS
+No. 141 revised, “Business Combinations.” The objective of this Statement is to improve the relevance, representational faithfulness, and
+comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS 141
+revised is effective for the Company on January 1, 2009 and is not expected to have a significant impact on the Company’s consolidated financial
+statements. 
+In December 2007, the SEC staff issued
+Staff Accounting Bulletin (“SAB”) 110, “Share-Based Payment,” which amends SAB 107, “Share-Based Payment,” to permit
+public companies, under certain circumstances, to use the simplified method in SAB 107 for employee option grants after December 31, 2007. Use of the
+simplified method after December 2007 is permitted only for companies whose historical data about their employees’ exercise behavior does not
+provide a reasonable basis for estimating the expected term of the options. The adoption of this pronouncement is not expected to have a material
+effect on the Company’s consolidated financial statements. 
+Stock-Based Compensation 
+Effective January 1, 2006, the Company
+adopted the provisions of SFAS No. 123 (revised 2004), “Share-Based Payments” (“SFAS 123(R)”), which revises SFAS 123,
+“Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS
+123(R) requires all share-based payments to employees, including grants of employee stock options, to be measured based on their fair values and
+recognized in the financial statements over the requisite service period. See Note 10 regarding the Company’s adoption of SFAS
+123(R). 
+Prior to January 1, 2006, the Company
+provided the disclosures required by SFAS 123, as amended by SFAS 148, “Accounting for Stock-Based Compensation — Transition and
+Disclosures,” and accounted for all of its stock-based compensation under the provisions of Accounting Principles Board (“APB”) Opinion
+No. 25, “Accounting for Stock Issued to Employees” using the intrinsic value method prescribed therein. Accordingly, the Company did not
+recognize compensation expense for the options granted since the exercise price was the same as the market price of the shares on the date of grant.
+Compensation cost 
+43 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+on the restricted stock was
+recorded as deferred compensation in stockholders’ equity based on the fair market value of the shares on the date of issuance and amortized
+ratably over the respective vesting period. Forfeitures related to restricted stock were previously accounted for as they occurred. See Note 10 for
+additional information. 
+Note 2: Acquisitions 
+Earnout payments to sellers of acquired
+businesses have been paid in accordance with the respective agreements on an annual or interim basis and recorded as goodwill when the earnout payment
+amounts are determinable. All remaining earnout obligations under purchase agreements were recognized and paid during 2005. 
+Note 3: Accounts Receivable 
+Accounts receivable, net consists of
+the following: 
+December 31, 
+2007 
+2006 
+(in thousands) 
+Trade
+receivables: 
+Billed 
+$ 
+134,522 
+$ 
+118,018 
+Unbilled 
+43,513 
+34,624 
+Other
+receivables 
+3,336 
+731 
+Total 
+181,371 
+153,373 
+Less:
+Allowance for doubtful accounts 
+(5,217 
+) 
+(4,904 
+) 
+Accounts
+receivable, net 
+$ 
+176,154 
+$ 
+148,469 
+Trade receivables relate to sale of our
+services and products, for which credit is extended based on the customer’s credit history. Unbilled receivables represent revenues earned in the
+current period but not billed to the customer until future dates, usually within one month. Other receivables consist primarily of amounts due from
+purchasers of company property and rebates from suppliers. 
+Changes in the Company’s allowance
+for doubtful accounts are as follows: 
+Years Ended December 31, 
+2007 
+2006 
+(in thousands) 
+Beginning
+balance 
+$ 
+4,904 
+$ 
+4,080 
+Bad debt
+expense 
+3,119 
+1,492 
+Accounts
+written-off 
+(2,940 
+) 
+(1,379 
+) 
+Recoveries 
+134 
+711 
+Ending
+balance 
+$ 
+5,217 
+$ 
+4,904 
+Note 4: Inventories 
+Inventories are $29,602,000 at December
+31, 2007 and $21,188,000 at December 31, 2006 and consist of raw materials, parts and supplies. 
+44 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+Note 5: Property, Plant and
+Equipment 
+Property, plant and equipment are
+presented at cost net of accumulated depreciation and consist of the following: 
+December 31, 
+2007 
+2006 
+(in thousands) 
+Land 
+$ 
+14,817 
+$ 
+9,715 
+Buildings and
+leasehold improvements 
+43,959 
+33,650 
+Operating
+equipment 
+496,216 
+347,230 
+Capitalized
+software 
+14,300 
+13,457 
+Furniture and
+fixtures 
+3,764 
+3,545 
+Vehicles 
+170,647 
+110,714 
+Construction
+in progress 
+9,926 
+8,396 
+Gross
+property, plant and equipment 
+753,629 
+526,707 
+Less:
+accumulated depreciation 
+(320,503 
+) 
+(263,910 
+) 
+Net property,
+plant and equipment 
+$ 
+433,126 
+$ 
+262,797 
+Depreciation expense was $78,506,000 in
+2007, $46,711,000 in 2006 and $39,100,000 in 2005. There are no capital leases outstanding as of December 31, 2007 and December 31, 2006. The Company
+also had accounts payable for purchases of property and equipment of approximately $19.1 million, $16.4 million and $5.2 million at December 31, 2007,
+2006 and 2005. 
+Note 6: Income Taxes 
+The following table lists the
+components of the provision (benefit) for income taxes: 
+Years ended December 31, 
+2007 
+2006 
+2005 
+(in thousands) 
+Current
+provision: 
+Federal 
+$ 
+29,589 
+$ 
+56,104 
+$ 
+31,563 
+State 
+4,857 
+8,155 
+4,305 
+Foreign 
+2,601 
+978 
+239 
+Deferred
+provision (benefit): 
+Federal 
+14,531 
+2,429 
+(1,890 
+) 
+State 
+1,207 
+388 
+39 
+Total income
+tax provision 
+$ 
+52,785 
+$ 
+68,054 
+$ 
+34,256 
+Reconciliation between the federal
+statutory rate and RPC’s effective tax rate is as follows: 
+Years ended December 31, 
+2007 
+2006 
+2005 
+Federal
+statutory rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State income
+taxes, net of federal benefit 
+2.8 
+3.2 
+2.9 
+Tax
+credits 
+(1.6 
+) 
+(0.6 
+) 
+(1.1 
+) 
+Federal and
+state refunds 
+0.1 
+— 
+(3.4 
+) 
+Adjustments
+to foreign tax liabilities 
+— 
+(1.1 
+) 
+(0.7 
+) 
+Other 
+1.4 
+1.6 
+1.3 
+Effective
+tax rate 
+37.7 
+% 
+38.1 
+% 
+34.0 
+% 
+45 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+Significant components of the
+Company’s deferred tax assets and liabilities are as follows: 
+December 31, 
+2007 
+2006 
+(in thousands) 
+Deferred tax
+assets: 
+Self-insurance 
+$ 
+5,220 
+$ 
+4,298 
+Pension 
+— 
+3,427 
+State net
+operating loss carryforwards 
+1,704 
+1,560 
+Bad
+debts 
+2,099 
+1,875 
+Accrued
+payroll 
+857 
+1,730 
+Stock-based
+compensation 
+1,785 
+1,238 
+All
+others 
+52 
+— 
+Valuation
+allowance 
+(1,503 
+) 
+(1,342 
+) 
+Gross deferred
+tax assets 
+10,214 
+12,786 
+Deferred tax
+liabilities: 
+Depreciation 
+(30,909 
+) 
+(18,164 
+) 
+Goodwill
+amortization 
+(2,954 
+) 
+(2,258 
+) 
+Pension 
+(962 
+) 
+— 
+All
+others 
+(651 
+) 
+(53 
+) 
+Gross deferred
+tax liabilities 
+(35,476 
+) 
+(20,475 
+) 
+Net deferred
+tax liabilities 
+$ 
+(25,262 
+) 
+$ 
+(7,689 
+) 
+Historically, undistributed earnings of
+the Company’s foreign subsidiaries were considered indefinitely reinvested and, accordingly, no provision for U.S. federal income taxes was
+recorded. Deferred taxes are provided for earnings outside the United States when those earnings are not considered indefinitely
+reinvested. 
+The American Jobs Creation Act of 2004
+created a temporary incentive for U.S. multinationals to repatriate accumulated income earned outside the United States. As a result, the Company
+revisited its policy of indefinite reinvestment of foreign earnings and repatriated approximately $1.1 million in 2005. The Company recorded a one-time
+income tax provision of $65 thousand attributable to these earnings. For 2006 and forward, the Company considers undistributed earnings of the
+Company’s foreign subsidiaries to be indefinitely invested. 
+As of December 31, 2007, the Company
+has net operating loss carryforwards related to state income taxes of approximately $40.4 million that will expire between 2008 and 2027. A valuation
+allowance of approximately $1.5 million, representing the tax affected amount of loss carryforwards that the Company does not expect to utilize, has
+been established against the corresponding deferred tax asset. 
+Total income tax payments (refunds),
+net were $46,328,000 in 2007, $65,208,000 in 2006, and $36,031,000 in 2005. 
+In July 2006, the FASB issued FASB
+Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”),
+which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. The Company was subject to the
+provisions of FIN 48 as of January 1, 2007, and has analyzed filing positions in federal, state and foreign filing jurisdictions where it is required
+to file income tax returns, as well as all open years in those jurisdictions. As a result of the implementation of FIN 48, the Company did not
+recognize a material adjustment in the liability for unrecognized income tax benefits. As of the adoption date the Company had 
+46 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+gross tax affected unrecognized tax
+benefits of $922,000, of which $850,000, if recognized, would affect the Company’s effective tax rate. A reconciliation of the beginning and
+ending amount of unrecognized tax benefits is as follows: 
+(in thousands) 
+Balance as of
+January 1, 2007 
+$ 
+922 
+Additions
+based on tax positions related to current year 
+$ 
+0 
+Additions for
+tax positions of prior years 
+$ 
+3 
+Reductions for
+tax positions of prior years 
+$ 
+915 
+Balance at
+December 31, 2007 
+$ 
+10 
+The Company and its subsidiaries are
+subject to U.S. federal and state income tax in multiple jurisdictions. In many cases our uncertain tax positions are related to tax years that remain
+open and subject to examination by the relevant taxing authorities. The Company’s 2004 through 2007 tax years remain open to
+examination. 
+It is reasonably possible that the
+amount of the unrecognized benefits with respect to our unrecognized tax positions will increase or decrease in the next 12 months. These changes may
+be the result of, among other things, state tax settlements under Voluntary Disclosure Agreements. However, quantification of an estimated range cannot
+be made at this time. 
+The Company’s policy is to record
+interest and penalties related to income tax matters as income tax expense. Accrued interest and penalties were immaterial as of January 1, 2007 and
+December 31, 2007. 
+Note 7: Long-Term Debt 
+The Company currently has a revolving
+credit agreement (the “Revolving Credit Agreement”) with SunTrust Capital Markets, Inc, as Joint Lead Arranger and Sole Book Manager, Banc of
+America Securities LLC as Joint Lead Arranger, and a syndicate of other lenders. The Revolving Credit Agreement includes a full and unconditional
+guarantee by RPC’s 100% owned domestic subsidiaries whose assets equal substantially all of the consolidated assets of RPC and its subsidiaries.
+The subsidiaries of the Company that are not guarantors are considered minor. 
+The Revolving Credit Agreement has a
+general term of five years and provides for an unsecured line of credit of up to $250 million, which includes a $50 million letter of credit
+subfacility, and a $20 million swingline subfacility. Under certain circumstances, the line of credit may be increased by an additional amount of up to
+$50 million. The maturity date of all revolving loans under the Credit Agreement is September 8, 2011, although RPC may request one one-year extension
+of the maturity date at the second anniversary of the closing of the revolving credit agreement. The Company incurred loan origination fees and other
+debt related costs associated with the line of credit of approximately $469,000. These costs are being amortized over the five year term of the loan,
+and the net amount is classified as non-current other assets on the consolidated balance sheet. 
+Revolving loans under the Revolving
+Credit Agreement bear interest at one of the following two rates, at RPC’s election: 
+• 
+the Base Rate, which is the greater of SunTrust Bank’s
+“prime rate” for the day of the borrowing and a fluctuating rate per annum equal to the Federal Funds Rate plus .50%; or 
+• 
+with respect to any Eurodollar borrowings, Adjusted LIBOR (which
+equals LIBOR as increased to account for the maximum reserve percentages established by the U.S. Federal Reserve) plus a margin ranging from .40% to
+.80%, based upon RPC’s then-current consolidated debt-to-EBITDA 
+47 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+ratio. In addition, RPC will pay an annual fee ranging from .10%
+to .20% of the total credit facility based upon RPC’s then-current consolidated debt-to-EBITDA ratio. 
+The Revolving Credit Agreement contains
+customary terms and conditions, including certain financial covenants and restrictions on indebtedness, dividend payments, business combinations and
+other related items. Further, the Revolving Credit Agreement contains financial covenants restricting RPC’s ability to permit the ratio of
+RPC’s consolidated debt to EBITDA to exceed 2.5 to 1, and to permit the ratio of RPC’s consolidated EBIT to interest expense to exceed 2 to
+1. 
+As December 31, 2007, RPC has
+outstanding borrowings of $156,400,000 under the Revolving Credit Agreement. Interest incurred and recorded as expense on the line of credit was
+$4,083,000 in 2007 and $356,000 in 2006. The weighted average interest rate was 6.1% for 2007 and 5.8% for 2006. In 2007, the Company capitalized
+interest incurred of $2,300,000 related to facilities and equipment under construction. Additionally there were letters of credit relating to
+self-insurance programs and contract bids outstanding for $18.0 million as of December 31, 2007. 
+Cash interest paid (net of capitalized
+interest) was approximately $3,849,000 in 2007, $232,000 in 2006 and $204,000 in 2005. 
+Note 8: Accumulated Other Comprehensive (Loss)
+Income 
+Accumulated other comprehensive (loss)
+income consists of the following (in thousands): 
+Pension 
+Adjustment 
+Unrealized 
+Gain (Loss) On 
+Securities 
+Foreign 
+Currency 
+Translation 
+Total 
+Balance at
+December 31, 2005 
+$ 
+(8,070 
+) 
+$ 
+375 
+$ 
+— 
+$ 
+(7,695 
+) 
+Change during
+2006: 
+Before-tax
+amount 
+3,627 
+(248 
+) 
+— 
+3,379 
+Tax (expense)
+benefit 
+(1,519 
+) 
+101 
+— 
+(1,418 
+) 
+Total activity
+in 2006 
+2,108 
+(147 
+) 
+— 
+1,961 
+Balance at
+December 31, 2006 
+$ 
+(5,962 
+) 
+$ 
+228 
+— 
+$ 
+(5,734 
+) 
+Change during
+2007: 
+Before-tax
+amount 
+3,992 
+757 
+271 
+5,027 
+Tax expense
+(1,457 
+) 
+(271 
+) 
+(99 
+) 
+(1,834 
+) 
+Total activity
+in 2007 
+2,535 
+486 
+172 
+3,193 
+Balance at
+December 31, 2007 
+$ 
+(3,427 
+) 
+$ 
+714 
+$ 
+172 
+$ 
+(2,541 
+) 
+48 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+Note 9: Commitments and
+Contingencies 
+Lease Commitments — Minimum annual
+rentals, principally for noncancelable real estate leases with terms in excess of one year, in effect at December 31, 2007, are summarized in the
+following table: 
+(in thousands) 
+2008 
+$ 
+2,805 
+2009 
+2,661 
+2010 
+2,166 
+2011 
+1,557 
+2012 
+741 
+Thereafter 
+1,036 
+Total rental
+commitments 
+$ 
+10,966 
+Total rental expense charged to
+operations was approximately $7,116,000 in 2007, $6,276,000 in 2006 and $5,252,000 in 2005. 
+Income Taxes — The amount of
+income taxes the Company pays is subject to ongoing audits by federal and state tax authorities, which often result in proposed assessments. Other
+long-term liabilities include $10,000 as of December 31, 2007 and $922,000 as of December 31, 2006, that represents the Company’s estimated
+liabilities for the probable assessments payable. 
+Litigation — RPC is a party to
+various routine legal proceedings primarily involving commercial claims, workers’ compensation claims and claims for personal injury. RPC insures
+against these risks to the extent deemed prudent by its management, but no assurance can be given that the nature and amount of such insurance will, in
+every case, fully indemnify RPC against liabilities arising out of pending and future legal proceedings related to its business activities. While the
+outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management, after consultation with legal counsel, believes
+that the outcome of all such proceedings, even if determined adversely, would not have a material adverse effect on the Company’s business or
+financial condition. 
+Note 10: Employee Benefit
+Plans 
+Defined Benefit Pension Plan 
+The Company’s Retirement Income
+Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to substantially all employees with at least one
+year of service prior to 2002. As of February 28, 2001, the plan became a multiple employer plan, with Marine Products as an adopting
+employer. 
+In 2002, the Company’s Board of
+Directors approved a resolution to cease all future retirement benefit accruals under the defined benefit pension plan. In lieu thereof, the Company
+began providing enhanced benefits in the form of cash contributions for certain longer serviced employees that had not reached the normal retirement
+age of 65 as of March 31, 2002. The contributions are discretionary and made annually based on continued employment over a seven year period beginning
+in 2002. These discretionary contributions are made to either a non-qualified Supplemental Retirement Plan (“SERP”) established by the
+Company or to the 401(k) plan for each employee that is entitled to the enhanced benefit. The expense related to the enhanced benefits was $315,000 for
+2007, $320,000 for 2006 and $390,000 for 2005. 
+The Company permits selected highly
+compensated employees to defer a portion of their compensation into the SERP. The SERP assets are marked to market and totaled $4,270,000 as
+of 
+49 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+December 31, 2007 and $3,031,000 as
+of December 31, 2006. The SERP assets are reported in other assets on the balance sheet and changes related to the fair value of assets are recorded in
+the consolidated statement of operations as part of other income, net. The SERP deferrals and the contributions are recorded on the balance sheet in
+pension liabilities with any change in the fair value of the liabilities recorded as compensation cost in the statement of operations. 
+As previously mentioned, the Company
+has adopted the provisions of SFAS 158. In accordance with the provisions of SFAS 158, the fair value of the plan assets under its pension plan exceeds
+the Company’s projected benefit obligation by $2,399,000 and thus the plan was over-funded as of December 31, 2007. Prior to the adoption of SFAS
+158, the Company’s disclosure of the funded status in the notes to the consolidated financial statements did not differ from the amount recognized
+in the consolidated balance sheets; therefore, the adoption of SFAS 158 did not have an affect on the consolidated balance sheet. 
+The following table sets forth the
+funded status of the Retirement Income Plan and the amounts recognized in RPC’s consolidated balance sheets: 
+December 31, 
+2007 
+2006 
+(in thousands) 
+Accumulated
+Benefit Obligation at end of year 
+$ 
+30,149 
+$ 
+32,172 
+CHANGE IN
+PROJECTED BENEFIT OBLIGATION: 
+Benefit
+obligation at beginning of year 
+$ 
+32,172 
+$ 
+33,801 
+Service
+cost 
+— 
+— 
+Interest
+cost 
+1,759 
+1,705 
+Amendments 
+— 
+— 
+Actuarial
+(gain) loss 
+(2,415 
+) 
+(2,131 
+) 
+Benefits
+paid 
+(1,367 
+) 
+(1,203 
+) 
+Projected
+benefit obligation at end of year 
+$ 
+30,149 
+$ 
+32,172 
+CHANGE IN PLAN
+ASSETS: 
+Fair value of
+plan assets at beginning of year 
+$ 
+26,127 
+$ 
+22,344 
+Actual return
+on plan assets 
+3,038 
+2,386 
+Employer
+contribution 
+4,750 
+2,600 
+Benefits
+paid 
+(1,367 
+) 
+(1,203 
+) 
+Fair value of
+plan assets at end of year 
+32,548 
+26,127 
+Funded status
+at end of year 
+$ 
+2,399 
+$ 
+(6,045 
+) 
+50 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+December 31, 
+2007 
+2006 
+(in thousands) 
+AMOUNTS
+RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF: 
+Noncurrent
+assets 
+$ 
+2,399 
+$ 
+— 
+Current
+liabilities 
+— 
+— 
+Noncurrent
+liabilities 
+— 
+(6,045 
+) 
+$ 
+2,399 
+$ 
+(6,045 
+) 
+AMOUNTS
+(PRE-TAX) RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CONSIST OF: 
+(in
+thousands) 
+Net
+Loss 
+$ 
+5,398 
+$ 
+9,389 
+Prior service
+cost 
+— 
+— 
+Net transition
+obligation 
+— 
+— 
+$ 
+5,398 
+$ 
+9,389 
+The accumulated benefit obligation for
+the defined benefit pension plan at December 31, 2007 and 2006 has been disclosed above. The Company uses a December 31 measurement date for this
+qualified plan. 
+Amounts recognized in the consolidated
+balance sheets consist of: 
+December 31, 
+2007 
+2006 
+(in thousands) 
+Funded
+status 
+$ 
+2,399 
+(1) 
+$ 
+(6,045 
+) 
+SERP employer
+contributions/deferrals 
+(4,525 
+) 
+(3,140 
+) 
+Long-term
+pension liabilities 
+$ 
+(4,525 
+) 
+$ 
+(9,185 
+) 
+(1) 
+The defined benefit pension plan is over-funded and has been
+included as part of other assets for 2007. 
+RPC’s funding policy is to
+contribute to the defined benefit pension plan the amount required, if any, under the Employee Retirement Income Security Act of 1974. RPC contributed
+$4,750,000 in 2007 and $2,600,000 in 2006. 
+The components of net periodic benefit
+cost are summarized as follows: 
+Years ended December 31, 
+2007 
+2006 
+2005 
+(in thousands) 
+Service cost
+for benefits earned during the period 
+$ 
+— 
+$ 
+— 
+$— 
+Interest
+cost on projected benefit obligation 
+1,759 
+1,705 
+1,744 
+Expected
+return on plan assets 
+(2,321 
+) 
+(1,888 
+) 
+(1,714) 
+Amortization
+of net loss (gain) 
+860 
+998 
+1,054 
+Net periodic
+benefit cost 
+$ 
+298 
+$ 
+815 
+$1,084 
+51 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+The Company recognized pre-tax
+(increases) decreases to the funded status in comprehensive income of $(3,992,000) in 2007, $(3,627,000) in 2006 and $1,592,000 in 2005. There were no
+previously unrecognized prior service costs as of December 31, 2007 and 2006. The pre-tax amounts recognized in comprehensive income for the years
+ended December 31, 2007 and 2006 are summarized as follows: 
+(in thousands) 
+2007 
+2006 
+Net loss
+(gain) 
+$ 
+(3,132 
+) 
+$ 
+(2,629 
+) 
+Amortization
+of net (loss) gain 
+(860 
+) 
+(998 
+) 
+Net transition
+obligation (asset) 
+— 
+— 
+Amount
+recognized in other comprehensive income 
+$ 
+(3,992 
+) 
+$ 
+(3,627 
+) 
+The amounts in accumulated other
+comprehensive loss expected to be recognized as components of net periodic benefit cost in 2008 are as follows: 
+(in thousands) 
+2008 
+Amortization
+of net loss (gain) 
+$ 
+277 
+Prior service
+cost (credit) 
+— 
+Net transition
+obligation (asset) 
+— 
+Estimated net
+periodic cost 
+$ 
+277 
+The weighted average assumptions as of
+December 31 used to determine the projected benefit obligation and net benefit cost were as follows: 
+December 31, 
+2007 
+2006 
+2005 
+Projected
+Benefit Obligation : 
+Discount
+rate 
+6.25 
+% 
+5.50 
+% 
+5.50% 
+Rate of
+compensation increase 
+N/A 
+N/A 
+N/A 
+Net
+Benefit Cost: 
+Discount
+rate 
+5.50 
+% 
+5.50 
+% 
+5.75% 
+Expected
+return on plan assets 
+8.00 
+% 
+8.00 
+% 
+8.00% 
+Rate of compensation increase 
+N/A 
+N/A 
+N/A 
+The Company’s expected return on
+assets assumption is derived from a detailed periodic assessment conducted by its management and its investment adviser. It includes a review of
+anticipated future long-term performance of individual asset classes and consideration of the appropriate asset allocation strategy given the
+anticipated requirements of the plan to determine the average rate of earnings expected on the funds invested to provide for the pension plan benefits.
+While the study gives appropriate consideration to recent fund performance and historical returns, the rate of return assumption is derived primarily
+from a long-term, prospective view. Based on its recent assessment, the Company has concluded that its expected long-term return assumption of eight
+percent is reasonable. 
+At December 31, 2007 and 2006, the
+Plan’s assets were comprised of listed common stocks and U.S. Government and corporate securities. The Plan’s weighted average asset
+allocation at December 31, 2007 and 2006 by asset category along with the target allocation for 2008 are as follows: 
+52 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+Asset Category 
+Target 
+Allocation 
+for 2008 
+Percentage of 
+Plan Assets 
+as of 
+December
+31, 
+2007 
+Percentage of 
+Plan Assets 
+as of 
+December
+31, 
+2006 
+Equity
+Securities 
+42.2 
+% 
+48.1 
+% 
+49.6% 
+Debt
+Securities — Core Fixed Income 
+8.9 
+% 
+27.1 
+% 
+28.6% 
+Tactical
+— Fund of Equity and Debt Securities 
+7.8 
+% 
+5.2 
+% 
+5.4% 
+Real
+Estate 
+11.1 
+% 
+5.7 
+% 
+5.5% 
+Other 
+30.0 
+% 
+13.9 
+% 
+10.9% 
+Total 
+100.0 
+% 
+100.0 
+% 
+100.0% 
+The Company’s investment strategy
+for its defined benefit pension plan is to maximize the long-term rate of return on plan assets within an acceptable level of risk in order to minimize
+the cost of providing pension benefits. The investment policy establishes a target allocation for each asset class, which is rebalanced as required.
+The Company utilizes a number of investment approaches, including individual marketable securities, equity and fixed income funds in which the
+underlying securities are marketable, and debt funds to achieve this target allocation. The Company does not expect to make a contribution to the
+defined benefit pension plan in 2008 and does not expect to receive a refund in 2008. 
+The Company estimates that the future
+benefits payable for the defined benefit pension plan over the next ten years are as follows: 
+(in thousands) 
+2008 
+$ 
+1,568 
+2009 
+1,598 
+2010 
+1,681 
+2011 
+1,698 
+2012 
+1,780 
+2013-2017 
+10,131 
+401(k) Plan 
+RPC sponsors a defined contribution
+401(k) plan that is available to substantially all full-time employees with more than three months of service. This plan allows employees to make
+tax-deferred contributions from one to 25 percent of their annual compensation, not exceeding the permissible contribution imposed by the Internal
+Revenue Code. RPC matches 50 percent of each employee’s contributions that do not exceed six percent of the employee’s compensation, as
+defined by the plan. Employees vest in the RPC contributions after three years of service. The charges to expense for the Company’s contributions
+to the 401(k) plan were approximately $2,300,000 in 2007, $1,500,000 in 2006 and $1,150,000 in 2005. 
+Stock Incentive Plans 
+The Company has issued stock options
+and restricted stock to employees under two 10 year stock incentive plans that were approved by shareholders in 1994 and 2004. The 1994 plan expired in
+2004. The Company reserved 5,062,500 shares of common stock under the 2004 Plan which expires ten years from the date of approval. This plan provides
+for the issuance of various forms of stock incentives, including, among others, incentive and non-qualified stock options and restricted stock which
+are discussed in detail 
+53 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+below. As of December 31, 2007,
+there were approximately 3,438,000 shares available for grants. The Company issues new shares from its authorized but unissued share
+pool. 
+As previously noted, the Company
+adopted the provisions of SFAS 123(R), “Share-Based Payments,” effective January 1, 2006. As permitted by SFAS 123(R), the Company has
+elected to use the modified prospective transition method and therefore financial results for prior periods have not been restated. Under this
+transition method, we will apply the provisions of SFAS 123(R) to new awards and the awards modified, repurchased, or cancelled after January 1, 2006.
+Additionally, the Company will recognize compensation expense for the unvested portion of awards outstanding over the remainder of the service period.
+The compensation cost recorded for these awards will be based on their fair value at grant date as calculated for the pro forma disclosures required by
+SFAS 123 less the cost of estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in
+subsequent periods to reflect actual forfeitures. SFAS 123(R) also requires that cash flows related to share-based payment awards to employees that
+result in tax benefits in excess of recognized cumulative compensation cost (excess tax benefits) be classified as financing cash
+flows. 
+Pre-tax stock-based employee
+compensation expense was $3,189,000 in 2007 ($2,167,000 after tax), $2,384,000 ($1,722,000 after tax) for 2006 and $1,261,000 ($781,000 after tax) for
+2005. 
+The following table illustrates the
+effect on net income and net income per common share as if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based
+compensation for the year ended December 31, 2005: 
+Year ended December 31, 
+2005 
+(in thousands) 
+Net income
+— as reported 
+$ 
+66,484 
+Add:
+Stock-based employee compensation expense included in reported net income, net of related tax effect 
+781 
+Deduct: Total
+stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect 
+(1,859 
+) 
+Pro forma net
+income 
+$ 
+65,406 
+Pro forma
+income per share would have been as follows: 
+Basic —
+as reported 
+$ 
+0.70 
+Basic —
+pro forma 
+$ 
+0.69 
+Diluted —
+as reported 
+$ 
+0.67 
+Diluted —
+pro forma 
+$ 
+0.66 
+Stock Options 
+Stock options are granted at an
+exercise price equal to the fair market value of the Company’s common stock at the date of grant except for grants of incentive stock options to
+owners of greater than 10 percent of the Company’s voting securities which must be made at 110 percent of the fair market value of the
+Company’s common stock. Options generally vest ratably over a period of five years and expire in 10 years, except incentive stock options granted
+to owners of greater than 10 percent of the Company’s voting securities, which expire in five years. 
+As prescribed by SFAS 123(R), the
+Company estimates the fair value of stock options as of the date of grant using the Black-Scholes option pricing model. The Company has not granted
+stock options to employees since 2003. 
+54 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+Transactions involving RPC’s stock
+options for the year ended December 31, 2007 were as follows: 
+Shares 
+Weighted Average 
+Exercise Price 
+Weighted 
+Average 
+Remaining 
+Contractual Life 
+Aggregate 
+Intrinsic Value 
+Outstanding
+at January 1, 2007 
+2,471,846 
+$ 
+3.10 
+4.41 
+years 
+Granted 
+— 
+— 
+N/A 
+Exercised 
+(571,659 
+) 
+3.19 
+N/A 
+Forfeited 
+(21,935 
+) 
+3.14 
+N/A 
+Expired 
+— 
+— 
+N/A 
+Outstanding
+at December 31, 2007 
+1,878,252 
+$ 
+3.11 
+3.32 
+years 
+$ 
+16,153,000 
+Exercisable
+at December 31, 2007 
+1,605,888 
+$ 
+3.16 
+3.02 
+years 
+$ 
+13,730,000 
+The total intrinsic value of stock
+options exercised was approximately $7,758,000 during 2007, $12,468,000 during 2006 and $4,644,000 during 2005. There were no recognized excess tax
+benefits associated with the exercise of stock options during 2007, 2006 and 2005, since all of the stock options exercised were incentive stock
+options which do not generate tax deductions for the Company. 
+Restricted Stock 
+The Company has granted employees two
+forms of restricted stock: time lapse restricted and performance restricted. 
+Time Lapse restricted shares 
+Time lapse restricted shares vest after
+a stipulated number of years from the grant date, depending on the terms of the issue. Time lapse restricted shares issued in years 2003 and prior vest
+after ten years. Time lapse restricted shares issued subsequent to fiscal year 2003 vest in 20 percent increments annually starting with the second
+anniversary of the grant, over six years from the date of grant. Grantees receive dividends declared and retain voting rights for the granted
+shares. 
+Performance restricted shares 
+The performance restricted shares are
+granted, but not earned and issued until certain five-year tiered performance criteria are met. The performance criteria are predetermined market
+prices of RPC’s common stock. On the date the common stock appreciates to each level (determination date), 20 percent of performance shares are
+earned. Once earned, the performance shares vest five years from the determination date. After the determination date, the grantee will receive
+dividends declared and voting rights to the shares. 
+The agreements under which the
+restricted stock is issued provide that shares awarded may not be sold or otherwise transferred until restrictions established under the stock plans
+have lapsed. Upon termination of employment from RPC or, in certain cases, termination of employment from Marine Products or Chaparral, shares with
+restrictions must be returned to RPC. 
+The following is a summary of the
+changes in non-vested restricted shares for the year ended December 31, 2007: 
+55 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+Shares 
+Weighted 
+Average 
+Grant-Date 
+Fair Value 
+Non-vested
+shares at January 1, 2007 
+1,437,859 
+$ 
+7.70 
+Granted 
+463,750 
+17.61 
+Vested 
+(284,780 
+) 
+4.67 
+Forfeited 
+(46,597 
+) 
+13.45 
+Non-vested
+shares at December 31, 2007 
+1,570,232 
+$ 
+11.01 
+The fair value of restricted awards is
+based on the market price of the Company’s stock on the date of the grant and is amortized to compensation expense on a straight-line basis over
+the requisite service period. The total fair value of shares vested was approximately $4,903,000 during 2007, $5,380,000 during 2006 and $527,000
+during 2005. The tax benefit for compensation tax deductions in excess of compensation expense was credited to capital in excess of par value
+aggregating $1,128,000 for 2007, $1,325,000 for 2006 and $53,000 for 2005. The excess tax deductions during the years ended December 31, 2007 and 2006
+are classified as financing cash flows in accordance with SFAS 123(R). 
+Other Information 
+As of December 31, 2007, total
+unrecognized compensation cost related to non-vested restricted shares was approximately $14,693,000 which is expected to be recognized over a
+weighted-average period of 3.3 years. Unearned compensation cost associated with non-vested restricted shares of $5,391,000 previously reflected as
+deferred compensation in stockholders’ equity at January 1, 2006 was reclassified to capital in excess of par value as required by SFAS 123(R). As
+of December 31, 2007, total unrecognized compensation cost related to non-vested stock options was approximately $35,000 which is expected to be
+recognized over a weighted-average period of one month. 
+The Company received cash from options
+exercised of $637,000 during 2007, $1,341,000 during 2006 and $1,060,000 during 2005. These cash receipts are classified as financing cash flows in the
+accompanying consolidated statements of cash flows. The fair value of shares tendered to exercise employee stock options totaled approximately
+$1,123,000 during 2007, $1,240,000 during 2006 and $1,138,000 during 2005 and have been excluded from the consolidated statements of cash
+flows. 
+Note 11: Related Party
+Transactions 
+Related Party Transactions 
+Marine Products Corporation 
+Effective February 28, 2001, the
+Company spun-off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC
+accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware
+corporation) (“Marine Products”), a newly formed wholly-owned subsidiary of RPC, and then distributing the common stock of Marine Products to
+RPC stockholders. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’
+relationship. 
+In accordance with a Transition Support
+Services agreement, which may be terminated by either party, RPC provides certain administrative services, including financial reporting and income tax
+administration, acquisition assistance, etc., to Marine Products. Charges from the Company (or from corporations that are subsidiaries of the Company)
+for such services aggregated approximately $957,000 in 2007, $739,000 in 2006 and $616,000 in 2005. The Company’s receivable due from Marine
+Products for these services as of 
+56 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+December 31, 2007 and 2006 was
+approximately $223,000 and $236,000. The Company’s directors are also directors of Marine Products and all of the executive officers are employees
+of both the Company and Marine Products. 
+The Tax Sharing and Indemnification
+Agreement provides for, among other things, the treatment of income tax matters for periods through February 28, 2001, the date of the spin-off, and
+responsibility for any adjustments as a result of audits by any taxing authority. The general terms provide for the indemnification for any tax
+detriment incurred by one party caused by the other party’s action. 
+Other 
+The Company periodically purchases in
+the ordinary course of business products or services from suppliers, who are owned by significant officers or shareholders, or affiliated with the
+directors of RPC. The total amounts paid to these affiliated parties were approximately $1,035,000 in 2007, $1,248,000 in 2006 and $926,000 in
+2005. 
+RPC receives certain administrative
+services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is otherwise affiliated with
+RPC). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are
+terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs,
+and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled
+$72,000 in 2007, $70,000 in 2006 and $71,000 in 2005. 
+Note 12: Business Segment
+Information 
+RPC’s service lines have been
+aggregated into two reportable oil and gas services segments — Technical Services and Support Services — because of the similarities between
+the financial performance and approach to managing the service lines within each of the segments, as well as the economic and business conditions
+impacting their business activity levels. The Other business segment includes information concerning RPC’s business units that do not qualify for
+separate segment reporting. Corporate includes selected administrative costs incurred by the Company. 
+Technical Services include RPC’s
+oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a
+customer’s well. These services include pressure pumping services, snubbing, coiled tubing, nitrogen pumping, well control consulting and
+firefighting, downhole tools, wireline, and fluid pumping services. These Technical Services are primarily used in the completion, production and
+maintenance of oil and gas wells. The principal markets for this segment include the United States, including the Gulf of Mexico, the mid-continent,
+southwest and Rocky Mountain regions, and international locations including primarily Africa, Canada, China, Latin America and the Middle East.
+Customers include major multi-national and independent oil and gas producers, and selected nationally-owned oil companies. 
+Support Services include RPC’s oil
+and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include
+drill pipe and related tools, pipe handling, inspection and storage services, and oilfield training services. The demand for these services tends to be
+influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, including the Gulf
+of Mexico and the mid-continent regions, and international locations, including primarily Canada, Latin America, and the Middle East. Customers include
+domestic operations of major multi-national and independent oil and gas producers, and selected nationally-owned oil companies. 
+57 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+In August of 2005, RPC generated
+approximately $15.7 million in cash proceeds related to the sale of certain assets of its hammer, casing, laydown and casing torque-turn service lines
+with a net book value of approximately $5.0 million. These service lines, previously reported in the Technical Services segment, were closely
+integrated with the operations of other Company service lines. Therefore, the pre-tax gain of $10.7 million on this sale has been included in the gain
+on disposition of assets, net. 
+The accounting policies of the
+reportable segments are the same as those described in Note 1 to these consolidated financial statements. RPC evaluates the performance of its segments
+based on revenues, operating profits and return on invested capital. Gains or losses on disposition of assets are reviewed by the Company’s chief
+decision maker on a consolidated basis, and accordingly the Company does not report gains or losses at the segment level. Inter-segment revenues are
+generally recorded in segment operating results at prices that management believes approximate prices for arm’s length transactions and are not
+material to operating results. 
+Summarized financial information
+concerning RPC’s reportable segments for the years ended December 31, 2007, 2006 and 2005 are shown in the following table. 
+Technical 
+Services 
+Support 
+Services 
+Other 
+Corporate 
+Gain on 
+disposition of 
+assets, net 
+Total 
+(in thousands) 
+2007 
+Revenues 
+$ 
+574,723 
+$ 
+115,503 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+690,226 
+Operating
+profit (loss) 
+116,493 
+29,955 
+— 
+(10,703 
+) 
+6,293 
+142,038 
+Capital
+expenditures 
+211,389 
+35,138 
+— 
+2,231 
+— 
+248,758 
+Depreciation
+and amortization 
+59,436 
+18,106 
+— 
+964 
+— 
+78,506 
+Identifiable
+assets 
+480,840 
+168,027 
+— 
+52,148 
+— 
+701,015 
+2006 
+Revenues 
+$ 
+495,090 
+$ 
+101,540 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+596,630 
+Operating
+profit (loss) 
+153,126 
+30,953 
+— 
+(12,248 
+) 
+5,969 
+177,800 
+Capital
+expenditures 
+125,138 
+28,902 
+— 
+5,791 
+— 
+159,831 
+Depreciation
+and amortization 
+31,805 
+13,974 
+— 
+932 
+— 
+46,711 
+Identifiable
+assets 
+320,637 
+125,627 
+— 
+31,743 
+— 
+478,007 
+2005 
+Revenues 
+$ 
+363,139 
+$ 
+64,487 
+$ 
+17 
+$ 
+— 
+$ 
+— 
+$ 
+427,643 
+Operating
+profit (loss) 
+84,048 
+11,990 
+(273 
+) 
+(10,221 
+) 
+12,169 
+97,713 
+Capital
+expenditures 
+43,626 
+28,280 
+— 
+902 
+— 
+72,808 
+Depreciation
+and amortization 
+27,510 
+10,453 
+— 
+1,166 
+— 
+39,129 
+Identifiable assets 
+192,172 
+88,067 
+— 
+31,546 
+— 
+311,785 
+The following summarizes selected
+information between the United States and all international locations combined for the years ended December 31, 2007, 2006 and 2005. The revenues are
+presented based on the location of the use of the product or service. Assets related to international operations are less than 10 percent of RPC’s
+consolidated assets, and therefore are not presented. 
+58 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+Years ended December 31, 
+2007 
+2006 
+2005 
+(in thousands) 
+United States
+Revenues 
+$ 
+649,116 
+$ 
+566,636 
+$ 
+413,315 
+International
+Revenues 
+41,110 
+29,994 
+14,328 
+$ 
+690,226 
+$ 
+596,630 
+$ 
+427,643 
+Item 9. Changes in and Disagreements with Accountants on
+Accounting and Financial Disclosure 
+None. 
+Item 9A. Controls and Procedures 
+Evaluation of disclosure controls and
+procedures — The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its
+Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and
+that such information is accumulated and communicated to its management, including the Chief Executive Officer and Chief Financial Officer, as
+appropriate, to allow timely decisions regarding required disclosure. 
+As of the end of the period covered by
+this report, December 31, 2007 (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the
+participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of
+its disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the
+Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the Evaluation Date. 
+Management’s report on internal
+control over financial reporting — Management is responsible for establishing and maintaining adequate internal control over financial reporting,
+as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management’s report on internal control over financial reporting is
+included on page 31 of this report. Grant Thornton LLP, the Company’s independent registered public accounting firm, has audited management’s
+assessment of the effectiveness of internal control as of December 31, 2007 and issued a report thereon which is included on page 32 of this
+report. 
+Changes in internal control over
+financial reporting — Management’s evaluation of changes in internal control did not identify any changes in the Company’s internal
+control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably
+likely to materially affect, the Company’s internal control over financial reporting. 
+Item 9B. Other Information 
+None. 
+59 
+PART III 
+Item 10. Directors, Executive Officers and
+Corporate Governance 
+Information concerning directors and
+executive officers will be included in the RPC Proxy for its 2008 Annual Meeting of Stockholders, in the section titled “Election of
+Directors.” This information is incorporated herein by reference. Information about executive officers is contained on page 14 of this
+document. 
+Audit Committee and Audit Committee Financial
+Expert 
+Information concerning the Audit
+Committee of the Company and the Audit Committee Financial Expert(s) will be included in the RPC Proxy Statement for its 2008 Annual Meeting of
+Stockholders, in the section titled “Corporate Governance and Board of Directors, Committees and Meetings — Audit Committee.” This
+information is incorporated herein by reference. 
+Code of Ethics 
+RPC, Inc. has a Code of Business
+Conduct that applies to all employees. In addition, the Company has a Code of Business Conduct and Ethics for Directors and Executive Officers and
+Related Party Transaction Policy. Both of these documents are available on the Company’s website at www.rpc.net. Copies are available at no charge
+by writing to Attention: Human Resources, RPC Inc., 2801 Buford Highway, Suite 520, N.E., Atlanta, GA 30329. 
+RPC, Inc. intends to satisfy the
+disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of its code that relates to any elements of the
+code of ethics definition enumerated in SEC rules by posting such information on its internet website, the address of which is provided
+above. 
+Section 16(a) Beneficial Ownership Reporting
+Compliance 
+Information regarding compliance with
+Section 16(a) of the Exchange Act will be included under “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s
+Proxy Statement for its 2008 Annual Meeting of Stockholders, which is incorporated herein by reference. 
+Item 11. Executive
+Compensation 
+Information concerning director and
+executive compensation will be included in the RPC Proxy Statement for its 2008 Annual Meeting of Stockholders, in the sections titled
+“Compensation Committee Interlocks and Insider Participation,” “Director Compensation,” “Compensation Discussion and
+Analysis,” “Compensation Committee Report” and “Executive Compensation.” This information is incorporated herein by
+reference. 
+Item 12. 
+Security Ownership of Certain Beneficial Owners and Management
+and Related Stockholder Matters 
+Information concerning security
+ownership will be included in the RPC Proxy Statement for its 2008 Annual Meeting of Stockholders, in the sections “Capital Stock” and
+“Election of Directors.” This information is incorporated herein by reference. 
+60 
+Securities Authorized for Issuance Under Equity Compensation
+Plans 
+The following table sets forth certain
+information regarding equity compensation plans as of December 31, 2007. 
+Plan Category 
+(A) 
+Number of Securities 
+To Be Issued
+Upon 
+Exercise of 
+Outstanding Options, 
+Warrants and Rights 
+(B) 
+Weighted Average 
+Exercise Price 
+of
+Outstanding 
+Options, Warrants 
+and Rights 
+(C) 
+Number of Securities 
+Remaining Available
+for 
+Future Issuance Under 
+Equity Compensation 
+Plans (Excluding 
+Securities Reflected in 
+Column (A)) 
+Equity
+compensation plans approved by securityholders 
+1,878,252 
+$ 
+3.11 
+3,437,668 
+(1) 
+Equity
+compensation plans not approved by securityholders 
+— 
+— 
+— 
+Total 
+1,878,252 
+$ 
+3.11 
+3,437,668 
+(1) 
+All of the securities can be issued in the form of restricted
+stock or other stock awards. 
+See Note 10 to the Consolidated
+Financial Statements for information regarding the material terms of the equity compensation plans. 
+Item 13. Certain Relationships and Related Party
+Transactions and Director Independence 
+Information concerning certain
+relationships and related party transactions will be included in the RPC Proxy Statement for its 2008 Annual Meeting of Stockholders, in the sections
+titled, “Certain Relationships and Related Party Transactions.” Information regarding director independence will be included in the RPC Proxy
+Statement for its 2008 Annual Meeting of Stockholders in the section titled “Director Independence and NYSE Requirements.” This information
+is incorporated herein by reference. 
+Item 14. Principal Accounting Fees and
+Services 
+Information regarding principal
+accountant fees and services will be included in the section titled “Independent Registered Public Accountants” in the RPC Proxy Statement
+for its 2008 Annual Meeting of Stockholders. This information is incorporated herein by reference. 
+61 
+PART IV 
+Item 15. Exhibits and Financial Statement
+Schedules 
+Consolidated Financial Statements, Financial Statement
+Schedule and Exhibits . 
+1. 
+Consolidated financial statements listed in the accompanying
+Index to Consolidated Financial Statements and Schedule are filed as part of this report. 
+2. 
+The financial statement schedule listed in the accompanying
+Index to Consolidated Financial Statements and Schedule is filed as part of this report. 
+3. 
+Exhibits listed in the accompanying Index to Exhibits are filed
+as part of this report. The following such exhibits are management contracts or compensatory plans or arrangements: 
+10.1 
+2004 Stock Incentive Plan (incorporated herein by reference to
+Appendix B to the Registrant’s definitive Proxy Statement filed on March 24, 2004). 
+10.6 
+Form of stock option grant agreement (incorporated herein by
+reference to Exhibit 10.1 to Form 10-Q filed on November 2, 2004). 
+10.7 
+Form of time lapse restricted stock grant agreement
+(incorporated herein by reference to Exhibit 10.2 to Form 10-Q filed on November 2, 2004). 
+10.8 
+Form of performance restricted stock grant agreement
+(incorporated herein by reference to Exhibit 10.3 to Form 10-Q filed on November 2, 2004). 
+10.9 
+Summary of ‘at will’ compensation arrangements with
+the Executive Officers as of February 28, 2006 (incorporated by reference to Exhibit 10.9 to the Form 10-K filed on March 13, 2006). 
+10.10 
+Summary of compensation arrangements with the Directors as of
+February 28, 2005 (incorporated herein by reference to Exhibit 10.10 to the Form 10-K filed on March 16, 2005). 
+10.11 
+Supplemental Retirement Plan (incorporated herein by reference
+to Exhibit 10.11 to the Form 10-K filed on March 16, 2005). 
+10.12 
+Summary of ‘At-Will’ compensation arrangements with
+the Executive Officers as of February 28, 2007 (incorporated herein by reference to Exhibit 10.12 to the Form 10-K filed on March 2, 2007). 
+10.13 
+Summary of Compensation Arrangements with Non-Employee Directors
+as of February 28, 2007 (incorporated herein by reference to Exhibit 10.13 to the Form 10-K filed on March 2, 2007). 
+10.14 
+First Amendment to 1994 Employee Stock Incentive Plan and 2004
+Stock Incentive Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K filed on March 2, 2007). 
+10.15 
+Performance-Based Incentive Cash Compensation Plan (incorporated
+by reference to Exhibit 10.1 to the Form 8-K filed April 28, 2006). 
+10.16 
+Summary of “At-Will” of Compensation Arrangements with
+Executive Officers as of February 28, 2008. 
+10.17 
+Summary of Compensation Arrangements with Non-Employee Directors
+as of February 28, 2008. 
+62 
+Exhibits (inclusive of item 3 above): 
+Exhibit 
+Number 
+Description 
+3.1A 
+Restated certificate of incorporation of RPC, Inc. (incorporated herein by reference to exhibit 3.1 to the Annual Report on Form 10-K for the
+fiscal year ended December 31, 1999). 
+3.1B 
+Certificate of Amendment of Certificate of Incorporation of RPC, Inc. (incorporated by reference to Exhibit 3.1(B) to the Quarterly Report on
+Form 10-Q filed May 8, 2006). 
+3.2 
+Bylaws
+of RPC, Inc. (incorporated herein by reference to Exhibit 3.1 to the Form 8-K filed on October 25, 2007). 
+4 
+Form
+of Stock Certificate (incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31,
+1998). 
+10.1 
+2004
+Stock Incentive Plan (incorporated herein by reference to Appendix B to the Registrant’s definitive Proxy Statement filed on March 24,
+2004). 
+10.2 
+Agreement Regarding Distribution and Plan of Reorganization, dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation
+(incorporated herein by reference to Exhibit 10.2 to the Form 10-K filed on February 13, 2001). 
+10.3 
+Employee Benefits Agreement dated February 12, 2001, by and between RPC, Inc., Chaparral Boats, Inc. and Marine Products Corporation
+(incorporated herein by reference to Exhibit 10.3 to the Form 10-K filed on February 13, 2001). 
+10.4 
+Transition Support Services Agreement dated February 12, 2001 by and between RPC, Inc. and Marine Products Corporation (incorporated herein by
+reference to Exhibit 10.4 to the Form 10-K filed on February 13, 2001). 
+10.5 
+Tax
+Sharing Agreement dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.5
+to the Form 10-K filed on February 13, 2001). 
+10.6 
+Form
+of stock option grant agreement (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed on November 2, 2004). 
+10.7 
+Form
+of time lapse restricted stock grant agreement (incorporated herein by reference to Exhibit 10.2 to the Form 10-Q filed on November 2,
+2004). 
+10.8 
+Form
+of performance restricted stock grant agreement (incorporated herein by reference to Exhibit 10.3 to the Form 10-Q filed on November 2,
+2004). 
+10.9 
+Summary of ‘at will’ compensation arrangements with the Executive Officers as of February 28, 2006 (incorporated by reference to
+Exhibit 10.9 to the Form 10-K filed on March 13, 2006). 
+10.10 
+Summary of compensation arrangements with the Directors as of February 28, 2005 (incorporated herein by reference to Exhibit 10.10 to the Form
+10-K filed on March 16, 2005). 
+10.11 
+Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the Form 10-K filed on March 16, 2005). 
+10.12 
+Summary of ‘At-Will’ compensation arrangements with the Executive Officers as of February 28, 2007 (incorporated herein by
+reference to Exhibit 10.12 to the Form 10-K filed on March 2, 2007). 
+10.13 
+Summary of Compensation Arrangements with Non-Employee Directors as of February 28, 2007 (incorporated herein by reference to Exhibit 10.13 to
+the Form 10-K filed on March 2, 2007). 
+10.14 
+First
+Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K filed
+on March 2, 2007). 
+10.15 
+Performance-Based Incentive Cash Compensation Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed April 28,
+2006). 
+63 
+Exhibit 
+Number 
+Description 
+10.16 
+Summary of “At-Will” of Compensation Arrangements with Executive Officers as of February 28, 2008. 
+10.17 
+Summary of Compensation Arrangements with Non-Employee Directors as of February 28, 2008 
+10.18 
+Revolving Credit Agreement dated September 8, 2006 between RPC, Banc of America, N.A., SunTrust Bank and certain other Lenders party thereto
+(incorporated by reference to Exhibit 99.1 to the Form 8-K dated September 8, 2006). 
+21 
+Subsidiaries of RPC 
+23 
+Consent of Grant Thornton LLP 
+24 
+Powers
+of Attorney for Directors 
+31.1 
+Section 302 certification for Chief Executive Officer 
+31.2 
+Section 302 certification for Chief Financial Officer 
+32.1 
+Section 906 certifications for Chief Executive Officer and Chief Financial Officer 
+64 
+SIGNATURES 
+Pursuant to the requirements of Section
+13 or 15(d) 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. 
+RPC, Inc. 
+/s/ Richard A.
+Hubbell 
+Richard A. Hubbell 
+President and Chief Executive Officer 
+(Principal Executive
+Officer) 
+March 4, 2008 
+Pursuant to the requirements of the
+Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
+the dates indicated. 
+Name 
+Title 
+Date 
+/s/ Richard A.
+Hubbell 
+________________________ 
+Richard A.
+Hubbell 
+President and Chief Executive Officer 
+(Principal Executive Officer) 
+March 4, 2008 
+/s/ Ben M.
+Palmer 
+________________________ 
+Ben M.
+Palmer 
+Chief
+Financial Officer 
+(Principal Financial and Accounting Officer) 
+March 4, 2008 
+The Directors of RPC (listed below)
+executed a power of attorney, appointing Richard A. Hubbell their attorney-in-fact, empowering him to sign this report on their
+behalf. 
+R. Randall
+Rollins, Director 
+James B. Williams, Director 
+Wilton
+Looney, Director 
+James A. Lane, Jr., Director 
+Gary W.
+Rollins, Director 
+Linda H. Graham, Director 
+Henry B.
+Tippie, Director 
+Bill J. Dismuke, Director 
+/s/ Richard A. Hubbell 
+Richard A. Hubbell 
+Director
+and as Attorney-in-fact 
+March 4, 2008 
+65 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND
+SCHEDULE 
+The following documents are filed as
+part of this report. 
+FINANCIAL STATEMENTS AND REPORTS 
+PAGE 
+Management’s Report on Internal Control Over Financial Reporting 
+31 
+Report of
+Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 
+32 
+Report of
+Independent Registered Public Accounting Firm on Consolidated Financial Statements 
+33 
+Consolidated
+Balance Sheets as of December 31, 2007 and 2006 
+34 
+Consolidated
+Statements of Operations for the three years ended December 31, 2007 
+35 
+Consolidated
+Statements of Stockholders’ Equity for the three years ended December 31, 2007 
+36 
+Consolidated
+Statements of Cash Flows for the three years ended December 31, 2007 
+37 
+Notes to
+Consolidated Financial Statements 
+38–59 
+SCHEDULE 
+Schedule II
+— Valuation and Qualifying Accounts 
+66 
+Schedules not listed above have been
+omitted because they are not applicable or the required information is included in the consolidated financial statements or notes
+thereto. 
+SCHEDULE II — VALUATION AND QUALIFYING
+ACCOUNTS 
+For the years ended 
+December 31, 2007, 2006 and
+2005 
+(in thousands) 
+Balance at 
+Beginning 
+of Period 
+Charged to 
+Costs and 
+Expenses 
+Net 
+(Deductions) 
+Recoveries 
+Balance 
+at End of 
+Period 
+Year ended
+December 31, 2007 
+Allowance for
+doubtful accounts 
+$ 
+4,904 
+$ 
+3,119 
+$ 
+(2,806 
+) (1) 
+$ 
+5,217 
+Deferred tax
+asset valuation allowance 
+$ 
+1,342 
+$ 
+161 
+$ 
+0 
+(2) 
+$ 
+1,503 
+Year ended
+December 31, 2006 
+Allowance for
+doubtful accounts 
+$ 
+4,080 
+$ 
+1,492 
+$ 
+(668 
+) (1) 
+$ 
+4,904 
+Deferred tax
+asset valuation allowance 
+$ 
+1,945 
+$ 
+54 
+$ 
+(657 
+) (2) 
+$ 
+1,342 
+Year ended
+December 31, 2005 
+Allowance for
+doubtful accounts 
+$ 
+2,576 
+$ 
+1,618 
+$ 
+(114 
+) (1) 
+$ 
+4,080 
+Deferred tax
+asset valuation allowance 
+$ 
+2,451 
+$ 
+129 
+$ 
+(635 
+) (2) 
+$ 
+1,945 
+(1) 
+Deductions in the allowance for doubtful accounts principally
+reflect the write-off of previously reserved accounts net of recoveries. 
+(2) 
+In 2007, the valuation allowance was increased by $161,000 to
+reflect state net operating losses that management does not believe will be utilized before they expire. No reductions to the deferred tax asset
+valuation allowance were recorded. In 2006, the valuation allowance was increased by $54,000 to reflect state net operating losses that management does
+not believe will be utilized before they expire, and reduced by $657,000 to reflect previously reserved foreign tax credit carry forwards expected to
+be realized. In 2005, the valuation allowance was increased by $129,000 to reflect state net operating losses that management does not believe will be
+utilized before they expire, and reduced by $635,000 to reflect previously reserved foreign tax credit carry forwards expected to be
+realized. 
+66 
+SELECTED QUARTERLY FINANCIAL DATA
+(UNAUDITED) 
+Quarters ended 
+March 31 
+June 30 
+September 30 
+December 31 
+(in thousands except per share
+data) 
+2007 
+Revenues 
+$ 
+171,045 
+$ 
+171,031 
+$ 
+161,961 
+$ 
+186,189 
+Net
+income 
+$ 
+28,045 
+$ 
+23,815 
+$ 
+14,893 
+$ 
+20,296 
+Net income
+per share — basic: 
+$ 
+0.29 
+$ 
+0.25 
+$ 
+0.15 
+$ 
+0.21 
+Net income
+per share — diluted: 
+$ 
+0.29 
+$ 
+0.24 
+$ 
+0.15 
+$ 
+0.21 
+2006 
+Revenues 
+$ 
+136,024 
+$ 
+146,065 
+$ 
+154,209 
+$ 
+160,332 
+Net
+income 
+$ 
+24,900 
+$ 
+27,614 
+$ 
+28,770 
+$ 
+29,510 
+Net income
+per share — basic: 
+$ 
+0.26 
+$ 
+0.29 
+$ 
+0.30 
+$ 
+0.31 
+Net income
+per share — diluted: 
+$ 
+0.25 
+$ 
+0.28 
+$ 
+0.29 
+$ 
+0.30 
+67
\ No newline at end of file
diff --git a/raw/filings/0000742278/2007/0001188112-08-000719/filing_metadata.csv b/raw/filings/0000742278/2007/0001188112-08-000719/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..04dec78e0756dacd62395169147b300b72163541
--- /dev/null
+++ b/raw/filings/0000742278/2007/0001188112-08-000719/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000742278,RES,RPC INC,10-K,2008-03-04,2007-12-31,2008-03-04T21:50:20.000Z,0001188112-08-000719,d22770_10-k.htm,,1270540,0,0,https://www.sec.gov/Archives/edgar/data/742278/000118811208000719/d22770_10-k.htm,https://www.sec.gov/Archives/edgar/data/742278/000118811208000719/,2007,2007,1
diff --git a/raw/filings/0000742278/2007/0001188112-08-000719/item1.txt b/raw/filings/0000742278/2007/0001188112-08-000719/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ece1d06097dc733528177340b60bb0fb2037b77b
--- /dev/null
+++ b/raw/filings/0000742278/2007/0001188112-08-000719/item1.txt
@@ -0,0 +1,453 @@
+Item 1. Business 
+Organization and Overview 
+RPC is a Delaware corporation
+originally organized in 1984 as a holding company for several oilfield services companies and is headquartered in Atlanta, Georgia. 
+RPC provides a broad range of
+specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration, production and
+development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions,
+and in selected international markets. The services and equipment provided include, among others, (1) pressure pumping services, (2) snubbing services
+(also referred to as hydraulic workover services), (3) coiled tubing services, (4) nitrogen services, (5) the rental of drill pipe and other
+specialized oilfield equipment, (6) downhole tool rental services and (7) firefighting and well control. RPC acts as a holding company for its
+operating units, Cudd Energy Services, Patterson Rental and Fishing Tools, Bronco Oilfield Services, Thru Tubing Solutions, Well Control School, and
+others. As of December 31, 2007, RPC had approximately 2,370 employees. 
+2 
+Business Segments 
+RPC’s service lines have been
+aggregated into two reportable oil and gas services business segments, Technical Services and Support Services, because of the similarities between the
+financial performance and approach to managing the service lines within each of the segments, as well as the economic and business conditions impacting
+their business activity levels. 
+Technical Services include RPC’s
+oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a
+customer’s well. The demand for these services is generally influenced by customers’ decisions to invest capital toward initiating production
+in a new oil or natural gas well, improving production flows in an existing formation, or to address well control issues. This business segment
+consists primarily of pressure pumping, snubbing, coiled tubing, nitrogen, well control, downhole tools, wireline, fluid pumping and casing
+installation services (until its sale in August 2005). The principal markets for this business segment include the United States, including the Gulf of
+Mexico, mid-continent, southwest and Rocky Mountain regions, and contract or project work in selected international locations in the last three years
+including primarily Africa, Canada, China, Eastern Europe, Latin America and the Middle East. Customers include major multi-national and independent
+oil and gas producers, and selected nationally owned oil companies. 
+Support Services include RPC’s oil
+and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include
+drill pipe and related tools, pipe handling, pipe inspection and storage services, and oilfield training services. The demand for these services tends
+to be influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, including
+the Gulf of Mexico, mid-continent and Rocky Mountain regions and project work in selected international locations in the last three years including
+primarily Canada, Latin America and the Middle East. Customers primarily include domestic operations of major multi-national and independent oil and
+gas producers, and selected nationally owned oil companies. 
+Technical Services 
+The following is a description of the
+primary service lines conducted within the Technical Services business segment: 
+Pressure Pumping. Pressure pumping
+services, which accounted for approximately 40 percent of 2007 revenues, 38 percent of 2006 revenues and 37 percent of 2005 revenues, are provided to
+customers throughout the Gulf Coast, mid-continent and Rocky Mountain regions of the United States and are generally utilized to initiate production in
+new or enhance production in existing customer wells. Pressure pumping services involve using complex, truck or skid-mounted equipment designed and
+constructed for each specific pumping service offered. The mobility of this equipment permits pressure pumping services to be performed in varying
+geographic areas. Principal materials utilized in the pressure pumping business include fracturing proppants, acid and bulk chemical additives.
+Generally, these items are available from several suppliers, and the Company utilizes more than one supplier for each item. Pressure pumping services
+offered include: 
+Fracturing — Fracturing services
+are performed to stimulate production of oil and natural gas by increasing the permeability of a formation. The fracturing process consists of pumping
+nitrogen or a fluid gel into a cased well at sufficient pressure to fracture the formation at desired depths. Sand, bauxite or synthetic proppant,
+which is suspended in the gel, is pumped into the fracture. When the pressure is released at the surface, the fluid gel returns to the well, but the
+proppant remain in the fracture, thus keeping it open so that oil and natural gas can flow through the fracture into the well. In some cases,
+fracturing is performed in formations with a high amount of carbonate rock by an acid solution pumped under pressure without a proppant or with small
+amounts of proppant. 
+Acidizing — Acidizing services are
+also performed to stimulate production of oil and natural gas, but they are used in wells that have undergone formation damage due to the buildup of
+various 
+3 
+materials that block the formation.
+Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in the formation,
+thereby eliminating obstacles to the flow of oil and natural gas. Acidizing services can also enhance production in limestone
+formations. 
+Snubbing. Snubbing (also referred to as
+hydraulic workover services), which accounted for approximately 10 percent of 2007 revenues and 11 percent of 2006 and 2005 revenues, involves using a
+hydraulic workover rig that permits an operator to repair damaged casing, production tubing and downhole production equipment in a high-pressure
+environment. A snubbing unit makes it possible to remove and replace downhole equipment while maintaining pressure in the well. Customers benefit
+because these operations can be performed without removing the pressure from the well, which stops production and can damage the formation, and because
+a snubbing rig can perform many applications at a lower cost than other alternatives. Because this service involves a very hazardous process that
+entails high risk, the snubbing segment of the oil and gas services industry is limited to a relatively few operators who have the experience and
+knowledge required to perform such services safely and efficiently. 
+Coiled Tubing. Coiled tubing services,
+which accounted for approximately nine percent of 2007 revenues and 10 percent of 2006 and 2005 revenues, involve the injection of coiled tubing into
+wells to perform various applications and functions for use principally in well-servicing operations. Coiled tubing is a flexible steel pipe with a
+diameter of less than four inches manufactured in continuous lengths of thousands of feet and wound or coiled around a large reel. It can be inserted
+through existing production tubing and used to perform workovers without using a larger, more costly workover rig. Principal advantages of employing
+coiled tubing in a workover operation include: (i) not having to “shut-in” the well during such operations, (ii) the ability to reel
+continuous coiled tubing in and out of a well significantly faster than conventional pipe, (iii) the ability to direct fluids into a wellbore with more
+precision, and (iv) enhanced access to remote or offshore fields due to the smaller size and mobility of a coiled tubing unit compared to a workover
+rig. There are several manufacturers of flexible steel pipe used in coiled tubing services, and the Company believes that its sources of supply are
+adequate. 
+Nitrogen. Nitrogen accounted for
+approximately seven percent of 2007 revenues, and eight percent of 2006 and 2005 revenues. There are a number of uses for nitrogen, an inert,
+non-combustible element, in providing services to oilfield customers and industrial users outside of the oilfield. For our oilfield customers, nitrogen
+can be used to clean drilling and production pipe and displace fluids in various drilling applications. It also can be used to create a fire-retardant
+environment in hazardous blowout situations and as a fracturing medium for our fracturing service line. In addition, nitrogen can be complementary to
+our snubbing and coiled tubing service lines, because it is a non-corrosive medium and is frequently injected into a well using coiled tubing. Nitrogen
+is complementary to our pressure pumping service line as well, because foam-based nitrogen stimulation is appropriate in certain sensitive formations
+in which the fluids used in fracturing or acidizing would damage a customer’s well. 
+For non-oilfield industrial users,
+nitrogen can be used to purge pipelines and create a non-combustible environment. RPC stores and transports nitrogen and has a number of pumping unit
+configurations that inject nitrogen in its various applications. Some of these pumping units are set up for use on offshore platforms or inland waters.
+RPC purchases its nitrogen in liquid form from several suppliers and believes that these sources of supply are adequate. 
+Well Control. Cudd Pressure Control
+specializes in responding to and controlling oil and gas well emergencies, including blowouts and well fires, domestically and internationally. In
+connection with these services, Cudd, along with Patterson Services, has the capacity to supply the equipment, expertise and personnel necessary to
+restore affected oil and gas wells to production. In the last nine years, the Company has responded to well control situations in several international
+locations including Algeria, Argentina, Australia, Bolivia, Canada, Colombia, Egypt, India, Kuwait, Peru, Qatar, Taiwan, Trinidad and
+Venezuela. 
+The Company’s professional
+firefighting staff has many years of aggregate industry experience in responding to well fires and blowouts. This team of 11 experts responds to well
+control situations where 
+4 
+hydrocarbons are escaping from a
+well bore, regardless of whether a fire has occurred. In the most critical situations, there are explosive fires, the destruction of drilling and
+production facilities, substantial environmental damage and the loss of hundreds of thousands of dollars per day in well operators’ production
+revenue. Since these events ordinarily arise from equipment failures or human error, it is impossible to predict accurately the timing or scope of this
+work. Additionally, less critical events frequently occur in connection with the drilling of new wells in high-pressure reservoirs. In these
+situations, the Company is called upon to supervise and assist in the well control effort so that drilling operations can resume as promptly as safety
+permits. 
+Downhole Tools. Thru Tubing Solutions
+(“TTS”) provides services and proprietary downhole motors, fishing tools and other specialized downhole tools and processes to operators and
+service companies in drilling and production operations. TTS’ experience providing reliable tool services allows it to work in a pressurized
+environment with virtually any coiled tubing unit or snubbing unit that is equipped for the task. 
+Wireline Services. Wireline is
+classified into two types of services: slick or braided line and electric line. In both, a spooled wire is unwound and lowered into a well, conveying
+various types of tools or equipment. Slick or braided line services use a non-conductive line primarily for jarring objects into or out of a well, as
+in fishing or plug-setting operations. Electric line services lower an electrical conductor line into a well allowing the use of electrically-operated
+tools such as perforators, bridge plugs and logging tools. Wireline services can be an integral part of the plug and abandonment process, near the end
+of the life cycle of a well. 
+Fishing. Fishing involves the use of
+specialized tools and procedures to retrieve lost equipment from a well drilling operation and producing wells. It is a service required by oil and gas
+operators who have lost equipment in a well. Oil and natural gas production from an affected well typically declines until the lost equipment can be
+retrieved. In some cases, the Company creates customized tools to perform a fishing operation. The customized tools are maintained by the Company after
+the particular fishing job for future use if a similar need arises. 
+Support Services 
+The following is a description of the
+primary service lines conducted within the Support Services business segment: 
+Rental Tools. Rental tools accounted
+for approximately 13 percent of 2007 and 2006 revenues and 10 percent of 2005 revenues. The Company rents specialized equipment for use with onshore
+and offshore oil and gas well drilling, completion and workover activities. The drilling and subsequent operation of oil and gas wells generally
+require a variety of equipment. The equipment needed is in large part determined by the geological features of the production zone and the size of the
+well itself. As a result, operators and drilling contractors often find it more economical to supplement their tool and tubular inventories with rental
+items instead of owning a complete inventory. The Company’s facilities are strategically located to serve the major staging points for oil and gas
+activities in the Gulf of Mexico, mid-continent region and Rocky Mountains. 
+Patterson Rental Tools offers a broad
+range of rental tools including: 
+Blowout
+Preventors 
+Diverters 
+High Pressure
+Manifolds and valves 
+Drill
+Pipe 
+Hevi-wate Drill
+Pipe 
+Drill
+Collars 
+Tubing 
+Handling Tools 
+Production
+Related Rental Tools 
+Coflexip Hoses 
+Pumps 
+Oilfield Pipe Inspection Services, Pipe
+Management and Pipe Storage. Pipe inspection services include Full Body Electromagnetic and Phased Array Ultrasonic inspection of pipe used in oil and
+gas wells. These services are provided at both the Company’s inspection facilities and at pipe mills in 
+5 
+accordance with negotiated sales
+and/or service contracts. Our customers are major oil companies and steel mills, for which we provide in-house inspection services, inventory
+management and process control of tubing, casing, and drill pipe. Our locations in Channelview, Texas and Morgan City, Louisiana are equipped with
+large capacity cranes, specially designed forklifts and a computerized inventory system to serve a variety of storage and handling services for both
+the oilfield and non-oilfield customers. 
+Well Control School. Well Control
+School provides industry and government accredited training for the oil and gas industry both in the United States and in several international
+locations. Well Control School provides this training in various formats including conventional classroom training, interactive computer training
+including training delivered over the internet, and mobile simulator training. 
+Energy Personnel International. Energy
+Personnel International provides drilling and production engineers, well site supervisors, project management specialists, and workover and completion
+specialists on a consulting basis to the oil and gas industry to meet customers’ needs for staff engineering and wellsite
+management. 
+Refer to Note 12 in the Notes to the
+Consolidated Financial Statements for additional financial information on our business segments. 
+Industry 
+United States. RPC provides its
+services to its domestic customers through a network of facilities strategically located to serve the Gulf of Mexico, the mid-continent, the southwest
+and the Rocky Mountains production fields. Demand for RPC’s services in the U.S. tends to be extremely volatile and fluctuates with current and
+projected price levels of oil and natural gas and activity levels in the oil and gas industry. Customer activity levels are influenced by their
+decisions about capital investment toward the development and production of oil and gas reserves. 
+Due to aging oilfields and lower-cost
+sources of oil internationally, the drilling rig count in the U.S. has declined more than 61 percent from its peak in 1981. Due to enhanced technology,
+however, more wells are being drilled and the domestic production of oil and natural gas remains roughly equivalent to prior years. Record low drilling
+activity levels were experienced in 1986, 1992, 1999 (with April 1999 recording the lowest U.S. drilling rig count in the industry’s history) and
+again in 2002. At the beginning of 2007, there were 1,695 domestic working drilling rigs, up 31 percent from the third quarter 2001 peak during that
+industry cycle. U.S. domestic drilling activity steadily rose during the first three quarters of 2007 and peaked in the third quarter at a rig count of
+1,829, which was 41 percent higher than the third quarter 2001 peak. In 2007 the average rig count of 1,768 increased seven percent compared to the
+prior year. During 2007 the average price of natural gas increased by approximately four percent, and the average price of oil increased by almost 10
+percent. The price of oil increased tremendously during the fourth quarter due to increased demand in developing countries and continued political
+turmoil in many oil-producing regions of the world. The change in domestic drilling activity was consistent with the change in the prices of oil and
+natural gas, especially when the respective percentages of domestic drilling activity which relate to oil and natural gas are considered. We believe
+that the current prices of oil and natural gas are high enough to encourage our customers to undertake exploration and production activities, and that
+our customers believe that in the long-term, the prices of oil and natural gas will remain high enough to yield profitable returns for their
+exploration and production investments. 
+Gas drilling rigs have represented an
+increasing percentage of the total drilling rig count, and have represented at least 80 percent of the drilling rig count each year since 2001. In
+2007, gas drilling rigs represented 83 percent of total drilling activity. Demand for natural gas is continuing to rise, primarily as a result of
+increased emphasis on gas-fired power generation. Also, unlike oil, foreign imports of natural gas do not compete with domestic production. This lack
+of foreign competition tends to keep prices high. Based on current demand levels for natural gas as well as the high oil and gas well depletion rates
+experienced over the past several years, it is anticipated that gas-directed drilling will represent at least 80 percent of the total drilling rig
+count in the foreseeable future. The demand for RPC’s services is driven 
+6 
+more by gas-directed drilling than
+oil-directed drilling, because our services are more applicable to deeper, higher pressure wells, which tend to be the wells that produce natural gas.
+In addition, there are certain types of gas wells being drilled in the U.S. domestic market for which there is a higher demand for RPC’s services.
+Known as either directional or horizontal wells, these natural gas wells are more difficult and costly to complete. Because they are drilled through a
+narrow formation, they require additional stimulation when they are completed, and since they are not drilled in a straight vertical direction from the
+Earth’s surface, they require tools and drilling mechanisms that are flexible, rather than rigid, and can be steered once they are downhole.
+Specifically, these types of wells require RPC’s pressure pumping and coiled tubing services, as well as our downhole tools and
+services. 
+Thus, in North America the demand for
+our services and products associated with natural gas development is currently more robust than demand related to oil drilling. Drilling activity and
+demand for our services remain strong and should continue to be robust if economic conditions remain stable. 
+International. RPC has historically
+operated in several countries outside of the United States, although international revenues have never accounted for more than 10 percent of total
+revenues. Over the past several years, RPC has increased its focus on developing international opportunities, although our equipment investments over
+the last couple of years has emphasized domestic rather than international expansion. International revenues for 2007 increased due to higher customer
+activity levels in Argentina, Canada and Turkmenistan. During 2007, RPC performed snubbing work in Cameroon, China, Egypt, Gabon, Hungary and
+Turkmenistan, among other countries. We also provided rental tools, well control services, downhole motors, fishing tool services and oilfield training
+to customers located in Algeria, Angola, Argentina, Australia, Bolivia, Canada, China, Ecuador, India, Indonesia, Mexico, Peru, Qatar, the United
+Kingdom and Venezuela. We continue to focus on the development of international opportunities in these and other markets, although we believe that it
+will continue to be less than 10 percent of total revenues. 
+RPC provides services to its
+international customers through branch locations or wholly-owned foreign subsidiaries. The international market is prone to political uncertainties,
+including the risk of civil unrest and conflicts. However, due to the significant investment requirement and complexity of international projects,
+customers’ drilling decisions relating to such projects tend to be evaluated and monitored with a longer-term perspective with regard to oil and
+natural gas pricing, and therefore have the potential to be more stable than most U.S. domestic operations. Additionally, the international market is
+dominated by major oil companies and national oil companies which tend to have different objectives and more operating stability than the typical
+independent oil and gas producer in the U.S. Predicting the timing and duration of contract work is not possible. Pursuing selective international
+opportunities for revenue growth continues to be a strong emphasis for RPC. Refer to Note 12 in the Notes to Consolidated Financial Statements for
+further information on our international operations. 
+Growth Strategies 
+RPC’s primary objective is to
+generate excellent long-term returns on investment through the effective and conservative management of its invested capital, thus yielding strong cash
+flow and asset appreciation. This objective continues to be pursued through strategic investments and opportunities designed to enhance the long-term
+value of RPC while improving market share, product offerings and the profitability of existing businesses. Growth strategies are focused on selected
+areas and markets in which we believe there exist opportunities for higher growth, market penetration, or enhanced returns achieved through
+consolidations or through providing proprietary value-added products and services. RPC intends to focus on specific market segments in which it
+believes that it has a competitive advantage or there exists significant growth potential. 
+RPC seeks to expand its service
+capabilities through a combination of internal growth, acquisitions, joint ventures and strategic alliances. Because of the fragmented nature of the
+oil and gas services industry, RPC believes a number of attractive acquisition opportunities exist. Although current price
+expectations 
+7 
+reduce the near-term possibility of
+completing a transaction, we believe we generate better returns growing organically in service lines and geographic locations in which we have
+experience and presence. 
+RPC has traditionally had a
+conservative capital structure with minimal debt. During 2006, however, we established a new revolving credit facility to fund the purchase of
+revenue-producing equipment and other working capital requirements to pursue our growth plan. We pursued this capital source because of the high
+returns on investment that had been generated by many of our service lines during the previous several years, and because of the low cost and ready
+availability of debt capital. By the end of 2007, purchases of revenue-producing equipment under our growth plan were substantially complete, and we
+believe that the high returns on investment generated by many of our service lines will continue, thus justifying the funding of these expenditures
+with debt. At the end of 2007, RPC’s debt levels easily complied with the debt covenants in our revolving credit agreement and were conservative
+compared to a number of our peers. 
+Customers 
+Demand for RPC’s services and
+products depends primarily upon the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of
+well completions and the level of production enhancement activity worldwide. RPC’s principal customers consist of major and independent oil and
+natural gas producing companies. During 2007, RPC provided oilfield services to several hundred customers, none of which accounted for more than 10
+percent of consolidated revenues. While the loss of certain of RPC’s largest customers could have a material adverse effect on Company revenues
+and operating results in the near term, management believes RPC would be able to obtain other customers for its services in the event of a loss of any
+of its largest customers. Sales are generated by RPC’s sales force and through referrals from existing customers. There are long-term written
+contracts for services and equipment with certain international and domestic customers, although revenues earned under such contracts are a small
+percentage of total revenues. Due to the short lead time between ordering services or equipment and providing services or delivering equipment, there
+is no significant sales backlog in most of our service lines. 
+Competition 
+RPC operates in highly competitive
+areas of the oilfield services industry. RPC’s products and services are sold in highly competitive markets, and its revenues and earnings are
+affected by changes in prices for our services, fluctuations in the level of customer activity in major markets, general economic conditions and
+governmental regulation. RPC competes with many large and small oilfield industry competitors, including the largest integrated oilfield services
+companies. RPC believes that the principal competitive factors in the market areas that it serves are product and service quality and availability,
+reputation for safety and technical proficiency, and price. 
+The oil and gas services industry
+includes a small number of dominant global competitors including, among others, Halliburton Energy Services Group, a division of Halliburton Company,
+BJ Services Company and Schlumberger Ltd., and a significant number of locally oriented businesses. 
+Facilities/Equipment 
+RPC’s equipment consists primarily
+of oil and gas services equipment used either in servicing customer wells or provided on a rental basis for customer use. Substantially all of this
+equipment is Company owned. RPC purchases oilfield service equipment from a limited number of manufacturers. These manufacturers of our oilfield
+service equipment may not be able to meet our requests for timely delivery during periods of high demand which may result in delayed deliveries of
+equipment and higher prices for equipment. During 2007, the Company experienced a delay of new equipment deliveries due to high manufacturing backlogs
+resulting from high demand; however, as of the end of 2007 we have received the majority of this equipment and expect to receive the remainder by the
+end of the first quarter of 2008. 
+8 
+RPC both owns and leases regional and
+district facilities from which its oilfield services are provided to land-based and offshore customers. RPC’s principal executive offices in
+Atlanta, Georgia are leased. The Company has two primary administrative buildings, one in Houston, Texas that includes the Company’s operations,
+engineering, sales and marketing headquarters, and one in Houma, Louisiana that includes certain administrative functions. RPC believes that its
+facilities are adequate for its current operations but as the business continues to grow, we are evaluating the need for additional facilities. For
+additional information with respect to RPC’s lease commitments, see Note 9 of the Notes to Consolidated Financial Statements. 
+Governmental Regulation 
+RPC’s business is affected by
+state, federal and foreign laws and other regulations relating to the oil and gas industry, as well as laws and regulations relating to worker safety
+and environmental protection. RPC cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be
+interpreted by enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or the effect such changes may have on
+it, its businesses or financial condition. 
+In addition, our customers are affected
+by laws and regulations relating to the exploration for and production of natural resources such as oil and natural gas. These regulations are subject
+to change, and new regulations may curtail or eliminate our customers’ activities in certain areas where we currently operate. We cannot determine
+the extent to which new legislation may impact our customers’ activity levels, and ultimately, the demand for our services. 
+Intellectual Property 
+RPC uses several patented items in its
+operations, which management believes are important but are not indispensable to RPC’s success. Although RPC anticipates seeking patent protection
+when possible, it relies to a greater extent on the technical expertise and know-how of its personnel to maintain its competitive
+position. 
+Availability of Filings 
+RPC makes available, free of charge, on
+its website, www.rpc.net, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those
+reports on the same day as they are filed with the Securities and Exchange Commission. 
+1A. Risk Factors 
+Demand for our products and services is affected by the
+volatility of oil and natural gas prices. 
+Oil prices affect demand throughout the
+oil and natural gas industry, including the demand for our products and services. Our business depends in large part on the conditions of the oil and
+gas industry, and specifically on the capital investments of our customers related to the exploration and production of oil and natural gas. When these
+capital investments decline, our customers’ demand for our services declines. 
+Although the production sector of the
+oil and gas industry is less immediately affected by changing prices, and, as a result, less volatile than the exploration sector, producers react to
+declining oil and gas prices by curtailing capital spending, which would adversely affect our business. A prolonged low level of customer activity in
+the oil and gas industry will adversely affect the demand for our products and services and our financial condition and results of
+operations. 
+9 
+The relationship between the prices of oil and natural gas and
+our customers’ drilling and production activities may not be highly correlated in the future. 
+Historically, a rise in the prices of
+oil and natural gas has led to an immediate increase in our customers’ drilling and production activities as measured by the domestic rig count.
+However, this relationship has not been as strong in the recent past as it was historically, due in part to limited drilling rig capacity in the United
+States. If this correlation is weak in the future, then it is possible that increases in the prices of oil and natural gas will not lead to an increase
+in our customers’ activities, and our future operating results could be negatively impacted. 
+We may be unable to compete in the highly competitive oil and
+gas industry in the future. 
+We operate in highly competitive areas
+of the oilfield services industry. The products and services in our industry segments are sold in highly competitive markets, and our revenues and
+earnings may be affected by the following factors: changes in competitive prices, fluctuations in the level of activity in major markets, general
+economic conditions, and governmental regulation. We compete with the oil and gas industry’s many large and small industry competitors, including
+the largest integrated oilfield service providers. We believe that the principal competitive factors in the market areas that we serve are product and
+service quality and availability, reputation for safety, technical proficiency and price. Although we believe that our reputation for safety and
+quality service is good, we cannot assure you that we will be able to maintain our competitive position. 
+We may be unable to identify or complete
+acquisitions. 
+Acquisitions have been and will
+continue to be a key element of our business strategy. We cannot assure you that we will be able to identify and acquire acceptable acquisition
+candidates on terms favorable to us in the future. We may be required to incur substantial indebtedness to finance future acquisitions and also may
+issue equity securities in connection with such acquisitions. The issuance of additional equity securities could result in significant dilution to our
+stockholders. We cannot assure you that we will be able to integrate successfully the operations and assets of any acquired business with our own
+business. Any inability on our part to integrate and manage the growth from acquired businesses could have a material adverse effect on our results of
+operations and financial condition. 
+Our operations are affected by adverse weather
+conditions. 
+Our operations are directly affected by
+the weather conditions in several domestic regions, including the Gulf of Mexico, the Gulf Coast, the mid-continent and the Rocky Mountains. Hurricanes
+and other storms prevalent in the Gulf of Mexico and along the Gulf Coast during certain times of the year may also affect our operations, and severe
+hurricanes may affect our customers’ activities for a period of several years. While the impact of these storms may increase the need for certain
+of our services over a longer period of time, such storms can also decrease our customers’ activities immediately after they occur. Such
+hurricanes may also affect the prices of oil and natural gas by disrupting supplies in the short term, which may increase demand for our services in
+geographic areas not damaged by the storms. Prolonged rain, snow or ice in many of our locations may temporarily prevent our crews and equipment from
+reaching customer work sites. Due to seasonal differences in weather patterns, our crews may operate more days in some periods than others.
+Accordingly, our operating results may vary from quarter to quarter, depending on the impact of these weather conditions. 
+Our inability to attract and retain skilled workers may impair
+growth potential and profitability. 
+Our ability to remain productive and
+profitable will depend substantially on our ability to attract and retain skilled workers. Our ability to expand our operations is in part impacted by
+our ability to increase our labor force. The demand for skilled oilfield employees is high, and the supply is very limited. A significant increase in
+the wages paid by competing employers could result in a reduction in our skilled 
+10 
+labor force, increases in the wage
+rates paid by us, or both. If either of these events occurred, our capacity and profitability could be diminished, and our growth potential could be
+impaired. 
+Our concentration of customers in one industry may impact
+overall exposure to credit risk. 
+Substantially all of our customers
+operate in the energy industry. This concentration of customers in one industry may impact our overall exposure to credit risk, either positively or
+negatively, in that customers may be similarly affected by changes in economic and industry conditions. We perform ongoing credit evaluations of our
+customers and do not generally require collateral in support of our trade receivables. 
+Our business has potential liability for litigation, personal
+injury and property damage claims assessments. 
+Our operations involve the use of heavy
+equipment and exposure to inherent risks, including blowouts, explosions and fires. If any of these events were to occur, it could result in liability
+for personal injury and property damage, pollution or other environmental hazards or loss of production. Litigation may arise from a catastrophic
+occurrence at a location where our equipment and services are used. This litigation could result in large claims for damages. The frequency and
+severity of such incidents will affect our operating costs, insurability and relationships with customers, employees and regulators. These occurrences
+could have a material adverse effect on us. We maintain what we believe is prudent insurance protection. We cannot assure you that we will be able to
+maintain adequate insurance in the future at rates we consider reasonable or that our insurance coverage will be adequate to cover future claims and
+assessments that may arise. 
+Our operations may be adversely affected if we are unable to
+comply with regulatory and environmental laws. 
+Our business is significantly affected
+by stringent environmental laws and other regulations relating to the oil and gas industry and by changes in such laws and the level of enforcement of
+such laws. We are unable to predict the level of enforcement of existing laws and regulations, how such laws and regulations may be interpreted by
+enforcement agencies or court rulings, or whether additional laws and regulations will be adopted. The adoption of laws and regulations curtailing
+exploration and development of oil and gas fields in our areas of operations for economic, environmental or other policy reasons would adversely affect
+our operations by limiting demand for our services. We also have potential environmental liabilities with respect to our offshore and onshore
+operations, and could be liable for cleanup costs, or environmental and natural resource damage due to conduct that was lawful at the time it occurred,
+but is later ruled to be unlawful. We also may be subject to claims for personal injury and property damage due to the generation of hazardous
+substances in connection with our operations. We believe that our present operations substantially comply with applicable federal and state pollution
+control and environmental protection laws and regulations. We also believe that compliance with such laws has had no material adverse effect on our
+operations to date. However, such environmental laws are changed frequently. We are unable to predict whether environmental laws will, in the future,
+materially adversely affect our operations and financial condition. Penalties for noncompliance with these laws may include cancellation of permits,
+fines, and other corrective actions, which would negatively affect our future financial results. 
+Our international operations could have a material adverse
+effect on our business. 
+Our operations in various countries
+including, but not limited to, Africa, Canada, China, Eastern Europe, Latin America and the Middle East are subject to risks. These risks include, but
+are not limited to, political changes, expropriation, currency restrictions and changes in currency exchange rates, taxes, and boycotts and other civil
+disturbances. The occurrence of any one of these events could have a material adverse effect on our operations. 
+11 
+Our common stock price has been volatile. 
+Historically, the market price of
+common stock of companies engaged in the oil and gas services industry has been highly volatile. Likewise, the market price of our common stock has
+varied significantly in the past. 
+Our management has a substantial ownership interest, and
+public shareholders may have no effective voice in the management of the Company. 
+The Company has elected the
+“Controlled Corporation” exemption under Rule 303A of the New York Stock Exchange (“NYSE”) Company Guide. The Company is a
+“Controlled Corporation” because a group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother, Gary W.
+Rollins, who is also a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s
+voting power. As a “Controlled Corporation,” the Company need not comply with certain NYSE rules including those requiring a majority of
+independent directors. 
+RPC’s executive officers,
+directors and their affiliates hold directly or through indirect beneficial ownership, in the aggregate, approximately 72 percent of RPC’s
+outstanding shares of common stock. As a result, these stockholders effectively control the operations of RPC, including the election of directors and
+approval of significant corporate transactions such as acquisitions and other matters requiring stockholder approval. This concentration of ownership
+could also have the effect of delaying or preventing a third party from acquiring control over the Company at a premium. 
+Our management has a substantial ownership interest, and the
+availability of the Company’s common stock to the investing public may be limited. 
+The availability of RPC’s common
+stock to the investing public may be limited to those shares not held by the executive officers, directors and their affiliates, which could negatively
+impact RPC’s stock trading prices and affect the ability of minority stockholders to sell their shares. Future sales by executive officers,
+directors and their affiliates of all or a portion of their shares could also negatively affect the trading price of our common stock. 
+Provisions in RPC’s Certificate of Incorporation and
+Bylaws may inhibit a takeover of RPC. 
+RPC’s certificate of
+incorporation, bylaws and other documents contain provisions including advance notice requirements for shareholder proposals and staggered terms of
+office for the Board of Directors. These provisions may make a tender offer, change in control or takeover attempt that is opposed by RPC’s Board
+of Directors more difficult or expensive. 
+Some of our equipment and several types of materials used in
+providing our services are available from a limited number of suppliers. 
+We purchase equipment provided by a
+limited number of manufacturers who specialize in oilfield service equipment. During periods of high demand, these manufacturers may not be able to
+meet our requests for timely delivery, resulting in delayed deliveries of equipment and higher prices for equipment. There are a limited number of
+suppliers for certain materials used in pressure pumping services, our largest service line. While these materials are generally available, supply
+disruptions can occur due to factors beyond our control. Such disruptions, delayed deliveries, and higher prices can limit our ability to provide
+services, or increase the costs of providing services, thus reducing our revenues and profits. 
+We have used outside financing to accomplish our growth
+strategy, and outside financing may become unavailable or may be unfavorable to us. 
+Our business requires a great deal of
+capital in order to maintain our equipment and increase our fleet of equipment to expand our operations, and we have access to our $250 million credit
+facility to fund our capital requirements. Our existing credit facility bears interest at a floating rate, which exposes us to 
+12 
+market risks as interest rates
+rise. If our existing capital resources become unavailable, inadequate or unfavorable for purposes of funding our capital requirements, we would need
+to raise additional funds through alternative debt or equity financings to maintain our equipment and continue our growth. Such additional financing
+sources may not be available when we need them, or may not be available on favorable terms. If we fund our growth through the issuance of public
+equity, the holdings of shareholders will be diluted. If capital generated either by cash provided by operating activities or outside financing is not
+available or sufficient for our needs, we may be unable to maintain our equipment, expand our fleet of equipment, or take advantage of other
+potentially profitable business opportunities, which could reduce our future revenues and profits.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2007/0001188112-08-000719/item13.txt b/raw/filings/0000742278/2007/0001188112-08-000719/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..308e440647ac02ff003d6d6430373ee8d6fd2efc
--- /dev/null
+++ b/raw/filings/0000742278/2007/0001188112-08-000719/item13.txt
@@ -0,0 +1,7 @@
+Item 13. Certain Relationships and Related Party
+Transactions and Director Independence 
+Information concerning certain
+relationships and related party transactions will be included in the RPC Proxy Statement for its 2008 Annual Meeting of Stockholders, in the sections
+titled, “Certain Relationships and Related Party Transactions.” Information regarding director independence will be included in the RPC Proxy
+Statement for its 2008 Annual Meeting of Stockholders in the section titled “Director Independence and NYSE Requirements.” This information
+is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2007/0001188112-08-000719/item9a.txt b/raw/filings/0000742278/2007/0001188112-08-000719/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..23c06358f1295b5ef164a8ec388d910864d29b33
--- /dev/null
+++ b/raw/filings/0000742278/2007/0001188112-08-000719/item9a.txt
@@ -0,0 +1,21 @@
+Item 9A. Controls and Procedures 
+Evaluation of disclosure controls and
+procedures — The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its
+Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and
+that such information is accumulated and communicated to its management, including the Chief Executive Officer and Chief Financial Officer, as
+appropriate, to allow timely decisions regarding required disclosure. 
+As of the end of the period covered by
+this report, December 31, 2007 (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the
+participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of
+its disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the
+Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the Evaluation Date. 
+Management’s report on internal
+control over financial reporting — Management is responsible for establishing and maintaining adequate internal control over financial reporting,
+as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management’s report on internal control over financial reporting is
+included on page 31 of this report. Grant Thornton LLP, the Company’s independent registered public accounting firm, has audited management’s
+assessment of the effectiveness of internal control as of December 31, 2007 and issued a report thereon which is included on page 32 of this
+report. 
+Changes in internal control over
+financial reporting — Management’s evaluation of changes in internal control did not identify any changes in the Company’s internal
+control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably
+likely to materially affect, the Company’s internal control over financial reporting.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2007/0001188112-08-000719/rp_note.txt b/raw/filings/0000742278/2007/0001188112-08-000719/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3ec68ab451e7403185fa3e8f1e72cc0873df8a6e
--- /dev/null
+++ b/raw/filings/0000742278/2007/0001188112-08-000719/rp_note.txt
@@ -0,0 +1,38 @@
+Note 11: Related Party
+Transactions 
+Related Party Transactions 
+Marine Products Corporation 
+Effective February 28, 2001, the
+Company spun-off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC
+accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware
+corporation) (“Marine Products”), a newly formed wholly-owned subsidiary of RPC, and then distributing the common stock of Marine Products to
+RPC stockholders. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’
+relationship. 
+In accordance with a Transition Support
+Services agreement, which may be terminated by either party, RPC provides certain administrative services, including financial reporting and income tax
+administration, acquisition assistance, etc., to Marine Products. Charges from the Company (or from corporations that are subsidiaries of the Company)
+for such services aggregated approximately $957,000 in 2007, $739,000 in 2006 and $616,000 in 2005. The Company’s receivable due from Marine
+Products for these services as of 
+56 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+(Continued) 
+RPC, Inc. and Subsidiaries 
+Years ended December 31, 2007, 2006 and 2005 
+December 31, 2007 and 2006 was
+approximately $223,000 and $236,000. The Company’s directors are also directors of Marine Products and all of the executive officers are employees
+of both the Company and Marine Products. 
+The Tax Sharing and Indemnification
+Agreement provides for, among other things, the treatment of income tax matters for periods through February 28, 2001, the date of the spin-off, and
+responsibility for any adjustments as a result of audits by any taxing authority. The general terms provide for the indemnification for any tax
+detriment incurred by one party caused by the other party’s action. 
+Other 
+The Company periodically purchases in
+the ordinary course of business products or services from suppliers, who are owned by significant officers or shareholders, or affiliated with the
+directors of RPC. The total amounts paid to these affiliated parties were approximately $1,035,000 in 2007, $1,248,000 in 2006 and $926,000 in
+2005. 
+RPC receives certain administrative
+services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is otherwise affiliated with
+RPC). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are
+terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs,
+and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled
+$72,000 in 2007, $70,000 in 2006 and $71,000 in 2005.
\ No newline at end of file
diff --git a/raw/filings/0000742278/2007/0001188112-08-000719/rpt_disclosure.txt b/raw/filings/0000742278/2007/0001188112-08-000719/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a0a26d69cdf2dc16ab85c2c7388f24e3be69842d
--- /dev/null
+++ b/raw/filings/0000742278/2007/0001188112-08-000719/rpt_disclosure.txt
@@ -0,0 +1,41 @@
+Related Party Transactions. Copies are also available in print,
+without charge, to any shareholder who requests one by writing to: The
+Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia
+30324. 
+Code
+of Business Conduct 
+The
+Company has adopted a Code of Business Conduct applicable to all directors,
+officers and employees generally, as well as a Code of Business Conduct and
+Ethics for Directors and Executive Officers and Related Party Transaction Policy
+applicable to the principal executive officer, principal financial officer, and
+directors. Both codes are available on the Company’s website at www.rpc.net under the
+Governance section. Copies are also available in print, without
+charge, to any shareholder who requests one by writing to: The Secretary, RPC,
+Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324. 
+Director
+Communications 
+The
+Company also has a process for interested parties, including stockholders, to
+send communications to the Board of Directors, Presiding Director, any of the
+Board Committees or the non-management directors as a group. Such
+communications should be addressed as follows: 
+Mr.
+Henry B. Tippie 
+c/o
+Internal Audit Department 
+RPC,
+Inc. 
+2801
+Buford Highway, Suite 520 
+Atlanta,
+Georgia 30329. 
+10 
+The above
+instructions for communications with the directors are also posted on our
+website at www.rpc.net under the
+Governance section. All communications received from interested
+parties are forwarded to the Board of Directors. Any communication
+addressed solely to the Presiding Director or the non-management directors will
+be forwarded directly to the appropriate addressee(s). 
+COMPENSATION
\ No newline at end of file
diff --git a/raw/filings/0000742278/2012/0001188112-13-000533/filing.txt b/raw/filings/0000742278/2012/0001188112-13-000533/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e29160b9db09251d478dd69f080d138d6238a024
--- /dev/null
+++ b/raw/filings/0000742278/2012/0001188112-13-000533/filing.txt
@@ -0,0 +1,3673 @@
+10-K
+1
+t75666_10k.htm
+FORM 10-K
+t75666_10k.htm 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+WASHINGTON, D.C. 20549 
+FORM 10-K 
+(Mark One) 
+x 
+Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
+o 
+Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
+For the fiscal year ended December 31, 2012 
+Commission File No. 1-8726 
+RPC, INC. 
+Delaware 
+(State of Incorporation) 
+58-1550825 
+(I.R.S. Employer Identification No.) 
+2801 BUFORD HIGHWAY, SUITE 520 
+ATLANTA, GEORGIA 30329 
+(404) 321-2140 
+Securities registered pursuant to Section 12(b) of the Act: 
+Title of each class 
+COMMON STOCK, $0.10 PAR VALUE 
+Name of each exchange on which registered 
+NEW YORK STOCK EXCHANGE 
+Securities registered pursuant to Section 12(g) of the Act: NONE 
+Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes o No 
+Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No 
+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 o 
+Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations 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 o 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x 
+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 x Accelerated filer o Non-accelerated filer o Smaller reporting company o 
+Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x 
+The aggregate market value of RPC, Inc. Common Stock held by non-affiliates on June 30, 2012, the last business day of the registrant’s most recently completed second fiscal quarter, was $729,064,469 based on the closing price on the New York Stock Exchange on June 30, 2012 of $11.89 per share. 
+RPC, Inc. had 220,641,730 shares of Common Stock outstanding as of February 15, 2013. 
+Documents Incorporated by Reference 
+Portions of the Proxy Statement for the 2013 Annual Meeting of Stockholders of RPC, Inc. are incorporated by reference into Part III, Items 10 through 14 of this report. 
+1 
+PART I 
+Throughout this report, we refer to RPC, Inc., together with its subsidiaries, as “we,” “us,” “RPC” or “the Company.” 
+Forward-Looking Statements 
+Certain statements made in this report that are not historical facts are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, statements that relate to our business strategy, plans and objectives, and our beliefs and expectations regarding future demand for our products and services and other events and conditions that may influence the oilfield services market and our performance in the future. Forward-looking statements made elsewhere in this report include without limitation statements regarding our belief that sources of supply for various of our raw materials are adequate; our belief that the long-term prospects for our business are favorable due to the continued demand for hydrocarbons; our beliefs regarding natural gas prices, production levels and drilling activities; our belief that we will not enter into many additional contractual agreements to provide services to support drilling and completion programs during 2013; our belief that oil-directed drilling will continue to represent the majority of the total drilling rig count in the immediate future; our expectation to continue to focus on the development of international business opportunities in current and other international markets; our ability to obtain other customers in the event of a loss of our largest customers; the adequacy of our insurance coverage; the impact of lawsuits, legal proceedings and claims on our business and financial condition; our expectation to continue to pay cash dividends to the common stockholders subject to the earnings and financial condition of the Company and other relevant factors; our intention to increase our presence in areas in which drilling activity is directed towards oil; our belief that the U.S. domestic rig count may increase in 2013 but any increases are likely to be modest; our expectation of higher financial returns in domestic markets; our expectation regarding customer activity levels; our beliefs regarding competitive factors; our expectation that our debt covenants will not restrict our planned activities; our expectation that natural gas prices will remain low; our expectations regarding labor costs; our belief that the trend of an increased percentage of oil-directed drilling and a decreased percentage of gas-directed drilling will continue in the near term; our expectation that our consolidated revenues and financial performance will improve in 2013 compared to 2012; our ability to maintain sufficient liquidity and a conservative capital structure; our belief about the amount of the contribution to the defined benefit pension plan in 2013; our ability to fund capital requirements in the future; the estimated amount of our capital expenditures and contractual obligations for future periods; estimates made with respect to our critical accounting policies; and the effect of new accounting standards. 
+The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “estimate,” and similar expressions generally identify forward-looking statements. Such statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. We caution you that such statements are only predictions and not guarantees of future performance and that actual results, developments and business decisions may differ from those envisioned by the forward-looking statements. See “Risk Factors” contained in Item 1A. for a discussion of factors that may cause actual results to differ from our projections. 
+Item 1. Business 
+Organization and Overview 
+RPC is a Delaware corporation originally organized in 1984 as a holding company for several oilfield services companies and is headquartered in Atlanta, Georgia. 
+RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The services and equipment provided include, among others, (1) pressure pumping services, (2) downhole tool services (3) coiled tubing services, (4) snubbing services (also referred to as hydraulic workover services), (5) nitrogen services, (6) the rental of drill pipe and other specialized oilfield equipment, and (7) well control. RPC acts as a holding company for its operating units, Cudd Energy Services, Patterson Rental and Fishing Tools, Bronco Oilfield Services, Thru Tubing Solutions, Well Control School, and others. As of December 31, 2012, RPC had approximately 3,600 employees. 
+Business Segments 
+RPC’s service lines have been aggregated into two reportable oil and gas services business segments, Technical Services and Support Services, because of the similarities between the financial performance and approach to managing the service lines within each of the segments, as well as the economic and business conditions impacting their business activity levels. 
+2 
+During 2012, approximately one percent of RPC’s consolidated revenues were generated from offshore operations in the U.S. Gulf of Mexico. In addition, approximately one percent of RPC’s consolidated revenues were generated from offshore operations in the offshore territory of New Zealand. We also estimate that 57 percent of our 2012 revenues were related to drilling and production activities for oil, and 43 percent were related to drilling and production activities for natural gas. 
+Technical Services include RPC’s oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer’s well. The demand for these services is generally influenced by customers’ decisions to invest capital toward initiating production in a new oil or natural gas well, improving production flows in an existing formation, or to address well control issues. This business segment consists primarily of pressure pumping, downhole tools, coiled tubing, snubbing, nitrogen, well control, wireline and fishing. The principal markets for this business segment include the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. Customers include major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Support Services include RPC’s oil and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include drill pipe and related tools, pipe handling, pipe inspection and storage services, and oilfield training services. The demand for these services tends to be influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, including the Gulf of Mexico, mid-continent, Rocky Mountain and Appalachian regions and project work in selected international locations in the last three years including primarily Canada, Latin America and the Middle East. Customers primarily include domestic operations of major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Technical Services 
+The following is a description of the primary service lines conducted within the Technical Services business segment: 
+Pressure Pumping . Pressure pumping services, which accounted for approximately 53 percent of 2012 revenues, 55 percent of 2011 revenues and 48 percent of 2010 revenues are provided to customers throughout Texas, and the Appalachian and mid-continent and Rocky Mountain regions of the United States. We primarily provide these services to customers in order to enhance the initial production of hydrocarbons in formations that have low permeability. Pressure pumping services involve using complex, truck or skid-mounted equipment designed and constructed for each specific pumping service offered. The mobility of this equipment permits pressure pumping services to be performed in varying geographic areas. Principal materials utilized in the pressure pumping business include fracturing proppants, acid and bulk chemical additives. Generally, these items are available from several suppliers, and the Company utilizes more than one supplier for each item. Pressure pumping services offered include: 
+Fracturing — Fracturing services are performed to stimulate production of oil and natural gas by increasing the permeability of a formation. Fracturing is particularly important in shale formations, which have low permeability, and unconventional completion, because the formation containing hydrocarbons is not concentrated in one area and requires multiple fracturing operations. The fracturing process consists of pumping fluid gel and sometimes nitrogen into a cased well at sufficient pressure to fracture the formation at desired locations and depths. Sand, bauxite or synthetic proppant, which is often suspended in gel, is pumped into the fracture. When the pressure is released at the surface, the fluid gel returns to the well surface, but the proppant remains in the fracture, thus keeping it open so that oil and natural gas can flow through the fracture into the production tubing and ultimately the well surface. In some cases, fracturing is performed in formations with a high amount of carbonate rock by an acid solution pumped under pressure without a proppant or with small amounts of proppant. 
+Acidizing — Acidizing services are also performed to stimulate production of oil and natural gas, but they are used in wells that have undergone formation damage due to the buildup of various materials that block the formation. Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in the formation, thereby eliminating obstacles to the flow of oil and natural gas. Acidizing services can also enhance production in limestone formations. 
+Downhole Tools . Thru Tubing Solutions (“TTS”) accounted for approximately 14 percent of 2012 revenues and 12 percent of 2011 and 2010 revenues. TTS provides services and proprietary downhole motors, fishing tools and other specialized downhole tools and processes to operators and service companies in drilling and production operations, including casing perforation at the completion stage of an oil or gas well. The services that TTS provides are especially suited for unconventional drilling and completion activities. TTS’ experience providing reliable tool services allows it to work in a pressurized environment with virtually any coiled tubing unit or snubbing unit. 
+3 
+Coiled Tubing . Coiled tubing services, which accounted for approximately 11 percent of 2012 and 2011 revenues, and 10 percent of 2010 revenues, involve the injection of coiled tubing into wells to perform various applications and functions for use principally in well-servicing operations and more recently to facilitate completion of horizontal wells. Coiled tubing is a flexible steel pipe with a diameter of less than four inches manufactured in continuous lengths of thousands of feet and wound or coiled around a large reel. It can be inserted through existing production tubing and used to perform workovers without using a larger, more costly workover rig. Principal advantages of employing coiled tubing in a workover operation include: (i) not having to “shut-in” the well during such operations, (ii) the ability to reel continuous coiled tubing in and out of a well significantly faster than conventional pipe, (iii) the ability to direct fluids into a wellbore with more precision, and (iv) enhanced access to remote or offshore fields due to the smaller size and mobility of a coiled tubing unit compared to a workover rig. Increasingly, coiled tubing units are also used to support completion activities in directional and horizontal wells. Such completion activities usually require multiple entrances in a wellbore in order to complete multiple fractures in a pressure pumping operation. A coiled tubing unit can accomplish this type of operation because its flexibility allows it to be steered in a direction other than vertical, which is necessary in this type of wellbore. At the same time, the strength of the coiled tubing string allows various types of tools or motors to be conveyed into the well effectively. The uses for coiled tubing in directional and horizontal wells have been enhanced by improved fabrication techniques and higher-diameter coiled tubing which allows coiled tubing units to be used effectively over greater distances, thus allowing them to function in more of the completion activities currently taking place in the U.S. domestic market. There are several manufacturers of flexible steel pipe used in coiled tubing services, and the Company believes that its sources of supply are adequate. 
+Snubbing . Snubbing (also referred to as hydraulic workover services), which accounted for approximately four percent of 2012 and 2011 revenues, and five percent of 2010 revenues, involves using a hydraulic workover rig that permits an operator to repair damaged casing, production tubing and downhole production equipment in a high-pressure environment. A snubbing unit makes it possible to remove and replace downhole equipment while maintaining pressure on the well. Customers benefit because these operations can be performed without removing the pressure from the well, which stops production and can damage the formation, and because a snubbing rig can perform many applications at a lower cost than other alternatives. Because this service involves a very hazardous process that entails high risk, the snubbing segment of the oil and gas services industry is limited to a relative few operators who have the experience and knowledge required to perform such services safely and efficiently. Increasingly, snubbing units are used for unconventional completions at the outer reaches of long wellbores which cannot be serviced by coiled tubing because coiled tubing has a more limited range than drill pipe conveyed by a snubbing unit. 
+Nitrogen . Nitrogen accounted for approximately four percent of 2012 and 2011 revenues, and five percent of 2010 revenues. There are a number of uses for nitrogen, an inert, non-combustible element, in providing services to oilfield customers and industrial users outside of the oilfield. For our oilfield customers, nitrogen can be used to clean drilling and production pipe and displace fluids in various drilling applications. Increasingly, it is used as a displacement medium to increase production in older wells in which production has depleted. It also can be used to create a fire-retardant environment in hazardous blowout situations and as a fracturing medium for our fracturing service line. In addition, nitrogen can be complementary to our snubbing and coiled tubing service lines, because it is a non-corrosive medium and is frequently injected into a well using coiled tubing. Nitrogen is complementary to our pressure pumping service line as well, because foam-based nitrogen stimulation is appropriate in certain sensitive formations in which the fluids used in fracturing or acidizing would damage a customer’s well. 
+For non-oilfield industrial users, nitrogen can be used to purge pipelines and create a non-combustible environment. RPC stores and transports nitrogen and has a number of pumping unit configurations that inject nitrogen in its various applications. Some of these pumping units are set up for use on offshore platforms or inland waters. RPC purchases its nitrogen in liquid form from several suppliers and believes that these sources of supply are adequate. 
+Well Control . Cudd Energy Services specializes in responding to and controlling oil and gas well emergencies, including blowouts and well fires, domestically and internationally. In connection with these services, Cudd Energy Services, along with Patterson Services, has the capacity to supply the equipment, expertise and personnel necessary to restore affected oil and gas wells to production. During the past several years, the Company has responded to well control situations in several international locations including Algeria, Argentina, Australia, Bolivia, Canada, Colombia, Egypt, Kuwait, Libya, Mexico, Qatar, Taiwan, Trinidad, Turkmenistan, Tanzania, Abu Dhabi and Venezuela. 
+The Company’s professional firefighting staff has many years of aggregate industry experience in responding to well fires and blowouts. This team of experts responds to well control situations where hydrocarbons are escaping from a well bore, regardless of whether a fire has occurred. In the most critical situations, there are explosive fires, the destruction of drilling and production facilities, substantial environmental damage and the loss of hundreds of thousands of dollars per day in well operators’ production revenue. Since these events ordinarily arise from equipment failures or human error, it is impossible to predict accurately the timing or scope of this work. Additionally, less critical events frequently occur in connection with the drilling of new wells in high-pressure reservoirs. In these situations, the Company is called upon to supervise and assist in the well control effort so that drilling operations can resume as promptly as safety permits. 
+4 
+Wireline Services . Wireline is classified into two types of services: slick or braided line and electric line. In both, a spooled wire is unwound and lowered into a well, conveying various types of tools or equipment. Slick or braided line services use a non-conductive line primarily for jarring objects into or out of a well, as in fishing or plug-setting operations. Electric line services lower an electrical conductor line into a well allowing the use of electrically-operated tools such as perforators, bridge plugs and logging tools. Wireline services can be an integral part of the plug and abandonment process, near the end of the life cycle of a well. 
+Fishing . Fishing involves the use of specialized tools and procedures to retrieve lost equipment from a well drilling operation and producing wells. It is a service required by oil and gas operators who have lost equipment in a well. Oil and natural gas production from an affected well typically declines until the lost equipment can be retrieved. In some cases, the Company creates customized tools to perform a fishing operation. The customized tools are maintained by the Company after the particular fishing job for future use if a similar need arises. 
+Support Services 
+The following is a description of the primary service lines conducted within the Support Services business segment: 
+Rental Tools . Rental tools accounted for approximately five percent of 2012 revenues, six percent of 2011 revenues and eight percent of 2010 revenues. The Company rents specialized equipment for use with onshore and offshore oil and gas well drilling, completion and workover activities. The drilling and subsequent operation of oil and gas wells generally require a variety of equipment. The equipment needed is in large part determined by the geological features of the production zone and the size of the well itself. As a result, operators and drilling contractors often find it more economical to supplement their tool and tubular inventories with rental items instead of owning a complete inventory. The Company’s facilities are strategically located to serve the major staging points for oil and gas activities in the Gulf of Mexico, mid-continent region, Appalachian region and the Rocky Mountains. 
+Patterson Rental Tools offers a broad range of rental tools including: 
+Blowout Preventors 
+Diverters 
+High Pressure Manifolds and Valves 
+Drill Pipe 
+Hevi-wate Drill Pipe 
+Drill Collars 
+Tubing 
+Handling Tools 
+Production Related Rental Tools 
+Coflexip Hoses 
+Pumps 
+Wear Knot TM Drill Pipe 
+Oilfield Pipe Inspection Services, Pipe Management and Pipe Storage . Pipe inspection services include Full Body Electromagnetic and Phased Array Ultrasonic inspection of pipe used in oil and gas wells. These services are provided at both the Company’s inspection facilities and at independent tubular mills in accordance with negotiated sales and/or service contracts. Our customers are major oil companies and steel mills, for which we provide in-house inspection services, inventory management and process control of tubing, casing and drill pipe. Our locations in Channelview, Texas and Morgan City, Louisiana are equipped with large capacity cranes, specially designed forklifts and a computerized inventory system to serve a variety of storage and handling services for both oilfield and non-oilfield customers. 
+Well Control School . Well Control School provides industry and government accredited training for the oil and gas industry both in the United States and in limited international locations. Well Control School provides training in various formats including conventional classroom training, interactive computer training including training delivered over the internet, and mobile simulator training. 
+Energy Personnel International . Energy Personnel International provides drilling and production engineers, well site supervisors, project management specialists, and workover and completion specialists on a consulting basis to the oil and gas industry to meet customers’ needs for staff engineering and well site management. 
+Refer to Note 12 in the Notes to the Consolidated Financial Statements for additional financial information on our business segments. 
+Industry 
+United States . RPC provides its services to its domestic customers through a network of facilities strategically located to serve oil and gas drilling and production activities of its customers in the Gulf of Mexico, the mid-continent, the southwest, the Rocky Mountains and the Appalachian regions. Demand for RPC’s services in the U.S. tends to be extremely volatile and fluctuates with current and projected price levels of oil and natural gas and activity levels in the oil and gas industry. Customer activity levels are influenced by their decisions about capital investment toward the development and production of oil and gas reserves. 
+5 
+Due to aging oilfields and lower-cost sources of oil internationally, the drilling rig count in the U.S. has declined by approximately 61 percent from its peak in 1981. However, due to recently enhanced technology, more wells are being drilled, and these wells are increasingly productive. For these reasons, the domestic production of natural gas has risen to record levels, and the domestic production of crude oil is at the highest level since 1993. Oil and gas industry activity levels have historically been volatile, experiencing multiple cycles, including down cycle troughs in 1986, 1992, 1999 (with April 1999 recording the lowest U.S. drilling rig count in the industry’s history), 2002 and again in 2009. 
+The rig count during the peak of the most recent cycle occurred at the end of the third quarter of 2008, and began to decline sharply during the fourth quarter of 2008. U.S. domestic drilling activity declined by 57 percent from the third quarter of 2008 to the second quarter of 2009, which was the steepest annualized decline rate in the industry’s history. Between the second quarter of 2009 and the fourth quarter of 2011, U.S. domestic drilling activity increased by 129 percent before declining gradually throughout the remainder of 2011 and 2012. At the end of 2012, the U.S. domestic rig count was approximately 100 percent higher than the cyclical trough recorded during the second quarter of 2009. 
+The fluctuations in domestic drilling activity since 2008 are consistent with the changes in the prices of oil and natural gas, the overall economic recovery following the recession in 2008 and 2009, and the financial returns from drilling in unconventional shale plays during the past several years. During 2012 the average price of natural gas decreased by approximately 31 percent and the price of benchmark natural gas liquids decreased by approximately 31 percent compared to prior year. The average price of oil decreased by less than one percent during 2012 compared to 2011. The current high price of oil has increased the attractiveness of drilling for oil and petroleum liquids in several unconventional basins in the U.S. domestic market, while recent prices of natural gas have resulted in declining activities in natural gas directed basins. During 2012, oil-directed drilling activity increased, almost completely offsetting the decrease in natural gas-directed drilling that occurred during the year. The price of natural gas liquids has become an increasingly important determinant of our customers’ activity levels, since it is produced in many of the shale resource plays which also produce oil, and production of various natural gas liquids has increased to a level comparable to that of natural gas. The price of benchmark natural gas liquids peaked during the third quarter of 2008, and declined by approximately 69 percent during the third and fourth quarters of 2008. Thereafter, the price of benchmark natural gas liquids climbed steadily until the third quarter of 2011, but declined by 45 percent by the end of 2012. Although the price of natural gas remains low and natural gas-directed drilling activity has declined to its lowest level in almost 14 years, we continue to believe in the long-term growth opportunities for our business due to the continued high demand for hydrocarbons. Futhermore, we note that the techniques used to extract oil and natural gas in the U.S. domestic market increasingly require the types of services that RPC provides to its customers. 
+From 2001 to 2009, gas drilling rigs represented over 80 percent of the drilling rig count. In 2010, the percentage of drilling rigs drilling for natural gas began to decline, and by the end of 2012 represented only approximately 24 percent of total drilling activity. Although the demand for natural gas has remained stable, the price of natural gas has remained low in recent years due to increased domestic reserves and productivity of new wells. The price of natural gas has risen slightly early in 2013, but remains too low to attract renewed natural gas drilling in unconventional shale plays. In spite of declining drilling activity, U.S. natural gas production reached a record level early in 2013, so we expect that natural gas prices will remain low until supply and demand fundamentals align. In contrast, the price of oil remains high, and producers are exploiting resource plays that are economical at current high oil prices. The long-term demand outlook for natural gas is still favorable because, unlike oil, foreign imports of natural gas do not compete with domestic production to a meaningful degree. This lack of foreign competition tends to keep prices high enough to ensure that domestic drilling and production will continue at certain minimum levels. Because of these factors, we anticipate that oil-directed drilling will continue to represent the majority of the total drilling rig count for the immediate future. 
+There are certain types of wells being drilled in the U.S. domestic market for which there is a higher demand for RPC’s services. Known as either directional or horizontal wells, these wells are more difficult and costly to complete. They have become an increasingly large percentage of the U.S. domestic market, and since the third quarter of 2008, have consistently comprised the majority of U.S. domestic drilling. Because they are drilled through a typically narrow and relatively impermeable formation such as shale, they require additional stimulation when they are completed. Also, many of these formations require high pumping rates of stimulation fluids under high pressures, which in turn requires a great deal of pressure pumping horsepower to complete the well. Furthermore, since they are not drilled in a straight vertical direction from the Earth’s surface, they require tools and drilling mechanisms that are flexible, rather than rigid, and can be steered once they are downhole. Specifically, these types of wells require RPC’s pressure pumping and coiled tubing services, as well as our downhole tools and services. 
+6 
+International. RPC has historically operated in several countries outside of the United States, although international revenues have never accounted for more than 10 percent of total revenues. RPC’s equipment investments over the last several years have emphasized domestic rather than international expansion because of higher expected financial returns. International revenues for 2012 increased compared to 2011 due to higher customer activity levels in Canada, China, Mexico and New Zealand, and in the aggregate accounted for approximately four percent of consolidated RPC revenues. International revenues in 2012 compared to 2011 decreased in Australia, Gabon and Saudi Arabia. During 2012, RPC provided snubbing, well control and oilfield training services in several countries including China, Gabon and New Zealand. We also provided downhole motors and tools in Canada, Mexico, China and Tunisia. We continue to focus on the selective development of international opportunities in these and other markets, although we believe that it will continue to be less than 10 percent of total revenues in 2013. 
+RPC provides services to its international customers through branch locations or wholly owned foreign subsidiaries. The international market is prone to political uncertainties, including the risk of civil unrest and conflicts. However, due to the significant investment requirement and complexity of international projects, customers’ drilling decisions relating to such projects tend to be evaluated and monitored with a longer-term perspective with regard to oil and natural gas pricing, and therefore have the potential to be more stable than most U.S. domestic operations. Additionally, the international market is dominated by major oil companies and national oil companies which tend to have different objectives and more operating stability than the typical independent oil and gas producer in the U.S. Predicting the timing and duration of contract work is not possible. Refer to Note 12 in the Notes to Consolidated Financial Statements for further information on our international operations. 
+Growth Strategies 
+RPC’s primary objective is to generate excellent long-term returns on investment through the effective and conservative management of its invested capital to generate strong cash flow. This objective continues to be pursued through strategic investments and opportunities designed to enhance the long-term value of RPC while improving market share, product offerings and the profitability of existing businesses. Growth strategies are focused on selected customers and markets in which we believe there exist opportunities for higher growth, customer and market penetration, or enhanced returns achieved through consolidations or through providing proprietary value-added products and services. RPC intends to focus on specific market segments in which it believes that it has a competitive advantage and on potential large customers who have a long-term need for our services in markets in which we operate. 
+RPC seeks to expand its service capabilities through a combination of internal growth, acquisitions, joint ventures and strategic alliances. Because of the fragmented nature of the oil and gas services industry, RPC believes a number of acquisition opportunities exist. However, the favorable long-term outlook for our industry and the strong historical profitability of many potential acquisitions has encouraged potential sellers of businesses to expect high prices for their businesses. Due to these high valuations and the potential difficulty of integrating acquired businesses into our existing operations, we believe we generate better returns on investments growing organically in service lines and geographic locations in which we have experience and presence. We will continue to be selective in pursuing growth through acquisitions of existing businesses. 
+RPC has a revolving credit facility to fund the purchase of revenue-producing equipment and other working capital requirements. At December 31, 2012, this facility had a remaining term of almost three years. We have pursued this capital source because of the high returns on investment that have been generated by many of our service lines during the previous several years, and because of the low cost and ready availability of debt capital. During 2011 and the first two quarters of 2012, we purchased additional revenue-producing equipment to support high industry activity levels. Our scheduled purchases of equipment declined during the third and fourth quarters of 2012 as industry activity levels declined, pricing for our services became increasingly competitive, and the anticipated near-term financial returns of a larger fleet of revenue-producing equipment also declined. The outstanding balance on our credit facility at the end of 2012 was lower than at the end of the prior year due to a reduction in capital expenditures and working capital, and our level of debt continues to be conservative compared to a number of our peers. 
+Customers 
+Demand for RPC’s services and products depends primarily upon the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of production enhancement activity worldwide. RPC’s principal customers consist of major and independent oil and natural gas producing companies. During 2012, RPC provided oilfield services to several hundred customers, none of which accounted for more than 10 percent of revenues. 
+Sales are generated by RPC’s sales force and through referrals from existing customers. Over the past three years we have entered into several agreements, with terms beyond one year, to provide services to certain domestic customers. We monitor closely the financial condition of these customers, their capital expenditure plans, and other indications of their drilling and completion activities. Due to the short lead time between ordering services or equipment and providing services or delivering equipment, there is no significant sales backlog in most of our service lines. 
+7 
+Competition 
+RPC operates in highly competitive areas of the oilfield services industry. Our products and services are sold in highly competitive markets, and the revenues and earnings generated are affected by changes in prices for our services, fluctuations in the level of customer activity in major markets, general economic conditions and governmental regulation. RPC competes with many large and small oilfield industry competitors, including the largest integrated oilfield services companies. Strong oilfield activity during the past several years and the availability of capital have encouraged several new, smaller companies to seek debt and equity capital and accelerate their growth rates. The presence of these new competitors has increased competitive pricing pressures as domestic oilfield activity has moderated during the third and fourth quarters of 2012. RPC believes that the principal competitive factors in the market areas that it serves are product availability and quality of our equipment and raw materials used to provide our services, service quality, reputation for safety and technical proficiency, and price. 
+The oil and gas services industry includes a small number of dominant global competitors including, among others, Halliburton Energy Services Group, a division of Halliburton Company, Baker Hughes and Schlumberger Ltd., and a significant number of locally oriented businesses. 
+Facilities/Equipment 
+RPC’s equipment consists primarily of oil and gas services equipment used either in servicing customer wells or provided on a rental basis for customer use. Substantially all of this equipment is Company owned. RPC purchases oilfield service equipment from a limited number of manufacturers. These manufacturers of our oilfield service equipment may not be able to meet our requests for timely delivery during periods of high demand which may result in delayed deliveries of equipment and higher prices for equipment. 
+RPC both owns and leases regional and district facilities from which its oilfield services are provided to land-based and offshore customers. RPC’s principal executive offices in Atlanta, Georgia are leased. The Company has two primary administrative buildings, one it leases in The Woodlands, Texas that includes the Company’s operations, engineering, sales and marketing headquarters, and one it owns in Houma, Louisiana that includes certain administrative functions. RPC believes that its facilities are adequate for its current operations. For additional information with respect to RPC’s lease commitments, see Note 9 of the Notes to Consolidated Financial Statements. 
+Governmental Regulation 
+RPC’s business is affected by state, federal and foreign laws and other regulations relating to the oil and gas industry, as well as laws and regulations relating to worker safety and environmental protection. RPC cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be interpreted by enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or the effect such changes may have on it, its businesses or financial condition. 
+In addition, our customers are affected by laws and regulations relating to the exploration for and production of natural resources such as oil and natural gas. These regulations are subject to change, and new regulations may curtail or eliminate our customers’ activities in certain areas where we currently operate. We cannot determine the extent to which new legislation may impact our customers’ activity levels, and ultimately, the demand for our services. 
+Intellectual Property 
+RPC uses several patented items in its operations, which management believes are important but are not indispensable to RPC’s success. Although RPC anticipates seeking patent protection when possible, it relies to a greater extent on the technical expertise and know-how of its personnel to maintain its competitive position. 
+Availability of Filings 
+RPC makes available, free of charge, on its website, www.rpc.net, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports on the same day as they are filed with the Securities and Exchange Commission. 
+Item 1A. Risk Factors 
+Demand for our products and services is affected by the volatility of oil and natural gas prices. 
+Oil and natural gas prices affect demand throughout the oil and gas industry, including the demand for our products and services. Our business depends in large part on the conditions of the oil and gas industry, and specifically on the capital investments of our customers related to the exploration and production of oil and natural gas. When these capital investments decline, our customers’ demand for our services declines. 
+8 
+Although the production sector of the oil and gas industry is less immediately affected by changing prices, and, as a result, less volatile than the exploration sector, producers react to declining oil and gas prices by curtailing capital spending, which would adversely affect our business. A prolonged low level of customer activity in the oil and gas industry will adversely affect the demand for our products and services and our financial condition and results of operations. 
+We may be unable to compete in the highly competitive oil and gas industry in the future. 
+We operate in highly competitive areas of the oilfield services industry. The products and services in our industry segments are sold in highly competitive markets, and our revenues and earnings have in the past been affected by changes in competitive prices, fluctuations in the level of activity in major markets and general economic conditions. We compete with the oil and gas industry’s many large and small industry competitors, including the largest integrated oilfield service providers. We believe that the principal competitive factors in the market areas that we serve are product and service quality and availability, reputation for safety, technical proficiency and price. Although we believe that our reputation for safety and quality service is good, we cannot assure you that we will be able to maintain our competitive position. 
+We may be unable to identify or complete acquisitions. 
+Acquisitions have been and may continue to be a key element of our business strategy. We cannot assure you that we will be able to identify and acquire acceptable acquisition candidates on terms favorable to us in the future. We may be required to incur substantial indebtedness to finance future acquisitions and also may issue equity securities in connection with such acquisitions. The issuance of additional equity securities could result in significant dilution to our stockholders. We cannot assure you that we will be able to integrate successfully the operations and assets of any acquired business with our own business. Any inability on our part to integrate and manage the growth from acquired businesses could have a material adverse effect on our results of operations and financial condition. 
+Our operations are affected by adverse weather conditions. 
+Our operations are directly affected by the weather conditions in several domestic regions, including the Gulf of Mexico, the Gulf Coast, the mid-continent, the Rocky Mountains and the Appalachian region. Hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast during certain times of the year may also affect our operations, and severe hurricanes may affect our customers’ activities for a period of several years. While the impact of these storms may increase the need for certain of our services over a longer period of time, such storms can also decrease our customers’ activities immediately after they occur. Such hurricanes may also affect the prices of oil and natural gas by disrupting supplies in the short term, which may increase demand for our services in geographic areas not damaged by the storms. Prolonged rain, snow or ice in many of our locations may temporarily prevent our crews and equipment from reaching customer work sites. Due to seasonal differences in weather patterns, our crews may operate more days in some periods than others. Accordingly, our operating results may vary from quarter to quarter, depending on the impact of these weather conditions. 
+Our ability to attract and retain skilled workers may impact growth potential and profitability. 
+Our ability to be productive and profitable will depend substantially on our ability to attract and retain skilled workers. Our ability to expand our operations is, in part, impacted by our ability to increase our labor force. A significant increase in the wages paid by competing employers could result in a reduction in our skilled labor force, increases in the wage rates paid by us, or both. If either of these events occurred, our capacity and profitability could be diminished, and our growth potential could be impaired. 
+9 
+Our concentration of customers in one industry may impact our overall exposure to credit risk. 
+Substantially all of our customers operate in the energy industry. This concentration of customers in one industry may impact our overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade receivables. 
+Reliance upon a large customer may adversely affect our revenues and operating results. 
+At times our business has had a concentration of one or more major customers. Although in 2012 none of our customers exceeded 10 percent of our total revenues, in 2011, one of our customers accounted for approximately 12 percent of our total revenues, while in 2010, one of our customers accounted for approximately 15 percent of our total revenues. In addition, no customer accounted for more than ten percent of accounts receivable as of December 31, 2012, and one customer accounted for approximately 19 percent of accounts receivable as of December 31, 2011. This reliance on a large customer for a significant portion of our total revenues could expose us to the risk that the loss or reduction in revenues from this customer, which could occur unexpectedly, could have a material and disproportionate adverse impact upon our revenues and operating results. 
+Our business has potential liability for litigation, personal injury and property damage claims assessments. 
+RPC’s subsidiaries have a number of agreements of various types in place with our customers. In general, these agreements indemnify RPC and its subsidiaries against damage or liabilities that arise from the actions of our employees or the operation of our equipment. The provisions in these agreements do not make a distinction among the types of services that RPC provides or the location of the work. These agreements also require that RPC maintain a certain level and type of insurance coverage against any claims that are determined to be our responsibility. RPC has insurance coverage in place with several well-capitalized insurance companies for accidental environmental claims. 
+Our operations involve the use of heavy equipment and exposure to inherent risks, including blowouts, explosions and fires. If any of these events were to occur, it could result in liability for personal injury and property damage, pollution or other environmental hazards or loss of production. Litigation may arise from a catastrophic occurrence at a location where our equipment and services are used. This litigation could result in large claims for damages. The frequency and severity of such incidents will affect our operating costs, insurability and relationships with customers, employees and regulators. These occurrences could have a material adverse effect on us. We maintain what we believe is prudent insurance protection. We cannot assure you that we will be able to maintain adequate insurance in the future at rates we consider reasonable or that our insurance coverage will be adequate to cover future claims and assessments that may arise. 
+Our operations may be adversely affected if we are unable to comply with regulations and environmental laws. 
+Our business is significantly affected by stringent environmental laws and other regulations relating to the oil and gas industry and by changes in such laws and the level of enforcement of such laws. We are unable to predict the level of enforcement of existing laws and regulations, how such laws and regulations may be interpreted by enforcement agencies or court rulings, or whether additional laws and regulations will be adopted. The adoption of laws and regulations curtailing exploration and development of oil and gas fields in our areas of operations for economic, environmental or other policy reasons would adversely affect our operations by limiting demand for our services. We also have potential environmental liabilities with respect to our offshore and onshore operations, and could be liable for cleanup costs, or environmental and natural resource damage due to conduct that was lawful at the time it occurred, but is later ruled to be unlawful. We also may be subject to claims for personal injury and property damage due to the generation of hazardous substances in connection with our operations. We believe that our present operations substantially comply with applicable federal and state pollution control and environmental protection laws and regulations. We also believe that compliance with such laws has had no material adverse effect on our operations to date. However, such environmental laws are changed frequently. We are unable to predict whether environmental laws will, in the future, materially adversely affect our operations and financial condition. Penalties for noncompliance with these laws may include cancellation of permits, fines, and other corrective actions, which would negatively affect our future financial results. 
+Compliance with federal and state regulations relating to hydraulic fracturing could increase our operating costs, cause operational delays, and could reduce or eliminate the demand for our pressure pumping services. 
+RPC’s pressure pumping services are the subject of increasing federal, state and local regulatory oversight. This scrutiny is prompted in part by public concern regarding the potential impact on drinking and ground water and other environmental issues arising from the growing use of hydraulic fracturing. Among these regulatory entities is the White House Council on Environmental Quality, which is coordinating a review of hydraulic fracturing practices. In addition, a committee of the United States House of Representatives has investigated hydraulic fracturing practices and publicized information regarding the materials used in hydraulic fracturing. The U.S. Environmental Protection Agency has also undertaken a study of the environmental impact of hydraulic fracturing practices, and is expected to issue its findings by 2014. One of the results of this scrutiny has been to require disclosure of materials used in hydraulic fracturing on certain public lands. We are unable to predict whether this scrutiny and any resulting regulatory change will impact our business through increased operational costs, operational delays, or a reduction in demand for hydraulic fracturing services. 
+10 
+Our international operations could have a material adverse effect on our business. 
+Our operations in various countries including, but not limited to, Africa, Canada, China, Eastern Europe, Latin America, the Middle East and New Zealand are subject to risks. These risks include, but are not limited to, political changes, expropriation, currency restrictions and changes in currency exchange rates, taxes, boycotts and other civil disturbances. The occurrence of any one of these events could have a material adverse effect on our operations. 
+Our common stock price has been volatile. 
+Historically, the market price of common stock of companies engaged in the oil and gas services industry has been highly volatile. Likewise, the market price of our common stock has varied significantly in the past. 
+Our management has a substantial ownership interest, and public stockholders may have no effective voice in the management of the Company. 
+The Company has elected the “Controlled Corporation” exemption under Rule 303A of the New York Stock Exchange (“NYSE”) Company Guide. The Company is a “Controlled Corporation” because a group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother, Gary W. Rollins, who is also a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s voting power. As a “Controlled Corporation,” the Company need not comply with certain NYSE rules including those requiring a majority of independent directors. 
+RPC’s executive officers, directors and their affiliates hold directly or through indirect beneficial ownership, in the aggregate, approximately 72 percent of RPC’s outstanding shares of common stock. As a result, these stockholders effectively control the operations of RPC, including the election of directors and approval of significant corporate transactions such as acquisitions and other matters requiring stockholder approval. This concentration of ownership could also have the effect of delaying or preventing a third party from acquiring control over the Company at a premium. 
+Our management has a substantial ownership interest, and the availability of the Company’s common stock to the investing public may be limited. 
+The availability of RPC’s common stock to the investing public may be limited to those shares not held by the executive officers, directors and their affiliates, which could negatively impact RPC’s stock trading prices and affect the ability of minority stockholders to sell their shares. Future sales by executive officers, directors and their affiliates of all or a portion of their shares could also negatively affect the trading price of our common stock. 
+Provisions in RPC’s Certificate of Incorporation and Bylaws may inhibit a takeover of RPC. 
+RPC’s certificate of incorporation, bylaws and other documents contain provisions including advance notice requirements for stockholder proposals and staggered terms for the Board of Directors. These provisions may make a tender offer, change in control or takeover attempt that is opposed by RPC’s Board of Directors more difficult or expensive. 
+Some of our equipment and several types of materials used in providing our services are available from a limited number of suppliers. 
+We purchase equipment provided by a limited number of manufacturers who specialize in oilfield service equipment. During periods of high demand, these manufacturers may not be able to meet our requests for timely delivery, resulting in delayed deliveries of equipment and higher prices for equipment. There are a limited number of suppliers for certain materials used in pressure pumping services, our largest service line. While these materials are generally available, supply disruptions can occur due to factors beyond our control. Such disruptions, delayed deliveries, and higher prices can limit our ability to provide services, or increase the costs of providing services, thus reducing our revenues and profits. 
+We have used outside financing to accomplish our growth strategy, and outside financing may become unavailable or may be unfavorable to us. 
+Our business requires a great deal of capital in order to maintain our equipment and increase our fleet of equipment to expand our operations, and we have access to our $350 million credit facility to fund our necessary working capital and equipment requirements. Most of our existing credit facility bears interest at a floating rate, which exposes us to market risks as interest rates rise. If our existing capital resources become unavailable, inadequate or unfavorable for purposes of funding our capital requirements, we would need to raise additional funds through alternative debt or equity financings to maintain our equipment and continue our growth. Such additional financing sources may not be available when we need them, or may not be available on favorable terms. If we fund our growth through the issuance of public equity, the holdings of stockholders will be diluted. If capital generated either by cash provided by operating activities or outside financing is not available or sufficient for our needs, we may be unable to maintain our equipment, expand our fleet of equipment, or take advantage of other potentially profitable business opportunities, which could reduce our future revenues and profits. 
+11 
+Item 1B. Unresolved Staff Comments 
+None. 
+Item 2. Properties 
+RPC owns or leases approximately 100 offices and operating facilities. The Company leases approximately 18,600 square feet of office space in Atlanta, Georgia that serves as its headquarters, a portion of which is allocated and charged to Marine Products Corporation. See “Related Party Transactions” contained in Item 7. The lease agreement on the headquarters is effective through October 2020. RPC believes its current operating facilities are suitable and adequate to meet current and reasonably anticipated future needs. Descriptions of the major facilities used in our operations are as follows: 
+Owned Locations 
+Conway, Arkansas — Operations, maintenance and equipment storage yards 
+Elk City, Oklahoma — Operations, sales and equipment storage yards 
+Houma, Louisiana — Administrative office 
+Houston, Texas — Pipe storage terminal and inspection sheds 
+Kilgore, Texas — Operations, sales and equipment storage yards 
+Lafayette, Louisiana — Operations, sales and equipment storage yards 
+Rock Springs, Wyoming — Operations, sales and equipment storage yards 
+Williston, North Dakota — Operations, sales and equipment storage yards 
+Leased Locations 
+Canton, Pennsylvania — Pumping services facility 
+Hobbs, New Mexico — Pumping services facility 
+The Woodlands, Texas — Operations, sales and administrative office 
+Odessa, Texas — Operations, sales and equipment storage yards 
+Oklahoma City, Oklahoma — Operations, sales and administrative office 
+San Antonio, Texas — Operations, sales and equipment storage yards 
+Seminole, Oklahoma — Pumping services facility 
+Washington, Pennsylvania — Operations, sales and equipment storage yards 
+Item 3. Legal Proceedings 
+RPC is a party to various routine legal proceedings primarily involving commercial claims, workers’ compensation claims and claims for personal injury. RPC insures against these risks to the extent deemed prudent by its management, but no assurance can be given that the nature and amount of such insurance will, in every case, fully indemnify RPC against liabilities arising out of pending and future legal proceedings related to its business activities. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of all such proceedings, even if determined adversely, would not have a material adverse effect on RPC’s business or financial condition. 
+Item 4. Mine Safety Disclosures 
+The information required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this Form 10-K. 
+12 
+Item 4A. Executive Officers of the Registrant 
+Each of the executive officers of RPC was elected by the Board of Directors to serve until the Board of Directors’ meeting immediately following the next annual meeting of stockholders or until his or her earlier removal by the Board of Directors or his or her resignation. The following table lists the executive officers of RPC and their ages, offices, and terms of office with RPC. 
+Name and Office with Registrant 
+Age 
+Date First Elected to Present Office 
+R. Randall Rollins (1) 
+81 
+1/24/84 
+Chairman of the Board 
+Richard A. Hubbell (2) 
+68 
+4/22/03 
+President and 
+Chief Executive Officer 
+Linda H. Graham (3) 
+76 
+1/27/87 
+Vice President and 
+Secretary 
+Ben M. Palmer (4) 
+52 
+7/8/96 
+Vice President, 
+Chief Financial Officer and 
+Treasurer 
+(1) 
+R. Randall Rollins began working for Rollins, Inc. (consumer services) in 1949. Mr. Rollins has served as Chairman of the Board of RPC since the spin-off of RPC from Rollins, Inc. in 1984. He has served as Chairman of the Board of Marine Products Corporation (boat manufacturing) since it was spun off from RPC in 2001 and Chairman of the Board of Rollins, Inc. since October 1991. He is also a director of Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports, Inc. 
+(2) 
+Richard A. Hubbell has been the President of RPC since 1987 and Chief Executive Officer since 2003. He has also been the President and Chief Executive Officer of Marine Products Corporation since it was spun off from RPC in February 2001. Mr. Hubbell serves on the Board of Directors for both of these companies. 
+(3) 
+Linda H. Graham has been the Vice President and Secretary of RPC since 1987. She has also been the Vice President and Secretary of Marine Products Corporation since it was spun off from RPC in 2001. Ms. Graham serves on the Board of Directors for both of these companies. 
+(4) 
+Ben M. Palmer has been the Vice President, Chief Financial Officer and Treasurer of RPC since 1996. He has also been the Vice President, Chief Financial Officer and Treasurer of Marine Products Corporation since it was spun off from RPC in 2001. 
+13 
+PART II 
+Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+RPC’s common stock is listed for trading on the New York Stock Exchange under the symbol RES. As of February 15, 2013 there were 220,641,730 shares of common stock outstanding and approximately 8,400 beneficial holders of our common stock. The following table sets forth the high and low prices of RPC’s common stock and dividends paid for each quarter in the years ended December 31, 2012 and 2011: 
+2012 
+2011 
+Quarter 
+High 
+Low 
+Dividends 
+High 
+Low 
+Dividends 
+First 
+$ 
+14.03 
+$ 
+9.31 
+$ 
+0.080 
+$ 
+17.15 
+$ 
+10.55 
+$ 
+0.047 
+Second 
+11.95 
+8.75 
+0.080 
+19.37 
+13.21 
+0.047 
+Third 
+14.64 
+11.04 
+0.080 
+18.21 
+11.53 
+0.052 
+Fourth 
+12.70 
+10.45 
+0.280 
+14.88 
+9.47 
+0.067 
+On January 22, 2013 RPC’s Board of Directors approved a $0.10 per share cash dividend, payable March 8, 2013 to stockholders of record at the close of business on February 8, 2013. The Company expects to continue to pay cash dividends to the common stockholders, subject to the earnings and financial condition of the Company and other relevant factors . 
+Issuer Purchases of Equity Securities 
+Shares repurchased in the fourth quarter of 2012 are outlined below. 
+Period 
+Total Number 
+of Shares (or Units) 
+Purchased 
+Average Price Paid Per Share (or Unit) 
+Total Number of 
+Shares (or Units) Purchased as Part of Publicly Announced 
+Plans or Programs 
+Maximum Number (or Approximate Dollar 
+Value) of Shares (or Units) that May Yet Be 
+Purchased Under the Plans 
+or Programs 
+October 1, 2012 to October 31, 2012 
+- 
+$ 
+- 
+- 
+1,223,848 
+November 1, 2012 to November 30, 2012 
+2,090 
+(1) 
+11.10 
+- 
+1,223,848 
+December 1, 2012 to December 31, 2012 
+412 
+12.09 
+- 
+1,223,848 
+Totals 
+2,502 
+(1) 
+$ 
+11.26 
+- 
+1,223,848 
+(1) 
+Consists of shares repurchased by the Company in connection with option exercises. 
+The Company’s Board of Directors announced a stock buyback program in March 1998 authorizing the repurchase of 26,578,125 shares in the open market. There were no shares repurchased as part of this program during the fourth quarter of 2012. Currently the program does not have a predetermined expiration date. 
+Performance Graph 
+The following graph shows a five year comparison of the cumulative total stockholder return based on the performance of the stock of the Company, assuming dividend reinvestment, as compared with both a broad equity market index and an industry or peer group index. The indices included in the following graph are the Russell 1000 Index (“Russell 1000”), the Philadelphia Stock Exchange’s Oil Service Index (“OSX”), and a peer group which includes companies that are considered peers of the Company, as discussed below (the “Peer Group”). The Company has voluntarily chosen to provide both an industry and a peer group index. 
+14 
+The Company was a component of the Russell 1000 during 2012. The Russell 1000 is a stock index representing large capitalization U.S. stocks with high historical growth in revenues and earnings. The components of the index had a weighted average market capitalization in 2012 of $98.9 billion, and a median market capitalization of $5.6 billion. The Russell 1000 was chosen because it represents companies with comparable market capitalizations to the Company, and because the Company is a component of the index. The performance of the Russell 2000 Index (“Russell 2000”) is also included in the following graph because the Company was previously a component of the Russell 2000 and the performance of the Russell 2000 was formerly included in the following graph. The OSX is a stock index of 15 companies that provide oil drilling and production services, oilfield equipment, support services and geophysical/reservoir services. The Company is not a component of the OSX, but this index was chosen because it represents a large group of companies that provide the same or similar products and services as the Company. The companies included in the Peer Group are Weatherford International, Inc., Basic Energy Services, Inc., Superior Energy Services, Inc., and Halliburton Company. The companies included in the Peer Group have been weighted according to each respective issuer’s stock market capitalization at the beginning of each year. 
+15 
+Item 6. Selected Financial Data 
+The following table summarizes certain selected financial data of the Company. The historical information may not be indicative of the Company’s future results of operations. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and the notes thereto included elsewhere in this document. 
+STATEMENT OF OPERATIONS DATA: 
+Years Ended December 31, 
+2012 
+2011 
+2010 
+2009 
+2008 
+(in thousands, except employee and per share amounts) 
+Revenues 
+$ 
+1,945,023 
+$ 
+1,809,807 
+$ 
+1,096,384 
+$ 
+587,863 
+$ 
+876,977 
+Cost of revenues 
+1,105,886 
+992,704 
+606,098 
+393,806 
+503,631 
+Selling, general and administrative expenses 
+175,749 
+151,286 
+121,839 
+97,672 
+117,140 
+Depreciation and amortization 
+214,899 
+179,905 
+133,360 
+130,580 
+118,403 
+Loss (gain) on disposition of assets, net 
+6,099 
+3,831 
+(3,758 
+) 
+(1,143 
+) 
+(6,367 
+) 
+Operating profit (loss) 
+442,390 
+482,081 
+238,845 
+(33,052 
+) 
+144,170 
+Interest expense 
+(1,976 
+) 
+(3,453 
+) 
+(2,662 
+) 
+(2,176 
+) 
+(5,282 
+) 
+Interest income 
+30 
+18 
+46 
+147 
+73 
+Other income (expense), net 
+2,175 
+169 
+1,303 
+1,582 
+(1,176 
+) 
+Income (loss) before income taxes 
+442,619 
+478,815 
+237,532 
+(33,499 
+) 
+137,785 
+Income tax provision (benefit) 
+168,183 
+182,434 
+90,790 
+(10,754 
+) 
+54,382 
+Net income (loss) 
+274,436 
+$ 
+296,381 
+$ 
+146,742 
+$ 
+(22,745 
+) 
+$ 
+83,403 
+Earnings (loss) per share : 
+Basic 
+$ 
+1.28 
+$ 
+1.36 
+$ 
+0.67 
+$ 
+(0.11 
+) 
+$ 
+0.38 
+Diluted 
+$ 
+1.27 
+$ 
+1.35 
+$ 
+0.67 
+$ 
+(0.11 
+) 
+$ 
+0.38 
+Dividends paid per share 
+$ 
+0.520 
+$ 
+0.213 
+$ 
+0.094 
+$ 
+0.099 
+$ 
+0.107 
+OTHER DATA: 
+Operating margin percent 
+22.7 
+% 
+26.6 
+% 
+21.8 
+% 
+(5.6 
+)% 
+16.4 
+% 
+Net cash provided by operating activities 
+$ 
+559,933 
+$ 
+386,007 
+$ 
+168,657 
+$ 
+168,740 
+$ 
+177,320 
+Net cash used for investing activities 
+(315,838 
+) 
+(391,637 
+) 
+(171,769 
+) 
+(61,144 
+) 
+(158,953 
+) 
+Net cash (used for) provided by financing activities 
+(237,325 
+) 
+3,988 
+7,658 
+(106,144 
+) 
+(21,668 
+) 
+Depreciation and amortization 
+214,899 
+179,905 
+133,360 
+130,580 
+118,403 
+Capital expenditures 
+$ 
+328,936 
+$ 
+416,400 
+$ 
+187,486 
+$ 
+67,830 
+$ 
+170,318 
+Employees at end of period 
+3,600 
+3,400 
+2,500 
+1,980 
+2,532 
+BALANCE SHEET DATA AT END OF YEAR: 
+Accounts receivable, net 
+$ 
+387,530 
+$ 
+461,272 
+$ 
+294,002 
+$ 
+130,619 
+$ 
+210,375 
+Working capital 
+403,316 
+447,089 
+281,174 
+151,681 
+200,494 
+Property, plant and equipment, net 
+756,326 
+675,360 
+453,017 
+396,222 
+470,115 
+Total assets 
+1,367,163 
+1,338,211 
+887,871 
+649,043 
+793,461 
+Long-term debt 
+107,000 
+203,300 
+121,250 
+90,300 
+174,450 
+Total stockholders’ equity 
+$ 
+899,232 
+$ 
+762,592 
+$ 
+538,895 
+$ 
+409,723 
+$ 
+449,084 
+16 
+Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+Overview 
+The following discussion should be read in conjunction with “Selected Financial Data,” and the Consolidated Financial Statements included elsewhere in this document. See also “Forward-Looking Statements” on page 2. 
+RPC, Inc. (“RPC”) provides a broad range of specialized oilfield services primarily to independent and major oilfield companies engaged in exploration, production and development of oil and gas properties throughout the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The Company’s revenues and profits are generated by providing equipment and services to customers who operate oil and gas properties and invest capital to drill new wells and enhance production or perform maintenance on existing wells. 
+Our key business and financial strategies are: 
+- 
+To focus our management resources on and invest our capital in equipment and geographic markets that we believe will earn high returns on capital, and maintain an appropriate capital structure. 
+- 
+To maintain a flexible cost structure that can respond quickly to volatile industry conditions and business activity levels. 
+- 
+To maintain an efficient, low-cost capital structure, which includes an appropriate use of debt financing. 
+- 
+To maintain an appropriate blend of revenues between long-term committed contractual relationships and spot market revenues. Committed contractual relationships allow us to plan our operations with more certainty and efficiency. Under spot market work, we work at prevailing market rates and can take advantage of short-term opportunities which may be more profitable under certain circumstances. 
+- 
+To maintain high asset utilization, which leads to increased revenues and leverage of direct and overhead costs, while also ensuring that increased maintenance resulting from high utilization does not interfere with customer performance requirements or jeopardize safety. 
+- 
+To deliver equipment and services to our customers safely. 
+- 
+To secure adequate sources of supplies of certain high-demand raw materials used in our operations, both in order to conduct our operations and to enhance our competitive position. 
+- 
+To maintain and selectively increase market share. 
+- 
+To maximize stockholder return by optimizing the balance between cash invested in the Company’s productive assets, the payment of dividends to stockholders, and the repurchase of our common stock on the open market. 
+- 
+To align the interests of our management and stockholders. 
+In assessing the outcomes of these strategies and RPC’s financial condition and operating performance, management generally reviews periodic forecast data, monthly actual results, and other similar information. We also consider trends related to certain key financial data, including revenues, utilization of our equipment and personnel, maintenance and repair expenses, pricing for our services and equipment, profit margins, selling, general and administrative expenses, cash flows and the return on our invested capital. We continuously monitor factors that impact the level of current and expected customer activity levels, such as the price of oil and natural gas, changes in pricing for our services and equipment and utilization of our equipment and personnel. Our financial results are affected by geopolitical factors such as political instability in the petroleum-producing regions of the world, overall economic conditions and weather in the United States, the prices of oil and natural gas, and our customers’ drilling and production activities. 
+Current industry conditions are characterized by natural gas prices which have gradually increased following declines in 2011 and the first two quarters of 2012, but which remain too low to encourage natural gas drilling activity in the U.S. domestic market. In the first quarter of 2013, U.S. natural gas drilling activity was at its lowest level since the second quarter of 1999. Furthermore, U.S. natural gas production reached historical highs during the fourth quarter of 2012, in spite of declining natural gas drilling activity. We believe that further near-term negative impacts of high natural gas production will be minimal, because during the first quarter of 2013 natural gas drilling has declined to less than 25 percent of total U.S. domestic drilling activity. However, we also believe that this condition decreases the possibility that our customers’ natural gas-directed drilling activities will increase significantly in the near term. The price of oil did not fluctuate significantly during 2012, but has remained high enough to encourage our customers to continue conducting oil-directed drilling activities. During the first quarter of 2013, the price of oil has increased compared to the fourth quarter of 2012. The consistently high price of oil over the past two years and the price increase during the first quarter of 2013 have positive implications for RPC’s activity levels in 2013. RPC has operations in most of the areas in which drilling activity is directed towards oil, and we increased our presence in these areas during 2012. The average U.S. rig count increased by two percent during 2012. During the first quarter of 2013, the rig count was approximately 12 percent lower than the first quarter of 2012 and three percent lower than the fourth quarter of 2012. The rig count during the first quarter of 2013 is approximately 13 percent lower than the peak rig count attained during the prior U.S. drilling cycle improvement, which occurred during the third quarter of 2008. The U.S. domestic rig count may increase during 2013, but any increases are likely to be modest due to weak natural gas prices and high natural gas production from existing wells. 
+17 
+In addition to the overall rig count, the Company also monitors the number of horizontal and directional wells drilled in the U.S. domestic market, because this type of well is more service-intensive than a vertical oil or gas well, thus requiring more of the Company’s services provided for a longer period of time. The number of horizontal and directional wells drilled in the United States increased by approximately five percent in 2012, and was 71 percent of total wells drilled during the year. During the first part of 2013, the percentage of horizontal and directional wells drilled as a percentage of total wells was approximately 75 percent. In addition, the percentage of wells drilled for oil increased during 2012, and we believe that this percentage will increase in 2013 due to the continued high price of oil and the low price and high production levels of natural gas. During 2012, a combination of relatively flat activity levels, a shift towards less service-intensive drilling and completion activities, and a larger U.S. domestic fleet of revenue-producing equipment negatively impacted demand and pricing for the Company’s services. These negative impacts were most pronounced in the Company’s pressure pumping service line, which is highly utilized in unconventional completion work, and is a service line which has seen a significant increase in the overall fleet of revenue-producing equipment during the last several years. During the past several years, a number of our customers entered into contractual relationships with us to provide services to support their drilling and completion programs. Such arrangements have been advantageous to our customers because of the repetitive nature of this type of activity and their need to have service providers dedicated exclusively to their drilling programs. These arrangements have also positively impacted the Company’s financial results, because they increase the utilization of our revenue-producing equipment and allow us to conduct our operations more efficiently. A number of these arrangements expired during 2012 and were not renewed at the same or similar terms due to declining customer activity levels in service-intensive unconventional completion work. We do not expect to enter into additional contractual arrangements with such terms during 2013. 
+The Company’s response to the operating environment during 2012 has been to curtail our purchases of revenue-producing equipment. We have also relocated selected fleets of equipment from areas of declining activity to oilfield basins with higher activity levels. In each of these situations, we had existing operational locations in these oilfield basins, so these relocations were accomplished with minimal inefficiencies. Cash flows from operating activities as well as borrowings under our revolving credit facility have been sufficient to fund the Company’s lower capital expenditures which decreased to $328.9 million in 2012 compared to $416.4 million in 2011. The Company has a syndicated revolving credit facility in order to maintain sufficient liquidity to fund its capital expenditure and other funding requirements. 
+Revenues during 2012 totalled $1.9 billion, an increase of 7.5 percent compared to 2011. Cost of revenues increased $113.2 million in 2012 compared to the prior year due to the variable nature of many of these expenses and was approximately 57 percent of revenues in 2012 compared to 55 percent of revenues in 2011. Selling, general and administrative expenses as a percentage of revenues increased approximately 0.6 percentage points in 2012 compared to 2011. 
+Income before income taxes was $442.6 million in 2012 compared to $478.8 million in the prior year. The effective tax rate for 2012 was 38.0 percent compared to 38.1 percent in the prior year. Diluted earnings per share were $1.27 in 2012 compared to $1.35 for the prior year. 
+Cash flows from operating activities were $559.9 million in 2012 and $386.0 million in 2011, and cash and cash equivalents were $14.2 million at December 31, 2012, an increase of $6.8 million compared to December 31, 2011. As of December 31, 2012, there was $107.0 million in outstanding borrowings under our credit facility. 
+Outlook 
+Drilling activity in the U.S. domestic oilfields, as measured by the rotary drilling rig count, reached a recent cyclical peak of 2,031 during the third quarter of 2008. The global recession that began during the fourth quarter of 2007 precipitated the steepest annualized rig count decline in U.S. domestic oilfield history. From the third quarter of 2008 to the second quarter of 2009, the U.S. domestic rig count dropped almost 57 percent, reaching a trough of 876 in June 2009. Between its cyclical trough in the second quarter of 2009 and the fourth quarter of 2011, U.S. domestic drilling activity increased by approximately 129 percent, before declining during the remainder of 2011 and throughout 2012. Unconventional activity as a percentage of total oilfield activity has grown steadily over the past several years and was 71 percent of total wells drilled during 2012. Early in the first quarter of 2013, unconventional drilling represented 75 percent of total U.S. domestic drilling activity. 
+18 
+The current and projected prices of oil and natural gas are important catalysts for U.S. domestic drilling activity. The price of natural gas declined steadily during 2011 and the first quarter of 2012. Although the price of natural gas began to recover during the third and fourth quarters of 2012 and the first quarter of 2013, its price remains too low to encourage drilling in the service-intensive natural gas resource shale plays in the U.S. domestic market. The price of natural gas liquids has become an increasingly important determinant of our customers’ activities, since its sales comprise a large part of our customers’ revenues, and it is produced in many of the shale resource plays that also produce oil. During 2012, the average price of benchmark natural gas liquids was 31.4 percent lower than in the prior year, and it declined an additional 16.0 percent early in the first quarter of 2013. These trends have negative implications for our near-term activity levels, since the recent decline in domestic drilling activity is due to declines in natural gas-directed drilling. On the other hand, the average price of oil remained high during 2012, and has risen early in the first quarter of 2013. The high price of oil should continue to have a positive impact on our customers’ activity levels and our financial results, since there are a number of significant U.S. domestic shale resource plays which produce oil and petroleum liquids, and RPC has operational locations and revenue-producing equipment in these locations. 
+The effect of these trends is evident in the current composition of the U.S. domestic rig count, approximately 75 percent of which was directed towards oil during the first quarter of 2013. We believe that the trend of an increased percentage of oil-directed drilling and a decreased percentage of gas-directed drilling will continue in the near term. We believe that this trend will continue due to continued low prices for natural gas, as well as high production from existing natural gas wells. We do not believe that the overall rig count will increase significantly during 2013 unless the price of natural gas increases significantly. 
+We continue to monitor the market for our services and the competitive environment in 2013. We are concerned about the continued low price of natural gas and natural gas liquids, and the fact that the high cost of completing wells in many unconventional shale plays will discourage our customers from conducting drilling and completion activities in these areas until these commodity prices improve. We also monitor the competitive environment because the high historical financial returns and favorable long-term outlook for our industry continue have attracted new entrants and encouraged existing service companies to purchase additional revenue-producing equipment. Although these catalysts for increased competitive pressures began to subside during 2012, we believe that there is an excessive service capacity in the U.S. domestic market at the present time, given the current level and composition of drilling and completion activities. Because of these concerns, we anticipate that our equipment purchases will be lower in 2013 than in 2012. Our consistent response to the industry’s potential uncertainty is to maintain sufficient liquidity and a conservative capital structure and monitor our discretionary spending. Although we have used our bank credit facility to finance our expansion, we will continue to maintain a conservative financial structure by industry standards. Based on current industry conditions, we believe that the Company’s consolidated revenues will increase moderately in 2013 compared to 2012 and financial performance in the period will also improve moderately. 
+19 
+Results of Operations 
+Years Ended December 31, 
+2012 
+2011 
+2010 
+(in thousands except per share amounts and industry data) 
+Consolidated revenues 
+$ 
+1,945,023 
+$ 
+1,809,807 
+$ 
+1,096,384 
+Revenues by business segment: 
+Technical 
+$ 
+1,794,015 
+$ 
+1,663,793 
+$ 
+979,834 
+Support 
+151,008 
+146,014 
+116,550 
+Consolidated operating profit 
+$ 
+442,390 
+$ 
+482,081 
+$ 
+238,845 
+Operating profit by business segment: 
+Technical 
+$ 
+420,231 
+$ 
+451,259 
+$ 
+217,144 
+Support 
+45,912 
+51,672 
+31,086 
+Corporate expenses 
+(17,654 
+) 
+(17,019 
+) 
+(13,143 
+) 
+(Loss) gain on disposition of assets, net 
+(6,099 
+) 
+(3,831 
+) 
+3,758 
+Net income 
+$ 
+274,436 
+$ 
+296,381 
+$ 
+146,742 
+Earnings per share — diluted 
+$ 
+1.27 
+$ 
+1.35 
+$ 
+0.67 
+Percentage of cost of revenues to revenues 
+57 
+% 
+55 
+% 
+55 
+% 
+Percentage of selling, general and administrative expenses to revenues 
+9 
+% 
+8 
+% 
+11 
+% 
+Percentage of depreciation and amortization expenses to revenues 
+11 
+% 
+10 
+% 
+12 
+% 
+Effective income tax rate 
+38.0 
+% 
+38.1 
+% 
+38.2 
+% 
+Average U.S. domestic rig count 
+1,919 
+1,877 
+1,543 
+Average natural gas price (per thousand cubic feet (mcf)) 
+$ 
+2.73 
+$ 
+3.95 
+$ 
+4.34 
+Average oil price (per barrel) 
+$ 
+94.20 
+$ 
+94.94 
+$ 
+79.39 
+Year Ended December 31, 2012 Compared To Year Ended December 31, 2011 
+Revenues. Revenues in 2012 increased $135.2 million or 7.5 percent compared to 2011. The Technical Services segment revenues for 2012 increased 7.8 percent from the prior year due primarily to an increase in the fleet of revenue-producing equipment and higher activity levels partially offset by lower pricing for our services within this segment. The Support Services segment revenues for 2012 increased 3.4 percent compared to 2011 due primarily to higher activity levels in several of the service lines. Operating profit in the Technical Services segment declined due to lower personnel and equipment utilization as well as lower pricing. Operating profit in the Support Services segment declined due primarily to lower utilization and pricing in our rental tools service line. 
+Domestic revenues increased 6.4 percent during 2012 compared to 2011 to $1.9 billion due primarily to a larger fleet of revenue-producing equipment and higher activity levels in most service lines partially offset by lower pricing for our services in several service lines. The average price of oil remained stable while the average price of natural gas decreased by 31 percent during 2012 compared to the prior year. The average domestic rig count during 2012 was two percent higher than in 2011. Our revenues grew at a higher rate than the changes in our industry indicators because of increases in our fleet of revenue-producing equipment compared to 2011. However, increasingly competitive pricing for our services, as well as lower utilization of our revenue-producing equipment and personnel in 2012 compared to 2011, negatively impacted our operating income, income before income taxes, net income and earnings per share. At the present time, we believe that our activity levels are affected by both the price of natural gas and the price of oil, since oil-directed activity as a percentage of total U.S. activity has increased significantly during 2012. The prices of natural gas and natural gas liquids also impact our activity levels because of the service-intensive nature of the drilling and completion associated with this type of drilling and completion. We also believe that the total number of directional and horizontal wells more directly affect our activity levels, regardless of whether the wells are directed towards oil or natural gas. This belief is based on the fact that directional and horizontal wells require more of several of the services within our technical services segment. International revenues, which increased from $52.1 million in 2011 to $74.2 million in 2012, were four percent of consolidated revenues in 2012 compared to three percent of revenues in 2011. These international revenue increases were due mainly to higher customer activity levels in Canada, China, Mexico and New Zealand in 2012 partially offset by a decrease in activity in Australia, Gabon and Saudi Arabia, compared to the prior year. Our international revenues are impacted by the timing of project initiation and their ultimate duration. 
+20 
+Cost of revenues. Cost of revenues in 2012 was $1.1 billion compared to $992.7 million in 2011, an increase of $113.2 million or 11.4 percent. The increase in these costs was due to the variable nature of most of these expenses. Cost of revenues, as a percent of revenues, increased in 2012 compared to 2011 due primarily to lower pricing and inefficiencies resulting from lower utilization of our equipment and personnel. 
+Selling, general and administrative expenses. Selling, general and administrative expenses increased 16.2 percent to $175.7 million in 2012 compared to $151.3 million in 2011. This increase was primarily due to increases in total employment costs. As a percentage of revenues, selling, general and administrative expenses increased to 9.0 percent in 2012 compared to 8.4 percent in 2011. 
+Depreciation and amortization. Depreciation and amortization were $214.9 million in 2012, an increase of $35.0 million or 19.5 percent, compared to $179.9 million in 2011. This increase resulted from capital expenditures within both Technical Services and Support Services to increase capacity and to maintain our existing fleet of equipment. As a percentage of revenues, depreciation and amortization increased to 11.0 percent in 2012 compared to 9.9 percent in 2011. 
+Loss on disposition of assets, net. Loss on disposition of assets, net was $6.1 million in 2012 compared to $3.8 million in 2011. The loss of disposition of assets, net includes gains or losses related to various property and equipment dispositions including certain equipment components experiencing increased wear and tear which requires early dispositions, or sales to customers of lost or damaged rental equipment. 
+Other income, net. Other income, net was $2.2 million in 2012, an increase of $2.0 million compared to $0.2 million in 2011. Other income, net primarily includes mark to market gains and losses of investments in the non-qualified benefit plan. 
+Interest expense and interest income. Interest expense was $2.0 million in 2012 compared to $3.5 million in 2011. The decrease in 2012 is due to a lower average debt balance on our revolving credit facility coupled with slightly lower interest rates net of interest capitalized on equipment and facilities under construction. Interest income increased to $30 thousand in 2012 compared to $18 thousand in 2011. 
+Income tax provision. The income tax provision was $168.2 million in 2012 compared to $182.4 million in 2011. This decrease was due to lower income before taxes in 2012 compared to 2011 as the effective tax rate of 38.0 percent in 2012 was comparable to the effective tax rate of 38.1 percent in 2011. 
+Net income and diluted earnings per share . Net income was $274.4 million in 2012, or $1.27 per diluted share, compared to net income of $296.4 million, or $1.35 per diluted share in 2011. This decline was due to higher, as a percentage of revenues, costs of revenues, selling, general and administrative expenses, and depreciation and amortization expenses. 
+Year Ended December 31, 2011 Compared To Year Ended December 31, 2010 
+Revenues. Revenues in 2011 increased $713.4 million or 65.1 percent compared to 2010. The Technical Services segment revenues for 2011 increased 69.8 percent from the prior year due primarily to a larger fleet of revenue-producing equipment, higher activity levels from expanded customer commitments and improved pricing. The Support Services segment revenues for 2011 increased 25.3 percent from the prior year due to improved pricing and higher activity levels. 
+Domestic revenues increased 69 percent during 2011 compared to 2010 to $1,757.7 million due to increased customer activity levels coupled with increased capacity of equipment and improved pricing. The average price of oil increased by approximately 20 percent while the average price of natural gas decreased by nine percent during 2011 compared to the prior year. The average domestic rig count during 2011 was 22 percent higher than in 2010. Our revenues and earnings grew at a greater rate than the changes in these industry indicators because of an increased capacity of revenue-producing equipment, higher equipment utilization and improved pricing compared to 2010. This increase in drilling activity, as well as the increased amount of horizontal and directional drilling, had a positive impact on our financial results. At the present time, we believe that our activity levels are affected equally by the price of natural gas and the price of oil, since oil-directed activity as a percentage of total U.S. activity has increased significantly during 2011. We also believe that the total number of directional and horizontal wells more directly affect our activity levels, regardless of whether the wells are directed towards oil or natural gas. This belief is based on the fact that directional and horizontal wells require more of several of the services within our technical services segment. International revenues, which decreased slightly from $54.9 million in 2010 to $52.1 million in 2011, were three percent of consolidated revenues in 2011 compared to five percent of revenues in 2010. These international revenue decreases were due mainly to lower customer activity levels in New Zealand and Qatar partially offset by an increase in activity in Canada, compared to the prior year. Our international revenues are impacted by the timing of project initiation and their ultimate duration. 
+Cost of revenues. Cost of revenues in 2011 was $992.7 million compared to $606.1 million in 2010, an increase of $386.6 million or 63.8 percent. The increase in these costs was due to the variable nature of most of these expenses as cost of revenues. As a percent of revenues was unchanged in 2011 compared to 2010. 
+Selling, general and administrative expenses. Selling, general and administrative expenses increased 24.2 percent to $151.3 million in 2011 compared to $121.8 million in 2010. This increase was primarily due to increases in total employment costs, including increased incentive compensation consistent with improved operating results. However, as a percentage of revenues, selling, general and administrative expenses decreased to 8.4 percent in 2011 compared to 11.1 percent in 2010 due to leverage of the fixed costs over higher revenues. 
+21 
+Depreciation and amortization. Depreciation and amortization were $179.9 million in 2011, an increase of $46.5 million or 34.9 percent compared to $133.4 million in 2010. This increase resulted from a higher level of capital expenditures during recent quarters within both Technical Services and Support Services to increase capacity and to maintain our existing equipment. However, as a percentage of revenues, depreciation and amortization decreased to 9.9 percent in 2011 compared to 12.2 percent in 2010 due to leverage over higher revenues. 
+(Loss) gain on disposition of assets, net. Loss on disposition of assets, net was $3.8 million in 2011 compared to a gain on disposition of assets, net of $3.8 million in 2010. The (loss) gain on disposition of assets, net includes gains or losses related to various property and equipment dispositions including certain equipment components experiencing increased wear and tear which requires early dispositions, or sales to customers of lost or damaged rental equipment. 
+Other income, net. Other income, net was $0.2 million in 2011, a decrease of $1.1 million compared to $1.3 million in 2010. The decrease is mainly due to mark-to-market net losses on investments held in the non-qualified Supplemental Retirement Plan during 2011 compared to net gains in 2010. 
+Interest expense. Interest expense was $3.5 million in 2011 compared to $2.7 million in 2010. The increase is primarily due to a higher average balance on our revolving credit facility in 2011 compared to 2010. 
+Interest income. Interest income decreased to $18 thousand in 2011 compared to $46 thousand in 2010. 
+Income tax provision. The income tax provision was $182.4 million in 2011 compared to $90.8 million in 2010. This increase was due to higher income before taxes in 2011 compared to 2010 as the effective tax rate of 38.1 percent in 2011 was similar to the effective tax rate of 38.2 percent in 2010. 
+Net income and diluted earnings per share . Net income was $296.4 million in 2011, or $1.35 per diluted share, compared to net income of $146.7 million, or $0.67 per diluted share in 2010. This improvement was due to increased revenues and lower, as a percentage of revenues, costs of revenues, selling, general and administrative expenses, and depreciation and amortization expenses. 
+Liquidity and Capital Resources 
+Cash and Cash Flows 
+The Company’s cash and cash equivalents were $14.2 million as of December 31, 2012, $7.4 million as of December 31, 2011 and $9.0 million as of December 31, 2010. 
+The following table sets forth the historical cash flows for the years ended December 31: 
+(in thousands) 
+2012 
+2011 
+2010 
+Net cash provided by operating activities 
+$ 
+559,933 
+$ 
+386,007 
+$ 
+168,657 
+Net cash used for investing activities 
+(315,838 
+) 
+(391,637 
+) 
+(171,769 
+) 
+Net cash (used for) provided by financing activities 
+(237,325 
+) 
+3,988 
+7,658 
+2012 
+Cash provided by operating activities increased $173.9 million in 2012 compared to the prior year due primarily to a net decrease in working capital requirements in 2012 compared to 2011. This decrease in working capital requirements was partially offset by a decrease in the deferred tax provision and net income. Decreasing business activity levels in 2012 resulted in decreased accounts receivable, other current assets and accounts payable partially offset by an increase in inventory. 
+Cash used for investing activities in 2012 decreased by $75.8 million compared to 2011, primarily as a result of lower capital expenditures. 
+Cash used for financing activities 2012 increased by $241.3 million primarily as a result of higher net loan repayments during 2012 compared to the prior year as a result of improvements in working capital and an increase in common stock dividends during 2012 compared to the prior year. 
+2011 
+Cash provided by operating activities increased $217.4 million in 2011 compared to the prior year due primarily to a $149.6 million increase in net income in 2011 compared to 2010. This improvement in net income was partially offset by increases in working capital requirements. Increased business activity levels and revenues in 2011 resulted in increased inventory, other current assets and accounts receivables, partially offset by an increase in accounts payable. 
+22 
+Cash used for investing activities in 2011 increased by $219.9 million compared to 2010, primarily as a result of higher capital expenditures made to increase our fleet of revenue-producing equipment. 
+Cash provided by financing activities for 2011 decreased by $3.7 million compared to 2010, as a result of higher common stock dividends in 2011 compared to the prior year, coupled with cost of higher open market share repurchases during 2011 partially offset by a net increase in borrowings under our credit facility during 2011 to fund working capital requirements and capital expenditures. 
+Financial Condition and Liquidity 
+The Company’s financial condition as of December 31, 2012, remains strong. We believe the liquidity provided by our existing cash and cash equivalents, our overall strong capitalization which includes a revolving credit facility and cash expected to be generated from operations will provide sufficient capital to meet our requirements for at least the next twelve months. The Company currently has a $350 million revolving credit facility that matures in August 2015. The facility contains customary terms and conditions, including certain financial covenants including covenants restricting RPC’s ability to incur liens, merge or consolidate with another entity. A total of $224.9 million was available under the facility as of December 31, 2012; approximately $18.1 million of the facility supports outstanding letters of credit relating to self-insurance programs or contract bids. For additional information with respect to RPC’s facility, see Note 6 of the Notes to Consolidated Financial Statements. 
+The Company’s decisions about the amount of cash to be used for investing and financing purposes are influenced by its capital position, including access to borrowings under our facility, and the expected amount of cash to be provided by operations. We believe our liquidity will continue to provide the opportunity to grow our asset base and revenues during periods with positive business conditions and strong customer activity levels. The Company’s decisions about the amount of cash to be used for investing and financing activities could be influenced by the financial covenants in our credit facility but we do not expect the covenants to restrict our planned activities. The Company is in compliance with these financial covenants. 
+Cash Requirements 
+Capital expenditures were $328.9 million in 2012, and we currently expect capital expenditures to be in the range of approximately $250 million to $300 million in 2013. We expect that a majority of these expenditures in 2013 will be directed towards maintenance of our revenue-producing equipment and refurbishment of our existing fleet of pressure pumping equipment. The remaining capital expenditures will be directed towards the purchase of revenue-producing equipment in several of our core service lines, including coiled tubing, pressure pumping and rental tools. The actual amount of expenditures will depend primarily on equipment maintenance requirements, expansion opportunities, and equipment delivery schedules. 
+The Company’s Retirement Income Plan, a multiple employer trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. During 2012, the Company contributed $4.3 million to the pension plan. The Company expects that additional contributions to the defined benefit pension plan of approximately $0.4 million will be required in 2013 to achieve the Company’s funding objective. 
+The Company’s Board of Directors announced a stock buyback program on March 9, 1998 authorizing the repurchase of up to 26,578,125 shares of which 1,223,848 additional shares were available to be repurchased as of December 31, 2012. The program does not have a predetermined expiration date. 
+On January 22, 2013, the Board of Directors approved a $0.10 per share cash dividend, payable March 8, 2013 to stockholders of record at the close of business on February 8, 2013. The Company expects to continue to pay cash dividends to common stockholders, subject to the earnings and financial condition of the Company and other relevant factors. 
+23 
+Contractual Obligations 
+The Company’s obligations and commitments that require future payments include our credit facility, certain non-cancelable operating leases, purchase obligations and other long-term liabilities. The following table summarizes the Company’s significant contractual obligations as of December 31, 2012: 
+Contractual obligations 
+Payments due by period 
+(in thousands) 
+Total 
+Less than 
+1 year 
+1-3 
+years 
+3-5 
+years 
+More than 
+5 years 
+Long-term debt obligations 
+$ 
+107,000 
+$ 
+- 
+$ 
+107,000 
+$ 
+- 
+$ 
+- 
+Interest on long-term debt obligations 
+6,648 
+2,493 
+4,155 
+- 
+- 
+Capital lease obligations 
+- 
+- 
+- 
+- 
+- 
+Operating leases (1) 
+32,666 
+8,288 
+11,827 
+5,222 
+7,329 
+Purchase obligations (2) 
+56,981 
+55,896 
+1,085 
+- 
+- 
+Other long-term liabilities (3) 
+3,694 
+- 
+3,694 
+- 
+- 
+Total contractual obligations 
+$ 
+206,989 
+$ 
+66,677 
+$ 
+127,761 
+$ 
+5,222 
+$ 
+7,329 
+(1) 
+Operating leases include agreements for various office locations, office equipment, and certain operating equipment. 
+(2) 
+Includes agreements to purchase raw materials, goods or services that have been approved and that specify all significant terms (pricing, quantity, and timing). As part of the normal course of business the Company occasionally enters into purchase commitments to manage its various operating needs. 
+(3) 
+Includes expected cash payments for long-term liabilities reflected on the balance sheet where the timing of the payments are known. These amounts include incentive compensation. These amounts exclude pension obligations with uncertain funding requirements and deferred compensation liabilities. 
+Fair Value Measurements 
+The Company’s assets and liabilities measured at fair value are classified in the fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation. Assets and liabilities that are traded on an exchange with a quoted price are classified as Level 1. Assets and liabilities that are valued using significant observable inputs in addition to quoted market prices are classified as Level 2. The Company currently has no assets or liabilities measured on a recurring basis that are valued using unobservable inputs and therefore no assets or liabilities measured on a recurring basis are classified as Level 3. For defined benefit plan assets classified as Level 3, the values are computed using inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data or on net asset values calculated by the fund and not publicly available. 
+Inflation 
+The Company purchases its equipment and materials from suppliers who provide competitive prices, and employs skilled workers from competitive labor markets. If inflation in the general economy increases, the Company’s costs for equipment, materials and labor could increase as well. Also, increases in activity in the domestic oilfield can cause upward wage pressures in the labor markets from which it hires employees as well as increases in the costs of certain materials and key equipment components used to provide services to the Company’s customers. During 2012, the Company incurred higher employment costs due to a continued shortage of skilled labor in many of its markets, although these cost pressures subsided during the third and fourth quarters. The Company expects that labor cost pressures will continue in 2013, although to a lesser degree. In addition, the price of certain raw materials used to provide the Company’s services increased significantly during 2012 as compared to 2011. The Company successfully mitigated some of the cost increases for raw materials during 2012 by securing materials through additional sources and increasing amounts held in inventory, although no assurance can be given that these efforts will continue to be successful in 2013 if these cost pressures continue. 
+Off Balance Sheet Arrangements 
+The Company does not have any material off balance sheet arrangements. 
+Related Party Transactions 
+Marine Products Corporation 
+Effective in 2001, the Company spun off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware corporation) (“Marine Products”), a newly formed wholly owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship. 
+24 
+In accordance with a Transition Support Services agreement, which may be terminated by either party, RPC provides certain administrative services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products. Charges from the Company (or from corporations that are subsidiaries of the Company) for such services aggregated approximately $544,000 in 2012, $639,000 in 2011 and $689,000 in 2010. The Company’s receivable due from Marine Products for these services was approximately $94,000 as of December 31, 2012 and was approximately $3,000 as of December 31, 2011. The Company’s directors are also directors of Marine Products and all of the executive officers are employees of both the Company and Marine Products. 
+Other 
+The Company periodically purchases in the ordinary course of business products or services from suppliers, who are owned by significant officers or stockholders, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were approximately $1,676,000 in 2012, $1,469,000 in 2011 and $551,000 in 2010. 
+RPC receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is otherwise affiliated with RPC). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled $83,000 in 2012, $102,000 in 2011 and $94,000 in 2010. 
+A group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother Gary W. Rollins, who is also a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s voting power. 
+Critical Accounting Policies 
+The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require significant judgment by management in selecting the appropriate assumptions for calculating accounting estimates. These judgments are based on our historical experience, terms of existing contracts, trends in the industry, and information available from other outside sources, as appropriate. Senior management has discussed the development, selection and disclosure of its critical accounting estimates with the Audit Committee of our Board of Directors. The Company believes the following critical accounting policies involve estimates that require a higher degree of judgment and complexity: 
+Allowance for doubtful accounts — Substantially all of the Company’s receivables are due from oil and gas exploration and production companies in the United States, selected international locations and foreign, nationally owned oil companies. Our allowance for doubtful accounts is determined using a combination of factors to ensure that our receivables are not overstated due to uncollectibility. Our established credit evaluation procedures seek to minimize the amount of business we conduct with higher risk customers. Our customers’ ability to pay is directly related to their ability to generate cash flow on their projects and is significantly affected by the volatility in the price of oil and natural gas. Provisions for doubtful accounts are recorded in selling, general and administrative expenses. Accounts are written off against the allowance for doubtful accounts when the Company determines that amounts are uncollectible and recoveries of amounts previously written off are recorded when collected. Significant recoveries will generally reduce the required provision in the period of recovery. Therefore, the provision for doubtful accounts can fluctuate significantly from period to period. Recoveries were insignificant in 2012, 2011 and 2010. We record specific provisions when we become aware of a customer’s inability to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to customers change, our estimates of the realizability of receivables would be further adjusted, either upward or downward. 
+The estimated allowance for doubtful accounts is based on our evaluation of the overall trends in the oil and gas industry, financial condition of our customers, our historical write-off experience, current economic conditions, and in the case of international customers, our judgments about the economic and political environment of the related country and region. In addition to reserves established for specific customers, we establish general reserves by using different percentages depending on the age of the receivables which we adjust periodically based on management judgment and the economic strength of our customers. The net provisions for doubtful accounts have ranged from 0.09 percent to 0.45 percent of revenues over the last three years. Increasing or decreasing the estimated general reserve percentages by 0.50 percentage points as of December 31, 2012 would have resulted in a change of approximately $1.9 million to the allowance for doubtful accounts and a corresponding change to selling, general and administrative expenses. 
+Income taxes — The effective income tax rates were 38.0 percent in 2012, 38.1 percent in 2011 and 38.2 percent in 2010. Our effective tax rates vary due to changes in estimates of our future taxable income, fluctuations in the tax jurisdictions in which our earnings and deductions are realized, and favorable or unfavorable adjustments to our estimated tax liabilities related to proposed or probable assessments. As a result, our effective tax rate may fluctuate significantly on a quarterly or annual basis. 
+25 
+We establish a valuation allowance against the carrying value of deferred tax assets when we determine that it is more likely than not that the asset will not be realized through future taxable income. Such amounts are charged to earnings in the period in which we make such determination. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance. We have considered future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. 
+We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are recorded when identified, which is generally in the third quarter of the subsequent year for U.S. federal and state provisions. Deferred tax liabilities and assets are determined based on the differences between the financial and tax bases of assets and liabilities using enacted tax rates in effect in the year the differences are expected to reverse. 
+The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which may result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, the jurisdictions in which our earnings or deductions are realized may differ from our current estimates. 
+Insurance expenses – The Company self insures, up to certain policy-specified limits, certain risks related to general liability, workers’ compensation, vehicle and equipment liability. The cost of claims under these self-insurance programs is estimated and accrued using individual case-based valuations and statistical analysis and is based upon judgment and historical experience; however, the ultimate cost of many of these claims may not be known for several years. These claims are monitored and the cost estimates are revised as developments occur relating to such claims. The Company has retained an independent third party actuary to assist in the calculation of a range of exposure for these claims. As of December 31, 2012, the Company estimates the range of exposure to be from $14.0 million to $19.2 million. The Company has recorded liabilities at December 31, 2012 of approximately $16.6 million which represents management’s best estimate of probable loss. 
+Depreciable life of assets — RPC’s net property, plant and equipment at December 31, 2012 was $756.3 million representing 55.3 percent of the Company’s consolidated assets. Depreciation and amortization expenses for the year ended December 31, 2012 were $214.9 million. Management judgment is required in the determination of the estimated useful lives used to calculate the annual and accumulated depreciation and amortization expense. 
+Property, plant and equipment are reported at cost less accumulated depreciation and amortization, which is provided on a straight-line basis over the estimated useful lives of the assets. The estimated useful life represents the projected period of time that the asset will be productively employed by the Company and is determined by management based on many factors including historical experience with similar assets. Assets are monitored to ensure changes in asset lives are identified and prospective depreciation and amortization expense is adjusted accordingly. We have not made any changes to the estimated lives of assets resulting in a material impact in the last three years. 
+Defined benefit pension plan – In 2002, the Company ceased all future benefit accruals under the defined benefit plan, although the Company remains obligated to provide employees benefits earned through March 2002. The Company accounts for the defined benefit plan in accordance with the provisions of FASB ASC 715, “Compensation – Retirement Benefits” and engages an outside actuary to calculate its obligations and costs. With the assistance of the actuary, the Company evaluates the significant assumptions used on a periodic basis including the estimated future return on plan assets, the discount rate, and other factors, and makes adjustments to these liabilities as necessary. 
+The Company chooses an expected rate of return on plan assets based on historical results for similar allocations among asset classes, the investments strategy, and the views of our investment adviser. Differences between the expected long-term return on plan assets and the actual return are amortized over future years. Therefore, the net deferral of past asset gains (losses) ultimately affects future pension expense. The Company’s assumption for the expected return on plan assets was seven percent for 2012, 2011 and 2010. 
+The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the Company utilizes a yield curve approach. The approach utilizes an economic model whereby the Company’s expected benefit payments over the life of the plan are forecasted and then compared to a portfolio of investment grade corporate bonds that will mature at the same time that the benefit payments are due in any given year. The economic model then calculates the one discount rate to apply to all benefit payments over the life of the plan which will result in the same total lump sum as the payments from the corporate bonds. A lower discount rate increases the present value of benefit obligations. The discount rate was 4.16 percent as of December 31, 2012 compared to 5.00 percent as of December 31, 2011 and 5.49 percent in 2010. 
+26 
+As set forth in note 10 to the Company’s financial statements, included among the asset categories for the Plan’s investments are real estate, tactical composite and alternative investments comprised of investments in real estate and hedge funds. These investments are categorized as level 3 investments and are valued using significant non-observable inputs which do not have a readily determinable fair value. In accordance with ASU No. 2010-12 “Investments In Certain Entities That Calculate Net Asset Value per Share (Or Its Equivalent),” these investments are valued based on the net asset value per share calculated by the funds in which the plan has invested. These valuations are subject to judgments and assumptions of the funds which may prove to be incorrect, resulting in risks of incorrect valuation of these investments. The Company seeks to mitigate against these risks by evaluating the appropriateness of the funds’ judgments and assumptions by reviewing the financial data included in the funds’ financial statements for reasonableness. 
+As of December 31, 2012, the defined benefit plan was under-funded and the recorded change within accumulated other comprehensive loss decreased stockholders’ equity by approximately $1.7 million after tax. Holding all other factors constant, a change in the discount rate used to measure plan liabilities by 0.25 percentage points would result in a pre-tax increase or decrease of approximately $1.3 million to the net loss related to pension reflected in accumulated other comprehensive loss. 
+The Company recognized pre-tax pension expense of $0.7 million in 2012, $0.5 million in 2011 and $0.6 million in 2010. Based on the under-funded status of the defined benefit plan as of December 31, 2012, the Company expects to recognize pension expense of $0.5 million in 2013. Holding all other factors constant, a change in the expected long-term rate of return on plan assets by 0.50 percentage points would result in an increase or decrease in pension expense of approximately $0.1 million in 2012. Holding all other factors constant, a change in the discount rate used to measure plan liabilities by 0.25 percentage points would result in an increase or decrease in pension expense of approximately $3 thousand in 2012. 
+RECENT ACCOUNTING PRONOUNCEMENTS: 
+During the year ended December 31, 2012, the Financial Accounting Standards Board (FASB) issued the following applicable accounting Standards Updates (ASU): 
+Recently Adopted Accounting Pronouncements: 
+ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The amendments to the Codification in this ASU allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments are to be applied retrospectively and are effective for fiscal years beginning after December 15, 2011. The Company has adopted these provisions in the first quarter of 2012 and has presented a separate statement of comprehensive income consecutively after the statement showing net income in the accompanying financial statements. Adoption of these provisions did not have a material impact on the Company’s consolidated financial statements. 
+ASU 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The amendments in this codification permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Codification Subtopic 350-30. An entity has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period, proceeding directly to performing the quantitative impairment test and resume performing the qualitative assessment in any subsequent period. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 with early adoption being permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if an entity’s financial statements for the most recent annual or interim period have not been issued. The Company adopted these provisions in the fourth quarter of 2012 for annual and interim impairment tests performed starting this year. Adoption of these provisions did not have a material impact on the Company’s consolidated financial statements. 
+27 
+Recently Issued Accounting Pronouncements Not Yet Adopted: 
+Accounting Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The amendments are effective for all reporting periods beginning after December 15, 2012, with early adoption permitted. The Company plans to adopt these provisions in the first quarter of 2013. Adoption of these provisions is not expected to have a material impact on the Company’s consolidated financial statements and the Company will comply with the additional disclosures as required. 
+Accounting Standards Update 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments to the Codification in this ASU are part of an ongoing effort to bring congruence between U.S. GAAP and International Financial Reporting Standards. The amendments in this ASU require an entity to disclose information about derivatives that are subject to a legally enforceable netting arrangement with the same party where rights of set-off are only available in the event of default or bankruptcy and can be presented as a single net amount in the statement of financial position. The amendments in this ASU are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, with the required disclosures being provided retrospectively for all comparative periods presented. The Company is currently evaluating the impact of adoption of these provisions in the first quarter of 2013. 
+Item 7A. Quantitative and Qualitative Disclosures about Market Risk 
+The Company is subject to interest rate risk exposure through borrowings on its credit agreement. As of December 31, 2012, there are outstanding interest-bearing advances of $107.0 million on our credit facility which bear interest at a floating rate. A change in interest rates of one percent on the balance outstanding on the credit facility at December 31, 2012 would cause a change of approximately $1.1 million in total annual interest costs. 
+Additionally, the Company is exposed to market risk resulting from changes in foreign exchange rates. However, since the majority of the Company’s transactions occur in U.S. currency, this risk is not expected to have a material effect on its consolidated results of operations or financial condition. 
+28 
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 
+To the Stockholders of RPC, Inc.: 
+The management of RPC, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. RPC, Inc. maintains a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that assets are safeguarded against loss or unauthorized use and that the financial records are adequate and can be relied upon to produce financial statements in accordance with accounting principles generally accepted in the United States of America. The internal control system is augmented by written policies and procedures, an internal audit program and the selection and training of qualified personnel. This system includes policies that require adherence to ethical business standards and compliance with all applicable laws and regulations. 
+There are inherent limitations to the effectiveness of any controls system. A controls system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls system are met. Also, no evaluation of controls can provide absolute assurance that all control issues and any instances of fraud, if any, within the Company will be detected. Further, the design of a controls system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The Company intends to continually improve and refine its internal controls. 
+Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our internal control over financial reporting as of December 31, 2012 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management’s assessment is that RPC, Inc. maintained effective internal control over financial reporting as of December 31, 2012. 
+The independent registered public accounting firm, Grant Thornton LLP, has audited the consolidated financial statements as of and for the year ended December 31, 2012, and has also issued their report on the effectiveness of the Company’s internal control over financial reporting, included in this report on page 30. 
+/s/ Richard A. Hubbell 
+/s/ Ben M. Palmer 
+Richard A. Hubbell 
+President and Chief Executive Officer 
+Ben M. Palmer 
+Chief Financial Officer and Treasurer 
+Atlanta, Georgia 
+March 1, 2013 
+29 
+Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 
+Board of Directors and Shareholders 
+RPC, Inc. 
+We have audited the internal control over financial reporting of RPC, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 
+We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 
+A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by COSO. 
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2012, and our report dated March 1, 2013 expressed an unqualified opinion on those financial statements. 
+/S/ GRANT THORNTON LLP 
+Atlanta, Georgia 
+March 1, 2013 
+30 
+Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements 
+Board of Directors and Shareholders 
+RPC, Inc. 
+We have audited the accompanying consolidated balance sheets of RPC, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15(2). These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. 
+We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 
+In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RPC, Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. 
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 1, 2013 expressed an unqualified opinion thereon. 
+/S/ GRANT THORNTON LLP 
+Atlanta, Georgia 
+March 1, 2013 
+31 
+Item 8. Financial Statements and Supplementary Data 
+CONSOLIDATED BALANCE SHEETS 
+RPC, INC. AND SUBSIDIARIES 
+(in thousands except share information) 
+December 31, 
+2012 
+2011 
+ASSETS 
+Cash and cash equivalents 
+$ 
+14,163 
+$ 
+7,393 
+Accounts receivable, net 
+387,530 
+461,272 
+Inventories 
+140,867 
+100,438 
+Deferred income taxes 
+5,777 
+7,183 
+Income taxes receivable 
+4,234 
+10,805 
+Prepaid expenses 
+10,762 
+8,478 
+Other current assets 
+4,494 
+30,986 
+Current assets 
+567,827 
+626,555 
+Property, plant and equipment, net 
+756,326 
+675,360 
+Goodwill 
+24,093 
+24,093 
+Other assets 
+18,917 
+12,203 
+Total assets 
+$ 
+1,367,163 
+$ 
+1,338,211 
+LIABILITIES AND STOCKHOLDERS’ EQUITY 
+LIABILITIES 
+Accounts payable 
+$ 
+109,846 
+$ 
+122,987 
+Accrued payroll and related expenses 
+32,053 
+33,680 
+Accrued insurance expenses 
+6,152 
+5,744 
+Accrued state, local and other taxes 
+7,326 
+5,066 
+Income taxes payable 
+6,428 
+10,705 
+Other accrued expenses 
+2,706 
+1,284 
+Current liabilities 
+164,511 
+179,466 
+Long-term accrued insurance expenses 
+10,400 
+9,000 
+Notes payable to banks 
+107,000 
+203,300 
+Long-term pension liabilities 
+26,543 
+24,445 
+Deferred income taxes 
+155,007 
+155,928 
+Other long-term liabilities 
+4,470 
+3,480 
+Total liabilities 
+467,931 
+575,619 
+Commitments and contingencies 
+STOCKHOLDERS’ EQUITY 
+Preferred stock, $0.10 par value, 1,000,000 shares authorized, none issued 
+- 
+- 
+Common stock, $0.10 par value, 349,000,000 shares authorized, 220,144,287 and 221,187,660 shares issued and outstanding in 2012 and 2011, respectively 
+22,014 
+22,119 
+Capital in excess of par value 
+- 
+- 
+Retained earnings 
+891,464 
+753,119 
+Accumulated other comprehensive loss 
+(14,246 
+) 
+(12,646 
+) 
+Total stockholders’ equity 
+899,232 
+762,592 
+Total liabilities and stockholders’ equity 
+$ 
+1,367,163 
+$ 
+1,338,211 
+The accompanying notes are an integral part of these statements. 
+32 
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+RPC, INC. AND SUBSIDIARIES 
+(in thousands except per share data) 
+Years ended December 31, 
+2012 
+2011 
+2010 
+REVENUES 
+$ 
+1,945,023 
+$ 
+1,809,807 
+$ 
+1,096,384 
+COSTS AND EXPENSES: 
+Cost of revenues 
+1,105,886 
+992,704 
+606,098 
+Selling, general and administrative expenses 
+175,749 
+151,286 
+121,839 
+Depreciation and amortization 
+214,899 
+179,905 
+133,360 
+Loss (gain) on disposition of assets, net 
+6,099 
+3,831 
+(3,758 
+) 
+Operating profit 
+442,390 
+482,081 
+238,845 
+Interest expense 
+(1,976 
+) 
+(3,453 
+) 
+(2,662 
+) 
+Interest income 
+30 
+18 
+46 
+Other income, net 
+2,175 
+169 
+1,303 
+Income before income taxes 
+442,619 
+478,815 
+237,532 
+Income tax provision 
+168,183 
+182,434 
+90,790 
+Net income 
+$ 
+274,436 
+$ 
+296,381 
+$ 
+146,742 
+EARNINGS PER SHARE 
+Basic 
+$ 
+1.28 
+$ 
+1.36 
+$ 
+0.67 
+Diluted 
+$ 
+1.27 
+$ 
+1.35 
+$ 
+0.67 
+Dividends paid per share 
+$ 
+0.520 
+$ 
+0.213 
+$ 
+0.094 
+The accompanying notes are an integral part of these statements. 
+33 
+CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
+RPC, INC. AND SUBSIDIARIES 
+(in thousands except per share data) 
+Years ended December 31, 
+2012 
+2011 
+2010 
+NET INCOME 
+$ 
+274,436 
+$ 
+296,381 
+$ 
+146,742 
+OTHER COMPREHENSIVE INCOME, NET OF TAXES: 
+Pension adjustment 
+(1,707 
+) 
+(3,048 
+) 
+(1,350 
+) 
+Cash flow hedge 
+- 
+387 
+133 
+Foreign currency translation 
+265 
+(138 
+) 
+209 
+Unrealized gain (loss) on securities and reclassification adjustments 
+(158 
+) 
+(314 
+) 
+281 
+COMPREHENSIVE INCOME 
+$ 
+272,836 
+293,268 
+146,015 
+The accompanying notes are an integral part of these statements. 
+34 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 
+RPC, INC. AND SUBSIDIARIES 
+(in thousands) 
+Accumulated 
+Capital in 
+Other 
+Three Years Ended 
+Common Stock 
+Excess of 
+Retained 
+Comprehensive 
+December 31, 2012 
+Shares 
+Amount 
+Par Value 
+Earnings 
+Income (Loss) 
+Total 
+Balance, December 31, 2009 
+147,547 
+$ 
+14,754 
+$ 
+2,720 
+$ 
+401,055 
+$ 
+(8,806 
+) 
+$ 
+409,723 
+Stock issued for stock incentive plans, net 
+587 
+59 
+4,889 
+— 
+— 
+4,948 
+Stock purchased and retired 
+(144 
+) 
+(14 
+) 
+(832 
+) 
+(949 
+) 
+— 
+(1,795 
+) 
+Net income 
+— 
+— 
+— 
+146,742 
+— 
+146,742 
+Pension adjustment, net of taxes 
+— 
+— 
+— 
+— 
+(1,350 
+) 
+(1,350 
+) 
+Gain on cash flow hedge, net of taxes 
+— 
+— 
+— 
+— 
+133 
+133 
+Unrealized gain on securities, net of taxes 
+— 
+— 
+— 
+— 
+281 
+281 
+Foreign currency translation, net of taxes 
+— 
+— 
+— 
+— 
+209 
+209 
+Dividends declared 
+— 
+— 
+— 
+(20,647 
+) 
+— 
+(20,647 
+) 
+Excess tax benefits for share-based payments 
+— 
+— 
+651 
+— 
+— 
+651 
+Three-for-two stock splits 
+74,274 
+7,428 
+(7,428 
+) 
+— 
+Balance, December 31, 2010 
+222,264 
+22,227 
+— 
+526,201 
+(9,533 
+) 
+538,895 
+Stock issued for stock incentive plans, net 
+1,218 
+122 
+9,455 
+— 
+— 
+9,577 
+Stock purchased and retired 
+(1,936 
+) 
+(194 
+) 
+(12,862 
+) 
+(22,136 
+) 
+— 
+(35,192 
+) 
+Net income 
+— 
+— 
+— 
+296,381 
+— 
+296,381 
+Pension adjustment, net of taxes 
+— 
+— 
+— 
+— 
+(3,048 
+) 
+(3,048 
+) 
+Gain on cash flow hedge, net of taxes 
+— 
+— 
+— 
+— 
+387 
+387 
+Unrealized loss on securities, net of taxes 
+— 
+— 
+— 
+— 
+(314 
+) 
+(314 
+) 
+Foreign currency translation, net of taxes 
+— 
+— 
+— 
+— 
+(138 
+) 
+(138 
+) 
+Dividends declared 
+— 
+— 
+— 
+(47,327 
+) 
+— 
+(47,327 
+) 
+Excess tax benefits for share-based payments 
+— 
+— 
+3,371 
+— 
+— 
+3,371 
+Three-for-two stock split 
+(358 
+) 
+(36 
+) 
+36 
+— 
+Balance, December 31, 2011 
+221,188 
+22,119 
+— 
+753,119 
+(12,646 
+) 
+762,592 
+Stock issued for stock incentive plans and other, net 
+1,530 
+152 
+11,105 
+— 
+— 
+11,257 
+Stock purchased and retired 
+(2,011 
+) 
+(201 
+) 
+(13,885 
+) 
+(16,515 
+) 
+— 
+(30,601 
+) 
+Increased ownership interest in subsidiary, net of taxes 
+— 
+— 
+— 
+(5,507 
+) 
+— 
+(5,507 
+) 
+Net income 
+— 
+— 
+— 
+274,436 
+— 
+274,436 
+Pension adjustment, net of taxes 
+— 
+— 
+— 
+— 
+(1,707 
+) 
+(1,707 
+) 
+Unrealized loss on securities, net of taxes 
+— 
+— 
+— 
+— 
+(158 
+) 
+(158 
+) 
+Foreign currency translation, net of taxes 
+— 
+— 
+— 
+— 
+265 
+265 
+Dividends declared 
+— 
+— 
+— 
+(114,069 
+) 
+— 
+(114,069 
+) 
+Excess tax benefits for share-based payments 
+— 
+— 
+2,724 
+— 
+— 
+2,724 
+Three-for-two stock split 
+(563 
+) 
+(56 
+) 
+56 
+— 
+Balance, December 31, 2012 
+220,144 
+$ 
+22,014 
+$ 
+— 
+$ 
+891,464 
+$ 
+(14,246 
+) 
+$ 
+899,232 
+The accompanying notes are an integral part of these statements. 
+35 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+RPC, Inc. and Subsidiaries 
+(in thousands) 
+Years ended December 31, 
+2012 
+2011 
+2010 
+OPERATING ACTIVITIES 
+Net income 
+$ 
+274,436 
+$ 
+296,381 
+$ 
+146,742 
+Adjustments to reconcile net income to net cash provided by operating activities: 
+Depreciation, amortization and other non-cash charges 
+214,153 
+179,787 
+133,253 
+Stock-based compensation expense 
+7,860 
+8,075 
+4,909 
+Loss (gain) on disposition of assets, net 
+6,099 
+3,831 
+(3,758 
+) 
+Deferred income tax provision 
+4,821 
+77,074 
+22,262 
+Excess tax benefits for share-based payments 
+(2,724 
+) 
+(3,371 
+) 
+(651 
+) 
+Changes in current assets and liabilities: 
+Accounts receivable 
+73,809 
+(167,312 
+) 
+(163,162 
+) 
+Income taxes receivable 
+9,295 
+9,817 
+1,584 
+Inventories 
+(40,354 
+) 
+(36,511 
+) 
+(8,130 
+) 
+Prepaid expenses 
+(2,284 
+) 
+(2,783 
+) 
+(1,041 
+) 
+Other current assets 
+26,189 
+(30,524 
+) 
+189 
+Accounts payable 
+(4,929 
+) 
+30,102 
+14,191 
+Income taxes payable 
+(4,277 
+) 
+4,917 
+5,141 
+Accrued payroll and related expenses 
+(1,627 
+) 
+9,799 
+13,173 
+Accrued insurance expenses 
+408 
+603 
+826 
+Accrued state, local and other taxes 
+2,260 
+2,078 
+987 
+Other accrued expenses 
+1,412 
+958 
+112 
+Changes in working capital 
+59,902 
+(178,856 
+) 
+(136,130 
+) 
+Changes in other assets and liabilities: 
+Pension liabilities 
+(589 
+) 
+1,249 
+1,628 
+Accrued insurance expenses 
+1,400 
+511 
+(108 
+) 
+Other non-current assets 
+(6,415 
+) 
+294 
+(920 
+) 
+Other non-current liabilities 
+990 
+1,032 
+1,430 
+Net cash provided by operating activities 
+559,933 
+386,007 
+168,657 
+INVESTING ACTIVITIES 
+Capital expenditures 
+(328,936 
+) 
+(416,400 
+) 
+(187,486 
+) 
+Increased ownership interest in subsidiary 
+(6,211 
+) 
+— 
+— 
+Proceeds from sale of assets 
+19,309 
+24,763 
+15,717 
+Net cash used for investing activities 
+(315,838 
+) 
+(391,637 
+) 
+(171,769 
+) 
+FINANCING ACTIVITIES 
+Payment of dividends 
+(114,069 
+) 
+(47,327 
+) 
+(20,647 
+) 
+Borrowings from notes payable to banks 
+844,050 
+940,850 
+516,600 
+Repayments of notes payable to banks 
+(940,350 
+) 
+(858,800 
+) 
+(485,650 
+) 
+Debt issue costs for notes payable to banks 
+— 
+(415 
+) 
+(1,886 
+) 
+Excess tax benefits for share-based payments 
+2,724 
+3,371 
+651 
+Cash paid for common stock purchased and retired 
+(30,224 
+) 
+(34,419 
+) 
+(1,650 
+) 
+Proceeds received upon exercise of stock options 
+544 
+728 
+240 
+Net cash (used for) provided by financing activities 
+(237,325 
+) 
+3,988 
+7,658 
+Net increase (decrease) in cash and cash equivalents 
+6,770 
+(1,642 
+) 
+4,546 
+Cash and cash equivalents at beginning of year 
+7,393 
+9,035 
+4,489 
+Cash and cash equivalents at end of year 
+$ 
+14,163 
+$ 
+7,393 
+$ 
+9,035 
+The accompanying notes are an integral part of these statements. 
+36 
+Note 1: Significant Accounting Policies 
+Principles of Consolidation and Basis of Presentation 
+The consolidated financial statements include the accounts of RPC, Inc. and its wholly-owned subsidiaries (“RPC” or the “Company”). All significant intercompany accounts and transactions have been eliminated. 
+Nature of Operations 
+RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The services and equipment provided include Technical Services such as pressure pumping services, coiled tubing services, snubbing services (also referred to as hydraulic workover services), nitrogen services, and firefighting and well control, and Support Services such as the rental of drill pipe and other specialized oilfield equipment and oilfield training. 
+Common Stock 
+RPC is authorized to issue 349,000,000 shares of common stock, $0.10 par value. Holders of common stock are entitled to receive dividends when, as, and if declared by the Board of Directors out of legally available funds. Each share of common stock is entitled to one vote on all matters submitted to a vote of stockholders. Holders of common stock do not have cumulative voting rights. In the event of any liquidation, dissolution or winding up of the Company, holders of common stock are entitled to ratable distribution of the remaining assets available for distribution to stockholders. 
+Preferred Stock 
+RPC is authorized to issue up to 1,000,000 shares of preferred stock, $0.10 par value. As of December 31, 2012, there were no shares of preferred stock issued. The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of preferred stock as a class without series or, if so determined from time to time, in one or more series, and by filing a certificate pursuant to the applicable laws of the state of Delaware and to fix the designations, powers, preferences and rights, exchangeability for shares of any other class or classes of stock. Any preferred stock to be issued could rank prior to the common stock with respect to dividend rights and rights on liquidation. 
+Dividends 
+On January 22, 2013, the Board of Directors approved a $0.10 per share cash dividend payable March 8, 2013 to stockholders of record at the close of business on February 8, 2013. 
+Three-for-Two Stock Split 
+On January 24, 2012 at its quarterly meeting, the Board of Directors authorized a three-for-two stock split by issuance on March 9, 2012 of one additional common share for every two common shares held of record as of February 10, 2012. Accordingly, the par value of additional shares issued was adjusted between common stock and capital in excess of par value, and fractional shares resulting from the stock split were settled in cash. All share and per share data on the historical (actual) basis presented in the accompanying financial statements have been retroactively adjusted for the stock split. 
+Use of Estimates in the Preparation of Financial Statements 
+The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 
+Significant estimates are used in the determination of the allowance for doubtful accounts, income taxes, accrued insurance expenses, depreciable lives of assets, and pension liabilities. 
+Revenues 
+RPC’s revenues are generated principally from providing services and the related equipment. Revenues are recognized when the services are rendered and collectibility is reasonably assured. Revenues from services and equipment are based on fixed or determinable priced purchase orders or contracts with the customer and do not include the right of return. Rates for services and equipment are priced on a per day, per unit of measure, per man hour or similar basis. Sales tax charged to customers is presented on a net basis within the consolidated statement of operations and excluded from revenues. 
+37 
+Concentration of Credit Risk 
+Substantially all of the Company’s customers are engaged in the oil and gas industry. This concentration of customers may impact overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. The Company provided oilfield services to several hundred customers. In 2012, there were no customers that accounted for more than 10 percent of the Company ’ s revenues. In 2011, one of our customers accounted for approximately 12 percent of revenues, and in 2010, one of our customers accounted for approximately 15 percent of revenues. Additionally, no customer accounted for more than 10 percent of accounts receivable as of December 31, 2012, and one of our customers accounted for approximately 19 percent of accounts receivable as of December 31, 2011. 
+Cash and Cash Equivalents 
+Highly liquid investments with original maturities of three months or less when acquired are considered to be cash equivalents. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits. RPC maintains cash equivalents and investments in one or more large financial institutions, and RPC’s policy restricts investment in any securities rated less than “investment grade” by national rating services. 
+Investments 
+Investments classified as available-for-sale securities are stated at their fair values, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. The cost of securities sold is based on the specific identification method. Realized gains and losses, declines in value judged to be other than temporary, interest, and dividends with respect to available-for-sale securities are included in interest income. The Company did not realize any gains or losses during 2012, 2011 or 2010 on its available-for-sale securities. Securities that are held in the non-qualified Supplemental Executive Retirement Plan (“SERP”) are classified as trading. See Note 10 for further information regarding the SERP. The change in fair value of trading securities is presented in other income (expense) on the consolidated statements of operations. 
+Management determines the appropriate classification of investments at the time of purchase and re-evaluates such designations as of each balance sheet date. 
+Accounts Receivable 
+The majority of the Company’s accounts receivable are due principally from major and independent oil and natural gas exploration and production companies. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are considered past due after 60 days and are stated at amounts due from customers, net of an allowance for doubtful accounts. 
+Allowance for Doubtful Accounts 
+Accounts receivable are carried at the amount owed by customers, reduced by an allowance for estimated amounts that may not be collectible in the future. The estimated allowance for doubtful accounts is based on an evaluation of industry trends, financial condition of customers, historical write-off experience, current economic conditions, and in the case of international customers, judgments about the economic and political environment of the related country and region. Accounts are written off against the allowance for doubtful accounts when the Company determines that amounts are uncollectible and recoveries of previously written-off accounts are recorded when collected. 
+Inventories 
+Inventories, which consist principally of (i) raw materials and supplies that are consumed providing services to the Company’s customers, (ii) spare parts for equipment used in providing these services and (iii) manufactured components and attachments for equipment used in providing services, are recorded at the lower of cost or market value. Cost is determined using the first-in, first-out (“FIFO”) method or the weighted average cost method. Market value is determined based on replacement cost for materials and supplies. The Company regularly reviews inventory quantities on hand and records provisions for excess or obsolete inventory based primarily on its estimated forecast of product demand, market conditions, production requirements and technological developments. 
+Derivative Instruments and Hedging Activities 
+The Company is subject to interest rate risk on the variable component of the interest rate under our credit facility. Effective December 2008, the Company entered into a $50 million interest rate swap agreement. The Company designated the interest rate swap as a cash flow hedge. Changes in the fair value of the effective portion of the interest rate swap were recognized in other comprehensive loss until the hedged item was recognized in earnings. This agreement terminated in September 2011. 
+38 
+Property, Plant and Equipment 
+Property, plant and equipment, including software costs, are reported at cost less accumulated depreciation and amortization, which is provided on a straight-line basis over the estimated useful lives of the assets. Annual depreciation and amortization expenses are computed using the following useful lives: operating equipment, 3 to 10 years; buildings and leasehold improvements, 15 to 30 years; furniture and fixtures, 5 to 7 years; software, 5 years; and vehicles, 3 to 5 years. The cost of assets retired or otherwise disposed of and the related accumulated depreciation and amortization are eliminated from the accounts in the year of disposal with the resulting gain or loss credited or charged to income from operations. Expenditures for additions, major renewals, and betterments are capitalized. Expenditures for restoring an identifiable asset to working condition or for maintaining the asset in good working order constitute repairs and maintenance and are expensed as incurred. 
+RPC records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The Company periodically reviews the values assigned to long-lived assets, such as property, plant and equipment and other assets, to determine if any impairments should be recognized. Management believes that the long-lived assets in the accompanying balance sheets have not been impaired. 
+Goodwill 
+Goodwill represents the excess of the purchase price over the fair value of net assets of businesses acquired. The carrying amount of goodwill was $24,093,000 at December 31, 2012 and 2011. Goodwill is reviewed annually, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount, for impairment. The Company completed a comprehensive qualitative assessment of the various factors that impact goodwill and concluded it is more likely than not that the fair value of its reporting units exceeds their carrying amounts on the annual test date. Therefore the Company did not proceed to Step 1 of the goodwill impairment test in 2012 and 2011. In 2010 the Company completed the Step 1 quantitative analysis by comparing the estimated fair value of a reporting unit with its carrying value. Based on the qualitative assessment and results of the 2010 analysis, the Company has concluded that no impairment of its goodwill occurred for the years ended December 31, 2012, 2011 and 2010. 
+Advertising 
+Advertising expenses are charged to expense during the period in which they are incurred. Advertising expenses totaled $2,965,000 in 2012, $2,406,000 in 2011 and $1,782,000 in 2010. 
+Insurance Expenses 
+RPC self insures, up to certain policy-specified limits, certain risks related to general liability, workers’ compensation, vehicle and equipment liability, and employee health insurance plan costs. The estimated cost of claims under these self-insurance programs is estimated and accrued as the claims are incurred (although actual settlement of the claims may not be made until future periods) and may subsequently be revised based on developments relating to such claims. The portion of these estimated outstanding claims expected to be paid more than one year in the future is classified as long-term accrued insurance expenses. 
+Income Taxes 
+Deferred tax liabilities and assets are determined based on the difference between the financial and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance against the carrying value of deferred tax assets when the Company determines that it is more likely than not that the asset will not be realized through future taxable income. 
+Defined Benefit Pension Plan 
+The Company has a defined benefit pension plan that provides monthly benefits upon retirement at age 65 to eligible employees with at least one year of service prior to 2002. In 2002, the Company’s Board of Directors approved a resolution to cease all future retirement benefit accruals under the defined benefit pension plan. See Note 10 for a full description of this plan and the related accounting and funding policies. 
+39 
+Share Repurchases 
+The Company records the cost of share repurchases in stockholders’ equity as a reduction to common stock to the extent of par value of the shares acquired and the remainder is allocated to capital in excess of par value and retained earnings if capital in excess of par value is depleted. 
+Earnings per Share 
+FASB ASC Topic 260-10 “Earnings Per Share-Overall,” requires a basic earnings per share and diluted earnings per share presentation. During 2010, the Company adopted certain amendments to ASC 260-10 which requires that all outstanding unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, be considered participating securities and included in the calculation of its basic earnings per share. 
+The Company has periodically issued share-based payment awards that contain non-forfeitable rights to dividends, and therefore are considered participating securities. See Note 10 for further information on restricted stock granted to employees. 
+The basic and diluted calculations differ as a result of the dilutive effect of stock options and time lapse restricted shares and performance restricted shares included in diluted earnings per share, but excluded from basic earnings per share. Basic and diluted earnings per share are computed by dividing net income (loss) by the weighted average number of shares outstanding during the respective periods. 
+A reconciliation of weighted average shares outstanding along with the earnings (loss) per share attributable to restricted shares of common stock (participating securities) is as follows: 
+(In thousands except per share data ) 
+2012 
+2011 
+2010 
+Net income available for stockholders: 
+$ 
+274,436 
+$ 
+296,381 
+$ 
+146,742 
+Less: Dividends paid 
+Common stock 
+(111,966 
+) 
+(46,479 
+) 
+(20,294 
+) 
+Restricted shares of common stock 
+(2,103 
+) 
+(848 
+) 
+(353 
+) 
+Undistributed earnings 
+$ 
+160,367 
+$ 
+249,054 
+$ 
+126,095 
+Allocation of undistributed earnings: 
+Common stock 
+$ 
+157,093 
+$ 
+244,053 
+$ 
+123,536 
+Restricted shares of common stock 
+3,274 
+5,001 
+2,559 
+Basic shares outstanding : 
+Common stock 
+210,707 
+213,153 
+212,799 
+Restricted shares of common stock 
+4,534 
+4,530 
+4,685 
+215,241 
+217,683 
+217,484 
+Diluted shares outstanding : 
+Common stock 
+210,707 
+213,153 
+212,799 
+Dilutive effect of stock-based awards 
+1,555 
+2,567 
+2,321 
+212,262 
+215,720 
+215,120 
+Restricted shares of common stock 
+4,534 
+4,530 
+4,685 
+216,796 
+220,250 
+219,805 
+Basic earnings per share: 
+Common stock: 
+Distributed earnings 
+$ 
+0.53 
+$ 
+0.22 
+$ 
+0.10 
+Undistributed earnings 
+0.75 
+1.14 
+0.57 
+$ 
+1.28 
+$ 
+1.36 
+$ 
+0.67 
+Restricted shares of common stock: 
+Distributed earnings 
+$ 
+0.46 
+$ 
+0.19 
+$ 
+0.08 
+Undistributed earnings 
+0.72 
+1.10 
+0.55 
+$ 
+1.18 
+$ 
+1.29 
+$ 
+0.63 
+Diluted earnings per share: 
+Common Stock: 
+Distributed earnings 
+$ 
+0.53 
+$ 
+0.22 
+$ 
+0.10 
+Undistributed earnings 
+0.74 
+1.13 
+0.57 
+$ 
+1.27 
+$ 
+1.35 
+$ 
+0.67 
+40 
+Fair Value of Financial Instruments 
+The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, investments, accounts payable, an interest rate swap, and debt. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short-term nature of such instruments. The Company’s investments are classified as available-for-sale securities with the exception of investments held in the non-qualified Supplemental Executive Retirement Plan (“SERP”) which are classified as trading securities. All of these securities are carried at fair value in the accompanying consolidated balance sheets. The interest rate swap which expired in September of 2011 was carried at fair value based on quotes from the issuer of the swap and represented the estimated amount that the Company expected to pay to terminate the swap. See Note 8 for additional information. 
+Stock-Based Compensation 
+Stock-based compensation expense is recognized for all share-based payment awards, net of an estimated forfeiture rate. Thus, compensation cost is amortized for those shares expected to vest on a straight-line basis over the requisite service period of the award. See Note 10 for additional information. 
+Recent Accounting Pronouncements 
+During the year ended December 31, 2012, the Financial Accounting Standards Board (FASB) issued the following applicable accounting Standards Updates (ASU): 
+Recently Adopted Accounting Pronouncements: 
+ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The amendments to the Codification in this ASU allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments are to be applied retrospectively and are effective for fiscal years beginning after December 15, 2011. The Company has adopted these provisions in the first quarter of 2012 and has presented a separate statement of comprehensive income consecutively after the statement showing net income in the accompanying financial statements. Adoption of these provisions did not have a material impact on the Company’s consolidated financial statements. 
+ASU 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The amendments in this codification permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Codification Subtopic 350-30. An entity has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period, proceeding directly to performing the quantitative impairment test and resume performing the qualitative assessment in any subsequent period. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 with early adoption being permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if an entity’s financial statements for the most recent annual or interim period have not been issued. The Company adopted these provisions in the fourth quarter of 2012 for annual and interim impairment tests performed starting this year. Adoption of these provisions did not have a material impact on the Company’s consolidated financial statements. 
+Recently Issued Accounting Pronouncements Not Yet Adopted: 
+Accounting Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The amendments are effective for all reporting periods beginning after December 15, 2012, with early adoption permitted. The Company plans to adopt these provisions in the first quarter of 2013. Adoption of these provisions is not expected to have a material impact on the Company’s consolidated financial statements and the Company will comply with the additional disclosures as required. 
+41 
+Accounting Standards Update 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments to the Codification in this ASU are part of an ongoing effort to bring congruence between U.S. GAAP and International Financial Reporting Standards. The amendments in this ASU require an entity to disclose information about derivatives that are subject to a legally enforceable netting arrangement with the same party where rights of set-off are only available in the event of default or bankruptcy and can be presented as a single net amount in the statement of financial position. The amendments in this ASU are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, with the required disclosures being provided retrospectively for all comparative periods presented. The Company is currently evaluating the impact of adoption of these provisions in the first quarter of 2013. 
+Note 2: Accounts Receivable 
+Accounts receivable, net consists of the following: 
+December 31, 
+2012 
+2011 
+(in thousands) 
+Trade receivables: 
+Billed 
+$ 
+310,997 
+$ 
+367,718 
+Unbilled 
+82,649 
+99,913 
+Other receivables 
+2,994 
+1,734 
+Total 
+396,640 
+469,365 
+Less: allowance for doubtful accounts 
+(9,110 
+) 
+(8,093 
+) 
+Accounts receivable, net 
+$ 
+387,530 
+$ 
+461,272 
+Trade receivables relate to sale of our services and products, for which credit is extended based on our evaluation of the customer’s credit worthiness. Unbilled receivables represent revenues earned but not billed to the customer until future dates, usually within one month. Other receivables consist primarily of amounts due from purchasers of Company property and rebates from suppliers. 
+Changes in the Company’s allowance for doubtful accounts are as follows: 
+Years Ended December 31, 
+2012 
+2011 
+(in thousands) 
+Beginning balance 
+$ 
+8,093 
+$ 
+8,695 
+Bad debt expense 
+1,784 
+2,868 
+Accounts written-off 
+(1,132 
+) 
+(3,820 
+) 
+Recoveries 
+365 
+350 
+Ending balance 
+$ 
+9,110 
+$ 
+8,093 
+Note 3: Inventories 
+Inventories are $140,867,000 at December 31, 2012 and $100,438,000 at December 31, 2011 and consist of raw materials, parts and supplies. 
+Note 4: Property, Plant and Equipment 
+Property, plant and equipment are presented at cost net of accumulated depreciation and consist of the following: 
+December 31, 
+2012 
+2011 
+(in thousands) 
+Land 
+$ 
+17,420 
+$ 
+17,403 
+Buildings and leasehold improvements 
+111,986 
+94,152 
+Operating equipment 
+1,155,600 
+990,186 
+Computer software 
+20,581 
+18,662 
+Furniture and fixtures 
+7,232 
+5,679 
+Vehicles 
+357,913 
+306,716 
+Construction in progress 
+9,829 
+9,828 
+Gross property, plant and equipment 
+1,680,561 
+1,442,626 
+Less: accumulated depreciation 
+(924,235 
+) 
+(767,266 
+) 
+Net property, plant and equipment 
+$ 
+756,326 
+$ 
+675,360 
+Depreciation expense was $214.9 million in 2012, $179.9 million in 2011 and $133.4 million in 2010. There were no capital leases outstanding as of December 31, 2012 and December 31, 2011. The Company had accounts payable for purchases of property and equipment of approximately $24.4 million as of December 31 2012, $32.7 million as of December 31, 2011 and $18.1 million as of December 31, 2010. 
+42 
+Note 5: Income Taxes 
+The following table lists the components of the provision (benefit) for income taxes: 
+Years ended December 31, 
+2012 
+2011 
+2010 
+(in thousands) 
+Current provision: 
+Federal 
+$ 
+147,580 
+$ 
+91,415 
+$ 
+56,289 
+State 
+14,673 
+12,938 
+11,180 
+Foreign 
+1,109 
+1,007 
+1,059 
+Deferred provision (benefit): 
+Federal 
+5,027 
+70,599 
+22,833 
+State 
+(206 
+) 
+6,475 
+(571 
+) 
+Total income tax provision 
+$ 
+168,183 
+$ 
+182,434 
+$ 
+90,790 
+Reconciliation between the federal statutory rate and RPC’s effective tax rate is as follows: 
+Years ended December 31, 
+2012 
+2011 
+2010 
+Federal statutory rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State income taxes, net of federal benefit 
+3.2 
+3.1 
+2.9 
+Tax credits 
+(0.3 
+) 
+(0.2 
+) 
+(0.6 
+) 
+Non-deductible expenses 
+0.5 
+0.4 
+0.4 
+Other 
+(0.4 
+) 
+(0.2 
+) 
+0.5 
+Effective tax rate 
+38.0 
+% 
+38.1 
+% 
+38.2 
+% 
+Significant components of the Company’s deferred tax assets and liabilities are as follows: 
+December 31, 
+2012 
+2011 
+(in thousands) 
+Deferred tax assets: 
+Self-insurance 
+$ 
+7,417 
+$ 
+6,344 
+Pension 
+9,688 
+8,922 
+State net operating loss carry forwards 
+1,165 
+1,671 
+Bad debts 
+3,489 
+3,044 
+Accrued payroll 
+2,038 
+2,099 
+Stock-based compensation 
+4,567 
+3,680 
+All others 
+274 
+1 
+Valuation allowance 
+(1,003 
+) 
+(1,295 
+) 
+Gross deferred tax assets 
+27,635 
+24,466 
+Deferred tax liabilities: 
+Depreciation 
+(168,717 
+) 
+(166,190 
+) 
+Goodwill amortization 
+(6,394 
+) 
+(5,707 
+) 
+All others 
+(1,754 
+) 
+(1,314 
+) 
+Gross deferred tax liabilities 
+(176,865 
+) 
+(173,211 
+) 
+Net deferred tax liabilities 
+$ 
+(149,230 
+) 
+$ 
+(148,745 
+) 
+As of December 31, 2012, undistributed earnings of the Company’s foreign subsidiaries amounted to $9.5 million. Those earnings are considered to be indefinitely reinvested and, accordingly, no U.S. federal and state income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and withholding taxes payable to the foreign countries. The Company’s current intention is to permanently reinvest funds held in our foreign subsidiaries outside of the U.S., with the possible exception of repatriation of funds that have been previously subject to U.S. federal and state taxation or when it would be tax effective through the utilization of foreign tax credits, or would otherwise create no additional U.S. tax cost. 
+43 
+As of December 31, 2012, the Company has net operating loss carry forwards related to state income taxes of approximately $27.2 million that will expire between 2013 and 2030. As of December 31, 2012 the Company has a valuation allowance of approximately $1.0 million, representing the tax affected amount of loss carry forwards that the Company does not expect to utilize, against the corresponding deferred tax asset. 
+Total net income tax payments were $158,700,000 in 2012, $90,729,000 in 2011, and $61,632,000 in 2010. 
+The Company’s policy is to record interest and penalties related to income tax matters as income tax expense. Accrued interest and penalties were immaterial to the financial statements as of December 31, 2012 and 2011. 
+In accordance with the accounting guidance relating to the accounting for uncertainty in income tax reporting, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions, the Company did not recognize a material adjustment in the liability for unrecognized income tax benefits. 
+The Company’s liability for unrecognized tax benefits was $38,000 as of December 31, 2012 and $35,000 as of December 31, 2011, all of which would affect our effective rate if recognized. 
+The Company and its subsidiaries are subject to U.S. federal and state income tax in multiple jurisdictions. In many cases our uncertain tax positions are related to tax years that remain open and subject to examination by the relevant taxing authorities. The Company’s 2009 through 2012 tax years remain open to examination. 
+It is reasonably possible that the amount of the unrecognized tax benefits with respect to our unrecognized tax positions will increase or decrease in the next 12 months. These changes may be the result of, among other things, state tax settlements under Voluntary Disclosure Agreements. However, quantification of an estimated range cannot be made at this time. 
+The American Taxpayer Relief Act of 2012 was signed into law on January 2, 2013 and includes an extension for one year of the 50 percent bonus depreciation allowance. The provision specifically applies to qualifying property placed in service before January 1, 2014. The acceleration of deductions on 2012 qualifying capital expenditures resulting from the bonus depreciation provision had no impact on our 2012 effective tax rate. 
+Note 6: Long-Term Debt 
+In August 2010, the Company replaced its $200 million credit facility with a new $350 million revolving credit facility with Banc of America Securities, LLC, SunTrust Robinson Humphrey, Inc., and Regions Capital Markets as Joint Lead Arrangers and Joint Book Managers, and a syndicate of other lenders. The facility includes a full and unconditional guarantee by the Company’s 100% owned domestic subsidiaries whose assets equal substantially all of the consolidated assets of RPC and its subsidiaries. The subsidiaries of the Company that are not guarantors are considered minor. 
+The facility has a general term of five years and provides for an unsecured line of credit of up to $350 million, which includes a $50 million letter of credit subfacility, and a $25 million swingline subfacility. The maturity date of all revolving loans under the Credit Agreement is August 31, 2015. The Company has incurred loan origination fees and other debt related costs associated with the Revolving Credit Agreement in the aggregate of approximately $2.3 million. These costs are being amortized to interest expense over the five year term of the loan, and the net amount is classified as non-current other assets on the consolidated balance sheets. 
+Revolving loans under the facility bear interest at one of the following two rates, at the Company’s election: 
+● 
+the Base Rate, which is the highest of Bank of America’s “prime rate” for the day of the borrowing, a fluctuating rate per annum equal to the Federal Funds Rate plus 0.50%, and a rate per annum equal to the one (1) month LIBOR rate plus 1.00%, in each case plus a margin that ranges from 0.25% to 1.25% based on a quarterly debt covenant calculation; or 
+● 
+with respect to any Eurodollar borrowings, Adjusted LIBOR (which equals LIBOR as increased to account for the maximum reserve percentages established by the U.S. Federal Reserve) plus a margin ranging from 1.25% to 2.25%, based upon a quarterly debt covenant calculation. 
+In addition, the Company pays a commitment fee ranging from 0.25% to 0.35%, based on a quarterly debt covenant calculation, of the unused portion of the credit facility. 
+44 
+The facility contains customary terms and conditions, including certain financial covenants and restrictions on indebtedness, dividend payments, business combinations and other related items. Further, the facility contains financial covenants limiting the ratio of the Company’s consolidated debt-to-EBITDA to no more than 2.5 to 1, and limiting the ratio of the Company’s consolidated EBITDA to interest expense to no less than 2 to 1. The Company was in compliance with these covenants as of and for the year ended December 31, 2012. 
+As of December 31, 2012, RPC has outstanding borrowings of $107.0 million under the facility. Additionally there were letters of credit relating to self-insurance programs and contract bids outstanding for $18.1 million as of December 31, 2012. Interest incurred and paid on the credit facility, interest capitalized related to facilities and equipment under construction, and the related weighted average interest rates were as follows for the periods indicated: 
+Years Ended December 31, 
+2012 
+2011 
+2010 
+(in thousands except interest rate data) 
+Interest incurred 
+$ 
+2,936 
+$ 
+4,146 
+$ 
+3,170 
+Capitalized interest 
+$ 
+1,026 
+$ 
+627 
+$ 
+554 
+Interest paid (net of capitalized interest) 
+$ 
+1,498 
+$ 
+3,168 
+$ 
+1,899 
+Weighted average interest rate 
+2.3 
+% 
+2.8 
+% 
+3.0 
+% 
+Effective December 2008 the Company entered into an interest rate swap agreement that effectively converted $50 million of the Company’s variable-rate debt to a fixed rate basis, thereby hedging against the impact of potential interest rate changes on future interest expense. Under this agreement the Company and the issuing lender settled on a monthly basis for the difference between a fixed interest rate of 2.07% and a comparable one month LIBOR rate. This agreement terminated in September 2011. 
+Note 7: Accumulated Other Comprehensive (Loss) Income 
+Accumulated other comprehensive (loss) income consists of the following (in thousands): 
+Pension 
+Adjustment 
+Unrealized 
+Gain (Loss) On 
+Securities 
+Foreign Currency Translation 
+Net Loss 
+On Cash Flow Hedge 
+Total 
+Balance at December 31, 2010 
+$ 
+(9,933 
+) 
+$ 
+501 
+$ 
+286 
+$ 
+(387 
+) 
+$ 
+(9,533 
+) 
+Change during 2011: 
+Before-tax amount 
+(4,800 
+) 
+(495 
+) 
+(218 
+) 
+610 
+(4,903 
+) 
+Tax (expense) benefit 
+1,752 
+181 
+80 
+(223 
+) 
+1,790 
+Total activity in 2011 
+(3,048 
+) 
+(314 
+) 
+(138 
+) 
+387 
+(3,113 
+) 
+Balance at December 31, 2011 
+(12,981 
+) 
+187 
+148 
+- 
+(12,646 
+) 
+Change during 2012: 
+Before-tax amount 
+(2,688 
+) 
+(249 
+) 
+180 
+- 
+(2,757 
+) 
+Tax (expense) benefit 
+981 
+91 
+85 
+- 
+1,157 
+Total activity in 2012 
+(1,707 
+) 
+(158 
+) 
+265 
+- 
+(1,600 
+) 
+Balance at December 31, 2012 
+$ 
+(14,688 
+) 
+$ 
+29 
+$ 
+413 
+$ 
+- 
+$ 
+(14,246 
+) 
+Note 8: Fair Value Disclosures 
+The various inputs used to measure assets at fair value establish a hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three broad levels as follows: 
+1. 
+Level 1 – Quoted market prices in active markets for identical assets or liabilities. 
+2. 
+Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. 
+3. 
+Level 3 – Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants would use. 
+45 
+The following table summarizes the valuation of financial instruments measured at fair value on a recurring basis on the balance sheet as of December 31, 2012 and 2011: 
+Fair Value Measurements at December 31, 2012 with: 
+(in thousands ) 
+Quoted prices in active 
+markets for identical 
+assets 
+Significant other 
+observable inputs 
+Significant 
+unobservable inputs 
+(Level 1) 
+(Level 2) 
+(Level 3) 
+Assets: 
+Trading securities 
+$ 
+- 
+$ 
+11,103 
+$ 
+- 
+Available-for-sale securities – equity securities 
+$ 
+380 
+$ 
+- 
+$ 
+- 
+Fair Value Measurements at December 31, 2011 with: 
+(in thousands ) 
+Quoted prices in active 
+markets for identical 
+assets 
+Significant other 
+observable inputs 
+Significant 
+unobservable inputs 
+(Level 1) 
+(Level 2) 
+(Level 3) 
+Assets: 
+Trading securities 
+$ 
+- 
+$ 
+8,251 
+$ 
+- 
+Available-for-sale securities – equity securities 
+$ 
+629 
+$ 
+- 
+$ 
+- 
+The Company determines the fair value of the marketable securities that are available-for-sale through quoted market prices. The total fair value is the final closing price, as defined by the exchange in which the asset is actively traded, on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs. The trading securities are comprised of the SERP assets, as described in Note 10, and are recorded primarily at their net cash surrender values, which approximates fair value, as provided by the issuing insurance company. Significant observable inputs, in addition to quoted market prices, were used to value the trading securities. As a result, the Company classified these investments as using level 2 inputs. The Company’s policy is to recognize transfers between levels at the beginning of quarterly reporting periods. For the year ended December 31, 2012 there were no significant transfers in or out of levels 1, 2 or 3. 
+At December 31, 2012 and 2011, amounts outstanding under the Company’s credit facility were $107,000,000 and $203,300,000 and based on quotes from the lender (level 2 inputs) is similar to the fair values of these amounts at the respective dates. The borrowings under our revolving credit facility bear interest at the variable rate described in Note 6. The Company is subject to interest rate risk on the variable component of the interest rate. In 2008 the Company entered into an interest rate swap agreement effectively converting a portion of the outstanding borrowings under the revolving credit facility to a fixed-rate, thereby hedging against the impact of potential interest rate changes on future interest expense; this agreement terminated in September 2011. 
+The carrying amounts of other financial instruments reported in the balance sheet for current assets and current liabilities approximate their fair values because of the short maturity of these instruments. The Company currently does not use the fair value option to measure any of its existing financial instruments and has not determined whether or not it will elect this option for financial instruments it may acquire in the future. 
+Note 9: Commitments and Contingencies 
+Lease Commitments - Minimum annual rentals, principally for noncancelable real estate and equipment leases with terms in excess of one year, in effect at December 31, 2012, are summarized in the following table: 
+(in thousands) 
+2013 
+$ 
+7,011 
+2014 
+6,568 
+2015 
+5,259 
+2016 
+3,321 
+2017 
+1,902 
+Thereafter 
+7,329 
+Total rental commitments 
+$ 
+31,390 
+Total rental expense, including short-term rentals, charged to operations was approximately $18,224,000 in 2012, $19,814,000 in 2011 and $11,970,000 in 2010. 
+46 
+Income Taxes - The amount of income taxes the Company pays is subject to ongoing audits by federal and state tax authorities, which often result in proposed assessments. 
+Sales and Use Taxes - The Company has ongoing sales and use tax audits in various jurisdictions and may be subjected to varying interpretations of statute that could result in unfavorable outcomes. Any probable and estimable assessment costs are included in accrued state, local and other taxes. 
+Litigation - RPC is a party to various routine legal proceedings primarily involving commercial claims, workers’ compensation claims and claims for personal injury. RPC insures against these risks to the extent deemed prudent by its management, but no assurance can be given that the nature and amount of such insurance will, in every case, fully indemnify RPC against liabilities arising out of pending and future legal proceedings related to its business activities. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management, after consultation with legal counsel, believes that the outcome of all such proceedings, even if determined adversely, would not have a material adverse effect on the Company’s business or financial condition. 
+Note 10: Employee Benefit Plans 
+Defined Benefit Pension Plan 
+The Company’s Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to substantially all employees with at least one year of service prior to 2002. During 2001, the plan became a multiple employer plan, with Marine Products Corporation as an adopting employer. 
+The Company’s projected benefit obligation exceeds the fair value of the plan assets under its pension plan by $13.2 million and thus the plan was under-funded as of December 31, 2012. 
+The following table sets forth the funded status of the Retirement Income Plan and the amounts recognized in RPC’s consolidated balance sheets: 
+December 31, 
+2012 
+2011 
+(in thousands) 
+Accumulated Benefit Obligation at end of year 
+$ 
+42,699 
+$ 
+38,278 
+CHANGE IN PROJECTED BENEFIT OBLIGATION: 
+Benefit obligation at beginning of year 
+$ 
+38,278 
+$ 
+35,873 
+Service cost 
+— 
+— 
+Interest cost 
+1,869 
+1,916 
+Amendments 
+— 
+— 
+Actuarial loss 
+4,221 
+2,123 
+Benefits paid 
+(1,669 
+) 
+(1,634 
+) 
+Projected benefit obligation at end of year 
+$ 
+42,699 
+$ 
+38,278 
+CHANGE IN PLAN ASSETS: 
+Fair value of plan assets at beginning of year 
+$ 
+24,180 
+$ 
+26,523 
+Actual return on plan assets 
+2,712 
+(1,309 
+) 
+Employer contribution 
+4,296 
+600 
+Benefits paid 
+(1,669 
+) 
+(1,634 
+) 
+Fair value of plan assets at end of year 
+29,519 
+24,180 
+Funded status at end of year 
+$ 
+(13,180 
+) 
+$ 
+(14,098 
+) 
+47 
+December 31, 
+2012 
+2011 
+(in thousands) 
+AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF: 
+Noncurrent assets 
+$ 
+— 
+$ 
+— 
+Current liabilities 
+— 
+— 
+Noncurrent liabilities 
+(13,180 
+) 
+(14,098 
+) 
+$ 
+(13,180 
+) 
+$ 
+(14,098 
+) 
+December 31, 
+2012 
+2011 
+(in thousands) 
+AMOUNTS (PRE-TAX) RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CONSIST OF: 
+Net loss (gain) 
+$ 
+23,129 
+$ 
+20,441 
+Prior service cost (credit) 
+— 
+— 
+Net transition obligation (asset) 
+— 
+— 
+$ 
+23,129 
+$ 
+20,441 
+The accumulated benefit obligation for the Retirement Income Plan at December 31, 2012 and 2011 has been disclosed above. The Company uses a December 31 measurement date for this qualified plan. 
+Amounts recognized in the consolidated balance sheets consist of: 
+December 31, 
+2012 
+2011 
+(in thousands) 
+Funded status 
+$ 
+(13,180 
+) 
+$ 
+(14,098 
+) 
+SERP liability 
+(13,363 
+) 
+(10,347 
+) 
+Long-term pension liability 
+$ 
+(26,543 
+) 
+$ 
+(24,445 
+) 
+RPC’s funding policy is to contribute to the defined benefit pension plan the amount required, if any, under the Employee Retirement Income Security Act of 1974. Amounts contributed to the plan totaled $4,296,000 in 2012 and $600,000 in 2011. 
+The components of net periodic benefit cost are summarized as follows: 
+Years ended December 31, 
+2012 
+2011 
+2010 
+(in thousands) 
+Service cost for benefits earned during the period 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+Interest cost on projected benefit obligation 
+1,869 
+1,916 
+1,893 
+Expected return on plan assets 
+(1,846 
+) 
+(1,831 
+) 
+(1,720 
+) 
+Amortization of net loss 
+667 
+463 
+409 
+Net periodic benefit plan cost 
+$ 
+690 
+$ 
+548 
+$ 
+582 
+The Company recognized pre-tax decreases to the funded status in accumulated other comprehensive loss of $2,688,000 in 2012, $4,800,000 in 2011 and $2,125,000 in 2010. There were no previously unrecognized prior service costs as of December 31, 2012, 2011 and 2010. The pre-tax amounts recognized in accumulated other comprehensive loss for the years ended December 31, 2012, 2011 and 2010 are summarized as follows: 
+(in thousands) 
+2012 
+2011 
+2010 
+Net loss 
+$ 
+3,355 
+$ 
+5,263 
+$ 
+2,534 
+Amortization of net loss 
+(667 
+) 
+(463 
+) 
+(409 
+) 
+Net transition obligation (asset) 
+— 
+— 
+— 
+Amount recognized in accumulated other comprehensive loss 
+$ 
+2,688 
+$ 
+4,800 
+$ 
+2,125 
+48 
+The amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost in 2013 are as follows: 
+(in thousands) 
+2013 
+Amortization of net loss 
+$ 
+789 
+Prior service cost (credit) 
+— 
+Net transition obligation (asset) 
+— 
+Estimated net periodic benefit plan cost 
+$ 
+789 
+The weighted average assumptions as of December 31 used to determine the projected benefit obligation and net benefit cost were as follows: 
+December 31, 
+2012 
+2011 
+2010 
+Projected Benefit Obligation : 
+Discount rate 
+4.16 
+% 
+5.00 
+% 
+5.49 
+% 
+Rate of compensation increase 
+N/A 
+N/A 
+N/A 
+Net Benefit Cost: 
+Discount rate 
+5.00 
+% 
+5.49 
+% 
+6.00 
+% 
+Expected return on plan assets 
+7.00 
+% 
+7.00 
+% 
+7.00 
+% 
+Rate of compensation increase 
+N/A 
+N/A 
+N/A 
+The Company’s expected return on assets assumption is derived from a detailed periodic assessment conducted by its management and its investment advisor. It includes a review of anticipated future long-term performance of individual asset classes and consideration of the appropriate asset allocation strategy given the anticipated requirements of the plan to determine the average rate of earnings expected on the funds invested to provide for the pension plan benefits. While the study gives appropriate consideration to recent fund performance and historical returns, the rate of return assumption is derived primarily from a long-term, prospective view. Based on its recent assessment, the Company has concluded that its expected long-term return assumption of seven percent is reasonable. 
+The plan’s weighted average asset allocation at December 31, 2012 and 2011 by asset category along with the target allocation for 2013 are as follows: 
+Asset Category 
+Target 
+Allocation 
+for 2013 
+Percentage of 
+Plan Assets as of 
+December 31, 
+2012 
+Percentage of 
+Plan Assets as of 
+December 31, 
+2011 
+Cash and Cash Equivalents 
+0% - 
+5% 
+0.2 
+% 
+0.7 
+% 
+Debt Securities – Core Fixed Income 
+15% - 
+50% 
+20.2 
+% 
+23.2 
+% 
+Tactical – Fund of Equity and Debt Securities 
+10% - 
+20% 
+15.1 
+% 
+16.3 
+% 
+Domestic Equity Securities 
+30% - 
+50% 
+15.2 
+% 
+15.2 
+% 
+Global Equity Securities 
+10% - 
+20% 
+16.0 
+% 
+14.8 
+% 
+International Equity Securities 
+10% - 
+20% 
+15.1 
+% 
+14.6 
+% 
+Real Estate 
+0% - 
+10% 
+9.2 
+% 
+5.6 
+% 
+Real Return 
+0% - 
+10% 
+9.0 
+% 
+9.6 
+% 
+Other 
+0% - 
+5% 
+0.0 
+% 
+0.0 
+% 
+Total 
+100% 
+100.0 
+% 
+100.0 
+% 
+The Company’s overall investment strategy is to achieve a mix of approximately 70 percent of investments for long-term growth and 30 percent for near-term benefit payments, with a wide diversification of asset types, fund strategies and fund managers. Equity securities primarily include investments in large-cap and mid-cap companies. Fixed-income securities include corporate bonds of companies in diversified securities, mortgage-backed securities, and U.S. Treasuries. Other types of investments include hedge funds and private equity funds that follow several different investment strategies. For each of the asset categories in the pension plan, the investment strategy is identical – maximize the long-term rate of return on plan assets with an acceptable level of risk in order to minimize the cost of providing pension benefits. The investment policy establishes a target allocation for each asset class which is rebalanced as required. The plans utilize a number of investment approaches, including individual market securities, equity and fixed income funds in which the underlying securities are marketable, and debt funds to achieve this target allocation. The Company expects to contribute approximately $400,000 to the pension plan during fiscal year 2013. 
+49 
+Some of our assets, primarily our private equity, real estate and hedge funds, do not have readily determinable market values given the specific investment structures involved and the nature of the underlying investments. For the December 31, 2012 plan asset reporting, publicly traded asset pricing was used where possible. For assets without readily determinable values, estimates were derived from investment manager discussions focusing on underlying fundamentals and significant events. 
+Included among the asset categories for the Plans’ investments are real estate and other investments comprised of investments in real estate and hedge funds. These investments are categorized as level 3 investments and are valued using significant non-observable inputs which do not have a readily determinable fair value. In accordance with ASU No. 2010-12 “Investments In Certain Entities That Calculate Net Asset Value per Share (Or Its Equivalent),” these investments are valued based on the net asset value per share calculated by the funds in which the plan has invested. These valuations are subject to judgments and assumptions of the funds which may prove to be incorrect, resulting in risks of incorrect valuation of these investments. The Company seeks to mitigate against these risks by evaluating the appropriateness of the funds’ judgments and assumptions by reviewing the financial data included in the funds’ financial statements for reasonableness. 
+The following tables present our plan assets using the fair value hierarchy as of December 31, 2012 and December 31, 2011. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. See Note 8 for a brief description of the three levels under the fair value hierarchy. 
+Fair Value Hierarchy as of December 31, 2012: 
+Investments ( in thousands ) 
+Total 
+Level 1 
+Level 2 
+Level 3 
+Cash and Cash Equivalents 
+(1 
+) 
+$ 
+61 
+$ 
+61 
+$ 
+- 
+$ 
+- 
+Fixed Income Securities 
+(2 
+) 
+5,959 
+- 
+5,959 
+- 
+Domestic Equity Securities 
+4,475 
+4,475 
+- 
+- 
+Global Equity Securities 
+4,446 
+4,446 
+- 
+- 
+International Equity Securities 
+(3 
+) 
+4,737 
+2,205 
+2,532 
+- 
+Tactical Composite 
+(4 
+) 
+4,454 
+- 
+4,454 
+- 
+Real Estate 
+(5 
+) 
+2,730 
+- 
+- 
+2,730 
+Real Return 
+(6 
+) 
+2,657 
+- 
+2,657 
+- 
+$ 
+29,519 
+$ 
+11,187 
+$ 
+15,602 
+$ 
+2,730 
+Fair Value Hierarchy as of December 31, 2011: 
+Investments ( in thousands ) 
+Total 
+Level 1 
+Level 2 
+Level 3 
+Cash and Cash Equivalents 
+(1 
+) 
+$ 
+175 
+$ 
+175 
+$ 
+- 
+$ 
+- 
+Fixed Income Securities 
+(2 
+) 
+5,608 
+- 
+5,608 
+- 
+Domestic Equity Securities 
+3,680 
+3,680 
+- 
+- 
+Global Equity Securities 
+3,568 
+3,568 
+- 
+- 
+International Equity Securities 
+(3 
+) 
+3,537 
+1,671 
+1,866 
+- 
+Tactical Composite 
+(4 
+) 
+3,935 
+- 
+3,935 
+- 
+Real Estate 
+(5 
+) 
+1,350 
+- 
+- 
+1,350 
+Real Return 
+(6 
+) 
+2,327 
+- 
+2,327 
+- 
+$ 
+24,180 
+$ 
+9,094 
+$ 
+13,736 
+$ 
+1,350 
+(1) 
+Cash and cash equivalents, which are used to pay benefits and plan administrative expenses, are held in Rule 2a-7 money market funds. 
+(2) 
+Fixed income securities are primarily valued using a market approach with inputs that include broker quotes, benchmark yields, base spreads and reported trades. 
+(3) 
+Some international equity securities are valued using a market approach based on the quoted market prices of identical instruments in their respective markets. 
+(4) 
+Tactical composite funds invest in stocks, bonds and cash, both domestic and international. These assets are valued primarily using a market approach based on the quoted market prices of identical instruments in their respective markets. 
+(5) 
+Real estate fund values are primarily reported by the fund manager and are based on valuation of the underlying investments, which include inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data. 
+(6) 
+Real return funds invest in global equities, commodities and inflation protected core bonds that are valued primarily using a market approach based on the quoted market prices of identical instruments in their respective markets. 
+The following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2012: 
+Investments 
+( in thousands ) 
+Balance at December 31, 2011 
+Net Realized and 
+Unrealized 
+Gains/(Losses) 
+Net Purchases, Issuances and Settlements 
+Net 
+Transfers 
+In to (Out 
+of) Level 3 
+Balance at December 31, 2012 
+Real Estate 
+$ 
+1,350 
+$ 
+365 
+$ 
+1,015 
+$ 
+- 
+$ 
+2,730 
+50 
+The following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2011: 
+Investments 
+( in thousands ) 
+Balance at December 31, 2010 
+Net Realized and 
+Unrealized 
+Gains/(Losses) 
+Net Purchases, Issuances and Settlements 
+Net 
+Transfers 
+In to (Out 
+of) Level 3 
+Balance at December 31, 2011 
+Real Estate 
+$ 
+1,210 
+$ 
+140 
+$ 
+- 
+$ 
+- 
+$ 
+1,350 
+Alternative Investments 
+275 
+(2 
+) 
+(273 
+) 
+- 
+- 
+$ 
+1,485 
+$ 
+138 
+$ 
+(273 
+) 
+$ 
+- 
+$ 
+1,350 
+The Company estimates that the future benefits payable for the Retirement Income Plan over the next ten years are as follows: 
+(in thousands) 
+2013 
+$ 
+1,835 
+2014 
+1,942 
+2015 
+2,025 
+2016 
+2,220 
+2017 
+2,282 
+2018-2022 
+12,421 
+Supplemental Executive Retirement Plan (SERP) 
+The Company permits selected highly compensated employees to defer a portion of their compensation into the SERP. The SERP assets are invested primarily in company-owned life insurance (“COLI”) policies as a funding source to satisfy the obligations of the SERP. The assets are subject to claims by creditors, and the Company can designate them to another purpose at any time. Investments in COLI policies consisted of $44.3 million in variable life insurance policies as of December 31, 2012 and $17.7 million as of December 31, 2011. In the COLI policies, the Company is able to allocate investment of the assets across a set of choices provided by the insurance company, including fixed income securities and equity funds. The COLI policies are recorded at their net cash surrender values, which approximates fair value, as provided by the issuing insurance company, whose Standard & Poor’s credit rating was A+. 
+The Company classifies the SERP assets as trading securities as described in Note 1. The fair value of these assets totaled $11,103,000 as of December 31, 2012 and $8,251,000 as of December 31, 2011. The SERP assets are reported in other assets on the balance sheet. The changes in the fair value of these assets, and normal insurance expenses are recorded in the consolidated statement of operations as part of other income (expense), net. Trading gains (losses) related to the SERP assets totaled $1,352,000 in 2012, $(194,000) for 2011, and $701,000 for 2010. The SERP liability is recorded on the balance sheet in long-term pension liabilities with any change in the fair value of the liabilities recorded as compensation cost within selling, general and administrative expenses in the statement of operations. 
+401(k) Plan 
+RPC sponsors a defined contribution 401(k) plan that is available to substantially all full-time employees with more than three months of service. This plan allows employees to make tax-deferred contributions from one to 25 percent of their annual compensation, not exceeding the permissible contribution imposed by the Internal Revenue Code. RPC matches 50 percent of each employee’s contributions that do not exceed six percent of the employee’s compensation, as defined by the plan. Employees vest in the RPC contributions after three years of service. The charges to expense for the Company’s contributions to the 401(k) plan were approximately $5,088,000 in 2012, $4,074,000 in 2011 and $2,485,000 in 2010. 
+Stock Incentive Plans 
+The Company has issued stock options and restricted stock to employees under two 10 year stock incentive plans that were approved by stockholders in 1994 and 2004. The 1994 plan expired in 2004. The Company reserved 7,593,750 shares of common stock under the 2004 Plan which expires in 2014. This plan provides for the issuance of various forms of stock incentives, including, among others, incentive and non-qualified stock options and restricted stock which are discussed in detail below. As of December 31, 2012, there were approximately 2,055,000 shares available for grants. 
+51 
+The Company recognizes compensation expense for the unvested portion of awards outstanding over the remainder of the service period. The compensation cost recorded for these awards is based on their fair value at the grant date less the cost of estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods to reflect actual forfeitures. Cash flows related to share-based payment awards to employees that result in tax benefits in excess of recognized cumulative compensation cost (excess tax benefits) are classified as a financing activity in the accompanying consolidated statements of cash flows. 
+Pre-tax stock-based employee compensation expense was $7,860,000 in 2012 ($4,991,000 after tax), $8,075,000 in 2011 ($5,128,000 after tax) and $4,909,000 in 2010 ($3,117,000 after tax). 
+Stock Options 
+Stock options are granted at an exercise price equal to the fair market value of the Company’s common stock at the date of grant except for grants of incentive stock options to owners of greater than 10 percent of the Company’s voting securities which must be made at 110 percent of the fair market value of the Company’s common stock. Options generally vest ratably over a period of five years and expire in 10 years, except incentive stock options granted to owners of greater than 10 percent of the Company’s voting securities, which expire in five years. 
+The Company estimates the fair value of stock options as of the date of grant using the Black-Scholes option pricing model. The Company has not granted stock options to employees since 2003. 
+Transactions involving RPC’s stock options for the year ended December 31, 2012 were as follows: 
+Shares 
+Weighted Average 
+Exercise Price 
+Weighted 
+Average 
+Remaining 
+Contractual Life 
+Aggregate 
+Intrinsic Value 
+Outstanding at January 1, 2012 
+704,689 
+$ 
+1.31 
+0.99 years 
+Granted 
+- 
+- 
+N/A 
+Exercised 
+704,689 
+1.31 
+N/A 
+Forfeited 
+- 
+- 
+N/A 
+Expired 
+- 
+- 
+N/A 
+Outstanding and exercisable at December 31, 2012 
+- 
+$ 
+- 
+- 
+$ 
+- 
+The total intrinsic value of stock options exercised was approximately $7,467,000 during 2012, $11,882,000 during 2011 and $2,293,000 during 2010. Tax benefits associated with the exercise of stock options exercised totaled $431,000 during 2012 and $799,000 during 2011 and were credited to capital in excess of par value and are classified as financing cash flows. There were no recognized excess tax benefits associated with the exercise of stock options during 2010. 
+Restricted Stock 
+The Company has granted employees time lapse restricted stock which vest after a stipulated number of years from the grant date, depending on the terms of the issue. Time lapse restricted shares issued vest in 20 percent increments annually starting with the second anniversary of the grant, over six years from the date of grant. Grantees receive dividends declared and retain voting rights for the granted shares. The agreement under which the restricted stock is issued provide that shares awarded may not be sold or otherwise transferred until restrictions or, established under the stock plans have lapsed. Upon termination of employment from RPC (other than due to death, disability or retirement on or after age 65), shares with restrictions must be returned to the Company. 
+The following is a summary of the changes in non-vested restricted shares for the year ended December 31, 2012: 
+Shares 
+Weighted Average Grant- 
+Date Fair Value 
+Non-vested shares at January 1, 2012 
+4,440,831 
+$ 
+6.62 
+Granted 
+1,146,750 
+11.69 
+Vested 
+(980,140 
+) 
+5.51 
+Forfeited 
+(113,250 
+) 
+8.17 
+Non-vested shares at December 31, 2012 
+4,494,191 
+$ 
+8.12 
+The fair value of restricted share awards is based on the market price of the Company’s stock on the date of the grant and is amortized to compensation expense on a straight-line basis over the requisite service period. The weighted average grant date fair value of these restricted stock awards was $11.69, $11.59 and $5.47 for the years ended December 31, 2012, 2011 and 2010, respectively. The total fair value of shares vested was approximately $10,695,000 during 2012, $11,861,000 during 2011 and $5,079,000 during 2010. The tax benefit for compensation tax deductions in excess of compensation expense was credited to capital in excess of par value aggregating $2,293,000 for 2012, $2,572,000 for 2011 and $651,000 for 2010. The excess tax deductions are classified as a financing activity in the accompanying consolidated statements of cash flows. 
+52 
+Other Information 
+As of December 31, 2012, total unrecognized compensation cost related to non-vested restricted shares was approximately $31,156,000 which is expected to be recognized over a weighted-average period of 3.3 years. As of December 31, 2012, there was no unrecognized compensation cost related to non-vested stock options. 
+The Company received cash from options exercised of $544,000 during 2012, $728,000 during 2011, and $240,000 during 2010. These cash receipts are classified as a financing activity in the accompanying consolidated statements of cash flows. The fair value of shares tendered to exercise employee stock options totaled approximately $377,000 during 2012, $720,000 during 2011 and $144,000 during 2010 and have been excluded from the consolidated statements of cash flows. 
+Note 11: Related Party Transactions 
+Related Party Transactions 
+Marine Products Corporation 
+Effective in 2001, the Company spun off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware corporation) (“Marine Products”), a newly formed wholly owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship. 
+In accordance with a Transition Support Services agreement, which may be terminated by either party, RPC provides certain administrative services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products. Charges from the Company (or from corporations that are subsidiaries of the Company) for such services aggregated approximately $544,000 in 2012, $639,000 in 2011 and $689,000 in 2010. The Company’s receivable due from Marine Products for these services was approximately $94,000 as of December 31, 2012 and was approximately $3,000 as of December 31, 2011. The Company’s directors are also directors of Marine Products and all of the executive officers are employees of both the Company and Marine Products. 
+Other 
+The Company periodically purchases in the ordinary course of business products or services from suppliers, who are owned by significant officers or stockholders, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were approximately $1,676,000 in 2012, $1,469,000 in 2011 and $551,000 in 2010. 
+RPC receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is otherwise affiliated with RPC). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled $83,000 in 2012, $102,000 in 2011 and $94,000 in 2010. 
+A group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother Gary W. Rollins, who is also a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s voting power. 
+Note 12: Business Segment Information 
+RPC’s service lines have been aggregated into two reportable oil and gas services segments — Technical Services and Support Services — because of the similarities between the financial performance and approach to managing the service lines within each of the segments, as well as the economic and business conditions impacting their business activity levels. Corporate includes selected administrative costs incurred by the Company. 
+Technical Services include RPC’s oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer’s well. These services include pressure pumping services, coiled tubing, snubbing, nitrogen pumping, well control consulting and firefighting, downhole tools, wireline, and fluid pumping services. These Technical Services are primarily used in the completion, production and maintenance of oil and gas wells. The principal markets for this segment include the United States, including the Gulf of Mexico, the mid-continent, southwest, Rocky Mountain and Appalachian regions, and international locations including primarily Africa, Canada, China, Latin America, the Middle East and New Zealand. Customers include major multi-national and independent oil and gas producers, and selected nationally-owned oil companies. 
+53 
+Support Services include RPC’s oil and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include drill pipe and related tools, pipe handling, inspection and storage services, and oilfield training services. The demand for these services tends to be influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, including the Gulf of Mexico, the mid-continent and Appalachian regions, and international locations, including primarily Canada, Latin America, and the Middle East. Customers include domestic operations of major multi-national and independent oil and gas producers, and selected nationally-owned oil companies. 
+The accounting policies of the reportable segments are the same as those described in Note 1 to these consolidated financial statements. RPC evaluates the performance of its segments based on revenues, operating profits and return on invested capital. Gains or losses on disposition of assets are reviewed by the Company’s chief decision maker on a consolidated basis, and accordingly the Company does not report gains or losses at the segment level. Inter-segment revenues are generally recorded in segment operating results at prices that management believes approximate prices for arm’s length transactions and are not material to operating results. 
+Summarized financial information concerning RPC’s reportable segments for the years ended December 31, 2012, 2011 and 2010 are shown in the following table: 
+Technical 
+Services 
+Support 
+Services 
+Corporate 
+(Loss) Gain on 
+disposition of assets, 
+net 
+Total 
+(in thousands) 
+2012 
+Revenues 
+$ 
+1,794,015 
+$ 
+151,008 
+$ 
+— 
+$ 
+— 
+$ 
+1,945,023 
+Operating profit (loss) 
+420,231 
+45,912 
+(17,654 
+) 
+(6,099 
+) 
+442,390 
+Capital expenditures 
+277,686 
+46,053 
+5,197 
+— 
+328,936 
+Depreciation and amortization 
+183,762 
+30,707 
+430 
+— 
+214,899 
+Identifiable assets 
+1,128,124 
+175,611 
+63,428 
+— 
+1,367,163 
+2011 
+Revenues 
+$ 
+1,663,793 
+$ 
+146,014 
+$ 
+— 
+$ 
+— 
+$ 
+1,809,807 
+Operating profit (loss) 
+451,259 
+51,672 
+(17,019 
+) 
+(3,831 
+) 
+482,081 
+Capital expenditures 
+369,568 
+42,837 
+3,995 
+— 
+416,400 
+Depreciation and amortization 
+152,252 
+27,464 
+189 
+— 
+179,905 
+Identifiable assets 
+1,103,341 
+177,974 
+56,896 
+— 
+1,338,211 
+2010 
+Revenues 
+$ 
+979,834 
+$ 
+116,550 
+$ 
+— 
+$ 
+— 
+$ 
+1,096,384 
+Operating profit (loss) 
+217,144 
+31,086 
+(13,143 
+) 
+3,758 
+238,845 
+Capital expenditures 
+163,362 
+23,012 
+1,112 
+— 
+187,486 
+Depreciation and amortization 
+106,480 
+26,640 
+240 
+— 
+133,360 
+Identifiable assets 
+668,081 
+158,577 
+61,213 
+— 
+887,871 
+The following summarizes selected information between the United States and all international locations combined for the years ended December 31, 2012, 2011 and 2010. The revenues are presented based on the location of the use of the product or service. Assets related to international operations are less than 10 percent of RPC’s consolidated assets, and therefore are not presented. 
+Years ended December 31, 
+2012 
+2011 
+2010 
+(in thousands) 
+United States Revenues 
+$ 
+1,870,815 
+$ 
+1,757,661 
+$ 
+1,041,461 
+International Revenues 
+74,208 
+52,146 
+54,923 
+$ 
+1,945,023 
+$ 
+1,809,807 
+$ 
+1,096,384 
+54 
+Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+None. 
+Item 9A. Controls and Procedures 
+Evaluation of disclosure controls and procedures — The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to its management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 
+As of the end of the period covered by this report, December 31, 2012 (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the Evaluation Date. 
+Management’s report on internal control over financial reporting — Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management’s report on internal control over financial reporting is included on page 29 of this report. Grant Thornton LLP, the Company’s independent registered public accounting firm, has audited the effectiveness of internal control as of December 31, 2012 and issued a report thereon which is included on page 30 of this report. 
+Changes in internal control over financial reporting — Management’s evaluation of changes in internal control did not identify any changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 
+Item 9B. Other Information 
+None. 
+55 
+PART III 
+Item 10. Directors, Executive Officers and Corporate Governance 
+Information concerning directors and executive officers will be included in the RPC Proxy Statement for its 2013 Annual Meeting of Stockholders, in the section titled “Election of Directors.” This information is incorporated herein by reference. Information about executive officers is contained on page 13 of this document. 
+Audit Committee and Audit Committee Financial Expert 
+Information concerning the Audit Committee of the Company and the Audit Committee Financial Expert(s) will be included in the RPC Proxy Statement for its 2013 Annual Meeting of Stockholders, in the section titled “Corporate Governance and Board of Directors, Committees and Meetings – Audit Committee.” This information is incorporated herein by reference. 
+Code of Ethics 
+RPC, Inc. has a Code of Business Conduct that applies to all employees. In addition, the Company has a Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transaction Policy. Both of these documents are available on the Company’s Web site at www.rpc.net. Copies are available at no charge by writing to Attention: Human Resources, RPC, Inc., 2801 Buford Highway, Suite 520, N.E., Atlanta GA 30329. 
+RPC, Inc. intends to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of its code that relates to any elements of the code of ethics definition enumerated in SEC rules by posting such information on its internet website, the address of which is provided above. 
+Section 16(a) Beneficial Ownership Reporting Compliance 
+Information regarding compliance with Section 16(a) of the Exchange Act will be included under “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement for its 2013 Annual Meeting of Stockholders, which is incorporated herein by reference. 
+Item 11. Executive Compensation 
+Information concerning director and executive compensation will be included in the RPC Proxy Statement for its 2013 Annual Meeting of Stockholders, in the sections titled “Compensation Committee Interlocks and Insider Participation,” “Director Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Executive Compensation.” This information is incorporated herein by reference. 
+Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+Information concerning security ownership will be included in the RPC Proxy Statement for its 2013 Annual Meeting of Stockholders, in the sections “Capital Stock” and “Election of Directors.” This information is incorporated herein by reference. 
+56 
+Securities Authorized for Issuance Under Equity Compensation Plans 
+The following table sets forth certain information regarding equity compensation plans as of December 31, 2012. 
+Plan Category 
+(A) 
+Number of Securities To 
+Be Issued Upon Exercise of 
+Outstanding Options, 
+Warrants and Rights 
+(B) 
+Weighted Average Exercise Price of 
+Outstanding Options, Warrants and 
+Rights 
+(C) 
+Number of Securities Remaining 
+Available for Future Issuance 
+Under Equity Compensation 
+Plans (Excluding Securities 
+Reflected in Column (A)) 
+Equity compensation plans approved by securityholders 
+- 
+$ 
+- 
+- 
+(1) 
+Equity compensation plans not approved by securityholders 
+- 
+- 
+- 
+Total 
+- 
+$ 
+- 
+- 
+(1) 
+All of the securities can be issued in the form of restricted stock or other stock awards. 
+See Note 10 to the Consolidated Financial Statements for information regarding the material terms of the equity compensation plans. 
+Item 13. Certain Relationships and Related Party Transactions and Director Independence 
+Information concerning certain relationships and related party transactions will be included in the RPC Proxy Statement for its 2013 Annual Meeting of Stockholders, in the sections titled, “Certain Relationships and Related Party Transactions.” Information regarding director independence will be included in the RPC Proxy Statement for its 2013 Annual Meeting of Stockholders in the section titled “Director Independence and NYSE Requirements.” This information is incorporated herein by reference. 
+Item 14. Principal Accounting Fees and Services 
+Information regarding principal accountant fees and services will be included in the section titled “Independent Registered Public Accounting Firm” in the RPC Proxy Statement for its 2013 Annual Meeting of Stockholders. This information is incorporated herein by reference. 
+57 
+PART IV 
+Item 15. Exhibits and Financial Statement Schedules 
+Consolidated Financial Statements, Financial Statement Schedule and Exhibits 
+1. 
+Consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements and Schedule are filed as part of this report. 
+2. 
+The financial statement schedule listed in the accompanying Index to Consolidated Financial Statements and Schedule is filed as part of this report. 
+3. 
+Exhibits listed in the accompanying Index to Exhibits are filed as part of this report. The following such exhibits are management contracts or compensatory plans or arrangements: 
+10.1 
+2004 Stock Incentive Plan (incorporated herein by reference to Appendix B to the Registrant’s definitive Proxy Statement filed on March 24, 2004). 
+10.6 
+Form of stock option grant agreement (incorporated herein by reference to Exhibit 10.1 to Form 10-Q filed on November 2, 2004). 
+10.7 
+Form of time lapse restricted stock grant agreement (incorporated herein by reference to Exhibit 10.2 to Form 10-Q filed on November 2, 2004). 
+10.8 
+Form of performance restricted stock grant agreement (incorporated herein by reference to Exhibit 10.3 to Form 10-Q filed on November 2, 2004). 
+10.9 
+Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the Form 10-K filed on March 16, 2005). 
+10.10 
+First Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K filed on March 2, 2007). 
+10.11 
+Performance-Based Incentive Cash Compensation Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed April 28, 2006). 
+10.12 
+Summary of Compensation Arrangements with Executive Officers (incorporated herein by reference to Exhibit 10.17 to the Form 10-K filed on March 3, 2010). 
+10.14 
+Summary of Compensation Arrangements with Non-Employee Directors (incorporated herein by reference to Exhibit 10.19 to the Form 10-K filed on March 4, 2011). 
+10.17 
+Form of Time Lapse Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed on May 2, 2012). 
+10.18 
+Summary of Compensation Arrangements with Non-Employee Directors. 
+58 
+Exhibits (inclusive of item 3 above): 
+Exhibit 
+Number 
+Description 
+3.1A 
+Restated certificate of incorporation of RPC, Inc. (incorporated herein by reference to exhibit 3.1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 
+3.1B 
+Certificate of Amendment of Certificate of Incorporation of RPC, Inc. (incorporated by reference to Exhibit 3.1(B) to the Quarterly Report on Form 10-Q filed May 8, 2006). 
+3.1C 
+Certificate of Amendment of Certificate of Incorporation of RPC, Inc. (incorporated by reference to Exhibit 3.1(C) to the Quarterly Report on Form 10-Q filed August 2, 2011). 
+3.2 
+Bylaws of RPC, Inc. (incorporated herein by reference to Exhibit 3.1 to the Form 8-K filed on October 25, 2007). 
+4 
+Form of Stock Certificate (incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 
+10.1 
+2004 Stock Incentive Plan (incorporated herein by reference to Appendix B to the Registrant’s definitive Proxy Statement filed on March 24, 2004). 
+10.2 
+Agreement Regarding Distribution and Plan of Reorganization, dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.2 to the Form 10-K filed on February 13, 2001). 
+10.3 
+Employee Benefits Agreement dated February 12, 2001, by and between RPC, Inc., Chaparral Boats, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.3 to the Form 10-K filed on February 13, 2001). 
+10.4 
+Transition Support Services Agreement dated February 12, 2001 by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.4 to the Form 10-K filed on February 13, 2001). 
+10.5 
+Tax Sharing Agreement dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.5 to the Form 10-K filed on February 13, 2001). 
+10.6 
+Form of stock option grant agreement (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed on November 2, 2004). 
+10.7 
+Form of time lapse restricted stock grant agreement (incorporated herein by reference to Exhibit 10.2 to the Form 10-Q filed on November 2, 2004). 
+10.8 
+Form of performance restricted stock grant agreement (incorporated herein by reference to Exhibit 10.3 to the Form 10-Q filed on November 2, 2004). 
+10.9 
+Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the Form 10-K filed on March 16, 2005). 
+10.10 
+First Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K filed on March 2, 2007). 
+10.11 
+Performance-Based Incentive Cash Compensation Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed April 28, 2006). 
+10.12 
+Summary of Compensation Arrangements with Executive Officers (incorporated herein by reference to Exhibit 10.17 to the Form 10-K filed on March 3, 2010). 
+10.13 
+Second Amendment to Revolving Credit Agreement dated as of September 2, 2009 by and among the Company, the several banks and other financial institutions from time to time party thereto and SunTrust Bank, in its capacity as administrative agent (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K dated September 2, 2009). 
+10.14 
+Summary of Compensation Arrangements with Non-Employee Directors (incorporated herein by reference to Exhibit 10.19 to the Form 10-K filed on March 4, 2011). 
+10.15 
+Credit Agreement dated August 31, 2010 between the Company, Banc of America, N.A., SunTrust Bank, Regions Bank and certain other lenders party thereto (incorporated herein by reference to Exhibit 99.1 to the Form 8-K filed on September 7, 2010). 
+10.16 
+Amendment and No. 1 to Credit agreement dated as of June 16, 2011 between the Company, the Subsidiary Loan Parties party thereto, Bank of America, N.A. and certain other lenders party thereto (incorporated herein by reference to Exhibit 10.16 to the Form 10-K filed on February 29, 2012). 
+10.17 
+Form of Time Lapse Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed on May 2, 2012). 
+10.18 
+Summary of Compensation Arrangements with Non-Employee Directors. 
+21 
+Subsidiaries of RPC 
+23 
+Consent of Grant Thornton LLP 
+24 
+Powers of Attorney for Directors 
+59 
+31.1 
+Section 302 certification for Chief Executive Officer 
+31.2 
+Section 302 certification for Chief Financial Officer 
+32.1 
+Section 906 certifications for Chief Executive Officer and Chief Financial Officer 
+95.1 
+Mine Safety Disclosure 
+101.INS 
+XBRL Instance Document 
+101.SCH 
+XBRL Taxonomy Extension Schema Document 
+101.CAL 
+XBRL Taxonomy Extension Calculation Linkbase Document 
+101.LAB 
+XBRL Taxonomy Extension Label Linkbase Document 
+101.PRE 
+XBRL Taxonomy Extension Presentation Linkbase Document 
+101.DEF 
+XBRL Taxonomy Extension Definition Linkbase Document 
+60 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) 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. 
+RPC, Inc. 
+/s/ Richard A. Hubbell 
+Richard A. Hubbell 
+President and Chief Executive Officer 
+(Principal Executive Officer) 
+March 1, 2013 
+Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. 
+Name 
+Title 
+Date 
+/s/ Richard A. Hubbell 
+Richard A. Hubbell 
+President and Chief Executive Officer 
+(Principal Executive Officer) 
+March 1, 2013 
+/s/ Ben M. Palmer 
+Ben M. Palmer 
+Chief Financial Officer 
+(Principal Financial and Accounting Officer) 
+March 1, 2013 
+The Directors of RPC (listed below) executed a power of attorney, appointing Richard A. Hubbell their attorney-in-fact, empowering him to sign this report on their behalf. 
+R. Randall Rollins, Director 
+James A. Lane, Jr., Director 
+Wilton Looney, Director 
+Linda H. Graham, Director 
+Gary W. Rollins, Director 
+Bill J. Dismuke, Director 
+Henry B. Tippie, Director 
+Larry L. Prince, Director 
+James B. Williams, Director 
+/s/ Richard A. Hubbell 
+Richard A. Hubbell 
+Director and as Attorney-in-fact 
+March 1, 2013 
+61 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND SCHEDULE 
+The following documents are filed as part of this report. 
+FINANCIAL STATEMENTS AND REPORTS 
+PAGE 
+Management’s Report on Internal Control Over Financial Reporting 
+29 
+Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 
+30 
+Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements 
+31 
+Consolidated Balance Sheets as of December 31, 2012 and 2011 
+32 
+Consolidated Statements of Operations for the three years ended December 31, 2012 
+33 
+Consolidated Statements of Comprehensive Income for the three years ended December 31, 2012 
+34 
+Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2012 
+35 
+Consolidated Statements of Cash Flows for the three years ended December 31, 2012 
+36 
+Notes to Consolidated Financial Statements 
+37 - 54 
+SCHEDULE 
+Schedule II — Valuation and Qualifying Accounts 
+62 
+Schedules not listed above have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+For the years ended 
+December 31, 2012, 2011 and 2010 
+(in thousands) 
+Balance at 
+Beginning 
+of Period 
+Charged to 
+Costs and 
+Expenses 
+Net (Deductions) 
+Recoveries 
+Balance 
+at End of 
+Period 
+Year ended December 31, 2012 
+Allowance for doubtful accounts 
+$ 
+8,093 
+$ 
+1,784 
+$ 
+(767 
+) (1) 
+$ 
+9,110 
+Deferred tax asset valuation allowance 
+$ 
+1,295 
+$ 
+— 
+$ 
+(292 
+) (2) 
+$ 
+1,003 
+Year ended December 31, 2011 
+Allowance for doubtful accounts 
+$ 
+8,694 
+$ 
+2,868 
+$ 
+(3,469 
+) (1) 
+$ 
+8,093 
+Deferred tax asset valuation allowance 
+$ 
+1,295 
+$ 
+— 
+$ 
+— 
+$ 
+1,295 
+Year ended December 31, 2010 
+Allowance for doubtful accounts 
+$ 
+3,210 
+$ 
+4,812 
+$ 
+672 
+(1) 
+$ 
+8,694 
+Deferred tax asset valuation allowance 
+$ 
+1,550 
+$ 
+— 
+$ 
+(255 
+) (2) 
+$ 
+1,295 
+(1) 
+Net (deductions) recoveries in the allowance for doubtful accounts principally reflect the write-off of previously reserved accounts net of recoveries. 
+(2) 
+The valuation allowance for deferred tax assets is increased or decreased each year to reflect the state net operating losses that management believes will not be utilized before they expire. 
+62 
+SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) 
+Quarters ended 
+March 31 
+June 30 
+September 30 
+December 31 
+(in thousands except per share data) 
+2012 
+Revenues 
+$ 
+502,557 
+$ 
+500,106 
+$ 
+472,418 
+$ 
+469,942 
+Operating profit 
+130,857 
+119,858 
+102,368 
+89,307 
+Net income 
+$ 
+80,755 
+$ 
+72,260 
+$ 
+66,040 
+$ 
+55,381 
+Net income per share — basic (a) 
+$ 
+0.37 
+$ 
+0.34 
+$ 
+0.31 
+$ 
+0.26 
+Net income per share — diluted (a) 
+$ 
+0.37 
+$ 
+0.33 
+$ 
+0.30 
+$ 
+0.26 
+2011 
+Revenues 
+$ 
+381,761 
+$ 
+443,029 
+$ 
+502,235 
+$ 
+482,782 
+Operating profit 
+106,326 
+119,267 
+134,454 
+122,034 
+Net income 
+$ 
+65,524 
+$ 
+73,165 
+$ 
+83,111 
+$ 
+74,581 
+Net income per share — basic (a) 
+$ 
+0.30 
+$ 
+0.34 
+$ 
+0.38 
+$ 
+0.34 
+Net income per share — diluted (a) 
+$ 
+0.30 
+$ 
+0.33 
+$ 
+0.38 
+$ 
+0.34 
+(a) 
+The sum of the income per share for the four quarters may differ from annual amounts due to the required method of computing the weighted average shares for the respective periods. 
+63
\ No newline at end of file
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new file mode 100644
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+0000742278,RES,RPC INC,10-K,2013-03-01,2012-12-31,2013-03-01T20:46:31.000Z,0001188112-13-000533,t75666_10k.htm,FORM 10-K,12730361,1,0,https://www.sec.gov/Archives/edgar/data/742278/000118811213000533/t75666_10k.htm,https://www.sec.gov/Archives/edgar/data/742278/000118811213000533/,2012,2012,1
diff --git a/raw/filings/0000742278/2012/0001188112-13-000533/item1.txt b/raw/filings/0000742278/2012/0001188112-13-000533/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a3113fe3b48ecb2d00754d6269490ae89dad11bf
--- /dev/null
+++ b/raw/filings/0000742278/2012/0001188112-13-000533/item1.txt
@@ -0,0 +1,78 @@
+Item 1. Business 
+Organization and Overview 
+RPC is a Delaware corporation originally organized in 1984 as a holding company for several oilfield services companies and is headquartered in Atlanta, Georgia. 
+RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The services and equipment provided include, among others, (1) pressure pumping services, (2) downhole tool services (3) coiled tubing services, (4) snubbing services (also referred to as hydraulic workover services), (5) nitrogen services, (6) the rental of drill pipe and other specialized oilfield equipment, and (7) well control. RPC acts as a holding company for its operating units, Cudd Energy Services, Patterson Rental and Fishing Tools, Bronco Oilfield Services, Thru Tubing Solutions, Well Control School, and others. As of December 31, 2012, RPC had approximately 3,600 employees. 
+Business Segments 
+RPC’s service lines have been aggregated into two reportable oil and gas services business segments, Technical Services and Support Services, because of the similarities between the financial performance and approach to managing the service lines within each of the segments, as well as the economic and business conditions impacting their business activity levels. 
+2 
+During 2012, approximately one percent of RPC’s consolidated revenues were generated from offshore operations in the U.S. Gulf of Mexico. In addition, approximately one percent of RPC’s consolidated revenues were generated from offshore operations in the offshore territory of New Zealand. We also estimate that 57 percent of our 2012 revenues were related to drilling and production activities for oil, and 43 percent were related to drilling and production activities for natural gas. 
+Technical Services include RPC’s oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer’s well. The demand for these services is generally influenced by customers’ decisions to invest capital toward initiating production in a new oil or natural gas well, improving production flows in an existing formation, or to address well control issues. This business segment consists primarily of pressure pumping, downhole tools, coiled tubing, snubbing, nitrogen, well control, wireline and fishing. The principal markets for this business segment include the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. Customers include major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Support Services include RPC’s oil and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include drill pipe and related tools, pipe handling, pipe inspection and storage services, and oilfield training services. The demand for these services tends to be influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, including the Gulf of Mexico, mid-continent, Rocky Mountain and Appalachian regions and project work in selected international locations in the last three years including primarily Canada, Latin America and the Middle East. Customers primarily include domestic operations of major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 
+Technical Services 
+The following is a description of the primary service lines conducted within the Technical Services business segment: 
+Pressure Pumping . Pressure pumping services, which accounted for approximately 53 percent of 2012 revenues, 55 percent of 2011 revenues and 48 percent of 2010 revenues are provided to customers throughout Texas, and the Appalachian and mid-continent and Rocky Mountain regions of the United States. We primarily provide these services to customers in order to enhance the initial production of hydrocarbons in formations that have low permeability. Pressure pumping services involve using complex, truck or skid-mounted equipment designed and constructed for each specific pumping service offered. The mobility of this equipment permits pressure pumping services to be performed in varying geographic areas. Principal materials utilized in the pressure pumping business include fracturing proppants, acid and bulk chemical additives. Generally, these items are available from several suppliers, and the Company utilizes more than one supplier for each item. Pressure pumping services offered include: 
+Fracturing — Fracturing services are performed to stimulate production of oil and natural gas by increasing the permeability of a formation. Fracturing is particularly important in shale formations, which have low permeability, and unconventional completion, because the formation containing hydrocarbons is not concentrated in one area and requires multiple fracturing operations. The fracturing process consists of pumping fluid gel and sometimes nitrogen into a cased well at sufficient pressure to fracture the formation at desired locations and depths. Sand, bauxite or synthetic proppant, which is often suspended in gel, is pumped into the fracture. When the pressure is released at the surface, the fluid gel returns to the well surface, but the proppant remains in the fracture, thus keeping it open so that oil and natural gas can flow through the fracture into the production tubing and ultimately the well surface. In some cases, fracturing is performed in formations with a high amount of carbonate rock by an acid solution pumped under pressure without a proppant or with small amounts of proppant. 
+Acidizing — Acidizing services are also performed to stimulate production of oil and natural gas, but they are used in wells that have undergone formation damage due to the buildup of various materials that block the formation. Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in the formation, thereby eliminating obstacles to the flow of oil and natural gas. Acidizing services can also enhance production in limestone formations. 
+Downhole Tools . Thru Tubing Solutions (“TTS”) accounted for approximately 14 percent of 2012 revenues and 12 percent of 2011 and 2010 revenues. TTS provides services and proprietary downhole motors, fishing tools and other specialized downhole tools and processes to operators and service companies in drilling and production operations, including casing perforation at the completion stage of an oil or gas well. The services that TTS provides are especially suited for unconventional drilling and completion activities. TTS’ experience providing reliable tool services allows it to work in a pressurized environment with virtually any coiled tubing unit or snubbing unit. 
+3 
+Coiled Tubing . Coiled tubing services, which accounted for approximately 11 percent of 2012 and 2011 revenues, and 10 percent of 2010 revenues, involve the injection of coiled tubing into wells to perform various applications and functions for use principally in well-servicing operations and more recently to facilitate completion of horizontal wells. Coiled tubing is a flexible steel pipe with a diameter of less than four inches manufactured in continuous lengths of thousands of feet and wound or coiled around a large reel. It can be inserted through existing production tubing and used to perform workovers without using a larger, more costly workover rig. Principal advantages of employing coiled tubing in a workover operation include: (i) not having to “shut-in” the well during such operations, (ii) the ability to reel continuous coiled tubing in and out of a well significantly faster than conventional pipe, (iii) the ability to direct fluids into a wellbore with more precision, and (iv) enhanced access to remote or offshore fields due to the smaller size and mobility of a coiled tubing unit compared to a workover rig. Increasingly, coiled tubing units are also used to support completion activities in directional and horizontal wells. Such completion activities usually require multiple entrances in a wellbore in order to complete multiple fractures in a pressure pumping operation. A coiled tubing unit can accomplish this type of operation because its flexibility allows it to be steered in a direction other than vertical, which is necessary in this type of wellbore. At the same time, the strength of the coiled tubing string allows various types of tools or motors to be conveyed into the well effectively. The uses for coiled tubing in directional and horizontal wells have been enhanced by improved fabrication techniques and higher-diameter coiled tubing which allows coiled tubing units to be used effectively over greater distances, thus allowing them to function in more of the completion activities currently taking place in the U.S. domestic market. There are several manufacturers of flexible steel pipe used in coiled tubing services, and the Company believes that its sources of supply are adequate. 
+Snubbing . Snubbing (also referred to as hydraulic workover services), which accounted for approximately four percent of 2012 and 2011 revenues, and five percent of 2010 revenues, involves using a hydraulic workover rig that permits an operator to repair damaged casing, production tubing and downhole production equipment in a high-pressure environment. A snubbing unit makes it possible to remove and replace downhole equipment while maintaining pressure on the well. Customers benefit because these operations can be performed without removing the pressure from the well, which stops production and can damage the formation, and because a snubbing rig can perform many applications at a lower cost than other alternatives. Because this service involves a very hazardous process that entails high risk, the snubbing segment of the oil and gas services industry is limited to a relative few operators who have the experience and knowledge required to perform such services safely and efficiently. Increasingly, snubbing units are used for unconventional completions at the outer reaches of long wellbores which cannot be serviced by coiled tubing because coiled tubing has a more limited range than drill pipe conveyed by a snubbing unit. 
+Nitrogen . Nitrogen accounted for approximately four percent of 2012 and 2011 revenues, and five percent of 2010 revenues. There are a number of uses for nitrogen, an inert, non-combustible element, in providing services to oilfield customers and industrial users outside of the oilfield. For our oilfield customers, nitrogen can be used to clean drilling and production pipe and displace fluids in various drilling applications. Increasingly, it is used as a displacement medium to increase production in older wells in which production has depleted. It also can be used to create a fire-retardant environment in hazardous blowout situations and as a fracturing medium for our fracturing service line. In addition, nitrogen can be complementary to our snubbing and coiled tubing service lines, because it is a non-corrosive medium and is frequently injected into a well using coiled tubing. Nitrogen is complementary to our pressure pumping service line as well, because foam-based nitrogen stimulation is appropriate in certain sensitive formations in which the fluids used in fracturing or acidizing would damage a customer’s well. 
+For non-oilfield industrial users, nitrogen can be used to purge pipelines and create a non-combustible environment. RPC stores and transports nitrogen and has a number of pumping unit configurations that inject nitrogen in its various applications. Some of these pumping units are set up for use on offshore platforms or inland waters. RPC purchases its nitrogen in liquid form from several suppliers and believes that these sources of supply are adequate. 
+Well Control . Cudd Energy Services specializes in responding to and controlling oil and gas well emergencies, including blowouts and well fires, domestically and internationally. In connection with these services, Cudd Energy Services, along with Patterson Services, has the capacity to supply the equipment, expertise and personnel necessary to restore affected oil and gas wells to production. During the past several years, the Company has responded to well control situations in several international locations including Algeria, Argentina, Australia, Bolivia, Canada, Colombia, Egypt, Kuwait, Libya, Mexico, Qatar, Taiwan, Trinidad, Turkmenistan, Tanzania, Abu Dhabi and Venezuela. 
+The Company’s professional firefighting staff has many years of aggregate industry experience in responding to well fires and blowouts. This team of experts responds to well control situations where hydrocarbons are escaping from a well bore, regardless of whether a fire has occurred. In the most critical situations, there are explosive fires, the destruction of drilling and production facilities, substantial environmental damage and the loss of hundreds of thousands of dollars per day in well operators’ production revenue. Since these events ordinarily arise from equipment failures or human error, it is impossible to predict accurately the timing or scope of this work. Additionally, less critical events frequently occur in connection with the drilling of new wells in high-pressure reservoirs. In these situations, the Company is called upon to supervise and assist in the well control effort so that drilling operations can resume as promptly as safety permits. 
+4 
+Wireline Services . Wireline is classified into two types of services: slick or braided line and electric line. In both, a spooled wire is unwound and lowered into a well, conveying various types of tools or equipment. Slick or braided line services use a non-conductive line primarily for jarring objects into or out of a well, as in fishing or plug-setting operations. Electric line services lower an electrical conductor line into a well allowing the use of electrically-operated tools such as perforators, bridge plugs and logging tools. Wireline services can be an integral part of the plug and abandonment process, near the end of the life cycle of a well. 
+Fishing . Fishing involves the use of specialized tools and procedures to retrieve lost equipment from a well drilling operation and producing wells. It is a service required by oil and gas operators who have lost equipment in a well. Oil and natural gas production from an affected well typically declines until the lost equipment can be retrieved. In some cases, the Company creates customized tools to perform a fishing operation. The customized tools are maintained by the Company after the particular fishing job for future use if a similar need arises. 
+Support Services 
+The following is a description of the primary service lines conducted within the Support Services business segment: 
+Rental Tools . Rental tools accounted for approximately five percent of 2012 revenues, six percent of 2011 revenues and eight percent of 2010 revenues. The Company rents specialized equipment for use with onshore and offshore oil and gas well drilling, completion and workover activities. The drilling and subsequent operation of oil and gas wells generally require a variety of equipment. The equipment needed is in large part determined by the geological features of the production zone and the size of the well itself. As a result, operators and drilling contractors often find it more economical to supplement their tool and tubular inventories with rental items instead of owning a complete inventory. The Company’s facilities are strategically located to serve the major staging points for oil and gas activities in the Gulf of Mexico, mid-continent region, Appalachian region and the Rocky Mountains. 
+Patterson Rental Tools offers a broad range of rental tools including: 
+Blowout Preventors 
+Diverters 
+High Pressure Manifolds and Valves 
+Drill Pipe 
+Hevi-wate Drill Pipe 
+Drill Collars 
+Tubing 
+Handling Tools 
+Production Related Rental Tools 
+Coflexip Hoses 
+Pumps 
+Wear Knot TM Drill Pipe 
+Oilfield Pipe Inspection Services, Pipe Management and Pipe Storage . Pipe inspection services include Full Body Electromagnetic and Phased Array Ultrasonic inspection of pipe used in oil and gas wells. These services are provided at both the Company’s inspection facilities and at independent tubular mills in accordance with negotiated sales and/or service contracts. Our customers are major oil companies and steel mills, for which we provide in-house inspection services, inventory management and process control of tubing, casing and drill pipe. Our locations in Channelview, Texas and Morgan City, Louisiana are equipped with large capacity cranes, specially designed forklifts and a computerized inventory system to serve a variety of storage and handling services for both oilfield and non-oilfield customers. 
+Well Control School . Well Control School provides industry and government accredited training for the oil and gas industry both in the United States and in limited international locations. Well Control School provides training in various formats including conventional classroom training, interactive computer training including training delivered over the internet, and mobile simulator training. 
+Energy Personnel International . Energy Personnel International provides drilling and production engineers, well site supervisors, project management specialists, and workover and completion specialists on a consulting basis to the oil and gas industry to meet customers’ needs for staff engineering and well site management. 
+Refer to Note 12 in the Notes to the Consolidated Financial Statements for additional financial information on our business segments. 
+Industry 
+United States . RPC provides its services to its domestic customers through a network of facilities strategically located to serve oil and gas drilling and production activities of its customers in the Gulf of Mexico, the mid-continent, the southwest, the Rocky Mountains and the Appalachian regions. Demand for RPC’s services in the U.S. tends to be extremely volatile and fluctuates with current and projected price levels of oil and natural gas and activity levels in the oil and gas industry. Customer activity levels are influenced by their decisions about capital investment toward the development and production of oil and gas reserves. 
+5 
+Due to aging oilfields and lower-cost sources of oil internationally, the drilling rig count in the U.S. has declined by approximately 61 percent from its peak in 1981. However, due to recently enhanced technology, more wells are being drilled, and these wells are increasingly productive. For these reasons, the domestic production of natural gas has risen to record levels, and the domestic production of crude oil is at the highest level since 1993. Oil and gas industry activity levels have historically been volatile, experiencing multiple cycles, including down cycle troughs in 1986, 1992, 1999 (with April 1999 recording the lowest U.S. drilling rig count in the industry’s history), 2002 and again in 2009. 
+The rig count during the peak of the most recent cycle occurred at the end of the third quarter of 2008, and began to decline sharply during the fourth quarter of 2008. U.S. domestic drilling activity declined by 57 percent from the third quarter of 2008 to the second quarter of 2009, which was the steepest annualized decline rate in the industry’s history. Between the second quarter of 2009 and the fourth quarter of 2011, U.S. domestic drilling activity increased by 129 percent before declining gradually throughout the remainder of 2011 and 2012. At the end of 2012, the U.S. domestic rig count was approximately 100 percent higher than the cyclical trough recorded during the second quarter of 2009. 
+The fluctuations in domestic drilling activity since 2008 are consistent with the changes in the prices of oil and natural gas, the overall economic recovery following the recession in 2008 and 2009, and the financial returns from drilling in unconventional shale plays during the past several years. During 2012 the average price of natural gas decreased by approximately 31 percent and the price of benchmark natural gas liquids decreased by approximately 31 percent compared to prior year. The average price of oil decreased by less than one percent during 2012 compared to 2011. The current high price of oil has increased the attractiveness of drilling for oil and petroleum liquids in several unconventional basins in the U.S. domestic market, while recent prices of natural gas have resulted in declining activities in natural gas directed basins. During 2012, oil-directed drilling activity increased, almost completely offsetting the decrease in natural gas-directed drilling that occurred during the year. The price of natural gas liquids has become an increasingly important determinant of our customers’ activity levels, since it is produced in many of the shale resource plays which also produce oil, and production of various natural gas liquids has increased to a level comparable to that of natural gas. The price of benchmark natural gas liquids peaked during the third quarter of 2008, and declined by approximately 69 percent during the third and fourth quarters of 2008. Thereafter, the price of benchmark natural gas liquids climbed steadily until the third quarter of 2011, but declined by 45 percent by the end of 2012. Although the price of natural gas remains low and natural gas-directed drilling activity has declined to its lowest level in almost 14 years, we continue to believe in the long-term growth opportunities for our business due to the continued high demand for hydrocarbons. Futhermore, we note that the techniques used to extract oil and natural gas in the U.S. domestic market increasingly require the types of services that RPC provides to its customers. 
+From 2001 to 2009, gas drilling rigs represented over 80 percent of the drilling rig count. In 2010, the percentage of drilling rigs drilling for natural gas began to decline, and by the end of 2012 represented only approximately 24 percent of total drilling activity. Although the demand for natural gas has remained stable, the price of natural gas has remained low in recent years due to increased domestic reserves and productivity of new wells. The price of natural gas has risen slightly early in 2013, but remains too low to attract renewed natural gas drilling in unconventional shale plays. In spite of declining drilling activity, U.S. natural gas production reached a record level early in 2013, so we expect that natural gas prices will remain low until supply and demand fundamentals align. In contrast, the price of oil remains high, and producers are exploiting resource plays that are economical at current high oil prices. The long-term demand outlook for natural gas is still favorable because, unlike oil, foreign imports of natural gas do not compete with domestic production to a meaningful degree. This lack of foreign competition tends to keep prices high enough to ensure that domestic drilling and production will continue at certain minimum levels. Because of these factors, we anticipate that oil-directed drilling will continue to represent the majority of the total drilling rig count for the immediate future. 
+There are certain types of wells being drilled in the U.S. domestic market for which there is a higher demand for RPC’s services. Known as either directional or horizontal wells, these wells are more difficult and costly to complete. They have become an increasingly large percentage of the U.S. domestic market, and since the third quarter of 2008, have consistently comprised the majority of U.S. domestic drilling. Because they are drilled through a typically narrow and relatively impermeable formation such as shale, they require additional stimulation when they are completed. Also, many of these formations require high pumping rates of stimulation fluids under high pressures, which in turn requires a great deal of pressure pumping horsepower to complete the well. Furthermore, since they are not drilled in a straight vertical direction from the Earth’s surface, they require tools and drilling mechanisms that are flexible, rather than rigid, and can be steered once they are downhole. Specifically, these types of wells require RPC’s pressure pumping and coiled tubing services, as well as our downhole tools and services. 
+6 
+International. RPC has historically operated in several countries outside of the United States, although international revenues have never accounted for more than 10 percent of total revenues. RPC’s equipment investments over the last several years have emphasized domestic rather than international expansion because of higher expected financial returns. International revenues for 2012 increased compared to 2011 due to higher customer activity levels in Canada, China, Mexico and New Zealand, and in the aggregate accounted for approximately four percent of consolidated RPC revenues. International revenues in 2012 compared to 2011 decreased in Australia, Gabon and Saudi Arabia. During 2012, RPC provided snubbing, well control and oilfield training services in several countries including China, Gabon and New Zealand. We also provided downhole motors and tools in Canada, Mexico, China and Tunisia. We continue to focus on the selective development of international opportunities in these and other markets, although we believe that it will continue to be less than 10 percent of total revenues in 2013. 
+RPC provides services to its international customers through branch locations or wholly owned foreign subsidiaries. The international market is prone to political uncertainties, including the risk of civil unrest and conflicts. However, due to the significant investment requirement and complexity of international projects, customers’ drilling decisions relating to such projects tend to be evaluated and monitored with a longer-term perspective with regard to oil and natural gas pricing, and therefore have the potential to be more stable than most U.S. domestic operations. Additionally, the international market is dominated by major oil companies and national oil companies which tend to have different objectives and more operating stability than the typical independent oil and gas producer in the U.S. Predicting the timing and duration of contract work is not possible. Refer to Note 12 in the Notes to Consolidated Financial Statements for further information on our international operations. 
+Growth Strategies 
+RPC’s primary objective is to generate excellent long-term returns on investment through the effective and conservative management of its invested capital to generate strong cash flow. This objective continues to be pursued through strategic investments and opportunities designed to enhance the long-term value of RPC while improving market share, product offerings and the profitability of existing businesses. Growth strategies are focused on selected customers and markets in which we believe there exist opportunities for higher growth, customer and market penetration, or enhanced returns achieved through consolidations or through providing proprietary value-added products and services. RPC intends to focus on specific market segments in which it believes that it has a competitive advantage and on potential large customers who have a long-term need for our services in markets in which we operate. 
+RPC seeks to expand its service capabilities through a combination of internal growth, acquisitions, joint ventures and strategic alliances. Because of the fragmented nature of the oil and gas services industry, RPC believes a number of acquisition opportunities exist. However, the favorable long-term outlook for our industry and the strong historical profitability of many potential acquisitions has encouraged potential sellers of businesses to expect high prices for their businesses. Due to these high valuations and the potential difficulty of integrating acquired businesses into our existing operations, we believe we generate better returns on investments growing organically in service lines and geographic locations in which we have experience and presence. We will continue to be selective in pursuing growth through acquisitions of existing businesses. 
+RPC has a revolving credit facility to fund the purchase of revenue-producing equipment and other working capital requirements. At December 31, 2012, this facility had a remaining term of almost three years. We have pursued this capital source because of the high returns on investment that have been generated by many of our service lines during the previous several years, and because of the low cost and ready availability of debt capital. During 2011 and the first two quarters of 2012, we purchased additional revenue-producing equipment to support high industry activity levels. Our scheduled purchases of equipment declined during the third and fourth quarters of 2012 as industry activity levels declined, pricing for our services became increasingly competitive, and the anticipated near-term financial returns of a larger fleet of revenue-producing equipment also declined. The outstanding balance on our credit facility at the end of 2012 was lower than at the end of the prior year due to a reduction in capital expenditures and working capital, and our level of debt continues to be conservative compared to a number of our peers. 
+Customers 
+Demand for RPC’s services and products depends primarily upon the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of production enhancement activity worldwide. RPC’s principal customers consist of major and independent oil and natural gas producing companies. During 2012, RPC provided oilfield services to several hundred customers, none of which accounted for more than 10 percent of revenues. 
+Sales are generated by RPC’s sales force and through referrals from existing customers. Over the past three years we have entered into several agreements, with terms beyond one year, to provide services to certain domestic customers. We monitor closely the financial condition of these customers, their capital expenditure plans, and other indications of their drilling and completion activities. Due to the short lead time between ordering services or equipment and providing services or delivering equipment, there is no significant sales backlog in most of our service lines. 
+7 
+Competition 
+RPC operates in highly competitive areas of the oilfield services industry. Our products and services are sold in highly competitive markets, and the revenues and earnings generated are affected by changes in prices for our services, fluctuations in the level of customer activity in major markets, general economic conditions and governmental regulation. RPC competes with many large and small oilfield industry competitors, including the largest integrated oilfield services companies. Strong oilfield activity during the past several years and the availability of capital have encouraged several new, smaller companies to seek debt and equity capital and accelerate their growth rates. The presence of these new competitors has increased competitive pricing pressures as domestic oilfield activity has moderated during the third and fourth quarters of 2012. RPC believes that the principal competitive factors in the market areas that it serves are product availability and quality of our equipment and raw materials used to provide our services, service quality, reputation for safety and technical proficiency, and price. 
+The oil and gas services industry includes a small number of dominant global competitors including, among others, Halliburton Energy Services Group, a division of Halliburton Company, Baker Hughes and Schlumberger Ltd., and a significant number of locally oriented businesses. 
+Facilities/Equipment 
+RPC’s equipment consists primarily of oil and gas services equipment used either in servicing customer wells or provided on a rental basis for customer use. Substantially all of this equipment is Company owned. RPC purchases oilfield service equipment from a limited number of manufacturers. These manufacturers of our oilfield service equipment may not be able to meet our requests for timely delivery during periods of high demand which may result in delayed deliveries of equipment and higher prices for equipment. 
+RPC both owns and leases regional and district facilities from which its oilfield services are provided to land-based and offshore customers. RPC’s principal executive offices in Atlanta, Georgia are leased. The Company has two primary administrative buildings, one it leases in The Woodlands, Texas that includes the Company’s operations, engineering, sales and marketing headquarters, and one it owns in Houma, Louisiana that includes certain administrative functions. RPC believes that its facilities are adequate for its current operations. For additional information with respect to RPC’s lease commitments, see Note 9 of the Notes to Consolidated Financial Statements. 
+Governmental Regulation 
+RPC’s business is affected by state, federal and foreign laws and other regulations relating to the oil and gas industry, as well as laws and regulations relating to worker safety and environmental protection. RPC cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be interpreted by enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or the effect such changes may have on it, its businesses or financial condition. 
+In addition, our customers are affected by laws and regulations relating to the exploration for and production of natural resources such as oil and natural gas. These regulations are subject to change, and new regulations may curtail or eliminate our customers’ activities in certain areas where we currently operate. We cannot determine the extent to which new legislation may impact our customers’ activity levels, and ultimately, the demand for our services. 
+Intellectual Property 
+RPC uses several patented items in its operations, which management believes are important but are not indispensable to RPC’s success. Although RPC anticipates seeking patent protection when possible, it relies to a greater extent on the technical expertise and know-how of its personnel to maintain its competitive position. 
+Availability of Filings 
+RPC makes available, free of charge, on its website, www.rpc.net, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports on the same day as they are filed with the Securities and Exchange Commission.
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@@ -0,0 +1,2 @@
+Item 13. Certain Relationships and Related Party Transactions and Director Independence 
+Information concerning certain relationships and related party transactions will be included in the RPC Proxy Statement for its 2013 Annual Meeting of Stockholders, in the sections titled, “Certain Relationships and Related Party Transactions.” Information regarding director independence will be included in the RPC Proxy Statement for its 2013 Annual Meeting of Stockholders in the section titled “Director Independence and NYSE Requirements.” This information is incorporated herein by reference.
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index 0000000000000000000000000000000000000000..85491cdded906f020d510616e0d67f61e5c6325e
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@@ -0,0 +1,5 @@
+Item 9A. Controls and Procedures 
+Evaluation of disclosure controls and procedures — The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to its management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 
+As of the end of the period covered by this report, December 31, 2012 (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the Evaluation Date. 
+Management’s report on internal control over financial reporting — Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management’s report on internal control over financial reporting is included on page 29 of this report. Grant Thornton LLP, the Company’s independent registered public accounting firm, has audited the effectiveness of internal control as of December 31, 2012 and issued a report thereon which is included on page 30 of this report. 
+Changes in internal control over financial reporting — Management’s evaluation of changes in internal control did not identify any changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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diff --git a/raw/filings/0000742278/2012/0001188112-13-000533/rp_note.txt b/raw/filings/0000742278/2012/0001188112-13-000533/rp_note.txt
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@@ -0,0 +1,9 @@
+Note 11: Related Party Transactions 
+Related Party Transactions 
+Marine Products Corporation 
+Effective in 2001, the Company spun off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware corporation) (“Marine Products”), a newly formed wholly owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship. 
+In accordance with a Transition Support Services agreement, which may be terminated by either party, RPC provides certain administrative services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products. Charges from the Company (or from corporations that are subsidiaries of the Company) for such services aggregated approximately $544,000 in 2012, $639,000 in 2011 and $689,000 in 2010. The Company’s receivable due from Marine Products for these services was approximately $94,000 as of December 31, 2012 and was approximately $3,000 as of December 31, 2011. The Company’s directors are also directors of Marine Products and all of the executive officers are employees of both the Company and Marine Products. 
+Other 
+The Company periodically purchases in the ordinary course of business products or services from suppliers, who are owned by significant officers or stockholders, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were approximately $1,676,000 in 2012, $1,469,000 in 2011 and $551,000 in 2010. 
+RPC receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is otherwise affiliated with RPC). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled $83,000 in 2012, $102,000 in 2011 and $94,000 in 2010. 
+A group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother Gary W. Rollins, who is also a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s voting power.
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diff --git a/raw/filings/0000742278/2012/0001188112-13-000533/rpt_disclosure.txt b/raw/filings/0000742278/2012/0001188112-13-000533/rpt_disclosure.txt
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@@ -0,0 +1,7 @@
+CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 
+Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $544,000 in 2012. 
+During 2012, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2012, payments totaling approximately $1,676,000 were made to these LOR, Inc. companies primarily for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been incurred for similar services from unaffiliated third parties. 
+RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $83,000 in 2012. 
+25 
+A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. 
+Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Corporate Governance Committee. As set forth in our Code, our Nominating and Corporate Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2012 were reviewed, approved and/or ratified by the Nominating and Corporate Governance Committee in accordance with the Code.
\ No newline at end of file
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@@ -0,0 +1,2783 @@
+10-K405
+1
+v70157e10-k405.txt
+FORM 10-K405
+1
+================================================================================
+UNITED STATES
+SECURITIES AND EXCHANGE COMMISSION
+WASHINGTON, D.C. 20549
+----------------
+FORM 10-K
+----------------
+[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
+ACT OF 1934
+FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
+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: 001-14429
+SKECHERS U.S.A., INC.
+(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
+DELAWARE 95-4376145
+(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
+INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
+228 MANHATTAN BEACH BLVD.
+MANHATTAN BEACH, CALIFORNIA 90266
+(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
+REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 318-3100
+SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
+NAME OF EACH EXCHANGE
+TITLE OF EACH CLASS ON WHICH REGISTERED
+------------------- ----------------------
+Class A Common Stock $0.001 par value New York Stock Exchange
+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 if disclosure of delinquent filers pursuant to Item
+405 of Regulation S-K is not contained herein, and will not be contained, to the
+best of registrant's knowledge, in definitive proxy or information statements
+incorporated by reference in Part III of the Form 10-K or any amendment to this
+Form 10-K. [X]
+The aggregate market value of the voting stock held by non-affiliates of the
+registrant based upon the closing sales price of its Class A Common Stock on
+March 26, 2001 on the New York Stock Exchange was approximately $419 million.
+The number of shares of Class A Common Stock outstanding as of March 26, 2001
+was 12,546,972.
+The number of shares of Class B Common Stock outstanding as of March 26, 2001
+was 23,505,451.
+DOCUMENTS INCORPORATED BY REFERENCE
+Portions of the Registrant's Definitive Proxy Statement issued in connection
+with the 2001 Annual Meeting of the Stockholders of the Registrant are
+incorporated by reference into Part III.
+================================================================================
+2
+SKECHERS U.S.A., INC.
+FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
+INDEX TO ANNUAL REPORT ON FORM 10-K
+PAGE
+----
+PART I
+Item 1. Business............................................................... 3
+Item 2. Properties............................................................. 15
+Item 3. Legal Proceedings...................................................... 16
+Item 4. Submission of Matters to a Vote of Security Holders.................... 17
+PART II
+Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.. 18
+Item 6. Selected Financial Data................................................ 19
+Item 7. Management's Discussion and Analysis of Financial Condition and
+Results of Operations.................................................. 19
+Item 7a. Quantitative and Qualitative Disclosures About Market Risk............ 23
+Item 8. Financial Statements and Supplementary Data............................ 24
+Item 9. Changes in and Disagreements With Accountants on Accounting and
+Financial Disclosure................................................... 24
+PART III
+Item 10. Directors and Executive Officers of the Registrant..................... 25
+Item 11. Executive Compensation................................................. 25
+Item 12. Security Ownership of Certain Beneficial Owners and Management......... 25
+Item 13. Security Relationships and Related Transactions........................ 25
+PART IV
+Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........ 26
+Signatures........................................................................ 29
+Consolidated Financial Statements................................................. F-1
+2
+3
+PART I
+ITEM 1. BUSINESS
+Certain information contained in this report constitutes forward-looking
+statements which involve risks and uncertainties including, but not limited to,
+information with regard to our plans to increase the number of retail locations
+and styles of footwear, the maintenance of customer accounts and expansion of
+business with such accounts, the successful implementation of our strategies,
+future growth and growth rates and future increases in net sales, expenses,
+capital expenditures and net earnings. The words "believes," "anticipates,"
+"plans," "expects," "endeavors," "may," "will," "intends," "estimates," and
+similar expressions are intended to identify forward-looking statements. These
+forward-looking statements involve risks and uncertainties, and our actual
+results could differ materially from those anticipated in these forward-looking
+statements as a result of certain factors, including, but not limited to, those
+set forth under "Risk Factors" and elsewhere in this Report.
+GENERAL
+Skechers U.S.A., Inc. ("Skechers") designs and markets branded contemporary
+casual, active, rugged and lifestyle footwear for men, women and children. Our
+objective is to become a leading source of contemporary casual and active
+footwear while ensuring the longevity of both Skechers and the Skechers brand
+name through controlled, well managed growth. We strive to achieve this
+objective by developing and offering a balanced assortment of basic and
+fashionable merchandise across a wide spectrum of product categories and styles,
+while maintaining a diversified, low-cost sourcing base and controlling the
+growth of our distribution channels. We sell our products to department stores
+such as Nordstrom, Macy's, Dillards, Robinsons-May, and JC Penney and specialty
+retailers such as Footlocker, Lady Footlocker, Kid's Footlocker, Famous
+Footwear, Genesco's Journeys and Jarman chains, and Footaction U.S.A. We also
+own and operate Skechers' retail stores and sell product directly to consumers
+through mail order and web site distribution. We, through major international
+distributors, sell our products in over 100 countries and territories, with the
+exception of France and Germany where we sell directly to department stores and
+specialty retailers.
+Our product offerings of men's, women's and children's footwear appeal to a
+broad customer base between the ages of 5 and 40 years. Our strategy of
+providing a growing and balanced assortment of quality basic footwear and
+seasonal and fashion footwear with progressive styling at competitive prices
+gives Skechers this broader based customer appeal. Our men's and women's
+footwear are primarily designed with the active, youthful lifestyle of the 12 to
+25 year old age group in mind. Our product offerings include casual and utility
+oxfords, loggers, boots and demi-boots; skate, street and fashion sneakers;
+hikers, trail runners and joggers; sandals, slides and other open-toe footwear;
+and dress casual shoes.
+Our management and design team collectively possess extensive experience in
+the footwear industry. Robert Greenberg and Michael Greenberg, the Chairman of
+the Board and President, respectively, founded Skechers in 1992. Prior to that
+time, Robert Greenberg co-founded L.A. Gear, Inc. ("L.A. Gear") and, together
+with a management team which included Michael Greenberg, was instrumental in
+L.A. Gear's growth until his resignation in early 1992. The Greenbergs are
+joined on the management team by several design, merchandise, production, and
+marketing executives with experience in a broad range of industries. We believe
+this core group comprises an effective and efficient management and design team
+with the experience to recognize and respond to emerging consumer trends and
+demands.
+FOOTWEAR
+Skechers offers men's, women's and children's footwear in a broad range of
+styles, fabrics and colors. We offer a broad selection of categories in an
+effort to maximize our ability to respond to changing fashion trends and
+consumer preferences as well as to limit our exposure to any specific style. We
+believe that our products and brand offer a broad appeal to men, women and
+children.
+We introduced our first footwear line with the Skechers brand name in
+December 1992. Since that time, we have expanded our product offerings and grown
+our net sales while substantially increasing the breadth and penetration of our
+account base. We currently categorize our footwear into six product lines: (i)
+Skechers USA, (ii) Skechers Sport, (iii) Skechers Collection, (iv) Skechers
+Kids, (v) Somethin' Else from Skechers, and (vi) Skechers by Michelle K. These
+general product lines are offered in varying styles for men, women and children
+(except for Skechers Collection which is currently offered in men's styles only
+and Somethin' Else from Skechers and Skechers by Michelle K which are offered in
+women's styles only).
+Skechers USA. Our Skechers USA category includes four types of footwear: (i)
+Sport Utility, (ii) Utility, (iii) Classics, and (iv) Hikers. The Sport Utility
+category includes generally "Black & Brown" boots and shoes that have a rugged,
+less refined design with industrial-inspired fashion features. This category is
+defined by the heavy-lugged outsole and value-oriented materials employed in the
+uppers. Uppers are typically constructed of oiled suede and "Crazy Horse" or
+distressed leathers which enhance the rugged appearance of the boots and oxfords
+of this category. We design and price this category to appeal primarily to young
+men with broad acceptance
+3
+4
+across age groups. Suggested retail price points range from $45.00 to $70.00 for
+this category. Our Utility styles consist of a single category of boots that are
+designed to meet the functional demands of a work boot but are marketed as
+casual footwear. The outsoles of this category are designed to be durable and
+wearable with Goodyear welted, hardened rubber outsoles. Uppers are constructed
+of thicker, better grades of heavily oiled leathers. Utility boots may include
+steel toes, water-resistant or water-proof construction and/or materials, padded
+collars and Thermolite insulation. Styles include logger boots and demi-boots,
+engineer boots, motorcycle boots and six- and eight-eyelet work boots. Suggested
+retail price points range from $80.00 to $100.00 for this category. The Classics
+styles include comfort oriented design and performance features. Boots and shoes
+in this category employ softer outsoles which are often constructed of polyvinyl
+carbon ("PVC"). The more refined design of this footwear employs better grades
+of leather and linings than those used in our Sport Utility boots and shoes.
+Uppers are generally constructed of grizzly leather or highly-finished leather
+that produces a waxy shine. Designs are sportier than the Sport Utility category
+and feature oxfords, wingtips, monkstraps, demi-boots and boots. Suggested
+retail price points range from $55.00 to $75.00 for this category. Our Hiker
+styles consist of a single category of boots and demi-boots that include many
+comfort and technical performance features that distinguish this footwear as
+Hikers. We market this footwear primarily on the basis of style and comfort
+rather than on technical performance. However, many of the technical performance
+features in the Hikers contribute to the level of comfort this footwear
+provides. Outsoles generally consist of molded and contoured hardened rubber.
+Many designs may include gussetted tongues to prevent penetration of water and
+debris, cushioned mid-soles, motion control devices such as heel cups,
+water-resistant or water-proof construction and materials and heavier, more
+durable hardware such as metal D-rings instead of eyelets. Uppers are generally
+constructed of heavily oiled nubuck and full-grain leathers. Suggested retail
+price points range from $55.00 to $100.00 for this category.
+Skechers Sport. Skechers Sport or "Active Street" footwear includes skate
+sneakers, joggers, trail runners, sport hikers and multi-functional shoes
+inspired by cross-trainers. We distinguish our Skechers Sport category by its
+technical performance inspired looks; however, generally we do not promote the
+technical performance features of these shoes. Certain of our skate sneakers are
+designed with the technical performance features necessary for competitive level
+skateboarding. The skate sneaker styles ("Street Sneaker") are designed to
+appeal to the teenager whose casual shoe of choice is a skate or street sneaker
+and is intended to be retailed through specialty casual shoe stores and
+department stores. The other Skechers Sport footwear styles include comfort
+performance not available in the Street Sneaker styles. The Skechers Sport
+designs are light-weight constructions that include cushioned heels,
+polyurethane mid-soles, phylon and other synthetic outsoles and white leather or
+synthetic uppers such as durabuck and cordura and ballistic nylon mesh. The
+Skechers Sport features electric and technically inspired hues in addition to
+the traditional athletic white. Skechers Sport is marketed through traditional
+athletic footwear specialty retailers as well as basic existing accounts.
+Suggested retail price points range from $40.00 to $65.00 for this category.
+Skechers Collection. The Skechers Collection features dress casual shoes
+designed to complement a young man's semi-formal attire. This category features
+more sophisticated designs influenced, in part, by prevailing trends in Italy
+and other European countries. As such, this footwear is more likely than other
+categories to be sourced from Italy and Portugal. Outsoles project a sleeker
+profile, while uppers are constructed of glossy, "box" leather and aniline,
+resulting in a highly polished appearance. Designs include monkstraps, wingtips,
+oxfords, cap toes and demi-boots and often feature blind-eyelets to enhance the
+sophisticated nature of the styling. Suggested retail price points range from
+$85.00 to $130.00 for this category.
+Skechers Kid's. The Skechers Kid's line features a range of products
+including boots, shoes and sneakers and is comprised primarily of shoes that are
+designed like their adult counterparts but in "takedown" versions, so that the
+younger set can wear the same popular styles as their older siblings and
+schoolmates. This "takedown" strategy maintains the integrity of the product in
+the premium leathers, hardware and outsoles without the attendant costs involved
+in designing and developing new products. In addition, we also adapt current
+fashion from our men's and women's lines by modifying designs and choosing
+colors and materials that are more suitable to the playful image we have
+established in the children's footwear market. We also have a Skechers Lights
+category, which is a line of lighted footwear combining sequencing patterns and
+lights in the outsole and other areas of the shoes. Our children's footwear is
+offered at retail prices ranging from $20.00 to $50.00.
+Somethin' Else from Skechers. The Somethin' Else from Skechers line,
+introduced in February 2001, is a young women's line that features an array of
+stylish shoes, boots and sandals for females between the ages of 12 and 24. This
+new line is expected to be available to consumers beginning Fall 2001. We
+designed the line to be a complementary line for the junior customer who already
+wears Skechers USA and Skechers Sport styles.
+Skechers by Michelle K. The Skechers by Michelle K line, also introduced in
+February 2001, is a new dress casual junior line for trend-savvy young women
+between the ages of 18 and 34. This new line is expected to be available in Fall
+2001.
+We offer sandalized footwear which features open-toe and open-side
+constructions consistent with our offerings in the Skechers USA, Skechers Sport
+and Skechers Collection categories of footwear. Such footwear includes
+fisherman's sandals, shower sandals, beach sandals, slides, comfort-oriented
+land sandals and technically-inspired water sport sandals. Sandalized footwear
+includes both
+4
+5
+leather and synthetic constructions and may feature suede footbeds with
+form-fitting mid-soles. We typically deliver our sandalized footwear to
+retailers from February to August. Suggested retail price points range from
+$20.00 to $60.00 for this category.
+PRODUCT DESIGN AND DEVELOPMENT
+We believe that our product success is related in a large part to our ability
+to recognize trends in the footwear markets and to design products which
+anticipate and accommodate consumers' ever-evolving preferences. We strive to
+analyze, interpret and translate current and emerging lifestyle trends.
+Lifestyle trend information is compiled by our designers through various methods
+designed to monitor changes in culture and society, including (i) review and
+analysis of modern music, television, cinema, clothing, alternative sports and
+other trend-setting media, (ii) travel to domestic and international fashion
+markets to identify and confirm current trends, (iii) consultation with our
+retail customers for information on current retail selling trends, (iv)
+participation in major footwear trade shows to stay abreast of popular brands,
+fashions and styles and (v) subscription to various fashion and color
+information services. In addition, a key component of our design philosophy is
+to continually reinterpret both our basic and current successful styles in the
+Skechers image.
+We intend to continue to leverage our reputation for quality products and our
+relationships with retailers through, among other things, the introduction of
+new styles in our existing and new categories of footwear. Also, we believe our
+in stock inventory program enhances our position with retailers. This program
+increases the availability of our best-selling products, which we believe has
+contributed to more consistent product flow to our retail customers and an
+increased ability to respond to reorder demand.
+Offer a Breadth of Innovative Products. We have continued to broaden our
+product line in an effort to reach a larger consumer base. In addition,
+offering a broader range of products allows us to increase sales to our current
+customer and consumer base. We offer a wide variety of different styles of
+footwear generally in three to four different colors and material variations and
+typically in 10 to 12 different sizes. These styles span a broad spectrum of
+product categories ranging from skate and street sneakers to fashion sneakers,
+from steel toe boots with heavy-lugged soles to casual dress shoes for men. We
+have developed this breadth of merchandise offerings in an effort to improve our
+ability to respond to changing fashion trends and customer preferences, as well
+as to limit our exposure to any single industry participant. We do not believe
+that any single industry participant competes directly with us across our entire
+product offering. Although major new product introductions take place in advance
+of both the spring and the fall selling seasons, we typically introduce new
+designs in to our existing lines every 30 to 60 days to keep current with
+emerging trends.
+Design Team. All of our footwear is designed with an active, youthful
+lifestyle in mind. The design team's primary mandate is to design shoes
+marketable to the 12 to 25 year old consumer. While these designs are
+contemporary in styling, we believe that substantially all of the line appeals
+to the broader 5 to 40 year old consumer. Although many of our shoes have
+performance features, such as hikers, trail runners, skate sneakers and joggers,
+we generally do not position our shoes in the marketplace as technical
+performance shoes. Our principal goal in product design is to generate new and
+exciting footwear with contemporary and progressive style features and comfort
+enhancing performance features. We do not believe that technology is a
+differentiating factor in marketing footwear in the casual shoe industry.
+The footwear design process typically begins about nine months before the
+start of a season. Skechers' products are designed and developed by our in-house
+staff. We also utilize outside design firms on an item-specific basis to
+supplement our design efforts. Separate design teams focus on each of the men's,
+women's and children's categories, and report to our senior design executives.
+The design process is extremely collaborative; members of the design staff meet
+weekly with the heads of retail and merchandising, sales, production and
+sourcing to further refine Skechers' products to meet the particular needs of
+our markets.
+After the design team arrives at a consensus regarding the fashion themes for
+the coming season, the group then translates these themes into Skechers
+products. These interpretations include variations in product color, material
+structure and decoration, which are arrived at after close consultation with our
+production department. Prototype blueprints and specifications are created and
+forwarded to our prototype manufacturers located in Taiwan, which then forward
+design prototypes back to our domestic design team. New design concepts are
+often also reviewed by our major retail customers. Customer input not only
+allows us to measure consumer reaction to the latest designs, but also affords
+us an opportunity to foster deeper and more collaborative relationships with our
+customers. Our design team can easily and quickly modify and refine a design
+based on customer input.
+SOURCING
+A substantial portion of our products are produced in China. To date,
+products have been purchased in U.S. Dollars, although we cannot assure you that
+this will continue to be the case. We do not own or operate any manufacturing
+facilities. We believe the use of independent manufacturers increases our
+production flexibility and capacity while at the same time substantially
+reducing capital expenditures and avoiding the cost of managing a large
+production work force. We finance our production activities in part through the
+use of interest-bearing open purchase arrangements with certain of our Asian
+manufacturers. These facilities currently bear interest
+5
+6
+at a rate between 1.0% and 2.0% for 30 to 60 days financing, depending on the
+factory. We believe that the use of these arrangements affords us additional
+liquidity and flexibility. While we have long-standing relationships with many
+of our manufacturers and believe our relationships to be good, there are no
+long-term contracts between us and any of our manufacturers.
+We maintain an in-stock position for selected styles of footwear in order
+to minimize the time necessary to fill customer orders. In order to maintain an
+in-stock position, we place orders for selected footwear with our manufacturers
+prior to the time we receive customers' orders for such footwear. In order to
+reduce the risk of overstocking, we seek to assess demand for our products by
+soliciting input from our customers and monitoring retail sell-through. In
+addition, we analyze historical and current sales and market data to develop
+internal product quantity forecasts which helps reduce inventory risks.
+Asian Office. To safeguard product quality and consistency, we oversee the
+key aspects of the production process from prototyping through production to
+finished product. Monitoring is performed by our domestic production department
+and from our offices in China and Taiwan. We believe that our Asian presence
+allows us to negotiate supplier and manufacturer arrangements more effectively,
+decrease product turnaround time, and ensure timely delivery of finished
+footwear. In addition, we require our manufacturers to certify that neither
+convict, forced, indentured labor (as defined under U.S. law) nor child labor
+(as defined by the manufacturer's country) is used in the production process,
+that compensation will be paid according to local law and that the factory is in
+compliance with local safety regulations.
+Factories. Manufacturers are selected in large part on the basis of our prior
+experience with the manufacturer and the amount of available production
+capacity. We attempt to monitor our selection of independent factories to ensure
+that no one manufacturer is responsible for a disproportionate amount of our
+merchandise. We also seek to use, whenever possible, manufacturers that have
+previously produced our footwear, which we believe enhances continuity and
+quality while controlling production costs. In addition, we source product for
+styles that account for a significant percentage of our net sales from at least
+four different manufacturers. For the year ended December 31, 2000, we had four
+manufacturers which accounted for between 9% and 20%, each, of total purchases.
+Quality Control. We believe that quality control is an important and
+effective means of maintaining the quality and reputation of our products. Our
+quality control program is designed to ensure that finished goods not only meet
+our established design specifications, but also that all goods bearing our
+trademarks meet our standards for quality. Quality control personnel perform an
+array of inspection procedures at various stages of the production process,
+including examination and testing of (i) prototypes of key raw materials prior
+to manufacture, (ii) samples and materials at various stages of production and
+(iii) final products prior to shipment. Our employees are on-site at each
+of our major manufacturers to oversee key phases of production. In
+addition, unannounced visits to the manufacturing sites, to further monitor
+compliance with our manufacturing specifications, are made by our employees
+and agents.
+MARKETING AND PROMOTION
+Our marketing focus is to maintain and enhance recognition of the Skechers
+brand name as a casual, active youthful brand that stands for quality, comfort
+and design innovation. Senior management is directly involved in shaping our
+image and our advertising and promotional activities. Towards this end, we
+endeavor to spend between 8% and 10% of annual net sales in the marketing of
+our footwear through an integrated effort of advertising, promotions,
+public relations, trade shows and other marketing efforts, which we believe
+substantially heightens brand awareness.
+Advertising. We believe that our success to date is due in large part to our
+advertising strategies and methods. Our in-house marketing and advertising team
+has developed a comprehensive program to promote the Skechers brand name through
+lifestyle and image advertising. We have made a conscious effort to avoid the
+association of the Skechers name with any single category of shoe to provide
+merchandise flexibility and to aid the ability to take the brand and product
+design in the direction of evolving footwear fashions and consumer preferences.
+We use a variety of media for our national advertising. Print efforts are
+represented by one and two page ads displayed in popular fashion and lifestyle
+consumer publications that appeal to our target customer group. Our progressive
+television advertisements are primarily produced in-house and air frequently on
+top television shows. Different advertisements are created for each of the 5 to
+9, 10 to 24 and 25 to 35 year old consumer groups.
+Certain of our retail accounts feature "in-store shop" formats in which we
+provide fixtures, signage and visual merchandise assistance in a dedicated floor
+space within the store. The design of our "in store shop" utilizes our distinct
+advertising strategies to promote brand recognition and differentiate our
+presence in the store from that of our competition. The installation
+of these "in-store shops" enables us to establish premium locations within the
+retailers and we believe it aids in increased sell-through and higher maintained
+margins for our customers. Our in-house display merchandising department
+supports retailers and distributors by developing point-of-purchase advertising
+to further promote our products in stores and to leverage the brand recognition
+at the retail level.
+6
+7
+Promotions. Our in-house promotions department is also responsible for
+building national brand name recognition. Teaming up with national retailers and
+radio stations, the promotions department is responsible for cross promotions,
+which help draw customers to retail store locations.
+Public Relations. Our in-house public relations department is also
+responsible for increasing our media exposure. Our objective is to communicate
+the Skechers image to the public and news media through the active solicitation
+of fashion editorial placements, arranging interviews for our key personnel and
+coordinating local publicity and special event programs for us. During 2000, we
+received notable press coverage in print publications including the New York
+Times, the Los Angeles Times, Investors Business Daily and BusinessWeek.
+Skechers was noted in the press in BusinessWeek's top 100 hot growth companies
+and ranked in the number five position; for receiving Footwear Plus' Young
+Women's Excellence in Design award; and, in DNR, as a top footwear brand for the
+Generation Y male. With our strategy tied to promoting the newest styles
+produced by the product development team, our products are often featured in
+fashion and pop culture magazines and in a select group of films and popular
+television shows.
+Endorsements. In 2000, we signed our first celebrity endorsement agreements
+in an effort to strategically leverage and market the Skechers brand to specific
+consumer groups. We signed singer Britney Spears for an international (worldwide
+excluding the United States) print media campaign through June 2002. We signed
+actor Matt Dillon for a Skechers Collection print media campaign, which will
+appear in magazines through January 2002. We also signed actor Rob Lowe for a
+limited term print media campaign. From time to time, we may sign other
+celebrities to endorse the brand and to strategically focus marketing, but there
+are currently no other endorsements planned.
+Trade Shows. To showcase the Skechers product to footwear buyers, we
+exhibited at 21 trade shows during 2000. We pride ourselves on having innovative
+and dynamic exhibits on the show floor. Designed in-house, our state-of-the-art
+trade show exhibits feature the latest products and provide a stage show
+featuring progressive music and nightclub lighting.
+Electronic Commerce and Mail-Order Catalog. During 2000, we continued the
+production and distribution of our mail order catalog. The mail order catalog
+offers a selection of the most popular products sold at retail. Concurrent with
+the distribution of each catalog, our interactive website (www.skechers.com) is
+expanded to include the offerings of the current catalog. Our website also
+features photos, interviews and information on Skechers-sponsored events. Our
+website and mail-order catalog are intended to further enhance the Skechers
+brand image.
+DISTRIBUTION CHANNELS
+We have implemented a strategy of controlling the growth of the distribution
+channels through which our products are sold in order to protect the Skechers
+brand name, properly service customer accounts and better manage the growth of
+the business. We have limited distribution of our product to those retailers
+that we believe can best support the Skechers brand name in the market. By
+focusing on our existing accounts, we can deepen our relationships with our
+existing customers by providing a heightened level of customer service. We
+believe close relationships with our customers help us to maximize our (i)
+retail sell-through, (ii) maintained margins, (iii) inventory turns, (iv) and
+reduce our inventory markdowns and customer returns and allowances.
+Sales and Field Service Representatives. As of February 28, 2001, we had 102
+and 15 sales and field service representatives, respectively. Each of the sales
+representatives is compensated on a salary plus commission basis; the
+representatives sell Skechers products exclusively. Senior management is
+actively involved in selling to and maintaining relationships with our major
+retail accounts. For the year ended December 31, 2000, the top five sales
+persons accounted for 36.1% of our net domestic wholesale sales. One of these
+salespersons generated 14.0% of our net domestic wholesale sales for the year
+ended December 31, 2000.
+The field service representatives ensure proper presentation of our
+merchandise and point-of-purchase marketing materials. Our sales and field
+service personnel work closely with the accounts to coordinate the appropriate
+inventory level and product mix that should be carried in each store in an
+effort to help retail sell-through and enhance the customer's product margin.
+Such information is then used as a basis for developing sales projections and
+product needs for such customers. This information in turn assists us with
+scheduling production. Along with a staff of in-house customer service
+employees, we are committed to achieving customer satisfaction and to building a
+loyal customer base by providing a high level of knowledgeable, attentive and
+personalized customer service.
+Concept Stores. As of December 31, 2000, we operated 24 concept stores at
+marquee locations in major metropolitan cities. The stores are typically
+designed to create a distinctive Skechers look and feel and enhance customer
+association of the Skechers brand with current youthful lifestyle trends and
+styles. The concept stores feature modern music and lighting and present an open
+floor design to allow customers to readily view the merchandise on display.
+These concept stores serve a threefold purpose in our operating strategy. First,
+concept stores showcase a wide range of our product offerings for the current
+season, providing the customer with the entire product story. In contrast, we
+estimate that our average retail customer carries no more than 5.0% of the
+complete Skechers line.
+7
+8
+Second, retail locations are generally chosen to generate maximum marketing
+value for the Skechers brand name through signage and store front presentation.
+Third, our concept stores also serve as marketing and product testing venues by
+providing rapid product feedback. We believe that product sell-through
+information derived from our concept stores enables our sales, merchandising and
+production staff to respond quickly to market changes and new product
+introductions. We occasionally order limited production runs which may initially
+be tested in Skechers' concept stores. By working closely with store personnel,
+we obtain customer feedback that often influences product design and
+development. We believe that sales in our retail stores can help forecast sales
+in national retail stores. Such responses serve to augment sales and limit our
+inventory markdowns and customer returns and allowances. We adjust our product
+and sales strategy based upon seven to 14 days of retail sales information.
+We seek to instill enthusiasm and dedication in our concept store management
+personnel and sales associates through incentive programs and regular
+communication with store personnel. Sales associates receive commissions on
+sales with a guaranteed minimum compensation. Concept store managers receive
+base compensation plus incentive compensation based on sales. We have
+well-established concept store operating policies and procedures and utilizes an
+in-store training regimen for all new store employees. Merchandise presentation
+instructions and detailed product descriptions also are provided to sales
+associates to enable them to gain familiarity with Skechers product offerings.
+Factory and Warehouse Outlet Stores. As of December 31, 2000, we also
+operated 28 factory and warehouse outlet stores that enable us to liquidate
+excess, discontinued and odd-size inventory in a cost-efficient manner.
+Inventory in these stores is supplemented by certain first-line styles sold at
+full retail price points. The factory outlet stores are generally located in
+manufacturers' outlet centers throughout the country. Our factory outlet stores
+have enabled us to increase sales in certain geographic markets where our
+products were not previously available and to consumers who favor value-oriented
+retailers. The outlets provide opportunities for us to sell discontinued and
+excess merchandise, thereby reducing the need to sell such merchandise to
+discounters at excessively low prices. Our free-standing warehouse outlet stores
+enable us to liquidate other excess merchandise, discontinued lines and odd
+sizes. We strive to geographically position our factory and warehouse outlet
+stores to areas not supported by traditional footwear retailers that would carry
+our brand.
+Other Direct Distribution Outlets. Our mail-order catalog and website act as
+sales vehicles. We believe that these distribution channels will not become a
+significant portion of total revenues for us in the near term; however, we
+believe that they may present attractive long-term opportunities with minimal
+near-term costs.
+INTERNATIONAL OPERATIONS
+Although our primary focus is on the domestic market, we presently market our
+products in countries and territories in Europe, Asia and selected other foreign
+regions. We derive revenues and earnings from outside the United States from
+three principal sources: (i) sales of our footwear directly to foreign
+distributors who distribute such footwear to department stores and specialty
+retail stores, (ii) in France and Germany, we sell footwear directly to
+department stores and specialty retail stores and (iii) to a lesser extent,
+royalties from licensees who manufacture and distribute our products outside the
+United States.
+We believe that international distribution of our products may represent a
+significant opportunity to increase revenues and profits. Although we are in the
+early stages of our international expansion, our products are currently sold in
+more than 100 countries and territories. Our goal is to increase international
+sales, through both foreign distributors and directly, by heightening our
+international marketing presence in those countries. During 2000, we continued
+our international advertising campaigns, which are designed to establish
+Skechers as a global brand synonymous with casual shoes. We are also exploring
+further direct sales to retailers in certain European countries. In February
+2001, we announced the creation of Skechers USA Ltd., a subsidiary with its
+headquarters in London, England. Skechers USA Ltd. will organize its operations
+in the United Kingdom and Ireland and establish direct control over wholesale
+distribution, merchandising, and marketing in that region. In addition, we are
+selectively opening flagship retail stores internationally on our own or through
+joint ventures. In February and March 2001, we opened our first flagship retail
+stores on Oxford Street in London and in the prestigious Centro Mall in
+Oberhausen, Germany, respectively. We also plan to open a flagship store at the
+Forum Les Halles in Paris by the end of Spring 2001.
+DISTRIBUTION FACILITY
+We believe that strong distribution support is a critical factor in our
+operations. Once manufactured, our products are packaged in shoe boxes bearing
+bar codes and either shipped to our approximately 962,000 square feet of
+Skechers managed distribution centers located in Ontario, California, or shipped
+directly from the manufacturer to our international customers. During 2000, we
+increased our distribution capacity with the purchase of an approximately
+264,000 square foot distribution center located in Ontario, California. We lease
+the remaining distribution space of approximately 698,000 square feet.
+8
+9
+POTENTIAL LICENSING ARRANGEMENTS
+We believe that selective licensing of the Skechers brand name to
+non-footwear-related manufacturers may broaden and enhance the Skechers image
+without requiring significant capital investments or additional incremental
+operating expenses by us. From time to time, we have experimented with certain
+manufacturers on a very limited basis to study the potential impact of licensing
+the brand. We periodically review potential internationally licensing
+arrangements for footwear in various geographical regions that present favorable
+business opportunities. We believe that revenues from licensing agreements will
+not provide a significant portion of our net revenues in the near term; however,
+we believe that licensing arrangements may present attractive long-term
+opportunities with minimal near-term costs.
+BACKLOG
+We generally receive the bulk of our orders for each of the spring and fall
+seasons a minimum of three months prior to the date the products are shipped to
+customers. At December 31, 2000, our backlog was $221.6 million, compared to
+$121.7 million at December 31, 1999. While backlog orders are subject to
+cancellation by customers, we have not experienced significant cancellation of
+orders in the past and we expect that substantially all the orders will be
+shipped in fiscal 2001. However, for a variety of reasons, including the timing
+of shipments, product mix of customer orders and the amount of in-season orders,
+backlog may not be a reliable measure of future sales for any succeeding period.
+INTELLECTUAL PROPERTY RIGHTS
+We own and utilize a variety of trademarks, including the Skechers trademark.
+We have a significant number of both registrations and pending applications for
+our trademarks in the United States. In addition, we have trademark
+registrations and trademark applications in approximately 81 foreign countries.
+We also have design patents, and pending design and utility patent applications,
+in both the United States and various foreign countries. We continuously look to
+increase the number of our patents and trademarks, both domestically and
+internationally, where necessary to protect valuable intellectual property. We
+regard our trademarks and other intellectual property as valuable assets and
+believe that they have significant value in the marketing of our products. We
+vigorously protect our trademarks against infringement, including through the
+use of cease and desist letters, administrative proceedings and lawsuits.
+We rely on trademark, patent, copyright, trade secret protection,
+non-disclosure agreements and licensing arrangements to establish, protect and
+enforce intellectual property rights in our logos, tradenames and in the
+design of our products. In particular, we believe that our future success will
+largely depend on our ability to maintain and protect the Skechers trademark.
+Despite our efforts to safeguard and maintain our intellectual property rights,
+we cannot assure you that we will be successful in this regard. We cannot assure
+you that third parties will not assert intellectual property claims against us
+in the future. Furthermore, we cannot assure you that our trademarks, products
+and promotional materials or other intellectual property rights do not or will
+not violate the intellectual property rights of others, that our intellectual
+property would be upheld if challenged, or that we would, in such an event, not
+be prevented from using our trademarks or other intellectual property rights.
+Such claims, if proven, could materially and adversely affect our business,
+financial condition and results of operations. In addition, although any such
+claims may ultimately prove to be without merit, the necessary management
+attention to and legal costs associated with litigation or other resolution of
+future claims concerning trademarks and other intellectual property rights could
+materially and adversely affect our business, financial condition and results of
+operations. We have sued and have been sued by third parties for infringement of
+intellectual property. It is our opinion that none of these claims have
+materially impaired our ability to utilize our trademarks.
+The laws of certain foreign countries do not protect intellectual property
+rights to the same extent or in the same manner as do the laws of the United
+States. Although we continue to implement protective measures and intend to
+defend our intellectual property rights vigorously, we cannot assure you that
+these efforts will be successful or that the costs associated with protecting
+our rights in certain jurisdictions will not be prohibitive. From time to time,
+we discover products in the marketplace that are counterfeit reproductions of
+our products or that otherwise infringe upon intellectual property rights held
+by us. We cannot assure you that actions taken by us to establish and protect
+our trademarks and other intellectual property rights will be adequate to
+prevent imitation of our products by others or to prevent others from seeking to
+block sales of our products as violating trademarks and intellectual property
+rights. If we are unsuccessful in challenging a third party's products on the
+basis of infringement of our intellectual property rights, continued sales of
+such products by that or any other third party could adversely impact the
+Skechers brand, result in the shift of consumer preferences away from us and
+generally have a material adverse effect on our business, financial condition
+and results of operations.
+9
+10
+COMPETITION
+Competition in the footwear industry is intense. Although we believe that we
+do not compete directly with any single company with respect to its entire range
+of products, our products compete with other branded products within their
+product category as well as with private label products sold by retailers,
+including some of our customers. Our utility footwear and casual shoes compete
+with footwear offered by companies such as The Timberland Company, Dr. Martens,
+Kenneth Cole Productions, Steven Madden, Ltd. and Wolverine World Wide, Inc. Our
+athletic shoes compete with brands of athletic footwear offered by companies
+such as Nike, Inc., Reebok International Ltd., Adidas-Salomon AG and New
+Balance. Our children's shoes compete with brands of children's footwear offered
+by The Stride Rite Corporation. In varying degrees, depending on the product
+category involved, we compete on the basis of style, price, quality, comfort and
+brand name prestige and recognition, among other considerations. These and other
+competitors pose challenges to our market share in our major domestic markets
+and may make it more difficult to establish Skechers in Europe, Asia and other
+international regions. We also compete with numerous manufacturers, importers
+and distributors of footwear for the limited shelf space available for the
+display of such products to the consumer. Moreover, the general availability of
+contract manufacturing capacity allows ease of access by new market entrants.
+Many of our competitors are larger, have achieved greater recognition for their
+brand names, have captured greater market share and/or have substantially
+greater financial, distribution, marketing and other resources than us. We
+cannot assure you that we will be able to compete successfully against present
+or future competitors or that competitive pressures faced by us will not have a
+material adverse effect on our business, financial condition and results of
+operations.
+EMPLOYEES
+As of February 28, 2001, we employed 1,666 persons, 917 of which were
+employed on a full-time basis and 749 of which were employed on a part-time
+basis. None of our employees are subject to a collective bargaining agreement.
+We believe that our relations with our employees are satisfactory. We offer our
+employees a discount on Skechers merchandise to encourage enthusiasm for the
+product and Skechers loyalty.
+RISK FACTORS
+In addition to the other information in this Form 10-K, the following
+factors should be considered in evaluating us and our business.
+OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO RESPOND TO CHANGING CONSUMER
+DEMANDS AND TO IDENTIFY AND INTERPRET FASHION TRENDS.
+The footwear industry is subject to rapidly changing consumer demands and
+fashion trends. Accordingly, we must identify and interpret fashion trends and
+respond in a timely manner. If we do not continue to meet changing consumer
+demands or develop successful styles in the future, then we may not be
+successful. Sometimes, we must make decisions about product designs several
+months in advance. If we fail to anticipate, identify or react appropriately to
+changes in styles and trends our failure may result in lower sales, excess
+inventories, higher inventory markdowns, and impaired brand image.
+A failure to anticipate trends may also lead to lower gross margins as a
+percentage of net sales since we may have to provide allowances and discounts to
+retailers. Conversely, if we fail to anticipate consumer demand for our
+products, we may experience inventory shortages. Inventory shortages might delay
+shipments to customers, negatively impact retailer and distributor
+relationships, and diminish brand loyalty.
+CONSUMERS MAY CONSIDER OUR BRAND OUTMODED.
+Even if we react appropriately to changes in consumer preferences, there is
+always a risk that consumers may consider our brand image to be outmoded or
+associate the brand with styles of footwear that are no longer popular. As a
+result of these risks, several footwear companies have experienced periods of
+rapid growth in revenues and earnings followed by periods of declining sales and
+losses which, in some cases, have resulted in a decision to cease doing
+business.
+OUR NEW STYLES OF FOOTWEAR MAY NOT BE POPULAR.
+We intend to market new lines of footwear in the future. Demand for and
+market acceptance of these new products are uncertain. In addition, achieving
+market acceptance for new products may require substantial marketing efforts. We
+cannot be sure that our marketing efforts will be successful or that we will
+have the funds necessary to sufficiently market the new products. Our growth and
+profitability could be materially and adversely impacted if our marketing
+efforts and new products are not successful.
+10
+11
+OUR BUSINESS MAY BE ADVERSELY AFFECTED IF ANY STYLE OF FOOTWEAR REPRESENTS A
+SUBSTANTIAL PORTION OF OUR NET SALES.
+If consumer demand for a style or group of styles that represents a
+substantial portion of our net sales decreases then our business may be
+adversely affected. In the past, we have experienced decreased consumer demand
+for a style of footwear that represented a significant portion of our sales and
+our gross sales were adversely affected as a result. This style no longer
+represents a significant portion of our sales. We now offer a broad range of
+products and no style comprised over 10% of our gross wholesale sales, net of
+discounts, for the year ended December 31, 2000. Nonetheless, it is always
+possible that fluctuations in sales of styles that represent a significant
+portion of our net sales will occur in the future. Such fluctuations could have
+harm our business.
+IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, IT COULD HAVE AN ADVERSE EFFECT ON
+OUR BUSINESS.
+In the past, we have experienced rapid growth and we intend to continue to
+pursue an aggressive growth strategy by expanding our marketing and promotion
+efforts, frequently introducing new products, broadening our lines of casual and
+performance footwear, and increasing our international market. Our growth
+strategy may place a significant strain on our finances, management and other
+resources. Our future performance will depend on various factors, including our
+ability to manage increased sales and additional retail stores, manage change in
+our domestic and international operations, attract, train, manage and retain
+management, sales, marketing and other key personnel, and continue to improve
+our operational and financial control systems, infrastructure and management
+information systems. We cannot be sure that these expansion efforts will be
+successfully completed or that they will not interfere with existing operations.
+If our management cannot manage growth effectively it could harm our business.
+WE MAY BE UNABLE TO SUSTAIN OUR PRIOR RATE OF GROWTH.
+We have grown quickly since we started our business. Our net sales
+increased at a compound annual growth rate of 39.7% from $90.8 million in 1994
+to $675.0 million in 2000. From 1999 to 2000, we experienced a 59% increase in
+net sales and 109% increase in earnings from operations. Our future rate of
+growth will depend upon, among other things, the continued success of our
+efforts to expand our footwear offerings and distribution channels. Our
+profitability in any calendar quarter depends, in part, upon the timing and
+level of advertising and trade show expenditures, and shipments of seasonal
+merchandise. Our rate of growth may decline or we may not be profitable in any
+quarter of any succeeding fiscal year. Furthermore, as our business becomes
+larger, we may not be able to maintain our prior growth rate. Our current growth
+strategy includes further penetration of existing retail accounts, opening
+retail stores in selected locations, increasing our international operations,
+and distributing in countries where we have little distribution experience or
+where our brand name is not well known. Our future success depends on various
+factors, including (i) the strength of our brand name, (ii) market success of
+current and new products, (iii) competitive conditions and our ability to manage
+increased sales and additional retail stores, (iv) the availability of desirable
+locations, and (v) increasing sales to existing customers. We cannot assure you
+that our current growth strategy or other growth strategies will be successful
+or that our sales or earnings will increase as a result of the implementation of
+such efforts.
+OUR BUSINESS MAY BE NEGATIVELY IMPACTED AS A RESULT OF CHANGES IN THE ECONOMY.
+Our industry is dependent on the general economic environment and levels of
+consumer spending which affect not only the ultimate consumer, but also
+retailers, our primary direct customers. Purchases of footwear tend to decline
+in periods of recession or uncertainty regarding future economic prospects, when
+consumer spending, particularly on discretionary items, declines. We may not be
+able to increase our sales to existing customers, open and operate new retail
+stores or increase our international operations on a profitable basis or improve
+our earnings from operations as a percentage of net sales. As a result, our
+operating results may be adversely affected by downward trends in the economy or
+the occurrence of events that adversely affect the economy in general.
+Furthermore, in anticipation of continued increases in net sales, we have
+significantly expanded our infrastructure and workforce to achieve economies of
+scale. Because these expenses are fixed in the short term, operating results and
+margins could be adversely impacted if we do not continue to grow as
+anticipated.
+OUR INTERNATIONAL SALES AND OPERATIONS COULD ADVERSELY EFFECT OUR BUSINESS.
+Substantially all of our net sales for the year ended December 31, 2000
+were derived from sales of footwear manufactured in other foreign countries,
+with most manufactured in China. We also sell our footwear in several foreign
+countries and plan to increase our international sales efforts as part of our
+growth strategy. Foreign manufacturing and sales are subject to a number of
+risks, including (i) work stoppages, (ii) transportation delays, (iii) changing
+economic conditions, (iv) expropriation, (v) international political tension,
+(vi) political and social unrest, (vii) nationalization, (viii) the imposition
+of tariffs, (ix) import and export controls and other nontariff barriers, (x)
+exposure to different legal standards (particularly with respect to intellectual
+property), (xi) compliance with foreign laws, and (xii) changes in domestic and
+foreign governmental policies. Each of these risks could harm our business.
+11
+12
+In addition, if we, or our suppliers, violate U.S. laws or regulations we
+may be subjected to extra duties, significant monetary penalties, the seizure
+and the forfeiture of the products we are attempting to import or the loss of
+our import privileges. Possible violations of U.S. laws or regulations could
+include inadequate record keeping of our imported products, misstatements or
+errors as to the origin, quota category, classification, marketing or valuation
+of our imported products, fraudulent visas, or labor violations under U.S. or
+foreign laws. These risks could render our conduct of business in a particular
+country undesirable or impractical and have a negative impact on our business,
+financial condition and results of operations. We continue to monitor the
+political and economic stability of the Asian countries with which we conduct
+business.
+WE COULD BE ADVERSELY AFFECTED IF THE CHINESE GOVERNMENT CHANGES ITS POLICIES
+TOWARDS THE UNITED STATES OR NATIONALIZES PRIVATE ENTERPRISE.
+Over the past several years, the Chinese government has pursued economic
+reform policies and has encouraged greater private economic activity and
+economic decentralization. The Chinese government may not continue to pursue
+these policies or may significantly alter them to our detriment from time to
+time without notice. Manufacturers with whom we work could be affected by
+changes in policies by the Chinese government resulting in changes in laws,
+regulations, or their interpretation, the imposition of confiscatory taxation,
+restrictions on currency conversion or imports, and changes in the sources of
+supply. These risks could harm our business.
+WE COULD SUFFER LOSSES FROM CORRUPT OR FRAUDULENT BUSINESS PRACTICES.
+Conducting business in China is inherently risky. Corruption, extortion,
+bribery, pay-offs, theft and other fraudulent practices are common in China. We
+could suffer losses from these practices if we do not implement successful
+preventative measures.
+WE COULD BE ADVERSELY BE AFFECTED BY CURRENCY FLUCTUATIONS.
+Even though we have not experienced material losses as a result of
+fluctuations in the value of foreign currencies, our net sales and cost of goods
+sold are denominated in U.S. Dollars and we do not engage in currency hedging,
+therefore we could be adversely affected by currency fluctuations in the future.
+TRADE RESTRICTIONS COULD HARM OUR BUSINESS.
+Our products are subject to certain quotas and restrictions on foreign
+products in some of the foreign countries where our footwear is sold. To date,
+these quotas have not had a material adverse effect on our business, financial
+condition or results of operations. However, the quotas or restrictions may be
+modified or altered at any time. In addition, countries where our products are
+manufactured may impose new quotas or adjust existing quotas or other
+restrictions on exported products. The United States might also impose new
+duties, tariffs and other restrictions on imported products, any of which could
+have a material adverse effect on our business, financial condition and results
+of operations. New duties, tariffs or other restrictions could also affect our
+ability to import products at our current levels or at increased levels and,
+consequently, harm our business. If tariffs or duties on our products are raised
+or made more restrictive, it may result in higher costs and could negatively
+impact our business.
+WE DEPEND ON CONTRACT MANUFACTURERS.
+Our footwear products are currently manufactured by independent contract
+manufacturers. For the year ended December 31, 2000, the top four manufacturers
+of our manufactured products produced approximately 9%-20% each of total
+purchases. We do not have long-term contracts with manufacturers and we compete
+with other footwear companies for production facilities. Although we have
+established close working relationships with our principal manufacturers, we
+must maintain those relationships and develop new relationships with additional
+manufacturers. It is possible that we may experience difficulties with these
+manufacturers, including reductions in the availability of production capacity,
+failure to meet our quality control standards, failure to meet production
+deadlines or increased manufacturing costs. This could result in cancellation of
+orders, refusal to accept deliveries or a reduction in purchase prices, any of
+which could harm our business.
+If our current manufacturers cease doing business with us, we could
+experience an interruption in the manufacture of our products, which could have
+a material adverse effect on our business, financial condition and results of
+operations. Although we believe that we could find alternative manufacturers
+within 90 to 120 days, new manufacturing relationships involve various
+uncertainties, including payment terms, costs of manufacturing, adequacy of
+manufacturing capacity, quality control, and timeliness of delivery. We may be
+unable to establish new manufacturing relationships that will be as favorable as
+the relationships we have now. If we are unable to provide products consistent
+with our standards or the manufacture of our footwear is delayed, our business
+could be harmed.
+12
+13
+OUR BUSINESS COULD BE NEGATIVELY IMPACTED IF OUR CONTRACT MANUFACTURERS VIOLATE
+THE LAW.
+We require our independent contract manufacturers to operate in compliance
+with applicable laws and regulations. We also require our manufacturers to
+certify that neither convict, forced, indentured labor (as defined under U.S.
+law) nor child labor (as defined by the manufacturer's country) is used in the
+production process, that compensation will be paid in accordance with local law
+and that the factory is in compliance with local safety regulations. Although we
+promote ethical business practices and our sourcing personnel periodically visit
+and monitor the operations of our independent contract manufacturers, we do not
+control these vendors or their labor practices. If one of our independent
+contract manufacturers violates the labor or other laws, it could result in
+adverse publicity for us and harm our business. In addition, if the United
+States Customs Service determines that laws or regulations have been violated or
+that we failed to exercise reasonable care in our obligations to comply with
+these laws or regulations we may incur significant penalties that maybe monetary
+or otherwise.
+WE ARE DEPENDENT ON KEY CUSTOMERS.
+During the year ended December 31, 2000, our net sales to our five largest
+customers accounted for approximately 26.5% of total net sales. No one customer
+accounted for 10.0% or more of net sales during the year ended December 31,
+2000. Although we have long-term relationships with many of our customers, our
+customers do not have a contractual obligation to purchase our products and we
+cannot be certain that we will be able to retain our existing major customers.
+Furthermore, the retail industry has experienced consolidation, contractions and
+closings. If there are further consolidations, contractions or closings in the
+future, we may lose customers or be unable to collect accounts receivables of
+major customers in excess of amounts that we have insured. As of December 31,
+2000, we had one customer that accounted for 15.3% of trade accounts receivable.
+If we lose a major customer, experience a significant decrease in sales to a
+major customer, or are unable to collect the accounts receivable of a major
+customer in excess of amounts insured, our business could be harmed.
+WE DO NOT HAVE NON-COMPETITION AGREEMENTS WITH OUR SALESPERSONS.
+We have entered into employment agreements with each of our salespersons.
+Although these employment agreements require our salespersons to keep certain
+information confidential, we have not entered into separate non-competition
+agreements with them. In addition, if a salesperson leaves or is terminated,
+service may be disrupted to the customers who were serviced by this salesperson.
+These factors could harm our business.
+SEASONAL FLUCTUATIONS IN DEMAND FOR FOOTWEAR AND DELIVERY DELAYS MAY AFFECT OUR
+QUARTERLY NET SALES.
+Sales of footwear products have historically been somewhat seasonal in
+nature with the strongest sales generally occurring in the third and fourth
+quarters. During 2000, we continued to address seasonal fluctuations by
+introducing new styles that addressed seasonal demands. We have experienced and
+expect to continue to experience some variability in our net sales, operating
+results and net earnings on a quarterly basis.
+Our domestic customers generally assume responsibility for scheduling
+pickup and delivery of purchased products. Delays in scheduling or pickup which
+are beyond our control could materially negatively impact our net sales and
+results of operations for any given quarter. We believe the factors which
+influence this variability include (i) the timing of our introduction of new
+footwear products, (ii) the level of consumer acceptance of new and existing
+products, (iii) general economic and industry conditions that affect consumer
+spending and retail purchasing, (iv) the timing of the placement, cancellation
+or pickup of customer orders, (v) increases in the number of employees and
+overhead to support growth, (vi) the timing of expenditures in anticipation of
+increased sales and customer delivery requirements, (vii) the number and timing
+of new retail store openings, and (viii) actions by competitors. Due to these
+and other factors, the results for any particular quarter are not necessarily
+indicative of results for the full year. This cycle and any related fluctuations
+in consumer demand could have a material adverse effect on our business,
+financial condition and results of operations.
+IF WE FAIL TO MAINTAIN APPROPRIATE LEVELS OF INVENTORY, OUR BUSINESS COULD BE
+HARMED.
+We place orders with our manufacturers for some of our products prior to
+the time we receive all of our customers' orders. We do this to minimize
+purchasing costs, the time necessary to fill customer orders, and the risk of
+non-delivery. We also maintain an inventory of certain products that we
+anticipate will be in greater demand. However, we cannot assure you that we will
+be able to sell the products we have ordered in advance from manufacturers or
+that we have in our inventory. Inventory levels in excess of customer demand may
+result in inventory write-downs and the sale of excess inventory at discounted
+prices could significantly impair our brand image and could have a material
+adverse effect on our business, financial condition and results of operations.
+13
+14
+WE MAY HAVE SIGNIFICANT CAPITAL REQUIREMENTS AND EXPENDITURES AS A RESULT OF OUR
+AGGRESSIVE GROWTH STRATEGY.
+We expect that cash flow from operations, available borrowings under our
+revolving line of credit, cash on hand and our financing arrangements will be
+sufficient to provide us with the liquidity to fund our anticipated working
+capital and capital requirements through 2001. We will, however, have
+significant working capital requirements and capital expenditures as a result of
+our aggressive growth strategy. Our future capital requirements will depend on
+factors such as (i) the levels at which we maintain inventory, (ii) the market
+acceptance of our footwear, (iii) the levels of promotion and advertising
+required to promote our footwear, (iv) the extent to which we invest in new
+product design, (v) improvements to our existing product design, and (vi) the
+number and timing of new store openings.
+If available funds are insufficient to fund our future activities, we may
+need to raise additional funds through public or private financing. We cannot be
+sure that additional financing will be available or that, if available, it can
+be obtained on terms that will be favorable to us. If we fail to obtain such
+financing, we may not be able to complete our planned expansion and our business
+could be harmed. In addition, if we raise additional capital through the sale of
+additional equity or convertible securities, our stockholders' ownership may be
+diluted.
+WE DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
+CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN EXISTING PERSONNEL, OUR BUSINESS
+COULD BE HARMED.
+Our future success depends upon the continued services of Robert Greenberg,
+Chairman of the Board and Chief Executive Officer, Michael Greenberg, President,
+and David Weinberg, Executive Vice President and Chief Financial Officer. Each
+of these officers currently has a three-year employment contract with us, each
+agreement was entered into on June 14, 1999. These agreements do not have
+non-competition provisions upon termination of employment. The loss of the
+services of any of these individuals or any other key employee could have a
+material adverse effect on our business, financial condition and results of
+operations. We maintain $5.0 million of "key man" life insurance on the life of
+Robert Greenberg. Our future success also depends on our ability to identify,
+attract and retain additional qualified personnel. Competition for employees in
+our industry is intense. Furthermore, we may not be successful in identifying,
+attracting and retaining qualified employees in the future. The loss of key
+employees or the inability to hire or retain qualified employees in the future
+could harm our business.
+ONE PRINCIPAL STOCKHOLDER IS ABLE TO CONTROL SUBSTANTIALLY ALL MATTERS REQUIRING
+A VOTE OF OUR STOCKHOLDERS.
+Robert Greenberg, Chairman of the Board and Chief Executive Officer,
+beneficially owns 72.7% of our outstanding Class B Common Stock. The holders of
+Class A Common Stock and Class B Common Stock have identical rights except that
+holders of Class A Common Stock are entitled to one vote per share while holders
+of Class B Common Stock are entitled to ten votes per share on all matters
+submitted to a vote of the stockholders. As a result, Mr. Greenberg holds
+approximately 69.0% of the aggregate number of votes eligible to be cast by our
+stockholders. Therefore, Mr. Greenberg is able to control substantially all
+matters requiring approval by our stockholders. Matters that require the
+approval of our stockholders include the election of directors and the approval
+of mergers or other business combination transactions. Mr. Greenberg also has
+control over our management and affairs. As a result of such control, certain
+transactions are not possible without the approval of Mr. Greenberg, including,
+proxy contests, tender offers, open market purchase programs, or other
+transactions that can give our stockholders the opportunity to realize a premium
+over the then-prevailing market prices for their shares of Class A Common Stock.
+The differential in the voting rights may adversely affect the value of the
+Class A Common Stock to the extent that investors or any potential future
+purchaser view the superior voting rights of the Class B Common Stock to have
+value.
+OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER, WHICH MAY CAUSE A
+DECLINE IN THE VALUE OF OUR STOCK.
+Provisions of Delaware law, our certificate of incorporation, or our bylaws
+could make it more difficult for a third party to acquire us, even if closing
+such a transaction would be beneficial to our stockholders. Mr. Greenberg's
+substantial beneficial ownership position, together with the authorization of
+Preferred Stock, the disparate voting rights between the Class A and Class B
+Common Stock, the classification of the Board of Directors and the lack of
+cumulative voting in our certificate of incorporation and bylaws, may have the
+effect of delaying, deferring or preventing a change in control, may discourage
+bids for our Class A Common Stock at a premium over the market price of the
+Class A Common Stock and may adversely affect the market price of the Class A
+Common Stock.
+WE CANNOT ASSURE YOU THAT THE TRADING MARKET FOR OUR CLASS A COMMON STOCK WILL
+REMAIN ACTIVE, AND THE PRICE OF OUR STOCK MAY BE VOLATILE.
+The market price of our Class A Common Stock has been extremely volatile.
+During 2000, our Class A Common Stock reached a high of $19.94 per share and a
+low of $3.25. On December 31, 2000, the closing market price was $15.50 per
+share. The market
+14
+15
+price for shares of our Class A Common Stock may continue to fluctuate based
+upon a number of factors, including, without limitation (i) business
+performance, (ii) news announcements, (iii) quarterly fluctuations in our
+financial results, (iv) changes in earnings estimates, (v) recommendations by
+analysts, (vi) changes in general economic and market conditions, or (vii) a
+failure to meet the expectations of securities analysts or investors in a future
+quarter. These same factors could have a material adverse effect on the market
+price of our Class A Common Stock.
+THE SALES OF SUBSTANTIAL AMOUNTS OF OUR CLASS A COMMON STOCK IN THE PUBLIC
+MARKET OR THE PROSPECT OF SUCH SALES COULD MATERIALLY AND ADVERSELY AFFECT THE
+MARKET PRICE OF THE CLASS A COMMON STOCK.
+As of March 26, 2001, we had outstanding 12,546,972 shares of Class A
+Common Stock. In addition, we had outstanding 23,505,451 shares of Class B
+Common Stock, all of which are convertible into Class A Common Stock on a
+share-for-share basis at the election of the holder or upon transfer or
+disposition to certain persons. The 12,546,972 shares of Class A Common Stock
+are eligible for sale in the public market without restriction. The 23,505,451
+shares of Class B Common Stock are restricted in nature and are saleable
+pursuant to Rule 144 under the Securities Act of 1933.
+As of March 26, 2001, Robert Greenberg, Chairman of the Board and Chief
+Executive Officer, and Michael Greenberg, President, beneficially own an
+aggregate of 18,948,619 shares of Class B Common Stock. Robert and Michael
+Greenberg have also received certain registration rights to sell shares of Class
+A Common Stock which will be issuable upon conversion of their shares of Class B
+Common Stock in the public market. Shares of Class A Common Stock reserved for
+issuance pursuant to our Stock Option Plan and the 1998 Employee Stock Purchase
+Plan have also been registered under the Securities Act of 1933.
+SPECIAL NOTE ON FORWARD LOOKING STATEMENTS AND REPORTS PREPARED BY ANALYSTS.
+The Form 10-K contains or incorporates forward-looking statements. You can
+identify these forward-looking statements by our use of the words "believes,"
+"anticipates," "plans," "expects," "endeavors," "may," "will," "intends,"
+"estimates" and similar expressions, whether in the negative or affirmative.
+Although we believe that these forward-looking statements reflect our plans,
+intentions and expectations reasonably, we may not actually achieve these plans,
+intentions or expectations. In addition, the risks included here are not
+exhaustive. Other sections of this report may include additional factors which
+could adversely impact our business and financial performance. Moreover, we
+operate in a very competitive and rapidly changing environment. New risk factors
+emerge from time to time and we cannot 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 do, from time to time, communicate with securities
+analysts, we do not disclose any material non-public information or other
+confidential commercial information to them. Accordingly, individuals should not
+assume that we agree with any statement or report issued by any analyst,
+regardless of the content of the report. Thus, to the extent that reports issued
+by securities analysts contain any projections, forecasts or opinions, such
+reports are not our responsibility.
+ITEM 2. PROPERTIES
+Our corporate headquarters and additional administrative offices are located
+at four premises in Manhattan Beach, California, and consist of an aggregate of
+approximately 100,000 square feet. We own and lease portions of our corporate
+headquarters and administrative offices. The leased property expires between
+February 2002 and February 2008, with options to extend in some cases, and the
+current aggregate annual rent is approximately $1.1 million.
+We also lease space for our distribution centers and our retail stores. These
+leased facilities aggregate approximately 1.0 million square feet, with an
+annual aggregate base rental of approximately $10.7 million, plus, in some
+cases, a percentage of the store's gross sales in excess of the base annual
+rent. The terms of these leases vary as to duration and rent escalation
+provisions. We have also signed leases for retail stores expected to be opened
+in 2001. In general, the leases expire between January 2002 and August 2011 and
+provide for rent escalations tied to either increases in the lessor's operating
+expenses or fluctuations in the consumer price index in the relevant
+geographical area.
+During 2000, we purchased an administrative office building in Manhattan
+Beach, California with approximately 63,000 square feet of office space. The
+purchase price was $14.5 million and the acquisition was financed, in part, with
+a bank loan of $10,850,000. We also purchased an approximately 264,000 square
+foot distribution facility located in Ontario, California. The purchase price
+was $11,450,000, and the acquisition was financed, in part, with a bank loan of
+$7,850,000.
+15
+16
+In February 2001, we completed the purchase of three adjacent
+properties located in Manhattan Beach, California for a total of $4,500,000. We
+financed the purchase of the properties through internally generated funds and
+currently available short-term borrowings. We intend to build additional
+administrative offices on these properties.
+ITEM 3. LEGAL PROCEEDINGS
+On June 14, 1999, a complaint captioned R. GRIGGS GROUP LIMITED V. SKECHERS
+U.S.A., INC. was filed against Skechers in the United States District Court,
+Northern District of California (San Francisco Division), Case No. 99-2862. R.
+Griggs Group Limited manufactures and markets footwear including Dr. Martens.
+The complaint alleged various causes of action, including Federal, state and
+common law unfair competition and Federal and state dilution, with respect to
+certain trade dress of certain styles of footwear, and fraud and deceit
+regarding the plaintiff's alleged postponement of the filing of the action. The
+complaint was resolved in February 2000. The parties have settled the matter and
+a final settlement agreement has been signed. The terms are confidential but
+Skechers can disclose that the settlement did not require payment of any money
+by Skechers. The non-monetary terms will not have a material impact on the
+Skechers' financial position or results of operations.
+On December 29, 1999, a complaint captioned SHAPIRO, ET AL., V. SKECHERS
+U.S.A., INC., ET AL. was filed against Skechers and two of its officers and
+directors in the United States District Court, Central District of California,
+Case No. 99-13559. The complaint is a purported class action claiming damages
+for alleged violations of the Securities Act of 1933 and the Securities Exchange
+Act of 1934. The complaint also names as defendants the underwriters for
+Skechers' June 9, 1999 initial public offering of its Class A Common Stock. On
+January 12, 2000, a complaint captioned Abraham, et al., v. Skechers U.S.A.,
+Inc., et al. was filed against Skechers and two of its officers and directors in
+the United States District Court, Central District of California, Court Case No.
+00-00471. The complaint is a purported class action claiming damages for alleged
+violations of the Securities Act of 1933 and the Securities Exchange Act of
+1934. On January 24, 2000, a complaint captioned Astrolio, et al., v. Skechers
+U.S.A., Inc., et al. was filed against Skechers and two of its officers and
+directors in the United States District Court, Central District of California,
+Case No. 00-00772. The complaint is a purported class action claiming damages
+for alleged violations of the Securities Act of 1933 and the Securities Exchange
+Act of 1934. The complaint also names the underwriters for Skechers' initial
+public offering of its Class A Common Stock as defendants in the case. On
+January 19, 2000, a complaint captioned Pugliesi, et al., v. Skechers U.S.A.,
+Inc., et al. was filed against Skechers and two of its officers and directors in
+the United States District Court, Central District of California, Case No.
+00-00631. The complaint is a purported class action claiming damages for alleged
+violations of the Securities Act of 1933 and the Securities Exchange Act of
+1934.
+All four securities actions were subsequently consolidated into one matter
+and a consolidated complaint was filed on June 1, 2000. The consolidated
+complaint named as defendants Skechers, two officers of Skechers, and the
+underwriters of Skechers' initial public offering of its Class A Common Stock on
+June 9, 1999. The class alleged in the consolidated complaint, consists of all
+persons who purchased securities in, or traceable to, Skechers' initial public
+offering of its Class A Common Stock on June 9, 1999 or thereafter on the open
+market prior to June 15, 1999.
+In response to the consolidated complaint, Skechers filed a motion to dismiss
+the entire case. On September 25, 2000, a tentative order was issued to dismiss
+the consolidated complaint in its entirety, with leave to amend. As of December
+31, 2000, a final order has not issued. Thus, as these matters are still in the
+pleading stage and no discovery has been conducted, neither Skechers nor
+Skechers' counsel are able to conclude as to the potential likelihood of an
+unfavorable outcome. In any event, Skechers is vigorously defending the claims
+and believes that our defenses are meritorious. Skechers also maintains
+insurance that we believe covers all the matters alleged in the consolidated
+complaint as currently pled. Accordingly, Skechers has not provided for any
+potential losses associated with these lawsuits.
+On September 29, 2000, a complaint captioned MADISON TRADING LIMITED
+CORPORATION AND MERCURY INTERNATIONAL TRADING CORPORATION V. SKECHERS USA, INC.,
+LOVITT FILMS, INC. AND BERT LOVITT was filed against Skechers in the United
+States District Court in Massachusetts, Civil Case No. CV-12016JLT. The lawsuit
+alleges quantum meruit, intentional interference with contract, intentional
+interference with advantageous relationship, unfair practices and declaratory
+relief arising out of a business arrangement between Skechers and inventor Bert
+Lovitt. The complaint seeks an injunction preventing Skechers from using certain
+technology, compensatory damages, exemplary damages and treble damages. The
+court denied the plaintiffs' motion for a preliminary injunction. While it is
+too early to predict what the outcome of such suit will be, Skechers denies
+liability and will defend itself vigorously. Nonetheless, there is no basis to
+believe that an adverse result would have a material impact on operations or
+financial results. Accordingly, Skechers has not provided for any potential
+losses associated with this lawsuit.
+We occasionally become involved in litigation arising from the normal course
+of business. Other than the foregoing, we believe that any liability with
+respect to pending legal actions, individually or in the aggregate, will not
+have a material adverse effect on our business, financial condition and results
+of operations.
+16
+17
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
+No matters were submitted to our security holders to be voted on during the
+fourth quarter of 2000.
+17
+18
+PART II
+ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
+Skechers' Class A Common Stock began trading on the New York Stock Exchange
+on June 9, 1999 after Skechers completed an initial public offering of 7,000,000
+shares of Class A Common Stock at $11.00 per share. Skechers' Class A Common
+Stock trades under the symbol "SKX". The following table sets forth, for the
+periods indicated, the high and low sales prices of the Class A Common Stock.
+HIGH LOW
+------ -----
+YEAR ENDED DECEMBER 31, 2000
+First Quarter.................................. $ 7.69 $3.25
+Second Quarter................................. 16.31 7.50
+Third Quarter.................................. 19.94 12.50
+Fourth Quarter................................. 16.75 11.44
+YEAR ENDED DECEMBER 31, 1999
+Second Quarter(1).............................. $11.81 $9.75
+Third Quarter.................................. 10.25 4.75
+Fourth Quarter................................. 5.19 3.44
+----------
+(1) For the period from June 9, 1999 to June 30, 1999.
+As of March 26, 2001, there were 63 holders of record of Class A Common Stock
+(including holders who are nominees for an undetermined number of beneficial
+owners) and 9 holders of record of Skechers' Class B Common Stock. These figures
+do not include beneficial owners who hold shares in nominee name. The Class B
+Common Stock is not publicly traded but each share is convertible upon request
+of the holder into one share of Class A Common Stock.
+In May 1992, Skechers elected to be treated for Federal and state income tax
+purposes as an S Corporation under Subchapter S of the Internal Revenue Code of
+1986, as amended (the "Code"), and comparable state laws. As a result, earnings
+of Skechers, since such initial election, were included in the taxable income of
+Skechers' stockholders for Federal and state income tax purposes, and Skechers
+was not subject to income tax on such earnings, other than franchise and net
+worth taxes. Prior to the closing of Skechers' initial public offering of its
+Class A Common Stock on June 9, 1999, Skechers terminated its S Corporation
+status, and since then Skechers has been treated for Federal and state income
+tax purposes as a corporation under Subchapter C of the Code and, as a result,
+had become subject to state and Federal income taxes. By reason of Skechers'
+treatment as an S Corporation for Federal and state income tax purposes,
+Skechers, since inception, had provided to its stockholders funds for the
+payment of income taxes on the earnings of Skechers. Skechers declared
+distributions relating to its S Corporation status of $7.9 million in 1998 and
+$35.4 million in 1999 ("S Corporation Distributions"), $21.0 million of which
+was paid from a portion of the net proceeds of Skechers' initial public offering
+of its Class A Common Stock.
+In connection with Skechers' initial public offering of its Class A Common
+Stock and the termination of Skechers' S Corporation tax status, Skechers
+entered into a tax indemnification agreement with each of its stockholders. The
+agreement provides that Skechers will indemnify and hold harmless each of the
+stockholders for Federal, state, local or foreign income tax liabilities, and
+costs relating thereto, resulting from any adjustment to Skechers' taxable
+income that is the result of an increase in or change in character of, Skechers'
+income during the period it was treated as an S Corporation up to Skechers' tax
+savings in connection with such adjustments. The agreement also provides that if
+there is a determination that Skechers was not an S Corporation prior to the
+initial public offering of its Class A Common Stock on June 9, 1999,
+stockholders will indemnify Skechers for the additional tax liability arising as
+a result of such determination. The stockholders will also indemnify Skechers
+for any increase in Skechers' tax liability to the extent such increase results
+in a related decrease in the stockholders' tax liability.
+Purchasers of shares in the initial public offering of its Class A Common
+Stock on June 9, 1999 did not receive any portion of the S Corporation
+Distributions. Skechers has never declared or paid dividends on its Class A
+Common Stock. Skechers currently intends to retain any earnings for use in its
+business and does not anticipate paying any cash dividends in the foreseeable
+future.
+18
+19
+ITEM 6. SELECTED FINANCIAL DATA
+The following tables set forth selected consolidated financial data of
+Skechers as of and for each of the years in the five-year period ended December
+31, 2000.
+SUMMARY FINANCIAL DATA
+(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
+YEARS ENDED DECEMBER 31,
+------------------------------------------------------------
+1996 1997 1998 1999 2000
+-------- -------- -------- -------- --------
+STATEMENT OF OPERATION DATA:
+Net sales ......................... $115,410 $183,827 $372,680 $424,601 $675,036
+Gross profit ...................... 34,211 68,723 154,580 174,608 284,225
+Operating expenses:
+Selling ........................ 11,739 21,584 49,983 57,332 77,451
+General and administrative ..... 18,939 32,397 71,461 79,114 125,827
+Earnings from operations .......... 5,125 15,636 33,991 38,830 81,263
+Interest expense .................. 3,231 4,186 8,631 6,554 9,230
+Earnings before income taxes ...... 1,955 11,413 25,121 32,691 72,351
+Net earnings ...................... 1,910 11,023 24,471 24,056 43,751
+PRO FORMA OPERATIONS DATA:(1)
+Earnings before income taxes ...... $ 1,955 $ 11,413 $ 25,121 $ 32,691 $ 72,351
+Income taxes ...................... 782 4,565 10,048 12,880 28,600
+Net earnings ...................... 1,173 6,848 15,073 19,811 43,751
+Net earnings per share:(2)
+Basic .......................... $ 0.04 $ 0.25 $ 0.54 $ 0.62 $ 1.24
+Diluted ........................ $ 0.04 $ 0.23 $ 0.49 $ 0.60 $ 1.20
+Weighted average shares:(2)
+Basic .......................... 27,814 27,814 27,814 31,765 35,142
+Diluted ........................ 29,614 29,614 30,610 33,018 36,563
+AS OF DECEMBER 31,
+------------------------------------------------------------
+BALANCE SHEET DATA: 1996 1997 1998 1999 2000
+------------------- -------- -------- -------- -------- --------
+Working capital ..................... $ 11,987 $ 17,081 $ 23,106 $ 65,003 $ 93,305
+Total assets ........................ 42,151 90,881 146,284 177,914 303,400
+Total debt .......................... 25,661 39,062 70,933 33,950 85,321
+Stockholders' equity ................ 3,336 11,125 27,676 86,000 134,046
+----------
+(1) Reflects adjustments for Federal and state income taxes for 1996 through
+1999 assuming Skechers had been taxed as a C Corporation rather than as an S
+Corporation for the full year.
+(2) Basic earnings per share represents net earnings divided by the
+weighted-average number of common shares outstanding for the period. Diluted
+earnings per share reflects the potential dilution that could occur if
+options to issue common stock were exercised or converted into common stock.
+The weighted average diluted shares outstanding gives effect to the sale by
+Skechers of those shares of common stock necessary to fund the payment of
+(i) stockholder distributions paid or declared from January 1, 1998 to June
+7, 1999, the S Corporation termination date, in excess of (ii) the S
+Corporation earnings from January 1, 1998 to December 31, 1998 for both 1997
+and 1998, and January 1, 1999 to June 7, 1999 for 1999, based on an initial
+public offering price of $11 per share, net of underwriting discounts.
+ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
+OF OPERATIONS
+Certain information contained in the following Management's Discussion and
+Analysis of Financial Condition and Results of Operations constitute
+forward-looking statements within the meaning of the Securities Act and the
+Securities Exchange Act, which can be identified by the use of forward-looking
+terminology such as "believes," "anticipates," "plans," "expects," "endeavors,"
+"may," "will," "intends," "estimates" and similar expressions that are intended
+to identify forward-looking statements. These forward-looking statements involve
+risks and uncertainties, and our actual results may differ materially from the
+results discussed in the forward-looking statements as a result of certain
+factors set forth in "Risk Factors" and elsewhere in this report.
+OVERVIEW
+Skechers has realized rapid growth since inception, increasing net sales at a
+compound annual growth rate of 39.7% from $90.8 million in 1994 to $675.0
+million in 2000. This momentum continued into 2000 with a 59.0% increase in
+sales and a 109.3% increase in earnings from operations, as compared to 1999.
+During 1998 and 1999, our gross margins as a percentage of net sales remained
+relatively constant at 41.5% and 41.1%, respectively, and during 2000, gross
+margins improved to 42.1% of net sales. Operating
+19
+20
+margin as a percentage of net sales also increased from 9.1% in each of 1998 and
+1999 to 12.0% in 2000. In the future, our rate of growth will be dependent upon,
+among other things, the continued success of our efforts to expand our footwear
+offerings within the Skechers brand or developing alternative, successful
+brands. We cannot assure you that the rate of growth will not decline in future
+periods or that we will improve or maintain operating margins.
+As our sales growth has accelerated, we have focused on investing in our
+infrastructure to support continued expansion in a disciplined manner. Major
+areas of investment have included expanding our distribution and administrative
+facilities, hiring additional personnel, developing product sourcing and quality
+control offices in China and Taiwan, upgrading our management information
+systems, developing and expanding our retail stores and expanding the offerings
+available through our web site and direct mail catalog. We have established this
+infrastructure to achieve further economies of scale in anticipation of
+continued increases in sales. Because expenses relating to this infrastructure
+are fixed, at least in the short-term, operating results and margins would be
+adversely affected if we do not achieve anticipated continued growth.
+We have implemented a strategy of controlling the growth of the distribution
+channels through which our products are sold in order to protect the Skechers
+brand name, properly service customer accounts and better manage the growth of
+the business. Increasing sales depend on various factors, including strength of
+our brand name, competitive conditions, and our ability to manage the increased
+sales and stores. We cannot assure you that our growth strategy will be
+successful or that our sales or earnings will increase as a result of the
+implementation of such efforts.
+YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
+Net Sales
+Net sales for 2000 were $675.0 million, an increase of $250.4 million or
+59.0% over 1999 net sales of $424.6 million. The substantial increase in net
+sales continues to be driven by increases in our wholesale revenues, which
+increased 59.0% over last year. In addition, we realized a 51.5% increase in
+wholesale units sold, to 29.4 million units in 2000 from 19.4 million units in
+1999. The increase in the wholesale business is primarily due to expansion of
+the domestic sales force, continued consumer acceptance of the company's product
+offerings, and increased marketing campaigns. During 2000, we continued to
+introduce, and generate sales from, new product categories in the women's,
+men's, children's athletic shoes, and our men's quality dress line. Retail sales
+for 2000 also increased over 1999 due to increased sales at those stores opened
+at least one year and from the addition of 10 new locations added during 2000.
+Mail order sales in 2000 also increased over 1999 due to an increase in the
+number of mailings and an increase in the circulation of the mailings. Fiscal
+year 2000 international sales increased over last year primarily due to
+increased brand acceptance and increased advertising campaigns.
+During 2000, we continued to increase our focus on international sales,
+through such measures as the establishment of an international infrastructure,
+creation of an international subsidiary (Skechers USA, Ltd.), selling direct to
+department stores and specialty retailers, the opening of concept stores in
+London and Germany, and the signing of a lease for a concept store in France,
+scheduled to open during May 2001. In addition, we have signed celebrity
+endorsements that will be used in various international marketing campaigns
+through the middle of 2002.
+Gross Profit
+In 2000, gross profit increased to $284.2 million, a 62.8% increase over
+gross profit of $174.6 million in 1999. Gross profit as a percentage of net
+sales was 42.1% in 2000, in comparison to 41.1% in 1999. The increase in gross
+profit as a percentage of net sales is due to (i) an increase in the proportion
+of sales derived from the women's footwear line, which have a higher gross
+margin as a percentage of net sales than the men's footwear line (ii) fewer
+markdowns as a percentage of sales and (iii) increased sales at retail which
+provide a higher gross margin as a percentage of net sales than wholesale gross
+margins.
+Selling Expenses
+Selling expenses were $77.5 million in 2000, an increase of 35.1% over
+selling expenses of $57.3 million in 1999. However, selling expense as a
+percentage of net sales decreased to 11.5% in 2000 from 13.5% in 1999. The
+increase in absolute dollars was primarily due to increased print advertising,
+both internationally and domestically, increased promotional expenses, and
+additional sales commissions due to increased sales volume.
+We are committed to the overall marketing strategy that is largely
+responsible for the increase in the market presence, product visibility and
+product demand over the past three years. We have increased our advertising
+budget consistent with projected sales, which has included such avenues as
+magazines, television, trade shows, billboards, and buses. We endeavor to spend
+approximately
+20
+21
+8% to 10% of annual net sales in the marketing of Skechers footwear through
+advertising, promotions, public relations, trade shows and other marketing
+efforts.
+General and Administrative Expenses
+General and administrative expenses in 2000 were $125.8 million compared to
+$79.1 million in 1999. As a percent of sales, general and administrative
+expenses remained the same at 18.6% in both 2000 and 1999. The increase in
+general and administrative expenses are primarily due to additional salary,
+wages, temporary help costs, and warehousing and distribution costs associated
+with increased sales volume. In addition, we realized increased operating costs
+from the ten new retail facilities added during 2000, and, although to a lesser
+extent, we incurred additional general and administrative expenses related to
+infrastructure additions to support our international operations.
+We expect general and administrative expenses to increase in absolute
+dollars, however, to remain the same or decrease as a percent of net sales. The
+increase in expenditures will be the result of our continued efforts to increase
+our market share, through the opening of additional retail stores, both
+domestically and internationally, expanding our direct selling efforts
+internationally, and creating the necessary infrastructure to support the
+ongoing operations.
+Interest Expense
+Interest expense increased to $9.2 million in 2000 from $6.6 million in
+1999. The increase was due to increased financing costs associated with
+additional borrowings to support our working capital requirements, capital
+additions made during the year, increased purchases of inventory and the build
+up of accounts receivable commensurate with our growth.
+Other, Net
+Other, net consists primarily of a gain from the settlement of commercial
+lawsuits and net gain from foreign exchange rate fluctuations.
+Income Taxes
+The 2000 effective tax rate was 39.5%, which is comparable to the pro forma
+effective rate of 39.4% in 1999. The prior years pro forma taxes represent those
+taxes that would have been reported had we been subject to federal and state
+income taxes as a C corporation for the full year. We continually review and
+evaluate various tax strategies to minimize our tax liability.
+We are expanding our international operations and plan to reinvest any
+undistributed earnings from our non-U.S. subsidiaries, thereby indefinitely
+postponing their remittance. As a result, we do not plan to provide for deferred
+income taxes on any accumulated undistributed earnings that our non-U.S.
+subsidiaries earn in the future. Assuming that our international operations are
+successful, our effective tax rates should decrease accordingly.
+YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
+Net Sales
+Net sales increased by $51.9 million to $424.6 million, an increase of 13.9%
+over 1998 sales of $372.7 million. Continued growth in the sales of branded
+footwear is primarily the result of (i) greater brand awareness driven in part
+by a continued expansion of our national marketing efforts, (ii) a broader
+breadth of men's, women's and children's product offerings, (iii) the
+development of our domestic and international sales forces and (iv) the
+transition of our account base in the direction of larger accounts with multiple
+stores and increased sales to such accounts, resulting in higher sales per
+account.
+During 1999, we were able to successfully target additional styles and
+categories in the moderately-priced footwear market. Wholesale units sold
+increased 20.5% from 16.1 million units in 1998 to 19.4 million units in 1999.
+We were able to accomplish this and still maintain our gross margin, as a
+percentage of net sales, at a level comparable to that achieved in 1998 by
+carefully targeting production and inventory levels with the level of orders
+from customers. In addition, we were able to better match styles with seasonal
+trends during 1999.
+21
+22
+Gross Profit
+Our gross profit increased $20.0 million, or 13.0%, to $174.6 million in 1999
+compared to $154.6 million in 1998. Gross margins as a percentage of net sales
+decreased slightly in 1999 to 41.1% compared to 41.5% in 1998. The slight
+decrease in gross margin, as a percentage of net sales, in 1999 compared to
+1998, was due to slightly higher ocean freight costs by third party shipping
+companies on imported products.
+Selling Expenses
+Selling expenses increased $7.3 million, or 14.7%, to $57.3 million in 1999
+compared to $50.0 million in 1998. As a percentage of net sales, selling
+expenses remained relatively constant in 1999 at 13.5% compared to 13.4% in
+1998. The increase in selling expenses was primarily due to increased
+advertising expenses and additional compensation resulting from increased sales
+volume. Advertising expenses as a percentage of sales for 1999 and 1998 was
+11.2% and 11.3%, respectively.
+General and Administrative Expenses
+General and administrative expenses increased $7.7 million to $79.1 million
+in 1999, compared to $71.5 million in 1998. As a percentage of sales, general
+and administrative expenses decreased to 18.6% in 1999 from 19.2% in 1998. The
+increase in general and administrative expenses was due to (i) the hiring of
+additional personnel, (ii) increased distribution related costs to support the
+increase in sales volume, (iii) and additional rent and other operating expenses
+related to the addition of 10 new stores added in 1999.
+Interest Expense
+Interest expense decreased to $6.6 million in 1999 from $8.6 million in 1998
+as a result of a reduction in borrowings under the Company's revolving line of
+credit and the repayment of the $10.0 million note payable to a stockholder.
+Pro Forma Income Taxes
+Pro forma income taxes represent taxes, which would have been reported
+assuming the Company been subject to federal and state taxes as a C Corporation.
+LIQUIDITY AND CAPITAL RESOURCES
+Our capital needs are derived primarily from working capital requirements and
+the continued growth of the business. Our working capital at December 31, 2000
+was $93.3 million, an increase of $28.3 million over working capital of $65.0
+million at December 31, 1999. The increase in working capital was primarily due
+to the increase in accounts receivable and inventories, partially offset by
+increases in short term borrowings and accounts payable.
+Net cash used in operating activities for the current year was $1.0 million
+compared to cash provided by operating activities of $13.1 million last year.
+The decrease in cash provided by operating activities was due to the significant
+increases in receivables and inventories, offset by increases in accounts
+payable and increased depreciation, to support the increase in sales volume.
+Net cash used in investing activities was $21.8 million, an increase of $11.0
+million over last year. The increase in investing activities reflects the
+non-financed portion of capital expenditures related to the material handling
+and sortation equipment for our distribution facility, and the acquisition of an
+administrative building and distribution facility. Current year capital
+expenditures also includes the construction and investment in 10 new retail
+facilities opened during 2000.
+During 2000, we financed a significant portion of our acquisition of a
+distribution facility located in Ontario, California and the acquisition of an
+administrative office building in Manhattan Beach, California. The financing
+provides for monthly payments of principal and interest and a balloon payment
+due in 10 years.
+Net cash provided by financing activities totaled $20.8 million in 2000
+compared to cash used in financing activities of $2.4 million in 1999. The cash
+provided by financing activities was derived primarily from our short-term
+credit facilities, and, to a lesser extent, proceeds from the exercise of stock
+options.
+Our credit facility provides for borrowing under a revolving line of credit
+of up to $120.0 million and a term loan, with actual borrowings limited to
+available collateral and certain limitations on total indebtedness
+(approximately $62.1 million of availability as of December 31, 2000) with the
+CIT Group, as agents for the lenders. At December 31, 2000, there was
+approximately $49.8 million outstanding under the revolving line of credit. The
+revolving line of credit bears interest at prime rate (9.5% at December 31,
+2000)
+22
+23
+minus .5%. Interest on the line of credit is payable monthly in arrears. The
+revolving line of credit expires on December 31, 2002. The revolving line of
+credit provides a sub-limit for letters of credit of up to $36.0 million to
+finance our foreign purchases of merchandise inventory. As of December 31, 2000,
+we had approximately $8.6 million of letters of credit under the revolving line
+of credit. The term loan component of the credit facility, which has a principal
+balance of $2.1 million as of December 31, 2000, bears interest at the prime
+rate plus 1.0% and is due in monthly installments with a final balloon payment
+December 2002. The proceeds from this note were used to purchase equipment for
+one of our distribution centers in Ontario, California and the note is secured
+by such equipment. The credit facility contains certain financial covenants that
+require us to maintain minimum tangible net worth, working capital, and
+specified leverage ratios and limits our ability to pay dividends if we are in
+default of any provisions of the credit facility. We were in compliance with
+these covenants as of December 31, 2000.
+At December 31, 1998, we had an unsubordinated note payable to the Greenberg
+Family Trust in the amount of $10.0 million. We recorded interest expense of
+approximately $433,000 and $540,000 related to notes payable to the Greenberg
+Family Trust during the years ended December 31, 1999 and 1998, respectively.
+This note was repaid during 1999, with the proceeds, in part, from Skechers'
+initial public offering of its Class A Common Stock.
+By reason of our treatment as an S Corporation for Federal and state income
+tax purposes, we have since inception provided to our stockholders funds for the
+payment of income taxes on our earnings as well as the conversion from an S
+Corporation to a C Corporation during 1999. We declared S Corporation
+Distributions of $35.4 million ($21.0 million of which was paid from a portion
+of the net proceeds of Skechers' initial public offering of its Class A Common
+Stock) and $7.9 million in 1999 and 1998, respectively. Since the termination of
+our S Corporation status, earnings have been and will be retained for the
+foreseeable future in the operations of the business.
+We believe that anticipated cash flows from operations, available borrowings
+under our revolving line of credit, cash on hand and its financing arrangements
+will be sufficient to provide us with the liquidity necessary to fund our
+anticipated working capital and capital requirements through fiscal 2001.
+However, in connection with our growth strategy, we will incur significant
+working capital requirements and capital expenditures. Our future capital
+requirements will depend on many factors, including, but not limited to, the
+levels at which we maintain inventory, the market acceptance of our footwear,
+the levels of promotion and advertising required to promote our footwear, the
+extent to which we invest in new product design and improvements to our existing
+product design and the number and timing of new store openings. To the extent
+that available funds are insufficient to fund our future activities, we may need
+to raise additional funds through public or private financing. We cannot assure
+you that additional financing will be available or that, if available, it can be
+obtained on terms favorable to us and our stockholders. Failure to obtain such
+financing could delay or prevent our planned expansion, which could adversely
+affect our business, financial condition and results of operations. In addition,
+if additional capital is raised through the sale of additional equity or
+convertible securities, dilution to our stockholders could occur.
+INFLATION
+Skechers does not believe that the relatively moderate rates of inflation
+experienced in the United States over the last three years have had a
+significant effect on its sales or profitability. However, Skechers cannot
+accurately predict the effect of inflation on future operating results. Although
+higher rates of inflation have been experienced in a number of foreign countries
+in which Skechers' products are manufactured, Skechers does not believe that
+inflation has had a material effect on Skechers' sales or profitability. In the
+past, Skechers has been able to offset its foreign product cost increases by
+increasing prices or changing suppliers, we cannot assure you that Skechers will
+be able to continue to make such increases or changes in the future.
+EXCHANGE RATES
+Skechers receives U.S. Dollars for substantially all of its product sales and
+its royalty income. Inventory purchases from offshore contract manufacturers are
+primarily denominated in U.S. Dollars; however, purchase prices for Skechers'
+products may be impacted by fluctuations in the exchange rate between the U.S.
+Dollar and the local currencies of the contract manufacturers, which may have
+the effect of increasing Skechers' cost of goods in the future. During 1999 and
+2000, exchange rate fluctuations did not have a material impact on Skechers'
+inventory costs. Skechers does not engage in hedging activities with respect to
+such exchange rate risk.
+ITEM 7(a) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
+Skechers does not hold any derivative securities.
+At December 31, 2000, 37% of the Company's total indebtedness contained fixed
+rates of interest ranging from 7.66% to 7.89%. Substantially all of the
+Company's remaining indebtedness is at variable rates of interest and,
+accordingly, while changes in interest rates would not impact the fair value of
+these financial instruments, such changes would impact net earnings in future
+periods.
+23
+24
+FUTURE ACCOUNTING CHANGES
+In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
+Interpretation No. 44 ("Interpretation 44"), Accounting for Certain Transactions
+Involving Stock Compensation. Interpretation 44 provides criteria for the
+recognition of compensation expense in certain stock-based compensation
+arrangements that are accounted for under Accounting Principles Board Opinion
+No. 25, Accounting for Stock-Based Compensation. Interpretation 44 is effective
+July 1, 2000, with certain provisions that are effective retroactively to
+December 15, 1998 and January 12, 2000. Interpretation 44 did not have a
+material impact on our financial statements
+In June 1998, the Financial Accounting Standards Board issued Statement of
+Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
+Instruments and Hedging Activities ("SFAS No. 133"), as amended by SFAS No. 137.
+SFAS No. 133 modifies the accounting for derivative and hedging activities and
+is effective for fiscal years beginning after June 15, 2000. Since Skechers does
+not presently hold any derivatives or engage in hedging activities, accordingly
+SFAS No. 133 should not impact Skechers' financial position or results of
+operations.
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
+The information required by this Item 8 is incorporated by reference to our
+Consolidated Financial Statements and Independent Auditors' Report beginning at
+page F-1 of this Form 10-K.
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
+FINANCIAL DISCLOSURE
+None.
+24
+25
+PART III
+ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
+The information required by this Item 10 is hereby incorporated by
+reference from our definitive proxy statement, to be filed pursuant to
+Regulation 14A within 120 days after the end of our 2000 fiscal year.
+ITEM 11. EXECUTIVE COMPENSATION
+The information required by this Item 11 is hereby incorporated by
+reference from our definitive proxy statement, to be filed pursuant to
+Regulation 14A within 120 days after the end of our 2000 fiscal year.
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
+The information required by this Item 12 is hereby incorporated by
+reference from our definitive proxy statement, to be filed pursuant to
+Regulation 14A within 120 days after the end of our 2000 fiscal year.
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
+The information required by this Item 13 is hereby incorporated by
+reference from our definitive proxy statement, to be filed pursuant to
+Regulation 14A within 120 days after the end of our 2000 fiscal year.
+25
+26
+PART IV
+ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
+(a) Consolidated financial statements and schedules required to be filed
+hereunder are indexed on Page F-1 hereof.
+(b) Reports on Form 8-K -- There were no reports on Form 8-K filed during
+the last quarter of the fiscal year ended December 31, 2000.
+(c) Exhibits
+EXHIBIT
+NUMBER DESCRIPTION OF EXHIBIT
+------ ----------------------
+2.1 Agreement of Reorganization and Plan of Merger (incorporated
+by reference to exhibit number 3.2(a) of the Registrant's
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange Commission
+on May 12, 1999).
+3.1 Certificate of Incorporation (incorporated by reference to
+exhibit number 3.1 of the Registrant's Registration Statement
+on Form S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on July 29, 1998).
+3.2 Bylaws (incorporated by reference to exhibit number 3.2 of the
+Registrant's Registration Statement on Form S-1, as amended
+(File No. 333-60065), filed with the Securities and Exchange
+Commission on July 29, 1998).
+3.2(a) Amendment to Bylaws (incorporated by reference to exhibit
+number 3.2(a) of the Registrant's Registration Statement on
+Form S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on May 12, 1999).
+4.1 Form of Specimen Class A Common Stock Certificate
+(incorporated by reference to exhibit number 4.1 of the
+Registrant's Registration Statement on Form S-1, as amended
+(File No. 333-60065), filed with the Securities and Exchange
+Commission on May 12, 1999).
+10.1 Amended and Restated 1998 Stock Option, Deferred Stock and
+Restricted Stock Plan (incorporated by reference to exhibit
+number 10.1 of the Registrant's Registration Statement on Form
+S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on July 29, 1998).
+10.2 Amended and restated 1998 Employee Stock Purchase Plan
+(incorporated by reference to exhibit number 10.1 of the
+Registrant's Form 10-Q, for the period ending June 30, 2000)
+10.3 Employment Agreement dated June 14, 1999, between the
+Registrant and Robert Greenberg (incorporated by reference to
+exhibit number 10.3 of the Registrant's Form 10-Q for the
+period ending June 30, 1999).
+10.3(a) Amendment No. 1 to Employment Agreement between the Registrant
+and Robert Greenberg dated December 31, 1999 (incorporated by
+reference to exhibit number 10.3(a) of the Registrant's Form
+10-K for the year ending December 31, 1999).
+10.4 Employment Agreement dated June 14, 1999, between the
+Registrant and Michael Greenberg (incorporated by reference to
+exhibit number 10.4 of the Registrant's Form 10-Q for the
+period ending June 30, 1999).
+10.4(a) Amendment to Employment Agreement between the Registrant and
+Michael Greenberg dated December 31, 2000 (incorporated by
+reference to exhibit number 10.4(a) of the Registrant's Form
+10-K for the year ending December 31, 1999).
+10.5 Employment Agreement dated June 14, 1999, between the
+Registrant and David Weinberg (incorporated by reference to
+exhibit number 10.5 of the Registrant's Form 10-Q for the
+period ending June 30, 1999).
+10.5(a) Amendment No. 1 to Employment Agreement between the Registrant
+and David Weinberg dated December 31, 2000 (incorporated by
+reference to exhibit number 10.5(a) of the Registrant's Form
+10-K for the year ending December 31, 1999).
+10.6 Indemnification Agreement dated June 7, 1999 between the
+Registrant and its directors and executive officers
+(incorporated by reference to exhibit number 10.6 of the
+Registrant's Form 10-K for the year ending December 31, 1999).
+10.6(a) List of Registrant's directors and executive officers who
+entered into Indemnification Agreement referenced in Exhibit
+10.6 with the Registrant (incorporated by reference to exhibit
+number 10.6(a) of the Registrant's Form 10-K for the year
+ending December 31, 1999).
+10.7 Registration Rights Agreement dated June 9, 1999, between the
+Registrant, the Greenberg Family Trust, and
+26
+27
+EXHIBIT
+NUMBER DESCRIPTION OF EXHIBIT
+------ ----------------------
+Michael Greenberg (incorporated by reference to exhibit number
+10.7 of the Registrant's Form 10-Q for the period ending June
+30, 1999).
+10.8 Tax Indemnification Agreement dated June 8, 1999, between the
+Registrant and certain shareholders (incorporated by reference
+to exhibit number 10.8 of the Registrant's Form 10-Q for the
+period ending June 30, 1999).
+10.9 Lease Agreement, dated July 1, 1999, between the Registrant
+and Richard and Donna Piazza, regarding 1108-B Manhattan
+Avenue, Manhattan Beach, California (incorporated by reference
+to exhibit number 10.22 of the registrant's Form 10-K for the
+year ending December 31, 1999)
+10.10 Amended and Restated Loan and Security Agreement between the
+Registrant and Heller Financial, Inc., dated September 4, 1998
+(incorporated by reference to exhibit number 10.10 of the
+Registrant's Registration Statement on Form S-1, as amended
+(File No. 333-60065), filed with the Securities and Exchange
+Commission on April 9, 1999).
+10.10(a) Term Loan A Note, dated September 4, 1998, between the
+Registrant and Heller Financial, Inc. (incorporated by
+reference to exhibit number 10.10(a) of the Registrant's
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange Commission
+on April 9, 1999).
+10.10(b) Revolving Note dated September 4, 1998, between the Registrant
+and Heller Financial, Inc. (incorporated by reference to
+exhibit number 10.10(b) of the Registrant's Registration
+Statement on Form S-1, as amended (File No. 333-60065), filed
+with the Securities and Exchange Commission on April 9, 1999).
+10.10(c) First Amendment to Amended and Restated Loan and Security
+Agreement, dated September 11, 1998 (incorporated by reference
+to exhibit number 10.10(c) of the Registrant's Registration
+Statement on Form S-1, as amended (File No. 333-60065), filed
+with the Securities and Exchange Commission on April 9, 1999).
+10.10(d) Second Amendment to Amended and Restated Loan and Security
+Agreement, dated December 23, 1998 (incorporated by reference
+to exhibit number 10.10(d) of the Registrant's Registration
+Statement on Form S-1, as amended (File No. 333-60065), filed
+with the Securities and Exchange Commission on April 9, 1999).
+10.10(e) Third Amendment to Amended and Restated Loan and Security
+Agreement dated February 1, 2000.
+10.10(f) Fourth Amendment to Amended and Restated Loan and Security
+Agreement dated June 1, 2000.
+10.11 Lease Agreement, dated April 15, 1998, between the Registrant
+and Holt/Hawthorn and Victory Partners, regarding 228
+Manhattan Beach Boulevard, Manhattan Beach, California
+(incorporated by reference to exhibit number 10.11 of the
+Registrant's Registration Statement on Form S-1, as amended
+(File No. 333-60065), filed with the Securities and Exchange
+Commission on April 9, 1999).
+10.12 Commercial Lease Agreement, dated February 19, 1997, between
+the Registrant and Richard and Donna Piazza, regarding 1110
+Manhattan Avenue, Manhattan Beach, California (incorporated by
+reference to exhibit number 10.12 of the Registrant's
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange Commission
+on July 29, 1998).
+10.13 Lease Agreement, dated June 12, 1998, between the Registrant
+and Richard and Donna Piazza, regarding 1112 Manhattan Avenue,
+Manhattan Beach, California (incorporated by reference to
+exhibit number 10.13 of the Registrant's Registration
+Statement on Form S-1, as amended (File No. 333-60065), filed
+with the Securities and Exchange Commission on July 29, 1998).
+10.14 Lease Agreement, dated November 21, 1997, between the
+Registrant and The Prudential Insurance Company of America,
+regarding 1661 So. Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.14 of the
+Registrant's Registration Statement on Form S-1, as amended
+(File No. 333-60065), filed with the Securities and Exchange
+Commission on July 29, 1998).
+10.15 Lease Agreements, dated November 21, 1997, between the
+Registrant and The Prudential Insurance Company of America,
+regarding 1777 So. Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.15 of the
+Registrant's Registration Statement on Form S-1, as amended
+(File No. 333-60065), filed with the Securities and Exchange
+Commission on July 29, 1998).
+10.16 Commercial Lease Agreement, dated April 10, 1998, between the
+Registrant and Proficiency Ontario Partnership, regarding 5725
+East Jurupa Street (incorporated by reference to exhibit
+number 10.16 of the Registrant's Registration Statement on
+Form S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on July 29, 1998).
+10.17 Lease Agreement and Addendum, dated June 11, 1998, between the
+Registrant and Delores McNabb, regarding Suite 3 on the first
+floor of the north building, Suite 9 on the first floor of the
+south building at 904 Manhattan Avenue, Manhattan Beach,
+California (incorporated by reference to exhibit number 10.17
+of the Registrant's
+27
+28
+EXHIBIT
+NUMBER DESCRIPTION OF EXHIBIT
+------ ----------------------
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange Commission
+on April 9, 1999).
+10.18 Addendum to Lease Agreement, dated September 14, 1998, between
+the Registrant and Delores McNabb, regarding Suites 3, 4 and 5
+on the second floor of the north building at 904 Manhattan
+Avenue, Manhattan Beach California (incorporated by reference
+to exhibit number 10.18 of the Registrant's Registration
+Statement on Form S-1, as amended (File No. 333-60065), filed
+with the Securities and Exchange Commission on April 9, 1999).
+10.19 Standard Offer, Agreement and Escrow Instructions, Addendum
+and Additional Provisions, dated October 12, 2000, between the
+Registrant and/or its assignees and Champagne Building Group
+L.P., for the purchase of property located at 1670 South
+Champagne Avenue, Ontario, California.
+10.20 Lease Agreement, dated November 15, 1999, between the
+Registrant and Champagne Building Group L.P., regarding 1670
+South Champagne Avenue, Ontario, California (incorporated by
+reference to exhibit 10.20 of the Registrant's Form 10-K for
+the year ending December 31, 1999).
+10.21 Amendment of Lease Agreement dated December 20, 2000, between
+the Registrant and Yale Investments, LLC (a wholly owned
+subsidiary of the Registrant), regarding 1670 South Champagne
+Avenue, Ontario, California.
+10.22 Purchase and Sale Agreement with Escrow Instructions, dated
+November 13, 2000, between the Registrant and Pacifica
+California/Apollo, LLC, for the purchase of property located
+at 225 South Sepulveda Boulevard, Manhattan Beach, California.
+10.22(a) First Amendment to Purchase and Sale Agreement, dated November
+29, 2000, between the Registrant and Pacifica
+California/Apollo, LLC, for the purchase of property located
+at 225 South Sepulveda Boulevard, Manhattan Beach, California.
+10.23 Promissory Note, dated December 27, 2000, between the
+Registrant and Washington Mutual Bank, FA, for the purchase of
+property located at 225 South Sepulveda Boulevard, Manhattan
+Beach, California.
+10.24 Assignment and Assumption Agreement, dated December 27, 2000,
+between the Registrant and Pacifica California/Apollo, LLC,
+regarding 225 South Sepulveda Boulevard, Manhattan Beach,
+California.
+10.25 Loan Agreement, dated December 21, 2000, between Yale
+Investments, LLC, and MONY Life Insurance Company, for the
+purchase of property located at 1670 South Champagne Avenue,
+Ontario, California.
+10.26 Promissory Note, dated December 21, 2000, between Yale
+Investments, LLC, and MONY Life Insurance Company, for the
+purchase of property located at 1670 Champagne Avenue,
+Ontario, California.
+21.1 Subsidiaries of the Registrant
+23.1 Consent of KPMG LLP
+24.1 Power of Attorney (included on signature page)
+28
+29
+SIGNATURES
+Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
+Manhattan Beach, State of California on the 29th day of March, 2001.
+SKECHERS U.S.A, INC.
+By: /s/ ROBERT GREENBERG
+-------------------------------------
+Robert Greenberg
+Chairman of the Board
+and Chief Executive Officer
+POWER OF ATTORNEY
+We, the undersigned officers and directors of Skechers U.S.A., Inc., do
+hereby constitute and appoint Robert Greenberg, Michael Greenberg and David
+Weinberg, or either of them, our true and lawful attorneys and agents, to do any
+and all acts and things in our names in the capacities indicated below, which
+said attorneys and agents, or either of them, may deem necessary or advisable to
+enable said corporation to comply with the Securities Exchange Act of 1934, as
+amended, and any rules, regulations, and requirements of the Securities and
+Exchange Commission, in connection with this report, including specifically, but
+without limitation, power and authority to sign for us or any of us in our names
+and in the capacities indicated below, any and all amendments to this report,
+and we do hereby ratify and confirm all that the said attorneys and agents, or
+either of them, shall do or cause to be done by virtue hereof.
+Pursuant to the requirements of the Securities Exchange Act of 1934, this
+report has been signed by the following persons on behalf of the Registrant and
+in the capacities and on the dates indicated.
+SIGNATURE TITLE DATE
+--------- ----- ----
+/S/ ROBERT GREENBERG Chairman of the Board and Chief March 29, 2001
+-------------------------------------------- Executive Officer (Principal
+Robert Greenberg Executive Officer)
+/S/ MICHAEL GREENBERG President and Director March 29, 2001
+--------------------------------------------
+Michael Greenberg
+/S/ DAVID WEINBERG Executive Vice President, Chief March 29, 2001
+-------------------------------------------- Financial Officer and Director
+David Weinberg (Principal Financial and
+Accounting Officer)
+/S/ JEFFREY GREENBERG Director March 29, 2001
+--------------------------------------------
+Jeffrey Greenberg
+/S/ JOHN QUINN Director March 29, 2001
+--------------------------------------------
+John Quinn
+/S/ ROBERT SIEGEL Director March 29, 2001
+--------------------------------------------
+Robert Siegel
+/S/ RICHARD SISKIND Director March 29, 2001
+--------------------------------------------
+Richard Siskind
+29
+30
+SKECHERS U.S.A., INC.
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
+PAGE
+----
+Independent Auditors' Report......................................................... F-2
+Consolidated Balance Sheets -- December 31, 1999 and 2000............................ F-3
+Consolidated Statements of Earnings -- Each of the years in the three-year
+period ended December 31, 2000..................................................... F-4
+Consolidated Statements of Stockholders' Equity -- Each of the years in the
+three-year period ended December 31, 2000.......................................... F-5
+Consolidated Statements of Cash Flows -- Each of the years in the three-year
+period ended December 31, 2000..................................................... F-6
+Notes to Consolidated Financial Statements........................................... F-7
+Schedule II -- Valuation and Qualifying Accounts..................................... S-1
+F-1
+31
+INDEPENDENT AUDITORS' REPORT
+The Board of Directors and Stockholders
+Skechers U.S.A., Inc.:
+We have audited the accompanying consolidated financial statements of
+Skechers U.S.A., Inc. and subsidiaries as listed in the accompanying index. In
+connection with our audits of the consolidated financial statements, we also
+have audited the financial statement schedule as listed in the accompanying
+index. These consolidated financial statements and financial statement schedule
+are the responsibility of the Company's management. Our responsibility is to
+express an opinion on these consolidated financial statements and financial
+statement schedule based on our audits.
+We conducted our audits in accordance with auditing standards generally
+accepted in the United States of America. Those standards require that we plan
+and perform the audit to obtain reasonable assurance about whether the
+consolidated financial statements are free of material misstatement. An audit
+includes examining, on a test basis, evidence supporting the amounts and
+disclosures in the consolidated financial statements. An audit also includes
+assessing the accounting principles used and significant estimates made by
+management, as well as evaluating the overall financial statement presentation.
+We believe that our audits provide a reasonable basis for our opinion.
+In our opinion, the consolidated financial statements referred to above
+present fairly, in all material respects, the financial position of Skechers
+U.S.A., Inc. and subsidiaries as of December 31, 1999 and 2000 and the results
+of their operations and their cash flows for each of the years in the three-year
+period ended December 31, 2000 in conformity with accounting principles
+generally accepted in the United States of America. Also, in our opinion, the
+related financial statement schedule, when considered in relation to the basic
+consolidated financial statements taken as a whole, presents fairly, in all
+material respects, the information set forth therein.
+KPMG LLP
+Los Angeles, California
+February 23, 2001
+F-2
+32
+SKECHERS U.S.A., INC.
+CONSOLIDATED BALANCE SHEETS
+DECEMBER 31, 1999 AND 2000
+(IN THOUSANDS)
+ASSETS
+1999 2000
+-------- --------
+Current assets:
+Cash .......................................................................... $ 10,836 $ 8,781
+Trade accounts receivable, less allowances for bad debts and
+returns of $3,237 in 1999 and $5,152 in 2000 ............................... 63,052 96,628
+Due from officers and employees ............................................... 851 540
+Other receivables ............................................................. 2,771 1,016
+-------- --------
+Total receivables ..................................................... 66,674 98,184
+-------- --------
+Inventories ................................................................... 68,959 111,708
+Prepaid expenses and other current assets ..................................... 5,130 6,457
+Deferred tax assets ........................................................... 2,810 4,414
+-------- --------
+Total current assets .................................................. 154,409 229,544
+Property and equipment, at cost, less accumulated depreciation
+and amortization ............................................................. 21,387 70,405
+Intangible assets, at cost, less applicable amortization ........................ 663 559
+Other assets, at cost ........................................................... 1,455 2,892
+-------- --------
+$177,914 $303,400
+======== ========
+LIABILITIES AND STOCKHOLDERS' EQUITY
+Current liabilities:
+Short-term borrowings ......................................................... $ 30,382 $ 49,754
+Current installments of long-term borrowings .................................. 1,060 2,452
+Accounts payable .............................................................. 47,696 72,865
+Accrued expenses .............................................................. 10,268 11,168
+-------- --------
+Total current liabilities ............................................. 89,406 136,239
+-------- --------
+Long-term borrowings, excluding current installments ............................ 2,508 33,115
+Commitments and contingencies
+Stockholders' equity:
+Preferred stock, $.001 par value. Authorized 10,000 shares;
+none issued and outstanding ................................................ -- --
+Class A Common stock, $.001 par value. Authorized 100,000 shares; issued
+and outstanding 7,091 and 10,789 shares at December 31, 1999 and 2000,
+respectively ............................................................... 7 10
+Class B Common stock, $.001 par value. Authorized 60,000 shares; issued
+and outstanding 27,814 and 24,805 shares at December 31, 1999 and 2000,
+respectively ............................................................... 28 25
+Additional paid-in capital .................................................... 69,948 74,243
+Retained earnings ............................................................. 16,017 59,768
+-------- --------
+Total stockholders' equity ............................................ 86,000 134,046
+-------- --------
+$177,914 $303,400
+======== ========
+See accompanying notes to consolidated financial statements.
+F-3
+33
+SKECHERS U.S.A., INC.
+CONSOLIDATED STATEMENTS OF EARNINGS
+THREE-YEAR PERIOD ENDED DECEMBER 31, 2000
+(IN THOUSANDS, EXCEPT PER SHARE DATA)
+1998 1999 2000
+--------- --------- ---------
+Net sales .................................. $ 372,680 $ 424,601 $ 675,036
+Cost of sales .............................. 218,100 249,993 390,811
+--------- --------- ---------
+Gross profit ..................... 154,580 174,608 284,225
+Royalty income, net ........................ 855 668 316
+--------- --------- ---------
+155,435 175,276 284,541
+--------- --------- ---------
+Operating expenses:
+Selling .................................. 49,983 57,332 77,451
+General and administrative ............... 71,461 79,114 125,827
+--------- --------- ---------
+121,444 136,446 203,278
+--------- --------- ---------
+Earnings from operations ......... 33,991 38,830 81,263
+--------- --------- ---------
+Other income (expense):
+Interest ................................. (8,631) (6,554) (9,230)
+Other, net ............................... (239) 415 318
+--------- --------- ---------
+(8,870) (6,139) (8,912)
+--------- --------- ---------
+Earnings before income taxes ..... 25,121 32,691 72,351
+Income taxes ............................... 650 8,635 28,600
+--------- --------- ---------
+Net earnings ..................... $ 24,471 $ 24,056 $ 43,751
+========= ========= =========
+Net earnings per share:
+Basic .................................... $ 1.24
+Diluted .................................. $ 1.20
+=========
+Weighted-average shares:
+Basic .................................... 35,142
+Diluted .................................. 36,563
+=========
+Pro forma operations data:
+Earnings before income taxes ............. $ 25,121 $ 32,691
+Income taxes ............................. 10,048 12,880
+--------- ---------
+Net earnings ..................... $ 15,073 $ 19,811
+========= =========
+Net earnings per share:
+Basic .................................... $ 0.54 $ 0.62
+Diluted .................................. $ 0.49 $ 0.60
+========= =========
+Weighted-average shares:
+Basic .................................... 27,814 31,765
+Diluted .................................. 30,610 33,018
+========= =========
+See accompanying notes to consolidated financial statements.
+F-4
+34
+SKECHERS U.S.A., INC.
+CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
+THREE-YEAR PERIOD ENDED DECEMBER 31, 2000
+(IN THOUSANDS)
+COMMON STOCK
+----------------------------------------------
+SHARES AMOUNT ADDITIONAL TOTAL
+--------------------- --------------------- PAID-IN RETAINED STOCKHOLDERS'
+CLASS A CLASS B CLASS A CLASS B CAPITAL EARNINGS EQUITY
+--------- --------- --------- --------- ---------- --------- -------------
+Balance at December 31, 1997 ............... -- 27,814 -- $ 2 -- $ 11,123 $ 11,125
+Net earnings ............................. -- -- -- -- -- 24,471 24,471
+S Corporation distribution ............... -- -- -- -- -- (7,920) (7,920)
+--------- --------- --------- --------- --------- --------- ---------
+Balance at December 31, 1998 ............... -- 27,814 -- 2 -- 27,674 27,676
+Net earnings ............................. -- -- -- -- -- 24,056 24,056
+Proceeds from issuance of common stock in
+connection with initial public offering 7,000 -- $ 7 26 $ 69,687 -- 69,720
+Proceeds from issuance of common stock
+under the employee stock purchase plan 91 -- -- -- 261 -- 261
+S Corporation distribution:
+Cash .................................. -- -- -- -- -- (35,363) (35,363)
+Cross Colours trademark ............... -- -- -- -- -- (350) (350)
+--------- --------- --------- --------- --------- --------- ---------
+Balance at December 31, 1999 ............... 7,091 27,814 7 28 69,948 16,017 86,000
+Net earnings ............................. -- -- -- -- -- 43,751 43,751
+Proceeds from issuance of common stock
+under the employee stock purchase plan. 267 -- -- -- 1,073 -- 1,073
+Proceeds from issuance of common stock
+under the employee stock option plan .. 422 -- -- -- 1,499 -- 1,499
+Tax effect of non-qualified stock
+options ............................... -- -- -- -- 1,636 -- 1,636
+Deferred compensation .................... -- -- -- -- 87 -- 87
+Conversion of Class B common stock into
+Class A common stock .................... 3,009 (3,009) 3 (3) -- -- --
+--------- --------- --------- --------- --------- --------- ---------
+Balance at December 31, 2000 ............... 10,789 24,805 $ 10 $ 25 $ 74,243 $ 59,768 $ 134,046
+========= ========= ========= ========= ========= ========= =========
+See accompanying notes to consolidated financial statements.
+F-5
+35
+SKECHERS U.S.A., INC.
+CONSOLIDATED STATEMENTS OF CASH FLOWS
+THREE-YEAR PERIOD ENDED DECEMBER 31, 2000
+(IN THOUSANDS)
+1998 1999 2000
+-------- -------- --------
+Cash flows from operating activities:
+Net earnings ................................................................ $ 24,471 $ 24,056 $ 43,751
+Adjustments to reconcile net earnings to net cash
+provided by (used in) operating activities:
+Depreciation and amortization of property and equipment .................. 2,843 3,752 5,894
+Amortization of intangible assets ........................................ 148 108 104
+Provision (recovery) for bad debts and returns ........................... 1,423 (176) 1,915
+Tax effect of non-qualified stock options ................................ -- -- 1,636
+Deferred compensation .................................................... -- -- 87
+Loss on disposal of equipment ............................................ -- 903 78
+Gain (loss) on distribution of intangibles ............................... 190 (118) --
+Increase in assets:
+Receivables ............................................................ (17,760) (17,282) (33,426)
+Inventories ............................................................ (19,558) (3,569) (42,749)
+Prepaid expenses and other current assets .............................. (1,877) (2,514) (1,327)
+Deferred tax assets .................................................... -- (2,810) (1,604)
+Other assets ........................................................... (512) 466 (1,437)
+Increase (decrease) in liabilities:
+Accounts payable ....................................................... 2,132 9,551 25,169
+Accrued expenses ....................................................... 4,249 738 900
+-------- -------- --------
+Net cash provided by (used in) operating activities ................. (4,251) 13,105 (1,009)
+-------- -------- --------
+Cash flows used in investing activities:
+Capital expenditures ........................................................ (9,434) (10,846) (21,897)
+Proceeds from the sales of fixed assets ..................................... -- -- 51
+Intangible assets ........................................................... (14) -- --
+-------- -------- --------
+Net cash used in investing activities ............................... (9,448) (10,846) (21,846)
+-------- -------- --------
+Cash flows from financing activities:
+Net proceeds from initial public offering of common stock ................... -- 69,720 --
+Net proceeds from issuance of common stock .................................. -- 261 2,572
+Net proceeds (payments) related to short-term borrowings .................... 31,486 (23,697) 19,372
+Proceeds from long-term debt ................................................ 581 -- --
+Payments on long-term debt .................................................. (562) (1,042) (1,144)
+Payments on notes payable to stockholder .................................... (1,006) (12,244) --
+Distributions paid to stockholders .......................................... (7,320) (35,363) --
+-------- -------- --------
+Net cash provided by (used in) financing activities ................. 23,179 (2,365) 20,800
+-------- -------- --------
+Net increase (decrease) in cash ..................................... 9,480 (106) (2,055)
+Cash at beginning of year ..................................................... 1,462 10,942 10,836
+-------- -------- --------
+Cash at end of year ........................................................... $ 10,942 $ 10,836 $ 8,781
+======== ======== ========
+Supplemental disclosures of cash flow information:
+Cash paid during the year for:
+Interest ................................................................. $ 8,067 $ 6,782 $ 8,386
+Income taxes ............................................................. 1,416 10,619 27,712
+======== ======== ========
+SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
+During 2000, the Company acquired $14,444 of property and equipment under
+capital lease arrangements. In addition, the Company acquired an office building
+and distribution facility and issued two notes for $10,850 and $ 7,850,
+respectively.
+During 1999, the Company declared a noncash distribution of intangibles of
+$350. During 1998, the Company acquired $1,372 of property and equipment under
+capital lease arrangements. In connection with one of these arrangements, the
+Company received $581 in cash through a sale leaseback transaction.
+See accompanying notes to consolidated financial statements.
+F-6
+36
+SKECHERS U.S.A., INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+DECEMBER 31, 1999 AND 2000
+(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+(a) The Company
+Skechers U.S.A., Inc. (the Company) designs, develops, markets and
+distributes footwear. The Company also operates retail stores, direct mail and
+e-commerce businesses.
+The accompanying consolidated financial statements include the accounts of
+the Company and its wholly owned subsidiaries. All significant intercompany
+balances and transactions have been eliminated in consolidation.
+(b) Revenue Recognition
+Revenue is recognized upon shipment of product or at point of sale for retail
+operations. Allowances for estimated returns and discounts are provided when the
+related revenue is recorded.
+Revenues from royalty agreements are recognized as earned.
+(c) Inventories
+Inventories, principally finished goods, are stated at the lower of cost
+(based on the first-in, first-out method) or market. The Company provides for
+estimated losses from obsolete or slow-moving inventories.
+(d) Income Taxes
+The Company accounts for income taxes under the asset and liability method.
+Deferred tax assets and liabilities are recognized for the future tax
+consequences attributable to the differences between the financial statement
+carrying amounts of existing assets and liabilities and their respective tax
+bases. The effect on deferred tax assets and liabilities of a change in tax
+rates is recognized in income in the period that includes the enactment date.
+(e) Depreciation and Amortization
+Depreciation and amortization of property and equipment is computed using the
+straight-line method based on the following estimated useful lives:
+Buildings 20 years
+Building improvements 20 years or useful life, whichever
+is shorter
+Furniture, fixtures and equipment 5 years
+Leasehold improvements Useful life or remaining lease
+term, whichever is shorter
+Intangible assets consist of trademarks and are amortized on a straight-line
+basis over ten years. The accumulated amortization as of December 31, 1999 and
+2000 is $1,196,000 and $492,000, respectively.
+(f) Long-Lived Assets
+The Company reports long-lived assets, including intangibles, at amortized
+cost. As part of an ongoing review of the valuation and amortization of
+long-lived assets, management assesses the carrying value of assets if facts and
+circumstances suggest that such assets may be impaired. If this review indicates
+that the assets will not be recoverable, as determined by a nondiscounted cash
+flow projection over the remaining amortization period, their carrying value is
+reduced to estimated fair value, based on discounted cash flows.
+F-7
+37
+(g) Advertising Costs
+Advertising costs are expensed in the period in which the advertisements are
+run. Advertising expense for the years ended December 31, 1998, 1999 and 2000
+were approximately $42,200,000, $47,400,000 and $59,122,000, respectively.
+Prepaid advertising costs at December 31, 1999 and 2000 were $1,800,000 and
+$2,605,000, respectively. Prepaid amounts outstanding at December 31, 1999 and
+2000 represent advertising in trade publications, which had not run as of
+December 31, 1999 and 2000, respectively.
+(h) Earnings Per Share
+Basic earnings per share represents net earnings divided by the
+weighted-average number of common shares outstanding for the period. Diluted
+earnings per share reflects the potential dilution that could occur if options
+to issue common stock were exercised or converted into common stock. The
+weighted average diluted shares outstanding gives effect to the sale by the
+Company of those shares of common stock necessary to fund the payment of (i)
+stockholder distributions paid or declared from January 1, 1998 to June 7, 1999,
+the S Corporation termination date, in excess of (ii) the S Corporation earnings
+from January 1, 1998 to December 31, 1998 for 1998, and January 1, 1998 to June
+7, 1999 for 1999, based on an initial public offering price of $11 per share,
+net of underwriting discounts.
+The reconciliation of basic to diluted weighted-average shares is as follows
+(in thousands):
+1998 1999 2000
+------ ------ ------
+Weighted-average shares used in basic computation ...... 27,814 31,765 35,142
+Shares to fund stockholder distributions ............... 1,800 533 --
+Dilutive effect of stock options ....................... 996 720 1,421
+------ ------ ------
+Weighted-average shares used in diluted computation .... 30,610 33,018 36,563
+====== ====== ======
+Options to purchase 1,391,000, 1,411,000 and 1,117,920 shares of common stock
+at prices ranging from $2.78 to $19.19 were outstanding at December 31, 1998,
+1999 and 2000, respectively, but were not included in the computation of diluted
+earnings per share because the options' exercise price was greater than the
+average market price of the common shares.
+(i) Use of Estimates
+Management has made a number of estimates and assumptions relating to the
+reporting of assets, liabilities, revenues and expenses and the disclosure of
+contingent assets and liabilities to prepare these consolidated financial
+statements in conformity with accounting principles generally accepted in the
+United States of America. Actual results could differ from those estimates.
+(j) Product Design and Development Costs
+The Company charges all product design and development costs to expense when
+incurred. Product design and development costs aggregated approximately
+$2,400,000, $2,600,000 and $3,700,000 during the years ended December 31, 1998,
+1999 and 2000, respectively.
+(k) Comprehensive Income
+Except for net earnings, the Company does not have any transactions and other
+economic events that qualify as comprehensive income.
+(l) Fair Value of Financial Instruments
+The carrying amount of the Company's financial instruments, which principally
+include cash, accounts receivable, accounts payable and accrued expenses,
+approximates fair value due to the relatively short maturity of such
+instruments.
+The fair value of the Company's short-term instruments reflects the fair
+value based upon current rates available to the Company for similar debt.
+F-8
+38
+2) PROPERTY AND EQUIPMENT
+Property and equipment is summarized as follows (in thousands):
+1999 2000
+------- -------
+Land ............................................. $ -- $ 7,858
+Buildings and improvements ....................... -- 18,639
+Furniture, fixtures and equipment ................ 17,863 37,529
+Leasehold improvements ........................... 12,392 21,029
+------- -------
+Total property and equipment ........... 30,255 85,055
+Less accumulated depreciation and amortization ... 8,868 14,650
+------- -------
+Property and equipment, net ............ $21,387 $70,405
+======= =======
+(3) SHORT-TERM BORROWINGS
+The Company has available a secured line of credit, as amended in June 2000,
+permitting borrowings up to $120,000,000 based upon eligible accounts receivable
+and inventories. The agreement expires on December 31, 2002. Borrowings bear
+interest at the rate of prime (9.5% at December 31, 2000) minus .50%. The
+agreement provides for the issuance of letters of credit up to a maximum of
+$36,000,000, which decreases the amount available for borrowings under the
+agreement. Outstanding letters of credit at December 31, 2000 were $8,586,000.
+Available borrowings under the line of credit at December 31, 2000 were
+approximately $62,054,000. The Company pays an unused line of credit fee of .25%
+annually. The Company is required to maintain certain financial covenants
+including specified minimum tangible net worth, working capital and leverage
+ratios as well as limit the payment of dividends if it is in default of any
+provision of the agreement. The Company was in compliance with these covenants
+at December 31, 2000.
+(4) NOTES PAYABLE TO STOCKHOLDER
+Stockholder loans were repaid during 1999. The Company recorded interest
+expense of approximately $540,000 and $433,000 related to the stockholder notes
+during the years ended December 31, 1998 and 1999, respectively.
+(5) LONG-TERM BORROWINGS
+Long-term debt at December 31, 1999 and 2000 is as follows (in thousands):
+1999 2000
+------- -------
+Capital lease, due in aggregate monthly installments of $195, interest rate of 7.66%,
+secured by equipment, balloon payment of $4,431 due February 2006 ............................ $ -- $12,661
+Note payable to bank, due in monthly installments of $82.2 (includes principal and
+interest), fixed rate interest at 7.79%, secured by property, payment of $8,716
+due January 2011 .............................................................................. -- 10,850
+Note payable to bank, due in monthly installments of $57.6 (includes principal and
+interest), fixed rate interest at 7.89%, secured by property, balloon payment of
+$6,776 due February 2011 ...................................................................... -- 7,850
+Note payable to bank, due in monthly installments of $25 plus interest at prime
+(9.5% at December 31, 2000) plus 1%, secured by equipment, due December 2002 .................. 2,400 2,100
+Capital leases, due in aggregate monthly installments of $101, interest rates from 8.75%-18.28%,
+secured by equipment, maturing in various installments through February 2005 ................. 1,168 2,106
+------- -------
+3,568 35,567
+Less current installments ...................................................................... 1,060 2,452
+------- -------
+$ 2,508 $33,115
+======= =======
+The aggregate maturities of long-term borrowings at December 31, 2000 are as
+follows:
+2001............................................. $ 2,452
+2002............................................. 4,100
+2003............................................. 2,274
+2004............................................. 2,461
+2005............................................. 2,244
+Thereafter....................................... 22,036
+-------
+$35,567
+=======
+F-9
+39
+(6) STOCKHOLDERS' EQUITY
+(a) Stock Issuances
+Effective as of May 28, 1999, the Company was reincorporated in Delaware. The
+existing California corporation was merged into a newly formed Delaware
+corporation and each outstanding share of common stock of the existing
+California corporation was exchanged, for a share of $.001 par value Class B
+common stock of the new Delaware corporation. In addition, pursuant to the
+reincorporation merger, an approximate 13,907-for-1 common stock split was
+authorized. The amendment and stock split has been reflected retroactively in
+the accompanying consolidated financial statements.
+The authorized capital stock of the Delaware corporation consists of
+100,000,000 shares of Class A common stock, par value $.001 per share, and
+60,000,000 shares of Class B common stock, par value $.001 per share. The
+Company has also authorized 10,000,000 shares of preferred stock, $.001 par
+value per share.
+The Class A common stock and Class B common stock have identical rights other
+than with respect to voting, conversion and transfer. The Class A common stock
+is entitled to one vote per share, while the Class B common stock is entitled to
+ten votes per share on all matters submitted to a vote of stockholders. The
+shares of Class B common stock are convertible at any time at the option of the
+holder into shares of Class A common stock on a share-for-share basis. In
+addition, shares of Class B common stock will be automatically converted into a
+like number of shares of Class A common stock upon any transfer to any person or
+entity which is not a permitted transferee.
+On June 9, 1999, the Company issued 7,000,000 shares of Class A common stock
+in an initial public offering and received net proceeds of $69,720,000.
+During 2000, certain Class B stockholders converted 3,008,704 shares of Class
+B common stock to Class A common stock.
+(b) Stock Option Plan
+In January 1998, the Board of Directors of the Company adopted the 1998 Stock
+Option, Deferred Stock and Restricted Stock Plan (Stock Option Plan) for the
+grant of qualified incentive stock options (ISO), stock options not qualified
+and deferred stock and restricted stock. The exercise price for any option
+granted may not be less than fair value (110% of fair value for ISOs granted to
+certain employees). Under the Stock Option Plan, 5,215,154 shares are reserved
+for issuance. In January 1998, 1,390,715 options to acquire Class A common stock
+were granted at an exercise price of $2.78 per share, which was equal to the
+fair value. The options vested 25% on June 9, 1999 and 25% each anniversary
+thereafter over the next three years. In connection with the Company's initial
+public offering on June 9, 1999, the Company granted 1,209,636 options to
+acquire Class A common stock at an exercise price of $11 per share which vest
+ratably in 20% increments commencing one year from the grant date. During 2000,
+118,999 of the $11 per share options were canceled. The options expire ten years
+from the date of grant.
+Shares subject to option under the Stock Option Plan were as follows:
+SHARES OPTION PRICE
+---------- -------------
+Outstanding at December 31, 1998 ..................... 1,390,715 $ 2.78
+Granted ............................................ 1,209,636 11.00
+Canceled ........................................... (84,777) 11.00
+Outstanding at December 31, 1999 ..................... 2,515,574 2.78 -- 11.00
+----------
+Granted ............................................ 1,532,695 3.94 -- 19.19
+Exercised .......................................... (422,370) 2.78 -- 13.00
+Canceled ........................................... (136,998) 3.94 -- 13.00
+----------
+Outstanding at December 31, 2000 ..................... 3,488,901 2.78 -- 19.19
+==========
+Exercisable at December 31, 2000 ..................... 862,111 2.78 -- 18.44
+========== ==== =====
+Options available for grant at December 31, 2000 ..... 1,303,883
+==========
+(c) Stock Purchase Plan
+Effective July 1, 1998, the Company adopted the 1998 Employee Stock Purchase
+Plan (1998 Stock Purchase Plan). Under the terms of the 1998 Stock Purchase
+Plan, 2,781,415 shares of common stock are reserved for sale to employees at a
+price no less that 85% of the lower of the fair market value of the Class A
+common stock at the beginning of the one-year offering period or the end of each
+of the six-month purchase periods. During 2000, 266,865 shares (90,913 shares in
+1999) were issued under the 1998 Stock Purchase Plan for which the Company
+received $1,073,000 ($261,000 in 1999).
+F-10
+40
+(d) Stock Compensation
+The Company accounts for stock compensation under SFAS No. 123, Accounting
+for Stock-Based Compensation, and has elected to measure compensation cost under
+Accounting Principles Board Opinion No. 25 and comply with the pro forma
+disclosure requirements of SFAS 123. Had compensation cost been determined using
+the fair value at the grant date for awards during 1998, 1999, and 2000
+consistent with the provisions of SFAS No. 123, the Company's pro forma net
+earnings (in thousands) and earnings per share would have been reduced to the
+amounts as indicated below.
+1998 1999 2000
+-------- -------- --------
+Pro forma net earnings ................ $ 14,875 $ 19,077 $ 41,458
+======== ======== ========
+Pro forma net earnings per share:
+Basic ............................... $ .53 $ .60 $ 1.18
+Diluted ............................. .49 .58 1.13
+======== ======== ========
+The fair value of each option is estimated on the date of grant. The Company
+used the minimum value method for stock awards prior to its initial public
+offering and the Black-Scholes option pricing models for stock awards
+afterwards. The following weighted-average assumptions used for grants were as
+follows:
+1998 1999 2000
+---- ---- ----
+Dividend yield .............. -- -- --
+Expected volatility ......... -- 55% 70%
+Risk-free interest rate ..... 5.7% 6.2% 6.3%
+Expected life of option ..... 8 5 5
+==== ==== ====
+The weighted-average fair value of options granted during 1998, 1999, and
+2000 were $2.78, $6.93, and $10.69, respectively.
+(7) INCOME TAXES
+The pro forma unaudited income tax adjustments for 1998 and 1999 represent
+taxes, which would have been reported assuming the Company had been subject to
+federal and state income taxes as a C Corporation the entire year. The actual
+and pro forma provisions for income tax expense were as follows (in thousands):
+1998 1999 2000
+-------- -------- --------
+Actual income taxes:
+Federal:
+Current .............................. $ -- $ 8,012 $ 25,420
+Deferred ............................. -- (792) (1,360)
+-------- -------- --------
+Total federal ................... -- 7,220 24,060
+-------- -------- --------
+State:
+Current .............................. 650 1,480 4,784
+Deferred ............................. -- (65) (244)
+-------- -------- --------
+Total state ..................... 650 1,415 4,540
+-------- -------- --------
+Total actual income taxes ....... 650 8,635 28,600
+-------- -------- --------
+Pro forma adjustments:
+Federal ................................. 7,864 3,533
+State ................................... 1,534 712
+-------- --------
+Total pro forma adjustments ..... 9,398 4,245
+-------- --------
+Total pro forma income taxes .... $ 10,048 $ 12,880
+======== ========
+Income taxes (proforma for 1998 and 1999) differs from the statutory tax rate
+as applied to earnings before income taxes as follows:
+1998 1999 2000
+------- ------- -------
+Expected income tax expense .............................. $ 8,541 $11,569 $25,323
+State income tax, net of federal benefit ................. 1,507 1,311 2,951
+Other .................................................... -- -- 326
+------- ------- -------
+Total provision for pro forma income taxes ..... $10,048 $12,880 $28,600
+======= ======= =======
+The tax effects of temporary differences that give rise to significant
+portions of deferred tax assets and deferred tax liabilities at December 31,
+1999 and 2000 are presented below:
+F-11
+41
+Deferred tax assets: 1999 2000
+------ ------
+Inventory adjustments ...................... $ 615 $1,176
+State taxes ................................ 520 1,490
+Allowances for receivables ................. 1,275 2,100
+Other ...................................... 808 1,060
+------ ------
+Total deferred tax assets .......... 3,218 5,826
+------ ------
+Deferred tax liabilities:
+Depreciation of property and equipment ..... 279 1,386
+Other ...................................... 129 26
+------ ------
+Total deferred tax liabilities ..... 408 1,412
+------ ------
+Net deferred tax assets ................. $2,810 $4,414
+====== ======
+Management believes it is more likely than not that the results of future
+operations will generate sufficient taxable income to realize the net deferred
+tax assets.
+Through June 7, 1999, the Company was treated for federal and state income
+tax purposes as an S Corporation under Subchapter S of the Internal Revenue Code
+and comparable state laws. As a result, the earnings of the Company through June
+7, 1999 were included in the taxable income of the Company's stockholders for
+federal and state income tax purposes, and the Company was generally not subject
+to income tax on such earnings, other than California and other state franchise
+taxes.
+In connection with the Company's initial public offering of its Class A
+common stock in June 1999, the Company terminated its S Corporation status and
+became a C Corporation subject to federal and state income taxes. The Company's
+change of status to a C Corporation resulted in the recording of deferred tax
+assets amounting to $1,800,000. This amount is reflected as a reduction of
+actual income tax expense in the accompanying 1999 consolidated statement of
+earnings.
+(8) BUSINESS AND CREDIT CONCENTRATIONS
+The Company sells footwear products principally throughout the United States
+and foreign countries. The footwear industry is impacted by the general economy.
+Changes in the marketplace may significantly affect management's estimates and
+the Company's performance. Management performs regular evaluations concerning
+the ability of customers to satisfy their obligations and provides for estimated
+doubtful accounts. Domestic accounts receivable amounted to $57,189,000 and
+$87,825,000 before allowances for bad debts and returns at December 31, 1999 and
+2000, respectively, which generally do not require collateral from customers.
+Foreign accounts receivable amounted to $9,100,000 and $13,955,000 before
+allowance for bad debts and returns at December 31, 1999 and 2000, respectively,
+which generally are collateralized by letters of credit. International net sales
+amounted to $34,700,000, $43,900,000 and $65,159,000 for the years ended
+December 31, 1998, 1999 and 2000, respectively. The Company's credit losses for
+the years ended December 31, 1998, 1999 and 2000 were $102,000, $1,699,000 and
+$537,000, respectively, and did not significantly differ from management's
+expectations.
+Net sales to customers in the United States of America exceeded 90% of total
+net sales for each of the years in the three-year period ended December 31,
+2000. All long-lived assets of the Company are located in the United States. The
+Company has no significant assets outside the United States of America.
+During 1999 and 2000, no customer accounted for 10% or more of net sales.
+During 1998, the Company had one significant customer which accounted for 11.8%
+of net sales. The Company had one customer which accounted for 10.1% and 15.3%
+of trade accounts receivable at December 31, 1999 and 2000, respectively.
+During 1998, the Company had four manufacturers that accounted for between
+10.4% and 15.4% each of total purchases. During 1999, the Company had four
+manufacturers that accounted between 12.3% and 15.5% each of total purchases.
+During 2000, the company had four manufacturers that accounted for 9.2% and
+20.2% each of total purchases.
+Substantially all of the Company's products are produced in China. The
+Company's operations are subject to the customary risks of doing business
+abroad, including, but not limited to, currency fluctuations, custom duties and
+related fees, various import controls and other monetary barriers, restrictions
+on the transfer of funds, labor unrest and strikes and, in certain parts of the
+world, political instability. The Company believes it has acted to reduce these
+risks by diversifying manufacturing among various factories. To date, these risk
+factors have not had a material adverse impact on the Company's operations.
+F-12
+42
+(9) BENEFIT PLAN
+The Company has adopted a profit sharing plan covering all employees who are
+21 years of age and have completed one year of service. Employees may contribute
+up to 15.0% of annual compensation. Company contributions to the plan are
+discretionary and vest over a five-year period. The Company's contributions to
+the plan amounted to $242,000, $259,000 and $500,000 for the years ended
+December 31, 1998, 1999 and 2000, respectively.
+(10) COMMITMENTS AND CONTINGENCIES
+(a) Leases
+The Company leases facilities under operating lease agreements expiring
+through August 2011. The leases are on an all-net basis, whereby the Company
+pays taxes, maintenance and insurance. The Company also leases certain equipment
+and automobiles under operating lease agreements expiring at various dates
+through July 2005. Rent expense for the years ended December 31, 1998, 1999 and
+2000 approximated $7,900,000, $9,800,000 and $13,200,000, respectively.
+The Company also leases certain property and equipment under capital lease
+agreements requiring monthly installment payments through February 2006.
+Future minimum lease payments under noncancellable leases at December 31,
+2000 are as follows (in thousands):
+CAPITAL OPERATING
+LEASES LEASES
+------- ---------
+Year ending December 31:
+2001............................................. $ 3,191 $14,168
+2002............................................. 3,013 14,210
+2003............................................. 2,798 12,199
+2004............................................. 2,798 11,477
+2005............................................. 2,394 10,724
+Thereafter....................................... 4,626 18,909
+------- -------
+$18,820 $81,687
+Less imputed interest............................ 4,053 =======
+-------
+Present value of net minimum lease payments...... $14,767
+=======
+(b) Litigation
+In December 1999 and January 2000, the Company and two officers/directors
+were named as defendants in four purported class-action lawsuits. Two of the
+lawsuits also named the underwriters of the Company's initial public offering as
+defendants. All of the complaints seek damages and rescission on behalf of a
+class of persons who purchased securities in, or traceable to, the Company's
+initial public offering or thereafter on the open market prior to July 6, 1999.
+All four actions were subsequently consolidated into one matter and a
+consolidated complaint was filed on June 1, 2000. The consolidated complaint
+named as defendants the Company, two officers of the Company, and the
+underwriters of the Company's Offering. The class, as currently alleged in the
+consolidated complaint now on file, consists of all persons who purchased
+securities in, or traceable to, the Company's June 9, 1999 Offering or
+thereafter on the open market prior to June 15, 1999.
+In response to the consolidated complaint, the Company filed a motion to
+dismiss the entire case. On September 25, 2000, the Court issued a tentative
+order to dismiss the consolidated complaint in its entirety, with leave to
+amend. As of December 31, 2000, the Court has not issued a final order. Thus, as
+these matters are in still in the pleading stage and no discovery has been
+conducted, neither the Company nor Company counsel are able to conclude as to
+the potential likelihood of an unfavorable outcome. In any event, the Company is
+vigorously defending the claims and believes that its defenses are meritorious.
+The Company also maintains insurance that it believes covers all the matters
+alleged in the consolidated complaint as currently pled. Accordingly, the
+Company has not provided for any potential losses associated with these
+lawsuits.
+The Company is involved in other litigation arising from the ordinary course
+of business. Management does not believe that the disposition of these matters
+will have a material effect on the Company's financial position or results of
+operations.
+F-13
+43
+(c) Purchase Commitments
+At December 31, 2000, the Company had purchase commitments of approximately
+$107,000,000.
+The Company finances production activities in part through the use of
+interest-bearing open purchase arrangements with certain of its Asian
+manufacturers. These arrangements currently bear interest at a rate between 1%
+and 2% per 30 to 60 day term. The amounts outstanding under these arrangements
+at December 31, 1999 and 2000 were $34,900,000 and $48,484,000, respectively,
+which are included in accounts payable in the accompanying consolidated
+financial statements. Interest expense incurred by the Company under these
+arrangements amounted to $2,900,000 in 1998, $3,000,000 in 1999 and $6,400,000
+in 2000.
+(d) Compensation
+Certain officers and key employees of the company are entitled to incentive
+bonuses under employment contracts. The bonuses are based on company performance
+(11) SUBSEQUENT EVENT
+In February 2001, the Company completed the purchase of three separate real
+properties, located in Manhattan Beach, California, for a total of $4,500,000.
+(12) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
+Summarized unaudited financial data are as follows (in thousands):
+2000 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
+---- -------- ------- ------------ -----------
+Net sales ...................... $133,344 $163,899 $205,749 $172,044
+Gross profit ................... 53,634 69,137 86,911 74,543
+Net earnings ................... 6,734 12,010 15,286 9,721
+======== ======== ======== ========
+Net earnings per share:
+Basic ........................ $ .19 $ .34 $ .43 $ .27
+Diluted ...................... .19 .33 .40 .26
+======== ======== ======== ========
+1999 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
+---- -------- ------- ------------ -----------
+Net sales ...................... $ 95,736 $104,582 $124,177 $100,106
+Gross profit ................... 36,698 42,732 52,837 42,341
+Pro forma net earnings ......... 2,104 6,248 8,545 2,914
+======== ======== ======== ========
+Pro forma net earnings per
+share:
+Basic ........................ $ .08 $ .21 $ .25 $ .08
+Diluted ...................... .07 .20 .24 .08
+======== ======== ======== ========
+F-14
+44
+SKECHERS U.S.A., INC.
+SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
+YEARS ENDED DECEMBER 31, 1998, 1999, AND 2000
+BALANCE AT CHARGED TO DEDUCTIONS BALANCE
+BEGINNING OF COSTS AND AND AT END
+DESCRIPTION PERIOD EXPENSES WRITE-OFFS OF PERIOD
+----------- ------------ ------------ ------------ ------------
+As of December 31, 1998:
+Allowance for obsolescence .................... $ 908,000 $ 64,000 $ (465,000) $ 507,000
+Allowance for doubtful accounts ............... 1,265,000 702,000 (501,000) 1,466,000
+Reserve for sales returns and allowances ...... $ 725,000 $ 10,840,000 $ (9,618,000) $ 1,947,000
+As of December 31, 1999:
+Allowance for obsolescence .................... $ 507,000 $ 134,000 $ -- $ 641,000
+Allowance for doubtful accounts ............... 1,466,000 740,000 (1,699,000) 507,000
+Reserve for sales returns and allowances ...... $ 1,947,000 $ 13,600,000 $(12,817,000) $ 2,730,000
+As of December 31, 2000:
+Allowance for obsolescence .................... $ 641,000 $ 177,000 $ -- $ 818,000
+Allowance for doubtful accounts ............... 507,000 1,326,000 (537,000) 1,296,000
+Reserve for sales returns and allowances ...... $ 2,730,000 $ 15,651,000 $(14,525,000) $ 3,856,000
+============ ============ ============ ============
+S-1
\ No newline at end of file
diff --git a/raw/filings/0001065837/2000/0000950148-01-000517/filing_metadata.csv b/raw/filings/0001065837/2000/0000950148-01-000517/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..8d48d2022cdf25bff7dff4c59444634b932135b7
--- /dev/null
+++ b/raw/filings/0001065837/2000/0000950148-01-000517/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0001065837,SKX,SKECHERS USA INC,10-K405,2001-04-02,2000-12-31,2001-04-02T04:00:00.000Z,0000950148-01-000517,v70157e10-k405.txt,FORM 10-K405,581791,0,0,https://www.sec.gov/Archives/edgar/data/1065837/000095014801000517/v70157e10-k405.txt,https://www.sec.gov/Archives/edgar/data/1065837/000095014801000517/,2000,2000,1
diff --git a/raw/filings/0001065837/2000/0000950148-01-000517/item1.txt b/raw/filings/0001065837/2000/0000950148-01-000517/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..46a7e621942f35bfb0c8f160f39e14c5ad182246
--- /dev/null
+++ b/raw/filings/0001065837/2000/0000950148-01-000517/item1.txt
@@ -0,0 +1,1019 @@
+ITEM 1. BUSINESS
+Certain information contained in this report constitutes forward-looking
+statements which involve risks and uncertainties including, but not limited to,
+information with regard to our plans to increase the number of retail locations
+and styles of footwear, the maintenance of customer accounts and expansion of
+business with such accounts, the successful implementation of our strategies,
+future growth and growth rates and future increases in net sales, expenses,
+capital expenditures and net earnings. The words "believes," "anticipates,"
+"plans," "expects," "endeavors," "may," "will," "intends," "estimates," and
+similar expressions are intended to identify forward-looking statements. These
+forward-looking statements involve risks and uncertainties, and our actual
+results could differ materially from those anticipated in these forward-looking
+statements as a result of certain factors, including, but not limited to, those
+set forth under "Risk Factors" and elsewhere in this Report.
+GENERAL
+Skechers U.S.A., Inc. ("Skechers") designs and markets branded contemporary
+casual, active, rugged and lifestyle footwear for men, women and children. Our
+objective is to become a leading source of contemporary casual and active
+footwear while ensuring the longevity of both Skechers and the Skechers brand
+name through controlled, well managed growth. We strive to achieve this
+objective by developing and offering a balanced assortment of basic and
+fashionable merchandise across a wide spectrum of product categories and styles,
+while maintaining a diversified, low-cost sourcing base and controlling the
+growth of our distribution channels. We sell our products to department stores
+such as Nordstrom, Macy's, Dillards, Robinsons-May, and JC Penney and specialty
+retailers such as Footlocker, Lady Footlocker, Kid's Footlocker, Famous
+Footwear, Genesco's Journeys and Jarman chains, and Footaction U.S.A. We also
+own and operate Skechers' retail stores and sell product directly to consumers
+through mail order and web site distribution. We, through major international
+distributors, sell our products in over 100 countries and territories, with the
+exception of France and Germany where we sell directly to department stores and
+specialty retailers.
+Our product offerings of men's, women's and children's footwear appeal to a
+broad customer base between the ages of 5 and 40 years. Our strategy of
+providing a growing and balanced assortment of quality basic footwear and
+seasonal and fashion footwear with progressive styling at competitive prices
+gives Skechers this broader based customer appeal. Our men's and women's
+footwear are primarily designed with the active, youthful lifestyle of the 12 to
+25 year old age group in mind. Our product offerings include casual and utility
+oxfords, loggers, boots and demi-boots; skate, street and fashion sneakers;
+hikers, trail runners and joggers; sandals, slides and other open-toe footwear;
+and dress casual shoes.
+Our management and design team collectively possess extensive experience in
+the footwear industry. Robert Greenberg and Michael Greenberg, the Chairman of
+the Board and President, respectively, founded Skechers in 1992. Prior to that
+time, Robert Greenberg co-founded L.A. Gear, Inc. ("L.A. Gear") and, together
+with a management team which included Michael Greenberg, was instrumental in
+L.A. Gear's growth until his resignation in early 1992. The Greenbergs are
+joined on the management team by several design, merchandise, production, and
+marketing executives with experience in a broad range of industries. We believe
+this core group comprises an effective and efficient management and design team
+with the experience to recognize and respond to emerging consumer trends and
+demands.
+FOOTWEAR
+Skechers offers men's, women's and children's footwear in a broad range of
+styles, fabrics and colors. We offer a broad selection of categories in an
+effort to maximize our ability to respond to changing fashion trends and
+consumer preferences as well as to limit our exposure to any specific style. We
+believe that our products and brand offer a broad appeal to men, women and
+children.
+We introduced our first footwear line with the Skechers brand name in
+December 1992. Since that time, we have expanded our product offerings and grown
+our net sales while substantially increasing the breadth and penetration of our
+account base. We currently categorize our footwear into six product lines: (i)
+Skechers USA, (ii) Skechers Sport, (iii) Skechers Collection, (iv) Skechers
+Kids, (v) Somethin' Else from Skechers, and (vi) Skechers by Michelle K. These
+general product lines are offered in varying styles for men, women and children
+(except for Skechers Collection which is currently offered in men's styles only
+and Somethin' Else from Skechers and Skechers by Michelle K which are offered in
+women's styles only).
+Skechers USA. Our Skechers USA category includes four types of footwear: (i)
+Sport Utility, (ii) Utility, (iii) Classics, and (iv) Hikers. The Sport Utility
+category includes generally "Black & Brown" boots and shoes that have a rugged,
+less refined design with industrial-inspired fashion features. This category is
+defined by the heavy-lugged outsole and value-oriented materials employed in the
+uppers. Uppers are typically constructed of oiled suede and "Crazy Horse" or
+distressed leathers which enhance the rugged appearance of the boots and oxfords
+of this category. We design and price this category to appeal primarily to young
+men with broad acceptance
+3
+4
+across age groups. Suggested retail price points range from $45.00 to $70.00 for
+this category. Our Utility styles consist of a single category of boots that are
+designed to meet the functional demands of a work boot but are marketed as
+casual footwear. The outsoles of this category are designed to be durable and
+wearable with Goodyear welted, hardened rubber outsoles. Uppers are constructed
+of thicker, better grades of heavily oiled leathers. Utility boots may include
+steel toes, water-resistant or water-proof construction and/or materials, padded
+collars and Thermolite insulation. Styles include logger boots and demi-boots,
+engineer boots, motorcycle boots and six- and eight-eyelet work boots. Suggested
+retail price points range from $80.00 to $100.00 for this category. The Classics
+styles include comfort oriented design and performance features. Boots and shoes
+in this category employ softer outsoles which are often constructed of polyvinyl
+carbon ("PVC"). The more refined design of this footwear employs better grades
+of leather and linings than those used in our Sport Utility boots and shoes.
+Uppers are generally constructed of grizzly leather or highly-finished leather
+that produces a waxy shine. Designs are sportier than the Sport Utility category
+and feature oxfords, wingtips, monkstraps, demi-boots and boots. Suggested
+retail price points range from $55.00 to $75.00 for this category. Our Hiker
+styles consist of a single category of boots and demi-boots that include many
+comfort and technical performance features that distinguish this footwear as
+Hikers. We market this footwear primarily on the basis of style and comfort
+rather than on technical performance. However, many of the technical performance
+features in the Hikers contribute to the level of comfort this footwear
+provides. Outsoles generally consist of molded and contoured hardened rubber.
+Many designs may include gussetted tongues to prevent penetration of water and
+debris, cushioned mid-soles, motion control devices such as heel cups,
+water-resistant or water-proof construction and materials and heavier, more
+durable hardware such as metal D-rings instead of eyelets. Uppers are generally
+constructed of heavily oiled nubuck and full-grain leathers. Suggested retail
+price points range from $55.00 to $100.00 for this category.
+Skechers Sport. Skechers Sport or "Active Street" footwear includes skate
+sneakers, joggers, trail runners, sport hikers and multi-functional shoes
+inspired by cross-trainers. We distinguish our Skechers Sport category by its
+technical performance inspired looks; however, generally we do not promote the
+technical performance features of these shoes. Certain of our skate sneakers are
+designed with the technical performance features necessary for competitive level
+skateboarding. The skate sneaker styles ("Street Sneaker") are designed to
+appeal to the teenager whose casual shoe of choice is a skate or street sneaker
+and is intended to be retailed through specialty casual shoe stores and
+department stores. The other Skechers Sport footwear styles include comfort
+performance not available in the Street Sneaker styles. The Skechers Sport
+designs are light-weight constructions that include cushioned heels,
+polyurethane mid-soles, phylon and other synthetic outsoles and white leather or
+synthetic uppers such as durabuck and cordura and ballistic nylon mesh. The
+Skechers Sport features electric and technically inspired hues in addition to
+the traditional athletic white. Skechers Sport is marketed through traditional
+athletic footwear specialty retailers as well as basic existing accounts.
+Suggested retail price points range from $40.00 to $65.00 for this category.
+Skechers Collection. The Skechers Collection features dress casual shoes
+designed to complement a young man's semi-formal attire. This category features
+more sophisticated designs influenced, in part, by prevailing trends in Italy
+and other European countries. As such, this footwear is more likely than other
+categories to be sourced from Italy and Portugal. Outsoles project a sleeker
+profile, while uppers are constructed of glossy, "box" leather and aniline,
+resulting in a highly polished appearance. Designs include monkstraps, wingtips,
+oxfords, cap toes and demi-boots and often feature blind-eyelets to enhance the
+sophisticated nature of the styling. Suggested retail price points range from
+$85.00 to $130.00 for this category.
+Skechers Kid's. The Skechers Kid's line features a range of products
+including boots, shoes and sneakers and is comprised primarily of shoes that are
+designed like their adult counterparts but in "takedown" versions, so that the
+younger set can wear the same popular styles as their older siblings and
+schoolmates. This "takedown" strategy maintains the integrity of the product in
+the premium leathers, hardware and outsoles without the attendant costs involved
+in designing and developing new products. In addition, we also adapt current
+fashion from our men's and women's lines by modifying designs and choosing
+colors and materials that are more suitable to the playful image we have
+established in the children's footwear market. We also have a Skechers Lights
+category, which is a line of lighted footwear combining sequencing patterns and
+lights in the outsole and other areas of the shoes. Our children's footwear is
+offered at retail prices ranging from $20.00 to $50.00.
+Somethin' Else from Skechers. The Somethin' Else from Skechers line,
+introduced in February 2001, is a young women's line that features an array of
+stylish shoes, boots and sandals for females between the ages of 12 and 24. This
+new line is expected to be available to consumers beginning Fall 2001. We
+designed the line to be a complementary line for the junior customer who already
+wears Skechers USA and Skechers Sport styles.
+Skechers by Michelle K. The Skechers by Michelle K line, also introduced in
+February 2001, is a new dress casual junior line for trend-savvy young women
+between the ages of 18 and 34. This new line is expected to be available in Fall
+2001.
+We offer sandalized footwear which features open-toe and open-side
+constructions consistent with our offerings in the Skechers USA, Skechers Sport
+and Skechers Collection categories of footwear. Such footwear includes
+fisherman's sandals, shower sandals, beach sandals, slides, comfort-oriented
+land sandals and technically-inspired water sport sandals. Sandalized footwear
+includes both
+4
+5
+leather and synthetic constructions and may feature suede footbeds with
+form-fitting mid-soles. We typically deliver our sandalized footwear to
+retailers from February to August. Suggested retail price points range from
+$20.00 to $60.00 for this category.
+PRODUCT DESIGN AND DEVELOPMENT
+We believe that our product success is related in a large part to our ability
+to recognize trends in the footwear markets and to design products which
+anticipate and accommodate consumers' ever-evolving preferences. We strive to
+analyze, interpret and translate current and emerging lifestyle trends.
+Lifestyle trend information is compiled by our designers through various methods
+designed to monitor changes in culture and society, including (i) review and
+analysis of modern music, television, cinema, clothing, alternative sports and
+other trend-setting media, (ii) travel to domestic and international fashion
+markets to identify and confirm current trends, (iii) consultation with our
+retail customers for information on current retail selling trends, (iv)
+participation in major footwear trade shows to stay abreast of popular brands,
+fashions and styles and (v) subscription to various fashion and color
+information services. In addition, a key component of our design philosophy is
+to continually reinterpret both our basic and current successful styles in the
+Skechers image.
+We intend to continue to leverage our reputation for quality products and our
+relationships with retailers through, among other things, the introduction of
+new styles in our existing and new categories of footwear. Also, we believe our
+in stock inventory program enhances our position with retailers. This program
+increases the availability of our best-selling products, which we believe has
+contributed to more consistent product flow to our retail customers and an
+increased ability to respond to reorder demand.
+Offer a Breadth of Innovative Products. We have continued to broaden our
+product line in an effort to reach a larger consumer base. In addition,
+offering a broader range of products allows us to increase sales to our current
+customer and consumer base. We offer a wide variety of different styles of
+footwear generally in three to four different colors and material variations and
+typically in 10 to 12 different sizes. These styles span a broad spectrum of
+product categories ranging from skate and street sneakers to fashion sneakers,
+from steel toe boots with heavy-lugged soles to casual dress shoes for men. We
+have developed this breadth of merchandise offerings in an effort to improve our
+ability to respond to changing fashion trends and customer preferences, as well
+as to limit our exposure to any single industry participant. We do not believe
+that any single industry participant competes directly with us across our entire
+product offering. Although major new product introductions take place in advance
+of both the spring and the fall selling seasons, we typically introduce new
+designs in to our existing lines every 30 to 60 days to keep current with
+emerging trends.
+Design Team. All of our footwear is designed with an active, youthful
+lifestyle in mind. The design team's primary mandate is to design shoes
+marketable to the 12 to 25 year old consumer. While these designs are
+contemporary in styling, we believe that substantially all of the line appeals
+to the broader 5 to 40 year old consumer. Although many of our shoes have
+performance features, such as hikers, trail runners, skate sneakers and joggers,
+we generally do not position our shoes in the marketplace as technical
+performance shoes. Our principal goal in product design is to generate new and
+exciting footwear with contemporary and progressive style features and comfort
+enhancing performance features. We do not believe that technology is a
+differentiating factor in marketing footwear in the casual shoe industry.
+The footwear design process typically begins about nine months before the
+start of a season. Skechers' products are designed and developed by our in-house
+staff. We also utilize outside design firms on an item-specific basis to
+supplement our design efforts. Separate design teams focus on each of the men's,
+women's and children's categories, and report to our senior design executives.
+The design process is extremely collaborative; members of the design staff meet
+weekly with the heads of retail and merchandising, sales, production and
+sourcing to further refine Skechers' products to meet the particular needs of
+our markets.
+After the design team arrives at a consensus regarding the fashion themes for
+the coming season, the group then translates these themes into Skechers
+products. These interpretations include variations in product color, material
+structure and decoration, which are arrived at after close consultation with our
+production department. Prototype blueprints and specifications are created and
+forwarded to our prototype manufacturers located in Taiwan, which then forward
+design prototypes back to our domestic design team. New design concepts are
+often also reviewed by our major retail customers. Customer input not only
+allows us to measure consumer reaction to the latest designs, but also affords
+us an opportunity to foster deeper and more collaborative relationships with our
+customers. Our design team can easily and quickly modify and refine a design
+based on customer input.
+SOURCING
+A substantial portion of our products are produced in China. To date,
+products have been purchased in U.S. Dollars, although we cannot assure you that
+this will continue to be the case. We do not own or operate any manufacturing
+facilities. We believe the use of independent manufacturers increases our
+production flexibility and capacity while at the same time substantially
+reducing capital expenditures and avoiding the cost of managing a large
+production work force. We finance our production activities in part through the
+use of interest-bearing open purchase arrangements with certain of our Asian
+manufacturers. These facilities currently bear interest
+5
+6
+at a rate between 1.0% and 2.0% for 30 to 60 days financing, depending on the
+factory. We believe that the use of these arrangements affords us additional
+liquidity and flexibility. While we have long-standing relationships with many
+of our manufacturers and believe our relationships to be good, there are no
+long-term contracts between us and any of our manufacturers.
+We maintain an in-stock position for selected styles of footwear in order
+to minimize the time necessary to fill customer orders. In order to maintain an
+in-stock position, we place orders for selected footwear with our manufacturers
+prior to the time we receive customers' orders for such footwear. In order to
+reduce the risk of overstocking, we seek to assess demand for our products by
+soliciting input from our customers and monitoring retail sell-through. In
+addition, we analyze historical and current sales and market data to develop
+internal product quantity forecasts which helps reduce inventory risks.
+Asian Office. To safeguard product quality and consistency, we oversee the
+key aspects of the production process from prototyping through production to
+finished product. Monitoring is performed by our domestic production department
+and from our offices in China and Taiwan. We believe that our Asian presence
+allows us to negotiate supplier and manufacturer arrangements more effectively,
+decrease product turnaround time, and ensure timely delivery of finished
+footwear. In addition, we require our manufacturers to certify that neither
+convict, forced, indentured labor (as defined under U.S. law) nor child labor
+(as defined by the manufacturer's country) is used in the production process,
+that compensation will be paid according to local law and that the factory is in
+compliance with local safety regulations.
+Factories. Manufacturers are selected in large part on the basis of our prior
+experience with the manufacturer and the amount of available production
+capacity. We attempt to monitor our selection of independent factories to ensure
+that no one manufacturer is responsible for a disproportionate amount of our
+merchandise. We also seek to use, whenever possible, manufacturers that have
+previously produced our footwear, which we believe enhances continuity and
+quality while controlling production costs. In addition, we source product for
+styles that account for a significant percentage of our net sales from at least
+four different manufacturers. For the year ended December 31, 2000, we had four
+manufacturers which accounted for between 9% and 20%, each, of total purchases.
+Quality Control. We believe that quality control is an important and
+effective means of maintaining the quality and reputation of our products. Our
+quality control program is designed to ensure that finished goods not only meet
+our established design specifications, but also that all goods bearing our
+trademarks meet our standards for quality. Quality control personnel perform an
+array of inspection procedures at various stages of the production process,
+including examination and testing of (i) prototypes of key raw materials prior
+to manufacture, (ii) samples and materials at various stages of production and
+(iii) final products prior to shipment. Our employees are on-site at each
+of our major manufacturers to oversee key phases of production. In
+addition, unannounced visits to the manufacturing sites, to further monitor
+compliance with our manufacturing specifications, are made by our employees
+and agents.
+MARKETING AND PROMOTION
+Our marketing focus is to maintain and enhance recognition of the Skechers
+brand name as a casual, active youthful brand that stands for quality, comfort
+and design innovation. Senior management is directly involved in shaping our
+image and our advertising and promotional activities. Towards this end, we
+endeavor to spend between 8% and 10% of annual net sales in the marketing of
+our footwear through an integrated effort of advertising, promotions,
+public relations, trade shows and other marketing efforts, which we believe
+substantially heightens brand awareness.
+Advertising. We believe that our success to date is due in large part to our
+advertising strategies and methods. Our in-house marketing and advertising team
+has developed a comprehensive program to promote the Skechers brand name through
+lifestyle and image advertising. We have made a conscious effort to avoid the
+association of the Skechers name with any single category of shoe to provide
+merchandise flexibility and to aid the ability to take the brand and product
+design in the direction of evolving footwear fashions and consumer preferences.
+We use a variety of media for our national advertising. Print efforts are
+represented by one and two page ads displayed in popular fashion and lifestyle
+consumer publications that appeal to our target customer group. Our progressive
+television advertisements are primarily produced in-house and air frequently on
+top television shows. Different advertisements are created for each of the 5 to
+9, 10 to 24 and 25 to 35 year old consumer groups.
+Certain of our retail accounts feature "in-store shop" formats in which we
+provide fixtures, signage and visual merchandise assistance in a dedicated floor
+space within the store. The design of our "in store shop" utilizes our distinct
+advertising strategies to promote brand recognition and differentiate our
+presence in the store from that of our competition. The installation
+of these "in-store shops" enables us to establish premium locations within the
+retailers and we believe it aids in increased sell-through and higher maintained
+margins for our customers. Our in-house display merchandising department
+supports retailers and distributors by developing point-of-purchase advertising
+to further promote our products in stores and to leverage the brand recognition
+at the retail level.
+6
+7
+Promotions. Our in-house promotions department is also responsible for
+building national brand name recognition. Teaming up with national retailers and
+radio stations, the promotions department is responsible for cross promotions,
+which help draw customers to retail store locations.
+Public Relations. Our in-house public relations department is also
+responsible for increasing our media exposure. Our objective is to communicate
+the Skechers image to the public and news media through the active solicitation
+of fashion editorial placements, arranging interviews for our key personnel and
+coordinating local publicity and special event programs for us. During 2000, we
+received notable press coverage in print publications including the New York
+Times, the Los Angeles Times, Investors Business Daily and BusinessWeek.
+Skechers was noted in the press in BusinessWeek's top 100 hot growth companies
+and ranked in the number five position; for receiving Footwear Plus' Young
+Women's Excellence in Design award; and, in DNR, as a top footwear brand for the
+Generation Y male. With our strategy tied to promoting the newest styles
+produced by the product development team, our products are often featured in
+fashion and pop culture magazines and in a select group of films and popular
+television shows.
+Endorsements. In 2000, we signed our first celebrity endorsement agreements
+in an effort to strategically leverage and market the Skechers brand to specific
+consumer groups. We signed singer Britney Spears for an international (worldwide
+excluding the United States) print media campaign through June 2002. We signed
+actor Matt Dillon for a Skechers Collection print media campaign, which will
+appear in magazines through January 2002. We also signed actor Rob Lowe for a
+limited term print media campaign. From time to time, we may sign other
+celebrities to endorse the brand and to strategically focus marketing, but there
+are currently no other endorsements planned.
+Trade Shows. To showcase the Skechers product to footwear buyers, we
+exhibited at 21 trade shows during 2000. We pride ourselves on having innovative
+and dynamic exhibits on the show floor. Designed in-house, our state-of-the-art
+trade show exhibits feature the latest products and provide a stage show
+featuring progressive music and nightclub lighting.
+Electronic Commerce and Mail-Order Catalog. During 2000, we continued the
+production and distribution of our mail order catalog. The mail order catalog
+offers a selection of the most popular products sold at retail. Concurrent with
+the distribution of each catalog, our interactive website (www.skechers.com) is
+expanded to include the offerings of the current catalog. Our website also
+features photos, interviews and information on Skechers-sponsored events. Our
+website and mail-order catalog are intended to further enhance the Skechers
+brand image.
+DISTRIBUTION CHANNELS
+We have implemented a strategy of controlling the growth of the distribution
+channels through which our products are sold in order to protect the Skechers
+brand name, properly service customer accounts and better manage the growth of
+the business. We have limited distribution of our product to those retailers
+that we believe can best support the Skechers brand name in the market. By
+focusing on our existing accounts, we can deepen our relationships with our
+existing customers by providing a heightened level of customer service. We
+believe close relationships with our customers help us to maximize our (i)
+retail sell-through, (ii) maintained margins, (iii) inventory turns, (iv) and
+reduce our inventory markdowns and customer returns and allowances.
+Sales and Field Service Representatives. As of February 28, 2001, we had 102
+and 15 sales and field service representatives, respectively. Each of the sales
+representatives is compensated on a salary plus commission basis; the
+representatives sell Skechers products exclusively. Senior management is
+actively involved in selling to and maintaining relationships with our major
+retail accounts. For the year ended December 31, 2000, the top five sales
+persons accounted for 36.1% of our net domestic wholesale sales. One of these
+salespersons generated 14.0% of our net domestic wholesale sales for the year
+ended December 31, 2000.
+The field service representatives ensure proper presentation of our
+merchandise and point-of-purchase marketing materials. Our sales and field
+service personnel work closely with the accounts to coordinate the appropriate
+inventory level and product mix that should be carried in each store in an
+effort to help retail sell-through and enhance the customer's product margin.
+Such information is then used as a basis for developing sales projections and
+product needs for such customers. This information in turn assists us with
+scheduling production. Along with a staff of in-house customer service
+employees, we are committed to achieving customer satisfaction and to building a
+loyal customer base by providing a high level of knowledgeable, attentive and
+personalized customer service.
+Concept Stores. As of December 31, 2000, we operated 24 concept stores at
+marquee locations in major metropolitan cities. The stores are typically
+designed to create a distinctive Skechers look and feel and enhance customer
+association of the Skechers brand with current youthful lifestyle trends and
+styles. The concept stores feature modern music and lighting and present an open
+floor design to allow customers to readily view the merchandise on display.
+These concept stores serve a threefold purpose in our operating strategy. First,
+concept stores showcase a wide range of our product offerings for the current
+season, providing the customer with the entire product story. In contrast, we
+estimate that our average retail customer carries no more than 5.0% of the
+complete Skechers line.
+7
+8
+Second, retail locations are generally chosen to generate maximum marketing
+value for the Skechers brand name through signage and store front presentation.
+Third, our concept stores also serve as marketing and product testing venues by
+providing rapid product feedback. We believe that product sell-through
+information derived from our concept stores enables our sales, merchandising and
+production staff to respond quickly to market changes and new product
+introductions. We occasionally order limited production runs which may initially
+be tested in Skechers' concept stores. By working closely with store personnel,
+we obtain customer feedback that often influences product design and
+development. We believe that sales in our retail stores can help forecast sales
+in national retail stores. Such responses serve to augment sales and limit our
+inventory markdowns and customer returns and allowances. We adjust our product
+and sales strategy based upon seven to 14 days of retail sales information.
+We seek to instill enthusiasm and dedication in our concept store management
+personnel and sales associates through incentive programs and regular
+communication with store personnel. Sales associates receive commissions on
+sales with a guaranteed minimum compensation. Concept store managers receive
+base compensation plus incentive compensation based on sales. We have
+well-established concept store operating policies and procedures and utilizes an
+in-store training regimen for all new store employees. Merchandise presentation
+instructions and detailed product descriptions also are provided to sales
+associates to enable them to gain familiarity with Skechers product offerings.
+Factory and Warehouse Outlet Stores. As of December 31, 2000, we also
+operated 28 factory and warehouse outlet stores that enable us to liquidate
+excess, discontinued and odd-size inventory in a cost-efficient manner.
+Inventory in these stores is supplemented by certain first-line styles sold at
+full retail price points. The factory outlet stores are generally located in
+manufacturers' outlet centers throughout the country. Our factory outlet stores
+have enabled us to increase sales in certain geographic markets where our
+products were not previously available and to consumers who favor value-oriented
+retailers. The outlets provide opportunities for us to sell discontinued and
+excess merchandise, thereby reducing the need to sell such merchandise to
+discounters at excessively low prices. Our free-standing warehouse outlet stores
+enable us to liquidate other excess merchandise, discontinued lines and odd
+sizes. We strive to geographically position our factory and warehouse outlet
+stores to areas not supported by traditional footwear retailers that would carry
+our brand.
+Other Direct Distribution Outlets. Our mail-order catalog and website act as
+sales vehicles. We believe that these distribution channels will not become a
+significant portion of total revenues for us in the near term; however, we
+believe that they may present attractive long-term opportunities with minimal
+near-term costs.
+INTERNATIONAL OPERATIONS
+Although our primary focus is on the domestic market, we presently market our
+products in countries and territories in Europe, Asia and selected other foreign
+regions. We derive revenues and earnings from outside the United States from
+three principal sources: (i) sales of our footwear directly to foreign
+distributors who distribute such footwear to department stores and specialty
+retail stores, (ii) in France and Germany, we sell footwear directly to
+department stores and specialty retail stores and (iii) to a lesser extent,
+royalties from licensees who manufacture and distribute our products outside the
+United States.
+We believe that international distribution of our products may represent a
+significant opportunity to increase revenues and profits. Although we are in the
+early stages of our international expansion, our products are currently sold in
+more than 100 countries and territories. Our goal is to increase international
+sales, through both foreign distributors and directly, by heightening our
+international marketing presence in those countries. During 2000, we continued
+our international advertising campaigns, which are designed to establish
+Skechers as a global brand synonymous with casual shoes. We are also exploring
+further direct sales to retailers in certain European countries. In February
+2001, we announced the creation of Skechers USA Ltd., a subsidiary with its
+headquarters in London, England. Skechers USA Ltd. will organize its operations
+in the United Kingdom and Ireland and establish direct control over wholesale
+distribution, merchandising, and marketing in that region. In addition, we are
+selectively opening flagship retail stores internationally on our own or through
+joint ventures. In February and March 2001, we opened our first flagship retail
+stores on Oxford Street in London and in the prestigious Centro Mall in
+Oberhausen, Germany, respectively. We also plan to open a flagship store at the
+Forum Les Halles in Paris by the end of Spring 2001.
+DISTRIBUTION FACILITY
+We believe that strong distribution support is a critical factor in our
+operations. Once manufactured, our products are packaged in shoe boxes bearing
+bar codes and either shipped to our approximately 962,000 square feet of
+Skechers managed distribution centers located in Ontario, California, or shipped
+directly from the manufacturer to our international customers. During 2000, we
+increased our distribution capacity with the purchase of an approximately
+264,000 square foot distribution center located in Ontario, California. We lease
+the remaining distribution space of approximately 698,000 square feet.
+8
+9
+POTENTIAL LICENSING ARRANGEMENTS
+We believe that selective licensing of the Skechers brand name to
+non-footwear-related manufacturers may broaden and enhance the Skechers image
+without requiring significant capital investments or additional incremental
+operating expenses by us. From time to time, we have experimented with certain
+manufacturers on a very limited basis to study the potential impact of licensing
+the brand. We periodically review potential internationally licensing
+arrangements for footwear in various geographical regions that present favorable
+business opportunities. We believe that revenues from licensing agreements will
+not provide a significant portion of our net revenues in the near term; however,
+we believe that licensing arrangements may present attractive long-term
+opportunities with minimal near-term costs.
+BACKLOG
+We generally receive the bulk of our orders for each of the spring and fall
+seasons a minimum of three months prior to the date the products are shipped to
+customers. At December 31, 2000, our backlog was $221.6 million, compared to
+$121.7 million at December 31, 1999. While backlog orders are subject to
+cancellation by customers, we have not experienced significant cancellation of
+orders in the past and we expect that substantially all the orders will be
+shipped in fiscal 2001. However, for a variety of reasons, including the timing
+of shipments, product mix of customer orders and the amount of in-season orders,
+backlog may not be a reliable measure of future sales for any succeeding period.
+INTELLECTUAL PROPERTY RIGHTS
+We own and utilize a variety of trademarks, including the Skechers trademark.
+We have a significant number of both registrations and pending applications for
+our trademarks in the United States. In addition, we have trademark
+registrations and trademark applications in approximately 81 foreign countries.
+We also have design patents, and pending design and utility patent applications,
+in both the United States and various foreign countries. We continuously look to
+increase the number of our patents and trademarks, both domestically and
+internationally, where necessary to protect valuable intellectual property. We
+regard our trademarks and other intellectual property as valuable assets and
+believe that they have significant value in the marketing of our products. We
+vigorously protect our trademarks against infringement, including through the
+use of cease and desist letters, administrative proceedings and lawsuits.
+We rely on trademark, patent, copyright, trade secret protection,
+non-disclosure agreements and licensing arrangements to establish, protect and
+enforce intellectual property rights in our logos, tradenames and in the
+design of our products. In particular, we believe that our future success will
+largely depend on our ability to maintain and protect the Skechers trademark.
+Despite our efforts to safeguard and maintain our intellectual property rights,
+we cannot assure you that we will be successful in this regard. We cannot assure
+you that third parties will not assert intellectual property claims against us
+in the future. Furthermore, we cannot assure you that our trademarks, products
+and promotional materials or other intellectual property rights do not or will
+not violate the intellectual property rights of others, that our intellectual
+property would be upheld if challenged, or that we would, in such an event, not
+be prevented from using our trademarks or other intellectual property rights.
+Such claims, if proven, could materially and adversely affect our business,
+financial condition and results of operations. In addition, although any such
+claims may ultimately prove to be without merit, the necessary management
+attention to and legal costs associated with litigation or other resolution of
+future claims concerning trademarks and other intellectual property rights could
+materially and adversely affect our business, financial condition and results of
+operations. We have sued and have been sued by third parties for infringement of
+intellectual property. It is our opinion that none of these claims have
+materially impaired our ability to utilize our trademarks.
+The laws of certain foreign countries do not protect intellectual property
+rights to the same extent or in the same manner as do the laws of the United
+States. Although we continue to implement protective measures and intend to
+defend our intellectual property rights vigorously, we cannot assure you that
+these efforts will be successful or that the costs associated with protecting
+our rights in certain jurisdictions will not be prohibitive. From time to time,
+we discover products in the marketplace that are counterfeit reproductions of
+our products or that otherwise infringe upon intellectual property rights held
+by us. We cannot assure you that actions taken by us to establish and protect
+our trademarks and other intellectual property rights will be adequate to
+prevent imitation of our products by others or to prevent others from seeking to
+block sales of our products as violating trademarks and intellectual property
+rights. If we are unsuccessful in challenging a third party's products on the
+basis of infringement of our intellectual property rights, continued sales of
+such products by that or any other third party could adversely impact the
+Skechers brand, result in the shift of consumer preferences away from us and
+generally have a material adverse effect on our business, financial condition
+and results of operations.
+9
+10
+COMPETITION
+Competition in the footwear industry is intense. Although we believe that we
+do not compete directly with any single company with respect to its entire range
+of products, our products compete with other branded products within their
+product category as well as with private label products sold by retailers,
+including some of our customers. Our utility footwear and casual shoes compete
+with footwear offered by companies such as The Timberland Company, Dr. Martens,
+Kenneth Cole Productions, Steven Madden, Ltd. and Wolverine World Wide, Inc. Our
+athletic shoes compete with brands of athletic footwear offered by companies
+such as Nike, Inc., Reebok International Ltd., Adidas-Salomon AG and New
+Balance. Our children's shoes compete with brands of children's footwear offered
+by The Stride Rite Corporation. In varying degrees, depending on the product
+category involved, we compete on the basis of style, price, quality, comfort and
+brand name prestige and recognition, among other considerations. These and other
+competitors pose challenges to our market share in our major domestic markets
+and may make it more difficult to establish Skechers in Europe, Asia and other
+international regions. We also compete with numerous manufacturers, importers
+and distributors of footwear for the limited shelf space available for the
+display of such products to the consumer. Moreover, the general availability of
+contract manufacturing capacity allows ease of access by new market entrants.
+Many of our competitors are larger, have achieved greater recognition for their
+brand names, have captured greater market share and/or have substantially
+greater financial, distribution, marketing and other resources than us. We
+cannot assure you that we will be able to compete successfully against present
+or future competitors or that competitive pressures faced by us will not have a
+material adverse effect on our business, financial condition and results of
+operations.
+EMPLOYEES
+As of February 28, 2001, we employed 1,666 persons, 917 of which were
+employed on a full-time basis and 749 of which were employed on a part-time
+basis. None of our employees are subject to a collective bargaining agreement.
+We believe that our relations with our employees are satisfactory. We offer our
+employees a discount on Skechers merchandise to encourage enthusiasm for the
+product and Skechers loyalty.
+RISK FACTORS
+In addition to the other information in this Form 10-K, the following
+factors should be considered in evaluating us and our business.
+OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO RESPOND TO CHANGING CONSUMER
+DEMANDS AND TO IDENTIFY AND INTERPRET FASHION TRENDS.
+The footwear industry is subject to rapidly changing consumer demands and
+fashion trends. Accordingly, we must identify and interpret fashion trends and
+respond in a timely manner. If we do not continue to meet changing consumer
+demands or develop successful styles in the future, then we may not be
+successful. Sometimes, we must make decisions about product designs several
+months in advance. If we fail to anticipate, identify or react appropriately to
+changes in styles and trends our failure may result in lower sales, excess
+inventories, higher inventory markdowns, and impaired brand image.
+A failure to anticipate trends may also lead to lower gross margins as a
+percentage of net sales since we may have to provide allowances and discounts to
+retailers. Conversely, if we fail to anticipate consumer demand for our
+products, we may experience inventory shortages. Inventory shortages might delay
+shipments to customers, negatively impact retailer and distributor
+relationships, and diminish brand loyalty.
+CONSUMERS MAY CONSIDER OUR BRAND OUTMODED.
+Even if we react appropriately to changes in consumer preferences, there is
+always a risk that consumers may consider our brand image to be outmoded or
+associate the brand with styles of footwear that are no longer popular. As a
+result of these risks, several footwear companies have experienced periods of
+rapid growth in revenues and earnings followed by periods of declining sales and
+losses which, in some cases, have resulted in a decision to cease doing
+business.
+OUR NEW STYLES OF FOOTWEAR MAY NOT BE POPULAR.
+We intend to market new lines of footwear in the future. Demand for and
+market acceptance of these new products are uncertain. In addition, achieving
+market acceptance for new products may require substantial marketing efforts. We
+cannot be sure that our marketing efforts will be successful or that we will
+have the funds necessary to sufficiently market the new products. Our growth and
+profitability could be materially and adversely impacted if our marketing
+efforts and new products are not successful.
+10
+11
+OUR BUSINESS MAY BE ADVERSELY AFFECTED IF ANY STYLE OF FOOTWEAR REPRESENTS A
+SUBSTANTIAL PORTION OF OUR NET SALES.
+If consumer demand for a style or group of styles that represents a
+substantial portion of our net sales decreases then our business may be
+adversely affected. In the past, we have experienced decreased consumer demand
+for a style of footwear that represented a significant portion of our sales and
+our gross sales were adversely affected as a result. This style no longer
+represents a significant portion of our sales. We now offer a broad range of
+products and no style comprised over 10% of our gross wholesale sales, net of
+discounts, for the year ended December 31, 2000. Nonetheless, it is always
+possible that fluctuations in sales of styles that represent a significant
+portion of our net sales will occur in the future. Such fluctuations could have
+harm our business.
+IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, IT COULD HAVE AN ADVERSE EFFECT ON
+OUR BUSINESS.
+In the past, we have experienced rapid growth and we intend to continue to
+pursue an aggressive growth strategy by expanding our marketing and promotion
+efforts, frequently introducing new products, broadening our lines of casual and
+performance footwear, and increasing our international market. Our growth
+strategy may place a significant strain on our finances, management and other
+resources. Our future performance will depend on various factors, including our
+ability to manage increased sales and additional retail stores, manage change in
+our domestic and international operations, attract, train, manage and retain
+management, sales, marketing and other key personnel, and continue to improve
+our operational and financial control systems, infrastructure and management
+information systems. We cannot be sure that these expansion efforts will be
+successfully completed or that they will not interfere with existing operations.
+If our management cannot manage growth effectively it could harm our business.
+WE MAY BE UNABLE TO SUSTAIN OUR PRIOR RATE OF GROWTH.
+We have grown quickly since we started our business. Our net sales
+increased at a compound annual growth rate of 39.7% from $90.8 million in 1994
+to $675.0 million in 2000. From 1999 to 2000, we experienced a 59% increase in
+net sales and 109% increase in earnings from operations. Our future rate of
+growth will depend upon, among other things, the continued success of our
+efforts to expand our footwear offerings and distribution channels. Our
+profitability in any calendar quarter depends, in part, upon the timing and
+level of advertising and trade show expenditures, and shipments of seasonal
+merchandise. Our rate of growth may decline or we may not be profitable in any
+quarter of any succeeding fiscal year. Furthermore, as our business becomes
+larger, we may not be able to maintain our prior growth rate. Our current growth
+strategy includes further penetration of existing retail accounts, opening
+retail stores in selected locations, increasing our international operations,
+and distributing in countries where we have little distribution experience or
+where our brand name is not well known. Our future success depends on various
+factors, including (i) the strength of our brand name, (ii) market success of
+current and new products, (iii) competitive conditions and our ability to manage
+increased sales and additional retail stores, (iv) the availability of desirable
+locations, and (v) increasing sales to existing customers. We cannot assure you
+that our current growth strategy or other growth strategies will be successful
+or that our sales or earnings will increase as a result of the implementation of
+such efforts.
+OUR BUSINESS MAY BE NEGATIVELY IMPACTED AS A RESULT OF CHANGES IN THE ECONOMY.
+Our industry is dependent on the general economic environment and levels of
+consumer spending which affect not only the ultimate consumer, but also
+retailers, our primary direct customers. Purchases of footwear tend to decline
+in periods of recession or uncertainty regarding future economic prospects, when
+consumer spending, particularly on discretionary items, declines. We may not be
+able to increase our sales to existing customers, open and operate new retail
+stores or increase our international operations on a profitable basis or improve
+our earnings from operations as a percentage of net sales. As a result, our
+operating results may be adversely affected by downward trends in the economy or
+the occurrence of events that adversely affect the economy in general.
+Furthermore, in anticipation of continued increases in net sales, we have
+significantly expanded our infrastructure and workforce to achieve economies of
+scale. Because these expenses are fixed in the short term, operating results and
+margins could be adversely impacted if we do not continue to grow as
+anticipated.
+OUR INTERNATIONAL SALES AND OPERATIONS COULD ADVERSELY EFFECT OUR BUSINESS.
+Substantially all of our net sales for the year ended December 31, 2000
+were derived from sales of footwear manufactured in other foreign countries,
+with most manufactured in China. We also sell our footwear in several foreign
+countries and plan to increase our international sales efforts as part of our
+growth strategy. Foreign manufacturing and sales are subject to a number of
+risks, including (i) work stoppages, (ii) transportation delays, (iii) changing
+economic conditions, (iv) expropriation, (v) international political tension,
+(vi) political and social unrest, (vii) nationalization, (viii) the imposition
+of tariffs, (ix) import and export controls and other nontariff barriers, (x)
+exposure to different legal standards (particularly with respect to intellectual
+property), (xi) compliance with foreign laws, and (xii) changes in domestic and
+foreign governmental policies. Each of these risks could harm our business.
+11
+12
+In addition, if we, or our suppliers, violate U.S. laws or regulations we
+may be subjected to extra duties, significant monetary penalties, the seizure
+and the forfeiture of the products we are attempting to import or the loss of
+our import privileges. Possible violations of U.S. laws or regulations could
+include inadequate record keeping of our imported products, misstatements or
+errors as to the origin, quota category, classification, marketing or valuation
+of our imported products, fraudulent visas, or labor violations under U.S. or
+foreign laws. These risks could render our conduct of business in a particular
+country undesirable or impractical and have a negative impact on our business,
+financial condition and results of operations. We continue to monitor the
+political and economic stability of the Asian countries with which we conduct
+business.
+WE COULD BE ADVERSELY AFFECTED IF THE CHINESE GOVERNMENT CHANGES ITS POLICIES
+TOWARDS THE UNITED STATES OR NATIONALIZES PRIVATE ENTERPRISE.
+Over the past several years, the Chinese government has pursued economic
+reform policies and has encouraged greater private economic activity and
+economic decentralization. The Chinese government may not continue to pursue
+these policies or may significantly alter them to our detriment from time to
+time without notice. Manufacturers with whom we work could be affected by
+changes in policies by the Chinese government resulting in changes in laws,
+regulations, or their interpretation, the imposition of confiscatory taxation,
+restrictions on currency conversion or imports, and changes in the sources of
+supply. These risks could harm our business.
+WE COULD SUFFER LOSSES FROM CORRUPT OR FRAUDULENT BUSINESS PRACTICES.
+Conducting business in China is inherently risky. Corruption, extortion,
+bribery, pay-offs, theft and other fraudulent practices are common in China. We
+could suffer losses from these practices if we do not implement successful
+preventative measures.
+WE COULD BE ADVERSELY BE AFFECTED BY CURRENCY FLUCTUATIONS.
+Even though we have not experienced material losses as a result of
+fluctuations in the value of foreign currencies, our net sales and cost of goods
+sold are denominated in U.S. Dollars and we do not engage in currency hedging,
+therefore we could be adversely affected by currency fluctuations in the future.
+TRADE RESTRICTIONS COULD HARM OUR BUSINESS.
+Our products are subject to certain quotas and restrictions on foreign
+products in some of the foreign countries where our footwear is sold. To date,
+these quotas have not had a material adverse effect on our business, financial
+condition or results of operations. However, the quotas or restrictions may be
+modified or altered at any time. In addition, countries where our products are
+manufactured may impose new quotas or adjust existing quotas or other
+restrictions on exported products. The United States might also impose new
+duties, tariffs and other restrictions on imported products, any of which could
+have a material adverse effect on our business, financial condition and results
+of operations. New duties, tariffs or other restrictions could also affect our
+ability to import products at our current levels or at increased levels and,
+consequently, harm our business. If tariffs or duties on our products are raised
+or made more restrictive, it may result in higher costs and could negatively
+impact our business.
+WE DEPEND ON CONTRACT MANUFACTURERS.
+Our footwear products are currently manufactured by independent contract
+manufacturers. For the year ended December 31, 2000, the top four manufacturers
+of our manufactured products produced approximately 9%-20% each of total
+purchases. We do not have long-term contracts with manufacturers and we compete
+with other footwear companies for production facilities. Although we have
+established close working relationships with our principal manufacturers, we
+must maintain those relationships and develop new relationships with additional
+manufacturers. It is possible that we may experience difficulties with these
+manufacturers, including reductions in the availability of production capacity,
+failure to meet our quality control standards, failure to meet production
+deadlines or increased manufacturing costs. This could result in cancellation of
+orders, refusal to accept deliveries or a reduction in purchase prices, any of
+which could harm our business.
+If our current manufacturers cease doing business with us, we could
+experience an interruption in the manufacture of our products, which could have
+a material adverse effect on our business, financial condition and results of
+operations. Although we believe that we could find alternative manufacturers
+within 90 to 120 days, new manufacturing relationships involve various
+uncertainties, including payment terms, costs of manufacturing, adequacy of
+manufacturing capacity, quality control, and timeliness of delivery. We may be
+unable to establish new manufacturing relationships that will be as favorable as
+the relationships we have now. If we are unable to provide products consistent
+with our standards or the manufacture of our footwear is delayed, our business
+could be harmed.
+12
+13
+OUR BUSINESS COULD BE NEGATIVELY IMPACTED IF OUR CONTRACT MANUFACTURERS VIOLATE
+THE LAW.
+We require our independent contract manufacturers to operate in compliance
+with applicable laws and regulations. We also require our manufacturers to
+certify that neither convict, forced, indentured labor (as defined under U.S.
+law) nor child labor (as defined by the manufacturer's country) is used in the
+production process, that compensation will be paid in accordance with local law
+and that the factory is in compliance with local safety regulations. Although we
+promote ethical business practices and our sourcing personnel periodically visit
+and monitor the operations of our independent contract manufacturers, we do not
+control these vendors or their labor practices. If one of our independent
+contract manufacturers violates the labor or other laws, it could result in
+adverse publicity for us and harm our business. In addition, if the United
+States Customs Service determines that laws or regulations have been violated or
+that we failed to exercise reasonable care in our obligations to comply with
+these laws or regulations we may incur significant penalties that maybe monetary
+or otherwise.
+WE ARE DEPENDENT ON KEY CUSTOMERS.
+During the year ended December 31, 2000, our net sales to our five largest
+customers accounted for approximately 26.5% of total net sales. No one customer
+accounted for 10.0% or more of net sales during the year ended December 31,
+2000. Although we have long-term relationships with many of our customers, our
+customers do not have a contractual obligation to purchase our products and we
+cannot be certain that we will be able to retain our existing major customers.
+Furthermore, the retail industry has experienced consolidation, contractions and
+closings. If there are further consolidations, contractions or closings in the
+future, we may lose customers or be unable to collect accounts receivables of
+major customers in excess of amounts that we have insured. As of December 31,
+2000, we had one customer that accounted for 15.3% of trade accounts receivable.
+If we lose a major customer, experience a significant decrease in sales to a
+major customer, or are unable to collect the accounts receivable of a major
+customer in excess of amounts insured, our business could be harmed.
+WE DO NOT HAVE NON-COMPETITION AGREEMENTS WITH OUR SALESPERSONS.
+We have entered into employment agreements with each of our salespersons.
+Although these employment agreements require our salespersons to keep certain
+information confidential, we have not entered into separate non-competition
+agreements with them. In addition, if a salesperson leaves or is terminated,
+service may be disrupted to the customers who were serviced by this salesperson.
+These factors could harm our business.
+SEASONAL FLUCTUATIONS IN DEMAND FOR FOOTWEAR AND DELIVERY DELAYS MAY AFFECT OUR
+QUARTERLY NET SALES.
+Sales of footwear products have historically been somewhat seasonal in
+nature with the strongest sales generally occurring in the third and fourth
+quarters. During 2000, we continued to address seasonal fluctuations by
+introducing new styles that addressed seasonal demands. We have experienced and
+expect to continue to experience some variability in our net sales, operating
+results and net earnings on a quarterly basis.
+Our domestic customers generally assume responsibility for scheduling
+pickup and delivery of purchased products. Delays in scheduling or pickup which
+are beyond our control could materially negatively impact our net sales and
+results of operations for any given quarter. We believe the factors which
+influence this variability include (i) the timing of our introduction of new
+footwear products, (ii) the level of consumer acceptance of new and existing
+products, (iii) general economic and industry conditions that affect consumer
+spending and retail purchasing, (iv) the timing of the placement, cancellation
+or pickup of customer orders, (v) increases in the number of employees and
+overhead to support growth, (vi) the timing of expenditures in anticipation of
+increased sales and customer delivery requirements, (vii) the number and timing
+of new retail store openings, and (viii) actions by competitors. Due to these
+and other factors, the results for any particular quarter are not necessarily
+indicative of results for the full year. This cycle and any related fluctuations
+in consumer demand could have a material adverse effect on our business,
+financial condition and results of operations.
+IF WE FAIL TO MAINTAIN APPROPRIATE LEVELS OF INVENTORY, OUR BUSINESS COULD BE
+HARMED.
+We place orders with our manufacturers for some of our products prior to
+the time we receive all of our customers' orders. We do this to minimize
+purchasing costs, the time necessary to fill customer orders, and the risk of
+non-delivery. We also maintain an inventory of certain products that we
+anticipate will be in greater demand. However, we cannot assure you that we will
+be able to sell the products we have ordered in advance from manufacturers or
+that we have in our inventory. Inventory levels in excess of customer demand may
+result in inventory write-downs and the sale of excess inventory at discounted
+prices could significantly impair our brand image and could have a material
+adverse effect on our business, financial condition and results of operations.
+13
+14
+WE MAY HAVE SIGNIFICANT CAPITAL REQUIREMENTS AND EXPENDITURES AS A RESULT OF OUR
+AGGRESSIVE GROWTH STRATEGY.
+We expect that cash flow from operations, available borrowings under our
+revolving line of credit, cash on hand and our financing arrangements will be
+sufficient to provide us with the liquidity to fund our anticipated working
+capital and capital requirements through 2001. We will, however, have
+significant working capital requirements and capital expenditures as a result of
+our aggressive growth strategy. Our future capital requirements will depend on
+factors such as (i) the levels at which we maintain inventory, (ii) the market
+acceptance of our footwear, (iii) the levels of promotion and advertising
+required to promote our footwear, (iv) the extent to which we invest in new
+product design, (v) improvements to our existing product design, and (vi) the
+number and timing of new store openings.
+If available funds are insufficient to fund our future activities, we may
+need to raise additional funds through public or private financing. We cannot be
+sure that additional financing will be available or that, if available, it can
+be obtained on terms that will be favorable to us. If we fail to obtain such
+financing, we may not be able to complete our planned expansion and our business
+could be harmed. In addition, if we raise additional capital through the sale of
+additional equity or convertible securities, our stockholders' ownership may be
+diluted.
+WE DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
+CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN EXISTING PERSONNEL, OUR BUSINESS
+COULD BE HARMED.
+Our future success depends upon the continued services of Robert Greenberg,
+Chairman of the Board and Chief Executive Officer, Michael Greenberg, President,
+and David Weinberg, Executive Vice President and Chief Financial Officer. Each
+of these officers currently has a three-year employment contract with us, each
+agreement was entered into on June 14, 1999. These agreements do not have
+non-competition provisions upon termination of employment. The loss of the
+services of any of these individuals or any other key employee could have a
+material adverse effect on our business, financial condition and results of
+operations. We maintain $5.0 million of "key man" life insurance on the life of
+Robert Greenberg. Our future success also depends on our ability to identify,
+attract and retain additional qualified personnel. Competition for employees in
+our industry is intense. Furthermore, we may not be successful in identifying,
+attracting and retaining qualified employees in the future. The loss of key
+employees or the inability to hire or retain qualified employees in the future
+could harm our business.
+ONE PRINCIPAL STOCKHOLDER IS ABLE TO CONTROL SUBSTANTIALLY ALL MATTERS REQUIRING
+A VOTE OF OUR STOCKHOLDERS.
+Robert Greenberg, Chairman of the Board and Chief Executive Officer,
+beneficially owns 72.7% of our outstanding Class B Common Stock. The holders of
+Class A Common Stock and Class B Common Stock have identical rights except that
+holders of Class A Common Stock are entitled to one vote per share while holders
+of Class B Common Stock are entitled to ten votes per share on all matters
+submitted to a vote of the stockholders. As a result, Mr. Greenberg holds
+approximately 69.0% of the aggregate number of votes eligible to be cast by our
+stockholders. Therefore, Mr. Greenberg is able to control substantially all
+matters requiring approval by our stockholders. Matters that require the
+approval of our stockholders include the election of directors and the approval
+of mergers or other business combination transactions. Mr. Greenberg also has
+control over our management and affairs. As a result of such control, certain
+transactions are not possible without the approval of Mr. Greenberg, including,
+proxy contests, tender offers, open market purchase programs, or other
+transactions that can give our stockholders the opportunity to realize a premium
+over the then-prevailing market prices for their shares of Class A Common Stock.
+The differential in the voting rights may adversely affect the value of the
+Class A Common Stock to the extent that investors or any potential future
+purchaser view the superior voting rights of the Class B Common Stock to have
+value.
+OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER, WHICH MAY CAUSE A
+DECLINE IN THE VALUE OF OUR STOCK.
+Provisions of Delaware law, our certificate of incorporation, or our bylaws
+could make it more difficult for a third party to acquire us, even if closing
+such a transaction would be beneficial to our stockholders. Mr. Greenberg's
+substantial beneficial ownership position, together with the authorization of
+Preferred Stock, the disparate voting rights between the Class A and Class B
+Common Stock, the classification of the Board of Directors and the lack of
+cumulative voting in our certificate of incorporation and bylaws, may have the
+effect of delaying, deferring or preventing a change in control, may discourage
+bids for our Class A Common Stock at a premium over the market price of the
+Class A Common Stock and may adversely affect the market price of the Class A
+Common Stock.
+WE CANNOT ASSURE YOU THAT THE TRADING MARKET FOR OUR CLASS A COMMON STOCK WILL
+REMAIN ACTIVE, AND THE PRICE OF OUR STOCK MAY BE VOLATILE.
+The market price of our Class A Common Stock has been extremely volatile.
+During 2000, our Class A Common Stock reached a high of $19.94 per share and a
+low of $3.25. On December 31, 2000, the closing market price was $15.50 per
+share. The market
+14
+15
+price for shares of our Class A Common Stock may continue to fluctuate based
+upon a number of factors, including, without limitation (i) business
+performance, (ii) news announcements, (iii) quarterly fluctuations in our
+financial results, (iv) changes in earnings estimates, (v) recommendations by
+analysts, (vi) changes in general economic and market conditions, or (vii) a
+failure to meet the expectations of securities analysts or investors in a future
+quarter. These same factors could have a material adverse effect on the market
+price of our Class A Common Stock.
+THE SALES OF SUBSTANTIAL AMOUNTS OF OUR CLASS A COMMON STOCK IN THE PUBLIC
+MARKET OR THE PROSPECT OF SUCH SALES COULD MATERIALLY AND ADVERSELY AFFECT THE
+MARKET PRICE OF THE CLASS A COMMON STOCK.
+As of March 26, 2001, we had outstanding 12,546,972 shares of Class A
+Common Stock. In addition, we had outstanding 23,505,451 shares of Class B
+Common Stock, all of which are convertible into Class A Common Stock on a
+share-for-share basis at the election of the holder or upon transfer or
+disposition to certain persons. The 12,546,972 shares of Class A Common Stock
+are eligible for sale in the public market without restriction. The 23,505,451
+shares of Class B Common Stock are restricted in nature and are saleable
+pursuant to Rule 144 under the Securities Act of 1933.
+As of March 26, 2001, Robert Greenberg, Chairman of the Board and Chief
+Executive Officer, and Michael Greenberg, President, beneficially own an
+aggregate of 18,948,619 shares of Class B Common Stock. Robert and Michael
+Greenberg have also received certain registration rights to sell shares of Class
+A Common Stock which will be issuable upon conversion of their shares of Class B
+Common Stock in the public market. Shares of Class A Common Stock reserved for
+issuance pursuant to our Stock Option Plan and the 1998 Employee Stock Purchase
+Plan have also been registered under the Securities Act of 1933.
+SPECIAL NOTE ON FORWARD LOOKING STATEMENTS AND REPORTS PREPARED BY ANALYSTS.
+The Form 10-K contains or incorporates forward-looking statements. You can
+identify these forward-looking statements by our use of the words "believes,"
+"anticipates," "plans," "expects," "endeavors," "may," "will," "intends,"
+"estimates" and similar expressions, whether in the negative or affirmative.
+Although we believe that these forward-looking statements reflect our plans,
+intentions and expectations reasonably, we may not actually achieve these plans,
+intentions or expectations. In addition, the risks included here are not
+exhaustive. Other sections of this report may include additional factors which
+could adversely impact our business and financial performance. Moreover, we
+operate in a very competitive and rapidly changing environment. New risk factors
+emerge from time to time and we cannot 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 do, from time to time, communicate with securities
+analysts, we do not disclose any material non-public information or other
+confidential commercial information to them. Accordingly, individuals should not
+assume that we agree with any statement or report issued by any analyst,
+regardless of the content of the report. Thus, to the extent that reports issued
+by securities analysts contain any projections, forecasts or opinions, such
+reports are not our responsibility.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2000/0000950148-01-000517/item13.txt b/raw/filings/0001065837/2000/0000950148-01-000517/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..458ab19b7fa785146fb4cc44eff4a45179764fec
--- /dev/null
+++ b/raw/filings/0001065837/2000/0000950148-01-000517/item13.txt
@@ -0,0 +1,6 @@
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
+The information required by this Item 13 is hereby incorporated by
+reference from our definitive proxy statement, to be filed pursuant to
+Regulation 14A within 120 days after the end of our 2000 fiscal year.
+25
+26
\ No newline at end of file
diff --git a/raw/filings/0001065837/2000/0000950148-01-000517/item9a.txt b/raw/filings/0001065837/2000/0000950148-01-000517/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001065837/2000/0000950148-01-000517/rp_note.txt b/raw/filings/0001065837/2000/0000950148-01-000517/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001065837/2000/0000950148-01-000517/rpt_disclosure.txt b/raw/filings/0001065837/2000/0000950148-01-000517/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..dc8153f7aed3867d795818a3539a7ee40f7af071
--- /dev/null
+++ b/raw/filings/0001065837/2000/0000950148-01-000517/rpt_disclosure.txt
@@ -0,0 +1,32 @@
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
+Shares of Class A Common Stock issuable upon conversion of shares of Class
+B Common Stock held by the Greenberg Family Trust and Michael Greenberg,
+President of the Company, are subject to certain registration rights. The
+Company entered into a registration rights agreement with the Greenberg Family
+Trust and Michael Greenberg pursuant to which the Company agreed that it will,
+on up to two separate occasions per year, register up to one-third of the shares
+of Class A Common Stock issuable upon conversion of their Class B Common Stock
+beneficially owned as of the closing of the Company's initial public offering of
+its Class A Common Stock by each such stockholder in any one year, provided,
+among other conditions, that the underwriters of any such offering have the
+right to limit the number of shares included in such registration. The Company
+also agreed that, if it shall cause to be filed with the Securities and Exchange
+Commission a registration statement, each such stockholder shall have the right
+to include up to one-third of the shares of Class A Common Stock issuable upon
+conversion of their Class B Common Stock beneficially owned as of the closing of
+the Company's initial public offering of its Class A Common Stock by each of
+them in such registration statement provided, among other conditions, that the
+underwriters of any such offering have the right to limit the number of shares
+included in such registration. All expenses of such registrations shall be at
+the Company's expense.
+John Quinn, a director of the Company, is a principal of the law firm of
+Riordan & McKinzie which provides legal services to the Company. During 2000,
+the Company was charged $181,111 by Riordan & McKinzie for providing legal
+services.
+The Company has entered into employment agreements with certain executive
+officers. See "Executive Compensation -- Employment Agreements."
+The Company believes that all of the foregoing transactions were on terms
+no less favorable than those that could have been received from unrelated third
+parties.
+14
+17
\ No newline at end of file
diff --git a/raw/filings/0001065837/2001/0000950148-02-000847/filing.txt b/raw/filings/0001065837/2001/0000950148-02-000847/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..14f782ae62452616e3e70d20abe7c6f5f8dafd70
--- /dev/null
+++ b/raw/filings/0001065837/2001/0000950148-02-000847/filing.txt
@@ -0,0 +1,3392 @@
+10-K405
+1
+v80061e10-k405.txt
+FORM 10-K405 FOR DECEMEBER 31, 2001
+================================================================================
+UNITED STATES
+SECURITIES AND EXCHANGE COMMISSION
+WASHINGTON, D.C. 20549
+----------------
+FORM 10-K
+----------------
+[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
+OF 1934
+FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
+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: 001-14429
+SKECHERS U.S.A., INC.
+(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
+DELAWARE 95-4376145
+(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
+INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
+228 MANHATTAN BEACH BLVD.
+MANHATTAN BEACH, CALIFORNIA 90266
+(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
+REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 318-3100
+SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
+NAME OF EACH EXCHANGE
+TITLE OF EACH CLASS ON WHICH REGISTERED
+Class A Common Stock, $0.001 par value New York Stock Exchange
+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 if disclosure of delinquent filers pursuant to Item
+405 of Regulation S-K is not contained herein, and will not be contained, to the
+best of registrant's knowledge, in definitive proxy or information statements
+incorporated by reference in Part III of the Form 10-K or any amendment to this
+Form 10-K. [X]
+The aggregate market value of the voting stock held by non-affiliates of the
+registrant based upon the closing sales price of its Class A Common Stock on
+March 25, 2002 on the New York Stock Exchange was approximately $341 million.
+The number of shares of Class A Common Stock outstanding as of March 25,
+2002 was 15,667,855.
+The number of shares of Class B Common Stock outstanding as of March 25,
+2002 was 21,246,777.
+DOCUMENTS INCORPORATED BY REFERENCE
+Portions of the Registrant's Definitive Proxy Statement issued in connection
+with the 2002 Annual Meeting of the Stockholders of the Registrant are
+incorporated by reference into Part III.
+================================================================================
+SKECHERS U.S.A., INC.
+FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
+INDEX TO ANNUAL REPORT ON FORM 10-K
+PAGE
+PART I
+Item 1. Business........................................................... 3
+Item 2. Properties.........................................................19
+Item 3. Legal Proceedings..................................................20
+Item 4. Submission of Matters to a Vote of Security Holders................21
+PART II
+Item 5. Market for Registrant's Common Equity and Related
+Stockholder Matters................................................22
+Item 6. Selected Financial Data............................................23
+Item 7. Management's Discussion and Analysis of Financial Condition
+and Results of Operations..........................................23
+Item 7a. Quantitative and Qualitative Disclosures About Market Risk.........30
+Item 8. Financial Statements and Supplementary Data........................31
+Item 9. Changes in and Disagreements With Accountants on Accounting
+and Financial Disclosure...........................................31
+PART III
+Item 10. Directors and Executive Officers of the Registrant.................32
+Item 11. Executive Compensation.............................................32
+Item 12. Security Ownership of Certain Beneficial Owners and Management.....32
+Item 13. Security Relationships and Related Transactions....................32
+PART IV
+Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....33
+Signatures...................................................................37
+Consolidated Financial Statements............................................F-1
+2
+PART I
+ITEM 1. BUSINESS
+Certain information contained in this report constitutes forward-looking
+statements which involve risks and uncertainties including, but not limited to,
+information with regard to our plans to increase the number of retail locations
+and styles of footwear, the maintenance of customer accounts and expansion of
+business with such accounts, the successful implementation of our strategies,
+future growth and growth rates and future increases in net sales, expenses,
+capital expenditures and net earnings. The words "believes," "anticipates,"
+"plans," "expects," "endeavors," "may," "will," "intends," "estimates," and
+similar expressions are intended to identify forward-looking statements. These
+forward-looking statements involve risks and uncertainties, and our actual
+results could differ materially from those anticipated in these forward-looking
+statements as a result of certain factors, including, but not limited to, those
+set forth under "Risk Factors" and elsewhere in this Report.
+GENERAL
+We design and market a collection of contemporary footwear for men, women
+and children under the Skechers brand, one of the most recognized names in the
+footwear industry. Our footwear reflects a combination of style, quality and
+value that appeals to a broad range of customers. Our shoes are sold through a
+wide range of department stores and leading specialty stores, a growing network
+of our own retail stores and our e-commerce website. Our objective is to
+continue to profitably grow our domestic operations, while leveraging our brand
+name to expand internationally.
+We seek to offer consumers a collection of fashionable footwear that
+satisfies their casual, active and dress footwear needs. Our product line
+currently consists of over 1,500 active styles that are organized in seven
+distinct collections. Our core customer is a style-conscious consumer between
+the ages of 12 and 25 who is attracted to our youthful brand image and fashion
+forward designs. Over the last several years, we have introduced and expanded
+several footwear lines that have broadened our customer base. These shoes
+combine styling themes found elsewhere in our product line with colors and
+materials that reflect a playful image appropriate for children. We have also
+recently introduced or expanded several other lines such as Skechers Collection
+and Skechers by Michelle K that appeal to young adults interested in
+sophisticated fashions for the workplace and social occasions.
+We believe that a well-recognized brand is an important element for success
+in the footwear business. We have aggressively promoted the Skechers brand
+through a comprehensive marketing campaign. This ongoing program has included
+endorsements from celebrities such as Britney Spears, Rick Fox, Robert Downey,
+Jr., Matt Dillon and Rob Lowe, print advertisements in publications such as GQ,
+Vogue and Seventeen and commercials aired on major networks and leading cable
+channels such as MTV, ESPN and Nickelodeon. We believe that this campaign, which
+is image oriented rather than product specific, has resulted in a high level of
+recognition of the Skechers brand across a variety of footwear categories.
+Product Lines
+In December 1992, we introduced our first Skechers-branded line called
+Skechers Sport Utility Footwear. Since that time, we have expanded our product
+offerings and grown our net sales while substantially increasing the breadth and
+penetration of our account base. Each of our product lines benefits from the
+umbrella of the Skechers brand, which is recognized for contemporary and
+progressive styling, quality, comfort, and affordability. To promote innovation
+and brand relevance, we manage our product lines separately by utilizing
+dedicated design and marketing teams. Our product lines share back office
+services in order to limit our operating expenses and fully utilize our
+management's vast experience in the footwear industry.
+Skechers USA. Our Skechers USA category for men and women includes six types
+of footwear: (i) Casuals, (ii) Utility, (iii) Steel Toe, (iv) Classics, (v)
+Outdoor, and (vi) Comfort (for men only).
+- The Casuals category includes "Black & Brown" boots and shoes that
+generally have a rugged, less refined design - some with
+industrial-inspired fashion features. This category is defined by the
+heavy-lugged outsole and value-oriented materials employed in the
+uppers. We design and price this category to appeal primarily to young
+persons with broad acceptance across age groups. Suggested retail price
+points range from $45.00 to $70.00 for this category.
+3
+- Our Utility styles consist of a single category of boots that are
+designed to meet the functional demands of a work boot but are marketed
+as casual footwear. The Utility outsoles are designed to be durable and
+wearable with Goodyear welted and hardened rubber outsoles. Uppers are
+constructed of thicker, better grades of heavily oiled leathers, and may
+include water-resistant or waterproof construction and/or materials,
+padded collars and Thermolite insulation. Styles include logger boots
+and demi-boots, engineer boots, motorcycle boots and six- and
+eight-eyelet work boots. Suggested retail price points range from $80.00
+to $100.00 for this category.
+- Steel Toe, an expanded category within Skechers USA, includes boots,
+shoes and athletic sneakers with steel toe construction. This category
+is designed for men and women whose jobs have certain safety
+requirements. Suggested retail price points range from $45.00 to $100.00
+for this category.
+- The Classics category of boots and shoes employ softer outsoles, which
+are often constructed of polyvinyl carbon ("PVC"). The more refined
+design of this footwear utilizes better grades of leather and linings.
+Designs are sportier than the Casuals category and feature oxfords,
+wingtips, monk straps, demi-boots and boots. Suggested retail price
+points range from $55.00 to $75.00 for this category.
+- Our Outdoor styles primarily consist of hiker-influenced constructions
+that include boots and shoes. While this category includes many comfort
+and technical performance features, we market it primarily on the basis
+of style and comfort rather than on performance. However, many of the
+technical performance features in the Outdoor category contribute to the
+level of comfort this footwear provides. Outsoles generally consist of
+molded and contoured hardened rubber. Many designs may include gussetted
+tongues to prevent penetration of water and debris, cushioned mid-soles,
+motion control devices such as heel cups, water-resistant or water-proof
+construction and materials and heavier, more durable hardware such as
+metal D-rings instead of eyelets. Uppers are generally constructed of
+heavily oiled nubuck and full-grain leathers. Suggested retail price
+points range from $55.00 to $100.00 for this category.
+- Launched in stores in Fall 2001, Skechers Comfort is the latest category
+of Skechers USA. With comfortable outsoles, more cushioned insoles and
+leather uppers, the line of stylish casuals is for trend-savvy men of
+all ages who want more edge in their black and brown footwear. Skechers
+Comfort is intended to be available in many of the same stores that
+carry Skechers USA as well as additional mid-tier and better department
+stores. Suggested retail price points range from $55.00 to $75.00 for
+this category.
+Skechers Sport. Our Skechers Sport footwear for men and women includes (i)
+Joggers, Trail runners, Sport hikers, "Terrainers" (multi-functional shoes
+inspired by cross-trainers), (ii) Court, and (iii) "Street" active sneakers. We
+distinguish our Skechers Sport category by its technical performance-inspired
+looks; however, generally we do not promote the technical performance features
+of these shoes.
+- Our Jogger, Trail runner, Sport hiker and Terrainer designs are
+lightweight constructions that include cushioned heels, polyurethane
+midsoles, phylon and other synthetic outsoles, and white leather or
+synthetic uppers such as durabuck, cordura and nylon mesh. Careful
+attention is devoted to the design, pattern and construction of the
+outsoles, which vary greatly depending on the intended use. This
+category features earth tones and athletic-inspired hues with popular
+colors in addition to the traditional athletic white. The Jogger, Trail
+runner, Sport hiker and Terrainer styles are marketed through athletic
+footwear specialty retailers as well as basic existing accounts.
+Suggested retail price points range from $40 to $80 for this
+category.
+- The Court category is inspired from classic court shoes and includes
+technical features, but is not meant to be a performance shoe. The court
+shoes feature lightweight constructions that include polyurethane and
+phylon midsoles, rubber low-profile outsoles, and some with heel airbag
+inserts for additional comfort and performance. The uppers are mostly
+mid-cut with some low tops, and constructed with better quality smooth,
+full-grain and tumbled leathers, typically in white. The court styles
+are marketed through athletic footwear specialty retailers as well as
+basic existing accounts. Suggested retail price points range from $40.00
+to $70.00 for this category.
+- Street active sneakers are everyday, everywhere casual shoes for females
+of all ages. Active sneakers are intended to be retailed through
+specialty casual shoe stores and department stores. Suggested retail
+price points range from $40.00 to $65.00 for this category.
+4
+Skechers Collection. The Skechers Collection line features stylish dress
+casual, dress and EuroSport shoes for the fashion-forward young male consumer.
+With some basic "essential" styles, this category is primarily comprised of more
+sophisticated designs influenced, in part, by prevailing trends in Italy and
+other European countries. As such, this footwear is more likely than other
+categories to be sourced from Italy and Portugal. The dress and dress casuals
+include classic tailored and fashion-forward square, rounder and pointed lasts
+in a variety of styles, such as bicycle toes, monk straps, wingtips, oxfords,
+cap toes, demi-boots and boots. The outsoles project a sleeker profile and can
+be either man-made or leather. The uppers are in high-quality leathers including
+glossy, "box," and aniline. Inspired by the latest in European fashion,
+EuroSport blends classic dress casual styling with sport to create a versatile
+and comfortable casual shoe. First delivered in 2001, EuroSport is marked by
+details, high-quality leathers and suede in multiple colorations, and
+sport-inspired rubber outsoles. We have promoted Skechers Collection with
+advertising campaigns featuring Rick Fox, Robert Downey, Jr., Matt Dillon and
+Robe Lowe. Suggested retail price points range from $65.00 to $155.00 for this
+category.
+Skechers Kids. The Skechers Kids line features a range of products including
+boots, shoes and sneakers. Comprised primarily of shoes that are designed like
+their adult counterparts but in "takedown" versions, the line offers the younger
+set the same popular styles as their older siblings and schoolmates. This
+"takedown" strategy maintains the product integrity with premium leathers,
+hardware and outsoles without the attendant costs involved in designing and
+developing new products. In addition, we adapt current fashion from our men's
+and women's lines by modifying designs and choosing colors and materials that
+are more suitable to the playful image we have established in the children's
+footwear market. Skechers Kids includes variations on Skechers Sport, Skechers
+USA and Skechers Collection adult shoes. Unique to Skechers Kids is S-Lights, a
+line of lighted footwear combining sequencing patterns and lights in the outsole
+and other areas of the shoes. Our children's footwear is offered at retail
+prices ranging from $20.00 to $50.00.
+Somethin' Else from Skechers. Launched in stores in Fall 2001, Somethin'
+Else from Skechers is a junior line that features an array of stylish shoes,
+boots and sandals. We target to 12- to 25-year old style conscious females, and
+Somethin' Else from Skechers is focused on current styling with numerous details
+and various silhouettes - including wedges and sculpted wedges. Many of the
+boots and shoes are made from more affordable materials such as man-made
+leather. Somethin' Else from Skechers is designed to be a complementary line for
+juniors who already wear Skechers USA and Skechers Sport styles. Suggested
+retail price points range from $20.00 to $70.00 for this category.
+Skechers by Michelle K. The Skechers by Michelle K line, also launched in
+stores in Fall 2001, is a designer line for trend-savvy young women between the
+ages of 18 and 34. A signature line from our head designer, Michelle Kelchak,
+the category is comprised of high fashion boots, shoes and sandals. Noticing a
+hole in the market for affordable high-fashion footwear, Michelle and her team
+of designers have created a line reflective of the latest European, Asian and
+American trends at a reasonable price and of the highest quality. Most styles
+are crafted in Italy, Portugal and Spain, with others made in Brazil. Skechers
+by Michelle K is marked by high-grade leathers, fine detailing and design and
+flattering silhouettes, including sculpted heels and lower kitten heels.
+Suggested retail price points range from $60.00 to $250.00 for this category.
+4 Wheelers by Skechers. Launched in stores in Fall 2001, 4 Wheelers by
+Skechers is a line of technical fashion roller skates for men, women and
+children. The skates incorporate our most popular sneaker uppers, including the
+Energy and Energy II, on quality aluminum and nylon chassis and polyurethane
+wheels. The uppers are in cool color combinations and feature fashion details
+such as glimmer trim for some women and girls' styles. Technical features
+include: full precision ABEC-1, 3 and 5 bearings, unique heel brake for easy
+control, durable chassis, controllable steering, and reinforced upper. Designed
+for the entire family, 4 Wheelers by Skechers are street skates that can be worn
+indoors, and are ideal for fun and fitness. We have promoted 4 Wheelers by
+Skechers with an advertising campaign featuring Britney Spears. Suggested retail
+price points for adults range from $80.00 to $100.00, and for children from
+$60.00 to $75.00.
+In addition to the previously mentioned lines, we offer seasonal sandalized
+footwear, which features open-toe and open-side constructions consistent with
+our offerings in the Skechers USA, Skechers Sport and Skechers Collection
+categories of footwear. Such footwear includes fisherman's sandals, shower
+sandals, beach sandals, slides, comfort-oriented land sandals and technically
+inspired water sport sandals. Sandalized footwear includes both leather and
+synthetic constructions and may feature suede footbeds with form-fitting
+midsoles. We typically deliver our sandalized footwear to retailers from
+February to August. Suggested retail price points range from $20.00 to $60.00
+for this category.
+PRODUCT DESIGN AND DEVELOPMENT
+Our principal goal in product design is to generate new and exciting
+footwear with contemporary and progressive styles and comfort enhancing
+performance features. All of our footwear is designed with an active, youthful
+lifestyle in mind. We design most
+5
+new styles to be fashionable and marketable to the 12 to 25 year old consumer,
+while substantially all of our lines appeal to the broader range of 5 to 40 year
+old consumers. While many of our shoes have performance features, we generally
+do not position our shoes in the marketplace as technical performance shoes.
+We believe that our product success is related in a large part to our
+ability to recognize trends in the footwear markets and to design products that
+anticipate and accommodate consumers' ever-evolving preferences. We strive to
+analyze, interpret and translate current and emerging lifestyle trends.
+Lifestyle trend information is compiled by our designers through various methods
+designed to monitor changes in culture and society, including (1) review and
+analysis of modern music, television, cinema, clothing, alternative sports and
+other trend-setting media, (2) travel to domestic and international fashion
+markets to identify and confirm current trends, (3) consultation with our retail
+customers for information on current retail selling trends, (4) participation in
+major footwear trade shows to stay abreast of popular brands, fashions and
+styles and (5) subscription to various fashion and color information services.
+In addition, a key component of our design philosophy is to continually
+reinterpret our successful styles in the Skechers image.
+The footwear design process typically begins about nine months before the
+start of a season. Our products are designed and developed by our in-house
+staff. To promote innovation and brand relevance, we utilize dedicated design
+teams that focus on each of the men's, women's and children's categories, and
+report to our senior design executives. In addition, we utilize outside design
+firms on an item-specific basis to supplement our design efforts. The design
+process is extremely collaborative; members of the design staff meet weekly with
+the heads of retail and merchandising, sales, production and sourcing to further
+refine our products to meet the particular needs of our markets.
+After a design team arrives at a consensus regarding the fashion themes for
+the coming season, the designers then translate these themes into our products.
+These interpretations include variations in product color, material structure
+and decoration, which are arrived at after close consultation with our
+production department. Prototype blueprints and specifications are created and
+forwarded to our prototype manufacturers located in Taiwan, which then forward
+design prototypes back to our domestic design team. New design concepts are
+often also reviewed by our major retail customers. Customer input not only
+allows us to measure consumer reaction to the latest designs, but also affords
+us an opportunity to foster deeper and more collaborative relationships with our
+customers. Our design teams can easily and quickly modify and refine a design
+based on customer input.
+We occasionally order limited production runs which may initially be tested
+in our concept stores. By working closely with store personnel, we obtain
+customer feedback that often influences product design and development. We
+believe that sales in our concept stores can help forecast sales in national
+retail stores. We strive to determine within seven to 14 days after initial
+introduction of a product whether there is substantial demand for the style,
+thereby aiding us in our sourcing decisions. Styles that have substantial
+consumer appeal are highlighted in upcoming collections or offered as part of
+our periodic style offerings. The ability to initially test our products allows
+us to discontinue less popular styles after only a limited production run which
+affords us an indicator of future production and a hedge to fashion risks. Also,
+we strive to monitor five- and 10-week trailing trends of orders of our retail
+account base in order to manage future production of styles that are increasing
+or decreasing in popularity. Generally, the production process takes
+approximately six months from design concept to commercialization.
+SOURCING
+Factories. Our products are produced by independent contract manufacturers
+primarily located in China and, to a lesser extent, in Italy, the Philippines,
+Brazil and various other countries. Substantially all of our products are
+manufactured in China. We do not own or operate any manufacturing facilities. We
+believe the use of independent manufacturers increases our production
+flexibility and capacity while at the same time substantially reduces capital
+expenditures and avoids the costs of managing a large production work force.
+We seek to use, whenever possible, manufacturers that have previously
+produced our footwear, which we believe enhances continuity and quality while
+controlling production costs. We attempt to monitor our selection of independent
+factories to ensure that no one manufacturer is responsible for a
+disproportionate amount of our merchandise. We source product for styles that
+account for a significant percentage of our net sales from at least four
+different manufacturers. During 2001, we had four manufacturers that accounted
+for approximately 51.9% of total purchases. No one manufacturer accounted for
+20.0% or more of our total purchases for this period. To date, we have not
+experienced difficulty in obtaining manufacturing services.
+We maintain an in-stock position for selected styles of footwear in order to
+minimize the time necessary to fill customer orders. In order to maintain an
+in-stock position, we place orders for selected footwear with our manufacturers
+prior to the time we receive customers' orders for such footwear. In order to
+reduce the risk of overstocking, we seek to assess demand for our products by
+6
+soliciting input from our customers and monitoring retail sell-through. In
+addition, we analyze historical and current sales and market data to develop
+internal product quantity forecasts which helps reduce inventory risks.
+We finance our production activities in part through the use of
+interest-bearing open purchase arrangements with certain of our Asian
+manufacturers. These facilities currently bear interest at a rate between 0.5%
+and 1.5% for 30 to 60 days financing, depending on the factory. We believe that
+the use of these arrangements affords us additional liquidity and flexibility.
+While we have long-standing relationships with many of our manufacturers and
+believe our relationships to be good, there are no long-term contracts between
+us and any of our manufacturers.
+Production Oversight. To safeguard product quality and consistency, we
+oversee the key aspects of production from initial prototype manufacture through
+initial production runs to final manufacture. Monitoring is performed
+domestically by our in-house production department and in Asia through an
+approximately 130-person staff working from our offices in China and Taiwan. We
+believe that our Asian presence allows us to negotiate supplier and manufacturer
+arrangements more effectively, decrease product turnaround time, and ensure
+timely delivery of finished footwear. In addition, we require our manufacturers
+to certify that neither convict, forced, indentured labor (as defined under U.S.
+law) nor child labor (as defined by the manufacturer's country) is used in the
+production process, that compensation will be paid according to local law and
+that the factory is in compliance with local safety regulations.
+Quality Control. We believe that quality control is an important and
+effective means of maintaining the quality and reputation of our products. Our
+quality control program is designed to ensure that finished goods not only meet
+our established design specifications, but also that all goods bearing our
+trademarks meet our standards for quality. Quality control personnel perform an
+array of inspection procedures at various stages of the production process,
+including examination and testing of prototypes of key raw materials prior to
+manufacture, samples and materials at various stages of production and final
+products prior to shipment. Our employees are on-site at each of our major
+manufacturers to oversee key phases of production. In addition, unannounced
+visits to the manufacturing sites, to further monitor compliance with our
+manufacturing specifications, are made by our employees and agents.
+ADVERTISING AND MARKETING
+Our advertising and marketing focus is to maintain and enhance recognition
+of the Skechers brand name as a casual, active youthful brand that stands for
+quality, comfort and design innovation. Senior management is directly involved
+in shaping our image and the conception, development and implementation of our
+advertising and marketing activities. We have and continue to increase our
+advertising budget consistent with projected sales, which has included such
+avenues as magazines, television, trade shows, billboards, and buses. We
+endeavor to spend approximately 8% to 10% of annual net sales in the marketing
+of Skechers footwear through advertising, promotions, public relations, trade
+shows and other marketing efforts.
+Advertising
+Substantially all of our advertising is conceived and designed by our
+in-house staff. By retaining our advertising functions in-house, we believe that
+we are able to maintain a greater degree of control over both the creative
+process and the integrity of the Skechers brand image, while realizing
+substantial cost savings compared to using outside agencies.
+We believe that our success to date is due in large part to our advertising
+strategies and methods. Our in-house advertising team has developed a
+comprehensive program to promote the Skechers brand name through lifestyle and
+image advertising. While all advertisements feature our footwear, our
+advertisements generally seek to build and increase brand awareness by linking
+the Skechers brand to youthful, contemporary lifestyles and attitudes rather
+than to market a particular footwear product. We have made a conscious effort to
+avoid the association of the Skechers name with any single category of shoe to
+provide merchandise flexibility and to aid the ability to take the brand and
+product design in the direction of evolving footwear fashions and consumer
+preferences.
+We use a variety of media for our national advertising. Print efforts are
+represented by one and two page ads displayed in popular fashion and lifestyle
+consumer publications that appeal to our target customer group, such as Spin,
+Details, Seventeen, GQ, Vibe, Rolling Stone, Vogue and many others. Our
+progressive television advertisements are primarily produced in-house and air
+frequently on top television shows on major networks and the cable channels.
+Different advertisements are created for each of the 5 to 11, 12 to 24 and 25 to
+35 year old male and female consumer groups. Our in-house media buyer
+strategically selects during which program and in which geographic area certain
+of our commercials will air in order to reach the appropriate target audience.
+Endorsements. We believe that the high profile image and diverse appeal of
+each of our celebrity endorsements will help the Skechers brand reach new
+markets. In 2000, we signed our first celebrity endorsement agreements,
+including signing singer Britney Spears for an international (worldwide
+excluding the United States) print media campaign through June 2002. We expanded
+upon our
+7
+successful relationship with Britney Spears in 2002 by signing a three-year
+worldwide licensing agreement for her to promote our collection of Britney
+Spears 4 Wheelers, which is fashioned after our 4 Wheelers by Skechers line of
+technical fashion roller skates. We also recently signed professional basketball
+player and actor Rick Fox and actor Robert Downey, Jr. to separate limited term
+worldwide print media campaigns. We previously had similar relationships with
+actors Matt Dillon and Rob Lowe. From time to time, we may sign other
+celebrities to endorse our brand name and image and to strategically focus
+marketing of our products among specific consumer groups.
+Marketing and Promotions. By applying creative sales techniques to a broad
+spectrum of mediums, the marketing and promotions team develops Skechers brand
+name recognition, serving as a catalyst for increased product sales. Skechers
+promotional strategies have encompassed in-store specials, concert promotions,
+product tie-ins and giveaways, and collaborations with national retailers and
+radio stations. Our imaginative promotions draw customers to Skechers retail
+stores and to our retail partners' locations, which results in an expanded
+customer base and strong product sell-throughs.
+Public Relations. During 2001, we received notable press coverage in print
+publications, including a Forbes cover story and being ranked ninth in
+BusinessWeek's Top 100 Growth Companies. In addition, we were noted in Money,
+Vogue, Movieline, Entertainment Weekly, Elle and Sportswear International, among
+others. We have repeatedly received recognition in the footwear industry for our
+exciting and innovative products, including Excellence in Children's Design
+Award by Footwear Plus magazine. Skechers was awarded the 2001 "Corporate Vendor
+of the Year" and "Children's Vendor of the Year" awards from Shoe Carnival. The
+Shoe Carnival awards recognize brands that have the largest sales increases and
+profit margin in the shoe chains stores throughout the retail fiscal year. With
+our strategy tied to promoting the newest styles produced by our design and
+development teams, our products are often featured in fashion and pop culture
+magazines, and in a select group of films and popular television shows. For
+example, our shoes have been prominently displayed and referenced on The Today
+Show, Oprah, Good Morning America, Dharma & Greg and Malcolm in the Middle.
+Merchandising
+Our in-house display merchandising department supports retailers and
+distributors by developing point-of-purchase advertising to further promote our
+products in our wholesale customers' stores and to leverage recognition of the
+Skechers brand name at the retail level. Our field service representatives
+coordinate with our sales department to ensure better sell-through at the retail
+level. Our representatives communicate with and visit our wholesale customers on
+a regular basis to aid in the proper visual display of our merchandise and to
+distribute and display such point-of-purchase items as signage, packaging,
+displays, counter cards, banners and other visual merchandising displays. These
+materials mirror the look and feel of our national print advertising in order to
+reinforce brand image at the point-of-purchase. We believe these efforts help
+stimulate impulse sales and repeat purchases.
+Our merchandise personnel also work closely with our wholesale customers to
+ensure the optimal exposure of our products through our shop-in-shops, which are
+exclusive selling areas within stores that offer our products and incorporate
+Skechers signage and customized fixture designs. The shop-in-shop concept
+enhances brand recognition and ensures the consistent presentation of our
+products in our wholesale customers' stores. As of December 31, 2001, our
+wholesale customers' stores included more than 300 shop-in-shops. We plan to add
+additional shop-in-shops during 2002.
+Trade Shows. To best showcase our diverse products to footwear buyers across
+the nation, we exhibited at 23 trade shows during 2001. Our dynamic,
+state-of-the-art trade show exhibits, which are designed by our in-house
+architect and feature our latest product offerings, are specially planned and
+built to accommodate each trade show and are enhanced with lifestyle images that
+capture the image of our brand. By investing in innovative displays and
+individual rooms showcasing each line, our sales force can present a sales plan
+for each line and buyers are able to truly understand the breadth and depth of
+our offerings, optimizing commitments and sales at the retail level. Our
+innovative exhibits continually win awards, including Best Booth Design at the
+World Shoe Association, February 2001.
+Internet. We also promote our brand image through our website at
+www.skechers.com to customers who directly access the Internet. This website
+currently enables us to present information on our products and store locations
+to consumers. The website is interactive, affording customers the ability to
+directly order products on the Internet and to allow us to receive and respond
+directly to customer feedback. Our website is intended to enhance the Skechers
+brand without the associated costs of advertising. Our website provides fashion
+information, provides a mechanism for customer feedback, promotes customer
+loyalty and further enhances the Skechers brand image through interactive
+content, photos, interviews and information on Skechers-sponsored events.
+8
+DOMESTIC SALES AND DISTRIBUTION CHANNELS
+Our products are sold in the United States through three primary
+distribution channels: to a network of wholesale accounts, in our own retail
+stores and, to a lesser extent, through electronic commerce on our interactive
+website. Each of these channels and the three distinct categories of our retail
+stores - concept stores, factory outlet stores and warehouse outlet stores -
+serves an integral function in the domestic distribution of our products.
+Wholesale Distribution
+As of December 31, 2001, we distributed our footwear to over 3,500
+wholesale accounts in the United States. We believe that our broad product line
+enables us to appeal to a variety of wholesale accounts, many of whom may
+operate stores within the same mall or other retail locations, because retailers
+can select those styles of ours that best satisfy the fashion, function and
+price criteria of their clients. Management has implemented a strategy of
+controlling the growth of our wholesale distribution channels. Our strategy is
+to continue offering our accounts the highest level of customer service so that
+our products will be more fully represented in existing retail locations and new
+locations within each account.
+We have approximately 100 sales and 15 field service representatives to
+service our wholesale accounts. In an effort to provide knowledgeable and
+personalized service to our wholesale accounts, the sales force is segregated
+into men's, women's and children's divisions. The men's and women's divisions
+have a combined six regional sales managers and the children's division has
+three dedicated regional sales managers. Additionally, Skechers by Michelle K,
+Skechers Collections, and 4 Wheelers by Skechers are each headed by its own
+national sales manager. Each of these sales managers reports to our Executive
+Vice President, Domestic U.S. Sales, who has over 20 years of experience in the
+branded consumer products industry. Each of the sales staff is compensated on a
+salary plus commission basis with none of the representatives selling
+competitive products. Senior management is actively involved in selling to and
+maintaining relationships with Skechers' major retail accounts.
+We believe that we have developed a loyal customer base of wholesale
+accounts through a heightened level of customer service. We believe that our
+close relationships with these accounts help us to maximize their retail
+sell-through, maintained margins and inventory turns which in turn minimizes our
+inventory markdowns and customer returns and allowances. Our field service
+representatives work with our wholesale accounts to ensure that our merchandise
+and point-of-purchase marketing materials are properly presented. Sales
+executives and merchandise personnel work closely with accounts to ensure the
+appropriate styles are purchased for specific accounts and for specific stores
+within those accounts as well as ensure that appropriate inventory levels are
+carried at each store. Such information is then utilized to help develop sales
+projections and determine the product needs of wholesale accounts. The value
+added services we provide our wholesale customers help us maintain strong
+relationships with our existing wholesale customers and attract potential new
+wholesale customers.
+Retail Stores
+We pursue our retail store strategy through our three integrated retail
+formats: the concept store, the factory outlet and the warehouse outlet store.
+Our three store format enables us to promote the full Skechers line in an
+attractive environment, appeal to a broad group of customers that are segmented
+by price points and manage inventory in an efficient and brand sensitive manner.
+In addition, most of our retail stores are profitable and have a positive effect
+on our operating results. As of December 31, 2001, we operated 29 concept
+stores, 29 factory outlet stores and 20 warehouse outlet stores in the United
+States. We plan to open between 10 to 15 retail stores during 2002.
+- Concept Stores. Our concept stores are located at either marquee
+street locations or in major shopping malls in large metropolitan
+cities. Our concept stores serve a threefold purpose in our
+operating strategy. First, concept stores serve as a showcase for a
+wide range of our product offerings for the current season,
+providing the customer with the entire product story. The concept
+stores feature modern music and lighting and present an open floor
+design to allow customers to readily view the merchandise on
+display. In contrast, we estimate that our average retail customer
+carries no more than 5.0% of the complete Skechers line. Second,
+retail locations are generally chosen to generate maximum marketing
+value for the Skechers brand name through signage, store front
+presentation and interior design. These locations include concept
+stores on 34th Street in New York City and in Santa Monica's Third
+Street Promenade. The stores are typically designed to create a
+distinctive Skechers look and feel and enhance customer association
+of the Skechers brand name with current youthful lifestyle trends
+and styles. Third, the concept stores serve as marketing and product
+testing venues that provide rapid product feedback from customers.
+We believe that product sell-through information
+9
+derived from our concept stores enables our sales, merchandising and
+production staff to respond to market changes and new product
+introductions. Such responses serve to augment sales and limit our
+inventory markdowns and customer returns and allowances. We strive
+to adjust our product and sales strategy based upon seven to 14 days
+of retail sales information.
+The prototypical Skechers concept store is approximately 2,500
+square feet although in certain selected markets we have opened
+concept stores as large as 7,000 square feet or as small as 1,100
+square feet. When deciding where to open concept stores, we identify
+top geographic markets in the larger metropolitan cities in the
+United States. When selecting a specific site, we evaluate the
+proposed sites' traffic pattern, co-tenancies, average sales per
+square foot achieved by neighboring concept stores, lease economics
+and other factors considered important within the specific location.
+If we are considering opening a concept store in a shopping mall,
+our strategy is to obtain space as centrally located as possible in
+the mall where we expect foot traffic to be most concentrated. We
+believe that the strength of the Skechers brand name has enabled us
+to negotiate more favorable terms with shopping malls that want us
+to open up concept stores to attract customer traffic to these
+malls. We opened two new concept stores during 2000 and five new
+concept stores during 2001.
+- Factory Outlet Stores. Our factory outlet stores are generally
+located in manufacturers' outlet centers throughout the United
+States. Our factory outlet stores provide opportunities for us to
+sell discontinued and excess merchandise, thereby reducing the need
+to sell such merchandise to discounters at excessively low prices,
+which could otherwise compromise the Skechers brand image. Skechers
+factory outlet stores range in size from approximately 1,900 to
+6,000 square feet. Inventory in these stores is supplemented by
+certain first-line styles sold at full retail price points generally
+of $60.00 or lower. We opened five new factory outlet stores during
+2000 and 11 new factory outlet stores during 2001.
+- Warehouse Outlet Stores. Our free-standing warehouse outlet stores,
+which are located throughout the United States, enable us to
+liquidate excess merchandise, discontinued lines and odd-size
+inventory in a cost-efficient manner. Skechers warehouse outlet
+stores range in size from approximately 5,600 to 14,800 square feet.
+Our warehouse outlet stores enable us to sell discontinued and
+excess merchandise that would otherwise typically be sold to
+discounters at excessively low prices, thus compromising the
+Skechers brand image. We seek to open our warehouse outlet stores in
+areas that are in close proximity to our other retail stores in
+order to facilitate the timely transfer of inventory that we want to
+liquidate as soon as practicable. We opened three new warehouse
+outlet stores during 2000 and 10 new warehouse outlet stores during
+2001.
+Electronic Commerce. Our electronic commerce sales represented less than
+1.0% of total net sales for each of 2000 and 2001. Our website,
+www.skechers.com, is a virtual storefront that promotes the Skechers brand name.
+Designed as a customer center, our website showcases our products in an
+easy-to-navigate format, allowing customers to see and purchase our footwear.
+This virtual store has become a successful additional retail distribution
+channel, has improved customer service and is a fun and entertaining
+alternative-shopping environment.
+INTERNATIONAL OPERATIONS
+We market our products in countries and territories throughout the world. We
+generate revenues from outside the United States from three principal sources:
+(1) sales of our footwear directly to foreign distributors who distribute such
+footwear to department stores and specialty retail stores in Europe, Asia, Latin
+America, South America and numerous other countries and territories, (2) in
+France, Germany and the United Kingdom, we sell footwear directly to department
+stores and specialty retail stores and through retail stores that we own and
+operate and (3) to a lesser extent, royalties from licensees who manufacture
+and distribute our products outside the United States.
+We believe that international distribution of our products represents a
+significant opportunity to increase revenues and profits. Although we are in the
+early stages of our international expansion, our products are currently sold in
+more than 100 countries and territories around the world. We intend to further
+increase our share of the international footwear market by heightening our
+marketing presence in those countries through our international advertising
+campaigns, which are designed to establish Skechers as a global brand synonymous
+with casual shoes.
+10
+Europe
+We have historically sold our footwear to selected wholesale customers in
+Europe through our foreign distributors. In 2001, we expanded our European
+operations and began to directly sell our footwear to certain wholesale accounts
+and retail stores in Europe in an effort to increase profit margins and more
+effectively market and promote the Skechers brand name. We organized Skechers
+U.S.A. Ltd. in the United Kingdom and Ireland and opened the subsidiary's
+headquarters in London to establish direct control over wholesale distribution,
+merchandising, and marketing of our products in these countries. We also
+organized Skechers U.S.A. SAS with its office in Paris, France and Skechers
+U.S.A. Deutschland GmbH with its office in Dietzenbach, Germany, with each of
+these subsidiaries formed to establish direct control over our products in their
+respective countries of organization. In 2001, we began to utilize a contract
+warehouse located in Belgium to distribute our footwear to our customers and
+retail stores in France, Germany and the United Kingdom.
+Additionally, we are beginning to selectively open flagship retail stores
+internationally on our own or through joint ventures with local distributors. In
+the first three months of 2001, we opened our first European flagship retail
+stores on Oxford Street in London, at the Forum Les Halles in Paris and in the
+prestigious Centro Mall in Oberhausen, Germany. We intend to open additional
+wholly-owned flagship retail stores in the European Union (EU) countries and
+enter into agreements with distributors to operate flagship retail stores in
+non-EU countries.
+Asia
+In December 2001, we opened our first Asian flagship retail store in
+Kichijuoji, Japan by agreement with Japanese distributor Achilles Corporation.
+Achilles Corporation is responsible for the store's operations and selecting a
+broad collection of our products to sell to Japanese consumers. In order to
+maintain a globally consistent image, we provided architectural, graphic and
+visual guidance and materials for the design of the store, and we trained the
+local staff on our products and corporate culture. We intend to expand our
+international presence and global recognition of the Skechers brand name in Asia
+by continuing to sell our footwear to foreign distributors and opening flagship
+retail stores with distributors that have local market expertise.
+LICENSING
+We believe that selective licensing of the Skechers brand name to
+non-footwear-related manufacturers may broaden and enhance the Skechers brand
+image without requiring significant capital investments or additional
+incremental operating expenses by us. Our diverse group of products presents
+many potential licensing opportunities on terms with licensees that we believe
+will provide more effective manufacturing, distribution or marketing of products
+such as accessories, backpacks and children's clothing than could be achieved
+in-house; however, we intend to be selective in granting any use of the Skechers
+brand name for such licensed products. We believe that the strength of the
+Skechers brand name and the size of our business will enable us to attract
+premier licensing partners with a proven track record of brand sensitivity. We
+are also interested in exploring the possibility of licensing our other
+trademarks and trade names for use with non-footwear products that could enable
+us to successfully enter and compete in non-footwear markets that we would not
+be likely to succeed in using the Skechers brand name and without having to
+compromise the Skechers brand image. In addition, we periodically review
+potential international licensing arrangements for footwear in various
+geographical regions that present favorable business opportunities. We intend to
+maintain substantial control over the design, manufacturing specifications,
+advertising and distribution of any licensed products and to maintain a policy
+of evaluating any future licensing arrangements to ensure consistent
+representation of the Skechers image.
+DISTRIBUTION
+We believe that strong distribution support is a critical factor in our
+operations. Once manufactured, our products are packaged in shoe boxes bearing
+bar codes and are shipped either (1) to our approximately 1.4 million square
+feet of internally managed distribution center located in Ontario, California,
+(2) to an approximately 130,000 square foot contract warehouse located in Gent,
+Belgium for distribution to our European customers and retail stores or (3)
+directly from the manufacturer to our other international customers. Upon
+receipt at the central distribution centers, merchandise is inspected and
+recorded in our management information system and packaged according to
+customers' orders for delivery. Merchandise is shipped to the customer by
+whatever means the customer requests, which is usually by common carrier. The
+central distribution centers have multi-access docks, enabling us to receive and
+ship simultaneously and to pack separate trailers for shipments to different
+customers at the same time. We have an electronic data interchange system, or
+EDI system, to which some of our larger customers are linked. This system allows
+these customers to automatically place orders with us, thereby eliminating the
+time involved in transmitting and inputting orders, and includes direct billing
+and shipping information.
+11
+The following table sets forth a summary of the facilities that comprise our
+Ontario distribution center:
+ADDRESS STATUS SQUARE FOOTAGE
+------- ------ --------------
+1661 South Vintage Avenue Leased since November 1997 127,800
+1777 South Vintage Avenue Leased since November 1997 284,600
+1670 Champagne Avenue Owned since October 2000 263,700
+4100 East Mission Blvd. Leased since June 2001 763,300
+---------
+1,439,400(1)
+=========
+----------------
+(1) Excludes 285,600 square feet located at 5725 East Jurupa Street that we
+leased in April 1998 and occupied until we subleased the facility in June
+2001.
+We believe that we have the capacity at our Ontario distribution center to
+increase our current operations to meet projected demand, and if we should ever
+need to expand our distribution facilities to allow for further growth, we
+believe there is presently enough space available in close proximity that leads
+us to believe leasing or purchasing additional property will not be a problem in
+the foreseeable future.
+BACKLOG
+We generally receive the bulk of our orders for each of the spring and fall
+seasons a minimum of three months prior to the date the products are shipped to
+customers. As of December 31, 2001, our backlog was $222.2 million, compared to
+$221.6 million as of December 31, 2000. While backlog orders are subject to
+cancellation by customers, we have not experienced significant cancellation of
+orders in the past and we expect that substantially all the orders will be
+shipped in 2002. However, for a variety of reasons, including the timing of
+shipments, product mix of customer orders and the amount of in-season orders,
+backlog may not be a reliable measure of future sales for any succeeding period.
+INTELLECTUAL PROPERTY RIGHTS
+We own and utilize a variety of trademarks, including the Skechers
+trademark. We have a significant number of both registrations and pending
+applications for our trademarks in the United States. In addition, we have
+trademark registrations and trademark applications in approximately 85 foreign
+countries. We also have design patents, and pending design and utility patent
+applications, in both the United States and various foreign countries. We
+continuously look to increase the number of our patents and trademarks, both
+domestically and internationally, where necessary to protect valuable
+intellectual property. We regard our trademarks and other intellectual property
+as valuable assets and believe that they have significant value in the marketing
+of our products. We vigorously protect our trademarks against infringement,
+including through the use of cease and desist letters, administrative
+proceedings and lawsuits.
+We rely on trademark, patent, copyright, trade secret protection,
+non-disclosure agreements and licensing arrangements to establish, protect and
+enforce intellectual property rights in our logos, tradenames and in the design
+of our products. In particular, we believe that our future success will largely
+depend on our ability to maintain and protect the Skechers trademark. Despite
+our efforts to safeguard and maintain our intellectual property rights, we
+cannot assure you that we will be successful in this regard. Furthermore, we
+cannot assure you that our trademarks, products and promotional materials or
+other intellectual property rights do not or will not violate the intellectual
+property rights of others, that our intellectual property would be upheld if
+challenged, or that we would, in such an event, not be prevented from using our
+trademarks or other intellectual property rights. Such claims, if proven, could
+materially and adversely affect our business, financial condition and results of
+operations. In addition, although any such claims may ultimately prove to be
+without merit, the necessary management attention to and legal costs associated
+with litigation or other resolution of future claims concerning trademarks and
+other intellectual property rights could materially and adversely affect our
+business, financial condition and results of operations. We have sued and have
+been sued by third parties for infringement of intellectual property. It is our
+opinion that none of these claims have materially impaired our ability to
+utilize our intellectual property rights.
+The laws of certain foreign countries do not protect intellectual property
+rights to the same extent or in the same manner as do the laws of the United
+States. Although we continue to implement protective measures and intend to
+defend our intellectual property rights vigorously, these efforts may not be
+successful or the costs associated with protecting our rights in certain
+jurisdictions may be prohibitive. From time to time, we discover products in the
+marketplace that are counterfeit reproductions of our products or that
+12
+otherwise infringe upon intellectual property rights held by us. Actions taken
+by us to establish and protect our trademarks and other intellectual property
+rights may not be adequate to prevent imitation of our products by others or to
+prevent others from seeking to block sales of our products as violating
+trademarks and intellectual property rights. If we are unsuccessful in
+challenging a third party's products on the basis of infringement of our
+intellectual property rights, continued sales of such products by that or any
+other third party could adversely impact the Skechers brand, result in the shift
+of consumer preferences away from us and generally have a material adverse
+effect on our business, financial condition and results of operations.
+COMPETITION
+Competition in the footwear industry is intense. Although we believe that we
+do not compete directly with any single company with respect to its entire range
+of products, our products compete with other branded products within their
+product category as well as with private label products sold by retailers,
+including some of our customers. Our utility footwear and casual shoes compete
+with footwear offered by companies such as The Timberland Company, Dr. Martens,
+Kenneth Cole Productions, Steven Madden, Ltd. and Wolverine World Wide, Inc. Our
+athletic shoes compete with brands of athletic footwear offered by companies
+such as Nike, Inc., Reebok International Ltd., Adidas-Salomon AG and New
+Balance. Our children's shoes compete with brands of children's footwear offered
+by The Stride Rite Corporation. In varying degrees, depending on the product
+category involved, we compete on the basis of style, price, quality, comfort and
+brand name prestige and recognition, among other considerations. These and other
+competitors pose challenges to our market share in our major domestic markets
+and may make it more difficult to establish our products in Europe, Asia and
+other international regions. We also compete with numerous manufacturers,
+importers and distributors of footwear for the limited shelf space available for
+the display of such products to the consumer. Moreover, the general availability
+of contract manufacturing capacity allows ease of access by new market entrants.
+Many of our competitors are larger, have achieved greater recognition for their
+brand names, have captured greater market share and/or have substantially
+greater financial, distribution, marketing and other resources than us. We
+cannot assure you that we will be able to compete successfully against present
+or future competitors or that competitive pressures faced by us will not have a
+material adverse effect on our business, financial condition and results of
+operations.
+EMPLOYEES
+As of February 28, 2002, we employed 1,964 persons, 1,111 of which were
+employed on a full-time basis and 853 of which were employed on a part-time
+basis. None of our employees are subject to a collective bargaining agreement.
+We believe that our relations with our employees are satisfactory. We offer our
+employees a discount on Skechers merchandise to encourage enthusiasm for the
+product and Skechers loyalty.
+RISK FACTORS
+In addition to the other information in this Form 10-K, the following
+factors should be considered in evaluating us and our business.
+OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO RESPOND TO CHANGING CONSUMER
+DEMANDS, IDENTIFY AND INTERPRET FASHION TRENDS AND SUCCESSFULLY MARKET NEW
+PRODUCTS.
+The footwear industry is subject to rapidly changing consumer demands and
+fashion trends. Accordingly, we must identify and interpret fashion trends and
+respond in a timely manner. Demand for and market acceptance of new products are
+uncertain and achieving market acceptance for new products generally requires
+substantial product development and marketing efforts and expenditures. If we do
+not continue to meet changing consumer demands and develop successful styles in
+the future, our growth and profitability will be negatively impacted. We
+frequently make decisions about product designs and marketing expenditures
+several months in advance of the time when consumer acceptance can be
+determined. If we fail to anticipate, identify or react appropriately to changes
+in styles and trends or are not successful in marketing new products, we could
+experience excess inventories, higher than normal markdowns or an inability to
+profitably sell our products. Because of these risks, a number of companies in
+the footwear industry specifically, and the fashion and apparel industry in
+general, have experienced periods of rapid growth in revenues and earnings and
+thereafter periods of declining sales and losses, which in some cases have
+resulted in companies in these industries ceasing to do business. Similarly,
+these risks could have a severe negative effect on our results of operations or
+financial condition.
+OUR BUSINESS AND THE SUCCESS OF OUR PRODUCTS COULD BE HARMED IF WE ARE UNABLE TO
+MAINTAIN OUR BRAND IMAGE.
+Our success to date has been due in large part to the strength of our brand.
+If we are unable to timely and appropriately respond to changing consumer
+demand, our brand name and brand image may be impaired. Even if we react
+appropriately to changes in
+13
+consumer preferences, consumers may consider our brand image to be outmoded or
+associate our brand with styles of footwear that are no longer popular. In the
+past, several footwear companies have experienced periods of rapid growth in
+revenues and earnings followed by periods of declining sales and losses. Our
+business may be similarly affected in the future.
+OUR BUSINESS COULD BE HARMED IF WE FAIL TO MAINTAIN PROPER INVENTORY LEVELS.
+We place orders with our manufacturers for some of our products prior to the
+time we receive all of our customers' orders. We do this to minimize purchasing
+costs, the time necessary to fill customer orders and the risk of non-delivery.
+We also maintain an inventory of certain products that we anticipate will be in
+greater demand. However, we may be unable to sell the products we have ordered
+in advance from manufacturers or that we have in our inventory. Inventory levels
+in excess of customer demand may result in inventory write-downs, and the sale
+of excess inventory at discounted prices could significantly impair our brand
+image and have a material adverse effect on our operating results and financial
+condition. Conversely, if we underestimate consumer demand for our products or
+if our manufacturers fail to supply the quality products that we require at the
+time we need them, we may experience inventory shortages. Inventory shortages
+might delay shipments to customers, negatively impact retailer and distributor
+relationships, and diminish brand loyalty.
+WE MAY BE UNABLE TO SUCCESSFULLY EXECUTE OUR GROWTH STRATEGY OR MANAGE OR
+SUSTAIN OUR GROWTH.
+We have grown quickly since we started our business. Our ability to grow in
+the future depends upon, among other things, the continued success of our
+efforts to expand our footwear offerings and distribution channels. However, our
+rate of growth may decline or we may not be profitable in future quarters or
+fiscal years. Furthermore, as our business becomes larger, we may not be able to
+maintain our historical growth rate or effectively manage our growth. We
+anticipate that as our business grows, we will have to improve and enhance our
+overall financial and managerial controls, reporting systems and procedures. We
+may be unable to successfully implement our current growth strategy or other
+growth strategies or effectively manage our growth, any of which would
+negatively impair our net sales and earnings.
+OUR BUSINESS MAY BE NEGATIVELY IMPACTED AS A RESULT OF CHANGES IN THE ECONOMY.
+Our business depends on the general economic environment and levels of
+consumer spending that affect not only the ultimate consumer, but also
+retailers, our primary direct customers. Purchases of footwear tend to decline
+in periods of recession or uncertainty regarding future economic prospects, when
+consumer spending, particularly on discretionary items, declines. During periods
+of recession or economic uncertainty, we may not be able to maintain or increase
+our sales to existing customers, make sales to new customers, open and operate
+new retail stores, maintain sales levels at our existing stores, maintain or
+increase our international operations on a profitable basis, or maintain or
+improve our earnings from operations as a percentage of net sales. As a result,
+our operating results may be adversely and materially affected by downward
+trends in the economy or the occurrence of events that adversely affect the
+economy in general. Furthermore, in anticipation of continued increases in net
+sales, we have significantly expanded our infrastructure and workforce to
+achieve economies of scale. Because these expenses are fixed in the short term,
+our operating results and margins will be adversely impacted if we do not
+continue to grow as anticipated. For example, due in large part to the slowdown
+in the global economy, our net sales for 2001 were lower than anticipated. This
+lower level of sales adversely affected our operating results for 2001 and could
+continue to do so in 2002 and beyond.
+ECONOMIC, POLITICAL, MILITARY OR OTHER EVENTS IN A COUNTRY WHERE WE MAKE
+SIGNIFICANT SALES OR HAVE SIGNIFICANT OPERATIONS COULD INTERFERE WITH OUR
+SUCCESS OR OPERATIONS THERE AND HARM OUR BUSINESS.
+We market and sell our products and services throughout the world. The
+September 11, 2001 attacks disrupted commerce throughout the United States and
+other parts of the world. The continued threat of similar attacks throughout the
+world and the military action taken by the United States and other nations may
+cause significant disruption to commerce throughout the world. To the extent
+that such disruptions further slow the global economy or, more particularly,
+result in delays or cancellations of purchase orders for our products, our
+business and results of operations could be materially adversely affected. We
+are unable to predict whether the threat of new attacks or the responses thereto
+will result in any long-term commercial disruptions or if such activities or
+responses will have a long-term material adverse effect on our business, results
+of operations or financial condition.
+14
+WE DEPEND UPON A RELATIVELY SMALL GROUP OF CUSTOMERS FOR A LARGE PORTION OF OUR
+SALES.
+During 2001, our net sales to our five largest customers accounted for
+approximately 25.7% of total net sales. No one customer accounted for 10.0% or
+more of our net sales during 2001. As of December 31, 2001, one customer
+accounted for 10.2% of our net trade accounts receivable. Although we have
+long-term relationships with many of our customers, our customers do not have a
+contractual obligation to purchase our products and we cannot be certain that we
+will be able to retain our existing major customers. Furthermore, the retail
+industry regularly experiences consolidation, contractions and closings. If
+there are further consolidations, contractions or closings in the future, we may
+lose customers or be unable to collect accounts receivables of major customers
+in excess of amounts that we have insured. If we lose a major customer,
+experience a significant decrease in sales to a major customer, or are unable to
+collect the accounts receivable of a major customer in excess of amounts
+insured, our business could be harmed.
+OUR OPERATING RESULTS COULD BE NEGATIVELY IMPACTED IF OUR SALES ARE CONCENTRATED
+IN ANY ONE STYLE OR GROUP OF STYLES.
+If any one style or group of similar styles of our footwear were to
+represent a substantial portion of our net sales, we could be exposed to risk
+should consumer demand for such style or group of styles decrease in subsequent
+periods. We attempt to hedge this risk by offering a broad range of products,
+and no style comprised over 5.0% of our gross wholesale sales for the years
+ended either December 31, 2000 or 2001. However, this may change in the future
+and fluctuations in sales of any given style that represents a significant
+portion of our future net sales could have a negative impact on our operating
+results.
+WE RELY ON INDEPENDENT CONTRACT MANUFACTURERS AND, AS A RESULT, ARE EXPOSED TO
+POTENTIAL DISRUPTIONS IN PRODUCT SUPPLY.
+Our footwear products are currently manufactured by independent contract
+manufacturers. During 2001, the top four manufacturers of our manufactured
+products produced approximately 51.9% of our total purchases, but none
+individually accounted for more than 20.0%. We do not have long-term contracts
+with manufacturers and we compete with other footwear companies for production
+facilities. We could experience difficulties with these manufacturers, including
+reductions in the availability of production capacity, failure to meet our
+quality control standards, failure to meet production deadlines or increased
+manufacturing costs. This could result in our customers canceling orders,
+refusing to accept deliveries or demanding reductions in purchase prices, any of
+which could have a negative impact on our cash flow and harm our business.
+If our current manufacturers cease doing business with us, we could
+experience an interruption in the manufacture of our products. Although we
+believe that we could find alternative manufacturers, we may be unable to
+establish relationships with alternative manufacturers that will be as favorable
+as the relationships we have now. For example, new manufacturers may have higher
+prices, less favorable payment terms, lower manufacturing capacity, lower
+quality standards or higher lead times for delivery. If we are unable to provide
+products consistent with our standards or the manufacture of our footwear is
+delayed or becomes more expensive, our business would be harmed.
+OUR INTERNATIONAL SALES AND MANUFACTURING OPERATIONS ARE SUBJECT TO THE RISKS OF
+DOING BUSINESS ABROAD, WHICH COULD AFFECT OUR ABILITY TO SELL OR MANUFACTURE OUR
+PRODUCTS IN INTERNATIONAL MARKETS, OBTAIN PRODUCTS FROM FOREIGN SUPPLIERS OR
+CONTROL THE COSTS OF OUR PRODUCTS.
+Substantially all of our net sales during 2001 were derived from sales of
+footwear manufactured in foreign countries, with most manufactured in China and,
+to a lesser extent, in Italy, the Philippines and Brazil. We also sell our
+footwear in several foreign countries and plan to increase our international
+sales efforts as part of our growth strategy. Foreign manufacturing and sales
+are subject to a number of risks, including:
+- political and social unrest;
+- changing economic conditions;
+- international political tension and terrorism;
+- work stoppages;
+- transportation delays;
+- loss or damage to products in transit;
+- expropriation;
+15
+- nationalization;
+- the imposition of tariffs and trade duties both international
+and domestically;
+- import and export controls and other nontariff barriers;
+- exposure to different legal standards (particularly with
+respect to intellectual property);
+- compliance with foreign laws; and
+- changes in domestic and foreign governmental policies.
+In particular, because substantially all of our products are manufactured in
+China, adverse change in trade or political relations with China or political
+instability in China would severely interfere with the manufacture of our
+products and would materially adversely affect our operations.
+In addition, if we, or our foreign manufacturers, violate United States or
+foreign laws or regulations, we may be subjected to extra duties, significant
+monetary penalties, the seizure and the forfeiture of the products we are
+attempting to import or the loss of our import privileges. Possible violations
+of United States or foreign laws or regulations could include inadequate record
+keeping of our imported product, misstatements or errors as to the origin, quota
+category, classification, marketing or valuation of our imported products,
+fraudulent visas, or labor violations. The effects of these factors could render
+our conduct of business in a particular country undesirable or impractical and
+have a negative impact on our operating results.
+OUR BUSINESS COULD BE HARMED IF OUR CONTRACT MANUFACTURERS, SUPPLIERS OR
+LICENSEES VIOLATE LABOR OR OTHER LAWS.
+We require our independent contract manufacturers, suppliers and licensees
+to operate in compliance with applicable United States and foreign laws and
+regulations. Manufacturers are required to certify that neither convicted,
+forced or indentured labor (as defined under United States law) nor child labor
+(as defined by the manufacturer's country) is used in the production process,
+that compensation is paid in accordance with local law and that their factories
+are in compliance with local safety regulations. Although we promote ethical
+business practices and our sourcing personnel periodically visit and monitor the
+operations of our independent contract manufacturers, suppliers and licensees,
+we do not control them or their labor practices. If one of our independent
+contract manufacturers, suppliers or licensees violates labor or other laws or
+diverges from those labor practices generally accepted as ethical in the United
+States, it could result in adverse publicity for us, damage our reputation in
+the United States, or render our conduct of business in a particular foreign
+country undesirable or impractical, any of which could harm our business.
+OUR PLANNED EXPANSION INVOLVES A NUMBER OF RISKS THAT COULD PREVENT OR DELAY THE
+SUCCESSFUL OPENING OF NEW STORES AS WELL AS IMPACT THE PERFORMANCE OF OUR
+EXISTING STORES.
+Our ability to open and operate new stores successfully depends on many
+factors, including, among others, our ability to:
+- identify suitable store locations, the availability of which
+is outside of our control;
+- negotiate acceptable lease terms, including desired tenant
+improvement allowances;
+- source sufficient levels of inventory to meet the needs of new
+stores;
+- hire, train and retain store personnel;
+- successfully integrate new stores into our existing
+operations; and
+- satisfy the fashion preferences in new geographic areas.
+In addition, many of our new stores will be opened in regions of the United
+States in which we currently have few or no stores. The expansion into new
+markets may present competitive, merchandising and distribution challenges that
+are different from those currently encountered in our existing markets. Any of
+these challenges could adversely affect our business and results of operations.
+In addition, to the extent our new store openings are in existing markets, we
+may experience reduced net sales volumes in existing stores in those markets.
+16
+MANY OF OUR RETAIL STORES DEPEND HEAVILY ON THE CUSTOMER TRAFFIC GENERATED BY
+SHOPPING AND FACTORY OUTLET MALLS OR BY TOURISM.
+Many of our concept stores are located in shopping malls and some of our
+factory outlet stores are located in manufacturers' outlet malls where we depend
+on obtaining prominent locations in the malls and the overall success of the
+malls to generate customer traffic. We cannot control the development of new
+malls, the availability or cost of appropriate locations within existing or new
+malls or the success of individual malls. Some of our concept stores occupy
+street locations which are heavily dependent on customer traffic generated by
+tourism. Any substantial decrease in tourism resulting from the September 11,
+2001 attacks, a downturn in the economy or otherwise, is likely to adversely
+affect sales in our existing stores, particularly those with street locations.
+The effects of these factors could hinder our ability to open retail stores in
+new markets or reduce sales of particular existing stores, which could
+negatively affect our operating results.
+OUR QUARTERLY REVENUES AND OPERATING RESULTS FLUCTUATE AS A RESULT OF A VARIETY
+OF FACTORS, INCLUDING SEASONAL FLUCTUATIONS IN DEMAND FOR FOOTWEAR AND DELIVERY
+DATE DELAYS, WHICH MAY RESULT IN VOLATILITY OF OUR STOCK PRICE.
+Our quarterly revenues and operating results have varied significantly in
+the past and can be expected to fluctuate in the future due to a number of
+factors, many of which are beyond our control. For example, sales of footwear
+products have historically been somewhat seasonal in nature with the strongest
+sales generally occurring in the third and fourth quarters. Also, delays in
+scheduling or pickup of purchased products by our domestic customers could
+negatively impact our net sales and results of operations for any given quarter.
+As a result of these specific and other general factors, our operating results
+will likely vary from quarter to quarter and the results for any particular
+quarter may not be necessarily indicative of results for the full year. Any
+shortfall in revenues or net income from levels expected by securities analysts
+and investors could cause a decrease in the trading price of our Class A common
+shares.
+WE FACE INTENSE COMPETITION, INCLUDING COMPETITION FROM COMPANIES WITH
+SIGNIFICANTLY GREATER RESOURCES THAN OURS, AND IF WE ARE UNABLE TO COMPETE
+EFFECTIVELY WITH THESE COMPANIES, OUR MARKET SHARE MAY DECLINE AND OUR BUSINESS
+COULD BE HARMED.
+We face intense competition in the footwear industry from other established
+companies. A number of our competitors have significantly greater financial,
+technological, engineering, manufacturing, marketing and distribution resources
+than we do. Their greater capabilities in these areas may enable them to better
+withstand periodic downturns in the footwear industry, compete more effectively
+on the basis of price and production and more quickly develop new products. In
+addition, new companies may enter the markets in which we compete, further
+increasing competition in the footwear industry.
+We believe that our ability to compete successfully depends on a number of
+factors, including the style and quality of our products and the strength of our
+brand name, as well as many factors beyond our control. We may not be able to
+compete successfully in the future, and increased competition may result in
+price reductions, reduced profit margins, loss of market share, and inability to
+generate cash flows that are sufficient to maintain or expand our development
+and marketing of new products, which would adversely impact the trading price of
+our Class A common shares.
+OBTAINING ADDITIONAL CAPITAL TO FUND OUR OPERATIONS AND FINANCE OUR GROWTH COULD
+MAKE IT DIFFICULT FOR US TO SERVICE OUR DEBT OBLIGATIONS.
+If our working capital needs exceed our current expectations, we may need to
+raise additional capital through public or private equity offerings or debt
+financings. If we cannot raise needed funds on acceptable terms, we may not be
+able to successfully execute our growth strategy, take advantage of future
+opportunities or respond to competitive pressures or unanticipated requirements.
+To the extent we raise additional capital by issuing debt, it may become
+difficult for us to meet debt service obligations. To the extent we raise
+additional capital by issuing equity securities, our stockholders may experience
+substantial dilution. Also, any new equity securities may have greater rights,
+preferences or privileges than our existing Class A common shares.
+WE DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
+CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN EXISTING PERSONNEL, OUR BUSINESS
+COULD BE HARMED.
+Our future success depends upon the continued services of Robert Greenberg,
+Chairman of the Board and Chief Executive Officer, Michael Greenberg, President,
+and David Weinberg, Executive Vice President and Chief Financial Officer. The
+loss of the services of any of these individuals or any other key employee could
+harm us. Our future success also depends on our ability to identify, attract and
+retain additional qualified personnel. Competition for employees in our industry
+is intense and we may not be successful in attracting and retaining such
+personnel.
+17
+OUR TRADEMARKS, DESIGN PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS MAY NOT BE
+ADEQUATELY PROTECTED OUTSIDE THE U.S.
+We believe that our trademarks, design patents and other proprietary rights
+are important to our success and our competitive position. We devote substantial
+resources to the establishment and protection of our trademarks and design
+patents on a worldwide basis. In the course of our international expansion, we
+have, however, experienced conflicts with various third parties that have
+acquired or claimed ownership rights in certain trademarks similar to ours or
+have otherwise contested our rights to our trademarks. We have in the past
+successfully resolved these conflicts through both legal action and negotiated
+settlements, none of which we believe has had a material impact on our financial
+condition and results of operations. Nevertheless, we cannot assure you that the
+actions we have taken to establish and protect our trademarks and other
+proprietary rights outside the U.S. will be adequate to prevent imitation of our
+products by others or to prevent others from seeking to block sales of our
+products as a violation of the trademarks and proprietary rights of others.
+Also, we cannot assure you that others will not assert rights in, or ownership
+of, trademarks, designs and other proprietary rights of ours or that we will be
+able to successfully resolve these types of conflicts to our satisfaction. In
+addition, the laws of certain foreign countries may not protect proprietary
+rights to the same extent as do the laws of the U.S. We may face significant
+expenses and liability in connection with the protection of our intellectual
+property rights outside the U.S. and if we are unable to successfully protect
+our rights or resolve intellectual property conflicts with others, our business
+or financial condition may be adversely affected.
+OUR ABILITY TO COMPETE COULD BE JEOPARDIZED IF WE ARE UNABLE TO PROTECT OUR
+INTELLECTUAL PROPERTY RIGHTS OR IF WE ARE SUED FOR INTELLECTUAL PROPERTY
+INFRINGEMENT.
+We use trademarks on nearly all of our products and believe that having
+distinctive marks that are readily identifiable is an important factor in
+creating a market for our goods, in identifying us, and in distinguishing our
+goods from the goods of others. We consider our Skechers(R) and S Design(R)
+trademarks to be among our most valuable assets and we have registered these
+trademarks in many countries. In addition, we own many other trademarks, which
+we utilize in marketing our products. We continue to vigorously protect our
+trademarks against infringement. We also have a number of design patents
+covering components and features used in various shoes. We believe that our
+success depends primarily upon skills in design, research and development,
+production and marketing rather than upon our patent position. However, we have
+followed a policy of filing applications for United States and foreign patents
+on designs that we deem valuable.
+We believe that our patents and trademarks are generally sufficient to
+permit us to carry on our business as presently conducted. We cannot, however,
+know whether we will be able to secure patents or trademark protection for our
+intellectual property in the future or that protection will be adequate for
+future products. Further, we face the risk of ineffective protection of
+intellectual property rights in the countries where we source and distribute our
+products. We have been sued for patent and trademark infringement and cannot be
+sure that our activities do not and will not infringe on the proprietary rights
+of others. If we are compelled to prosecute infringing parties, defend our
+intellectual property, or defend ourselves from intellectual property claims
+made by others, we may face significant expenses and liability which could
+negatively impact our business or financial condition.
+ENERGY SHORTAGES, NATURAL DISASTERS OR A DECLINE IN ECONOMIC CONDITIONS IN
+CALIFORNIA COULD INCREASE OUR OPERATING EXPENSES OR ADVERSELY AFFECT OUR SALES
+REVENUE.
+A substantial portion of our operations are located in California, including
+37 of our retail stores, our headquarters in Manhattan Beach and our domestic
+distribution center in Ontario. Because California has and may in the future
+experience energy and electricity shortages, we may be subject to increased
+operating costs as a result of higher electricity and energy rates and may be
+subject to rolling blackouts which could interrupt our business. Any such impact
+could be material and adversely affect our profitability. In addition, because a
+significant portion of our net sales is derived from sales in California, a
+decline in the economic conditions in California, whether or not such decline
+spreads beyond California, could materially adversely affect our business.
+Furthermore, a natural disaster or other catastrophic event, such as an
+earthquake affecting California, could significantly disrupt our business. We
+may be more susceptible to these issues than our competitors whose operations
+are not as concentrated in California.
+ONE PRINCIPAL STOCKHOLDER IS ABLE TO CONTROL SUBSTANTIALLY ALL MATTERS REQUIRING
+A VOTE OF OUR STOCKHOLDERS AND HIS INTERESTS MAY DIFFER FROM THE INTERESTS OF
+OUR OTHER STOCKHOLDERS.
+As of December 31, 2001, Robert Greenberg, Chairman of the Board and Chief
+Executive Officer, beneficially owned 74.4% of our outstanding Class B common
+shares and members of Mr. Greenberg's immediate family beneficially owned the
+remainder of our outstanding Class B common shares. The holders of Class A
+common shares and Class B common shares have identical rights except
+18
+that holders of Class A common shares are entitled to one vote per share while
+holders of Class B common shares are entitled to ten votes per share on all
+matters submitted to a vote of our stockholders. As a result, as of December 31,
+2001, Mr. Greenberg held approximately 69.5% of the aggregate number of votes
+eligible to be cast by our stockholders and together with shares held by other
+members of his immediate family held approximately 93.4% of the aggregate number
+of votes eligible to be cast by our stockholders. Therefore, Mr. Greenberg is
+able to control substantially all matters requiring approval by our
+stockholders. Matters that require the approval of our stockholders include the
+election of directors and the approval of mergers or other business combination
+transactions. Mr. Greenberg also has control over our management and affairs. As
+a result of such control, certain transactions are not possible without the
+approval of Mr. Greenberg, including, proxy contests, tender offers, open market
+purchase programs, or other transactions that can give our stockholders the
+opportunity to realize a premium over the then-prevailing market prices for
+their shares of our Class A common shares. The differential in the voting rights
+may adversely affect the value of our Class A common shares to the extent that
+investors or any potential future purchaser view the superior voting rights of
+our Class B common shares to have value.
+OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER, WHICH MAY CAUSE A
+DECLINE IN THE VALUE OF OUR STOCK.
+Provisions of Delaware law, our certificate of incorporation, or our bylaws
+could make it more difficult for a third party to acquire us, even if closing
+such a transaction would be beneficial to our stockholders. Mr. Greenberg's
+substantial beneficial ownership position, together with the authorization of
+Preferred Stock, the disparate voting rights between the Class A common shares
+and Class B common shares, the classification of the Board of Directors and the
+lack of cumulative voting in our certificate of incorporation and bylaws, may
+have the effect of delaying, deferring or preventing a change in control, may
+discourage bids for our Class A common shares at a premium over the market price
+of the Class A common shares and may adversely affect the market price of the
+Class A common shares.
+SPECIAL NOTE ON FORWARD LOOKING STATEMENTS AND REPORTS PREPARED BY ANALYSTS.
+This Form 10-K contains forward-looking statements within the meaning of the
+Private Securities Litigation Reform Act of 1995, including statements with
+regards to our revenues, earnings, spending, margins, cash flow, orders,
+inventory, products, actions, plans, strategies and objectives. Forward-looking
+statements include, without limitation, any statement that may predict,
+forecast, indicate or simply state future results, performance or achievements,
+and may contain the words "believe," "anticipate," "expect," "estimate,"
+"intend," "plan," "project," "will be," "will continue," "will," "result,"
+"could," "may," "might," or any variations of such words with similar meanings.
+Any such statements are subject to risks and uncertainties that would cause our
+actual results to differ materially from those which are management's current
+expectations or forecasts. Such information is subject to the risk that such
+expectations or forecasts, or the assumptions underlying such exceptions or
+forecasts, become inaccurate. In addition, the risks included here are not
+exhaustive. Other sections of this report may include additional factors which
+could adversely impact our business and financial performance. Moreover, we
+operate in a very competitive and rapidly changing environment. New risk factors
+emerge from time to time and we cannot 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 do, from time to time, communicate with securities
+analysts, we do not disclose any material non-public information or other
+confidential commercial information to them. Accordingly, individuals should not
+assume that we agree with any statement or report issued by any analyst,
+regardless of the content of the report. Thus, to the extent that reports issued
+by securities analysts contain any projections, forecasts or opinions, such
+reports are not our responsibility.
+ITEM 2. PROPERTIES
+Our corporate headquarters and additional administrative offices are located
+at five premises in Manhattan Beach, California, and consist of an aggregate of
+approximately 110,000 square feet. We own and lease portions of our corporate
+headquarters and administrative offices. The leased property expires between
+August 2002 and February 2008, with options to extend in some cases,
+the current aggregate annual rent for the leased property is approximately $1.2
+million.
+Our distribution center consists of four facilities located in Ontario,
+California. The three leased facilities aggregate approximately 1,176,000 square
+feet, with an annual base rental of approximately $5.2 million. The leased
+property expires between August 2002 and May 2011, and contains rent escalation
+provisions. The owned distribution facility is approximately 264,000 square
+feet.
+All of our retail stores and showrooms are leased with terms expiring
+between January 2003 and August 2012. The leases provide for rent escalations
+tied to either increases in the lessor's operating expenses or fluctuations in
+the consumer price index in the relevant
+19
+geographical area, and in some cases a percentage of the store's gross sales in
+excess of the base annual rent. Total rent expenses related to our retail stores
+and showrooms was $9.3 million for the year ended December 31, 2001.
+In February 2001, we completed the purchase of three adjacent properties
+located in Manhattan Beach, California for a total of $4.5 million. We financed
+the purchase of the properties through internally generated funds and currently
+available short-term borrowings. We intend to build additional administrative
+offices on these properties.
+We also lease all of our administrative offices, retail stores and showrooms
+located in France, Germany, Switzerland, and the United Kingdom. The leased
+property expires at various dates between July 2002 and March 2016. Total rent
+for this leased property aggregated approximately $1.4 million during 2001.
+ITEM 3. LEGAL PROCEEDINGS
+On December 29, 1999, a complaint captioned SHAPIRO, ET AL., V. SKECHERS
+U.S.A., INC., ET AL. was filed against Skechers and two of its officers and
+directors in the United States District Court, Central District of California,
+Case No. 99-13559. The complaint is a purported class action claiming damages
+for alleged violations of the Securities Act of 1933 and the Securities Exchange
+Act of 1934. The complaint also names as defendants the underwriters for
+Skechers' June 9, 1999 initial public offering of its Class A Common Stock. On
+January 12, 2000, a complaint captioned Abraham, et al., v. Skechers U.S.A.,
+Inc., et al. was filed against Skechers and two of its officers and directors in
+the United States District Court, Central District of California, Court Case No.
+00-00471. The complaint is a purported class action claiming damages for alleged
+violations of the Securities Act of 1933 and the Securities Exchange Act of
+1934. On January 24, 2000, a complaint captioned Astrolio, et al., v. Skechers
+U.S.A., Inc., et al. was filed against Skechers and two of its officers and
+directors in the United States District Court, Central District of California,
+Case No. 00-00772. The complaint is a purported class action claiming damages
+for alleged violations of the Securities Act of 1933 and the Securities Exchange
+Act of 1934. The complaint also names the underwriters for Skechers' initial
+public offering of its Class A Common Stock as defendants in the case. On
+January 19, 2000, a complaint captioned Pugliesi, et al., v. Skechers U.S.A.,
+Inc., et al. was filed against Skechers and two of its officers and directors in
+the United States District Court, Central District of California, Case No.
+00-00631. The complaint is a purported class action claiming damages for alleged
+violations of the Securities Act of 1933 and the Securities Exchange Act of
+1934.
+All four securities actions were subsequently consolidated into one matter
+and a consolidated complaint was filed on June 1, 2000. The consolidated
+complaint named as defendants Skechers, two officers of Skechers, and the
+underwriters of Skechers' initial public offering of its Class A Common Stock on
+June 9, 1999. The class alleged in the consolidated complaint, consists of all
+persons who purchased securities in, or traceable to, Skechers' initial public
+offering of its Class A Common Stock on June 9, 1999 or thereafter on the open
+market prior to June 15, 1999.
+In response to the consolidated complaint, Skechers filed a motion to dismiss
+the entire case. On September 25, 2000, a tentative order was issued to dismiss
+the consolidated complaint in its entirety, with leave to amend, and on June 20,
+2001, an order was issued dismissing the case in its entirety with leave to
+amend. The class filed an amended complaint on or about August 3, 2001, and on
+September 26, 2001, Skechers filed a motion to dismiss the amended complaint in
+its entirety. In response to the motion, and after discussions between class
+counsel and counsel for defendants, the class agreed to dismiss with prejudice
+the entire consolidated class action as to Skechers, its two named officers and
+defendants and the underwriters. The class agreed to dismiss with prejudice
+without any settlement from defendants. Thus, the stipulation had no material
+impact on operations or financial results. A stipulation of dismissal with
+prejudice was executed by the parties in late December 2001. The court signed
+the stipulation without modification and entered the order of dismissal on
+January 30, 2002.
+On September 29, 2000, a complaint captioned MADISON TRADING LIMITED CORPORATION
+AND MERCURY INTERNATIONAL TRADING CORPORATION V. SKECHERS USA, INC., LOVITT
+FILMS, INC. AND BERT LOVITT was filed against Skechers in the United States
+District Court in Massachusetts, Civil Case No. CV-12016JLT. The lawsuit alleges
+quantum meruit, intentional interference with contract, intentional interference
+with advantageous relationship, unfair practices and declaratory relief arising
+out of a business arrangement between Skechers and inventor Bert Lovitt. The
+complaint seeks an injunction preventing Skechers from using certain technology,
+compensatory damages, exemplary damages and treble damages. The court denied the
+plaintiffs' motion for a preliminary injunction. In February 2002, all parties
+agreed to settlement in principle and as of this filing are reducing the
+settlement agreement to writing. The terms of the settlement are confidential.
+Notwithstanding, the terms will not have a material impact on the financial
+position or results of operations of Skechers.
+20
+We occasionally become involved in litigation arising from the normal course
+of business. Other than the foregoing, we believe that any liability with
+respect to pending legal actions, individually or in the aggregate, will not
+have a material adverse effect on our business, financial condition and results
+of operations.
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
+No matters were submitted to our security holders to be voted on during the
+fourth quarter of 2001.
+21
+PART II
+ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
+Our Class A Common Stock began trading on the New York Stock Exchange on
+June 9, 1999 after we completed the initial public offering of 7,000,000 shares
+of our Class A Common Stock at $11.00 per share. Our Class A Common Stock trades
+under the symbol "SKX". The following table sets forth, for the periods
+indicated, the high and low sales prices of our Class A Common Stock.
+HIGH LOW
+YEAR ENDED DECEMBER 31, 2001
+First Quarter............................. $32.20 $14.50
+Second Quarter............................ 40.30 22.80
+Third Quarter............................. 29.40 11.33
+Fourth Quarter............................ 15.05 10.00
+YEAR ENDED DECEMBER 31, 2000
+First Quarter............................. $ 7.69 $ 3.25
+Second Quarter............................ 16.31 7.50
+Third Quarter............................. 19.94 12.50
+Fourth Quarter............................ 16.75 11.44
+YEAR ENDED DECEMBER 31, 1999
+Second Quarter (1)........................ $11.81 $ 9.75
+Third Quarter............................. 10.25 4.75
+Fourth Quarter............................ 5.19 3.44
+----------
+(1) For the period from June 9, 1999 to June 30, 1999.
+As of March 25, 2002, there were 104 holders of record of our Class A
+Common Stock (including holders who are nominees for an undetermined number of
+beneficial owners) and 9 holders of record of our Class B Common Stock. These
+figures do not include beneficial owners who hold shares in nominee name. The
+Class B Common Stock is not publicly traded but each share is convertible upon
+request of the holder into one share of Class A Common Stock.
+In May 1992, we elected to be treated for federal and state income tax
+purposes as an S Corporation under Subchapter S of the Internal Revenue Code of
+1986, as amended (the "Code"), and comparable state laws. As a result, our
+earnings, since such initial election, were included in the taxable income of
+our stockholders for federal and state income tax purposes, and we were not
+subject to income tax on such earnings, other than franchise and net worth
+taxes. Prior to the closing of the initial public offering of our Class A common
+shares on June 9, 1999, we terminated our S Corporation status, and since then
+we have been treated for federal and state income tax purposes as a corporation
+under Subchapter C of the Code and, as a result, are subject to state and
+federal income taxes. By reason of our treatment as an S Corporation for federal
+and state income tax purposes, we, since inception, have provided to our
+stockholders funds for the payment of income taxes on our earnings as well as
+our conversion from an S Corporation to a C Corporation during 1999. We declared
+distributions relating to our S Corporation status of $35.4 million and $7.9
+million in 1999 and 1998, respectively. Purchasers of shares in the initial
+public offering of our Class A common shares on June 9, 1999 did not receive any
+portion of these S Corporation distributions. Since the termination of our S
+Corporation status earnings have been and will be retained for the foreseeable
+future in the operations of our business. We have not declared or paid any cash
+dividends on our Class A common shares and do not anticipate paying any cash
+dividends in the foreseeable future. Our current policy is to retain all of our
+earnings to finance the growth and development of our business.
+22
+ITEM 6. SELECTED FINANCIAL DATA
+The following tables set forth selected consolidated financial data of
+Skechers as of and for each of the years in the five-year period ended December
+31, 2001.
+SUMMARY FINANCIAL DATA
+(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
+YEARS ENDED DECEMBER 31,
+------------------------
+1997 1998 1999 2000 2001
+---- ---- ---- ---- ----
+STATEMENT OF EARNINGS DATA:
+Net sales................................. $183,827 $372,680 $424,601 $675,036 $960,385
+Gross profit.............................. 68,723 154,580 174,608 284,225 554,205
+Operating expenses:
+Selling................................ 21,584 49,983 57,332 77,451 111,401
+General and administrative............. 32,397 71,461 79,114 125,827 205,989
+Earnings from operations.................. 15,636 33,991 38,830 81,263 88,487
+Interest expense.......................... 4,186 8,631 6,554 9,230 13,852
+Earnings before income taxes.............. 11,413 25,121 32,691 72,351 75,955
+Net earnings.............................. 11,023 24,471 24,056 43,751 47,270
+PRO FORMA OPERATIONS DATA:(1)
+Earnings before income taxes.............. $ 11,413 $ 25,121 $ 32,691 $ 72,351 $ 75,955
+Income taxes.............................. 4,565 10,048 12,880 28,600 28,685
+Net earnings.............................. 6,848 15,073 19,811 43,751 47,270
+Net earnings per share:(2)
+Basic.................................. $ 0.25 $ 0.54 $ 0.62 $ 1.24 $ 1.30
+Diluted................................ $ 0.23 $ 0.49 $ 0.60 $ 1.20 $ 1.24
+Weighted average shares:(2)
+Basic.................................. 27,814 27,814 31,765 35,142 36,409
+Diluted................................ 29,614 30,610 33,018 36,563 38,059
+AS OF DECEMBER 31,
+------------------
+BALANCE SHEET DATA: 1997 1998 1999 2000 2001
+------------------- ---- ---- ---- ---- ----
+Working capital................ $17,081 $ 23,106 $ 65,003 $ 93,305 $139,972
+Total assets................... 90,881 146,284 177,914 303,400 407,486
+Total debt..................... 39,062 70,933 33,950 85,321 115,931
+Stockholders' equity........... 11,125 27,676 86,000 134,046 199,016
+----------
+(1) Reflects adjustments for federal and state income taxes as if Skechers had
+been taxed as a C Corporation rather than as an S Corporation for periods
+prior to its initial public offering on June 9, 1999.
+(2) Basic earnings per share represents net earnings divided by the
+weighted-average number of common shares outstanding for the period. Diluted
+earnings per share reflects the potential dilution that could occur if
+options to issue common stock were exercised or converted into common stock.
+The weighted average diluted shares outstanding gives effect to the sale by
+Skechers of those shares of common stock necessary to fund the payment of
+(i) stockholder distributions paid or declared from January 1, 1998 to June
+7, 1999, the S Corporation termination date, in excess of (ii) the S
+Corporation earnings from January 1, 1998 to December 31, 1998 for 1996
+through 1998, and January 1, 1999 to June 7, 1999 for 1999, based on an
+initial public offering price of $11 per share, net of underwriting
+discounts.
+ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
+OF OPERATIONS
+Certain information contained in the following Management's Discussion and
+Analysis of Financial Condition and Results of Operations constitute
+forward-looking statements within the meaning of the Securities Act and the
+Securities Exchange Act, which can be identified by the use of forward-looking
+terminology such as "believes," "anticipates," "plans," "expects," "endeavors,"
+"may," "will," "intends," "estimates" and similar expressions that are intended
+to identify forward-looking statements. These forward-looking statements involve
+risks and uncertainties, and our actual results may differ materially from the
+results discussed in the forward-looking statements as a result of certain
+factors set forth in "Risk Factors" and elsewhere in this report.
+23
+OVERVIEW
+We design, market and sell contemporary footwear for men, women and children
+under the Skechers brand. Our footwear is sold through a wide range of
+department stores and leading specialty retail stores, a growing network of our
+own retail stores and our e-commerce website. Our objective is to continue to
+profitably grow our domestic operations, while leveraging our brand name to
+expand internationally.
+We generate revenues from three principal sources:
+- WHOLESALE. We sell footwear directly to department stores and specialty
+retail stores both domestically and internationally.
+- RETAIL. We own and operate our own retail stores both domestically and,
+on a smaller scale, internationally through three integrated retail
+formats. Our retail formats are as follows:
+Concept Stores. Our concept stores are located in marquee street
+locations and high performing regional malls, promote awareness of
+the Skechers brand and showcase a broad assortment of our in-season
+footwear styles.
+Factory Outlet Stores. Our factory outlet stores are generally
+located in manufacturers' outlet centers and provide opportunities
+to sell an assortment of in-season, discontinued and excess
+merchandise at lower price points.
+Warehouse Outlet Stores. Our freestanding warehouse outlet stores
+appeal to our most value conscious customers and enable us to
+liquidate excess merchandise, discontinued lines and odd-size
+inventory in a cost-efficient manner.
+- DISTRIBUTORS. Internationally, we sell our footwear to our foreign
+distributors who distribute such footwear to department stores and
+specialty retail stores in Europe, Asia, Latin America, South America
+and numerous other countries and territories.
+The substantial portion of our revenues are derived from domestic wholesale
+sales. Typically, retail sales achieve higher gross margins as a percentage of
+net sales than wholesale sales. Sales through foreign distributors result in
+lower gross margins as a percentage of net sales than retail or wholesale sales.
+None of our domestic retail sales, international wholesale sales, international
+retail sales, or international distributor sales comprised more than 10% of our
+consolidated net sales for either fiscal 1999, 2000 or 2001.
+We have implemented a strategy of controlling the growth of the distribution
+channels through which our products are sold in order to protect the Skechers
+brand name, properly secure customer accounts and better manage the growth of
+the business. We seek wholesale accounts that we believe can best support the
+Skechers brand name in the market as part of our efforts to expand our wholesale
+distribution. We seek to selectively open retail stores in high profile, high
+traffic locations in major metropolitan areas both domestically and
+internationally. Domestically, we are currently planning to open approximately
+10 to 15 retail stores during fiscal 2002 as compared to 26 in fiscal 2001. We
+seek to increase the number of international wholesale accounts which we sell
+directly to, thereby reducing our reliance on foreign distributors and may seek
+to open additional international retail stores on a selected basis.
+We have realized rapid growth since inception, increasing net sales at a
+compound annual growth rate of 40.1% from $90.8 million in 1994 to $960.4
+million in 2001. This momentum continued into 2001 with a 42.3% increase in
+sales and an 8.0% increase in net earnings compared to 2000. However, given the
+current global economic environment and the world events triggered on September
+11, 2001, we currently do not anticipate achieving similar sales growth during
+the year ending December 31, 2002. Based on our current estimates, we anticipate
+sales levels during the first six months of fiscal 2002 to be consistent with
+the first six months of fiscal 2001, and any sales growth to be realized during
+the second half of 2002. These estimates may be affected by the continued threat
+of terrorist attacks throughout the world and any military action taken by the
+United States and other nations that could cause additional significant
+disruption to commerce throughout the world.
+As our sales growth accelerated, we focused on investing in our
+infrastructure to support continued expansion in a disciplined manner. During
+2000, we expanded our distribution and administrative facilities, hired
+additional personnel, developed product sourcing and quality control offices in
+China and Taiwan, upgraded our management information systems, opened additional
+retail stores and expanded the offerings available through our web site. During
+2001, we made planned infrastructure additions to support the addition of 26 new
+domestic retail stores, commenced our international expansion with the
+establishment of international subsidiaries in the United Kingdom, France and
+Germany to manage our direct selling efforts in those areas, opened our first
+three
+24
+international flagship retail stores and increased the number of product lines
+to expand the breadth of our product offerings. The fixed costs incurred during
+this expansion period have not yet been leveraged over a full year's sales. We
+established this infrastructure to achieve economies of scale in anticipation of
+continued increases in sales. Because expenses relating to this infrastructure
+are fixed, at least in the short-term, operating results and margins would be
+adversely affected if we do not achieve our anticipated sales growth. For
+example, due in large part to the slowdown in the global economy, our net sales
+in 2001 were lower than anticipated. This lower level of sales adversely
+affected our operating results for 2001 and could continue to do so in 2002 and
+beyond.
+Our gross margins have improved annually from 41.1% in 1999 to 42.1% in 2000
+to 42.3% in 2001. During the fourth quarter ended December 31, 2001, our gross
+margin was 39.7% compared to 43.3% in the same period during 2000. Given the
+continuing weak retail environment, we currently anticipate that margins during
+the first half of fiscal 2002 will be consistent with gross margins during the
+fourth quarter of fiscal 2001 and, if any, improvement to take place during the
+second half of fiscal 2002. Operating margin as a percentage of net sales
+increased from 9.1% in 1999 to 12.0% in 2000 but decreased to 9.2% during 2001.
+Increasing sales and maintaining or improving gross margins and operating
+margins depends on various factors, including, strength of our brand name,
+competitive conditions and our ability to efficiently manage sales through all
+distribution channels. In the future, our rate of growth will be dependent upon,
+among other things, the continued success of our efforts to expand our footwear
+offerings within the Skechers brand or developing alternative, successful
+brands. We can not assure you that the rate of growth will not decline in future
+periods or that we will improve or maintain gross margins or operating margins.
+Given the increase in 2001 of selling and general and administrative
+expenses on both an absolute dollar basis and as a percentage of net sales, and
+given the state of the global economy following the events of September 11,
+2001, we initiated various cost cutting measures in the fourth quarter of 2001
+to better leverage our cost infrastructure over our newly expanded operations.
+From a selling expense standpoint, we reorganized our sales force by
+consolidating some regions, which resulted in staff reductions. We also
+eliminated our mail order operations and related selling expenses associated
+with the mail order catalog, and we estimate the annual savings from these
+actions will be approximately $6.0 million in 2002. From the general and
+administrative expense standpoint, we eliminated some administrative positions
+and reduced temporary staff at our distribution center without reducing our
+order fulfillment rate.
+Notwithstanding our cost cutting measures, we remain committed to the
+overall marketing strategy that has been largely responsible for the increase in
+the market presence, product visibility and product demand over the past three
+years. We have and continue to increase our advertising budget consistent with
+projected sales, which has included such avenues as magazines, television, trade
+shows, billboards, and buses. We endeavor to spend approximately 8% to 10% of
+annual net sales in the marketing of Skechers footwear through advertising,
+promotions, public relations, trade shows and other marketing efforts.
+We believe that selective licensing of the Skechers brand name to
+non-footwear-related manufacturers may broaden and enhance the Skechers image
+without requiring us to expend significant capital investments or incur
+significant incremental operating expenses. Although we have licensed certain
+manufacturers to produce and market certain Skechers products on a limited
+basis, to date we have not derived any significant royalty income from these
+licensing arrangements. Royalty income is recognized as revenue when earned. We
+believe that revenues from licensing agreements will not be a material source of
+growth for us in the near term; however, we believe that licensing arrangements
+may present attractive long-term opportunities with minimal near-term costs.
+We contract with third parties for the manufacture of all our products. We
+do not own or operate any manufacturing facilities. In 2001, the top four
+suppliers of our products accounted for 51.9% of our total purchases, but no one
+manufacturer accounted for more than 20.0%. To date, substantially all products
+are purchased in U.S. dollars, but this may not continue to be the case. We
+believe the use of independent manufacturers increases our production
+flexibility and capacity yet at the same time allows us to substantially reduce
+capital expenditures and avoid the costs of managing a large production work
+force. Substantially all of our products are produced in China. We finance our
+production activities in part through the use of interest-bearing open purchase
+arrangements with certain of our Asian suppliers. These facilities currently
+bear interest at a rate between 0.5% and 1.5% with financing for 30 to 60 days.
+We believe that the use of these arrangements affords us additional liquidity
+and flexibility.
+YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000
+Net Sales
+Net sales for 2001 increased 42.3% to $960.4 million compared to $675.0
+million in 2000. The increase in net sales was due in part to a 37.0% increase
+in domestic wholesale revenues over 2000 levels as a result of increased sales
+in all product lines, primarily Women's Sport and Kids lines, the introduction
+of three new product lines during 2001, and additional styles added within each
+25
+product line. Domestic wholesale volume increased to 42.1 million pairs in 2001
+from 29.4 million pairs in 2000. Domestic retail sales increased 50% over 2000
+levels largely due to the addition of 26 retail stores during 2001. Net sales
+from our direct mail and web based distribution channels remained consistent in
+2001 as compared to 2000. However, in October 2001, we elected to discontinue
+our mail order and catalog operations, which represented less 1% of net sales in
+2001, although we continue to offer a selected assortment of merchandise through
+our interactive website.
+During 2001, total international sales increased 85.7% over 2000 levels.
+International sales consist of distributor sales, which increased 47.4% due to
+continued acceptance of our product offerings in the international marketplace.
+International wholesale revenues increased substantially from nominal levels in
+2000 due to marketing and advertising campaigns in support of the establishment
+of our three international subsidiaries located in the United Kingdom, France
+and Germany, where we began to sell direct to department stores and specialty
+retailers in 2001. During 2001, we generated our first international retail
+sales as we opened our first three international flagship retail stores located
+in the United Kingdom, France and Germany.
+Gross Profit
+Gross profit for 2001 was $406.2 million, an increase of 42.9% over $284.2
+million in 2000. Gross margin was 42.3% for 2001 compared to 42.1% for 2000. The
+slight margin increase was the result of reduced cargo costs partly offset by
+reduced margins during the three months ended December 31, 2001 for price
+concessions given to our wholesale customers and price reductions at our factory
+outlet and warehouse outlet stores to help stimulate inventory sell through at
+the retail level.
+Selling expenses
+Selling expenses for 2001 were $111.4 million, an increase of 43.8% over
+last year's $77.5 million. Selling expenses as a percent of net sales increased
+slightly to 11.6% from 11.5% in 2000. The increase in the level of spending was
+primarily due to increased advertising in both print and television media and
+additional advertising to support the increase in sales activities in the United
+Kingdom, Germany and France where we commenced selling direct to department
+stores and specialty retailers. During 2001 advertising expenses were $86.6
+million, or 9.0% of net sales, compared to $59.1 million, or 8.8% of net sales
+in 2000.
+General and administrative expenses
+General and administrative expenses for 2001 were $206.0 million compared to
+$125.8 million in 2000. General and administrative expenses as a percentage of
+net sales was 21.4% in 2001 compared to 18.6% in 2000. The increase in general
+and administrative expenses in absolute dollars and as a percentage of net sales
+was due to planned infrastructure additions to support the 26 domestic retail
+stores added during 2001 and to establish operating entities, and flagship
+retail stores, in the United Kingdom, France and Germany to support our direct
+selling efforts in those countries. In addition, we increased our distribution
+capacity with facility and capital asset additions and enhanced our information
+systems to support the increase in sales volume.
+Interest expense
+Interest expense increased to $13.9 million in 2001 from $9.2 million in
+2000. The increase was due to increased short-term borrowings to support our
+working capital requirements and retail store additions and increased capital
+asset financing to support the increase in sales volume and capacity expansion.
+Other income
+Other income increased to $1.3 million in 2001 compared to $318,000 in 2000.
+The increase in other income is due to rental income related to the leasing of
+offices at our administrative office building and legal settlements, partially
+offset by the disposal of fixed assets. We expect rental income to decrease
+during 2002 as tenant leases expire.
+Income taxes
+The effective tax rate in 2001 was 37.8% compared to 39.5% in 2000. The
+decrease in the effective tax rate is due to changes in income in differing tax
+jurisdictions as a result of our international expansion. We are expanding our
+international operations and plan to reinvest any undistributed earnings from
+our non-U.S. subsidiaries, thereby indefinitely postponing their remittance. As
+a result, we do not plan to provide for deferred income taxes on any accumulated
+undistributed earnings that our non-U.S. subsidiaries earn in the future.
+26
+YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
+Net sales
+Net sales for 2000 were $675.0 million, an increase of $250.4 million or
+59.0% from $424.6 million in 1999. The increase was due in large part to a 59%
+increase in our domestic wholesale revenues over 1999 levels. In addition, we
+realized a 51.5% increase in domestic wholesale units sold to 29.4 million units
+in 2000 from 19.4 million units in 1999. The increase in the domestic wholesale
+business is primarily due to expansion of the domestic sales force, continued
+consumer acceptance of our product offerings, and increased marketing campaigns.
+During 2000, we continued to introduce, and generate sales from, new product
+categories in the women's, men's, children's athletic shoes, and our men's
+quality dress line. Domestic retail sales for 2000 increased 50% from 1999
+levels due to increased sales at stores open for at least one year and
+from the addition of 10 new locations added during 2000. Net sales from our
+direct mail and web based distribution channels increased substantially in 2000
+largely due to an increase in the number of direct mailings and an increase in
+the circulation of the mailings.
+Fiscal 2000 international sales consisted almost entirely of sales through
+distributors and increased 48.4% over 1999 levels primarily due to increased
+brand acceptance and increased advertising campaigns. During 2000, we began our
+international direct selling efforts, through which we sold direct to department
+stores and specialty retainers and therefore generated nominal sales in 2000.
+Gross profit
+In 2000, gross profit increased to $284.2 million, a 62.8% increase from
+$174.6 million in 1999. Gross margin was 42.1% in 2000 compared to 41.1% in
+1999. The increase in gross margin was due to (i) an increase in the proportion
+of sales derived from our women's footwear line, which have a higher gross
+margin than the men's footwear line, (ii) fewer markdowns as a percentage of
+sales and (iii) increased sales at retail.
+Selling expenses
+Selling expenses were $77.5 million in 2000, an increase of 35.1% over $57.3
+million in 1999. However, selling expense as a percentage of net sales decreased
+to 11.5% in 2000 from 13.5% in 1999. The increase in absolute dollars was
+primarily due to increased print advertising, both internationally and
+domestically, increased promotional expenses, and additional sales commissions
+due to increased sales volume. During 2000, advertising expenses were $59.1
+million, or 8.8% of net sales, compared to $47.4 million, or 11.2% of net sales
+in 1999.
+General and administrative expenses
+General and administrative expenses in 2000 were $125.8 million compared to
+$79.1 million in 1999. As a percent of sales, general and administrative
+expenses remained at 18.6% for both 2000 and 1999. The increase in absolute
+dollars was primarily due to additional personnel costs reflected in the form of
+additional salary, wages and temporary help costs to support the higher level of
+sales, and increased warehousing and distribution costs associated with
+increased sales volume. In addition, we realized increased operating costs from
+the 10 new retail facilities added during 2000, and, although to a lesser
+extent, we incurred additional general and administrative expenses related to
+infrastructure additions to support our international operations.
+Interest expense
+Interest expense increased to $9.2 million in 2000 from $6.6 million in
+1999. The increase was due to increased financing costs associated with
+additional borrowings to support our working capital requirements, capital
+additions made during the year, increased purchases of inventory and the build
+up of accounts receivable commensurate with our growth.
+Other, net
+Other, net consists primarily of a gain from the settlement of commercial
+lawsuits and net gains from foreign exchange rate fluctuations.
+27
+Income taxes
+The 2000 effective tax rate was 39.5%, which is comparable to the pro forma
+effective rate of 39.4% in 1999. The prior years pro forma taxes represent those
+taxes that would have been reported had we been subject to federal and state
+income taxes as a C corporation for the full year. We continually review and
+evaluate various tax strategies to minimize our tax liability.
+We are expanding our international operations and plan to reinvest any
+undistributed earnings from our non-U.S. subsidiaries, thereby indefinitely
+postponing their remittance. As a result, we do not plan to provide for deferred
+income taxes on any accumulated undistributed earnings that our non-U.S.
+subsidiaries earn in the future. Assuming that our international operations are
+successful, our effective tax rates should decrease accordingly.
+LIQUIDITY AND CAPITAL RESOURCES
+Our capital needs are derived primarily from working capital requirements
+and the continued growth of the business. Our working capital at December 31,
+2001 was $140.0 million, an increase of $46.7 million over working capital of
+$93.3 million at December 31, 2000. The increase in working capital was
+primarily due to the increase in accounts receivable, inventory, and prepaid and
+other current assets consisting primarily of prepaid income taxes offset by
+increased short-term borrowings and to a lesser extent accounts payable and
+accrued expenses.
+Inventories increased $46.0 million or 41.1% to $157.7 million at December
+31, 2001, from $111.7 million at December 31, 2000. Our sales backlog of $222.2
+million at December 31, 2001 is consistent with the level at December 31, 2000.
+Our commitment to inventory at December 31, 2001, which includes inventory on
+hand, inventory in transit (for which we have title), and merchandise in
+process, for which we do not have title, increased slightly over our commitment
+to inventory at December 31, 2000. Also, the increase in our inventories
+reflects a greater breadth of products and support for the expansion of our
+international operations. At December 31, 2001, we had purchase commitments of
+approximately $89.4 million.
+Net cash used in operating activities for the year ended December 31, 2001
+was $1.7 million, compared to cash used in operating activities of $1.0 million
+for the same period last year. The increase in cash used in operating activities
+was primarily due to increases in receivables, inventories, and prepaid taxes.
+Net cash used in investing activities was $31.5 million for the year ended
+December 31, 2001, an increase of $9.7 million over the $21.8 million for the
+year ended December 31, 2000. The increase in cash used in investing activities
+was due to increased capital expenditures related to the addition of 26 domestic
+retail stores, the addition of three international stores, capital expenditures
+related to establishing our international operating units, and the acquisition
+of real properties in Manhattan Beach, California that is expected to be
+converted into an administrative office facility.
+Net cash provided by financing activities for the year ended December 31,
+2001 was $40.0 million, compared to $20.8 million for the year ended December
+31, 2000. The net cash provided by financing activities was derived primarily
+from our short-term credit facilities, and, to a lesser extent, proceeds from
+the exercise of stock options and our employee stock purchase plan, partially
+offset by reductions in long-term debt.
+In July 2001, we renegotiated our line of credit facility which now provides
+for borrowings of up to $150.0 million, with actual borrowings limited to
+available collateral and certain limitations on total indebtedness
+(approximately $54.2 million of availability as of December 31, 2001) with CIT
+Group, a subsidiary of TYCO, as agents for the lenders. At December 31, 2001,
+there was approximately $84.2 million outstanding under the revolving line of
+credit. The revolving line of credit bears interest at prime rate (4.75% at
+December 31, 2001) minus .5%. Interest on the line of credit is payable monthly
+in arrears. The revolving line of credit expires on December 31, 2003. The
+revolving line of credit provides a sub-limit for letters of credit of up to
+$30.0 million to finance our foreign purchases of merchandise inventory. As of
+December 31, 2001, we had approximately $5.4 million of letters of credit under
+the revolving line of credit. In February 2002, we borrowed an additional $ 43.0
+million under the line of credit. The credit facility contains covenants
+indicating that stockholders' equity shall not decrease by more than 20% in any
+calendar quarter, and limits the payment of dividends if we are in default of
+any provision of the agreement. We were in compliance with these covenants as of
+December 31, 2001.
+We finance our production activities in part through the use of
+interest-bearing open purchase arrangements with certain of our Asian
+manufacturers. These facilities currently bear interest at a rate between 0.5%
+and 1.5% for 30 to 60 days financing, depending on the factory.
+We believe that anticipated cash flows from operations, available borrowings
+under our revolving line of credit, cash on hand and our financing arrangements
+will be sufficient to provide us with the liquidity necessary to fund our
+anticipated working capital and
+28
+capital requirements through fiscal 2002. However, in connection with our growth
+strategy, we will incur significant working capital requirements and capital
+expenditures. Our future capital requirements will depend on many factors,
+including, but not limited to, the levels at which we maintain inventory, the
+market acceptance of our footwear, the levels of promotion and advertising
+required to promote our footwear, the extent to which we invest in new product
+design and improvements to our existing product design and the number and timing
+of new store openings. To the extent that available funds are insufficient to
+fund our future activities, we may need to raise additional funds through public
+or private financings. We cannot assure you that additional financing will be
+available or that, if available, it can be obtained on terms favorable to our
+stockholders and us. Failure to obtain such financing could delay or prevent our
+planned expansion, which could adversely affect our business, financial
+condition and results of operations. In addition, if additional capital is
+raised through the sale of additional equity or convertible securities, dilution
+to our stockholders could occur.
+CRITICAL ACCOUNTING POLICIES
+Use of Estimates. The preparation of financial statements in conformity with
+accounting principles generally accepted in the United States requires
+management to make estimates and assumptions that affect the reported amounts of
+assets and liabilities and disclosures of contingent assets and liabilities at
+the date of the financial statements and the reported amounts of revenues and
+expenses during the reporting period. Specifically, management must make
+estimates in the following areas:
+Allowance for bad debts, returns, and customer chargebacks. We insure selected
+customer account balances both greater than $200,000 and accepted by the
+insurance company should our customer not pay. We also provide a reserve against
+our receivables for estimated losses that may result from our customers'
+inability to pay, and disputed and returned items. We determine the amount of
+the reserve by analyzing known uncollectible accounts, aged receivables,
+economic conditions in the customers' country or industry, historical losses and
+our customers' credit-worthiness. Amounts later determined and specifically
+identified to be uncollectible are charged or written off against this reserve.
+To minimize the likelihood of uncollectibility, customers' credit-worthiness is
+reviewed periodically based on external credit reporting services and our
+experience with the account and adjusted accordingly. Should a customer's
+account become past due, we generally place a hold on the account and
+discontinue further shipments to that customer, minimizing further risk of loss.
+The likelihood of a material loss on an uncollectible account would be mainly
+dependent on deterioration in the overall economic conditions in a particular
+country or environment. Reserves are fully provided for all probable losses of
+this nature. Gross trade accounts receivable balance was $127.4 million and the
+allowance for doubtful accounts was $7.1 million at December 31, 2001.
+Inventory adjustments. Inventories are stated at lower of cost or market. We
+review our inventory on a regular basis for excess and slow moving inventory
+based on prior sales and net realizable value. The likelihood of any material
+inventory write-down is dependent primarily on consumer demand and competitor
+product offerings. Inventories were stated at $157.7 million at December 31,
+2001.
+Valuation of intangible and other long-lived assets. When circumstances warrant,
+we assess the impairment of intangible and other long-lived assets that require
+us to make assumptions and judgments regarding the carrying value of these
+assets. The assets are considered to be impaired if we determine that the
+carrying value may not be recoverable based upon our assessment of the following
+events or changes in circumstances:
+- the asset's ability to continue to generate income;
+- loss of legal ownership or title to the asset;
+- significant changes in our strategic business objectives and
+utilization of the asset(s); or
+- the impact of significant negative industry or economic trends
+If the assets are considered to be impaired, the impairment we recognize is the
+amount by which the carrying value of the assets exceeds the fair value of the
+assets. In addition, we base the useful lives and related amortization or
+depreciation expense on our estimate of the period that the assets will generate
+revenues or otherwise be used by us. If a change were to occur in any of the
+above-mentioned factors or estimates, the likelihood of a material change in our
+reported results would increase.
+Litigation reserves. Estimated amounts for claims that are probable and can be
+reasonably estimated are recorded as liabilities in the consolidated balance
+sheets. The likelihood of a material change in these estimated reserves would be
+dependent on new claims as they may arise and the favorable or unfavorable
+outcome of the particular litigation. Both the amount and range of loss on the
+29
+remaining pending litigation is uncertain. As such, we are unable to make a
+reasonable estimate of the liability that could result from unfavorable outcomes
+in litigation. As additional information becomes available, we will assess the
+potential liability related to our pending litigation and revise our estimates.
+Such revisions in our estimates of the potential liability could materially
+impact our results of operation and financial position.
+Valuation of deferred income taxes. Valuation allowances are established, when
+necessary, to reduce deferred tax assets to the amount expected to be realized.
+The likelihood of a material change in our expected realization of these assets
+depends on future taxable income, and the effectiveness of our tax planning and
+strategies among the various tax jurisdictions in which we operate.
+INFLATION
+We do not believe that the relatively moderate rates of inflation
+experienced in the United States over the last three years have had a
+significant effect on our sales or profitability. However, we cannot accurately
+predict the effect of inflation on future operating results. Although higher
+rates of inflation have been experienced in a number of foreign countries in
+which our products are manufactured, we do not believe that inflation has had a
+material effect on our sales or profitability. While we have been able to offset
+our foreign product cost increases by increasing prices or changing suppliers in
+the past, we cannot assure you that we will be able to continue to make such
+increases or changes in the future.
+EXCHANGE RATES
+We receive U.S. dollars for substantially all of our product sales and our
+royalty income. Inventory purchases from offshore contract manufacturers are
+primarily denominated in U.S. dollars; however, purchase prices for our products
+may be impacted by fluctuations in the exchange rate between the U.S. dollar and
+the local currencies of the contract manufacturers, which may have the effect of
+increasing our cost of goods in the future. During 2001 and 2000, exchange rate
+fluctuations did not have a material impact on our inventory costs. We do
+not engage in hedging activities with respect to such exchange rate risk.
+ITEM 7(a) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
+MARKET RISK
+We do not hold any derivative securities.
+Market risk is the potential loss arising from the adverse changes in market
+rates and prices, such as interest rates and foreign currency exchange rates.
+Changes in interest rates and, in the future, changes in foreign currency
+exchange rates have and will have an impact on our results of operations.
+Interest rate fluctuations. At December 31, 2001, approximately $84.2 million of
+our outstanding borrowings are subject to changes in interest rates; however, we
+do not use derivatives to manage this risk. This exposure is linked to the prime
+rate of interest. We believe that moderate changes in the prime rate will not
+materially affect our operating results or financial condition. For example, a
+1% change in interest rates would result in approximately $842,000 annual impact
+on pretax income (loss) based upon those outstanding borrowing at December 31,
+2001.
+Foreign exchange rate fluctuations. We face market risk to the extent that
+changes in foreign currency exchange rates affect our non-U.S. dollar functional
+currency foreign subsidiary's assets and liabilities. In addition, changes in
+foreign exchange rates may affect the value of our inventory commitments. Also,
+inventory purchases of our products may be impacted by fluctuations in the
+exchange rates between the U.S. dollar and the local currencies of the contract
+manufacturers, which could have the effect of increasing cost of goods sold in
+the future. We manage these risks by primarily denominating these purchases and
+commitments in U.S. dollars. We do not engage in hedging activities with respect
+to such exchange rate risks.
+FUTURE ACCOUNTING CHANGES
+Effective January 1, 2001, we adopted Statement of Financial Accounting
+Standards No. 133 ("SFAS 133"), Accounting for Derivative Instruments and
+Hedging Activities. As a result, we recognize financial instruments, such as
+foreign currency forward contracts, at fair value regardless of the purpose or
+intent for holding the instrument. Changes in the fair value of derivative
+financial instruments are either recognized periodically through the statement
+of earnings or through stockholders' equity as a component of accumulated other
+comprehensive income or loss. The classification depends on whether the
+derivative financial instrument qualifies
+30
+for hedge accounting, and if so, whether it qualifies as a fair value hedge or
+cash flow hedge. Generally, changes in fair values of derivatives designated as
+fair value hedges are matched in the statement of earnings against the
+respective gain or loss relating to the hedged items. Changes in fair values of
+derivatives accounted for as cash flow hedges, to the extent they are effective
+as hedges, are recorded in accumulated other comprehensive income net of
+deferred taxes. Changes in fair values of derivatives not qualifying as hedges
+are currently reported in earnings. The implementation of this standard did not
+have a significant impact on our financial statements.
+During April 2001, the Emerging Issues Task Force ("EITF") issued EITF No.
+00-14, Accounting for Certain Sales Incentives, and EITF No. 01-9, Accounting
+for Consideration Given by a Vendor to a Customer (including A Reseller of the
+Vendor's Products), which are effective for the first quarter beginning after
+December 15, 2001. These EITF's prescribe guidance regarding the timing of
+recognition and income statement classification of costs incurred for certain
+sales incentive programs to retailers and end consumers. We expect that the
+adoption of EITF No. 00-14 and EITF No. 01-9 will not have a material impact on
+our financial position or results of operations.
+In July 2001, the FASB issued Statement of Financial Accounting Standards
+No. 141 ("SFAS 141"), Business Combinations, and Statement of Financial
+Accounting Standards No. 142 ("SFAS 142"), Goodwill and Other Intangible Assets.
+SFAS 141 requires that the purchase method be used for all business combinations
+initiated after June 30, 2001. SFAS 142 requires that goodwill and intangible
+assets with indefinite useful lives no longer be amortized to earnings, but
+instead be reviewed for impairment in accordance with the provisions of SFAS
+142. The amortization of goodwill and intangible assets with indefinite useful
+lives ceases upon adoption of SFAS 142 which is effective for fiscal years
+starting after December 15, 2001. We are in the process of quantifying the
+anticipated impact of adopting the provisions of SFAS 142, which is not expected
+to be material.
+In October 2001, the Financial Accounting Standards Board ("FASB") issued
+Statement of Financial Accounting Standards No. 144 ("SFAS 144"), Accounting for
+the Impairment or Disposal of Long-Lived Assets, which addresses financial
+accounting and reporting for the impairment or disposal of long-lived assets.
+While SFAS 144 supersedes Statement of Financial Accounting Standards No. 121,
+Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
+Be Disposed Of, it retains many of the fundamental provisions of that statement.
+The standard is effective for fiscal years beginning after December 15, 2001. We
+expect that the adoption of SFAS 144 will not have a material impact on our
+financial position or results from operations.
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
+The information required by this Item 8 is incorporated by reference to our
+Consolidated Financial Statements and Independent Auditors' Report beginning at
+page F-1 of this Form 10-K.
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
+FINANCIAL DISCLOSURE
+None.
+31
+PART III
+ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
+The information required by this Item 10 is hereby incorporated by reference
+from our definitive proxy statement, to be filed pursuant to Regulation 14A
+within 120 days after the end of our 2001 fiscal year.
+ITEM 11. EXECUTIVE COMPENSATION
+The information required by this Item 11 is hereby incorporated by reference
+from our definitive proxy statement, to be filed pursuant to Regulation 14A
+within 120 days after the end of our 2001 fiscal year.
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
+The information required by this Item 12 is hereby incorporated by reference
+from our definitive proxy statement, to be filed pursuant to Regulation 14A
+within 120 days after the end of our 2001 fiscal year.
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
+The information required by this Item 13 is hereby incorporated by reference
+from our definitive proxy statement, to be filed pursuant to Regulation 14A
+within 120 days after the end of our 2001 fiscal year.
+PART IV
+ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
+(a) Consolidated financial statements and schedules required to be filed
+hereunder are indexed on Page F-1 hereof.
+(b) Reports on Form 8-K -- There were no reports on Form 8-K filed during
+the last quarter of the fiscal year ended December 31, 2001.
+(c) Exhibits
+EXHIBIT
+NUMBER DESCRIPTION OF EXHIBIT
+------ ----------------------
+2.1 Agreement of Reorganization and Plan of Merger
+(incorporated by reference to exhibit number 3.2(a) of the
+Registrant's Registration Statement on Form S-1, as
+amended (File No. 333-60065), filed with the Securities
+and Exchange Commission on May 12, 1999).
+3.1 Certificate of Incorporation (incorporated by reference to
+exhibit number 3.1 of the Registrant's Registration
+Statement on Form S-1, as amended (File No. 333-60065),
+filed with the Securities and Exchange Commission on July
+29, 1998).
+3.2 Bylaws (incorporated by reference to exhibit number 3.2 of
+the Registrant's Registration Statement on Form S-1, as
+amended (File No. 333-60065), filed with the Securities
+and Exchange Commission on July 29, 1998).
+3.2(a) Amendment to Bylaws (incorporated by reference to exhibit
+number 3.2(a) of the Registrant's Registration Statement
+on Form S-1, as amended (File No. 333-60065), filed with
+the Securities and Exchange Commission on May 12, 1999).
+4.1 Form of Specimen Class A Common Stock Certificate
+(incorporated by reference to exhibit number 4.1 of the
+Registrant's Registration Statement on Form S-1, as
+amended (File No. 333-60065), filed with the Securities
+and Exchange Commission on May 12, 1999).
+10.1 Amended and Restated 1998 Stock Option, Deferred Stock and
+Restricted Stock Plan (incorporated by reference to
+exhibit number 10.1 of the Registrant's Registration
+Statement on Form S-1, as amended (File No. 333-60065),
+filed with the Securities and Exchange Commission on July
+29, 1998).
+10.1(a) Amendment No. 1 to Amended and Restated 1998 Stock Option,
+Deferred Stock and Restricted Stock Plan (incorporated by
+reference to exhibit number 4.4 of the Registrant's
+Registration Statement on Form S-8 (File No. 333-71114),
+filed with the Securities and Exchange Commission on
+October 5, 2001).
+10.2 Amended and restated 1998 Employee Stock Purchase Plan
+(incorporated by reference to exhibit number 10.1 of the
+Registrant's Form 10-Q, for the period ending June 30,
+2000)
+10.3 Employment Agreement dated June 14, 1999, between the
+Registrant and Robert Greenberg (incorporated by reference
+to exhibit number 10.3 of the Registrant's Form 10-Q for
+the period ending June 30, 1999).
+10.3(a) Amendment No. 1 to Employment Agreement between the
+Registrant and Robert Greenberg dated December 31, 1999
+(incorporated by reference to exhibit number 10.3(a) of
+the Registrant's Form 10-K for the year ending December
+31, 1999).
+10.4 Employment Agreement dated June 14, 1999, between the
+Registrant and Michael Greenberg (incorporated by
+reference to exhibit number 10.4 of the Registrant's Form
+10-Q for the period ending June 30, 1999).
+10.4(a) Amendment to Employment Agreement between the Registrant
+and Michael Greenberg dated December 31, 2000
+(incorporated by reference to exhibit number 10.4(a) of
+the Registrant's Form 10-K for the year ending December
+31, 1999).
+10.5 Employment Agreement dated June 14, 1999, between the
+Registrant and David Weinberg (incorporated by reference
+to exhibit number 10.5 of the Registrant's Form 10-Q for
+the period ending June 30, 1999).
+10.5(a) Amendment No. 1 to Employment Agreement between the
+Registrant and David Weinberg dated December 31, 2000
+(incorporated by reference to exhibit number 10.5(a) of
+the Registrant's Form 10-K for the year ending December
+31, 1999).
+33
+EXHIBIT
+NUMBER DESCRIPTION OF EXHIBIT
+------ ----------------------
+10.6 Indemnification Agreement dated June 7, 1999 between the
+Registrant and its directors and executive officers
+(incorporated by reference to exhibit number 10.6 of the
+Registrant's Form 10-K for the year ending December 31,
+1999).
+10.6(a) List of Registrant's directors and executive officers who
+entered into Indemnification Agreement referenced in
+Exhibit 10.6 with the Registrant (incorporated by
+reference to exhibit number 10.6(a) of the Registrant's
+Form 10-K for the year ending December 31, 1999).
+10.7 Registration Rights Agreement dated June 9, 1999, between
+the Registrant, the Greenberg Family Trust, and Michael
+Greenberg (incorporated by reference to exhibit number
+10.7 of the Registrant's Form 10-Q for the period ending
+June 30, 1999).
+10.8 Tax Indemnification Agreement dated June 8, 1999, between
+the Registrant and certain shareholders (incorporated by
+reference to exhibit number 10.8 of the Registrant's Form
+10-Q for the period ending June 30, 1999).
+10.9 Lease Agreement, dated July 1, 1999, between the
+Registrant and Richard and Donna Piazza, regarding 1108-B
+Manhattan Avenue, Manhattan Beach, California
+(incorporated by reference to exhibit number 10.22 of the
+registrant's Form 10-K for the year ending December 31,
+1999).
+10.10 Amended and Restated Loan and Security Agreement between
+the Registrant and Heller Financial, Inc., dated September
+4, 1998 (incorporated by reference to exhibit number 10.10
+of the Registrant's Registration Statement on Form S-1, as
+amended (File No. 333-60065), filed with the Securities
+and Exchange Commission on April 9, 1999).
+10.10(a) Term Loan A Note, dated September 4, 1998, between the
+Registrant and Heller Financial, Inc. (incorporated by
+reference to exhibit number 10.10(a) of the Registrant's
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange
+Commission on April 9, 1999).
+10.10(b) Revolving Note dated September 4, 1998, between the
+Registrant and Heller Financial, Inc. (incorporated by
+reference to exhibit number 10.10(b) of the Registrant's
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange
+Commission on April 9, 1999).
+10.10(c) First Amendment to Amended and Restated Loan and Security
+Agreement, dated September 11, 1998 (incorporated by
+reference to exhibit number 10.10(c) of the Registrant's
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange
+Commission on April 9, 1999).
+10.10(d) Second Amendment to Amended and Restated Loan and Security
+Agreement, dated December 23, 1998 (incorporated by
+reference to exhibit number 10.10(d) of the Registrant's
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange
+Commission on April 9, 1999).
+10.10(e) Third Amendment to Amended and Restated Loan and Security
+Agreement dated February 1, 2000 (incorporated by
+reference to exhibit number 10.10(e) of the Registrant's
+Form 10-K for the year ending December 31, 2000).
+10.10(f) Fourth Amendment to Amended and Restated Loan and Security
+Agreement dated June 1, 2000 (incorporated by reference to
+exhibit number 10.10(f) of the Registrant's Form 10-K for
+the year ending December 31, 2000).
+10.10(g) Fifth Amendment to Amended and Restated Loan and Security
+Agreement dated July 11, 2001 (incorporated by reference
+to exhibit number 10.10(g) of the Registrant's Form 10-Q
+for the period ending September 30, 2001).
+10.11 Lease Agreement, dated April 15, 1998, between the
+Registrant and Holt/Hawthorn and Victory Partners,
+regarding 228 Manhattan Beach Boulevard, Manhattan Beach,
+California (incorporated by reference to exhibit number
+10.11 of the Registrant's Registration Statement on Form
+S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on April 9, 1999).
+10.12 Commercial Lease Agreement, dated February 19, 1997,
+between the Registrant and Richard and Donna Piazza,
+regarding 1110 Manhattan Avenue, Manhattan Beach,
+California (incorporated by reference to exhibit number
+10.12 of the Registrant's Registration Statement on Form
+S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on July 29, 1998).
+10.13 Lease Agreement, dated June 12, 1998, between the
+Registrant and Richard and Donna Piazza, regarding 1112
+Manhattan Avenue, Manhattan Beach, California
+(incorporated by reference to exhibit number 10.13 of the
+Registrant's Registration Statement on Form S-1, as
+amended (File No. 333-60065), filed with the Securities
+and Exchange Commission on July 29, 1998).
+34
+EXHIBIT
+NUMBER DESCRIPTION OF EXHIBIT
+------ ----------------------
+10.14 Lease Agreement, dated November 21, 1997, between the
+Registrant and The Prudential Insurance Company of
+America, regarding 1661 So. Vintage Avenue, Ontario,
+California (incorporated by reference to exhibit number
+10.14 of the Registrant's Registration Statement on Form
+S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on July 29, 1998).
+10.15 Lease Agreements, dated November 21, 1997, between the
+Registrant and The Prudential Insurance Company of
+America, regarding 1777 So. Vintage Avenue, Ontario,
+California (incorporated by reference to exhibit number
+10.15 of the Registrant's Registration Statement on Form
+S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on July 29, 1998).
+10.16 Commercial Lease Agreement, dated April 10, 1998, between
+the Registrant and Proficiency Ontario Partnership,
+regarding 5725 East Jurupa Street (incorporated by
+reference to exhibit number 10.16 of the Registrant's
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange
+Commission on July 29, 1998).
+10.17 Lease Agreement and Addendum, dated June 11, 1998, between
+the Registrant and Delores McNabb, regarding Suite 3 on
+the first floor of the north building, Suite 9 on the
+first floor of the south building at 904 Manhattan Avenue,
+Manhattan Beach, California (incorporated by reference to
+exhibit number 10.17 of the Registrant's Registration
+Statement on Form S-1, as amended (File No. 333-60065),
+filed with the Securities and Exchange Commission on April
+9, 1999).
+10.18 Addendum to Lease Agreement, dated September 14, 1998,
+between the Registrant and Delores McNabb, regarding
+Suites 3, 4 and 5 on the second floor of the north
+building at 904 Manhattan Avenue, Manhattan Beach,
+California (incorporated by reference to exhibit number
+10.18 of the Registrant's Registration Statement on Form
+S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on April 9, 1999).
+10.18(a) Addendum to Lease Agreement, dated April 15, 2000, between
+the Registrant and Delores McNabb, regarding Suites 7, 8
+and 9 on the second floor of the south building at 904
+Manhattan Avenue, Manhattan Beach, California.
+10.19 Standard Offer, Agreement and Escrow Instructions,
+Addendum and Additional Provisions, dated October 12,
+2000, between the Registrant and/or its assignees and
+Champagne Building Group L.P., for the purchase of
+property located at 1670 South Champagne Avenue, Ontario,
+California (incorporated by reference to exhibit number
+10.19 of the Registrant's Form 10-K for the year ending
+December 31, 2000).
+10.20 Lease Agreement, dated November 15, 1999, between the
+Registrant and Champagne Building Group L.P., regarding
+1670 South Champagne Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.20 of the
+Registrant's Form 10-K for the year ending December 31,
+1999).
+10.21 Amendment of Lease Agreement dated December 20, 2000,
+between the Registrant and Yale Investments, LLC (a wholly
+owned subsidiary of the Registrant), regarding 1670 South
+Champagne Avenue, Ontario, California (incorporated by
+reference to exhibit number 10.21 of the Registrant's Form
+10-K for the year ending December 31, 2000).
+10.22 Purchase and Sale Agreement with Escrow Instructions,
+dated November 13, 2000, between the Registrant and
+Pacifica California/Apollo, LLC, for the purchase of
+property located at 225 South Sepulveda Boulevard,
+Manhattan Beach, California (incorporated by reference to
+exhibit number 10.22 of the Registrant's Form 10-K for the
+year ending December 31, 2000).
+10.22(a) First Amendment to Purchase and Sale Agreement, dated
+November 29, 2000, between the Registrant and Pacifica
+California/Apollo, LLC, for the purchase of property
+located at 225 South Sepulveda Boulevard, Manhattan Beach,
+California (incorporated by reference to exhibit number
+10.22(a) of the Registrant's Form 10-K for the year ending
+December 31, 2000).
+10.23 Promissory Note, dated December 27, 2000, between the
+Registrant and Washington Mutual Bank, FA, for the
+purchase of property located at 225 South Sepulveda
+Boulevard, Manhattan Beach, California (incorporated by
+reference to exhibit number 10.23 of the Registrant's Form
+10-K for the year ending December 31, 2000).
+10.24 Assignment and Assumption Agreement, dated December 27,
+2000, between the Registrant and Pacifica
+California/Apollo, LLC, regarding 225 South Sepulveda
+Boulevard, Manhattan Beach, California (incorporated by
+reference to exhibit number 10.24 of the Registrant's Form
+10-K for the year ending December 31, 2000).
+35
+EXHIBIT
+NUMBER DESCRIPTION OF EXHIBIT
+------ ----------------------
+10.25 Loan Agreement, dated December 21, 2000, between Yale
+Investments, LLC, and MONY Life Insurance Company, for the
+purchase of property located at 1670 South Champagne
+Avenue, Ontario, California (incorporated by reference to
+exhibit number 10.25 of the Registrant's Form 10-K for the
+year ending December 31, 2000).
+10.26 Promissory Note, dated December 21, 2000, between Yale
+Investments, LLC, and MONY Life Insurance Company, for the
+purchase of property located at 1670 Champagne Avenue,
+Ontario, California (incorporated by reference to exhibit
+number 10.26 of the Registrant's Form 10-K for the year
+ending December 31, 2000).
+10.27 Lease Agreement, dated April 28, 2000, between the
+Registrant and Manhattan Corners, LLC, regarding 1100
+Highland Avenue, Manhattan Beach, California.
+10.28 Lease Agreement, dated April 10, 2001, between the
+Registrant and ProLogis California I LLC, regarding 4100
+East Mission Boulevard, Ontario, California.
+21.1 Subsidiaries of the Registrant
+23.1 Consent of KPMG LLP
+24.1 Power of Attorney (included on signature page)
+36
+SIGNATURES
+Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
+Manhattan Beach, State of California on the 27th day of March, 2002.
+SKECHERS U.S.A, INC.
+By: /s/ ROBERT GREENBERG
+-----------------------------------
+Robert Greenberg
+Chairman of the Board
+and Chief Executive Officer
+POWER OF ATTORNEY
+We, the undersigned officers and directors of Skechers U.S.A., Inc., do
+hereby constitute and appoint Robert Greenberg, Michael Greenberg and David
+Weinberg, or either of them, our true and lawful attorneys and agents, to do any
+and all acts and things in our names in the capacities indicated below, which
+said attorneys and agents, or either of them, may deem necessary or advisable to
+enable said corporation to comply with the Securities Exchange Act of 1934, as
+amended, and any rules, regulations, and requirements of the Securities and
+Exchange Commission, in connection with this report, including specifically, but
+without limitation, power and authority to sign for us or any of us in our names
+and in the capacities indicated below, any and all amendments to this report,
+and we do hereby ratify and confirm all that the said attorneys and agents, or
+either of them, shall do or cause to be done by virtue hereof.
+Pursuant to the requirements of the Securities Exchange Act of 1934, this
+report has been signed by the following persons on behalf of the Registrant and
+in the capacities and on the dates indicated.
+SIGNATURE TITLE DATE
+--------- ----- ----
+/S/ ROBERT GREENBERG Chairman of the Board and Chief March 27, 2002
+----------------------------------------------------- Executive Officer (Principal
+Robert Greenberg Executive Officer)
+/S/ MICHAEL GREENBERG President and Director March 27, 2002
+-----------------------------------------------------
+Michael Greenberg
+/S/ DAVID WEINBERG Executive Vice President, Chief March 27, 2002
+----------------------------------------------------- Financial Officer and Director
+David Weinberg (Principal Financial and
+Accounting Officer)
+Director
+-----------------------------------------------------
+Jeffrey Greenberg
+Director
+-----------------------------------------------------
+J. Geyer Kosinski
+/S/ THOMAS J. POLETTI Director March 27, 2002
+-----------------------------------------------------
+Thomas J. Poletti
+Director
+-----------------------------------------------------
+Richard Siskind
+37
+SKECHERS U.S.A., INC.
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
+PAGE
+----
+Independent Auditors' Report............................................................................................. F-2
+Consolidated Balance Sheets -- December 31, 2000 and 2001................................................................ F-3
+Consolidated Statements of Earnings -- Each of the years in the three-year period ended December 31, 2001................ F-4
+Consolidated Statements of Stockholders' Equity and Comprehensive Income -- Each of the years in the three-year period
+ended December 31, 2001.................................................................................................. F-5
+Consolidated Statements of Cash Flows -- Each of the years in the three-year period ended December 31, 2001.............. F-6
+Notes to Consolidated Financial Statements............................................................................... F-7
+Schedule II -- Valuation and Qualifying Accounts......................................................................... S-1
+F-1
+INDEPENDENT AUDITORS' REPORT
+The Board of Directors and Stockholders
+Skechers U.S.A., Inc.:
+We have audited the accompanying consolidated financial statements of
+Skechers U.S.A., Inc. and subsidiaries as listed in the accompanying index. In
+connection with our audits of the consolidated financial statements, we also
+have audited the financial statement schedule as listed in the accompanying
+index. These consolidated financial statements and financial statement schedule
+are the responsibility of the Company's management. Our responsibility is to
+express an opinion on these consolidated financial statements and financial
+statement schedule based on our audits.
+We conducted our audits in accordance with auditing standards generally
+accepted in the United States of America. Those standards require that we plan
+and perform the audit to obtain reasonable assurance about whether the
+consolidated financial statements are free of material misstatement. An audit
+includes examining, on a test basis, evidence supporting the amounts and
+disclosures in the consolidated financial statements. An audit also includes
+assessing the accounting principles used and significant estimates made by
+management, as well as evaluating the overall financial statement presentation.
+We believe that our audits provide a reasonable basis for our opinion.
+In our opinion, the consolidated financial statements referred to above
+present fairly, in all material respects, the financial position of Skechers
+U.S.A., Inc. and subsidiaries as of December 31, 2000 and 2001 and the results
+of their operations and their cash flows for each of the years in the three-year
+period ended December 31, 2001 in conformity with accounting principles
+generally accepted in the United States of America. Also, in our opinion, the
+related financial statement schedule, when considered in relation to the basic
+consolidated financial statements taken as a whole, presents fairly, in all
+material respects, the information set forth therein.
+KPMG LLP
+Los Angeles, California
+February 13, 2002
+F-2
+SKECHERS U.S.A., INC.
+CONSOLIDATED BALANCE SHEETS
+DECEMBER 31, 2000 AND 2001
+(IN THOUSANDS)
+ASSETS
+2000 2001
+---- ----
+Current assets:
+Cash ..................................................................... $ 8,781 $ 15,554
+Trade accounts receivable, less allowances
+of $5,152 in 2000 and $7,113 in 2001 .................................. 96,628 120,285
+Due from officers and employees .......................................... 540 1,013
+Other receivables ........................................................ 1,016 1,816
+-------- --------
+Total receivables ................................................ 98,184 123,114
+-------- --------
+Inventories .............................................................. 111,708 157,659
+Prepaid expenses and other current assets ................................ 6,457 17,695
+Deferred tax assets ...................................................... 4,414 4,804
+-------- --------
+Total current assets ............................................. 229,544 318,826
+Property and equipment, at cost, less accumulated depreciation
+and amortization ........................................................ 70,405 85,739
+Intangible assets, at cost, less applicable amortization ................... 559 458
+Other assets, at cost ...................................................... 2,892 2,463
+-------- --------
+$303,400 $407,486
+======== ========
+LIABILITIES AND STOCKHOLDERS' EQUITY
+Current liabilities:
+Short-term borrowings .................................................... $ 49,754 $ 84,175
+Current installments of long-term borrowings ............................. 2,452 2,140
+Accounts payable ......................................................... 72,865 77,498
+Accrued expenses ......................................................... 11,168 15,041
+-------- --------
+Total current liabilities ........................................ 136,239 178,854
+-------- --------
+Long-term borrowings, excluding current installments ....................... 33,115 29,616
+Commitments and contingencies (footnote 9)
+Stockholders' equity:
+Preferred stock, $.001 par value. Authorized 10,000 shares;
+none issued and outstanding ........................................... -- --
+Class A Common stock, $.001 par value. Authorized 100,000 shares; issued
+and outstanding 10,789 and 15,329 shares at December 31, 2000 and 2001,
+respectively .......................................................... 10 15
+Class B Common stock, $.001 par value. Authorized 60,000 shares; issued
+and outstanding 24,805 and 21,482 shares at December 31, 2000 and 2001,
+respectively .......................................................... 25 21
+Additional paid-in capital ............................................... 74,243 91,909
+Accumulated other comprehensive income ................................... -- 33
+Retained earnings ........................................................ 59,768 107,038
+-------- --------
+Total stockholders' equity ....................................... 134,046 199,016
+-------- --------
+$303,400 $407,486
+======== ========
+See accompanying notes to consolidated financial statements.
+F-3
+SKECHERS U.S.A., INC.
+CONSOLIDATED STATEMENTS OF EARNINGS
+YEARS ENDED DECEMBER 31, 1999, 2000, and 2001
+(IN THOUSANDS, EXCEPT PER SHARE DATA)
+1999 2000 2001
+--------- --------- ---------
+Net sales ............................ $ 424,601 $ 675,036 $ 960,385
+Cost of sales ........................ 249,993 390,811 554,205
+--------- --------- ---------
+Gross profit ............... 174,608 284,225 406,180
+Royalty income, net .................. 668 316 (303)
+--------- --------- ---------
+175,276 284,541 405,877
+--------- --------- ---------
+Operating expenses:
+Selling ............................ 57,332 77,451 111,401
+General and administrative ......... 79,114 125,827 205,989
+--------- --------- ---------
+136,446 203,278 317,390
+--------- --------- ---------
+Earnings from operations ... 38,830 81,263 88,487
+--------- --------- ---------
+Other income (expense):
+Interest, net ...................... (6,554) (9,230) (13,852)
+Other, net ......................... 415 318 1,320
+--------- --------- ---------
+(6,139) (8,912) (12,532)
+--------- --------- ---------
+Earnings before income taxes 32,691 72,351 75,955
+Income taxes ......................... 8,635 28,600 28,685
+--------- --------- ---------
+Net earnings ............... $ 24,056 $ 43,751 $ 47,270
+========= ========= =========
+Net earnings per share:
+Basic .............................. $ 1.24 $ 1.30
+Diluted ............................ $ 1.20 $ 1.24
+========= =========
+Weighted-average shares:
+Basic .............................. 35,142 36,409
+Diluted ............................ 36,563 38,059
+========= =========
+Pro forma operations data (unaudited):
+Earnings before income taxes ....... $ 32,691
+Income taxes ....................... 12,880
+---------
+Net earnings ............... $ 19,811
+=========
+Net earnings per share:
+Basic .............................. $ 0.62
+Diluted ............................ $ 0.60
+=========
+Weighted-average shares:
+Basic .............................. 31,765
+Diluted ............................ 33,018
+=========
+See accompanying notes to consolidated financial statements.
+F-4
+SKECHERS U.S.A., INC.
+CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
+YEARS ENDED DECEMBER 31, 1999, 2000, and 2001
+(IN THOUSANDS)
+COMMON STOCK
+-------------------------------------------
+SHARES AMOUNT ADDITIONAL
+--------------------- --------------------- PAID-IN
+CLASS A CLASS B CLASS A CLASS B CAPITAL
+---------- ---------- ---------- ---------- ----------
+Balance at December 31, 1998 ........................ -- 27,814 -- $ 2 --
+Net earnings ....................................... -- -- -- -- --
+Proceeds from issuance of common stock in
+connection with initial public offering .......... 7,000 -- $ 7 26 $ 69,687
+Proceeds from issuance of common stock
+under the employee stock purchase plan ........... 91 -- -- -- 261
+S Corporation distribution:
+Cash ............................................. -- -- -- -- --
+Cross Colours trademark .......................... -- -- -- -- --
+--------- --------- --------- --------- ---------
+Balance at December 31, 1999 ........................ 7,091 27,814 7 28 69,948
+Net earnings ....................................... -- -- -- -- --
+Proceeds from issuance of common stock
+under the employee stock purchase plan ........... 267 -- -- -- 1,073
+Proceeds from issuance of common stock
+under the employee stock option plan ............. 422 -- -- -- 1,499
+Tax effect of non-qualified stock options .......... -- -- -- -- 1,636
+Deferred compensation .............................. -- -- -- -- 87
+Conversion of Class B common stock into
+Class A common stock ............................. 3,009 (3,009) 3 (3) --
+--------- --------- --------- --------- ---------
+Balance at December 31, 2000 ........................ 10,789 24,805 10 25 74,243
+Comprehensive income:
+Net earnings ........................................ -- -- -- -- --
+Foreign currency translation adjustment ........... -- -- -- -- --
+Proceeds from issuance of common stock
+under the employee stock purchase plan ............. 1,081 -- 1 -- 7,679
+Proceeds from issuance of common stock
+under the employee stock option plan ............. 136 -- -- -- 1,689
+Tax effect of non-qualified stock options .......... -- -- -- -- 8,298
+Conversion of Class B common stock into
+Class A common stock ............................. 3,323 (3,323) 4 (4) --
+--------- --------- --------- --------- ---------
+Balance at December 31, 2001 ........................ 15,329 21,482 $ 15 $ 21 $ 91,909
+========= ========= ========= ========= =========
+ACCUMULATED
+OTHER TOTAL
+COMPREHENSIVE RETAINED STOCKHOLDERS'
+INCOME EARNINGS EQUITY
+------ -------- --------
+Balance at December 31, 1998 ........................ -- $ 27,674 $ 27,676
+Net earnings ....................................... -- 24,056 24,056
+Proceeds from issuance of common stock in
+connection with initial public offering .......... -- -- 69,720
+Proceeds from issuance of common stock
+under the employee stock purchase plan ........... -- -- 261
+S Corporation distribution:
+Cash ............................................. -- (35,363) (35,363)
+Cross Colours trademark .......................... -- (350) (350)
+--------- --------- ---------
+Balance at December 31, 1999 ........................ -- 16,017 86,000
+Net earnings ....................................... -- 43,751 43,751
+Proceeds from issuance of common stock ............
+under the employee stock purchase plan ........... -- -- 1,073
+Proceeds from issuance of common stock ............
+under the employee stock option plan ............. -- 1,499
+Tax effect of non-qualified stock options .......... -- -- 1,636
+Deferred compensation .............................. -- -- 87
+Conversion of Class B common stock into
+Class A common stock ............................. -- -- --
+--------- --------- ---------
+Balance at December 31, 2000 ........................ -- 59,768 134,046
+Comprehensive income:
+Net earnings ....................................... -- 47,270 47,270
+Foreign currency translation adjustment ........... 33 -- 33
+Proceeds from issuance of common stock
+under the employee stock purchase plan ........... -- -- 1,689
+Proceeds from issuance of common stock
+under the employee stock option plan ............. -- -- 7,680
+Tax effect of non-qualified stock options .......... -- -- 8,298
+Conversion of Class B common stock into
+Class A common stock ............................. -- -- --
+--------- --------- ---------
+Balance at December 31, 2001 ........................ $ 33 $ 107,038 $ 199,016
+========= ========= =========
+See accompanying notes to consolidated financial statements.
+F-5
+SKECHERS U.S.A., INC.
+CONSOLIDATED STATEMENTS OF CASH FLOWS
+YEARS ENDED DECEMBER 31, 1999, 2000, and 2001
+(IN THOUSANDS)
+1999 2000 2001
+-------- -------- --------
+Cash flows from operating activities:
+Net earnings .............................................. $ 24,056 $ 43,751 $ 47,270
+Adjustments to reconcile net earnings to net cash
+provided by (used in) operating activities:
+Depreciation and amortization of property and equipment 3,752 5,894 15,202
+Amortization of intangible assets ...................... 108 104 101
+Provision (recovery) for bad debts and returns ......... (176) 1,915 1,961
+Tax effect of non-qualified stock options .............. -- 1,636 8,298
+Deferred taxes ......................................... (2,810) (1,604) (390)
+Deferred compensation .................................. -- 87 --
+Loss on disposal of equipment .......................... 903 78 983
+Gain (loss) on distribution of intangibles ............. (118) -- --
+Increase (decrease) in assets:
+Receivables .......................................... (17,282) (33,426) (26,891)
+Inventories .......................................... (3,569) (42,749) (45,951)
+Prepaid expenses and other current assets ............ (2,514) (1,327) (11,238)
+Other assets ......................................... 466 (1,437) 429
+Increase in liabilities:
+Accounts payable ..................................... 9,551 25,169 4,633
+Accrued expenses ..................................... 738 900 3,873
+-------- -------- --------
+Net cash provided by (used in) operating activities 13,105 (1,009) (1,720)
+-------- -------- --------
+Cash flows used in investing activities:
+Capital expenditures ...................................... (10,846) (21,897) (31,519)
+Proceeds from the sales of property and equipment ......... -- 51 --
+-------- -------- --------
+Net cash used in investing activities ............. (10,846) (21,846) (31,519)
+-------- -------- --------
+Cash flows from financing activities:
+Net proceeds from initial public offering of common stock . 69,720 -- --
+Net proceeds from issuance of common stock ................ 261 2,572 9,369
+Net proceeds (payments) related to short-term borrowings .. (23,697) 19,372 34,421
+Payments on long-term debt ................................ (1,042) (1,144) (3,811)
+Payments on notes payable to stockholder .................. (12,244) -- --
+Distributions paid to stockholders ........................ (35,363) -- --
+-------- -------- --------
+Net cash provided by (used in) financing activities
+(2,365) 20,800 39,979
+-------- -------- --------
+Net increase (decrease) in cash ........................... (106) (2,055) 6,740
+Effect of exchange rates on cash .......................... -- -- 33
+Cash at beginning of year ................................... 10,942 10,836 8,781
+-------- -------- --------
+Cash at end of year ......................................... $ 10,836 $ 8,781 $ 15,554
+======== ======== ========
+Supplemental disclosures of cash flow information:
+Cash paid during the year for:
+Interest ............................................... $ 6,782 $ 8,386 $ 13,613
+Income taxes ........................................... 10,619 27,712 27,220
+======== ======== ========
+SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
+During 1999, the Company declared a noncash distribution of intangibles of
+$350.
+During 2000, the Company acquired $14,444 of property and equipment under
+capital lease arrangements. In addition, the Company acquired an office building
+and distribution facility and issued two notes for $10,850 and $ 7,850,
+respectively.
+See accompanying notes to consolidated financial statements.
+F-6
+SKECHERS U.S.A., INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+DECEMBER 31, 2000 AND 2001
+(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+(a) The Company
+Skechers U.S.A., Inc. (the Company) designs, develops, markets and
+distributes footwear. The Company also operates retail stores and e-commerce
+businesses.
+The accompanying consolidated financial statements include the accounts of
+the Company and its wholly owned subsidiaries. All significant intercompany
+balances and transactions have been eliminated in consolidation.
+(b) Revenue Recognition
+Revenue is recognized upon shipment of product or at point of sale for
+retail operations. Allowances for estimated returns, discounts, bad debts, and
+chargebacks are provided when the related revenue is recorded.
+Revenues from royalty agreements are recognized as earned.
+(c) Inventories
+Inventories, principally finished goods, are stated at the lower of cost
+(based on the first-in, first-out method) or market. The Company provides for
+estimated losses from obsolete or slow-moving inventories and writes down the
+cost of inventory at the time such determinations are made.
+(d) Income Taxes
+The Company accounts for income taxes under the asset and liability method.
+Deferred tax assets and liabilities are recognized for the future tax
+consequences attributable to the differences between the financial statement
+carrying amounts of existing assets and liabilities and their respective tax
+basis. The effect on deferred tax assets and liabilities of a change in tax
+rates is recognized in income in the period that includes the enactment date.
+(e) Depreciation and Amortization
+Depreciation and amortization of property and equipment is computed using
+the straight-line method based on the following estimated useful lives:
+Buildings 20 years
+Building improvements 20 years or useful life, whichever is shorter
+Furniture, fixtures and equipment 5 years
+Leasehold improvements Useful life or remaining lease
+term, whichever is shorter
+Intangible assets consist of trademarks and are amortized on a straight-line
+basis over ten years. The accumulated amortization as of December 31, 2000 and
+2001 is $492,000 and $593,000, respectively.
+(f)Long-Lived Assets
+The Company reports long-lived assets, including intangibles, at amortized
+cost. Management assesses the carrying value of assets if facts and
+circumstances suggest that such assets may be impaired. If this review indicates
+that the assets will not be recoverable, as determined by a nondiscounted cash
+flow projection over the remaining amortization period, their carrying value is
+reduced to
+F-7
+estimated fair value, based on discounted cash flows. The Company will implement
+SFAS No. 142, Goodwill and Other Intangible Assets, on January 1, 2002 and SFAS
+No. 144, Accounting for the Impairment or Disposal of Long Lived Assets. See
+note (1)(m).
+(g) Advertising Costs
+Advertising costs are expensed in the period in which the advertisements are
+first run or over the life of the endorsement contract. Advertising expense for
+the years ended December 31, 1999, 2000 and 2001 were approximately $47,400,000,
+$59,122,000 and $86,625,000, respectively. Prepaid advertising costs at December
+31, 2000 and 2001 were $2,605,000 and $1,440,000, respectively. Prepaid amounts
+outstanding at December 31, 2000 and 2001 represents the unamortized portion of
+endorsement contracts and advertising in trade publications which had not run as
+of December 31, 2000 and 2001, respectively.
+(h) Earnings Per Share
+Basic earnings per share represents net earnings divided by the
+weighted-average number of common shares outstanding for the period. Diluted
+earnings per share reflects the potential dilution that could occur if options
+to issue common stock were exercised or converted into common stock. The
+weighted average diluted shares outstanding for 1999 gives effect to the sale by
+the Company of those shares of common stock necessary to fund the payment of (i)
+stockholder distributions paid or declared from January 1, 1998 to June 7, 1999,
+the S Corporation termination date, in excess of (ii) the S Corporation earnings
+from January 1, 1998 to June 7, 1999 for 1999, based on an initial public
+offering price of $11 per share, net of underwriting discounts.
+The reconciliation of basic to diluted weighted-average shares is as follows
+(in thousands):
+1999 2000 2001
+------- ------- ------
+Weighted-average shares used in basic computation................. 31,765 35,142 36,409
+Shares to fund stockholder distributions.......................... 533 -- --
+Dilutive effect of stock options.................................. 720 1,421 1,650
+------- ------- -------
+Weighted-average shares used in diluted computation............... 33,018 36,563 38,059
+======= ======= =======
+Options to purchase 1,411,000, 1,117,920 and 279,500 shares of common stock
+at prices ranging from $6.13 to $24.00 were outstanding at December 31, 1999,
+2000 and 2001, respectively, but were not included in the computation of diluted
+earnings per share because the options' exercise price was greater than the
+average market price of the common shares and therefore their inclusion would be
+anti-dilutive.
+(i)Use of Estimates
+Management has made a number of estimates and assumptions relating to the
+reporting of assets, liabilities, revenues and expenses and the disclosure of
+contingent assets and liabilities to prepare these consolidated financial
+statements in conformity with accounting principles generally accepted in the
+United States of America. Significant areas requiring the use of management
+estimates relate primarily to the valuation of inventories, accounts receivable
+allowances, the useful lives of assets for depreciation, evaluation of
+impairment, recoverability of deferred taxes and litigation reserves. Actual
+results could differ from those estimates.
+(j)Product Design and Development Costs
+The Company charges all product design and development costs to expense when
+incurred. Product design and development costs aggregated approximately
+$2,600,000, $3,700,000 and $5,493,000 during the years ended December 31, 1999,
+2000 and 2001, respectively.
+(k) Comprehensive Income
+Other comprehensive income at December 31, 2000 and 2001, consists of net
+earnings and foreign currency translation gains of $0 and $33,000 respectively.
+(l)Fair Value of Financial Instruments
+The carrying amount of the Company's financial instruments, which
+principally include cash, accounts receivable, accounts payable and accrued
+expenses, approximates fair value due to the relatively short maturity of such
+instruments.
+F-8
+The fair value of the Company's short-term and long-term borrowings reflects
+the fair value based upon current rates available to the Company for similar
+debt.
+(m) New Accounting Standards
+Effective January 1, 2001, the Company adopted Statement of Financial
+Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative Instruments
+and Hedging Activities. As a result, the Company recognizes financial
+instruments, such as foreign currency forward contracts, at fair value
+regardless of the purpose or intent for holding the instrument. Changes in the
+fair value of derivative financial instruments are either recognized
+periodically through the statement of earnings or through stockholders' equity
+as a component of accumulated other comprehensive income or loss. The
+classification depends on whether the derivative financial instrument qualifies
+for hedge accounting, and if so, whether it qualifies as a fair value hedge or
+cash flow hedge. Generally, changes in fair values of derivatives designated as
+fair value hedges are matched in the statement of earnings against the
+respective gain or loss relating to the hedged items. Changes in fair values of
+derivatives accounted for as cash flow hedges, to the extent they are effective
+as hedges, are recorded in accumulated other comprehensive income net of
+deferred taxes. Changes in fair values of derivatives not qualifying as hedges
+are currently reported in earnings. The implementation of this standard did not
+have any impact on the company's financial statements.
+During April 2001, the Emerging Issues Task Force ("EITF") issued EITF No.
+00-14, Accounting for Certain Sales Incentives, and EITF No. 01-9, Accounting
+for Consideration Given by a Vendor to a Customer (Including A Reseller of the
+Vendor's Products), which are effective for the first quarter beginning after
+December 15, 2001. These EITF's prescribe guidance regarding the timing of
+recognition and income statement classification of costs incurred for certain
+sales incentive programs to retailers and end consumers. The Company expects
+that the adoption of EITF No. 00-14 and EITF No. 01-9 will not have a material
+impact on its financial position or results of operations.
+In July 2001, the FASB issued Statement of Financial Accounting Standards
+No. 141 ("SFAS 141"), Business Combinations, and Statement of Financial
+Accounting Standards No. 142 ("SFAS 142"), Goodwill and Other Intangible Assets.
+SFAS 141 requires that the purchase method be used for all business combinations
+initiated after June 30, 2001. SFAS 142 requires that goodwill and intangible
+assets with indefinite useful lives no longer be amortized to earnings, but
+instead be reviewed for impairment in accordance with the provisions of SFAS
+142. The amortization of goodwill and intangible assets with indefinite useful
+lives ceases upon adoption of SFAS 142 which is effective for fiscal years
+starting after December 15, 2001. The Company is in the process of quantifying
+the anticipated impact of adopting the provisions of SFAS 142, which is not
+expected to be material.
+In October 2001, the Financial Accounting Standards Board ("FASB") issued
+Statement of Financial Accounting Standards No. 144 ("SFAS 144"), Accounting for
+the Impairment or Disposal of Long-Lived Assets, which addresses financial
+accounting and reporting for the impairment or disposal of long-lived assets.
+While SFAS 144 supersedes Statement of Financial Accounting Standards No. 121,
+Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
+Be Disposed Of, it retains many of the fundamental provisions of that statement.
+The standard is effective for fiscal years beginning after December 15, 2001.
+The Company expects that the adoption of SFAS 144 will not have a material
+impact on its financial position or results of operations.
+(2) PROPERTY AND EQUIPMENT
+Property and equipment is summarized as follows (in thousands):
+2000 2001
+---- ----
+Land........................................................ $ 7,858 $ 12,358
+Buildings and improvements.................................. 18,639 20,527
+Furniture, fixtures and equipment........................... 37,529 46,468
+Leasehold improvements...................................... 21,029 35,765
+--------- ---------
+Total property and equipment...................... 85,055 115,118
+Less accumulated depreciation and amortization.............. 14,650 29,379
+--------- ---------
+Property and equipment, net....................... $ 70,405 $ 85,739
+========= =========
+F-9
+(3) SHORT-TERM BORROWINGS
+The Company has available a secured line of credit, as amended on July 11,
+2001, permitting borrowings up to $150.0 million based upon eligible accounts
+receivable and inventories. Borrowings bear interest at the prime rate (4.75% at
+December 31, 2001) minus 0.50%, and the agreement expires on December 31, 2003.
+The agreement provides for the issuance of letters of credit up to a maximum of
+$30.0 million of which 50% decreases the amount available for borrowings under
+the agreement. Outstanding letters of credit at December 31, 2001 were $5.4
+million. Available borrowings under the line of credit at December 31, 2001 were
+$54.2 million. The Company pays an unused line of credit fee of .25% annually.
+The agreement provides that stockholders' equity shall not decrease by more than
+20% in any given calendar quarter, and limits the payment of dividends if it is
+in default of any provision of the agreement. The Company was in compliance with
+these covenants at December 31, 2001. In February 2002, the Company borrowed an
+additional $ 43.0 million under the line of credit.
+(4) LONG-TERM BORROWINGS
+Long-term debt at December 31, 2000 and 2001 is as follows (in thousands):
+2000 2001
+------- -------
+Note payable to bank, due in monthly installments of $82.2 (includes principal
+and interest), fixed rate interest at 7.79%, secured by property, balloon
+payment of $8,716 due January 2011 ........................................................... $10,850 $10,716
+Note payable to bank, due in monthly installments of $57.6 (includes principal and
+interest), fixed rate interest at 7.89%, secured by property, balloon payment of
+$6,776 due February 2011 ...................................................................... 7,850 7,782
+Note payable to bank, due in monthly installments of $25 plus interest at prime
+(4.75% at December 31, 2001) plus 1%, secured by equipment, repaid during 2001 ................ 2,100 --
+Capital lease obligation, due in aggregate monthly installments of $195, interest rate of 7.66%,
+secured by equipment, balloon payment of $4,431 due February 2006 ............................ 12,661 11,367
+Capital lease obligations, due in aggregate monthly installments of $74, interest rates from
+7.25%-18.28%, secured by equipment, maturing in various installments through February 2006 .... 2,106 1,891
+------- -------
+35,567 31,756
+Less current installments ...................................................................... 2,452 2,140
+------- -------
+$33,115 $29,616
+======= =======
+The aggregate maturities of long-term borrowings at December 31, 2001 are as
+follows:
+2002........ $ 2,140
+2003........ 2,596
+2004........ 2,552
+2005........ 2,342
+2006........ 5,005
+Thereafter.. 17,121
+-------
+$31,756
+=======
+(5) STOCKHOLDERS' EQUITY
+(a) Stock Issuances
+Effective as of May 28, 1999, the Company was reincorporated in Delaware.
+The existing California corporation was merged into a newly formed Delaware
+corporation and each outstanding share of common stock of the existing
+California corporation was exchanged, for a share of $.001 par value Class B
+common stock of the new Delaware corporation. In addition, pursuant to the
+reincorporation merger, an approximate 13,907-for-1 common stock split was
+authorized.
+The authorized capital stock of the Delaware corporation consists of
+100,000,000 shares of Class A common stock, par value $.001 per share, and
+60,000,000 shares of Class B common stock, par value $.001 per share. The
+Company has also authorized 10,000,000 shares of preferred stock, $.001 par
+value per share.
+F-10
+The Class A common stock and Class B common stock have identical rights
+other than with respect to voting, conversion and transfer. The Class A common
+stock is entitled to one vote per share, while the Class B common stock is
+entitled to ten votes per share on all matters submitted to a vote of
+stockholders. The shares of Class B common stock are convertible at any time at
+the option of the holder into shares of Class A common stock on a
+share-for-share basis. In addition, shares of Class B common stock will be
+automatically converted into a like number of shares of Class A common stock
+upon any transfer to any person or entity which is not a permitted transferee.
+On June 9, 1999, the Company issued 7,000,000 shares of Class A common stock
+in an initial public offering and received net proceeds of $69,720,000.
+During 2000 and 2001 certain Class B stockholders converted 3,008,704 and
+3,323,300 shares of Class B common stock to Class A common stock, respectively.
+(b) Stock Option Plan
+In January 1998, the Board of Directors of the Company adopted the 1998
+Stock Option, Deferred Stock and Restricted Stock Plan (Stock Option Plan) for
+the grant of qualified incentive stock options (ISO), stock options not
+qualified and deferred stock and restricted stock. The exercise price for any
+option granted may not be less than fair value (110% of fair value for ISOs
+granted to certain employees). In June 2001, the stockholders approved an
+amendment to the plan to increase the number of shares of Class A common stock
+authorized for issuance under the plan to 8,215,154. The options expire ten
+years from the date of grant.
+Shares subject to option under the Stock Option Plan were as follows:
+WEIGHTED
+SHARES OPTION PRICE
+------ ------------
+Outstanding at December 31, 1998...................... 1,390,715 $ 2.78
+Granted............................................. 1,209,636 11.00
+Canceled............................................ (84,777) 11.00
+----------- -----
+Outstanding at December 31, 1999...................... 2,515,574 6.41
+Granted............................................. 1,532,695 10.79
+Exercised........................................... (422,370) 3.55
+Canceled............................................ (136,998) 10.23
+----------- -----
+Outstanding at December 31, 2000...................... 3,488,901 8.51
+Granted............................................. 2,177,880 14.31
+Exercised........................................... (1,080,995) 7.10
+Canceled............................................ (87,628) 15.08
+-----------
+Outstanding at December 31, 2001...................... 4,498,158 11.53
+===========
+Options available for grant at December 31, 2001...... 2,215,631
+===========
+The following table summarizes information about stock options outstanding and
+exercisable at December 31, 2001.
+OPTIONS OUTSTANDING OPTIONS EXERCISABLE
+------------------- -------------------
+WEIGHTED
+NUMBER WEIGHTED WEIGHTED NUMBER AVERAGE
+RANGE OF OUTSTANDING AVERAGE REMAINING AVERAGE EXERCISABLE AT EXERCISE
+EXERCISE PRICE DECEMBER 31, 2001 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 2001 PRICE
+-------------- ----------------- ---------------- -------------- ----------------- -----
+$ 2.78 to $ 6.13 742,556 6.7 years $ 3.19 218,616 $ 3.08
+$10.48 to $12.38 1,896,290 8.7 years 10.76 518,182 10.78
+$13.00 to $15.75 1,541,312 8.7 years 14.05 446,208 13.41
+$18.00 to $29.45 318,000 9.3 years 23.36 66,675 23.60
+--------- ---------
+4,498,158 8.4 years $11.53 1,249,681 $ 11.06
+--------- ---------
+F-11
+At December 31, 1999, 2000 and 2001, the number of options exercisable
+for each year was 347,678, 862,111, and 1,249,681 respectively. The
+weighted-average exercise price of those options was $2.78, $7.87 and $11.06
+respectively.
+(c) Stock Purchase Plan
+Effective July 1, 1998, the Company adopted the 1998 Employee Stock Purchase
+Plan (1998 Stock Purchase Plan). Under the terms of the 1998 Stock Purchase
+Plan, 2,781,415 shares of common stock are reserved for sale to employees at a
+price no less than 85% of the lower of the fair market value of the Class A
+common stock at the beginning of the one-year offering period or the end of each
+of the six-month purchase periods. During 2000 and 2001, 266,865 and 135,600
+shares were issued under the 1998 Stock Purchase Plan for which the Company
+received $1,073,000 and $1,689,000, respectively.
+(d) Stock Compensation
+The Company accounts for stock compensation under SFAS No. 123, Accounting
+for Stock-Based Compensation, and has elected to measure compensation cost under
+Accounting Principles Board Opinion No. 25 and comply with the pro forma
+disclosure requirements of SFAS 123. Had compensation cost been determined using
+the fair value at the grant date for awards during 1999, 2000, and 2001
+consistent with the provisions of SFAS No. 123, the Company's pro forma net
+earnings (in thousands) and earnings per share would have been reduced to the
+amounts as indicated below.
+1999 2000 2001
+--------- --------- ---------
+Pro forma net earnings............... $ 19,077 $ 41,458 $ 42,281
+========= ========= =========
+Pro forma net earnings per share:
+Basic.............................. $ .60 $ 1.18 $ 1.16
+Diluted............................ .58 1.13 1.11
+========= ========= =========
+The fair value of each option is estimated on the date of grant. The Company
+used the minimum value method for stock awards prior to its initial public
+offering and the Black-Scholes option pricing models for stock awards
+afterwards. The following weighted-average assumptions used for grants were as
+follows:
+1999 2000 2001
+------ ------ -----
+Dividend yield..................... -- -- --
+Expected volatility................ 55% 70% 80%
+Risk-free interest rate............ 6.2% 6.3% 4.2%
+Expected life of option............ 5 5 5
+==== ==== ====
+The weighted-average fair value of options granted during 1999, 2000, and
+2001 were $6.93, $6.83, and $9.55, respectively.
+(6) INCOME TAXES
+The pro forma unaudited income tax adjustments for 1999 represent taxes,
+which would have been reported assuming the Company had been subject to federal
+and state income taxes as a C Corporation the entire year. The actual and pro
+forma provisions for income tax expense were as follows (in thousands):
+1999 2000 2001
+--------- ---------- -------
+Actual income taxes:
+Federal:
+Current.............................. $ 8,012 $ 25,420 $ 24,134
+Deferred............................. (792) (1,360) 16
+--------- --------- ---------
+Total federal................... 7,220 24,060 24,150
+--------- --------- ---------
+State:
+Current.............................. 1,480 4,784 4,627
+Deferred............................. (65) (244) (406)
+--------- --------- ---------
+Total state..................... 1,415 4,540 4,221
+--------- --------- ---------
+Foreign:
+Current.............................. -- -- 314
+Deferred............................. -- -- --
+--------- --------- ---------
+Total foreign................... -- -- 314
+--------- --------- ---------
+F-12
+Total actual income taxes....... 8,635 28,600 28,685
+--------- --------- ---------
+Pro forma adjustments:
+Federal................................. 3,533
+State................................... 712
+---------
+Total pro forma adjustments..... 4,245
+---------
+Total pro forma income taxes.... $ 12,880
+=========
+Income taxes (pro forma for 1999) differs from the statutory tax rate as
+applied to earnings before income taxes as follows:
+1999 2000 2001
+--------- --------- ---------
+Expected income tax expense............................. $ 11,569 $ 25,323 $ 26,584
+State income tax, net of federal benefit................ 1,311 2,951 2,744
+Rate differential on foreign income.......................... -- -- (822)
+Other................................................... -- 326 179
+--------- --------- ---------
+Total provision for income taxes.............. $ 12,880 $ 28,600 $ 28,685
+========= ========= =========
+The tax effects of temporary differences that give rise to significant
+portions of deferred tax assets and deferred tax liabilities at December 31,
+2000 and 2001 are presented below:
+DEFERRED TAX ASSETS: 2000 2001
+-------------------- -------- --------
+Inventory adjustments...................... $ 1,176 $ 1,749
+State taxes................................ 1,490 --
+Allowances for receivables................. 2,100 2,898
+Other...................................... 1,060 1,379
+-------- --------
+Total deferred tax assets.......... 5,826 6,026
+-------- --------
+Deferred tax liabilities:
+Depreciation of property and equipment..... 1,386 1,222
+Other...................................... 26 --
+-------- --------
+Total deferred tax liabilities..... 1,412 1,222
+-------- --------
+Net deferred tax assets................. $ 4,414 $ 4,804
+======== ========
+Management believes it is more likely than not that the results of future
+operations will generate sufficient taxable income to realize the net deferred
+tax assets.
+Prior to June 7, 1999, the Company was treated for federal and state income
+tax purposes as an S Corporation under Subchapter S of the Internal Revenue Code
+and comparable state laws. As a result, the earnings of the Company through June
+7, 1999 were included in the taxable income of the Company's stockholders for
+federal and state income tax purposes, and the Company was generally not subject
+to income tax on such earnings, other than California and other state franchise
+taxes.
+In connection with the Company's initial public offering of its Class A
+common stock in June 1999, the Company terminated its S Corporation status and
+became a C Corporation subject to federal and state income taxes. The Company's
+change of status to a C Corporation resulted in the recording of deferred tax
+assets amounting to $1,800,000. This amount is reflected as a reduction of
+actual income tax expense in the accompanying 1999 consolidated statement of
+earnings.
+Consolidated U.S. income before taxes was $32.7 million, $72.4 million, and
+$69.7 million for the years ended December 31, 1999, 2000, and 2001,
+respectively. The corresponding income (loss) before taxes for non U.S. based
+operations was $0, ($.1), and $6.3 million for the years ended December 31,
+1999, 2000, and 2001, respectively.
+The Company has not provided withholding and U.S. federal income taxes on
+approximately $6.2 million of undistributed earnings of its foreign subsidiaries
+because such earnings are or will be invested indefinitely in such subsidiaries
+or will be offset by approximate credits for foreign taxes paid. It is not
+practicable to determine the U.S. federal income tax liability, if any, that
+would be payable if such earnings were not reinvested indefinitely.
+F-13
+(7) BUSINESS AND CREDIT CONCENTRATIONS
+The Company operates in the footwear industry and generates most of its
+sales in the United States, although it's products are sold into various foreign
+countries. The footwear industry is impacted by the general economy. Changes in
+the marketplace may significantly affect management's estimates and the
+Company's performance. Management performs regular evaluations concerning the
+ability of customers to satisfy their obligations and provides for estimated
+doubtful accounts. Domestic accounts receivable amounted to $87,825,000 and
+$102,543,000 before allowances for bad debts and returns at December 31, 2000
+and 2001, respectively, which generally do not require collateral from
+customers. Foreign accounts receivable amounted to $13,955,000 and $24,855,000
+before allowance for bad debts and returns at December 31, 2000 and 2001,
+respectively, which generally are collateralized by letters of credit.
+International net sales amounted to $43,900,000, $65,159,000 and $121,001,000
+for the years ended December 31, 1999, 2000 and 2001, respectively. The
+Company's credit losses for the years ended December 31, 1999, 2000 and 2001
+were $1,699,000, $537,000 and $1,459,000, respectively, and did not
+significantly differ from management's expectations.
+Net sales to customers in the United States of America exceeded 87% of total
+net sales for each of the years in the three-year period ended December 31,
+2001. Assets located outside of the United States of America consists primarily
+of cash, accounts receivable, inventory, property and equipment, and other
+assets and totaled $22,959,000 and $59,795,000, at December 31, 2000 and 2001,
+respectively.
+During 1999, 2000 and 2001, no customer accounted for 10% or more of net
+sales. The Company had one customer which accounted for 15.3% of trade accounts
+receivable at December 31, 2000. At December 31, 2001, one customer accounted
+for 10.2% of trade accounts receivable.
+During 1999, the Company had four manufacturers that accounted for between
+12.3% and 15.5% each of total purchases. During 2000, the Company had four
+manufacturers that accounted for between 9.2% and 20.2% each of total purchases.
+During 2001, the company had four manufacturers that accounted for between 7.9%
+and 19.9%, each, of total purchases.
+Substantially all of the Company's products are produced in China. The
+Company's operations are subject to the customary risks of doing business
+abroad, including, but not limited to, currency fluctuations, custom duties and
+related fees, various import controls and other monetary barriers, restrictions
+on the transfer of funds, labor unrest and strikes and, in certain parts of the
+world, political instability. The Company believes it has acted to reduce these
+risks by diversifying manufacturing among various factories. To date, these risk
+factors have not had a material adverse impact on the Company's operations.
+(8) BENEFIT PLAN
+The Company has adopted a profit sharing plan covering all employees who are
+21 years of age and have completed one year of service. The plan was amended in
+April 2001 to allow employees to enter into the plan after six months of
+service. Employees may contribute up to 15.0% of annual compensation. Company
+contributions to the plan are discretionary and vest over a five-year period.
+The Company's contributions to the plan amounted to $259,000, $500,000, and
+$703,000 for the years ended December 31, 1999, 2000 and 2001, respectively. As
+its contribution to the plan in 2001, the Company issued 48,072 shares of its
+Class A common stock. The shares contributed to the plan contain certain
+restrictions regarding the subsequent sales of those shares.
+(9) COMMITMENTS AND CONTINGENCIES
+(a) Leases
+The Company leases facilities under operating lease agreements expiring
+through August 2012. The leases are on an all-net basis, whereby the Company
+pays taxes, maintenance and insurance. The Company also leases certain equipment
+and automobiles under operating lease agreements expiring at various dates
+through July 2005. Rent expense for the years ended December 31, 1999, 2000 and
+2001 approximated $9,800,000, $13,200,000 and $18,014,000, respectively.
+The Company also leases certain property and equipment under capital lease
+agreements requiring monthly installment payments through February 2006. The
+cost of this property and equipment was $16,154,000 with a net book value of $
+12,501,000 at December 31, 2001.
+Future minimum lease payments under noncancellable leases at December 31,
+2001 are as follows (in thousands):
+F-14
+CAPITAL OPERATING
+LEASES LEASES
+------ ------
+Year ending December 31:
+2002............................................. $ 3,118 $ 21,416
+2003............................................. 2,909 20,818
+2004............................................. 2,909 19,970
+2005............................................. 2,571 19,976
+2006............................................. 4,721 16,342
+Thereafter....................................... 1 52,293
+--------- ---------
+$ 16,229 $150,815
+========
+Less imputed interest............................ 2,971
+---------
+Present value of net minimum lease payments...... $ 13,258
+=========
+The Company leases office space to unrelated third parties under
+noncancellable operating leases expiring through November 2004, annual rentals
+are approximately $311,000, $119,000 and $106,000 for the years ended December
+31, 2002, 2003, and 2004, respectively.
+(b) Litigation
+In December 1999 and January 2000, the Company and two officers/directors
+were named as defendants in four purported class-action lawsuits. Two of the
+lawsuits also named the underwriters of the Company's initial public offering as
+defendants. All of the complaints seek damages and rescission on behalf of a
+class of persons who purchased securities in, or traceable to, the Company's
+initial public offering or thereafter on the open market prior to July 6, 1999.
+All four actions were subsequently consolidated into one matter and a
+consolidated complaint was filed on June 1, 2000. The consolidated complaint
+named as defendants the Company, two officers of the Company, and the
+underwriters of the Company's Offering. The class, as currently alleged in the
+consolidated complaint now on file, consists of all persons who purchased
+securities in, or traceable to, the Company's June 9, 1999 Offering or
+thereafter on the open market prior to June 15, 1999.
+The court issued an order on June 20, 2001 dismissing the consolidated
+complaint in its entirety with leave to plaintiffs to amend. The class filed an
+amended complaint on August 3, 2001 and the Company filed a motion to dismiss
+the amended complaint. In response to the motion, and after discussions between
+class counsel and counsel for defendants, the class agreed to dismiss with
+prejudice the entire consolidated class action as to the Company, its two named
+officers and defendants and the underwriters. The class agreed to dismiss with
+prejudice without any settlement from defendants. Thus, the stipulation had no
+material impact on operations or financial results. A stipulation of dismissal
+with prejudice was executed by the parties in late December 2001. The court
+signed the stipulation without modification and entered the order of dismissal
+on January 30, 2002.
+The Company is involved in other litigation arising from the ordinary course
+of business. Management does not believe that the disposition of these matters
+will have a material effect on the Company's financial position or results of
+operations.
+(c) Purchase Commitments
+At December 31, 2001, the Company had purchase commitments of approximately
+$89,353,000.
+The Company finances production activities in part through the use of
+interest-bearing open purchase arrangements with certain of its Asian
+manufacturers. These arrangements currently bear interest at rates between 0.5%
+and 1.5% per 30 to 60 day term. The amounts outstanding under these arrangements
+at December 31, 2000 and 2001 were $48,484,000 and $49,255,000, respectively,
+which are included in accounts payable in the accompanying consolidated balance
+sheets. Interest expense incurred by the Company under these arrangements
+amounted to $3,000,000 in 1999, $6,400,000 in 2000 and $5,900,000 in 2001.
+(d) Compensation
+Certain officers and key employees of the company are entitled to incentive
+bonuses under employment contracts. The bonuses are based on Company
+performance.
+(10) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
+F-15
+Summarized unaudited financial data are as follows (in thousands):
+2000 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
+---- ----------- ----------- ---------------- --------------
+Net sales................................ $ 133,344 $ 163,899 $ 205,749 $ 172,044
+Gross profit............................. 53,634 69,137 86,911 74,543
+Net earnings............................. 6,734 12,010 15,286 9,721
+========== =========== ========== ==========
+Net earnings per share:
+Basic.................................. $ .19 $ .34 $ .43 $ .27
+Diluted................................ .19 .33 .40 .26
+========== =========== ========== ==========
+2001 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
+---- ----------- ----------- ---------------- --------------
+Net sales................................ $ 227,494 $ 230,899 $ 287,900 $ 214,092
+Gross profit............................. 99,314 99,175 122,595 85,096
+Net earnings............................. 17,100 16,822 11,378 1,970
+========== =========== ========== ==========
+Net earnings per share:
+Basic.................................. $ .48 $ .46 $ .31 $ .05
+Diluted................................ .45 .44 .30 .05
+========== =========== ========== ==========
+F-16
+SKECHERS U.S.A., INC.
+SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
+YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001
+BALANCE AT CHARGED TO DEDUCTIONS BALANCE
+BEGINNING OF COSTS AND AND AT END
+DESCRIPTION PERIOD EXPENSES WRITE-OFFS OF PERIOD
+----------- ---------------- --------------- ---------------- ------------
+As of December 31, 1999:
+Allowance for doubtful accounts...................... 1,466,000 740,000 (1,699,000) 507,000
+Reserve for sales returns and allowances............. $ 1,947,000 $ 13,600,000 $ (12,817,000) $ 2,730,000
+As of December 31, 2000:
+Allowance for doubtful accounts...................... 507,000 1,326,000 (537,000) 1,296,000
+Reserve for sales returns and allowances............. $ 2,730,000 $ 15,651,000 $ (14,525,000) $ 3,856,000
+As of December 31, 2001
+Allowance for chargebacks................................ -- 3,618,000 -- 3,618,000
+Allowance for doubtful accounts...................... 1,296,000 1,235,000 (1,459,000) 1,072,000
+Reserve for sales returns and allowances............. $ 3,856,000 $ 29,615,000 $ (31,048,000) $ 2,423,000
+============ ============= =============== =============
+S-1
\ No newline at end of file
diff --git a/raw/filings/0001065837/2001/0000950148-02-000847/filing_metadata.csv b/raw/filings/0001065837/2001/0000950148-02-000847/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..6b978df66c7997976005430e7a4fb4ae6cc83698
--- /dev/null
+++ b/raw/filings/0001065837/2001/0000950148-02-000847/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0001065837,SKX,SKECHERS USA INC,10-K405,2002-04-01,2001-12-31,2002-04-01T05:00:00.000Z,0000950148-02-000847,v80061e10-k405.txt,"FORM 10-K405 FOR DECEMEBER 31, 2001",544635,0,0,https://www.sec.gov/Archives/edgar/data/1065837/000095014802000847/v80061e10-k405.txt,https://www.sec.gov/Archives/edgar/data/1065837/000095014802000847/,2001,2001,1
diff --git a/raw/filings/0001065837/2001/0000950148-02-000847/item1.txt b/raw/filings/0001065837/2001/0000950148-02-000847/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7a03ea152bc39c8399fe45c413d4eea838526ce3
--- /dev/null
+++ b/raw/filings/0001065837/2001/0000950148-02-000847/item1.txt
@@ -0,0 +1,1250 @@
+ITEM 1. BUSINESS
+Certain information contained in this report constitutes forward-looking
+statements which involve risks and uncertainties including, but not limited to,
+information with regard to our plans to increase the number of retail locations
+and styles of footwear, the maintenance of customer accounts and expansion of
+business with such accounts, the successful implementation of our strategies,
+future growth and growth rates and future increases in net sales, expenses,
+capital expenditures and net earnings. The words "believes," "anticipates,"
+"plans," "expects," "endeavors," "may," "will," "intends," "estimates," and
+similar expressions are intended to identify forward-looking statements. These
+forward-looking statements involve risks and uncertainties, and our actual
+results could differ materially from those anticipated in these forward-looking
+statements as a result of certain factors, including, but not limited to, those
+set forth under "Risk Factors" and elsewhere in this Report.
+GENERAL
+We design and market a collection of contemporary footwear for men, women
+and children under the Skechers brand, one of the most recognized names in the
+footwear industry. Our footwear reflects a combination of style, quality and
+value that appeals to a broad range of customers. Our shoes are sold through a
+wide range of department stores and leading specialty stores, a growing network
+of our own retail stores and our e-commerce website. Our objective is to
+continue to profitably grow our domestic operations, while leveraging our brand
+name to expand internationally.
+We seek to offer consumers a collection of fashionable footwear that
+satisfies their casual, active and dress footwear needs. Our product line
+currently consists of over 1,500 active styles that are organized in seven
+distinct collections. Our core customer is a style-conscious consumer between
+the ages of 12 and 25 who is attracted to our youthful brand image and fashion
+forward designs. Over the last several years, we have introduced and expanded
+several footwear lines that have broadened our customer base. These shoes
+combine styling themes found elsewhere in our product line with colors and
+materials that reflect a playful image appropriate for children. We have also
+recently introduced or expanded several other lines such as Skechers Collection
+and Skechers by Michelle K that appeal to young adults interested in
+sophisticated fashions for the workplace and social occasions.
+We believe that a well-recognized brand is an important element for success
+in the footwear business. We have aggressively promoted the Skechers brand
+through a comprehensive marketing campaign. This ongoing program has included
+endorsements from celebrities such as Britney Spears, Rick Fox, Robert Downey,
+Jr., Matt Dillon and Rob Lowe, print advertisements in publications such as GQ,
+Vogue and Seventeen and commercials aired on major networks and leading cable
+channels such as MTV, ESPN and Nickelodeon. We believe that this campaign, which
+is image oriented rather than product specific, has resulted in a high level of
+recognition of the Skechers brand across a variety of footwear categories.
+Product Lines
+In December 1992, we introduced our first Skechers-branded line called
+Skechers Sport Utility Footwear. Since that time, we have expanded our product
+offerings and grown our net sales while substantially increasing the breadth and
+penetration of our account base. Each of our product lines benefits from the
+umbrella of the Skechers brand, which is recognized for contemporary and
+progressive styling, quality, comfort, and affordability. To promote innovation
+and brand relevance, we manage our product lines separately by utilizing
+dedicated design and marketing teams. Our product lines share back office
+services in order to limit our operating expenses and fully utilize our
+management's vast experience in the footwear industry.
+Skechers USA. Our Skechers USA category for men and women includes six types
+of footwear: (i) Casuals, (ii) Utility, (iii) Steel Toe, (iv) Classics, (v)
+Outdoor, and (vi) Comfort (for men only).
+- The Casuals category includes "Black & Brown" boots and shoes that
+generally have a rugged, less refined design - some with
+industrial-inspired fashion features. This category is defined by the
+heavy-lugged outsole and value-oriented materials employed in the
+uppers. We design and price this category to appeal primarily to young
+persons with broad acceptance across age groups. Suggested retail price
+points range from $45.00 to $70.00 for this category.
+3
+- Our Utility styles consist of a single category of boots that are
+designed to meet the functional demands of a work boot but are marketed
+as casual footwear. The Utility outsoles are designed to be durable and
+wearable with Goodyear welted and hardened rubber outsoles. Uppers are
+constructed of thicker, better grades of heavily oiled leathers, and may
+include water-resistant or waterproof construction and/or materials,
+padded collars and Thermolite insulation. Styles include logger boots
+and demi-boots, engineer boots, motorcycle boots and six- and
+eight-eyelet work boots. Suggested retail price points range from $80.00
+to $100.00 for this category.
+- Steel Toe, an expanded category within Skechers USA, includes boots,
+shoes and athletic sneakers with steel toe construction. This category
+is designed for men and women whose jobs have certain safety
+requirements. Suggested retail price points range from $45.00 to $100.00
+for this category.
+- The Classics category of boots and shoes employ softer outsoles, which
+are often constructed of polyvinyl carbon ("PVC"). The more refined
+design of this footwear utilizes better grades of leather and linings.
+Designs are sportier than the Casuals category and feature oxfords,
+wingtips, monk straps, demi-boots and boots. Suggested retail price
+points range from $55.00 to $75.00 for this category.
+- Our Outdoor styles primarily consist of hiker-influenced constructions
+that include boots and shoes. While this category includes many comfort
+and technical performance features, we market it primarily on the basis
+of style and comfort rather than on performance. However, many of the
+technical performance features in the Outdoor category contribute to the
+level of comfort this footwear provides. Outsoles generally consist of
+molded and contoured hardened rubber. Many designs may include gussetted
+tongues to prevent penetration of water and debris, cushioned mid-soles,
+motion control devices such as heel cups, water-resistant or water-proof
+construction and materials and heavier, more durable hardware such as
+metal D-rings instead of eyelets. Uppers are generally constructed of
+heavily oiled nubuck and full-grain leathers. Suggested retail price
+points range from $55.00 to $100.00 for this category.
+- Launched in stores in Fall 2001, Skechers Comfort is the latest category
+of Skechers USA. With comfortable outsoles, more cushioned insoles and
+leather uppers, the line of stylish casuals is for trend-savvy men of
+all ages who want more edge in their black and brown footwear. Skechers
+Comfort is intended to be available in many of the same stores that
+carry Skechers USA as well as additional mid-tier and better department
+stores. Suggested retail price points range from $55.00 to $75.00 for
+this category.
+Skechers Sport. Our Skechers Sport footwear for men and women includes (i)
+Joggers, Trail runners, Sport hikers, "Terrainers" (multi-functional shoes
+inspired by cross-trainers), (ii) Court, and (iii) "Street" active sneakers. We
+distinguish our Skechers Sport category by its technical performance-inspired
+looks; however, generally we do not promote the technical performance features
+of these shoes.
+- Our Jogger, Trail runner, Sport hiker and Terrainer designs are
+lightweight constructions that include cushioned heels, polyurethane
+midsoles, phylon and other synthetic outsoles, and white leather or
+synthetic uppers such as durabuck, cordura and nylon mesh. Careful
+attention is devoted to the design, pattern and construction of the
+outsoles, which vary greatly depending on the intended use. This
+category features earth tones and athletic-inspired hues with popular
+colors in addition to the traditional athletic white. The Jogger, Trail
+runner, Sport hiker and Terrainer styles are marketed through athletic
+footwear specialty retailers as well as basic existing accounts.
+Suggested retail price points range from $40 to $80 for this
+category.
+- The Court category is inspired from classic court shoes and includes
+technical features, but is not meant to be a performance shoe. The court
+shoes feature lightweight constructions that include polyurethane and
+phylon midsoles, rubber low-profile outsoles, and some with heel airbag
+inserts for additional comfort and performance. The uppers are mostly
+mid-cut with some low tops, and constructed with better quality smooth,
+full-grain and tumbled leathers, typically in white. The court styles
+are marketed through athletic footwear specialty retailers as well as
+basic existing accounts. Suggested retail price points range from $40.00
+to $70.00 for this category.
+- Street active sneakers are everyday, everywhere casual shoes for females
+of all ages. Active sneakers are intended to be retailed through
+specialty casual shoe stores and department stores. Suggested retail
+price points range from $40.00 to $65.00 for this category.
+4
+Skechers Collection. The Skechers Collection line features stylish dress
+casual, dress and EuroSport shoes for the fashion-forward young male consumer.
+With some basic "essential" styles, this category is primarily comprised of more
+sophisticated designs influenced, in part, by prevailing trends in Italy and
+other European countries. As such, this footwear is more likely than other
+categories to be sourced from Italy and Portugal. The dress and dress casuals
+include classic tailored and fashion-forward square, rounder and pointed lasts
+in a variety of styles, such as bicycle toes, monk straps, wingtips, oxfords,
+cap toes, demi-boots and boots. The outsoles project a sleeker profile and can
+be either man-made or leather. The uppers are in high-quality leathers including
+glossy, "box," and aniline. Inspired by the latest in European fashion,
+EuroSport blends classic dress casual styling with sport to create a versatile
+and comfortable casual shoe. First delivered in 2001, EuroSport is marked by
+details, high-quality leathers and suede in multiple colorations, and
+sport-inspired rubber outsoles. We have promoted Skechers Collection with
+advertising campaigns featuring Rick Fox, Robert Downey, Jr., Matt Dillon and
+Robe Lowe. Suggested retail price points range from $65.00 to $155.00 for this
+category.
+Skechers Kids. The Skechers Kids line features a range of products including
+boots, shoes and sneakers. Comprised primarily of shoes that are designed like
+their adult counterparts but in "takedown" versions, the line offers the younger
+set the same popular styles as their older siblings and schoolmates. This
+"takedown" strategy maintains the product integrity with premium leathers,
+hardware and outsoles without the attendant costs involved in designing and
+developing new products. In addition, we adapt current fashion from our men's
+and women's lines by modifying designs and choosing colors and materials that
+are more suitable to the playful image we have established in the children's
+footwear market. Skechers Kids includes variations on Skechers Sport, Skechers
+USA and Skechers Collection adult shoes. Unique to Skechers Kids is S-Lights, a
+line of lighted footwear combining sequencing patterns and lights in the outsole
+and other areas of the shoes. Our children's footwear is offered at retail
+prices ranging from $20.00 to $50.00.
+Somethin' Else from Skechers. Launched in stores in Fall 2001, Somethin'
+Else from Skechers is a junior line that features an array of stylish shoes,
+boots and sandals. We target to 12- to 25-year old style conscious females, and
+Somethin' Else from Skechers is focused on current styling with numerous details
+and various silhouettes - including wedges and sculpted wedges. Many of the
+boots and shoes are made from more affordable materials such as man-made
+leather. Somethin' Else from Skechers is designed to be a complementary line for
+juniors who already wear Skechers USA and Skechers Sport styles. Suggested
+retail price points range from $20.00 to $70.00 for this category.
+Skechers by Michelle K. The Skechers by Michelle K line, also launched in
+stores in Fall 2001, is a designer line for trend-savvy young women between the
+ages of 18 and 34. A signature line from our head designer, Michelle Kelchak,
+the category is comprised of high fashion boots, shoes and sandals. Noticing a
+hole in the market for affordable high-fashion footwear, Michelle and her team
+of designers have created a line reflective of the latest European, Asian and
+American trends at a reasonable price and of the highest quality. Most styles
+are crafted in Italy, Portugal and Spain, with others made in Brazil. Skechers
+by Michelle K is marked by high-grade leathers, fine detailing and design and
+flattering silhouettes, including sculpted heels and lower kitten heels.
+Suggested retail price points range from $60.00 to $250.00 for this category.
+4 Wheelers by Skechers. Launched in stores in Fall 2001, 4 Wheelers by
+Skechers is a line of technical fashion roller skates for men, women and
+children. The skates incorporate our most popular sneaker uppers, including the
+Energy and Energy II, on quality aluminum and nylon chassis and polyurethane
+wheels. The uppers are in cool color combinations and feature fashion details
+such as glimmer trim for some women and girls' styles. Technical features
+include: full precision ABEC-1, 3 and 5 bearings, unique heel brake for easy
+control, durable chassis, controllable steering, and reinforced upper. Designed
+for the entire family, 4 Wheelers by Skechers are street skates that can be worn
+indoors, and are ideal for fun and fitness. We have promoted 4 Wheelers by
+Skechers with an advertising campaign featuring Britney Spears. Suggested retail
+price points for adults range from $80.00 to $100.00, and for children from
+$60.00 to $75.00.
+In addition to the previously mentioned lines, we offer seasonal sandalized
+footwear, which features open-toe and open-side constructions consistent with
+our offerings in the Skechers USA, Skechers Sport and Skechers Collection
+categories of footwear. Such footwear includes fisherman's sandals, shower
+sandals, beach sandals, slides, comfort-oriented land sandals and technically
+inspired water sport sandals. Sandalized footwear includes both leather and
+synthetic constructions and may feature suede footbeds with form-fitting
+midsoles. We typically deliver our sandalized footwear to retailers from
+February to August. Suggested retail price points range from $20.00 to $60.00
+for this category.
+PRODUCT DESIGN AND DEVELOPMENT
+Our principal goal in product design is to generate new and exciting
+footwear with contemporary and progressive styles and comfort enhancing
+performance features. All of our footwear is designed with an active, youthful
+lifestyle in mind. We design most
+5
+new styles to be fashionable and marketable to the 12 to 25 year old consumer,
+while substantially all of our lines appeal to the broader range of 5 to 40 year
+old consumers. While many of our shoes have performance features, we generally
+do not position our shoes in the marketplace as technical performance shoes.
+We believe that our product success is related in a large part to our
+ability to recognize trends in the footwear markets and to design products that
+anticipate and accommodate consumers' ever-evolving preferences. We strive to
+analyze, interpret and translate current and emerging lifestyle trends.
+Lifestyle trend information is compiled by our designers through various methods
+designed to monitor changes in culture and society, including (1) review and
+analysis of modern music, television, cinema, clothing, alternative sports and
+other trend-setting media, (2) travel to domestic and international fashion
+markets to identify and confirm current trends, (3) consultation with our retail
+customers for information on current retail selling trends, (4) participation in
+major footwear trade shows to stay abreast of popular brands, fashions and
+styles and (5) subscription to various fashion and color information services.
+In addition, a key component of our design philosophy is to continually
+reinterpret our successful styles in the Skechers image.
+The footwear design process typically begins about nine months before the
+start of a season. Our products are designed and developed by our in-house
+staff. To promote innovation and brand relevance, we utilize dedicated design
+teams that focus on each of the men's, women's and children's categories, and
+report to our senior design executives. In addition, we utilize outside design
+firms on an item-specific basis to supplement our design efforts. The design
+process is extremely collaborative; members of the design staff meet weekly with
+the heads of retail and merchandising, sales, production and sourcing to further
+refine our products to meet the particular needs of our markets.
+After a design team arrives at a consensus regarding the fashion themes for
+the coming season, the designers then translate these themes into our products.
+These interpretations include variations in product color, material structure
+and decoration, which are arrived at after close consultation with our
+production department. Prototype blueprints and specifications are created and
+forwarded to our prototype manufacturers located in Taiwan, which then forward
+design prototypes back to our domestic design team. New design concepts are
+often also reviewed by our major retail customers. Customer input not only
+allows us to measure consumer reaction to the latest designs, but also affords
+us an opportunity to foster deeper and more collaborative relationships with our
+customers. Our design teams can easily and quickly modify and refine a design
+based on customer input.
+We occasionally order limited production runs which may initially be tested
+in our concept stores. By working closely with store personnel, we obtain
+customer feedback that often influences product design and development. We
+believe that sales in our concept stores can help forecast sales in national
+retail stores. We strive to determine within seven to 14 days after initial
+introduction of a product whether there is substantial demand for the style,
+thereby aiding us in our sourcing decisions. Styles that have substantial
+consumer appeal are highlighted in upcoming collections or offered as part of
+our periodic style offerings. The ability to initially test our products allows
+us to discontinue less popular styles after only a limited production run which
+affords us an indicator of future production and a hedge to fashion risks. Also,
+we strive to monitor five- and 10-week trailing trends of orders of our retail
+account base in order to manage future production of styles that are increasing
+or decreasing in popularity. Generally, the production process takes
+approximately six months from design concept to commercialization.
+SOURCING
+Factories. Our products are produced by independent contract manufacturers
+primarily located in China and, to a lesser extent, in Italy, the Philippines,
+Brazil and various other countries. Substantially all of our products are
+manufactured in China. We do not own or operate any manufacturing facilities. We
+believe the use of independent manufacturers increases our production
+flexibility and capacity while at the same time substantially reduces capital
+expenditures and avoids the costs of managing a large production work force.
+We seek to use, whenever possible, manufacturers that have previously
+produced our footwear, which we believe enhances continuity and quality while
+controlling production costs. We attempt to monitor our selection of independent
+factories to ensure that no one manufacturer is responsible for a
+disproportionate amount of our merchandise. We source product for styles that
+account for a significant percentage of our net sales from at least four
+different manufacturers. During 2001, we had four manufacturers that accounted
+for approximately 51.9% of total purchases. No one manufacturer accounted for
+20.0% or more of our total purchases for this period. To date, we have not
+experienced difficulty in obtaining manufacturing services.
+We maintain an in-stock position for selected styles of footwear in order to
+minimize the time necessary to fill customer orders. In order to maintain an
+in-stock position, we place orders for selected footwear with our manufacturers
+prior to the time we receive customers' orders for such footwear. In order to
+reduce the risk of overstocking, we seek to assess demand for our products by
+6
+soliciting input from our customers and monitoring retail sell-through. In
+addition, we analyze historical and current sales and market data to develop
+internal product quantity forecasts which helps reduce inventory risks.
+We finance our production activities in part through the use of
+interest-bearing open purchase arrangements with certain of our Asian
+manufacturers. These facilities currently bear interest at a rate between 0.5%
+and 1.5% for 30 to 60 days financing, depending on the factory. We believe that
+the use of these arrangements affords us additional liquidity and flexibility.
+While we have long-standing relationships with many of our manufacturers and
+believe our relationships to be good, there are no long-term contracts between
+us and any of our manufacturers.
+Production Oversight. To safeguard product quality and consistency, we
+oversee the key aspects of production from initial prototype manufacture through
+initial production runs to final manufacture. Monitoring is performed
+domestically by our in-house production department and in Asia through an
+approximately 130-person staff working from our offices in China and Taiwan. We
+believe that our Asian presence allows us to negotiate supplier and manufacturer
+arrangements more effectively, decrease product turnaround time, and ensure
+timely delivery of finished footwear. In addition, we require our manufacturers
+to certify that neither convict, forced, indentured labor (as defined under U.S.
+law) nor child labor (as defined by the manufacturer's country) is used in the
+production process, that compensation will be paid according to local law and
+that the factory is in compliance with local safety regulations.
+Quality Control. We believe that quality control is an important and
+effective means of maintaining the quality and reputation of our products. Our
+quality control program is designed to ensure that finished goods not only meet
+our established design specifications, but also that all goods bearing our
+trademarks meet our standards for quality. Quality control personnel perform an
+array of inspection procedures at various stages of the production process,
+including examination and testing of prototypes of key raw materials prior to
+manufacture, samples and materials at various stages of production and final
+products prior to shipment. Our employees are on-site at each of our major
+manufacturers to oversee key phases of production. In addition, unannounced
+visits to the manufacturing sites, to further monitor compliance with our
+manufacturing specifications, are made by our employees and agents.
+ADVERTISING AND MARKETING
+Our advertising and marketing focus is to maintain and enhance recognition
+of the Skechers brand name as a casual, active youthful brand that stands for
+quality, comfort and design innovation. Senior management is directly involved
+in shaping our image and the conception, development and implementation of our
+advertising and marketing activities. We have and continue to increase our
+advertising budget consistent with projected sales, which has included such
+avenues as magazines, television, trade shows, billboards, and buses. We
+endeavor to spend approximately 8% to 10% of annual net sales in the marketing
+of Skechers footwear through advertising, promotions, public relations, trade
+shows and other marketing efforts.
+Advertising
+Substantially all of our advertising is conceived and designed by our
+in-house staff. By retaining our advertising functions in-house, we believe that
+we are able to maintain a greater degree of control over both the creative
+process and the integrity of the Skechers brand image, while realizing
+substantial cost savings compared to using outside agencies.
+We believe that our success to date is due in large part to our advertising
+strategies and methods. Our in-house advertising team has developed a
+comprehensive program to promote the Skechers brand name through lifestyle and
+image advertising. While all advertisements feature our footwear, our
+advertisements generally seek to build and increase brand awareness by linking
+the Skechers brand to youthful, contemporary lifestyles and attitudes rather
+than to market a particular footwear product. We have made a conscious effort to
+avoid the association of the Skechers name with any single category of shoe to
+provide merchandise flexibility and to aid the ability to take the brand and
+product design in the direction of evolving footwear fashions and consumer
+preferences.
+We use a variety of media for our national advertising. Print efforts are
+represented by one and two page ads displayed in popular fashion and lifestyle
+consumer publications that appeal to our target customer group, such as Spin,
+Details, Seventeen, GQ, Vibe, Rolling Stone, Vogue and many others. Our
+progressive television advertisements are primarily produced in-house and air
+frequently on top television shows on major networks and the cable channels.
+Different advertisements are created for each of the 5 to 11, 12 to 24 and 25 to
+35 year old male and female consumer groups. Our in-house media buyer
+strategically selects during which program and in which geographic area certain
+of our commercials will air in order to reach the appropriate target audience.
+Endorsements. We believe that the high profile image and diverse appeal of
+each of our celebrity endorsements will help the Skechers brand reach new
+markets. In 2000, we signed our first celebrity endorsement agreements,
+including signing singer Britney Spears for an international (worldwide
+excluding the United States) print media campaign through June 2002. We expanded
+upon our
+7
+successful relationship with Britney Spears in 2002 by signing a three-year
+worldwide licensing agreement for her to promote our collection of Britney
+Spears 4 Wheelers, which is fashioned after our 4 Wheelers by Skechers line of
+technical fashion roller skates. We also recently signed professional basketball
+player and actor Rick Fox and actor Robert Downey, Jr. to separate limited term
+worldwide print media campaigns. We previously had similar relationships with
+actors Matt Dillon and Rob Lowe. From time to time, we may sign other
+celebrities to endorse our brand name and image and to strategically focus
+marketing of our products among specific consumer groups.
+Marketing and Promotions. By applying creative sales techniques to a broad
+spectrum of mediums, the marketing and promotions team develops Skechers brand
+name recognition, serving as a catalyst for increased product sales. Skechers
+promotional strategies have encompassed in-store specials, concert promotions,
+product tie-ins and giveaways, and collaborations with national retailers and
+radio stations. Our imaginative promotions draw customers to Skechers retail
+stores and to our retail partners' locations, which results in an expanded
+customer base and strong product sell-throughs.
+Public Relations. During 2001, we received notable press coverage in print
+publications, including a Forbes cover story and being ranked ninth in
+BusinessWeek's Top 100 Growth Companies. In addition, we were noted in Money,
+Vogue, Movieline, Entertainment Weekly, Elle and Sportswear International, among
+others. We have repeatedly received recognition in the footwear industry for our
+exciting and innovative products, including Excellence in Children's Design
+Award by Footwear Plus magazine. Skechers was awarded the 2001 "Corporate Vendor
+of the Year" and "Children's Vendor of the Year" awards from Shoe Carnival. The
+Shoe Carnival awards recognize brands that have the largest sales increases and
+profit margin in the shoe chains stores throughout the retail fiscal year. With
+our strategy tied to promoting the newest styles produced by our design and
+development teams, our products are often featured in fashion and pop culture
+magazines, and in a select group of films and popular television shows. For
+example, our shoes have been prominently displayed and referenced on The Today
+Show, Oprah, Good Morning America, Dharma & Greg and Malcolm in the Middle.
+Merchandising
+Our in-house display merchandising department supports retailers and
+distributors by developing point-of-purchase advertising to further promote our
+products in our wholesale customers' stores and to leverage recognition of the
+Skechers brand name at the retail level. Our field service representatives
+coordinate with our sales department to ensure better sell-through at the retail
+level. Our representatives communicate with and visit our wholesale customers on
+a regular basis to aid in the proper visual display of our merchandise and to
+distribute and display such point-of-purchase items as signage, packaging,
+displays, counter cards, banners and other visual merchandising displays. These
+materials mirror the look and feel of our national print advertising in order to
+reinforce brand image at the point-of-purchase. We believe these efforts help
+stimulate impulse sales and repeat purchases.
+Our merchandise personnel also work closely with our wholesale customers to
+ensure the optimal exposure of our products through our shop-in-shops, which are
+exclusive selling areas within stores that offer our products and incorporate
+Skechers signage and customized fixture designs. The shop-in-shop concept
+enhances brand recognition and ensures the consistent presentation of our
+products in our wholesale customers' stores. As of December 31, 2001, our
+wholesale customers' stores included more than 300 shop-in-shops. We plan to add
+additional shop-in-shops during 2002.
+Trade Shows. To best showcase our diverse products to footwear buyers across
+the nation, we exhibited at 23 trade shows during 2001. Our dynamic,
+state-of-the-art trade show exhibits, which are designed by our in-house
+architect and feature our latest product offerings, are specially planned and
+built to accommodate each trade show and are enhanced with lifestyle images that
+capture the image of our brand. By investing in innovative displays and
+individual rooms showcasing each line, our sales force can present a sales plan
+for each line and buyers are able to truly understand the breadth and depth of
+our offerings, optimizing commitments and sales at the retail level. Our
+innovative exhibits continually win awards, including Best Booth Design at the
+World Shoe Association, February 2001.
+Internet. We also promote our brand image through our website at
+www.skechers.com to customers who directly access the Internet. This website
+currently enables us to present information on our products and store locations
+to consumers. The website is interactive, affording customers the ability to
+directly order products on the Internet and to allow us to receive and respond
+directly to customer feedback. Our website is intended to enhance the Skechers
+brand without the associated costs of advertising. Our website provides fashion
+information, provides a mechanism for customer feedback, promotes customer
+loyalty and further enhances the Skechers brand image through interactive
+content, photos, interviews and information on Skechers-sponsored events.
+8
+DOMESTIC SALES AND DISTRIBUTION CHANNELS
+Our products are sold in the United States through three primary
+distribution channels: to a network of wholesale accounts, in our own retail
+stores and, to a lesser extent, through electronic commerce on our interactive
+website. Each of these channels and the three distinct categories of our retail
+stores - concept stores, factory outlet stores and warehouse outlet stores -
+serves an integral function in the domestic distribution of our products.
+Wholesale Distribution
+As of December 31, 2001, we distributed our footwear to over 3,500
+wholesale accounts in the United States. We believe that our broad product line
+enables us to appeal to a variety of wholesale accounts, many of whom may
+operate stores within the same mall or other retail locations, because retailers
+can select those styles of ours that best satisfy the fashion, function and
+price criteria of their clients. Management has implemented a strategy of
+controlling the growth of our wholesale distribution channels. Our strategy is
+to continue offering our accounts the highest level of customer service so that
+our products will be more fully represented in existing retail locations and new
+locations within each account.
+We have approximately 100 sales and 15 field service representatives to
+service our wholesale accounts. In an effort to provide knowledgeable and
+personalized service to our wholesale accounts, the sales force is segregated
+into men's, women's and children's divisions. The men's and women's divisions
+have a combined six regional sales managers and the children's division has
+three dedicated regional sales managers. Additionally, Skechers by Michelle K,
+Skechers Collections, and 4 Wheelers by Skechers are each headed by its own
+national sales manager. Each of these sales managers reports to our Executive
+Vice President, Domestic U.S. Sales, who has over 20 years of experience in the
+branded consumer products industry. Each of the sales staff is compensated on a
+salary plus commission basis with none of the representatives selling
+competitive products. Senior management is actively involved in selling to and
+maintaining relationships with Skechers' major retail accounts.
+We believe that we have developed a loyal customer base of wholesale
+accounts through a heightened level of customer service. We believe that our
+close relationships with these accounts help us to maximize their retail
+sell-through, maintained margins and inventory turns which in turn minimizes our
+inventory markdowns and customer returns and allowances. Our field service
+representatives work with our wholesale accounts to ensure that our merchandise
+and point-of-purchase marketing materials are properly presented. Sales
+executives and merchandise personnel work closely with accounts to ensure the
+appropriate styles are purchased for specific accounts and for specific stores
+within those accounts as well as ensure that appropriate inventory levels are
+carried at each store. Such information is then utilized to help develop sales
+projections and determine the product needs of wholesale accounts. The value
+added services we provide our wholesale customers help us maintain strong
+relationships with our existing wholesale customers and attract potential new
+wholesale customers.
+Retail Stores
+We pursue our retail store strategy through our three integrated retail
+formats: the concept store, the factory outlet and the warehouse outlet store.
+Our three store format enables us to promote the full Skechers line in an
+attractive environment, appeal to a broad group of customers that are segmented
+by price points and manage inventory in an efficient and brand sensitive manner.
+In addition, most of our retail stores are profitable and have a positive effect
+on our operating results. As of December 31, 2001, we operated 29 concept
+stores, 29 factory outlet stores and 20 warehouse outlet stores in the United
+States. We plan to open between 10 to 15 retail stores during 2002.
+- Concept Stores. Our concept stores are located at either marquee
+street locations or in major shopping malls in large metropolitan
+cities. Our concept stores serve a threefold purpose in our
+operating strategy. First, concept stores serve as a showcase for a
+wide range of our product offerings for the current season,
+providing the customer with the entire product story. The concept
+stores feature modern music and lighting and present an open floor
+design to allow customers to readily view the merchandise on
+display. In contrast, we estimate that our average retail customer
+carries no more than 5.0% of the complete Skechers line. Second,
+retail locations are generally chosen to generate maximum marketing
+value for the Skechers brand name through signage, store front
+presentation and interior design. These locations include concept
+stores on 34th Street in New York City and in Santa Monica's Third
+Street Promenade. The stores are typically designed to create a
+distinctive Skechers look and feel and enhance customer association
+of the Skechers brand name with current youthful lifestyle trends
+and styles. Third, the concept stores serve as marketing and product
+testing venues that provide rapid product feedback from customers.
+We believe that product sell-through information
+9
+derived from our concept stores enables our sales, merchandising and
+production staff to respond to market changes and new product
+introductions. Such responses serve to augment sales and limit our
+inventory markdowns and customer returns and allowances. We strive
+to adjust our product and sales strategy based upon seven to 14 days
+of retail sales information.
+The prototypical Skechers concept store is approximately 2,500
+square feet although in certain selected markets we have opened
+concept stores as large as 7,000 square feet or as small as 1,100
+square feet. When deciding where to open concept stores, we identify
+top geographic markets in the larger metropolitan cities in the
+United States. When selecting a specific site, we evaluate the
+proposed sites' traffic pattern, co-tenancies, average sales per
+square foot achieved by neighboring concept stores, lease economics
+and other factors considered important within the specific location.
+If we are considering opening a concept store in a shopping mall,
+our strategy is to obtain space as centrally located as possible in
+the mall where we expect foot traffic to be most concentrated. We
+believe that the strength of the Skechers brand name has enabled us
+to negotiate more favorable terms with shopping malls that want us
+to open up concept stores to attract customer traffic to these
+malls. We opened two new concept stores during 2000 and five new
+concept stores during 2001.
+- Factory Outlet Stores. Our factory outlet stores are generally
+located in manufacturers' outlet centers throughout the United
+States. Our factory outlet stores provide opportunities for us to
+sell discontinued and excess merchandise, thereby reducing the need
+to sell such merchandise to discounters at excessively low prices,
+which could otherwise compromise the Skechers brand image. Skechers
+factory outlet stores range in size from approximately 1,900 to
+6,000 square feet. Inventory in these stores is supplemented by
+certain first-line styles sold at full retail price points generally
+of $60.00 or lower. We opened five new factory outlet stores during
+2000 and 11 new factory outlet stores during 2001.
+- Warehouse Outlet Stores. Our free-standing warehouse outlet stores,
+which are located throughout the United States, enable us to
+liquidate excess merchandise, discontinued lines and odd-size
+inventory in a cost-efficient manner. Skechers warehouse outlet
+stores range in size from approximately 5,600 to 14,800 square feet.
+Our warehouse outlet stores enable us to sell discontinued and
+excess merchandise that would otherwise typically be sold to
+discounters at excessively low prices, thus compromising the
+Skechers brand image. We seek to open our warehouse outlet stores in
+areas that are in close proximity to our other retail stores in
+order to facilitate the timely transfer of inventory that we want to
+liquidate as soon as practicable. We opened three new warehouse
+outlet stores during 2000 and 10 new warehouse outlet stores during
+2001.
+Electronic Commerce. Our electronic commerce sales represented less than
+1.0% of total net sales for each of 2000 and 2001. Our website,
+www.skechers.com, is a virtual storefront that promotes the Skechers brand name.
+Designed as a customer center, our website showcases our products in an
+easy-to-navigate format, allowing customers to see and purchase our footwear.
+This virtual store has become a successful additional retail distribution
+channel, has improved customer service and is a fun and entertaining
+alternative-shopping environment.
+INTERNATIONAL OPERATIONS
+We market our products in countries and territories throughout the world. We
+generate revenues from outside the United States from three principal sources:
+(1) sales of our footwear directly to foreign distributors who distribute such
+footwear to department stores and specialty retail stores in Europe, Asia, Latin
+America, South America and numerous other countries and territories, (2) in
+France, Germany and the United Kingdom, we sell footwear directly to department
+stores and specialty retail stores and through retail stores that we own and
+operate and (3) to a lesser extent, royalties from licensees who manufacture
+and distribute our products outside the United States.
+We believe that international distribution of our products represents a
+significant opportunity to increase revenues and profits. Although we are in the
+early stages of our international expansion, our products are currently sold in
+more than 100 countries and territories around the world. We intend to further
+increase our share of the international footwear market by heightening our
+marketing presence in those countries through our international advertising
+campaigns, which are designed to establish Skechers as a global brand synonymous
+with casual shoes.
+10
+Europe
+We have historically sold our footwear to selected wholesale customers in
+Europe through our foreign distributors. In 2001, we expanded our European
+operations and began to directly sell our footwear to certain wholesale accounts
+and retail stores in Europe in an effort to increase profit margins and more
+effectively market and promote the Skechers brand name. We organized Skechers
+U.S.A. Ltd. in the United Kingdom and Ireland and opened the subsidiary's
+headquarters in London to establish direct control over wholesale distribution,
+merchandising, and marketing of our products in these countries. We also
+organized Skechers U.S.A. SAS with its office in Paris, France and Skechers
+U.S.A. Deutschland GmbH with its office in Dietzenbach, Germany, with each of
+these subsidiaries formed to establish direct control over our products in their
+respective countries of organization. In 2001, we began to utilize a contract
+warehouse located in Belgium to distribute our footwear to our customers and
+retail stores in France, Germany and the United Kingdom.
+Additionally, we are beginning to selectively open flagship retail stores
+internationally on our own or through joint ventures with local distributors. In
+the first three months of 2001, we opened our first European flagship retail
+stores on Oxford Street in London, at the Forum Les Halles in Paris and in the
+prestigious Centro Mall in Oberhausen, Germany. We intend to open additional
+wholly-owned flagship retail stores in the European Union (EU) countries and
+enter into agreements with distributors to operate flagship retail stores in
+non-EU countries.
+Asia
+In December 2001, we opened our first Asian flagship retail store in
+Kichijuoji, Japan by agreement with Japanese distributor Achilles Corporation.
+Achilles Corporation is responsible for the store's operations and selecting a
+broad collection of our products to sell to Japanese consumers. In order to
+maintain a globally consistent image, we provided architectural, graphic and
+visual guidance and materials for the design of the store, and we trained the
+local staff on our products and corporate culture. We intend to expand our
+international presence and global recognition of the Skechers brand name in Asia
+by continuing to sell our footwear to foreign distributors and opening flagship
+retail stores with distributors that have local market expertise.
+LICENSING
+We believe that selective licensing of the Skechers brand name to
+non-footwear-related manufacturers may broaden and enhance the Skechers brand
+image without requiring significant capital investments or additional
+incremental operating expenses by us. Our diverse group of products presents
+many potential licensing opportunities on terms with licensees that we believe
+will provide more effective manufacturing, distribution or marketing of products
+such as accessories, backpacks and children's clothing than could be achieved
+in-house; however, we intend to be selective in granting any use of the Skechers
+brand name for such licensed products. We believe that the strength of the
+Skechers brand name and the size of our business will enable us to attract
+premier licensing partners with a proven track record of brand sensitivity. We
+are also interested in exploring the possibility of licensing our other
+trademarks and trade names for use with non-footwear products that could enable
+us to successfully enter and compete in non-footwear markets that we would not
+be likely to succeed in using the Skechers brand name and without having to
+compromise the Skechers brand image. In addition, we periodically review
+potential international licensing arrangements for footwear in various
+geographical regions that present favorable business opportunities. We intend to
+maintain substantial control over the design, manufacturing specifications,
+advertising and distribution of any licensed products and to maintain a policy
+of evaluating any future licensing arrangements to ensure consistent
+representation of the Skechers image.
+DISTRIBUTION
+We believe that strong distribution support is a critical factor in our
+operations. Once manufactured, our products are packaged in shoe boxes bearing
+bar codes and are shipped either (1) to our approximately 1.4 million square
+feet of internally managed distribution center located in Ontario, California,
+(2) to an approximately 130,000 square foot contract warehouse located in Gent,
+Belgium for distribution to our European customers and retail stores or (3)
+directly from the manufacturer to our other international customers. Upon
+receipt at the central distribution centers, merchandise is inspected and
+recorded in our management information system and packaged according to
+customers' orders for delivery. Merchandise is shipped to the customer by
+whatever means the customer requests, which is usually by common carrier. The
+central distribution centers have multi-access docks, enabling us to receive and
+ship simultaneously and to pack separate trailers for shipments to different
+customers at the same time. We have an electronic data interchange system, or
+EDI system, to which some of our larger customers are linked. This system allows
+these customers to automatically place orders with us, thereby eliminating the
+time involved in transmitting and inputting orders, and includes direct billing
+and shipping information.
+11
+The following table sets forth a summary of the facilities that comprise our
+Ontario distribution center:
+ADDRESS STATUS SQUARE FOOTAGE
+------- ------ --------------
+1661 South Vintage Avenue Leased since November 1997 127,800
+1777 South Vintage Avenue Leased since November 1997 284,600
+1670 Champagne Avenue Owned since October 2000 263,700
+4100 East Mission Blvd. Leased since June 2001 763,300
+---------
+1,439,400(1)
+=========
+----------------
+(1) Excludes 285,600 square feet located at 5725 East Jurupa Street that we
+leased in April 1998 and occupied until we subleased the facility in June
+2001.
+We believe that we have the capacity at our Ontario distribution center to
+increase our current operations to meet projected demand, and if we should ever
+need to expand our distribution facilities to allow for further growth, we
+believe there is presently enough space available in close proximity that leads
+us to believe leasing or purchasing additional property will not be a problem in
+the foreseeable future.
+BACKLOG
+We generally receive the bulk of our orders for each of the spring and fall
+seasons a minimum of three months prior to the date the products are shipped to
+customers. As of December 31, 2001, our backlog was $222.2 million, compared to
+$221.6 million as of December 31, 2000. While backlog orders are subject to
+cancellation by customers, we have not experienced significant cancellation of
+orders in the past and we expect that substantially all the orders will be
+shipped in 2002. However, for a variety of reasons, including the timing of
+shipments, product mix of customer orders and the amount of in-season orders,
+backlog may not be a reliable measure of future sales for any succeeding period.
+INTELLECTUAL PROPERTY RIGHTS
+We own and utilize a variety of trademarks, including the Skechers
+trademark. We have a significant number of both registrations and pending
+applications for our trademarks in the United States. In addition, we have
+trademark registrations and trademark applications in approximately 85 foreign
+countries. We also have design patents, and pending design and utility patent
+applications, in both the United States and various foreign countries. We
+continuously look to increase the number of our patents and trademarks, both
+domestically and internationally, where necessary to protect valuable
+intellectual property. We regard our trademarks and other intellectual property
+as valuable assets and believe that they have significant value in the marketing
+of our products. We vigorously protect our trademarks against infringement,
+including through the use of cease and desist letters, administrative
+proceedings and lawsuits.
+We rely on trademark, patent, copyright, trade secret protection,
+non-disclosure agreements and licensing arrangements to establish, protect and
+enforce intellectual property rights in our logos, tradenames and in the design
+of our products. In particular, we believe that our future success will largely
+depend on our ability to maintain and protect the Skechers trademark. Despite
+our efforts to safeguard and maintain our intellectual property rights, we
+cannot assure you that we will be successful in this regard. Furthermore, we
+cannot assure you that our trademarks, products and promotional materials or
+other intellectual property rights do not or will not violate the intellectual
+property rights of others, that our intellectual property would be upheld if
+challenged, or that we would, in such an event, not be prevented from using our
+trademarks or other intellectual property rights. Such claims, if proven, could
+materially and adversely affect our business, financial condition and results of
+operations. In addition, although any such claims may ultimately prove to be
+without merit, the necessary management attention to and legal costs associated
+with litigation or other resolution of future claims concerning trademarks and
+other intellectual property rights could materially and adversely affect our
+business, financial condition and results of operations. We have sued and have
+been sued by third parties for infringement of intellectual property. It is our
+opinion that none of these claims have materially impaired our ability to
+utilize our intellectual property rights.
+The laws of certain foreign countries do not protect intellectual property
+rights to the same extent or in the same manner as do the laws of the United
+States. Although we continue to implement protective measures and intend to
+defend our intellectual property rights vigorously, these efforts may not be
+successful or the costs associated with protecting our rights in certain
+jurisdictions may be prohibitive. From time to time, we discover products in the
+marketplace that are counterfeit reproductions of our products or that
+12
+otherwise infringe upon intellectual property rights held by us. Actions taken
+by us to establish and protect our trademarks and other intellectual property
+rights may not be adequate to prevent imitation of our products by others or to
+prevent others from seeking to block sales of our products as violating
+trademarks and intellectual property rights. If we are unsuccessful in
+challenging a third party's products on the basis of infringement of our
+intellectual property rights, continued sales of such products by that or any
+other third party could adversely impact the Skechers brand, result in the shift
+of consumer preferences away from us and generally have a material adverse
+effect on our business, financial condition and results of operations.
+COMPETITION
+Competition in the footwear industry is intense. Although we believe that we
+do not compete directly with any single company with respect to its entire range
+of products, our products compete with other branded products within their
+product category as well as with private label products sold by retailers,
+including some of our customers. Our utility footwear and casual shoes compete
+with footwear offered by companies such as The Timberland Company, Dr. Martens,
+Kenneth Cole Productions, Steven Madden, Ltd. and Wolverine World Wide, Inc. Our
+athletic shoes compete with brands of athletic footwear offered by companies
+such as Nike, Inc., Reebok International Ltd., Adidas-Salomon AG and New
+Balance. Our children's shoes compete with brands of children's footwear offered
+by The Stride Rite Corporation. In varying degrees, depending on the product
+category involved, we compete on the basis of style, price, quality, comfort and
+brand name prestige and recognition, among other considerations. These and other
+competitors pose challenges to our market share in our major domestic markets
+and may make it more difficult to establish our products in Europe, Asia and
+other international regions. We also compete with numerous manufacturers,
+importers and distributors of footwear for the limited shelf space available for
+the display of such products to the consumer. Moreover, the general availability
+of contract manufacturing capacity allows ease of access by new market entrants.
+Many of our competitors are larger, have achieved greater recognition for their
+brand names, have captured greater market share and/or have substantially
+greater financial, distribution, marketing and other resources than us. We
+cannot assure you that we will be able to compete successfully against present
+or future competitors or that competitive pressures faced by us will not have a
+material adverse effect on our business, financial condition and results of
+operations.
+EMPLOYEES
+As of February 28, 2002, we employed 1,964 persons, 1,111 of which were
+employed on a full-time basis and 853 of which were employed on a part-time
+basis. None of our employees are subject to a collective bargaining agreement.
+We believe that our relations with our employees are satisfactory. We offer our
+employees a discount on Skechers merchandise to encourage enthusiasm for the
+product and Skechers loyalty.
+RISK FACTORS
+In addition to the other information in this Form 10-K, the following
+factors should be considered in evaluating us and our business.
+OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO RESPOND TO CHANGING CONSUMER
+DEMANDS, IDENTIFY AND INTERPRET FASHION TRENDS AND SUCCESSFULLY MARKET NEW
+PRODUCTS.
+The footwear industry is subject to rapidly changing consumer demands and
+fashion trends. Accordingly, we must identify and interpret fashion trends and
+respond in a timely manner. Demand for and market acceptance of new products are
+uncertain and achieving market acceptance for new products generally requires
+substantial product development and marketing efforts and expenditures. If we do
+not continue to meet changing consumer demands and develop successful styles in
+the future, our growth and profitability will be negatively impacted. We
+frequently make decisions about product designs and marketing expenditures
+several months in advance of the time when consumer acceptance can be
+determined. If we fail to anticipate, identify or react appropriately to changes
+in styles and trends or are not successful in marketing new products, we could
+experience excess inventories, higher than normal markdowns or an inability to
+profitably sell our products. Because of these risks, a number of companies in
+the footwear industry specifically, and the fashion and apparel industry in
+general, have experienced periods of rapid growth in revenues and earnings and
+thereafter periods of declining sales and losses, which in some cases have
+resulted in companies in these industries ceasing to do business. Similarly,
+these risks could have a severe negative effect on our results of operations or
+financial condition.
+OUR BUSINESS AND THE SUCCESS OF OUR PRODUCTS COULD BE HARMED IF WE ARE UNABLE TO
+MAINTAIN OUR BRAND IMAGE.
+Our success to date has been due in large part to the strength of our brand.
+If we are unable to timely and appropriately respond to changing consumer
+demand, our brand name and brand image may be impaired. Even if we react
+appropriately to changes in
+13
+consumer preferences, consumers may consider our brand image to be outmoded or
+associate our brand with styles of footwear that are no longer popular. In the
+past, several footwear companies have experienced periods of rapid growth in
+revenues and earnings followed by periods of declining sales and losses. Our
+business may be similarly affected in the future.
+OUR BUSINESS COULD BE HARMED IF WE FAIL TO MAINTAIN PROPER INVENTORY LEVELS.
+We place orders with our manufacturers for some of our products prior to the
+time we receive all of our customers' orders. We do this to minimize purchasing
+costs, the time necessary to fill customer orders and the risk of non-delivery.
+We also maintain an inventory of certain products that we anticipate will be in
+greater demand. However, we may be unable to sell the products we have ordered
+in advance from manufacturers or that we have in our inventory. Inventory levels
+in excess of customer demand may result in inventory write-downs, and the sale
+of excess inventory at discounted prices could significantly impair our brand
+image and have a material adverse effect on our operating results and financial
+condition. Conversely, if we underestimate consumer demand for our products or
+if our manufacturers fail to supply the quality products that we require at the
+time we need them, we may experience inventory shortages. Inventory shortages
+might delay shipments to customers, negatively impact retailer and distributor
+relationships, and diminish brand loyalty.
+WE MAY BE UNABLE TO SUCCESSFULLY EXECUTE OUR GROWTH STRATEGY OR MANAGE OR
+SUSTAIN OUR GROWTH.
+We have grown quickly since we started our business. Our ability to grow in
+the future depends upon, among other things, the continued success of our
+efforts to expand our footwear offerings and distribution channels. However, our
+rate of growth may decline or we may not be profitable in future quarters or
+fiscal years. Furthermore, as our business becomes larger, we may not be able to
+maintain our historical growth rate or effectively manage our growth. We
+anticipate that as our business grows, we will have to improve and enhance our
+overall financial and managerial controls, reporting systems and procedures. We
+may be unable to successfully implement our current growth strategy or other
+growth strategies or effectively manage our growth, any of which would
+negatively impair our net sales and earnings.
+OUR BUSINESS MAY BE NEGATIVELY IMPACTED AS A RESULT OF CHANGES IN THE ECONOMY.
+Our business depends on the general economic environment and levels of
+consumer spending that affect not only the ultimate consumer, but also
+retailers, our primary direct customers. Purchases of footwear tend to decline
+in periods of recession or uncertainty regarding future economic prospects, when
+consumer spending, particularly on discretionary items, declines. During periods
+of recession or economic uncertainty, we may not be able to maintain or increase
+our sales to existing customers, make sales to new customers, open and operate
+new retail stores, maintain sales levels at our existing stores, maintain or
+increase our international operations on a profitable basis, or maintain or
+improve our earnings from operations as a percentage of net sales. As a result,
+our operating results may be adversely and materially affected by downward
+trends in the economy or the occurrence of events that adversely affect the
+economy in general. Furthermore, in anticipation of continued increases in net
+sales, we have significantly expanded our infrastructure and workforce to
+achieve economies of scale. Because these expenses are fixed in the short term,
+our operating results and margins will be adversely impacted if we do not
+continue to grow as anticipated. For example, due in large part to the slowdown
+in the global economy, our net sales for 2001 were lower than anticipated. This
+lower level of sales adversely affected our operating results for 2001 and could
+continue to do so in 2002 and beyond.
+ECONOMIC, POLITICAL, MILITARY OR OTHER EVENTS IN A COUNTRY WHERE WE MAKE
+SIGNIFICANT SALES OR HAVE SIGNIFICANT OPERATIONS COULD INTERFERE WITH OUR
+SUCCESS OR OPERATIONS THERE AND HARM OUR BUSINESS.
+We market and sell our products and services throughout the world. The
+September 11, 2001 attacks disrupted commerce throughout the United States and
+other parts of the world. The continued threat of similar attacks throughout the
+world and the military action taken by the United States and other nations may
+cause significant disruption to commerce throughout the world. To the extent
+that such disruptions further slow the global economy or, more particularly,
+result in delays or cancellations of purchase orders for our products, our
+business and results of operations could be materially adversely affected. We
+are unable to predict whether the threat of new attacks or the responses thereto
+will result in any long-term commercial disruptions or if such activities or
+responses will have a long-term material adverse effect on our business, results
+of operations or financial condition.
+14
+WE DEPEND UPON A RELATIVELY SMALL GROUP OF CUSTOMERS FOR A LARGE PORTION OF OUR
+SALES.
+During 2001, our net sales to our five largest customers accounted for
+approximately 25.7% of total net sales. No one customer accounted for 10.0% or
+more of our net sales during 2001. As of December 31, 2001, one customer
+accounted for 10.2% of our net trade accounts receivable. Although we have
+long-term relationships with many of our customers, our customers do not have a
+contractual obligation to purchase our products and we cannot be certain that we
+will be able to retain our existing major customers. Furthermore, the retail
+industry regularly experiences consolidation, contractions and closings. If
+there are further consolidations, contractions or closings in the future, we may
+lose customers or be unable to collect accounts receivables of major customers
+in excess of amounts that we have insured. If we lose a major customer,
+experience a significant decrease in sales to a major customer, or are unable to
+collect the accounts receivable of a major customer in excess of amounts
+insured, our business could be harmed.
+OUR OPERATING RESULTS COULD BE NEGATIVELY IMPACTED IF OUR SALES ARE CONCENTRATED
+IN ANY ONE STYLE OR GROUP OF STYLES.
+If any one style or group of similar styles of our footwear were to
+represent a substantial portion of our net sales, we could be exposed to risk
+should consumer demand for such style or group of styles decrease in subsequent
+periods. We attempt to hedge this risk by offering a broad range of products,
+and no style comprised over 5.0% of our gross wholesale sales for the years
+ended either December 31, 2000 or 2001. However, this may change in the future
+and fluctuations in sales of any given style that represents a significant
+portion of our future net sales could have a negative impact on our operating
+results.
+WE RELY ON INDEPENDENT CONTRACT MANUFACTURERS AND, AS A RESULT, ARE EXPOSED TO
+POTENTIAL DISRUPTIONS IN PRODUCT SUPPLY.
+Our footwear products are currently manufactured by independent contract
+manufacturers. During 2001, the top four manufacturers of our manufactured
+products produced approximately 51.9% of our total purchases, but none
+individually accounted for more than 20.0%. We do not have long-term contracts
+with manufacturers and we compete with other footwear companies for production
+facilities. We could experience difficulties with these manufacturers, including
+reductions in the availability of production capacity, failure to meet our
+quality control standards, failure to meet production deadlines or increased
+manufacturing costs. This could result in our customers canceling orders,
+refusing to accept deliveries or demanding reductions in purchase prices, any of
+which could have a negative impact on our cash flow and harm our business.
+If our current manufacturers cease doing business with us, we could
+experience an interruption in the manufacture of our products. Although we
+believe that we could find alternative manufacturers, we may be unable to
+establish relationships with alternative manufacturers that will be as favorable
+as the relationships we have now. For example, new manufacturers may have higher
+prices, less favorable payment terms, lower manufacturing capacity, lower
+quality standards or higher lead times for delivery. If we are unable to provide
+products consistent with our standards or the manufacture of our footwear is
+delayed or becomes more expensive, our business would be harmed.
+OUR INTERNATIONAL SALES AND MANUFACTURING OPERATIONS ARE SUBJECT TO THE RISKS OF
+DOING BUSINESS ABROAD, WHICH COULD AFFECT OUR ABILITY TO SELL OR MANUFACTURE OUR
+PRODUCTS IN INTERNATIONAL MARKETS, OBTAIN PRODUCTS FROM FOREIGN SUPPLIERS OR
+CONTROL THE COSTS OF OUR PRODUCTS.
+Substantially all of our net sales during 2001 were derived from sales of
+footwear manufactured in foreign countries, with most manufactured in China and,
+to a lesser extent, in Italy, the Philippines and Brazil. We also sell our
+footwear in several foreign countries and plan to increase our international
+sales efforts as part of our growth strategy. Foreign manufacturing and sales
+are subject to a number of risks, including:
+- political and social unrest;
+- changing economic conditions;
+- international political tension and terrorism;
+- work stoppages;
+- transportation delays;
+- loss or damage to products in transit;
+- expropriation;
+15
+- nationalization;
+- the imposition of tariffs and trade duties both international
+and domestically;
+- import and export controls and other nontariff barriers;
+- exposure to different legal standards (particularly with
+respect to intellectual property);
+- compliance with foreign laws; and
+- changes in domestic and foreign governmental policies.
+In particular, because substantially all of our products are manufactured in
+China, adverse change in trade or political relations with China or political
+instability in China would severely interfere with the manufacture of our
+products and would materially adversely affect our operations.
+In addition, if we, or our foreign manufacturers, violate United States or
+foreign laws or regulations, we may be subjected to extra duties, significant
+monetary penalties, the seizure and the forfeiture of the products we are
+attempting to import or the loss of our import privileges. Possible violations
+of United States or foreign laws or regulations could include inadequate record
+keeping of our imported product, misstatements or errors as to the origin, quota
+category, classification, marketing or valuation of our imported products,
+fraudulent visas, or labor violations. The effects of these factors could render
+our conduct of business in a particular country undesirable or impractical and
+have a negative impact on our operating results.
+OUR BUSINESS COULD BE HARMED IF OUR CONTRACT MANUFACTURERS, SUPPLIERS OR
+LICENSEES VIOLATE LABOR OR OTHER LAWS.
+We require our independent contract manufacturers, suppliers and licensees
+to operate in compliance with applicable United States and foreign laws and
+regulations. Manufacturers are required to certify that neither convicted,
+forced or indentured labor (as defined under United States law) nor child labor
+(as defined by the manufacturer's country) is used in the production process,
+that compensation is paid in accordance with local law and that their factories
+are in compliance with local safety regulations. Although we promote ethical
+business practices and our sourcing personnel periodically visit and monitor the
+operations of our independent contract manufacturers, suppliers and licensees,
+we do not control them or their labor practices. If one of our independent
+contract manufacturers, suppliers or licensees violates labor or other laws or
+diverges from those labor practices generally accepted as ethical in the United
+States, it could result in adverse publicity for us, damage our reputation in
+the United States, or render our conduct of business in a particular foreign
+country undesirable or impractical, any of which could harm our business.
+OUR PLANNED EXPANSION INVOLVES A NUMBER OF RISKS THAT COULD PREVENT OR DELAY THE
+SUCCESSFUL OPENING OF NEW STORES AS WELL AS IMPACT THE PERFORMANCE OF OUR
+EXISTING STORES.
+Our ability to open and operate new stores successfully depends on many
+factors, including, among others, our ability to:
+- identify suitable store locations, the availability of which
+is outside of our control;
+- negotiate acceptable lease terms, including desired tenant
+improvement allowances;
+- source sufficient levels of inventory to meet the needs of new
+stores;
+- hire, train and retain store personnel;
+- successfully integrate new stores into our existing
+operations; and
+- satisfy the fashion preferences in new geographic areas.
+In addition, many of our new stores will be opened in regions of the United
+States in which we currently have few or no stores. The expansion into new
+markets may present competitive, merchandising and distribution challenges that
+are different from those currently encountered in our existing markets. Any of
+these challenges could adversely affect our business and results of operations.
+In addition, to the extent our new store openings are in existing markets, we
+may experience reduced net sales volumes in existing stores in those markets.
+16
+MANY OF OUR RETAIL STORES DEPEND HEAVILY ON THE CUSTOMER TRAFFIC GENERATED BY
+SHOPPING AND FACTORY OUTLET MALLS OR BY TOURISM.
+Many of our concept stores are located in shopping malls and some of our
+factory outlet stores are located in manufacturers' outlet malls where we depend
+on obtaining prominent locations in the malls and the overall success of the
+malls to generate customer traffic. We cannot control the development of new
+malls, the availability or cost of appropriate locations within existing or new
+malls or the success of individual malls. Some of our concept stores occupy
+street locations which are heavily dependent on customer traffic generated by
+tourism. Any substantial decrease in tourism resulting from the September 11,
+2001 attacks, a downturn in the economy or otherwise, is likely to adversely
+affect sales in our existing stores, particularly those with street locations.
+The effects of these factors could hinder our ability to open retail stores in
+new markets or reduce sales of particular existing stores, which could
+negatively affect our operating results.
+OUR QUARTERLY REVENUES AND OPERATING RESULTS FLUCTUATE AS A RESULT OF A VARIETY
+OF FACTORS, INCLUDING SEASONAL FLUCTUATIONS IN DEMAND FOR FOOTWEAR AND DELIVERY
+DATE DELAYS, WHICH MAY RESULT IN VOLATILITY OF OUR STOCK PRICE.
+Our quarterly revenues and operating results have varied significantly in
+the past and can be expected to fluctuate in the future due to a number of
+factors, many of which are beyond our control. For example, sales of footwear
+products have historically been somewhat seasonal in nature with the strongest
+sales generally occurring in the third and fourth quarters. Also, delays in
+scheduling or pickup of purchased products by our domestic customers could
+negatively impact our net sales and results of operations for any given quarter.
+As a result of these specific and other general factors, our operating results
+will likely vary from quarter to quarter and the results for any particular
+quarter may not be necessarily indicative of results for the full year. Any
+shortfall in revenues or net income from levels expected by securities analysts
+and investors could cause a decrease in the trading price of our Class A common
+shares.
+WE FACE INTENSE COMPETITION, INCLUDING COMPETITION FROM COMPANIES WITH
+SIGNIFICANTLY GREATER RESOURCES THAN OURS, AND IF WE ARE UNABLE TO COMPETE
+EFFECTIVELY WITH THESE COMPANIES, OUR MARKET SHARE MAY DECLINE AND OUR BUSINESS
+COULD BE HARMED.
+We face intense competition in the footwear industry from other established
+companies. A number of our competitors have significantly greater financial,
+technological, engineering, manufacturing, marketing and distribution resources
+than we do. Their greater capabilities in these areas may enable them to better
+withstand periodic downturns in the footwear industry, compete more effectively
+on the basis of price and production and more quickly develop new products. In
+addition, new companies may enter the markets in which we compete, further
+increasing competition in the footwear industry.
+We believe that our ability to compete successfully depends on a number of
+factors, including the style and quality of our products and the strength of our
+brand name, as well as many factors beyond our control. We may not be able to
+compete successfully in the future, and increased competition may result in
+price reductions, reduced profit margins, loss of market share, and inability to
+generate cash flows that are sufficient to maintain or expand our development
+and marketing of new products, which would adversely impact the trading price of
+our Class A common shares.
+OBTAINING ADDITIONAL CAPITAL TO FUND OUR OPERATIONS AND FINANCE OUR GROWTH COULD
+MAKE IT DIFFICULT FOR US TO SERVICE OUR DEBT OBLIGATIONS.
+If our working capital needs exceed our current expectations, we may need to
+raise additional capital through public or private equity offerings or debt
+financings. If we cannot raise needed funds on acceptable terms, we may not be
+able to successfully execute our growth strategy, take advantage of future
+opportunities or respond to competitive pressures or unanticipated requirements.
+To the extent we raise additional capital by issuing debt, it may become
+difficult for us to meet debt service obligations. To the extent we raise
+additional capital by issuing equity securities, our stockholders may experience
+substantial dilution. Also, any new equity securities may have greater rights,
+preferences or privileges than our existing Class A common shares.
+WE DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
+CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN EXISTING PERSONNEL, OUR BUSINESS
+COULD BE HARMED.
+Our future success depends upon the continued services of Robert Greenberg,
+Chairman of the Board and Chief Executive Officer, Michael Greenberg, President,
+and David Weinberg, Executive Vice President and Chief Financial Officer. The
+loss of the services of any of these individuals or any other key employee could
+harm us. Our future success also depends on our ability to identify, attract and
+retain additional qualified personnel. Competition for employees in our industry
+is intense and we may not be successful in attracting and retaining such
+personnel.
+17
+OUR TRADEMARKS, DESIGN PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS MAY NOT BE
+ADEQUATELY PROTECTED OUTSIDE THE U.S.
+We believe that our trademarks, design patents and other proprietary rights
+are important to our success and our competitive position. We devote substantial
+resources to the establishment and protection of our trademarks and design
+patents on a worldwide basis. In the course of our international expansion, we
+have, however, experienced conflicts with various third parties that have
+acquired or claimed ownership rights in certain trademarks similar to ours or
+have otherwise contested our rights to our trademarks. We have in the past
+successfully resolved these conflicts through both legal action and negotiated
+settlements, none of which we believe has had a material impact on our financial
+condition and results of operations. Nevertheless, we cannot assure you that the
+actions we have taken to establish and protect our trademarks and other
+proprietary rights outside the U.S. will be adequate to prevent imitation of our
+products by others or to prevent others from seeking to block sales of our
+products as a violation of the trademarks and proprietary rights of others.
+Also, we cannot assure you that others will not assert rights in, or ownership
+of, trademarks, designs and other proprietary rights of ours or that we will be
+able to successfully resolve these types of conflicts to our satisfaction. In
+addition, the laws of certain foreign countries may not protect proprietary
+rights to the same extent as do the laws of the U.S. We may face significant
+expenses and liability in connection with the protection of our intellectual
+property rights outside the U.S. and if we are unable to successfully protect
+our rights or resolve intellectual property conflicts with others, our business
+or financial condition may be adversely affected.
+OUR ABILITY TO COMPETE COULD BE JEOPARDIZED IF WE ARE UNABLE TO PROTECT OUR
+INTELLECTUAL PROPERTY RIGHTS OR IF WE ARE SUED FOR INTELLECTUAL PROPERTY
+INFRINGEMENT.
+We use trademarks on nearly all of our products and believe that having
+distinctive marks that are readily identifiable is an important factor in
+creating a market for our goods, in identifying us, and in distinguishing our
+goods from the goods of others. We consider our Skechers(R) and S Design(R)
+trademarks to be among our most valuable assets and we have registered these
+trademarks in many countries. In addition, we own many other trademarks, which
+we utilize in marketing our products. We continue to vigorously protect our
+trademarks against infringement. We also have a number of design patents
+covering components and features used in various shoes. We believe that our
+success depends primarily upon skills in design, research and development,
+production and marketing rather than upon our patent position. However, we have
+followed a policy of filing applications for United States and foreign patents
+on designs that we deem valuable.
+We believe that our patents and trademarks are generally sufficient to
+permit us to carry on our business as presently conducted. We cannot, however,
+know whether we will be able to secure patents or trademark protection for our
+intellectual property in the future or that protection will be adequate for
+future products. Further, we face the risk of ineffective protection of
+intellectual property rights in the countries where we source and distribute our
+products. We have been sued for patent and trademark infringement and cannot be
+sure that our activities do not and will not infringe on the proprietary rights
+of others. If we are compelled to prosecute infringing parties, defend our
+intellectual property, or defend ourselves from intellectual property claims
+made by others, we may face significant expenses and liability which could
+negatively impact our business or financial condition.
+ENERGY SHORTAGES, NATURAL DISASTERS OR A DECLINE IN ECONOMIC CONDITIONS IN
+CALIFORNIA COULD INCREASE OUR OPERATING EXPENSES OR ADVERSELY AFFECT OUR SALES
+REVENUE.
+A substantial portion of our operations are located in California, including
+37 of our retail stores, our headquarters in Manhattan Beach and our domestic
+distribution center in Ontario. Because California has and may in the future
+experience energy and electricity shortages, we may be subject to increased
+operating costs as a result of higher electricity and energy rates and may be
+subject to rolling blackouts which could interrupt our business. Any such impact
+could be material and adversely affect our profitability. In addition, because a
+significant portion of our net sales is derived from sales in California, a
+decline in the economic conditions in California, whether or not such decline
+spreads beyond California, could materially adversely affect our business.
+Furthermore, a natural disaster or other catastrophic event, such as an
+earthquake affecting California, could significantly disrupt our business. We
+may be more susceptible to these issues than our competitors whose operations
+are not as concentrated in California.
+ONE PRINCIPAL STOCKHOLDER IS ABLE TO CONTROL SUBSTANTIALLY ALL MATTERS REQUIRING
+A VOTE OF OUR STOCKHOLDERS AND HIS INTERESTS MAY DIFFER FROM THE INTERESTS OF
+OUR OTHER STOCKHOLDERS.
+As of December 31, 2001, Robert Greenberg, Chairman of the Board and Chief
+Executive Officer, beneficially owned 74.4% of our outstanding Class B common
+shares and members of Mr. Greenberg's immediate family beneficially owned the
+remainder of our outstanding Class B common shares. The holders of Class A
+common shares and Class B common shares have identical rights except
+18
+that holders of Class A common shares are entitled to one vote per share while
+holders of Class B common shares are entitled to ten votes per share on all
+matters submitted to a vote of our stockholders. As a result, as of December 31,
+2001, Mr. Greenberg held approximately 69.5% of the aggregate number of votes
+eligible to be cast by our stockholders and together with shares held by other
+members of his immediate family held approximately 93.4% of the aggregate number
+of votes eligible to be cast by our stockholders. Therefore, Mr. Greenberg is
+able to control substantially all matters requiring approval by our
+stockholders. Matters that require the approval of our stockholders include the
+election of directors and the approval of mergers or other business combination
+transactions. Mr. Greenberg also has control over our management and affairs. As
+a result of such control, certain transactions are not possible without the
+approval of Mr. Greenberg, including, proxy contests, tender offers, open market
+purchase programs, or other transactions that can give our stockholders the
+opportunity to realize a premium over the then-prevailing market prices for
+their shares of our Class A common shares. The differential in the voting rights
+may adversely affect the value of our Class A common shares to the extent that
+investors or any potential future purchaser view the superior voting rights of
+our Class B common shares to have value.
+OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER, WHICH MAY CAUSE A
+DECLINE IN THE VALUE OF OUR STOCK.
+Provisions of Delaware law, our certificate of incorporation, or our bylaws
+could make it more difficult for a third party to acquire us, even if closing
+such a transaction would be beneficial to our stockholders. Mr. Greenberg's
+substantial beneficial ownership position, together with the authorization of
+Preferred Stock, the disparate voting rights between the Class A common shares
+and Class B common shares, the classification of the Board of Directors and the
+lack of cumulative voting in our certificate of incorporation and bylaws, may
+have the effect of delaying, deferring or preventing a change in control, may
+discourage bids for our Class A common shares at a premium over the market price
+of the Class A common shares and may adversely affect the market price of the
+Class A common shares.
+SPECIAL NOTE ON FORWARD LOOKING STATEMENTS AND REPORTS PREPARED BY ANALYSTS.
+This Form 10-K contains forward-looking statements within the meaning of the
+Private Securities Litigation Reform Act of 1995, including statements with
+regards to our revenues, earnings, spending, margins, cash flow, orders,
+inventory, products, actions, plans, strategies and objectives. Forward-looking
+statements include, without limitation, any statement that may predict,
+forecast, indicate or simply state future results, performance or achievements,
+and may contain the words "believe," "anticipate," "expect," "estimate,"
+"intend," "plan," "project," "will be," "will continue," "will," "result,"
+"could," "may," "might," or any variations of such words with similar meanings.
+Any such statements are subject to risks and uncertainties that would cause our
+actual results to differ materially from those which are management's current
+expectations or forecasts. Such information is subject to the risk that such
+expectations or forecasts, or the assumptions underlying such exceptions or
+forecasts, become inaccurate. In addition, the risks included here are not
+exhaustive. Other sections of this report may include additional factors which
+could adversely impact our business and financial performance. Moreover, we
+operate in a very competitive and rapidly changing environment. New risk factors
+emerge from time to time and we cannot 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 do, from time to time, communicate with securities
+analysts, we do not disclose any material non-public information or other
+confidential commercial information to them. Accordingly, individuals should not
+assume that we agree with any statement or report issued by any analyst,
+regardless of the content of the report. Thus, to the extent that reports issued
+by securities analysts contain any projections, forecasts or opinions, such
+reports are not our responsibility.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2001/0000950148-02-000847/item13.txt b/raw/filings/0001065837/2001/0000950148-02-000847/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5cfbd1acb12ae7bf72ee4cd809fb658ca6e162f1
--- /dev/null
+++ b/raw/filings/0001065837/2001/0000950148-02-000847/item13.txt
@@ -0,0 +1,4 @@
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
+The information required by this Item 13 is hereby incorporated by reference
+from our definitive proxy statement, to be filed pursuant to Regulation 14A
+within 120 days after the end of our 2001 fiscal year.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2001/0000950148-02-000847/item9a.txt b/raw/filings/0001065837/2001/0000950148-02-000847/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001065837/2001/0000950148-02-000847/rp_note.txt b/raw/filings/0001065837/2001/0000950148-02-000847/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001065837/2001/0000950148-02-000847/rpt_disclosure.txt b/raw/filings/0001065837/2001/0000950148-02-000847/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..69a13d02efbdbe71f1a8b2c934d033260300ff27
--- /dev/null
+++ b/raw/filings/0001065837/2001/0000950148-02-000847/rpt_disclosure.txt
@@ -0,0 +1,41 @@
+CERTAIN RELATIONSHIPS AND RELATED
+TRANSACTIONS 
+Shares of Class A Common Stock issuable upon
+conversion of shares of Class B Common Stock held by the
+Greenberg Family Trust and Michael Greenberg, President of the
+Company, are subject to certain registration rights. The Company
+entered into a registration rights agreement with the Greenberg
+Family Trust and Michael Greenberg pursuant to which the Company
+agreed that it will, on up to two separate occasions per year,
+register up to one-third of the shares of Class A Common
+Stock issuable upon conversion of their Class B Common
+Stock beneficially owned as of the closing of the Company’s
+initial public offering of its Class A Common Stock by each
+such stockholder in any one year, provided, among other
+conditions, that the underwriters of any such offering have the
+right to limit the number of shares included in such
+registration. The Company also agreed that, if it shall cause to
+be filed with the Securities and Exchange Commission a
+registration statement, each such stockholder shall have the
+right to include up to one-third of the shares of Class A
+Common Stock issuable upon conversion of their Class B
+Common Stock beneficially owned as of the closing of the
+Company’s initial public offering of its Class A
+Common Stock by each of them in such registration statement
+provided, among other conditions, that the underwriters of any
+such offering have the right to limit the number of shares
+included in such registration. All expenses of such
+registrations shall be at the Company’s expense.
+Thomas J. Poletti, a director of the
+Company, is a partner of the law firm of Kirkpatrick &
+Lockhart, LLP which provides legal services to the Company. The
+Company paid $252,000 to Kirkpatrick & Lockhart, LLP
+for legal services that were provided to the Company in 2001.
+The Company has entered into employment
+agreements with certain executive officers. See “Executive
+Compensation — Employment Agreements.”
+The Company believes that all of the foregoing
+transactions were on terms no less favorable than those that
+could have been received from unrelated third parties.
+14
+Table of Contents
\ No newline at end of file
diff --git a/raw/filings/0001065837/2002/0000950148-03-000702/filing.txt b/raw/filings/0001065837/2002/0000950148-03-000702/filing.txt
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index 0000000000000000000000000000000000000000..89c2eb86ac8647789fbe716f89d335354d02bb5f
--- /dev/null
+++ b/raw/filings/0001065837/2002/0000950148-03-000702/filing.txt
@@ -0,0 +1,5342 @@
+10-K
+1
+v88731e10vk.htm
+FORM 10-K
+SKECHERS U.S.A. INC. FORM 10-K 12/31/02 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+WASHINGTON, D.C. 20549 
+FORM 10-K 
+[X] 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 
+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: 001-14429 
+SKECHERS U.S.A., INC. 
+(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) 
+DELAWARE 
+(STATE OR OTHER JURISDICTION OF 
+INCORPORATION OR ORGANIZATION) 
+228 MANHATTAN BEACH BLVD. 
+MANHATTAN BEACH, CALIFORNIA 
+(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 
+95-4376145 
+(I.R.S. EMPLOYER 
+IDENTIFICATION NO.) 
+90266 
+(ZIP CODE) 
+REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 318-3100 
+SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: 
+TITLE OF EACH CLASS 
+Class A Common Stock, $0.001 par value 
+NAME OF EACH EXCHANGE 
+ON WHICH REGISTERED 
+New York Stock Exchange 
+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 if disclosure of delinquent filers pursuant to Item
+405 of Regulation S-K is not contained herein, and will not be contained, to
+the best of registrant’s knowledge, in definitive proxy or information
+statements incorporated by reference in Part III of the Form 10-K or any
+amendment to this Form 10-K. [ ]
+Indicate by check mark whether the registrant is an accelerated filer (as
+defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
+As of March 28, 2003, the aggregate market value of the voting stock held by non-affiliates of the Registrant was
+approximately $123 million based upon the closing price of $6.64
+of the Class A Common Stock on the New York Stock
+Exchange on such date.
+The number of shares of Class A Common Stock outstanding as of
+March 28,
+2003 was 18,570,018.
+TABLE OF CONTENTS 
+PART I 
+ITEM 1. BUSINESS 
+ITEM 2. PROPERTIES 
+ITEM 3. LEGAL PROCEEDINGS 
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
+PART II 
+ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 
+ITEM 6. SELECTED FINANCIAL DATA 
+ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
+ITEM 7(a) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
+PART III 
+ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 
+ITEM 11. EXECUTIVE COMPENSATION 
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 
+ITEM 14. CONTROLS AND PROCEDURES 
+ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES 
+PART IV 
+ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 
+SIGNATURES 
+EXHIBIT 10.14(a) 
+EXHIBIT 10.15(a) 
+EXHIBIT 10.28 
+EXHIBIT 21.1 
+EXHIBIT 23.1 
+EXHIBIT 99.1 
+Table of Contents 
+The number of shares
+of Class B Common Stock outstanding as of March 28,
+2003 was 19,206,561.
+DOCUMENTS INCORPORATED BY REFERENCE 
+Portions of the Registrant’s Definitive Proxy Statement issued in
+connection with the 2003 Annual Meeting of the Stockholders of the Registrant
+are incorporated by reference into Part III.
+2
+Table of Contents 
+SKECHERS U.S.A., INC. 
+FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 
+INDEX TO ANNUAL REPORT ON FORM 10-K 
+PAGE 
+PART I 
+Item 1. Business 
+4 
+Item 2. Properties 
+22 
+Item 3. Legal Proceedings 
+22 
+Item 4. Submission of Matters to a Vote of Security Holders 
+23 
+PART II 
+Item 5. Market for Registrant’s Common Equity and Related
+Stockholder Matters 
+24 
+Item 6. Selected Financial Data 
+24 
+Item 7. Management’s Discussion and Analysis of Financial Condition
+and Results of Operations 
+25 
+Item 7a. Quantitative and Qualitative Disclosures About Market Risk 
+33 
+Item 8. Financial Statements and Supplementary Data 
+34 
+Item 9. Changes in and Disagreements With Accountants on Accounting
+and Financial Disclosure 
+34 
+PART III 
+Item 10. Directors and Executive Officers of the Registrant 
+34 
+Item 11. Executive Compensation 
+34 
+Item 12. Security Ownership of Certain Beneficial Owners and Management 
+34 
+Item 13. Security Relationships and Related Transactions 
+35 
+Item 14. Controls and Procedures 
+35 
+Item 15. Principal Accountant Fees and Services 
+35 
+PART IV 
+Item 16. Exhibits, Financial Statement Schedules and Reports on Form 8-K 
+35 
+Signatures 
+41 
+Consolidated Financial Statements 
+F-1 
+3
+Table of Contents 
+PART I 
+ITEM 1. BUSINESS 
+Certain information contained in this report constitutes forward-looking
+statements which involve risks and uncertainties including, but not limited to,
+information with regard to our plans to increase the number of retail locations
+and styles of footwear, the maintenance of customer accounts and expansion of
+business with such accounts, the successful implementation of our strategies,
+future growth and growth rates and future increases in net sales, expenses,
+capital expenditures and net earnings. The words “believes,” “anticipates,”
+“plans,” “expects,” “endeavors,” “may,” “will,” “intends,” “estimates,” and
+similar expressions are intended to identify forward-looking statements. These
+forward-looking statements involve risks and uncertainties, and our actual
+results could differ materially from those anticipated in these forward-looking
+statements as a result of certain factors, including, but not limited to, those
+set forth under “Risk Factors” and elsewhere in this Report.
+We were incorporated in California in 1992 and reincorporated in Delaware in
+1999. Our Internet website address is www.skechers.com. We make our annual report on Form
+10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any
+amendments to those reports filed or furnished pursuant to Section 13(a) or
+15(d) of the Securities Exchange Act of 1934, available free of charge on our
+website as soon as reasonably practicable after we electronically file such
+material with, or furnish it to, the Securities and Exchange Commission (the
+“SEC”). You can learn more about us by reviewing such filings on our website or
+at the SEC’s website at www.sec.gov.
+GENERAL 
+We design and market a collection of Skechers-branded contemporary
+footwear for men, women and children as well as a designer line for women
+branded separately to appeal to a unique audience. Our footwear reflects a
+combination of style, quality and value that appeals to a broad range of
+customers. Our shoes are sold through a wide range of department stores and
+leading specialty stores, a growing network of our own retail stores, and our
+e-commerce Web site. Our objective is to profitably grow our operations
+worldwide while leveraging our brand, one of the most recognized names in the
+footwear industry, through its strong product lines, innovative advertising and
+diversified distribution channels.
+We seek to offer consumers a vast array of fashionable footwear that
+satisfies their active, casual, dress casual and dress footwear needs. Our
+product line currently consists of over 1,500 current styles that are organized
+in 11 distinct collections. Our core consumers are style-conscious 12- to
+24-year-old men and women attracted to our youthful brand image and fashion
+forward designs. Over the last several years, we have introduced and expanded
+several footwear lines that have broadened our customer base, including
+Somethin’ Else from Skechers for juniors, the designer line Michelle K for
+style-savvy women, and the category Skechers Comfort for men. Many of our
+best-selling and core styles are developed specifically for children with
+colors and materials that reflect a playful image appropriate for this
+demographic.
+We believe that brand recognition is an important element for success in
+the footwear business. We have aggressively promoted the Skechers brand through
+a comprehensive marketing campaign. In 2002, we developed image-oriented
+lifestyle ads for print and television that we believe resulted in a higher
+level of recognition of the Skechers brand across a variety of footwear
+categories. As part of this strategy, we incorporated celebrity endorsees
+Britney Spears, Rick Fox, and Robert Downey Jr. into our print and marketing
+campaigns. The strategy focuses on print advertisements in targeted
+publications such as GQ, Details, Vogue, Elle, Elle Girl and Seventeen , and is
+supported by television commercials for adults and children aired on major
+networks and leading cable channels such as MTV, ESPN and Nickelodeon.
+Product Lines 
+In December 1992, we introduced our first Skechers-branded line called
+Skechers USA Sport Utility Footwear. Since that time, we have expanded our
+product offering and grown our net sales while substantially increasing the
+breadth and penetration of our account base. Each of our Skechers-branded
+product lines benefits from the Skechers reputation for contemporary and
+progressive styling, quality, comfort, and affordability. To promote innovation
+and brand relevance, we manage our product lines separately by utilizing
+dedicated design and marketing teams. Our product lines share back office
+services in order to limit our operating expenses and fully utilize our
+management’s vast experience in the footwear industry.
+Skechers USA. Our Skechers USA category for men and women includes four
+types of footwear: (i) Casuals, (ii) Classics,
+(iii) Outdoor
+(for men only), and (iv) Comfort
+(for men only).
+4
+Table of Contents 
+• 
+The Casuals category includes “black and brown” boots and shoes that
+generally have a rugged urban design – some with industrial-inspired
+fashion features. This category is defined by the heavy-lugged outsole
+and value-oriented materials employed in the uppers. We design and price
+this category to appeal primarily to young persons with broad acceptance
+across age groups. Suggested retail price points range from $45.00 to
+$70.00 for this category. 
+• 
+The Classics category of boots and shoes employ softer outsoles,
+which are often constructed of polyvinyl carbon (“PVC”). The more
+refined design of this footwear utilizes better grades of leather and
+linings. Designs are sportier than the Casuals category and feature
+oxfords, wingtips, monk straps, demi-boots and boots. Suggested retail
+price points range from $50.00 to $75.00 for this category. 
+• 
+Our Outdoor styles for men primarily consist of hiker-influenced
+constructions that include boots and shoes. While this category includes
+many technical performance features, we market it primarily on the basis
+of style and comfort. However, many of the technical performance
+features in the Outdoor category contribute to the level of comfort this
+footwear provides. Outsoles generally consist of molded and contoured
+hardened rubber. Many designs include gussetted tongues to prevent
+penetration of water and debris, as well as cushioned mid-soles, motion
+control devices such as heel cups, water-resistant or water-proof
+construction and materials, and more durable hardware such as metal
+D-rings instead of eyelets. Uppers are generally constructed of heavily
+oiled nubuck and full-grain leathers. Suggested retail price points
+range from $45.00 to $75.00 for this category. 
+• 
+Skechers Comfort is a line of trend-right casuals for men who want
+all-day comfort without compromising style. Characteristics of the line
+include comfortable outsoles, cushioned insoles and quality leather
+uppers. Skechers Comfort is intended to be available in many of the same
+stores that carry Skechers USA as well as additional mid-tier and better
+department stores. Suggested retail price points range from $50.00 to
+$75.00 for this category. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes (i)
+Joggers, Trail runners, Sport hikers, Terrainers, (ii) Court, and (iii) Silver
+Series sneakers (for men only). Our Skechers Sport category is distinguished by
+its technical performance-inspired looks; generally, however, we do not promote
+the technical performance features of these shoes.
+• 
+Our Jogger, Trail runner, Sport hiker and cross trainer-inspired
+Terrainer designs are lightweight constructions that include cushioned
+heels, polyurethane midsoles, and phylon and other synthetic outsoles,
+as well as leather or synthetic uppers such as durabuck, cordura and
+nylon mesh. Careful attention is devoted to the design, pattern and
+construction of the outsoles, which vary greatly depending on the
+intended use. This category features earth tones and athletic-inspired
+hues with pop colors in addition to the traditional athletic white. The
+Jogger, Trail runner, Sport hiker and Terrainer styles are marketed
+through athletic footwear specialty retailers as well as basic existing
+accounts. Suggested retail price points range from $40.00 to $70.00 for
+this category. 
+• 
+The Court category is inspired from classic court shoes and includes
+technical features, but is not meant to be a performance shoe line. The
+court shoes feature lightweight constructions that include polyurethane
+and phylon midsoles, rubber low-profile outsoles, and heel airbag
+inserts for additional comfort and performance. The uppers are mostly
+mid-cut with some low tops, and constructed with better quality smooth,
+full-grain and tumbled leathers, typically in white. The court styles
+are marketed through athletic footwear specialty retailers as well as
+basic existing accounts. Suggested retail price points range from $40.00
+to $70.00 for this category. 
+• 
+The Skechers Sport Silver Series incorporates retro influences, lower
+profiles, simple styling, and classic details in a collection of
+sneakers. With groupings that are designed for everyday casual and
+casual work or school attire, the sneakers come in a variety of bright
+colors as well as basics. The uppers are designed in leather, suede
+and/or mesh. The Silver Series is marketed through department stores,
+and specialty and athletic retailers. Suggested retail price points
+range from $40.00 to $60.00 for this category. 
+Skechers Collection. The Skechers Collection line features stylish (i)
+dress casual and dress and (ii) EuroSport shoes for the young fashion-forward
+male consumer. In addition to basic “essential” styles, this category is
+comprised of more sophisticated designs influenced, in part, by prevailing
+trends in Italy and other European countries. Given the look, style and
+quality, this footwear is primarily sourced from Italy. We promoted Skechers
+Collection with advertising campaigns featuring Rick Fox and Robert Downey, Jr.
+in 2002, and Matt Dillon and Rob Lowe in 2001.
+5
+Table of Contents 
+• 
+Our dress and dress casuals include classic tailored and
+fashion-forward square, round and pointed lasts in a variety of styles,
+such as bicycle toes, monk straps, wingtips, oxfords, cap toes,
+demi-boots and boots. The outsoles project a sleeker profile and can be
+either leather or man-made. The uppers are high-quality leathers
+including glossy, “box,” and aniline. Suggested retail price points
+range from $70.00 to $155.00 for this category. 
+• 
+Inspired by the latest in European fashion, EuroSport blends classic
+dress casual styling with European sport fashions to create a versatile
+and comfortable casual shoe. Marked by details and unique styling, the
+EuroSport collection features high-quality leathers and
+suede in multiple colorations, and sport-inspired rubber outsoles.
+Suggested retail price points range from $65.00 to $100.00 for this
+category. 
+Skechers Kids. The Skechers Kids line features a range of products
+including boots, shoes and sneakers. Comprised primarily of shoes that are
+designed as “takedowns” of their adult counterparts, the line offers the
+younger set the same popular styles as their older siblings and schoolmates.
+This “takedown” strategy maintains the product’s integrity by offering premium
+leathers, hardware and outsoles without the attendant costs involved in
+designing and developing new products. In addition, we adapt current fashions
+from our men’s and women’s lines by modifying designs and choosing colors and
+materials that are more suitable for the playful image we have established in
+the children’s footwear market. Skechers Kids includes variations on Skechers
+Sport, Skechers USA, Skechers Collection, Skechers Retros, Skechers Active and
+Somethin’ Else from Skechers adult shoes. Unique to Skechers Kids, S-Lights is
+a line of lighted footwear, which combine a sequence of patterns and lights on
+the outsole and other areas of the shoes. Skechers Kids is available in
+department stores, specialty and athletic stores. Our children’s footwear is
+offered at retail prices ranging from $20.00 to $50.00.
+Somethin’ Else from Skechers. Targeted toward 12- to 25-year-old
+trend-savvy females, Somethin’ Else from Skechers focuses on current fashions
+with an array of stylish shoes, boots and sandals. With a growing offering of
+styles that includes flats, heeled boots, clogs and sport-influenced looks, the
+line is designed to meet junior consumers’ needs – from school to work to
+weekends to the prom – and is a complementary line for juniors who already wear
+Skechers USA and Skechers Sport. Many styles are made from more affordable
+materials such as man-made leather, offering more young consumers the
+opportunity to buy trend-right shoes at affordable prices. This line is
+typically retailed through department and specialty stores. Suggested retail
+price points range from $20.00 to $70.00 for this category.
+Michelle K. Targeted toward stylish 18- to 34-year-old women, Michelle K
+is a signature designer line comprised of high-fashion boots, pumps and flats,
+as well as an expanded division of sport shoes. Head designer and visionary
+Michelle Kelchak derives her inspiration from her extensive travels, which is
+evident in her collections reflective of the latest European, Asian and
+American trends and fashions. Made with the finest European materials and
+craftsmanship, Michelle K is marked by high-grade leathers, fine detailing and
+design and flattering silhouettes, including sculpted heels and lower kitten
+heels. Most styles are crafted in Italy, Portugal and Spain, with others made
+in Brazil. The line is available in better department stores and boutiques.
+Suggested retail price points range from $75.00 to $300.00 for this category.
+4 Wheelers by Skechers. Designed for the men, women and children, 4
+Wheelers by Skechers is a line of technical fashion roller skates that
+incorporates our most popular sneaker uppers, including the Energy and Energy
+II, on quality aluminum and nylon chassis and polyurethane wheels. Technical
+features include: full precision ABEC-1, 3 and 5 bearings, unique heel brakes
+for easy control, durable chassis, controllable steering, and reinforced upper.
+In 2002, we launched Britney 4 Wheelers, a signature Britney Spears roller
+skate line with an advertising campaign featuring the celebrated star.
+Suggested retail price points for adults range from $80.00 to $100.00, and for
+children from $60.00 to $75.00.
+Skechers Active. Launched in 2002, Skechers Active is a line of everyday,
+everywhere casual sneakers for females of all ages. Predominately a
+white-leather based line with bright and pastel pop colors, the line has grown
+to include select solid color styles and unique fabric treatments such as
+chrome and perforated metallic. Active sneakers are typically retailed through
+specialty casual shoe stores and department stores. Suggested retail price
+points range from $30.00 to $55.00 for this category.
+Skechers Retros. Launched in 2002, Skechers Retros are primarily
+high-contrast colored sneakers in leather or suede with low-profile outsoles.
+Retros sneakers are typically retailed through specialty casual shoe stores and
+department stores. Suggested retail price points range from $40.00 to $55.00
+for this category.
+Skechers Work. Expanding on our heritage of cutting-edge utility footwear,
+Skechers Work offers a complete line of men’s and women’s oxfords, boots, trail
+hikers and sport athletics. Launched in 2002, the Skechers Work line includes
+(i) Steel Toe, (ii) Work and (iii) Slip-Resistant. Our steel toe,
+electrostatic-dissipative, and electrical hazard technologies respectively meet
+and exceed the
+6
+Table of Contents 
+industry’s Mark II and ANSI standards, and our slip-resistant soles meet Mark II
+standards. The uppers are in high-quality leather, nubuck and durabuck.
+Constructed on high-abrasion, long wearing soles, the line is designed for men
+and women with jobs that require certain safety requirements. Skechers Work is
+primarily marketed through business-to-business channels, but is also available
+direct-to-consumers and through select department and specialty stores.
+• 
+The Skechers steel toe category of sneakers, hikers, oxfords and
+boots are ideal for environments requiring safety footwear or tough
+terrain. These durable styles feature breathable lining, oil- and
+abrasion-resistant outsoles and steel toe design for optimal protection,
+all-day comfort and prolonged durability. Some styles also offer
+electrical hazard, electrostatic-dissipative and water-resistant
+features. Suggested retail price points range from $45.00 to $110.00 for
+this category. 
+• 
+The Skechers Work line of boots, oxfords and hikers offer versatile
+features for utility-driven men without sacrificing style. Designed with
+an array of textured uppers and colorways, the footwear capitalizes on
+function and comfort – from breathable lining to contoured insoles and
+abrasion-resistant outsoles for prolonged wear. Suggested retail price
+points range from $60.00 to $100.00 for this category. 
+• 
+Ideal for the service industry, the Skechers Slip-Resistant line of
+boots, oxfords and sneakers offer comfort and safety in dry or wet
+conditions – from breathable lining to Mark II-tested slip-, oil- and
+abrasion-resistant outsoles for optimal safety and reliability.
+Electrostatic-dissipative features are also available on select styles.
+Suggested retail price points range from $50.00 to $75.00 for this
+category. 
+PRODUCT DESIGN AND DEVELOPMENT 
+Our principal goal in product design is to generate new and exciting
+footwear with contemporary and progressive styles and comfort-enhancing
+performance features. Targeted to the active, youthful and style-savvy, we
+design most new styles to be fashionable and marketable to the 12- to 25-year
+old consumer, while substantially all of our lines appeal to the broader range
+of 5- to 40-year old consumers, with an exclusive selection to infants and
+toddlers. While many of our shoes have performance features, we generally do
+not position our shoes in the marketplace as technical performance shoes.
+We believe that our products’ success is related to our ability to
+recognize trends in the footwear markets and to design products that anticipate
+and accommodate consumers’ ever-evolving preferences. We are able to quickly
+translate the latest trends in to stylish, quality footwear at a reasonable
+price. We strive to analyze, interpret and translate current and emerging
+lifestyle trends. Lifestyle trend information is compiled by our designers
+through various methods that monitor changes in culture and society, including
+the review and analysis of modern music, television, cinema, clothing,
+alternative sports and other trend-setting media; travel to domestic and
+international fashion markets to identify and confirm current trends;
+consultation with our retail customers for information on current retail
+selling trends; participation in major footwear trade shows to stay abreast of
+popular brands, fashions and styles; and subscription to various fashion and
+color information services. In addition, a key component of our design
+philosophy is to continually reinterpret our successful styles in the Skechers
+image.
+The footwear design process typically begins about nine months before the
+start of a season. Our products are designed and developed by our in-house
+staff. To promote innovation and brand relevance, we utilize dedicated design
+teams that focus on each of the men’s, women’s and children’s categories, and
+report to our senior design executives. In addition, we utilize outside design
+firms on an item-specific basis to supplement our design efforts. The design
+process is extremely collaborative; members of the design staff meet weekly
+with the heads of retail and merchandising, sales, production and sourcing to
+further refine our products to meet the particular needs of our markets.
+After a design team arrives at a consensus regarding the fashion themes
+for the coming season, the designers then translate these themes into our
+products. These interpretations include variations in product color, material
+structure and decoration, which are arrived at after close consultation with
+our production department. Prototype blueprints and specifications are created
+and forwarded to our prototype manufacturers located in Taiwan, which then
+forward design prototypes back to our domestic design team. Our major retail
+customers often also review these new design concepts. Customer input not only
+allows us to measure consumer reaction to the latest designs, but also affords
+us an opportunity to foster deeper and more collaborative relationships with
+our customers. Our design teams can easily and quickly modify and refine a
+design based on customer input.
+We occasionally order limited production runs which may initially be
+tested in our concept stores. By working closely with store
+7
+Table of Contents 
+personnel, we obtain customer feedback that often influences product
+design and development. We believe that sales in our concept stores can help
+forecast sales in national retail stores. We strive to determine within seven
+to 14 days after initial introduction of a product whether there is substantial
+demand for the style, thereby aiding us in our sourcing decisions. Styles that
+have substantial consumer appeal are highlighted in upcoming collections or
+offered as part of our periodic style offerings. The ability to initially test
+our products allows us to discontinue less popular styles after only a limited
+production run which affords us an indicator of future production and a hedge
+to fashion risks. Also, we strive to monitor five- and 10-week trailing trends
+of orders of our retail account base in order to manage future production of
+styles that are increasing or decreasing in popularity. Generally, the
+production process takes approximately six months from design concept to
+commercialization.
+SOURCING 
+Factories. Our products are produced by independent contract manufacturers
+primarily located in China and, to a lesser extent, in Italy, the Philippines,
+Brazil and various other countries. Substantially all of our products are
+manufactured in China. We do not own or operate any manufacturing facilities.
+We believe the use of independent manufacturers increases our production
+flexibility and capacity while at the same time substantially reduces capital
+expenditures and avoids the costs of managing a large production work force.
+We seek to use, whenever possible, manufacturers that have previously
+produced our footwear, which we believe enhances continuity and quality while
+controlling production costs. We attempt to monitor our selection of
+independent factories to ensure that no one manufacturer is responsible for a
+disproportionate amount of our merchandise. We source product for styles that
+account for a significant percentage of our net sales from at least four
+different manufacturers. During 2002, we had four manufacturers that accounted
+for approximately 53.8% of total purchases. One manufacturer accounted for
+22.7% of our total purchases during the year ended December 31, 2002. To date,
+we have not experienced difficulty in obtaining manufacturing services.
+We maintain an in-stock position for selected styles of footwear in order
+to minimize the time necessary to fill customer orders. In order to maintain an
+in-stock position, we place orders for selected footwear with our manufacturers
+prior to the time we receive customers’ orders for such footwear. In order to
+reduce the risk of overstocking, we seek to assess demand for our products by
+soliciting input from our customers and monitoring retail sell-through. In
+addition, we analyze historical and current sales and market data to develop
+internal product quantity forecasts which helps reduce inventory risks.
+We finance our production activities in part through the use of
+interest-bearing open purchase arrangements with certain of our Asian
+manufacturers. These facilities currently bear interest at a rate between 0.5%
+and 1.5% for 30 to 60 days financing, depending on the factory. We believe that
+the use of these arrangements affords us additional liquidity and flexibility.
+While we have long-standing relationships with many of our manufacturers and
+believe our relationships to be good, there are no long-term contracts between
+us and any of our manufacturers.
+Production Oversight. To safeguard product quality and consistency, we
+oversee the key aspects of production from initial prototype manufacture
+through initial production runs to final manufacture. Monitoring is performed
+domestically by our in-house production department and in Asia through an
+approximately 179-person staff working from our offices in China and Taiwan. We
+believe that our Asian presence allows us to negotiate supplier and
+manufacturer arrangements more effectively, decrease product turnaround time,
+and ensure timely delivery of finished footwear. In addition, we require our
+manufacturers to certify that neither convict, forced, indentured labor (as
+defined under U.S. law) nor child labor (as defined by the manufacturer’s
+country) is used in the production process, that compensation will be paid
+according to local law and that the factory is in compliance with local safety
+regulations.
+Quality Control. We believe that quality control is an important and
+effective means of maintaining the quality and reputation of our products. Our
+quality control program is designed to ensure that finished goods not only meet
+our established design specifications, but also that all goods bearing our
+trademarks meet our standards for quality. Quality control personnel perform an
+array of inspection procedures at various stages of the production process,
+including examination and testing of prototypes of key raw materials prior to
+manufacture, samples and materials at various stages of production and final
+products prior to shipment. Our employees are on-site at each of our major
+manufacturers to oversee key phases of production. In addition, unannounced
+visits to the manufacturing sites, to further monitor compliance with our
+manufacturing specifications, are made by our employees and agents.
+ADVERTISING AND MARKETING 
+Our advertising and marketing goal is to maintain and enhance recognition
+of the Skechers brand name as a casual, active youthful
+8
+Table of Contents 
+brand that stands for quality, comfort and design innovation. Senior
+management is directly involved in shaping our image and the conception,
+development and implementation of our advertising and marketing activities. We
+have and continue to adjust our advertising budget consistent with projected
+sales, which has included such avenues as magazines, television, trade shows,
+billboards, mall kiosks, radio spots and buses. Approximately 8% to 10% of
+annual net sales is dedicated to marketing Skechers footwear through
+advertising, promotions, public relations, trade shows and other efforts.
+Advertising 
+The majority of Skechers advertising is conceived and designed by our
+in-house team. By retaining our advertising functions in-house, we believe that
+we are able to maintain a greater degree of control over both the creative
+process and the integrity of the Skechers image, while realizing substantial
+savings compared to using outside agencies.
+We believe that our advertising strategies, methods and creative campaigns
+are directly related to our success as our advertisements promote Skechers
+product in edgy lifestyle settings. Our in-house advertising team has developed
+a comprehensive program to promote the Skechers brand through lifestyle- and
+image-driven advertising. While all of our advertisements feature our footwear,
+they generally seek to build and increase brand awareness by linking Skechers
+to youthful, contemporary lifestyles and attitudes rather than to market a
+particular footwear product. Our ads are designed with a broad approach to
+eliminate single categorization and to provide merchandise flexibility and
+facilitate the brand’s and product design’s direction of evolving footwear
+fashions and consumer preferences.
+To further establish Skechers as a household name, we signed endorsement
+agreements with celebrities we felt would reach new markets. In 2002, we signed
+professional basketball player and actor Rick Fox and actor Robert Downey, Jr.
+to contracts for separate limited term worldwide print media campaigns. We
+previously had similar relationships with actors Matt Dillon and Rob Lowe. From
+time to time, we may sign other celebrities to endorse our brand name and image
+in order to strategically market our products among specific consumer groups in
+the future.
+We use a variety of media for our national advertising. Print efforts are
+represented by one- and two- page ads displayed in popular fashion and
+lifestyle consumer publications that appeal to our target customer group, such
+as Elle, Details, Seventeen, GQ, People, Teen People, Rolling Stone, Vogue, and
+many others. Our progressive television advertisements are primarily produced
+in-house and air frequently on top television shows on major networks and cable
+channels. Different advertisements are created for each of the 5- to 11-, 12-
+to 24-, and 25- to 35-year-old male and female consumer groups. Our in-house
+media buyer strategically selects the ideal programs and geographic areas for
+our commercials for maximum consumer impact.
+Marketing and Promotions 
+By applying creative sales techniques via a broad spectrum of mediums, the
+marketing and promotions team seeks to build brand recognition and drive
+traffic to Skechers retail stores and our retail partners’ locations, serving
+as a catalyst for increased product sales. Skechers’ promotional strategies
+have encompassed in-store specials, concert promotions, charity events, product
+tie-ins and giveaways, and collaborations with national retailers and radio
+stations. Our imaginative promotions are consistent with Skechers’ imaging and
+lifestyle.
+Public Relations 
+Our public relations team’s objective is to garner positive and accurate
+press on our company, and to secure product placement in key fashion magazines
+and place Skechers footwear on the feet of trend-setting celebrities.
+During 2002, we received notable press coverage in numerous print
+publications, including a Top 10 ranking in BusinessWeek ’s Top 100 Growth
+Companies, and Top 5 status in Footwear News ’ list of 10 Most Profitable
+Footwear Vendors and Best-Selling Footwear Brands. We have also been featured
+in Investor’s Business Daily, Los Angeles Times, Wall Street Journal and
+Footwear News. 
+We have consistently received recognition in the footwear industry for our
+exciting and innovative products, marketing efforts and service. In 2002,
+Skechers was awarded the 2001 Corporate Vendor of the Year and Children’s
+Vendor of the Year awards from Shoe Carnival, which applauded the Company’s 112
+percent increase in sales and 105 percent increase in gross profit at the shoe
+chain’s stores in 2001 compared to 2000. Skechers also received the 2002
+Supplier of the Year award in the footwear category from Sporting Goods
+Business at their annual Trendsetter Awards. The accolades are a testament to
+the breadth of Skechers’ impact.
+9
+Table of Contents 
+Through our commitment to aggressively promoting our design and
+development teams’ upcoming styles, our products are often featured in leading
+fashion and pop culture magazines, as well as in select films and popular
+television shows. In addition to a high-profile scene at a Skechers retail
+store in the hit movie About A Boy , our footwear has been prominently displayed
+and referenced on The Today Show , Oprah , Good Morning America , E! Style , Six
+Feet Under and Fastlane , among others, and has amassed an array of prominent
+product placements in magazines including Lucky , GQ , YM , Seventeen , Elle ,
+InStyle and Footwear News . In addition, the Skechers brand has been associated
+with cutting edge events and select celebrities, and our product has been seen
+worn by trend-setters like Vin Diesel, Usher, Christina Ricci, Ali Landry,
+Daryl Hannah, and Gwen Stefani, among others.
+Trade Shows
+To best showcase our diverse products to footwear buyers across the
+nation, we exhibited at 27 trade shows during 2002. Our dynamic,
+state-of-the-art trade show exhibits, which are designed by our in-house
+architect and feature our latest product offerings, are specially planned and
+built to accommodate each trade show and are enhanced with lifestyle images
+reflective of our brand. By investing in innovative displays and individual
+rooms showcasing each line, our sales force can present a sales plan for each
+line and buyers are able to truly understand the breadth and depth of our
+offerings, optimizing commitments and sales at the retail level. Our innovative
+exhibits have won numerous awards, including Best Booth Design at the World
+Shoe Association, February 2001 and February 2003.
+Internet 
+We also promote our
+brand image through our website at www.skechers.com to customers who
+directly access the Internet. This website currently enables us to
+present information on our products and store locations to consumers.
+The website is interactive, affording customers the ability to
+directly order products on the Internet and to allow us to receive and
+respond directly to customer feedback. Our website is intended to
+enhance the Skechers brand without the associated costs of
+advertising. Our website provides fashion information, provides a
+mechanism for customer feedback, promotes customer loyalty and further
+enhances the Skechers brand image through interactive content,
+photos, interviews and information on Skechers-sponsored events.
+Visual Merchandising 
+Our in-house display-merchandising department supports retailers and
+distributors by developing point-of-purchase advertising to further promote our
+products in our wholesale customers’ stores and to leverage recognition of the
+Skechers brand name at the retail level. Our visual merchandising coordinators
+work with our sales department to ensure better sell-through at the retail
+level. Our coordinators communicate with and visit our wholesale customers on a
+regular basis to aid in the proper visual display of our merchandise and to
+distribute and display such point-of-purchase items as signage, packaging,
+displays, counter cards, banners, and other merchandising items. These
+materials mirror the look and feel of our national print advertising in order
+to reinforce brand image at the point-of-purchase. We believe these efforts
+help stimulate impulse sales and repeat purchases.
+Our merchandise personnel also work closely with our wholesale customers
+to ensure the optimal exposure of our products. We have concept shops
+in approximately 100 major accounts, which are exclusive selling areas
+within stores that offer our
+products and incorporate Skechers signage and customized fixture designs, and
+we have a visual presence in our major accounts, we are able to enhance brand
+recognition and ensure the consistent presentation of our products in our
+wholesale customers’ stores.
+DOMESTIC SALES AND DISTRIBUTION 
+Our products are sold in the United States through three primary
+distribution channels: to a network of wholesale accounts, in our own retail
+stores and, to a lesser extent, through electronic commerce on our interactive
+Web site. Each of these channels and the three distinct formats of our retail
+stores — concept stores, factory outlet stores and warehouse
+outlet stores — serve an integral function in the domestic distribution of our products.
+Wholesale Distribution 
+During fiscal 2002, we distributed our footwear to approximately 3,000
+wholesale accounts in the United States. We believe that our broad product line
+enables us to appeal to a variety of wholesale accounts, many of whom may
+operate stores within the same mall or other retail locations, because
+retailers can select those styles of ours that best satisfy the fashion,
+function and price criteria of their clients. Management has a clearly defined
+growth strategy for each of our channels of distribution. An integral component
+of our strategy is to offer our accounts the highest level of customer service
+so that our products will be more fully represented in existing retail
+locations and new locations within each account.
+We have approximately 101 sales and 13 visual merchandise coordinators to
+service our wholesale accounts. In an effort to provide knowledgeable and
+personalized service to our wholesale accounts, the sales force is segregated
+into geographical regions each headed by a regional sales manager. Reporting
+to each regional sales manager are knowledgeable sales representatives for each
+of our product lines. Each of these regional sales managers and the Vice
+President of Sales-Children’s Division reports to our Executive Vice President,
+Domestic U.S. Sales, who has over 20 years of experience in the branded
+consumer products industry. Each of the sales staff is compensated on a salary
+plus commission basis with none of the representatives selling competitive
+products. Senior management is actively involved in selling to and maintaining
+relationships with our major retail accounts.
+10
+Table of Contents 
+We believe that we have developed a loyal customer base of wholesale accounts
+through a heightened level of customer service. We believe that our close
+relationships with these accounts help us to maximize their retail
+sell-through, maintained margins and inventory turns which in turn minimizes
+our inventory markdowns, customer returns, allowances and chargebacks. Our
+visual merchandise coordinators work with our wholesale accounts to ensure that
+our merchandise and point-of-purchase marketing materials are properly
+presented. Sales executives and merchandise personnel work closely with
+accounts to ensure the appropriate styles are purchased for specific accounts
+and for specific stores within those accounts as well as ensure that
+appropriate inventory levels are carried at each store. Such information is
+then utilized to help develop sales projections and determine the product needs
+of wholesale accounts. The value added services we provide our wholesale
+customers help us maintain strong relationships with our existing wholesale
+customers and attract potential new wholesale customers.
+Retail Stores 
+We pursue our retail store strategy through our three integrated retail
+formats: the concept store, the factory outlet store and the warehouse outlet
+store. Our three-store format enables us to promote the full Skechers line in
+an attractive environment, appeal to a broad group of customers that are
+segmented by price points and manage inventory in an efficient and brand
+sensitive manner. In addition, most of our retail stores are profitable and
+have a positive effect on our operating results. As of December 31, 2002, we
+operated 34 concept stores, 34 factory outlet stores and 23 warehouse outlet
+stores in the United States. We plan to open between 20 to 25 retail stores
+during 2003.
+• 
+Concept Stores. Our concept stores are located at either marquee
+street locations or in major shopping malls in large metropolitan
+cities. Our concept stores serve a threefold purpose in our operating
+strategy. First, concept stores serve as a showcase for a wide range of
+our product offerings for the current season, providing the customer
+with the entire product story. The concept stores feature a cutting edge
+design, modern music and lighting and present an open floor design to
+allow customers to readily view the merchandise on display. In contrast,
+we estimate that our average wholesale customer carries no more than 5%
+of the complete Skechers line. Second, retail locations are generally
+chosen to generate maximum marketing value for the Skechers brand name
+through signage, store front presentation and interior design. These
+locations include concept stores on Times Square and 34th Street in New
+York City, Newbury Street in Boston and in Santa Monica’s Third Street
+Promenade. The stores are typically designed to create a distinctive
+Skechers look and feel and enhance customer association of the Skechers
+brand name with current youthful lifestyle trends and styles. Third, the
+concept stores serve as marketing and product testing venues that
+provide rapid product feedback from customers. We believe that product
+sell-through information derived from our concept stores enables our
+sales, merchandising and production staff to respond to market changes
+and new product introductions. Such responses serve to augment sales and
+limit our inventory markdowns and customer returns and allowances. We
+strive to adjust our product and sales strategy based upon seven to 14
+days of retail sales information. 
+The prototypical Skechers concept store is approximately 2,750 square feet
+although in certain selected markets we have opened concept stores as large
+as 7,000 square feet or as small as 1,200 square feet. When deciding where
+to open concept stores, we identify top geographic markets in the larger
+metropolitan cities in the United States. When selecting a specific site,
+we evaluate the proposed sites’ traffic pattern, co-tenancies, sales volume
+by neighboring concept stores, lease economics and other factors considered
+important within the specific location. If we are considering opening a
+concept store in a shopping mall, our strategy is to obtain space as
+centrally located as possible in the mall where we expect foot traffic to
+be most concentrated. We believe that the strength of the Skechers brand
+name has enabled us to negotiate more favorable terms with shopping malls
+that want us to open up concept stores to attract customer traffic to these
+malls. We opened five new domestic concept stores in each of 2001 and 2002. 
+• 
+Factory Outlet Stores. Our factory outlet stores are generally
+located in manufacturers’ direct outlet centers throughout the United
+States. Our factory outlet stores provide opportunities for us to sell
+discontinued and excess merchandise, thereby reducing the need to sell
+such merchandise to discounters at excessively low prices, which could
+otherwise compromise the Skechers brand image. Skechers factory outlet
+stores range in size from approximately 1,900 to 6,000 square feet.
+Inventory in these stores is supplemented by certain first-line styles
+sold at full retail price points generally of $60.00 or lower. We opened
+11 new factory outlet stores during 2001 and five new factory outlet
+stores during 2002. 
+• 
+Warehouse Outlet Stores. Our free-standing warehouse outlet stores,
+which are located throughout the United States, enable us to liquidate
+excess merchandise, discontinued lines and odd-size inventory in a
+cost-efficient manner. Skechers warehouse outlet stores range in size
+from approximately 5,600 to 14,800 square feet. Our warehouse outlet
+stores enable us to sell 
+11
+Table of Contents 
+discontinued and excess merchandise that would otherwise typically be sold
+to discounters at excessively low prices, thus compromising the Skechers
+brand image. We seek to open our warehouse outlet stores in areas that are
+in close proximity to our other retail stores in order to facilitate the
+timely transfer of inventory that we want to liquidate as soon as
+practicable. We opened 10 new warehouse outlet stores during 2001 and three
+new warehouse outlet stores during 2002. 
+Electronic Commerce. Our electronic commerce sales represented less than
+1.0% of total net sales for each of 2001 and 2002. Our website,
+www.skechers.com, is a virtual storefront that promotes the Skechers brand
+name. Designed as a customer center, our website showcases our products in an
+easy-to-navigate format, allowing customers to see and purchase our footwear.
+This virtual store has become a successful additional retail distribution
+channel, has improved customer service and is a fun and entertaining
+alternative-shopping environment.
+INTERNATIONAL OPERATIONS 
+We market our products in countries and territories throughout the world.
+We generate revenues from outside the United States from four principal
+sources: (1) sales of our footwear to foreign distributors who distribute such
+footwear to department stores and specialty retail stores in Europe, Asia,
+Latin America, South America and numerous other countries and territories, (2)
+in France, Germany, Spain, Italy, Portugal, Austria, the Benelux Region and the
+United Kingdom, we sell footwear directly to department stores and specialty
+retail stores and (3) in France, Germany, the United Kingdom, and Canada
+through retail stores that we own and operate and (4) to a lesser extent,
+royalties from licensees who manufacture and distribute our products outside
+the United States.
+We believe that international distribution of our products represents a
+significant opportunity to increase revenues and profits. We established
+subsidiaries in Spain, Belgium and Canada during 2002, and our products are
+sold in more than 100 countries and territories around the world. We intend to
+further increase our share of the international footwear market by heightening
+our marketing presence in those countries through our international advertising
+campaigns, which are designed to establish Skechers as a global brand
+synonymous with casual shoes.
+Europe 
+We have historically sold our footwear to selected wholesale customers in
+Europe through our foreign distributors. In 2001, we began expanding our
+European operations to directly sell our footwear to certain wholesale accounts
+and retail stores in Europe in an effort to increase profit margins and more
+effectively market and promote the Skechers brand name. By the end of 2002, we
+had organized Skechers U.S.A. Ltd., with its offices in London, England,
+Skechers S.a.r.l., with its offices in Lausanne, Switzerland, Skechers U.S.A.
+France SAS with its offices in Paris, France, Skechers U.S.A. Deutschland GmbH
+with its offices in Dietzenbach, Germany, Skechers USA Iberia, with its offices
+in Madrid, Spain, and Skechers USA Benelux B.V. with its offices in Waalwijk,
+the Netherlands. Each of these subsidiaries was formed to establish direct
+control over wholesale distribution, merchandising, and marketing of our
+products in their respective countries of organization, as well as certain
+surrounding countries.
+In February 2003, we established Skechers USA Italia S.r.l. and in March
+we leased an administrative office in Verona to support our direct selling efforts
+in that region.
+In 2001, we utilized a third party contract warehouse located in Belgium
+to distribute our footwear to our customers and retail stores in France,
+Germany and the United Kingdom. During 2002, we established Skechers EDC SPRL,
+and in August 2002, we entered into a lease agreement for an approximately
+240,000 square foot distribution center in Liege, Belgium. The distribution
+center will provide product to our subsidiaries and retail stores throughout
+Europe. We began shipping product out of the Liege, Belgium distribution
+center in December 2002.
+Canada 
+In November 2002, we established our subsidiary Skechers USA Canada and opened
+our first Canadian flagship store in Toronto’s Eaton Centre. In January 2003,
+Skechers USA Canada assumed, from our Canadian distributor, distribution,
+merchandising, and marketing of our product in Canada. Product sold in Canada
+is primarily sourced from our distribution center in Ontario, California, USA.
+We anticipate opening an administrative office and showroom in the Toronto
+region to support our direct selling efforts during the first quarter ending
+March 31, 2003.
+12
+Table of Contents 
+Asia 
+In Japan, through an agreement with our Japanese distributor Achilles
+Corporation, we have opened two flagship retail stores, one in Kichijuoji
+opened in December 2001 and one in Osaka opened in March 2002. Achilles
+Corporation is responsible for the store’s operations and selecting a broad
+collection of our products to sell to Japanese consumers. In order to maintain
+a globally consistent image, we provided architectural, graphic and visual
+guidance and materials for the design of the store, and we trained the local
+staff on our products and corporate culture. We intend to expand our
+international presence and global recognition of the Skechers brand name in
+Asia by continuing to sell our footwear to foreign distributors and opening
+flagship retail stores with distributors that have local market expertise.
+LICENSING 
+We believe that selective licensing of the Skechers brand name to
+non-footwear-related manufacturers may broaden and enhance the Skechers brand
+image without requiring significant capital investments or additional
+incremental operating expenses by us. Our diverse group of products presents
+many potential licensing opportunities on terms with licensees that we believe
+will provide more effective manufacturing, distribution or marketing of
+products such as accessories, backpacks and children’s clothing than could be
+achieved in-house; however, we intend to be selective in granting any use of
+the Skechers brand name for such licensed products. We believe that the
+strength of the Skechers brand name and the size of our business will enable us
+to attract premier licensing partners with a proven track record of brand
+sensitivity.
+During 2002, we entered into the following three primary licensing
+arrangements within the apparel and accessories sectors:
+1. 
+Socks and hosiery sector. In June 2002, we entered into an
+agreement with Renfro Corporation to be our licensee for hosiery in the
+United States. Under this arrangement, Renfro Corporation will create
+quality and stylish men and women’s sport, casual and fashion hosiery.
+Product is expected to be available in department stores and specialty
+retailers in late Spring 2003. 
+2. 
+Watch sector. In October 2002, we entered into an agreement with
+Advance Group Inc. to be our licensee for a Skechers Sport
+line of sport-related men and women’s watches in the United States and
+Canada. The watches are expected to be available in leading department
+stores, specialty stores and catalogs during the second quarter
+ending June 30, 2003. 
+3. 
+Children’s apparel sector. In December 2002, we entered into an
+agreement with Kids’ Headquarters to design and distribute children’s
+tops and bottoms in denim, woven and knit materials, as well as
+coordinating outerwear and headwear using select Skechers logo’s in the
+United States. The apparel is expected to be available through
+department stores and specialty stores in time for the 2003
+Back-to-School selling season. 
+In March 2003, we signed a license agreement with Garson International for
+Skechers Collection-branded outerwear, including men’s jackets and coats in
+leather, suede, and cloth materials. The product is expected to be available in
+major department stores and specialty stores in late 2003. We continue to
+review potential domestic licensing arrangements and hope to announce
+additional agreements during 2003.
+In addition, we periodically review potential international licensing
+arrangements for footwear in various geographical regions that present
+favorable business opportunities. We intend to maintain substantial control
+over the design, manufacturing specifications, advertising and distribution of
+any licensed products and to maintain a policy of evaluating any future
+licensing arrangements to ensure consistent representation of the Skechers
+image.
+DISTRIBUTION 
+We believe that strong distribution support is a critical factor in our
+operations. Once manufactured, our products are packaged in shoe boxes bearing
+bar codes and are shipped either to (1) our approximately 1.4 million square
+feet of internally managed distribution center located in Ontario, California,
+(2) to our approximately 240,000 square foot distribution center located in
+Liege, Belgium, which began shipping in December 2002 to our European customers
+and retail stores, or (3) directly from third party manufacturers to our other
+international customers. Upon receipt at the central distribution centers,
+merchandise is inspected and recorded in our management information system and
+packaged according to customers’ orders for delivery. Merchandise is shipped to
+the customer by whatever means the customer requests, which is usually by
+common carrier. The central distribution centers have multi-access docks,
+13
+Table of Contents 
+enabling us to receive and ship simultaneously and to pack separate
+trailers for shipments to different customers at the same time. We have an
+electronic data interchange system, or EDI system, to which some of our larger
+customers are linked. This system allows these customers to automatically place
+orders with us, thereby eliminating the time involved in transmitting and
+inputting orders, and includes direct billing and shipping information.
+The following table sets forth a summary of our distribution facilities:
+ADDRESS 
+STATUS 
+SQUARE FOOTAGE 
+Avenue du parc Industriel, Liege, Belgium 
+Leased since July 2002 
+241,700 
+4100 East Mission Blvd., Ontario, CA 
+Leased since June 2001 
+763,300 
+1670 Champagne Avenue, Ontario, CA 
+Owned since October 2000 
+263,700 
+1661 South Vintage Avenue, Ontario, CA 
+Leased since November 1997 
+127,800 
+1777 South Vintage Avenue, Ontario, CA 
+Leased since November 1997 
+284,600 
+1,681,100 
+(1) 
+(1) 
+Excludes 285,600 square feet located at 5725 East Jurupa Street that we
+leased in April 1998 and occupied until we subleased the facility in June
+2001. 
+We believe that we have the capacity at our Ontario distribution center to
+increase our current operations to meet any future growth, and if we should
+ever need to expand our distribution facilities to allow for further growth, we
+believe there is presently enough space available in close proximity that leads
+us to believe leasing or purchasing additional property will not be a problem
+in the foreseeable future.
+Our lease agreement for our Liege, Belgium distribution center provides
+for first right of refusal on three remaining facilities planned for
+development, allowing for expansion of up to approximately 967,000 square feet.
+We believe that the capacity available to us within our lease agreement will
+allow for further grow of our international operations.
+BACKLOG 
+As of December 31, 2002, our backlog was $205.0 million, compared to
+$222.2 million as of December 31, 2001. While backlog orders are subject to
+cancellation by customers, we have not experienced significant cancellation of
+orders in the past and we expect that substantially all the orders will be
+shipped in 2002. However, for a variety of reasons, including the timing of
+shipments, product mix of customer orders, the amount of in-season orders, a
+shift towards tighter lead times within backlog levels, backlog may not be a
+reliable measure of future sales for any succeeding period.
+INTELLECTUAL PROPERTY RIGHTS 
+We own and utilize a variety of trademarks, including the Skechers
+trademark. We have a significant number of both registrations and pending
+applications for our trademarks in the United States. In addition, we have
+trademark registrations and trademark applications in approximately 85 foreign
+countries. We also have design patents, and pending design and utility patent
+applications, in both the United States and various foreign countries. We
+continuously look to increase the number of our patents and trademarks, both
+domestically and internationally, where necessary to protect valuable
+intellectual property. We regard our trademarks and other intellectual property
+as valuable assets and believe that they have significant value in the
+marketing of our products. We vigorously protect our trademarks against
+infringement, including through the use of cease and desist letters,
+administrative proceedings and lawsuits.
+We rely on trademark, patent, copyright, trade secret protection,
+non-disclosure agreements and licensing arrangements to establish, protect and
+enforce intellectual property rights in our logos, tradenames and in the design
+of our products. In particular, we believe that our future success will largely
+depend on our ability to maintain and protect the Skechers trademark. Despite
+our efforts to safeguard and maintain our intellectual property rights, we
+cannot assure you that we will be successful in this regard. Furthermore, we
+cannot assure you that our trademarks, products and promotional materials or
+other intellectual property rights do not or will not violate the intellectual
+property rights of others, that our intellectual property would be upheld if
+challenged, or that we would, in such an event, not be prevented from using our
+trademarks or other intellectual property rights. Such claims, if proven, could
+materially and adversely affect our business, financial condition and results
+of operations. In addition, although any such claims may ultimately prove
+14
+Table of Contents 
+to be without merit, the necessary management attention to and legal costs
+associated with litigation or other resolution of future claims concerning
+trademarks and other intellectual property rights could materially and
+adversely affect our business, financial condition and results of operations.
+We have sued and have been sued by third parties for infringement of
+intellectual property. It is our opinion that none of these claims have
+materially impaired our ability to utilize our intellectual property rights.
+The laws of certain foreign countries do not protect intellectual property
+rights to the same extent or in the same manner as do the laws of the United
+States of America. Although we continue to implement protective measures and
+intend to defend our intellectual property rights vigorously, these efforts may
+not be successful or the costs associated with protecting our rights in certain
+jurisdictions may be prohibitive. From time to time, we discover products in
+the marketplace that are counterfeit reproductions of our products or that
+otherwise infringe upon intellectual property rights held by us. Actions taken
+by us to establish and protect our trademarks and other intellectual property
+rights may not be adequate to prevent imitation of our products by others or to
+prevent others from seeking to block sales of our products as violating
+trademarks and intellectual property rights. If we are unsuccessful in
+challenging a third party’s products on the basis of infringement of our
+intellectual property rights, continued sales of such products by that or any
+other third party could adversely impact the Skechers brand, result in the
+shift of consumer preferences away from us and generally have a material
+adverse effect on our business, financial condition and results of operations.
+COMPETITION 
+Competition in the footwear industry is intense. Although we believe that
+we do not compete directly with any single company with respect to its entire
+range of products, our products compete with other branded products within
+their product category as well as with private label products sold by
+retailers, including some of our customers. Our utility footwear and casual
+shoes compete with footwear offered by companies such as The Timberland
+Company, Dr. Martens, Kenneth Cole Productions, Steven Madden, Ltd. and
+Wolverine World Wide, Inc. Our athletic shoes compete with brands of athletic
+footwear offered by companies such as Nike, Inc., Reebok International Ltd.,
+Adidas-Salomon AG and New Balance. Our children’s shoes compete with brands of
+children’s footwear offered by The Stride Rite Corporation. In varying degrees,
+depending on the product category involved, we compete on the basis of style,
+price, quality, comfort and brand name prestige and recognition, among other
+considerations. These and other competitors pose challenges to our market share
+in our major domestic markets and may make it more difficult to establish our
+products in Europe, Asia and other international regions. We also compete with
+numerous manufacturers, importers and distributors of footwear for the limited
+shelf space available for the display of such products to the consumer.
+Moreover, the general availability of contract manufacturing capacity allows
+ease of access by new market entrants. Many of our competitors are larger, have
+achieved greater recognition for their brand names, have captured greater
+market share and/or have substantially greater financial, distribution,
+marketing and other resources than us. We cannot assure you that we will be
+able to compete successfully against present or future competitors or that
+competitive pressures faced by us will not have a material adverse effect on
+our business, financial condition and results of operations.
+EMPLOYEES 
+As of February 28, 2003, we employed 2,521 persons, 1,385 of which were
+employed on a full-time basis and 1,136 of which were employed on a part-time
+basis. None of our employees are subject to a collective bargaining agreement.
+We believe that our relations with our employees are satisfactory. We offer our
+employees a discount on Skechers merchandise to encourage enthusiasm for our
+products and loyalty to Skechers.
+RISK FACTORS 
+In addition to the other information in this Form 10-K, the following
+factors should be considered in evaluating us and our business.
+OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO RESPOND TO CHANGING CONSUMER
+DEMANDS, IDENTIFY AND INTERPRET FASHION TRENDS AND SUCCESSFULLY MARKET NEW
+PRODUCTS.
+The footwear industry is subject to rapidly changing consumer demands and
+fashion trends. Accordingly, we must identify and interpret fashion trends and
+respond in a timely manner. Demand for and market acceptance of new products
+are uncertain and achieving market acceptance for new products generally
+requires substantial product development and marketing efforts and
+expenditures. If we do not continue to meet changing consumer demands and
+develop successful styles in the future, our growth and profitability will be
+negatively impacted. We frequently make decisions about product designs and
+marketing expenditures several months in advance of the time when consumer
+acceptance can be determined. If we fail to anticipate, identify or react
+appropriately to changes in styles and trends or are not successful in
+marketing new products, we could experience excess inventories, higher than
+15
+Table of Contents 
+normal markdowns or an inability to profitably sell our products. Because
+of these risks, a number of companies in the footwear industry specifically,
+and the fashion and apparel industry in general, have experienced periods of
+rapid growth in revenues and earnings and thereafter periods of declining sales
+and losses, which in some cases have resulted in companies in these industries
+ceasing to do business. Similarly, these risks could have a severe negative
+effect on our results of operations or financial condition.
+OUR BUSINESS AND THE SUCCESS OF OUR PRODUCTS COULD BE HARMED IF WE ARE UNABLE
+TO MAINTAIN OUR BRAND IMAGE. 
+Our success to date has been due in large part to the strength of our
+brand. If we are unable to timely and appropriately respond to changing
+consumer demand, our brand name and brand image may be impaired. Even if we
+react appropriately to changes in consumer preferences, consumers may consider
+our brand image to be outmoded or associate our brand with styles of footwear
+that are no longer popular. In the past, several footwear companies have
+experienced periods of rapid growth in revenues and earnings followed by
+periods of declining sales and losses. Our business may be similarly affected
+in the future.
+OUR BUSINESS COULD BE HARMED IF WE FAIL TO MAINTAIN PROPER INVENTORY LEVELS. 
+We place orders with our manufacturers for some of our products prior to
+the time we receive all of our customers’ orders. We do this to minimize
+purchasing costs, the time necessary to fill customer orders and the risk of
+non-delivery. We also maintain an inventory of certain products that we
+anticipate will be in greater demand. However, we may be unable to sell the
+products we have ordered in advance from manufacturers or that we have in our
+inventory. Inventory levels in excess of customer demand may result in
+inventory write-downs, and the sale of excess inventory at discounted prices
+could significantly impair our brand image and have a material adverse effect
+on our operating results and financial condition. Conversely, if we
+underestimate consumer demand for our products or if our manufacturers fail to
+supply the quality products that we require at the time we need them, we may
+experience inventory shortages. Inventory shortages might delay shipments to
+customers, negatively impact retailer and distributor relationships, and
+diminish brand loyalty.
+WE MAY BE UNABLE TO SUCCESSFULLY EXECUTE OUR GROWTH STRATEGY OR MANAGE OR
+SUSTAIN OUR GROWTH. 
+We have grown quickly since we started our business. Our ability to grow
+in the future depends upon, among other things, the continued success of our
+efforts to expand our footwear offerings and distribution channels. However,
+our rate of growth may decline or we may not be profitable in future quarters
+or fiscal years. Furthermore, as our business becomes larger, we may not be
+able to maintain our historical growth rate or effectively manage our growth.
+We anticipate that as our business grows, we will have to improve and enhance
+our overall financial and managerial controls, reporting systems and
+procedures. We may be unable to successfully implement our current growth
+strategy or other growth strategies or effectively manage our growth, any of
+which would negatively impair our net sales and earnings.
+OUR BUSINESS MAY BE NEGATIVELY IMPACTED AS A RESULT OF CHANGES IN THE ECONOMY. 
+Our business depends on the general economic environment and levels of
+consumer spending that affect not only the ultimate consumer, but also
+retailers, our primary direct customers. Purchases of footwear tend to decline
+in periods of recession or uncertainty regarding future economic prospects,
+when consumer spending, particularly on discretionary items, declines. During
+periods of recession or economic uncertainty, we may not be able to maintain or
+increase our sales to existing customers, make sales to new customers, open and
+operate new retail stores, maintain sales levels at our existing stores,
+maintain or increase our international operations on a profitable basis, or
+maintain or improve our earnings from operations as a percentage of net sales.
+As a result, our operating results may be adversely and materially affected by
+downward trends in the economy or the occurrence of events that adversely
+affect the economy in general. Furthermore, in anticipation of continued
+increases in net sales, we have significantly expanded our infrastructure and
+workforce to achieve economies of scale. Because these expenses are fixed in
+the short term, our operating results and margins will be adversely impacted if
+we do not continue to grow as anticipated. For example, due in large part to
+the slowdown in the global economy, our net sales for 2002 were lower than
+anticipated. This lower level of sales adversely affected our operating results
+for 2002 and could continue to do so in 2003 and beyond.
+ECONOMIC, POLITICAL, MILITARY OR OTHER EVENTS IN THE UNITED STATES OR IN A
+COUNTRY WHERE WE MAKE SIGNIFICANT SALES OR HAVE SIGNIFICANT OPERATIONS COULD
+INTERFERE WITH OUR SUCCESS OR OPERATIONS THERE AND HARM OUR BUSINESS. 
+16
+Table of Contents 
+We market and sell our products and services throughout the world. The
+September 11, 2001 terrorist attacks disrupted commerce throughout the United
+States and other parts of the world. The continued threat of similar attacks
+throughout the world and the military action, or possible military action,
+taken by the United States and other nations, in Iraq or other countries may
+cause significant disruption to commerce throughout the world. To the extent
+that such disruptions further slow the global economy or, more particularly,
+result in delays or cancellations of purchase orders for our products, our
+business and results of operations could be materially adversely affected. We
+are unable to predict whether the threat of new attacks or the responses
+thereto will result in any long-term commercial disruptions or if such
+activities or responses will have a long-term material adverse effect on our
+business, results of operations or financial condition.
+WE DEPEND UPON A RELATIVELY SMALL GROUP OF CUSTOMERS FOR A LARGE PORTION OF OUR SALES. 
+During 2002, our net sales to our five largest customers accounted for
+approximately 25.4% of total net sales. No one customer accounted for 10.0% or
+more of our net sales during 2002. As of December 31, 2002, no one customer
+accounted for more than 10% of our net trade accounts receivable. Although we
+have long-term relationships with many of our customers, our customers do not
+have a contractual obligation to purchase our products and we cannot be certain
+that we will be able to retain our existing major customers. Furthermore, the
+retail industry regularly experiences consolidation, contractions and closings.
+If there are further consolidations, contractions or closings in the future, we
+may lose customers or be unable to collect accounts receivables of major
+customers in excess of amounts that we have insured. If we lose a major
+customer, experience a significant decrease in sales to a major customer, or
+are unable to collect the accounts receivable of a major customer in excess of
+amounts insured, our business could be harmed.
+OUR OPERATING RESULTS COULD BE NEGATIVELY IMPACTED IF OUR SALES ARE
+CONCENTRATED IN ANY ONE STYLE OR GROUP OF STYLES. 
+If any one style or group of similar styles of our footwear were to
+represent a substantial portion of our net sales, we could be exposed to risk
+should consumer demand for such style or group of styles decrease in subsequent
+periods. We attempt to hedge this risk by offering a broad range of products,
+and no style comprised over 5.0% of our gross wholesale sales for the years
+ended December 31, 2001 or 2002. However, this may change in the future and
+fluctuations in sales of any given style that represents a significant portion
+of our future net sales could have a negative impact on our operating results.
+WE RELY ON INDEPENDENT CONTRACT MANUFACTURERS AND, AS A RESULT, ARE EXPOSED TO
+POTENTIAL DISRUPTIONS IN PRODUCT SUPPLY. 
+Our footwear products are currently manufactured by independent contract
+manufacturers. During 2002, the top four manufacturers of our manufactured
+products produced approximately 53.8% of our total purchases. One manufacturer
+accounted for 22.7% of total purchases for the year ended December 31, 2002 and
+no one manufacturer accounted for more than 20% of total purchases for the year
+ended December 31, 2001. We do not have long-term contracts with manufacturers
+and we compete with other footwear companies for production facilities. We
+could experience difficulties with these manufacturers, including reductions in
+the availability of production capacity, failure to meet our quality control
+standards, failure to meet production deadlines or increased manufacturing
+costs. This could result in our customers canceling orders, refusing to accept
+deliveries or demanding reductions in purchase prices, any of which could have
+a negative impact on our cash flow and harm our business.
+If our current manufacturers cease doing business with us, we could
+experience an interruption in the manufacture of our products. Although we
+believe that we could find alternative manufacturers, we may be unable to
+establish relationships with alternative manufacturers that will be as
+favorable as the relationships we have now. For example, new manufacturers may
+have higher prices, less favorable payment terms, lower manufacturing capacity,
+lower quality standards or higher lead times for delivery. If we are unable to
+provide products consistent with our standards or the manufacture of our
+footwear is delayed or becomes more expensive, our business would be harmed.
+OUR INTERNATIONAL SALES AND MANUFACTURING OPERATIONS ARE SUBJECT TO THE RISKS
+OF DOING BUSINESS ABROAD, WHICH COULD AFFECT OUR ABILITY TO SELL OR MANUFACTURE
+OUR PRODUCTS IN INTERNATIONAL MARKETS, OBTAIN PRODUCTS FROM FOREIGN SUPPLIERS
+OR CONTROL THE COSTS OF OUR PRODUCTS. 
+Substantially all of our net sales during 2002 were derived from sales of
+footwear manufactured in foreign countries, with most manufactured in China
+and, to a lesser extent, in Italy, the Philippines and Brazil. We also sell our
+footwear in several foreign
+17
+Table of Contents 
+countries and plan to increase our international sales efforts as part of
+our growth strategy. Foreign manufacturing and sales are subject to a number of
+risks, including:
+• 
+political and social unrest, including the anticipated war with Iraq; 
+• 
+changing economic conditions; 
+• 
+international political tension and terrorism; 
+• 
+work stoppages; 
+• 
+transportation delays; 
+• 
+loss or damage to products in transit; 
+• 
+expropriation; 
+• 
+nationalization; 
+• 
+the imposition of tariffs and trade duties both international and domestically; 
+• 
+import and export controls and other nontariff barriers; 
+• 
+exposure to different legal standards (particularly with respect to intellectual property); 
+• 
+compliance with foreign laws; and 
+• 
+changes in domestic and foreign governmental policies. 
+In particular, because substantially all of our products are manufactured
+in China, adverse change in trade or political relations with China or
+political instability in China would severely interfere with the manufacture of
+our products and would materially adversely affect our operations.
+In addition, if we, or our foreign manufacturers, violate United States or
+foreign laws or regulations, we may be subjected to extra duties, significant
+monetary penalties, the seizure and the forfeiture of the products we are
+attempting to import or the loss of our import privileges. Possible violations
+of United States or foreign laws or regulations could include inadequate record
+keeping of our imported product, misstatements or errors as to the origin,
+quota category, classification, marketing or valuation of our imported
+products, fraudulent visas, or labor violations. The effects of these factors
+could render our conduct of business in a particular country undesirable or
+impractical and have a negative impact on our operating results.
+OUR BUSINESS COULD BE HARMED IF OUR CONTRACT MANUFACTURERS, SUPPLIERS OR
+LICENSEES VIOLATE LABOR OR OTHER LAWS. 
+We require our independent contract manufacturers, suppliers and licensees
+to operate in compliance with applicable United States and foreign laws and
+regulations. Manufacturers are required to certify that neither convicted,
+forced or indentured labor (as defined under United States law) nor child labor
+(as defined by the manufacturer’s country) is used in the production process,
+that compensation is paid in accordance with local law and that their factories
+are in compliance with local safety regulations. Although we promote ethical
+business practices and our sourcing personnel periodically visit and monitor
+the operations of our independent contract manufacturers, suppliers and
+licensees, we do not control them or their labor practices. If one of our
+independent contract manufacturers, suppliers or licensees violates labor or
+other laws or diverges from those labor practices generally accepted as ethical
+in the United States, it could result in adverse publicity for us, damage our
+reputation in the United States, or render our conduct of business in a
+particular foreign country undesirable or impractical, any of which could harm
+our business.
+OUR PLANNED EXPANSION INVOLVES A NUMBER OF RISKS THAT COULD PREVENT OR DELAY
+ANY SUCCESSFUL OPENING OF NEW STORES AS WELL AS IMPACT THE PERFORMANCE OF OUR
+EXISTING STORES. 
+18
+Table of Contents 
+Our ability to open and operate new stores successfully depends on many
+factors, including, among others, our ability to:
+• 
+identify suitable store locations, the availability of which is outside of our control; 
+• 
+negotiate acceptable lease terms, including desired tenant improvement allowances; 
+• 
+source sufficient levels of inventory to meet the needs of new stores; 
+• 
+hire, train and retain store personnel; 
+• 
+successfully integrate new stores into our existing operations; and 
+• 
+satisfy the fashion preferences in new geographic areas. 
+In addition, some or a substantial number of new stores could be opened in
+regions of the United States in which we currently have few or no stores. Any
+expansion into new markets may present competitive, merchandising and
+distribution challenges that are different from those currently encountered in
+our existing markets. Any of these challenges could adversely affect our
+business and results of operations. In addition, to the extent that any new
+store openings are in existing markets, we may experience reduced net sales
+volumes in existing stores in those markets.
+MANY OF OUR RETAIL STORES DEPEND HEAVILY ON THE CUSTOMER TRAFFIC GENERATED BY
+SHOPPING AND FACTORY OUTLET MALLS OR BY TOURISM. 
+Many of our concept stores are located in shopping malls and some of our
+factory outlet stores are located in manufacturers’ outlet malls where we
+depend on obtaining prominent locations in the malls and the overall success of
+the malls to generate customer traffic. We cannot control the development of
+new malls, the availability or cost of appropriate locations within existing or
+new malls or the success of individual malls. Some of our concept stores occupy
+street locations which are heavily dependent on customer traffic generated by
+tourism. Any substantial decrease in tourism resulting from the September 11,
+2001 terrorist attacks, the anticipated war with Iraq,a downturn in the economy
+or otherwise, is likely to adversely affect sales in our existing stores,
+particularly those with street locations. The effects of these factors could
+hinder our ability to open retail stores in new markets or reduce sales of
+particular existing stores, which could negatively affect our operating
+results.
+OUR QUARTERLY REVENUES AND OPERATING RESULTS FLUCTUATE AS A RESULT OF A VARIETY
+OF FACTORS, INCLUDING SEASONAL FLUCTUATIONS IN DEMAND FOR FOOTWEAR AND DELIVERY
+DATE DELAYS, WHICH MAY RESULT IN VOLATILITY OF OUR STOCK PRICE. 
+Our quarterly revenues and operating results have varied significantly in
+the past and can be expected to fluctuate in the future due to a number of
+factors, many of which are beyond our control. For example, sales of footwear
+products have historically been somewhat seasonal in nature with the strongest
+sales generally occurring in the third and fourth quarters. Also, delays in
+scheduling or pickup of purchased products by our domestic customers could
+negatively impact our net sales and results of operations for any given
+quarter. As a result of these specific and other general factors, our operating
+results will likely vary from quarter to quarter and the results for any
+particular quarter may not be necessarily indicative of results for the full
+year. Any shortfall in revenues or net income from levels expected by
+securities analysts and investors could cause a decrease in the trading price
+of our Class A common shares.
+WE FACE INTENSE COMPETITION, INCLUDING COMPETITION FROM COMPANIES WITH
+SIGNIFICANTLY GREATER RESOURCES THAN OURS, AND IF WE ARE UNABLE TO COMPETE
+EFFECTIVELY WITH THESE COMPANIES, OUR MARKET SHARE MAY DECLINE AND OUR BUSINESS
+COULD BE HARMED. 
+We face intense competition in the footwear industry from other
+established companies. A number of our competitors have significantly greater
+financial, technological, engineering, manufacturing, marketing and
+distribution resources than we do. Their greater capabilities in these areas
+may enable them to better withstand periodic downturns in the footwear
+industry, compete more effectively on the basis of price and production and
+more quickly develop new products. In addition, new companies may enter the
+markets in which we compete, further increasing competition in the footwear
+industry.
+We believe that our ability to compete successfully depends on a number of
+factors, including the style and quality of our products and the strength of
+our brand name, as well as many factors beyond our control. We may not be able
+to compete successfully in the
+19
+Table of Contents 
+future, and increased competition may result in price reductions, reduced
+profit margins, loss of market share, and inability to generate cash flows that
+are sufficient to maintain or expand our development and marketing of new
+products, which would adversely impact the trading price of our Class A common
+shares.
+OBTAINING ADDITIONAL CAPITAL TO FUND OUR OPERATIONS AND FINANCE OUR GROWTH
+COULD MAKE IT DIFFICULT FOR US TO SERVICE OUR DEBT OBLIGATIONS. 
+If our working capital needs exceed our current expectations, we may need
+to raise additional capital through public or private equity offerings or debt
+financings. If we cannot raise needed funds on acceptable terms, we may not be
+able to successfully execute our growth strategy, take advantage of future
+opportunities or respond to competitive pressures or unanticipated
+requirements. To the extent we raise additional capital by issuing debt, it may
+become difficult for us to meet debt service obligations. To the extent we
+raise additional capital by issuing equity securities, our stockholders may
+experience substantial dilution. Also, any new equity securities may have
+greater rights, preferences or privileges than our existing Class A common
+shares.
+WE DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
+CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN EXISTING PERSONNEL, OUR
+BUSINESS COULD BE HARMED. 
+Our future success depends upon the continued services of Robert
+Greenberg, Chairman of the Board and Chief Executive Officer, Michael
+Greenberg, President, and David Weinberg, Executive Vice President and Chief
+Financial Officer. The loss of the services of any of these individuals or any
+other key employee could harm us. Our future success also depends on our
+ability to identify, attract and retain additional qualified personnel.
+Competition for employees in our industry is intense and we may not be
+successful in attracting and retaining such personnel.
+OUR TRADEMARKS, DESIGN PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS MAY NOT
+BE ADEQUATELY PROTECTED OUTSIDE THE U.S. 
+We believe that our trademarks, design patents and other proprietary
+rights are important to our success and our competitive position. We devote
+substantial resources to the establishment and protection of our trademarks and
+design patents on a worldwide basis. In the course of our international
+expansion, we have, however, experienced conflicts with various third parties
+that have acquired or claimed ownership rights in certain trademarks similar to
+ours or have otherwise contested our rights to our trademarks. We have in the
+past successfully resolved these conflicts through both legal action and
+negotiated settlements, none of which we believe has had a material impact on
+our financial condition and results of operations. Nevertheless, we cannot
+assure you that the actions we have taken to establish and protect our
+trademarks and other proprietary rights outside the U.S. will be adequate to
+prevent imitation of our products by others or to prevent others from seeking
+to block sales of our products as a violation of the trademarks and proprietary
+rights of others. Also, we cannot assure you that others will not assert rights
+in, or ownership of, trademarks, designs and other proprietary rights of ours
+or that we will be able to successfully resolve these types of conflicts to our
+satisfaction. In addition, the laws of certain foreign countries may not
+protect proprietary rights to the same extent as do the laws of the U.S. We may
+face significant expenses and liability in connection with the protection of
+our intellectual property rights outside the U.S. and if we are unable to
+successfully protect our rights or resolve intellectual property conflicts with
+others, our business or financial condition may be adversely affected.
+OUR ABILITY TO COMPETE COULD BE JEOPARDIZED IF WE ARE UNABLE TO PROTECT OUR
+INTELLECTUAL PROPERTY RIGHTS OR IF WE ARE SUED FOR INTELLECTUAL PROPERTY
+INFRINGEMENT. 
+We use trademarks on nearly all of our products and believe that having
+distinctive marks that are readily identifiable is an important factor in
+creating a market for our goods, in identifying us, and in distinguishing our
+goods from the goods of others. We consider our Skechers® and S Design®
+trademarks to be among our most valuable assets and we have registered these
+trademarks in many countries. In addition, we own many other trademarks, which
+we utilize in marketing our products. We continue to vigorously protect our
+trademarks against infringement. We also have a number of design patents and a
+limited number of utility patents covering components and features used in
+various shoes. We believe that our success depends primarily upon skills in
+design, research and development, production and marketing rather than upon our
+patent position. However, we have followed a policy of filing applications for
+United States and foreign patents on designs and technologies that we deem
+valuable.
+We believe that our patents and trademarks are generally sufficient to
+permit us to carry on our business as presently conducted. We cannot, however,
+know whether we will be able to secure patents or trademark protection for our
+intellectual property in the future or that protection will be adequate for
+future products. Further, we face the risk of ineffective protection of
+intellectual property rights
+20
+Table of Contents 
+in the countries where we source and distribute our products. We have been
+sued for patent and trademark infringement and cannot be sure that our
+activities do not and will not infringe on the proprietary rights of others. If
+we are compelled to prosecute infringing parties, defend our intellectual
+property, or defend ourselves from intellectual property claims made by others,
+we may face significant expenses and liability which could negatively impact
+our business or financial condition.
+ENERGY SHORTAGES, NATURAL DISASTERS OR A DECLINE IN ECONOMIC CONDITIONS IN
+CALIFORNIA COULD INCREASE OUR OPERATING EXPENSES OR ADVERSELY AFFECT OUR SALES
+REVENUE. 
+A substantial portion of our operations are located in California,
+including 39 of our retail stores, our headquarters in Manhattan Beach and our
+domestic distribution center in Ontario. Because California has and may in the
+future experience energy and electricity shortages, we may be subject to
+increased operating costs as a result of higher electricity and energy rates
+and may be subject to rolling blackouts which could interrupt our business. Any
+such impact could be material and adversely affect our profitability. In
+addition, because a significant portion of our net sales is derived from sales
+in California, a decline in the economic conditions in California, whether or
+not such decline spreads beyond California, could materially adversely affect
+our business. Furthermore, a natural disaster or other catastrophic event, such
+as an earthquake affecting California, could significantly disrupt our
+business. We may be more susceptible to these issues than our competitors whose
+operations are not as concentrated in California.
+ONE PRINCIPAL STOCKHOLDER IS ABLE TO CONTROL SUBSTANTIALLY ALL MATTERS
+REQUIRING A VOTE OF OUR STOCKHOLDERS AND HIS INTERESTS MAY DIFFER FROM THE
+INTERESTS OF OUR OTHER STOCKHOLDERS. 
+As of December 31, 2002, Robert Greenberg, Chairman of the Board and Chief
+Executive Officer, beneficially owned 77.1% of our outstanding Class B common
+shares and members of Mr. Greenberg’s immediate family beneficially owned the
+remainder of our outstanding Class B common shares. The holders of Class A
+common shares and Class B common shares have identical rights except that
+holders of Class A common shares are entitled to one vote per share while
+holders of Class B common shares are entitled to ten votes per share on all
+matters submitted to a vote of our stockholders. As a result, as of December
+31, 2002, Mr. Greenberg held approximately 70.4% of the aggregate number of
+votes eligible to be cast by our stockholders and together with shares held by
+other members of his immediate family held approximately 91.3% of the aggregate
+number of votes eligible to be cast by our stockholders. Therefore, Mr.
+Greenberg is able to control substantially all matters requiring approval by
+our stockholders. Matters that require the approval of our stockholders include
+the election of directors and the approval of mergers or other business
+combination transactions. Mr. Greenberg also has control over our management
+and affairs. As a result of such control, certain transactions are not possible
+without the approval of Mr. Greenberg, including, proxy contests, tender
+offers, open market purchase programs, or other transactions that can give our
+stockholders the opportunity to realize a premium over the then-prevailing
+market prices for their shares of our Class A common shares. The differential
+in the voting rights may adversely affect the value of our Class A common
+shares to the extent that investors or any potential future purchaser view the
+superior voting rights of our Class B common shares to have value.
+OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER, WHICH MAY CAUSE
+A DECLINE IN THE VALUE OF OUR STOCK. 
+Provisions of Delaware law, our certificate of incorporation, or our
+bylaws could make it more difficult for a third party to acquire us, even if
+closing such a transaction would be beneficial to our stockholders. Mr.
+Greenberg’s substantial beneficial ownership position, together with the
+authorization of Preferred Stock, the disparate voting rights between the Class
+A common shares and Class B common shares, the classification of the Board of
+Directors and the lack of cumulative voting in our certificate of incorporation
+and bylaws, may have the effect of delaying, deferring or preventing a change
+in control, may discourage bids for our Class A common shares at a premium over
+the market price of the Class A common shares and may adversely affect the
+market price of the Class A common shares.
+SPECIAL NOTE ON FORWARD LOOKING STATEMENTS AND REPORTS PREPARED BY ANALYSTS. 
+This Form 10-K contains forward-looking statements within the meaning of
+the Private Securities Litigation Reform Act of 1995, including statements with
+regards to our revenues, earnings, spending, margins, cash flow, orders,
+inventory, products, actions, plans, strategies and objectives. Forward-looking
+statements include, without limitation, any statement that may predict,
+forecast, indicate or simply state future results, performance or achievements,
+and may contain the words “believe,” “anticipate,” “expect,” “estimate,”
+“intend,” “plan,” “project,” “will be,” “will continue,” “will,” “result,”
+“could,” “may,” “might,” or any variations of such words with similar meanings.
+Any such statements are subject to risks and uncertainties that would cause our
+actual results to differ materially from those which are management’s current
+expectations or forecasts. Such information is subject to the risk that such
+expectations or forecasts, or the assumptions underlying such exceptions or
+forecasts, become inaccurate. In addition, the risks included here are not
+21
+Table of Contents 
+exhaustive. Other sections of this report may include additional factors
+which could adversely impact our business and financial performance. Moreover,
+we operate in a very competitive and rapidly changing environment. New risk
+factors emerge from time to time and we cannot 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 do, from time to time, communicate with
+securities analysts, we do not disclose any material non-public information or
+other confidential commercial information to them. Accordingly, individuals
+should not assume that we agree with any statement or report issued by any
+analyst, regardless of the content of the report. Thus, to the extent that
+reports issued by securities analysts contain any projections, forecasts or
+opinions, such reports are not our responsibility.
+ITEM 2. PROPERTIES 
+Our corporate headquarters and additional administrative offices are
+located at five premises in Manhattan Beach, California, and consist of an
+aggregate of approximately 110,000 square feet. We own and lease portions of
+our corporate headquarters and administrative offices. The leased property
+expires between June 2003 and February 2008, with options to extend in some
+cases, the current aggregate annual rent for the leased property is
+approximately $1.2 million.
+Our U.S. distribution center consists of four facilities located in
+Ontario, California. The three leased facilities aggregate approximately
+1,176,000 square feet, with an annual base rental of approximately $4.0
+million. The leased property expires between July 2005 and May 2011, and
+contains rent escalation provisions. The owned distribution facility is
+approximately 264,000 square feet.
+In December 2002, we began to ship product from our internally managed
+approximately 240,000 square foot distribution center in Liege, Belgium. The
+facility is leased under a 25-year operating lease for approximately $950,000
+base rent per year. The lease agreement provides for first right of refusal on
+three facilities planned for development, allowing for expansion of up to
+approximately 967,000 square feet. We believe that the capacity available to
+us within our lease agreement should allow for further growth of our
+international operations. The lease agreement also provides for early
+termination at five year intervals beginning in year five, pending notification
+as prescribed in the lease.
+All of our retail stores and showrooms are leased with terms expiring
+between June 2003 and January 2013. The leases provide for rent escalations
+tied to either increases in the lessor’s operating expenses or fluctuations in
+the consumer price index in the relevant geographical area, and in some cases a
+percentage of the store’s gross sales in excess of the base annual rent. Total
+rent expenses related to our retail stores and showrooms was $13.1 million for
+the year ended December 31, 2002.
+We also lease all of our international administrative offices, retail
+stores and showrooms located in Canada, France, Germany, Switzerland, Spain,
+the Netherlands, and the United Kingdom. The leased properties expire at
+various dates between July 2003 and November 2017. Total rent for the leased
+properties aggregated approximately $2.1 million during 2002.
+ITEM 3. LEGAL PROCEEDINGS 
+On October 28, 2002, Skechers settled the lawsuit captioned RAYMOND MEIER v.
+SKECHERS USA, INC. that had been filed in the United States District Court for
+the Southern District of New York (Case No. 02 CV 4139). The settlement is
+final and the terms are confidential. The obligations assumed will not have a
+material effect on Skechers’ financial position or results of operations.
+On December 13, 2002, Skechers finalized the settlement of various lawsuits
+pending between Skechers and Heeling Sports Limited and Heeling Management
+Corporation in the United States District Court for the Central District of
+California (Case No. 02-1906NM) and the United States District Court for the
+Eastern District of Texas (Civil Action Nos. 4:02cv101; 4:02cv169). The
+settlement is final and the terms are confidential. The obligations assumed
+will not have a material effect on Skechers’ financial position or results of
+operations.
+On November 7, 2002, Fortune Dynamic asserted counterclaims against Skechers in
+an action captioned SKECHERS USA, INC. et al. v. STEVEN MADDEN LTD., RSV SPORT
+INC. and FORTUNE DYNAMIC, INC. that Skechers had commenced in the United States
+District Court for the Central District of California (Case No. 02-07766 PA)
+asserting claims for, inter alia, patent infringement, dilution and unfair
+competition. Fortune Dynamics’ counterclaims allege violations of the federal
+antitrust laws, breach of contract, interference with economic relations and
+unfair competition. The counterclaims seek, inter alia, compensatory, treble
+and punitive
+22
+Table of Contents 
+damages, as well as injunctive relief. While it is too early in the litigation
+to predict the outcome of the claims against Skechers, Skechers believes that
+it has meritorious defenses to the claims asserted by Fortune Dynamic and
+intends to defend against those claims vigorously. Further, Skechers does not
+believe that an adverse result would have a material effect on Skechers’
+financial position or results of operations.
+On December 2, 2002, a class action complaint entitled OMAR QUINONES v.
+SKECHERS USA, INC. et al. was filed in the Superior Court for the State of
+California for the County of Orange (Case No. 02CC00353). The complaint, as
+amended, alleges overtime and related violations of the California Labor Code
+on behalf of managers of Skechers’ retail stores and seeks, inter alia, damages
+and restitution, as well as injunctive and declaratory relief. On February 25,
+2003, another related class action complaint entitled MYRNA CORTEZ v. SKECHERS
+USA, INC. et al. was filed in the Superior Court for the State of California
+for the County of Los Angeles (Case No. BC290932) asserting similar claims and
+seeking similar relief on behalf of assistant managers. While it is too early
+in the litigation to predict the outcome of the claims against Skechers,
+Skechers believes that it has meritorious defenses to the claims asserted in
+both class actions and intends to defend against those claims vigorously.
+Further, Skechers does not believe that an adverse result would have a material
+effect on Skechers’ financial position or results of operations.
+On December 23, 2002, a complaint captioned BRITNEY BRANDS, INC. v. SKECHERS
+USA, INC. was filed against Skechers in the United States District Court for
+the Central District of California (Case No. 02-9774 AHM). The complaint, as
+amended, alleges breach of contract, fraud, trademark infringement, false
+impression of association, trademark dilution, unfair competition and related
+claims against Skechers in connection with a merchandising license agreement
+entered into between the parties relating to Skechers’ line of Britney 4
+Wheelers skates. The lawsuit seeks, inter alia, compensatory and punitive
+damages, imposition of a constructive trust, an accounting and declaratory
+relief. While it is too early in the litigation to predict the outcome of the
+claims against Skechers, Skechers believes that it has meritorious defenses to
+the claims asserted by Britney Brands and intends to defend against those
+claims vigorously. Skechers has also asserted counterclaims against Britney
+Brands. Further, Skechers does not believe that an adverse result would have a
+material effect on Skechers’ financial position or results of operations.
+On February 6, 2003, a complaint captioned ADIDAS AMERICA, INC. and
+ADIDAS-SALOMON AG v. SKECHERS USA, INC. et al. was filed against Skechers in
+the United States District Court for the District of Oregon (Case No. CV 03-170
+KI). The complaint alleges claims for trademark infringement, trademark
+dilution, unfair competition and deceptive trade practices arising out of
+Skechers’ alleged use of marks confusingly similar to Adidas’ three stripe
+mark. The lawsuit seeks, inter alia, compensatory, treble and punitive
+damages, as well as injunctive relief. While it is too early in the litigation
+to predict the outcome of the claims against Skechers, Skechers believes that
+it has meritorious defenses to the claims asserted by Adidas and intends to
+defend against those claims vigorously. Skechers also intends to assert
+counterclaims against Adidas. Further, Skechers does not believe that an
+adverse result would have a material effect on Skechers’ financial position or
+results of operations. 
+On March 25, 2003, a class action complaint captioned
+HARVEY SOLOMON v. SKECHERS USA, INC. et al. was filed against Skechers and certain of its
+officers and directors in the United States District Court for the
+Central District of California
+(Case No. 03-2094 DDP). The complaint alleges violations of the federal securities laws
+and breach of fiduciary duty on behalf of persons who purchased publicly traded securities of
+SKECHERS between April 3, 2002 and December 9, 2002. The complaint seeks compensatory damages,
+interest, attorneys’ fees and injunctive and equitable relief. While it is too early
+to predict the outcome of the litigation, the Company believes the suit
+is without merit and intends to vigorously defend the suit.
+We occasionally become involved in litigation arising from the normal course of
+business. Other than the foregoing, we believe that any liability with respect
+to pending legal actions, individually or in the aggregate, will not have a
+material adverse effect on our business, final condition or results of
+operation.
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
+Skechers held its annual meeting of stockholders on May 31, 2002. Of
+228,184,775 votes eligible to be cast, 227,917,504 votes were returned, or 99.9%,
+formulating a quorum, and at the stockholders’ meeting, the following proposals
+were adopted by the margins indicated.
+Proposal No. 1 – To elect two members to the Board of Directors to serve for a
+three-year term as Class III Directors.
+Number of Votes 
+Director 
+For 
+Against 
+Richard Siskind 
+227,782,846 
+135,258 
+Geyer Kosinski 
+227,782,846 
+135,258 
+23
+Table of Contents 
+Proposal No. 2 – To ratify the appointment of independent accountants for the
+year ending December 31, 2002.
+Proposal No. 2 was approved with 227,577,407 votes for, 331,656 votes
+against and 8,441 abstaining, thereby approving the ratification of
+appointment of KPMG LLP as independent accountants to provide audit services to
+Skechers for the fiscal year ending December 31, 2002.
+PART II 
+ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 
+Our Class A Common Stock began trading on the New York Stock Exchange on
+June 9, 1999 after we completed the initial public offering of 7,000,000 shares
+of our Class A Common Stock at $11.00 per share. Our Class A Common Stock
+trades under the symbol “SKX”. The following table sets forth, for the periods
+indicated, the high and low sales prices of our Class A Common Stock. We have
+not declared or paid any cash dividends on our Class A Common Stock and do not
+anticipate paying any cash dividends in the foreseeable future. Our current
+policy is to retain all of our earnings to finance the growth and development
+of our business.
+HIGH 
+LOW 
+YEAR ENDED DECEMBER 31, 2002 
+First Quarter 
+$ 
+19.60 
+$ 
+12.80 
+Second Quarter 
+24.40 
+18.00 
+Third Quarter 
+21.60 
+8.75 
+Fourth Quarter 
+12.90 
+6.52 
+YEAR ENDED DECEMBER 31, 2001 
+First Quarter 
+$ 
+32.20 
+$ 
+14.50 
+Second Quarter 
+40.30 
+22.80 
+Third Quarter 
+29.40 
+11.33 
+Fourth Quarter 
+15.05 
+10.00 
+As of March 28, 2003, there were 113 holders of record of our Class A
+Common Stock (including holders who are nominees for an undetermined number of
+beneficial owners) and 8 holders of record of our Class B Common Stock. These
+figures do not include beneficial owners who hold shares in nominee name. The
+Class B Common Stock is not publicly traded but each share is convertible upon
+request of the holder into one share of Class A Common Stock.
+Our equity compensation plan information is provided as set forth in Part III,
+Item 12 herein.
+ITEM 6. SELECTED FINANCIAL DATA 
+In May 1992, we elected to be treated for federal and state income tax
+purposes as an S Corporation under Subchapter S of the Internal Revenue Code of
+1986, as amended (the “Code”), and comparable state laws. As a result, our
+earnings, since such initial election, were included in the taxable income of
+our stockholders for federal and state income tax purposes, and we were not
+subject to income tax on such earnings, other than franchise and net worth
+taxes. Prior to the closing of the initial public offering of our Class A
+common shares on June 9, 1999, we terminated our S Corporation status, and
+since then we have been treated for federal and state income tax purposes as a
+corporation under Subchapter C of the Code and, as a result, are subject to
+state and federal income taxes. By reason of our treatment as an S Corporation
+for federal and state income tax purposes, we, since inception, have provided
+to our stockholders funds for the payment of income taxes on our earnings as
+well as our conversion from an S Corporation to a C Corporation during 1999. We
+declared distributions relating to our S Corporation status of $35.4 million
+and $7.9 million in 1999 and 1998, respectively. Purchasers of shares in the
+initial public offering of our Class A common shares on June 9, 1999 did not
+receive any portion of these S Corporation distributions. Since the termination
+of our S Corporation status earnings have been and will be retained for the
+foreseeable future in the operations of our business. We have not declared or
+paid any cash dividends on our Class A common shares and do not anticipate
+paying any cash dividends in the foreseeable future. Our current policy is to
+retain all of our earnings to finance the growth and development of our
+business.
+The following tables set forth selected consolidated financial data of
+Skechers as of and for each of the years in the five-year period ended December
+31, 2002.
+24
+Table of Contents 
+SUMMARY FINANCIAL DATA 
+(IN THOUSANDS, EXCEPT EARNINGS PER SHARE) 
+YEARS ENDED DECEMBER 31, 
+1998 
+1999 
+2000 
+2001 
+2002 
+STATEMENT OF EARNINGS DATA: 
+Net sales 
+$ 
+372,680 
+$ 
+424,601 
+$ 
+675,036 
+$ 
+960,385 
+$ 
+943,582 
+Gross profit 
+154,580 
+174,608 
+284,225 
+406,180 
+386,673 
+Operating expenses: 
+Selling 
+49,983 
+57,332 
+77,451 
+111,401 
+94,274 
+General and administrative 
+71,461 
+79,114 
+125,827 
+205,989 
+210,752 
+Earnings from operations 
+33,991 
+38,830 
+81,263 
+88,487 
+82,792 
+Interest expense 
+8,631 
+6,554 
+9,230 
+13,852 
+8,927 
+Earnings before income taxes 
+25,121 
+32,691 
+72,351 
+75,955 
+75,341 
+Net earnings 
+24,471 
+24,056 
+43,751 
+47,270 
+47,036 
+PRO FORMA OPERATIONS DATA:(1) 
+Earnings before income taxes 
+$ 
+25,121 
+$ 
+32,691 
+$ 
+72,351 
+$ 
+75,955 
+$ 
+75,341 
+Income taxes 
+10,048 
+12,880 
+28,600 
+28,685 
+28,305 
+Net earnings 
+15,073 
+19,811 
+43,751 
+47,270 
+47,036 
+Net earnings per share:(2) 
+Basic 
+$ 
+0.54 
+$ 
+0.62 
+$ 
+1.24 
+$ 
+1.30 
+$ 
+1.26 
+Diluted 
+$ 
+0.49 
+$ 
+0.60 
+$ 
+1.20 
+$ 
+1.24 
+$ 
+1.20 
+Weighted average shares:(2) 
+Basic 
+27,814 
+31,765 
+35,142 
+36,409 
+37,275 
+Diluted 
+30,610 
+33,018 
+36,563 
+38,059 
+40,854 
+AS OF DECEMBER 31, 
+BALANCE SHEET DATA: 
+1998 
+1999 
+2000 
+2001 
+2002 
+Working capital 
+$ 
+23,106 
+$ 
+65,003 
+$ 
+93,305 
+$ 
+139,972 
+$ 
+286,760 
+Total assets 
+146,284 
+177,914 
+303,400 
+407,486 
+483,156 
+Total debt 
+70,933 
+33,950 
+85,321 
+115,931 
+119,646 
+Stockholders’ equity 
+27,676 
+86,000 
+134,046 
+199,016 
+259,236 
+(1) 
+Reflects adjustments for federal and state income taxes as if Skechers
+had been taxed as a C Corporation rather than as an S Corporation for
+periods prior to its initial public offering on June 9, 1999. 
+(2) 
+Basic earnings per share represents net earnings divided by the
+weighted-average number of common shares outstanding for the period.
+Diluted earnings per share, in addition to the weighted average determined
+for basic earnings per share, reflects the potential dilution that could
+occur if options to issue common stock were exercised or converted into
+common stock and assumes the conversion of our 4.50% Convertible
+Subordinated Notes for the period outstanding since their issuance in
+April 2002. The weighted average diluted shares outstanding gives effect
+to the sale by Skechers of those shares of common stock necessary to fund
+the payment of (i) stockholder distributions paid or declared from January
+1, 1998 to June 7, 1999, the S Corporation termination date, in excess of
+(ii) the S Corporation earnings from January 1, 1998 to December 31, 1998
+for 1996 through 1998, and January 1, 1999 to June 7, 1999 for 1999, based
+on an initial public offering price of $11 per share, net of underwriting
+discounts. 
+ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
+Certain information contained in the following Management’s Discussion and
+Analysis of Financial Condition and Results of Operations constitute
+forward-looking statements within the meaning of the Securities Act and the
+Securities Exchange Act, which can be identified by the use of forward-looking
+terminology such as “believes,” “anticipates,” “plans,” “expects,” “endeavors,”
+“may,” “will,” “intends,” “estimates” and similar expressions that are intended
+to identify forward-looking statements. These forward-looking statements
+involve risks and uncertainties, and our actual results may differ materially
+from the results discussed in the forward-looking statements as a result of
+certain factors set forth in Item 1 of this report under “Risk Factors” and
+elsewhere in this report.
+OVERVIEW 
+We design, market and sell contemporary footwear for men, women and
+children under the Skechers brand. Our footwear is sold through a wide range of
+department stores and leading specialty retail stores, a growing network of our
+own retail stores and our e-commerce website. Our objective is to continue to
+profitably grow our domestic operations, while leveraging our brand name to
+expand internationally.
+25
+Table of Contents 
+We generate revenues from three principal sources and have the following
+reportable segments:
+• 
+WHOLESALE. We sell footwear directly to department stores and
+specialty retail stores both domestically and internationally. 
+• 
+RETAIL. We own and operate our own retail stores both domestically
+and, on a smaller scale, internationally through three integrated retail
+formats. Our three distinct retail formats are as follows: 
+Concept Stores. Our concept stores are located in marquee street
+locations and high performing regional malls, promote awareness of the
+Skechers brand and showcase a broad assortment of our in-season footwear
+styles. The products offered in our concept stores are full price
+in-season products and typically attract fashion conscious customers.
+Our proto-typical concept store is approximately 2,750 square feet and
+generates gross margins that are the highest of our three retail formats. 
+Factory Outlet Stores. Our factory outlet stores are generally located in
+manufacturers’ outlet centers and provide opportunities to sell an
+assortment of in-season, discontinued and excess merchandise at lower
+price points. Our factory outlet stores range in size from 1,900 square
+feet to 6,000 square feet and generally have price points less of $60.00
+or lower. Gross margins generated from our factory outlet stores are
+less than those in our concept stores. 
+Warehouse Outlet Stores. Our freestanding warehouse outlet stores appeal
+to our most value conscious customers and enable us to liquidate excess
+merchandise, discontinued lines and odd-size inventory in a
+cost-efficient manner. Our warehouse outlet stores are typically located
+in manufacturers’ direct outlet centers throughout the U.S. These stores
+allows us to sell discontinued and excess merchandise, thereby reducing
+the need to sell merchandise to discounters at excessively low prices,
+which could compromise the Skechers brand. 
+• 
+DISTRIBUTORS. Internationally, we sell our footwear to our foreign
+distributors who distribute such footwear to department stores and
+specialty retail stores in Europe, Asia, Latin America, South America
+and numerous other countries and territories. 
+Approximately 78.9%, 76.0% and 72.3% of our net sales were derived from
+our domestic wholesale segment for the years ended December 31, 2000, 2001, and
+2002, respectively. Typically, our retail sales achieve higher gross margins as
+a percentage of net sales than domestic wholesale sales. Sales through foreign
+distributors result in lower gross margins as a percentage of net sales than
+retail or wholesale sales. None of our domestic retail sales formats,
+international wholesale sales, international retail sales, or international
+distributor sales comprised more than 10% of our consolidated net sales for
+either fiscal 2000, 2001 or 2002.
+We have implemented a strategy of controlling the growth of the
+distribution channels through which our products are sold in order to protect
+the Skechers brand name, properly secure customer accounts and better manage
+the growth of the business. We seek wholesale accounts that we believe can best
+support the Skechers brand name in the market as part of our efforts to expand
+our wholesale distribution. We seek to selectively open retail stores in high
+profile, high traffic locations in major metropolitan areas both domestically
+and internationally. Domestically, we are currently planning to open
+approximately 20 to 25 retail stores during fiscal 2003 as compared to 13 in
+fiscal 2002. We seek to increase the number of international wholesale accounts
+that we sell directly to, thereby reducing our reliance on foreign distributors
+and we anticipate opening two to four international retail stores in 2003, one
+of which was opened in Manchester, England in February 2003.
+We have realized rapid growth since inception, increasing net sales from
+$90.8 million in 1994 to $943.6 million in 2002. However, during 2002 our
+revenues declined 1.7% when compared to 2001, due to the economic slowdown in
+both the U.S. and in some international countries where our product is
+distributed and from the elimination of our mail order sales. Also, based on
+our current estimates, we currently anticipate sales levels during the first
+quarter of 2003 to be 15 to 20% lower than sales during the first quarter of
+2002. We currently expect sales for the first six months of 2003 to be lower
+than sales in the comparable period in 2002. We currently anticipate sales for
+the second half of 2003 to be higher than the second half of 2002. These
+estimates may be affected by a number of factors within and out of our control,
+including but limited to, the continued threat of terrorist attacks throughout
+the world, the war with Iraq, and any additional military action taken, or
+contemplated, by the United States and other nations that could cause
+additional significant disruption to commerce throughout the world.
+As our sales growth accelerated, we focused on investing in our
+infrastructure to support continued expansion in a disciplined manner. The
+infrastructure additions are included in both selling and general and
+administrative type expenses. During 2001 and 2002, we expanded our
+administrative facilities, hired additional personnel, developed product
+sourcing and quality control offices in China and Taiwan, upgraded our
+management information systems, opened additional retail stores, established an
+internally managed distribution center in Belgium, expanded our international
+direct selling efforts by establishing subsidiaries in the United Kingdom,
+26
+Table of Contents 
+France, Germany, Spain, Switzerland, Canada, the Netherlands, and in March
+2003 in Italy. Not all of the fixed costs incurred during this expansion period
+have been leveraged over a full year’s sales. We established this
+infrastructure to achieve economies of scale in anticipation of continued
+increases in sales. Because expenses relating to this infrastructure are fixed,
+at least in the short-term, operating results and margins would be adversely
+affected if we do not achieve our anticipated sales growth. For example,
+during the fourth quarter of 2002, we saw a de-leveraging of our expenses as
+sales declined 15.5% when compared to the fourth quarter of 2001. We
+anticipate additional de-leveraging of our costs as we currently expect first
+quarter 2003 sales to be 15% to 20% lower than sales in the first quarter of
+2002.
+Our gross margins during fiscal 2002 decreased to 41.0% compared to 42.3%
+in 2001. During the fourth quarter ended December 31, 2002, our gross margins
+were 38.5% compared to 39.7% in the fourth quarter ended December 31, 2001.
+Given the continuing weak retail environment, we currently anticipate that
+margins during the first half of fiscal 2003 will be lower than those in the
+first half of 2002. Operating margin as a percentage of net sales decreased
+from 12.0% in 2000, to 9.2% in 2001, and to 8.8% in 2002. In addition, during
+the fourth quarter of fiscal 2002, we realized our first quarterly loss, since
+becoming a public company in June 1999, of $8.6 million compared to net income
+of $2.0 million in the fourth quarter of 2001. Increasing sales and
+maintaining or improving gross margins and operating margins depends on various
+factors, including, strength of our brand name, competitive conditions and our
+ability to efficiently manage sales through all distribution channels. In the
+future, sales and earnings growth will be dependent upon, among other things,
+the continued success of our efforts to expand our footwear offerings within
+the Skechers brand or developing alternative, successful brands. We can not
+assure you that the rate of growth will not continue to decline in future
+periods or that we will improve or maintain gross margins or operating margins.
+Notwithstanding our net loss during the fourth quarter 2002, and the
+anticipated results for the first quarter of 2003, we remain committed to the
+overall marketing strategy that has been largely responsible for the increase
+in the development of the Skechers brand of products. We have and continue to
+adjust our advertising budget based on projected sales, which has included such
+avenues as magazines, television, trade shows, radio spots, billboards, and
+buses. We endeavor to spend approximately 8% to 10% of annual net sales in the
+marketing of Skechers footwear through advertising, promotions, public
+relations, trade shows and other marketing efforts.
+We believe that selective licensing of the Skechers brand name to
+non-footwear related manufacturers may broaden and enhance the Skechers image
+without requiring us to expend significant capital investments or incur
+significant incremental operating expenses. Although we have licensed certain
+manufacturers to produce and market certain Skechers products on a limited
+basis, to date we have not derived any significant royalty income from these
+licensing arrangements. Royalty income is recognized as revenue when earned and
+is offset by related expenses. During 2002, we entered into three licensing
+arrangements, within the apparel and accessories market, for socks and hosiery
+items, watches, and children’s apparel, and in March 2003, we signed an
+additional licensing agreement, to compliment our Skechers Collection product
+line, for outwear. Although licensing royalties may increase in dollar value
+on a go forward basis, we do not anticipate that they will become a significant
+portion of our consolidated net sales.
+We contract with third parties for the manufacture of all our products. We
+do not own or operate any manufacturing facilities. In 2002, the top four
+suppliers of our products accounted for 53.8% of our total purchases, and one
+vendor accounted for over 20% of our purchases. To date, substantially all
+products are purchased in U.S. dollars, but this may not continue to be the
+case. We believe the use of independent manufacturers increases our production
+flexibility and capacity yet at the same time allows us to substantially reduce
+capital expenditures and avoid the costs of managing a large production work
+force. Substantially all of our products are produced in China. We finance our
+production activities in part through the use of interest-bearing open purchase
+arrangements with certain of our Asian suppliers. These facilities currently
+bear interest at a rate between 0.5% and 1.5% with financing for 30 to 60 days.
+We believe that the use of these arrangements affords us additional liquidity
+and flexibility.
+YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001 
+Net sales 
+Net sales for 2002 decreased 1.7% to $943.6 million compared to $960.4
+million in 2001. The decrease in net sales was primarily due to reduced
+domestic wholesale segment sales which were $682.6 million for 2002, compared
+to $729.9 million in 2001. The decrease in the domestic wholesale segment
+sales during 2002 was primarily due to decreases in both the men’s and women’s
+lines, partially offset by increases in our kids lines, and sales from the
+Skechers Work line launched in 2002, and to a lesser extent, the 4-Wheelers
+line started in the third quarter of 2001. Domestic wholesale segment volume
+decreased to 35.2 million pairs in 2002 from 36.3 million pairs in 2001.
+Distributor net sales decreased 13.4% primarily due to decreased sales into the
+South American market place. International wholesale net sales increased
+119.1% in 2002 compared to 2001. The increase was primarily due to our direct
+27
+Table of Contents 
+sales efforts in place for the full year in 2002 compared to approximately
+nine months in 2001. Domestic retail sales increased 24.8% in 2002 over 2001,
+due to the addition of 13 retail stores added during 2002. International
+retail sales increased 30.2% due to most stores being opened the entire 12
+months period in 2002, compared to only a portion in 2001, and to a lesser
+extent, new flagship stores opened in Frankfurt, Germany and Toronto, Canada
+during the fourth quarter of 2002. Our direct mail sales decreased over 50%,
+in 2002 compared to 2001 due to the elimination of our mail order and catalog
+operations in October 2001.
+During 2002, we continued to expand internationally by establishing
+subsidiaries in Canada, Spain, the Benelux region, and in the first quarter of
+2003, in Italy. Our international subsidiary’s infrastructure typically includes
+a sales and support staff and showroom to present the full range of our product
+offerings to prospective accounts. We continuously evaluate international
+regions where we can profitably transition our business model. We also
+anticipate opening two to four international retail stores in 2003, one of
+which was opened in Manchester, England in February 2003. During the year
+ended December 31, 2002, we opened 13 domestic retails stores: five concept
+stores, five warehouse outlet stores, and three factory outlet stores. We
+anticipate opening approximately 20 to 25 domestic retail stores during 2003,
+five of which have already been opened to date.
+Gross profit 
+Gross profit for 2002 was $386.7 compared to gross profit of $406.2
+million in 2001. Gross margin was 41.0% for 2002 compared to 42.3% for 2001.
+Gross margin for the domestic wholesale segment was 38.4% in 2002 compared to
+40.9% in 2001. The decrease in gross margin in the domestic wholesale segment
+was due primarily to concessions given to our wholesale accounts to stimulate
+sales at retail during this sluggish retail environment, additional costs
+related to the domestic west coast port strike which lead to additional
+airfreight costs from our international manufacturers, rerouting of freight to
+east coast and Canadian ports, and the subsequent trucking costs from those
+ports to our distribution center in Ontario, California. In addition we
+realized lower margins from our company owned retail stores due to additional
+sales promotions during 2002 compared to 2001.
+Selling expenses 
+Selling expenses for the 2002 were $94.3 million compared to $111.4
+million in 2001, a decrease of $17.1 million or 15.4%. Selling expense as a
+percentage of net sales decreased to 10% compared to 11.6% in 2001. The
+decrease in selling expense was primarily due to decreased advertising, which
+was 8.1% of sales in 2002 compared to 9.0% in 2001. Advertising reductions
+were realized from fewer domestic print ads, and cable TV ads, other selling
+expense reductions were derived from reduced commissions, samples, and
+reductions in general and point of purchase promotional items.
+General and administrative expenses 
+General and administrative expenses for 2002 were $210.8 million compared to
+$206.0 million for 2001. As a percentage of net sales general and
+administrative expenses were 22.3% in 2002, compared to 21.4% in 2001. The
+increase in general and administrative expenses during 2002 compared to 2001
+was due to increased rent (approximately $5.0 million) and depreciation charges
+(approximately $2.3 million) related to the addition of 13 retail stores and
+the full year’s effect of the 26 stores added in 2001, infrastructure additions
+to support our direct selling efforts in the United Kingdom, Germany, France,
+and new subsidiaries added in 2002, including Spain, Canada, and the
+Netherlands and, to a lesser extent, legal reserves and the move into our
+internally managed distribution center in Liege, Belgium in the fourth quarter
+of 2002. However, the expense increases noted were partially offset by reduced
+temporary help costs (approximately $9.0 million) at our distribution facility
+in Ontario, California.
+The costs added during this expansion period have not been leveraged over a
+full year’s sales. We established this infrastructure to achieve economies of
+scale in anticipation of continued increases in sales. Because expenses
+relating to this infrastructure are fixed, at least in the short-term,
+operating results and margins would be adversely affected if we do not achieve
+our anticipated sales growth.
+Interest expense 
+Interest expense decreased to $8.9 million in 2002 compared to $13.9
+million in 2001. The decrease is due to the elimination of our short-term
+borrowings whose interest rate was tied to the prime rate of interest, which
+has decreased over the last two years and reduced interest rates charged on
+amounts outstanding with our foreign manufacturers.
+28
+Table of Contents 
+Other income 
+Other income for 2002 was $1.5 million compared to $1.3 million in 2001.
+The slight increase in other income was due to foreign exchange gains, offset
+by decreased rent revenue from the leasing of office space at one of our
+administrative facilities.
+Income taxes 
+The effective tax rate in 2002 was 37.6% compared to 37.8% in 2001. The
+decrease in the effective tax rate is due to changes in income in differing tax
+jurisdictions as a result of our international expansion. We are expanding our
+international operations and plan to reinvest any undistributed earnings from
+our non-U.S. subsidiaries, thereby indefinitely postponing their remittance. As
+a result, we do not plan to provide for deferred income taxes on any
+accumulated undistributed earnings that our non-U.S. subsidiaries earn in the
+future.
+YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000 
+Net sales 
+Net sales for 2001 increased 42.3% to $960.4 million compared to $675.0
+million in 2000. The increase in net sales was due to an increase in domestic
+wholesale segment sales of $197.3 million in 2001 to $729.9 million, compared
+to $532.6 million in 2000. The increase was due to increased sales in all
+product lines, primarily Women’s Sport and Kids lines, the introduction of
+three new product lines during 2001, and additional styles added within each
+product line. Domestic wholesale volume increased to 36.3 million pairs in 2001
+from 25.8 million pairs in 2000. Domestic retail sales increased 50% over 2000
+levels largely due to the addition of 26 retail stores during 2001. Net sales
+from our direct mail and web based distribution channels remained consistent in
+2001 as compared to 2000. However, in October 2001, we elected to discontinue
+our mail order and catalog operations, which represented less 1% of net sales
+in 2001, although we continue to offer a selected assortment of merchandise
+through our interactive website.
+During 2001, total international sales increased 85.7% over 2000 levels.
+International sales consist of distributor sales, which increased 47.4% due to
+continued acceptance of our product offerings in the international marketplace.
+International wholesale revenues increased substantially from nominal levels in
+2000 due to marketing and advertising campaigns in support of the establishment
+of our three international subsidiaries located in the United Kingdom, France
+and Germany, where we began to sell direct to department stores and specialty
+retailers in 2001. During 2001, we generated our first international retail
+sales as we opened our first three international flagship retail stores located
+in the United Kingdom, France and Germany.
+Gross profit 
+Gross profit for 2001 was $406.2 million, an increase of 42.9% over $284.2
+million in 2000. Gross margin was 42.3% for 2001 compared to 42.1% for 2000.
+Gross margins for the domestic wholesale segment was 40.9% in 2001 compared to
+40.3% in 2000. The slight margin increase in the domestic wholesale segment
+was the result of reduced cargo costs partly offset by reduced margins during
+the three months ended December 31, 2001 for price concessions given to our
+wholesale customers. Also, offsetting the slight increase to gross margins
+were price reductions at our factory outlet and warehouse outlet stores to help
+stimulate inventory sell through at the retail level.
+Selling expenses 
+Selling expenses for 2001 were $111.4 million, an increase of 43.8% over
+last year’s $77.5 million. Selling expenses as a percent of net sales increased
+slightly to 11.6% from 11.5% in 2000. The increase in the level of spending was
+primarily due to increased advertising in both print and television media and
+additional advertising to support the increase in sales activities in the
+United Kingdom, Germany and France where we commenced selling direct to
+department stores and specialty retailers. During 2001 advertising expenses
+were $86.6 million, or 9.0% of net sales, compared to $59.1 million, or 8.8% of
+net sales in 2000.
+General and administrative expenses 
+General and administrative expenses for 2001 were $206.0 million compared
+to $125.8 million in 2000. General and administrative expenses as a percentage
+of net sales was 21.4% in 2001 compared to 18.6% in 2000. The increase in
+general and administrative expenses in absolute dollars and as a percentage of
+net sales was due to planned infrastructure additions to support the 26
+domestic retail stores added during 2001 and to establish operating entities,
+and flagship retail stores, in the United Kingdom,
+29
+Table of Contents 
+France and Germany to support our direct selling efforts in those
+countries. In addition, we increased our distribution capacity with facility
+and capital asset additions and enhanced our information systems to support the
+increase in sales volume.
+Interest expense 
+Interest expense increased to $13.9 million in 2001 from $9.2 million in
+2000. The increase was due to increased short-term borrowings to support our
+working capital requirements and retail store additions and increased capital
+asset financing to support the increase in sales volume and capacity expansion.
+Other income 
+Other income increased to $1.3 million in 2001 compared to $318,000 in
+2000. The increase in other income is due to rental income related to the
+leasing of offices at our administrative office building and legal settlements,
+partially offset by the disposal of fixed assets. We expect rental income to
+decrease during 2002 as tenant leases expire.
+Income taxes 
+The effective tax rate in 2001 was 37.8% compared to 39.5% in 2000. The
+decrease in the effective tax rate is due to changes in income in differing tax
+jurisdictions as a result of our international expansion. We are expanding our
+international operations and plan to reinvest any undistributed earnings from
+our non-U.S. subsidiaries, thereby indefinitely postponing their remittance. As
+a result, we do not plan to provide for deferred income taxes on any
+accumulated undistributed earnings that our non-U.S. subsidiaries earn in the
+future.
+LIQUIDITY AND CAPITAL RESOURCES 
+Our working capital at December 31, 2002 was $286.8 million, an increase of
+$146.8 million from $140.0 million at December 31, 2001. The increase in
+working capital was primarily due to the elimination of our short-term
+borrowings of approximately $84.2 million with a portion of the proceeds from
+the issuance of $90 million of long-term convertible subordinated notes in
+April 2002. In addition to refinancing our short-term borrowings, we increased
+our cash balances by $109.3 million in 2002. Our working capital increase was
+offset by an $13.7 million decrease in receivables primarily attributed to
+reduced wholesale sales of approximately $37.6 million during the fourth
+quarter ended December 31, 2002 and a $12.8 million increase in accounts
+payable and accrued expenses.
+Net cash provided by operating activities for the year ended December 31, 2002
+was approximately $116.8 million, compared to cash used in operating activities
+of $1.7 million for the year ended December 31, 2001. The decrease in sales in
+2002 over 2001 and especially the fourth quarter of 2002 as compared to the
+fourth quarter of 2001, resulted in a decrease of $23.5 million in our
+investment in accounts receivable and inventories compared to a corresponding
+build-up of $76.4 million of these accounts in the prior year. We experienced
+an increase in net sales of $285.3 million in 2001 over 2000, which drove the
+increase in accounts receivable and inventories in 2001. As a consequence of
+these trends, we were able to generate $116.8 million in operating cash flow.
+As a result of our improved operating cash flow and $17 million in reduced
+capital expenditures, we were able to refinance all of our short-term
+borrowings of $84 million with the issuance of $90 million of convertible
+subordinated notes due in April 2007, and generate available borrowings under
+our line of credit of $100 million at December 31, 2002.
+Net cash used in investing activities was $14.5 million for the year ended
+December 31, 2002, compared to $31.5 million for the year ended December 31,
+2001. The decrease was due to reduced capital expenditures requirements
+resulting from fewer retail store openings in 2002 than in 2001, 26 in 2001
+compared to 13 in 2002, and prior year investing activities including the
+acquisition of real properties in Manhattan Beach, California. We anticipate
+an increase cash used in investing activities during 2003, compared to 2002,
+due to our current forecast of 20 to 25 domestic retail store additions and two
+to four international retail store additions in 2003. In 2003, we have already opened
+one international retail store and four domestic retail stores.
+Net cash provided by financing activities for the year ended December 31, 2002
+was $6.0 million, compared to $40.0 million for the year ended December 31,
+2001. The decrease in cash provided by financing activities was due to the
+reduction of net financing derived from our short-term borrowings, which was
+repaid with a portion of the proceeds from the issuance of our convertible
+subordinated notes issued in April 2002, and reduced use of the line of credit
+facility due to increased cash flows provided by operating activities of
+$116.8 million and to lesser extent, the reduction in capital expenditures from
+a decrease in store openings.
+30
+Table of Contents 
+In April 2002, we issued $90.0 million aggregate principal amount of 4.50%
+Convertible Subordinated Notes due April 15, 2007. The notes are convertible
+into shares of our Class A Common Stock. Interest on the notes is paid
+semi-annually on April 15 and October 15 of each year, which commenced October
+15, 2002. The notes are convertible at the option of the holder into shares of
+Class A Common Stock at a conversion rate of 38.5089 shares of Class A Common
+Stock per $1,000 principal amount of notes, which is equivalent to a conversion
+price of approximately $25.968 per share. The conversion rate is subject to
+adjustment. The notes may be converted at any time on or before the close of
+business on the maturity date, unless the notes have been previously redeemed
+or repurchased; provided, however, that if a note is called for redemption or
+repurchase, the holder will be entitled to convert the notes at any time before
+the close of business on the date immediately preceding the date fixed for
+redemption or repurchase, as the case may be. The notes are unsecured and
+subordinated to our present and future senior debt. The notes are also
+structurally subordinated in right of payment to all indebtedness and other
+liabilities of our subsidiaries. The indenture does not restrict our incurrence
+of indebtedness, including senior debt, or our subsidiaries’ incurrence of
+indebtedness. Net proceeds from the sale of the notes were $86.2 million. The
+refinancing of our short term borrowings with long term capital was done to
+provide us with long-term capital to provide for the future growth of the
+business.
+In July 2002, we renegotiated our line of credit facility, which now provides
+for borrowings of up to $200.0 million, with actual borrowings limited to
+available collateral and certain limitations on total indebtedness
+(approximately $100.9 million of availability as of December 31, 2002) with the
+CIT Group, as agents for the lenders. At December 31, 2003, no amounts were
+outstanding under the revolving line of credit. The revolving line of credit
+bears interest at prime rate (4.25% at December 31, 2002) minus .5%. Interest
+on the line of credit is payable monthly in arrears. The revolving line of
+credit expires on December 31, 2003. The revolving line of credit provides a
+sub-limit for letters of credit of up to $30.0 million to finance our foreign
+purchases of merchandise inventory. As of December 31, 2002, we had
+approximately $5.0 million of letters of credit under the revolving line of
+credit. The credit facility provides that stockholders’ equity shall not
+decrease by more than 20% in any calendar quarter, contains a tangible net
+worth requirement, as defined in the agreement, and limits the payment of
+dividends if we are in default of any provision of the agreement. We were in
+compliance with these covenants as of December 31, 2002.
+We believe that anticipated cash flows from operations, available borrowings
+under our revolving line of credit, cash on hand, proceeds from the issuance of
+the notes and our financing arrangements will be sufficient to provide us with
+the liquidity necessary to fund our anticipated working capital and capital
+requirements through fiscal 2003. However, in connection with our growth
+strategy, we will incur significant working capital requirements and capital
+expenditures. Our future capital requirements will depend on many factors,
+including, but not limited to, the levels at which we maintain inventory, the
+market acceptance of our footwear, the success of our international expansion,
+the levels of promotion and advertising required to promote our footwear, the
+extent to which we invest in new product design and improvements to our
+existing product design and the number and timing of new store openings. To the
+extent that available funds are insufficient to fund our future activities, we
+may need to raise additional funds through public or private financing. We
+cannot assure you that additional financing will be available or that, if
+available, it can be obtained on terms favorable to our stockholders and us.
+Failure to obtain such financing could delay or prevent our planned expansion,
+which could adversely affect our business, financial condition and results of
+operations. In addition, if additional capital is raised through the sale of
+additional equity or convertible securities, dilution to our stockholders could
+occur.
+CRITICAL ACCOUNTING POLICIES
+Revenue Recognition . The company derives its revenue from the sale of
+footwear. In general, revenue is recognized upon shipment of the merchandise.
+Domestically, goods are shipped directly from our domestic distribution center
+in Ontario, California, and revenue is recognized upon shipment from the
+distribution center (FOB shipping point). For our international wholesale
+accounts, product is shipped direct from our distribution center in Liege,
+Belgium, and revenue is recognized upon shipment from the distribution center.
+For our distributor sales, the goods are delivered directly from the
+independent factories to the distributors on an FOB shipping point basis and
+revenue is recognized upon shipment from the factory. In all of the above
+cases, each of the following have been met prior to revenue recognition:
+persuasive evidence of an arrangement exists, delivery has occurred, the price
+is fixed and determinable and collectibility is reasonably assured.
+Use of Estimates. The preparation of financial statements in conformity with
+accounting principles generally accepted in the United States requires
+management to make estimates and assumptions that affect the reported amounts
+of assets and liabilities and disclosures of contingent assets and liabilities
+at the date of the financial statements and the reported amounts of revenues
+and expenses during the reporting period. Specifically, management must make
+estimates in the following areas:
+Allowance for bad debts, returns, and customer chargebacks. We insure selected
+customer account balances both greater than $200,000 and accepted by the
+insurance company should our customer not pay. We also provide a reserve
+against our receivables for
+31
+Table of Contents 
+estimated losses that may result from our customers’ inability to pay, and
+disputed and returned items. We determine the amount of the reserve by
+analyzing known uncollectible accounts, aged receivables, economic conditions
+in the customers’ country or industry, historical losses and our customers’
+credit-worthiness. Amounts later determined and specifically identified to be
+uncollectible are charged or written off against this reserve. To minimize the
+likelihood of uncollectibility, customers’ credit-worthiness is reviewed
+periodically based on external credit reporting services and our experience
+with the account and adjusted accordingly. Should a customer’s account become
+past due, we generally place a hold on the account and discontinue further
+shipments to that customer, minimizing further risk of loss. The likelihood of
+a material loss on an uncollectible account would be mainly dependent on
+deterioration in the overall economic conditions in a particular country or
+environment. Reserves are fully provided for all probable losses of this
+nature. Gross trade accounts receivable balance was $105.9 million and the
+allowance for bad debts, returns, and customer chargebacks was $8.5 million at
+December 31, 2002.
+Inventory adjustments. Inventories are stated at lower of cost or market. We
+review our inventory on a regular basis for excess and slow moving inventory
+based on prior sales and net realizable value. A write down of inventory is
+considered permanent and creates a new cost basis for those units. The
+likelihood of any material inventory write-down is dependent primarily on
+consumer demand and competitor product offerings. Inventories were stated at
+$148.0 million at December 31, 2002.
+Valuation of intangible and other long-lived assets. When circumstances
+warrant, we assess the impairment of intangible and other long-lived assets
+that require us to make assumptions and judgments regarding the carrying value
+of these assets. The assets are considered to be impaired if we determine that
+the carrying value may not be recoverable based upon our assessment of the
+following events or changes in circumstances:
+• 
+the asset’s ability to continue to generate income; 
+• 
+loss of legal ownership or title to the asset; 
+• 
+significant changes in our strategic business objectives and utilization of the asset(s); or 
+• 
+the impact of significant negative industry or economic trends 
+If the assets are considered to be impaired, the impairment we recognize is the
+amount by which the carrying value of the assets exceeds the fair value of the
+assets. In addition, we base the useful lives and related amortization or
+depreciation expense on our estimate of the period that the assets will
+generate revenues or otherwise be used by us. If a change were to occur in any
+of the above-mentioned factors or estimates, the likelihood of a material
+change in our reported results would increase.
+Litigation reserves. Estimated amounts for claims that are probable and can be
+reasonably estimated are recorded as liabilities in the consolidated balance
+sheets. The likelihood of a material change in these estimated reserves would
+be dependent on new claims as they may arise and the favorable or unfavorable
+outcome of the particular litigation. Both the amount and range of loss on the
+remaining pending litigation is uncertain. As such, we are unable to make a
+reasonable estimate of the liability that could result from unfavorable
+outcomes in litigation. As additional information becomes available, we will
+assess the potential liability related to our pending litigation and revise our
+estimates. Such revisions in our estimates of the potential liability could
+materially impact our results of operation and financial position.
+Valuation of deferred income taxes. Valuation allowances are established, when
+necessary, to reduce deferred tax assets to the amount expected to be realized.
+The likelihood of a material change in our expected realization of these assets
+depends on future taxable income, and the effectiveness of our tax planning and
+strategies among the various tax jurisdictions in which we operate.
+INFLATION 
+We do not believe that the relatively moderate rates of inflation
+experienced in the United States over the last three years have had a
+significant effect on our sales or profitability. However, we cannot accurately
+predict the effect of inflation on future operating results. Although higher
+rates of inflation have been experienced in a number of foreign countries in
+which our products are manufactured, we do not believe that inflation has had a
+material effect on our sales or profitability. While we have been able to
+offset our foreign product cost increases by increasing prices or changing
+suppliers in the past, we cannot assure you that we will be able to continue to
+make such increases or changes in the future.
+EXCHANGE RATES 
+32
+Table of Contents 
+We receive U.S. dollars for substantially all of our product sales and our
+royalty income. Inventory purchases from offshore contract manufacturers are
+primarily denominated in U.S. dollars; however, purchase prices for our
+products may be impacted by fluctuations in the exchange rate between the U.S.
+dollar and the local currencies of the contract manufacturers, which may have
+the effect of increasing our cost of goods in the future. During 2002 and 2001,
+exchange rate fluctuations did not have a material impact on our inventory
+costs. We do not engage in hedging activities with respect to such exchange
+rate risk.
+ITEM 7(a) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+MARKET RISK 
+We do not hold any derivative securities.
+Market risk is the potential loss arising from the adverse changes in market
+rates and prices, such as interest rates and foreign currency exchange rates.
+Changes in interest rates and, in the future, changes in foreign currency
+exchange rates have and will have an impact on our results of operations.
+Interest rate fluctuations. At December 31, 2002, no amounts were outstanding
+that were subject to changes in interest rates; however, the interest rate
+charged on our line of credit facility is based on the prime rate of interest
+and changes in the prime rate of interest will have an effect on the interest
+charged on outstanding balances. No amounts are currently outstanding.
+Foreign exchange rate fluctuations. We face market risk to the extent that
+changes in foreign currency exchange rates affect our non-U.S. dollar
+functional currency foreign subsidiary’s assets and liabilities. In addition,
+changes in foreign exchange rates may affect the value of our inventory
+commitments. Also, inventory purchases of our products may be impacted by
+fluctuations in the exchange rates between the U.S. dollar and the local
+currencies of the contract manufacturers, which could have the effect of
+increasing cost of goods sold in the future. We manage these risks by primarily
+denominating these purchases and commitments in U.S. dollars. We do not engage
+in hedging activities with respect to such exchange rate risks.
+FUTURE ACCOUNTING CHANGES 
+In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement
+Obligations. SFAS No. 143 requires the Company to record the fair value of an
+asset retirement obligation as a liability in the period in which it incurs a
+legal obligation associated with the retirement of tangible long-lived assets
+that result from the acquisition, construction, development, and/or normal use
+of the assets. The Company also records a corresponding asset that is
+depreciated over the life of the asset. Subsequent to the initial measurement
+of the asset retirement obligation, the obligation will be adjusted at the end
+of each period to reflect the passage of time and changes in the estimated
+future cash flows underlying the obligation. The Company adopted SFAS No. 143
+on January 1, 2003. The adoption of SFAS No. 143 did not have a
+material effect on the Company’s financial statements.
+In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
+No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
+Corrections. SFAS No. 145 amends existing guidance on reporting gains and
+losses on the extinguishment of debt to prohibit the classification of the gain
+or loss as extraordinary, as the use of such extinguishments have become part
+of the risk management strategy of many companies. SFAS No. 145 also amends
+SFAS No. 13 to require sale-leaseback accounting for certain lease
+modifications that have economic effects similar to sale-leaseback
+transactions. The provisions of the Statement related to the rescission of
+Statement No. 4 is applied in fiscal years beginning after May 15, 2002.
+Earlier application of these provisions is encouraged. The provisions of the
+Statement related to Statement No. 13 were effective for transactions occurring
+after May 15, 2002, with early application encouraged. The adoption of SFAS No.
+145 is not expected to have a material effect on the Company’s financial
+statements.
+In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
+Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
+accounting and reporting for costs associated with exit or disposal activities
+and nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability
+Recognition for Certain Employee Termination Benefits and Other Costs to Exit
+an Activity. The provisions of this Statement are effective for exit or
+disposal activities that are initiated after December 31, 2002, with early
+application encouraged. The adoption of SFAS No. 146 is not expected to have a
+material effect on the Company’s financial statements.
+In September 2002, the FASB Emerging Issues Task Force issued EITF No.
+02-16, Accounting by a Reseller for Cash Consideration Received from a Vendor.
+EITF No. 02-16 addresses how a reseller of a vendor’s products should account
+for cash
+33
+Table of Contents 
+consideration (as that term is defined in EITF No. 01-9) received from a
+vendor. EITF 02-16 is not expected to have a material effect on the Company’s
+financial statements.
+In November 2002, the FASB issued Interpretation No. 45, Guarantor’s
+Accounting and Disclosure Requirements for Guarantees, Including Indirect
+Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
+5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
+Interpretation elaborates on the disclosures to be made by a guarantor in its
+interim and annual financial statements about its obligations under guarantees
+issued. The Interpretation also clarifies that a guarantor is required to
+recognize, at inception of a guarantee, a liability for the fair value of the
+obligation undertaken. The initial recognition and measurement provisions of
+the Interpretation are applicable to guarantees issued or modified after
+December 31, 2002 and are not expected to have a material effect on the
+Company’s financial statements. The disclosure requirements are effective for
+financial statements of interim and annual periods ending after December 31,
+2002.
+In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
+Compensation – Transition and Disclosure, an amendment of FASB Statement No.
+123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
+Compensation, to provide alternative methods of transition for a voluntary
+change to the fair value method of accounting for stock-based employee
+compensation. In addition, this Statement amends the disclosure requirements of
+Statement No. 123 to require prominent disclosures in both annual and interim
+financial statements. Certain of the disclosure modifications are required for
+fiscal years ending after December 15, 2002 and are included in the notes to
+these consolidated financial statements.
+In January 2003, the FASB issued Interpretation No. 46, Consolidation of
+Variable Interest Entities, an interpretation of ARB No. 51. This
+Interpretation addresses the consolidation by business enterprises of variable
+interest entities as defined in the Interpretation. The Interpretation applies
+immediately to variable interests in variable interest entities created after
+January 31, 2003, and to variable interests in variable interest entities
+obtained after January 31, 2003. The application of this Interpretation is not
+expected to have a material effect on the Company’s financial statements.
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+The information required by this Item 8 is incorporated by reference to
+our Consolidated Financial Statements and Independent Auditors’ Report
+beginning at page F-1 of this Form 10-K.
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
+None.
+PART III 
+ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 
+The information required by this Item 10 is hereby incorporated by
+reference from our definitive proxy statement, to be filed pursuant to
+Regulation 14A within 120 days after the end of our 2002 fiscal year.
+ITEM 11. EXECUTIVE COMPENSATION 
+The information required by this Item 11 is hereby incorporated by
+reference from our definitive proxy statement, to be filed pursuant to
+Regulation 14A within 120 days after the end of our 2002 fiscal year.
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 
+The information required by this Item 12 is hereby incorporated by
+reference from our definitive proxy statement, to be filed pursuant to
+Regulation 14A within 120 days after the end of our 2002 fiscal year.
+34
+Table of Contents 
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 
+The information required by this Item 13 is hereby incorporated by reference
+from our definitive proxy statement, to be filed pursuant to Regulation 14A
+within 120 days after the end of our 2002 fiscal year. 
+ITEM 14. CONTROLS AND PROCEDURES 
+(a) 
+Evaluation of disclosure controls and procedures 
+The term “disclosures controls and procedures” refers to the controls and
+procedures of a company that are designed to ensure that information required
+to be disclosed by a company in the reports that it files under Rules 13a –
+14 of the Securities and Exchange Act of 1934 (the “Exchange Act”) is
+recorded, processed, summarized and reported within the required time
+periods. Within 90 days prior to the date of filing this report (the
+“Evaluation Date”), we carried out an evaluation under the supervision and
+with participation of our Chief Executive Officer and Chief Financial Officer
+of the effectiveness of our disclosure controls and procedures. Based on
+that evaluation, our Chief Executive Officer and Chief Financial Officer have
+concluded that, as of the Evaluation Date, such controls and procedures were
+effective in ensuring that required information will be disclosed on a timely
+basis in our periodic reports filed under the Exchange Act. 
+(b) 
+Changes in internal control 
+There were no significant changes to our internal controls subsequent to the
+Evaluation Date. 
+ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES 
+The information
+required by this Item 15 is hereby incorporated by
+reference from our definitive proxy statement, to be filed pursuant to
+Regulation 14A within 120 days after the end of our 2002 fiscal year.
+PART IV 
+ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 
+(a) 
+Consolidated financial statements and schedules required to be filed
+hereunder are indexed on Page F-1 hereof. 
+(b) 
+Reports on Form 8-K — There were no reports on Form 8-K filed during
+the last quarter of the fiscal year ended December 31, 2002. 
+(c) 
+Exhibits 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+2.1 
+Agreement of Reorganization and Plan of Merger (incorporated by
+reference to exhibit number 3.2(a) of the Registrant’s
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange Commission on
+May 12, 1999). 
+3.1 
+Certificate of Incorporation (incorporated by reference to
+exhibit number 3.1 of the Registrant’s Registration Statement on
+Form S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on July 29, 1998). 
+3.2 
+Bylaws (incorporated by reference to exhibit number 3.2 of the
+Registrant’s Registration Statement on Form S-1, as amended (File
+No. 333-60065), filed with the Securities and Exchange Commission
+on July 29, 1998). 
+3.2(a) 
+Amendment to Bylaws (incorporated by reference to exhibit number 3.2(a) of the Registrant’s Registration Statement
+on Form S-1, as amended (File No. 333-60065), filed with
+the Securities and Exchange Commission on May 12, 1999). 
+35
+Table of Contents 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+4.1 
+Form of Specimen Class A Common Stock Certificate (incorporated
+by reference to exhibit number 4.1 of the Registrant’s
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange Commission on
+May 12, 1999). 
+10.1 
+Amended and Restated 1998 Stock Option, Deferred Stock and
+Restricted Stock Plan (incorporated by reference to exhibit
+number 10.1 of the Registrant’s Registration Statement on Form
+S-1, as amended (File No. 333-60065), filed with the Securities
+and Exchange Commission on July 29, 1998). 
+10.1(a) 
+Amendment No. 1 to Amended and Restated 1998 Stock Option,
+Deferred Stock and Restricted Stock Plan (incorporated by
+reference to exhibit number 4.4 of the Registrant’s Registration
+Statement on Form S-8 (File No. 333-71114), filed with the
+Securities and Exchange Commission on October 5, 2001). 
+10.2 
+Amended and restated 1998 Employee Stock Purchase Plan
+(incorporated by reference to exhibit number 10.1 of the
+Registrant’s Form 10-Q, for the period ending June 30, 2000) 
+10.3 
+Employment Agreement dated June 14, 1999, between the Registrant
+and Robert Greenberg (incorporated by reference to exhibit number
+10.3 of the Registrant’s Form 10-Q for the period ending June 30,
+1999). 
+10.3(a) 
+Amendment No. 1 to Employment Agreement between the Registrant
+and Robert Greenberg dated December 31, 1999 (incorporated by
+reference to exhibit number 10.3(a) of the Registrant’s Form 10-K
+for the year ending December 31, 1999). 
+10.4 
+Employment Agreement dated June 14, 1999, between the Registrant
+and Michael Greenberg (incorporated by reference to exhibit
+number 10.4 of the Registrant’s Form 10-Q for the period ending
+June 30, 1999). 
+10.4(a) 
+Amendment to Employment Agreement between the Registrant and
+Michael Greenberg dated December 31, 2000 (incorporated by
+reference to exhibit number 10.4(a) of the Registrant’s Form 10-K
+for the year ending December 31, 1999). 
+10.5 
+Employment Agreement dated June 14, 1999, between the Registrant
+and David Weinberg (incorporated by reference to exhibit number
+10.5 of the Registrant’s Form 10-Q for the period ending June 30,
+1999). 
+10.5(a) 
+Amendment No. 1 to Employment Agreement between the Registrant
+and David Weinberg dated December 31, 2000 (incorporated by
+reference to exhibit number 10.5(a) of the Registrant’s Form 10-K
+for the year ending December 31, 1999). 
+10.6 
+Indemnification Agreement dated June 7, 1999 between the
+Registrant and its directors and executive officers (incorporated
+by reference to exhibit number 10.6 of the Registrant’s Form 10-K
+for the year ending December 31, 1999). 
+10.6(a) 
+List of Registrant’s directors and executive officers who entered
+into Indemnification Agreement referenced in Exhibit 10.6 with
+the Registrant (incorporated by reference to exhibit number
+10.6(a) of the Registrant’s 
+36
+Table of Contents 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+Form 10-K for the year ending December 31, 1999). 
+10.7 
+Registration Rights Agreement dated June 9, 1999, between the
+Registrant, the Greenberg Family Trust, and Michael Greenberg
+(incorporated by reference to exhibit number 10.7 of the
+Registrant’s Form 10-Q for the period ending June 30, 1999). 
+10.8 
+Tax Indemnification Agreement dated June 8, 1999, between the
+Registrant and certain shareholders (incorporated by reference to
+exhibit number 10.8 of the Registrant’s Form 10-Q for the period
+ending June 30, 1999). 
+10.9 
+Lease Agreement, dated July 1, 1999, between the Registrant and
+Richard and Donna Piazza, regarding 1108-B Manhattan Avenue,
+Manhattan Beach, California (incorporated by reference to exhibit
+number 10.22 of the registrant’s Form 10-K for the year ending
+December 31, 1999). 
+10.10 
+Amended and Restated Loan and Security Agreement between the
+Registrant and Heller Financial, Inc., dated September 4, 1998
+(incorporated by reference to exhibit number 10.10 of the
+Registrant’s Registration Statement on Form S-1, as amended (File
+No. 333-60065), filed with the Securities and Exchange Commission
+on April 9, 1999). 
+10.10(a) 
+Term Loan A Note, dated September 4, 1998, between the Registrant
+and Heller Financial, Inc. (incorporated by reference to exhibit
+number 10.10(a) of the Registrant’s Registration Statement on
+Form S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on April 9, 1999). 
+10.10(b) 
+Revolving Note dated September 4, 1998, between the Registrant
+and Heller Financial, Inc. (incorporated by reference to exhibit
+number 10.10(b) of the Registrant’s Registration Statement on
+Form S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on April 9, 1999). 
+10.10(c) 
+First Amendment to Amended and Restated Loan and Security
+Agreement, dated September 11, 1998 (incorporated by reference to
+exhibit number 10.10(c) of the Registrant’s Registration
+Statement on Form S-1, as amended (File No. 333-60065), filed
+with the Securities and Exchange Commission on April 9, 1999). 
+10.10(d) 
+Second Amendment to Amended and Restated Loan and Security
+Agreement, dated December 23, 1998 (incorporated by reference to
+exhibit number 10.10(d) of the Registrant’s Registration
+Statement on Form S-1, as amended (File No. 333-60065), filed
+with the Securities and Exchange Commission on April 9, 1999). 
+10.10(e) 
+Third Amendment to Amended and Restated Loan and Security
+Agreement dated February 1, 2000 (incorporated by reference to
+exhibit number 10.10(e) of the Registrant’s Form 10-K for the
+year ending December 31, 2000). 
+10.10(f) 
+Fourth Amendment to Amended and Restated Loan and Security
+Agreement dated June 1, 2000 (incorporated by reference to
+exhibit number 10.10(f) of the Registrant’s Form 10-K for the
+year ending December 31, 2000). 
+10.10(g) 
+Fifth Amendment to Amended and Restated Loan and Security
+Agreement dated July 11, 2001 (incorporated by reference to
+exhibit number 10.10(g) of the Registrant’s Form 10-Q for the
+period ending September 30, 2001). 
+10.11 
+Lease Agreement, dated April 15, 1998, between the Registrant and
+Holt/Hawthorn and Victory Partners, regarding 228 Manhattan Beach Boulevard, Manhattan Beach,
+California (incorporated by reference to exhibit number
+10.11 of the Registrant’s Registration Statement on Form
+S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on April 9, 1999). 
+37
+Table of Contents 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+10.12 
+Commercial Lease Agreement, dated February 19, 1997, between the
+Registrant and Richard and Donna Piazza, regarding 1110 Manhattan
+Avenue, Manhattan Beach, California (incorporated by reference to
+exhibit number 10.12 of the Registrant’s Registration Statement
+on Form S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on July 29, 1998). 
+10.13 
+Lease Agreement, dated June 12, 1998, between the Registrant and
+Richard and Donna Piazza, regarding 1112 Manhattan Avenue,
+Manhattan Beach, California (incorporated by reference to exhibit
+number 10.13 of the Registrant’s Registration Statement on Form
+S-1, as amended (File No. 333-60065), filed with the Securities
+and Exchange Commission on July 29, 1998). 
+10.14 
+Lease Agreement, dated November 21, 1997, between the Registrant
+and The Prudential Insurance Company of America, regarding 1661
+South Vintage Avenue, Ontario, California (incorporated by
+reference to exhibit number 10.14 of the Registrant’s
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange Commission on
+July 29, 1998). 
+10.14(a) 
+First Amendment to Lease Agreement, dated April 26, 2002, between
+the Registrant and ProLogis California I LLC, regarding 1661
+South Vintage Avenue, Ontario, California. 
+10.15 
+Lease Agreements, dated November 21, 1997, between the Registrant
+and The Prudential Insurance Company of America, regarding 1777
+South Vintage Avenue, Ontario, California (incorporated by
+reference to exhibit number 10.15 of the Registrant’s
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange Commission on
+July 29, 1998). 
+10.15(a) 
+First Amendment to Lease Agreement, dated April 26, 2002, between
+the Registrant and Cabot Industrial Properties, L.P. , regarding
+1777 South Vintage Avenue, Ontario, California. 
+10.16 
+Commercial Lease Agreement, dated April 10, 1998, between the
+Registrant and Proficiency Ontario Partnership, regarding 5725
+East Jurupa Street (incorporated by reference to exhibit number
+10.16 of the Registrant’s Registration Statement on Form S-1, as
+amended (File No. 333-60065), filed with the Securities and
+Exchange Commission on July 29, 1998). 
+10.17 
+Lease Agreement and Addendum, dated June 11, 1998, between the
+Registrant and Delores McNabb, regarding Suite 3 on the first
+floor of the north building, Suite 9 on the first floor of the
+south building at 904 Manhattan Avenue, Manhattan Beach,
+California (incorporated by reference to exhibit number 10.17 of
+the Registrant’s Registration Statement on Form S-1, as amended
+(File No. 333-60065), filed with the Securities and Exchange
+Commission on April 9, 1999). 
+10.18 
+Addendum to Lease Agreement, dated September 14, 1998, between
+the Registrant and Delores McNabb, regarding Suites 3, 4 and 5 on
+the second floor of the north building at 904 Manhattan Avenue,
+Manhattan Beach, California (incorporated by reference to exhibit
+number 10.18 of the Registrant’s Registration Statement on Form
+S-1, as amended (File No. 333-60065), filed with the
+Securities and Exchange Commission on April 9, 1999). 
+38
+Table of Contents 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+10.18(a) 
+Addendum to Lease Agreement, dated April 15, 2000, between the
+Registrant and Delores McNabb, regarding Suites 7, 8 and 9 on the
+second floor of the south building at 904 Manhattan Avenue,
+Manhattan Beach, California (incorporated by reference to exhibit
+number 10.18(a) of the Registrant’s Form 10-K for the year ending
+December 31, 2001). 
+10.19 
+Standard Offer, Agreement and Escrow Instructions, Addendum and
+Additional Provisions, dated October 12, 2000, between the
+Registrant and/or its assignees and Champagne Building Group
+L.P., for the purchase of property located at 1670 South
+Champagne Avenue, Ontario, California (incorporated by reference
+to exhibit number 10.19 of the Registrant’s Form 10-K for the
+year ending December 31, 2000). 
+10.20 
+Lease Agreement, dated November 15, 1999, between the Registrant
+and Champagne Building Group L.P., regarding 1670 South Champagne
+Avenue, Ontario, California (incorporated by reference to exhibit
+number 10.20 of the Registrant’s Form 10-K for the year ending
+December 31, 1999). 
+10.21 
+Amendment of Lease Agreement dated December 20, 2000, between the
+Registrant and Yale Investments, LLC (a wholly owned subsidiary
+of the Registrant), regarding 1670 South Champagne Avenue,
+Ontario, California (incorporated by reference to exhibit number
+10.21 of the Registrant’s Form 10-K for the year ending December
+31, 2000). 
+10.22 
+Purchase and Sale Agreement with Escrow Instructions, dated
+November 13, 2000, between the Registrant and Pacifica
+California/Apollo, LLC, for the purchase of property located at
+225 South Sepulveda Boulevard, Manhattan Beach, California
+(incorporated by reference to exhibit number 10.22 of the
+Registrant’s Form 10-K for the year ending December 31, 2000). 
+10.22(a) 
+First Amendment to Purchase and Sale Agreement, dated November
+29, 2000, between the Registrant and Pacifica California/Apollo,
+LLC, for the purchase of property located at 225 South Sepulveda
+Boulevard, Manhattan Beach, California (incorporated by reference
+to exhibit number 10.22(a) of the Registrant’s Form 10-K for the
+year ending December 31, 2000). 
+10.23 
+Promissory Note, dated December 27, 2000, between the Registrant
+and Washington Mutual Bank, FA, for the purchase of property
+located at 225 South Sepulveda Boulevard, Manhattan Beach,
+California (incorporated by reference to exhibit number 10.23 of
+the Registrant’s Form 10-K for the year ending December 31,
+2000). 
+10.24 
+Assignment and Assumption Agreement, dated December 27, 2000,
+between the Registrant and Pacifica California/Apollo, LLC,
+regarding 225 South Sepulveda Boulevard, Manhattan Beach,
+California (incorporated by reference to exhibit number 10.24 of
+the Registrant’s Form 10-K for the year ending December 31,
+2000). 
+10.25 
+Loan Agreement, dated December 21, 2000, between Yale
+Investments, LLC, and MONY Life Insurance Company, for the
+purchase of property located at 1670 South Champagne Avenue,
+Ontario, California (incorporated by reference to exhibit number
+10.25 of the Registrant’s Form 10-K for the year ending December
+31, 2000). 
+39
+Table of Contents 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+10.26 
+Promissory Note, dated December 21, 2000, between Yale
+Investments, LLC, and MONY Life Insurance Company, for the
+purchase of property located at 1670 Champagne Avenue, Ontario,
+California (incorporated by reference to exhibit number 10.26 of
+the Registrant’s Form 10-K for the year ending December 31,
+2000). 
+10.27 
+Lease Agreement, dated April 28, 2000, between the Registrant and
+Manhattan Corners, LLC, regarding 1100 Highland Avenue, Manhattan
+Beach, California (incorporated by reference to exhibit number
+10.27 of the Registrant’s Form 10-K for the year ending December
+31, 2001). 
+10.28 
+Lease Agreement, dated April 10, 2001, between the Registrant and
+ProLogis California I LLC, regarding 4100 East Mission Boulevard,
+Ontario, California (incorporated by reference to exhibit number
+10.28 of the Registrant’s Form 10-K for the year ending December
+31, 2001). 
+10.29 
+Lease Agreement, dated February 8, 2002, between Skechers
+International, a subsidiary of the Registrant, and ProLogis
+Belgium II SPRL, regarding ProLogis Park Liege Distribution
+Center I in Liege, Belgium. 
+21.1 
+Subsidiaries of the Registrant 
+23.1 
+Consent of KPMG LLP 
+24.1 
+Power of Attorney (included on signature page) 
+99.1 
+Certification of the Chief Executive Officer and Chief Financial
+Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to
+Section 906 of the Sarbanes-Oxley Act of 2002. 
+40
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
+Manhattan Beach, State of California on the 28th day of March, 2003.
+SKECHERS U.S.A, INC. 
+By:
+/S/ ROBERT GREENBERG 
+Robert Greenberg 
+Chairman of the Board
+and Chief Executive Officer 
+POWER OF ATTORNEY 
+We, the undersigned officers and directors of Skechers U.S.A., Inc., do
+hereby constitute and appoint Robert Greenberg, Michael Greenberg and David
+Weinberg, or either of them, our true and lawful attorneys and agents, to do
+any and all acts and things in our names in the capacities indicated below,
+which said attorneys and agents, or either of them, may deem necessary or
+advisable to enable said corporation to comply with the Securities Exchange Act
+of 1934, as amended, and any rules, regulations, and requirements of the
+Securities and Exchange Commission, in connection with this report, including
+specifically, but without limitation, power and authority to sign for us or any
+of us in our names and in the capacities indicated below, any and all
+amendments to this report, and we do hereby ratify and confirm all that the
+said attorneys and agents, or either of them, shall do or cause to be done by
+virtue hereof.
+Pursuant to the requirements of the Securities Exchange Act of 1934, this
+report has been signed by the following persons on behalf of the Registrant and
+in the capacities and on the dates indicated.
+SIGNATURE 
+TITLE 
+DATE 
+/S/ ROBERT GREENBERG
+Robert Greenberg 
+Chairman of the Board and Chief
+Executive Officer (Principal
+Executive Officer)
+March 28, 2003 
+/S/ MICHAEL GREENBERG
+Michael Greenberg 
+President and Director
+March 28, 2003 
+/S/ DAVID WEINBERG
+David Weinberg 
+Executive Vice President, Chief
+Financial Officer and Director
+(Principal Financial and
+Accounting Officer)
+March 28, 2003 
+Jeffrey Greenberg 
+Director
+J. Geyer Kosinski 
+Director
+/S/ THOMAS J. POLETTI
+Thomas J. Poletti 
+Director
+March 28, 2003 
+Richard Siskind 
+Director
+41
+Table of Contents 
+CERTIFICATIONS 
+I, Robert Greenberg, certify that:
+1. I have reviewed this annual report on Form 10-K for the year ended December
+31, 2002 of Skechers U.S.A., Inc.
+2. Based on my knowledge, this annual 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 annual
+report;
+3. Based on my knowledge, the financial statements, and other financial
+information included in this annual 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 annual 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-14 and 15d-14) for the registrant and we have:
+a) 
+designed such disclosure controls and procedures 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 annual report
+is being prepared; 
+b) 
+evaluated the effectiveness of the registrant’s disclosure
+controls and procedures as of a date within 90 days prior to the
+filing date of this annual report (the “Evaluation Date”); and 
+c) 
+presented in this annual report our conclusions about the
+effectiveness of the disclosure controls and procedures based on our
+evaluation as of the Evaluation Date; 
+5. The registrant’s other certifying officer and I have disclosed, based on our
+most recent evaluation, to the registrant’s auditors and the audit committee of
+registrant’s board of directors (or persons performing the equivalent
+function):
+a) 
+all significant deficiencies in the design or operation of
+internal controls which could adversely affect the registrant’s
+ability to record, process, summarize and report financial data and
+have identified for the registrant’s auditors any material weaknesses
+in internal controls; and 
+b) 
+any fraud, whether or not material, that involves management or
+other employees who have a significant role in the registrant’s
+internal controls; and 
+6. The registrant’s other certifying officers and I have indicated in this
+annual report whether or not there were significant changes in internal
+controls or in other factors that could significantly affect internal controls
+subsequent to the date of our most recent evaluation, including any corrective
+actions with regard to significant deficiencies and material weaknesses.
+Date: March 28, 2003
+/S/ ROBERT GREENBERG 
+Robert Greenberg, 
+Chief Executive Officer 
+42
+Table of Contents 
+CERTIFICATIONS 
+I, David Weinberg, certify that:
+1. I have reviewed this annual report on Form 10-K for the year ended December
+31, 2002 of Skechers U.S.A., Inc.
+2. Based on my knowledge, this annual 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 annual
+report;
+3. Based on my knowledge, the financial statements, and other financial
+information included in this annual 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 annual 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-14 and 15d-14) for the registrant and we have:
+d) 
+designed such disclosure controls and procedures 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 annual report
+is being prepared; 
+e) 
+evaluated the effectiveness of the registrant’s disclosure
+controls and procedures as of a date within 90 days prior to the
+filing date of this annual report (the “Evaluation Date”); and 
+f) 
+presented in this annual report our conclusions about the
+effectiveness of the disclosure controls and procedures based on our
+evaluation as of the Evaluation Date; 
+5. The registrant’s other certifying officer and I have disclosed, based on our
+most recent evaluation, to the registrant’s auditors and the audit committee of
+registrant’s board of directors (or persons performing the equivalent
+function):
+c) 
+all significant deficiencies in the design or operation of
+internal controls which could adversely affect the registrant’s
+ability to record, process, summarize and report financial data and
+have identified for the registrant’s auditors any material weaknesses
+in internal controls; and 
+d) 
+any fraud, whether or not material, that involves management or
+other employees who have a significant role in the registrant’s
+internal controls; and 
+6. The registrant’s other certifying officers and I have indicated in this
+annual report whether or not there were significant changes in internal
+controls or in other factors that could significantly affect internal controls
+subsequent to the date of our most recent evaluation, including any corrective
+actions with regard to significant deficiencies and material weaknesses.
+Date: March 28, 2003
+/S/ DAVID WEINBERG 
+David Weinberg, 
+Executive Vice President 
+and Chief Financial Officer 
+43
+Table of Contents 
+SKECHERS U.S.A., INC. 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 
+PAGE 
+Independent Auditors’ Report 
+F-2 
+Consolidated Balance Sheets — December 31, 2001 and 2002 
+F-3 
+Consolidated Statements of Earnings — Each of the years in the three-year period ended December 31, 2002 
+F-4 
+Consolidated Statements of Stockholders’ Equity and Comprehensive Income — Each of the years in the three-year period
+ended December 31, 2002 
+F-5 
+Consolidated Statements of Cash Flows — Each of the years in the three-year period ended December 31, 2002 
+F-6 
+Notes to Consolidated Financial Statements 
+F-7 
+Schedule II — Valuation and Qualifying Accounts 
+S-1 
+F-1
+Table of Contents 
+INDEPENDENT AUDITORS’ REPORT 
+The Board of Directors and Stockholders 
+Skechers U.S.A., Inc.:
+We have audited the accompanying consolidated financial statements of
+Skechers U.S.A., Inc. and subsidiaries as listed in the accompanying index. In
+connection with our audits of the consolidated financial statements, we also
+have audited the financial statement schedule as listed in the accompanying
+index. These consolidated financial statements and financial statement schedule
+are the responsibility of the Company’s management. Our responsibility is to
+express an opinion on these consolidated financial statements and financial
+statement schedule based on our audits.
+We conducted our audits in accordance with auditing standards generally
+accepted in the United States of America. Those standards require that we plan
+and perform the audit to obtain reasonable assurance about whether the
+consolidated financial statements are free of material misstatement. An audit
+includes examining, on a test basis, evidence supporting the amounts and
+disclosures in the consolidated financial statements. An audit also includes
+assessing the accounting principles used and significant estimates made by
+management, as well as evaluating the overall financial statement presentation.
+We believe that our audits provide a reasonable basis for our opinion.
+In our opinion, the consolidated financial statements referred to above
+present fairly, in all material respects, the financial position of Skechers
+U.S.A., Inc. and subsidiaries as of December 31, 2001 and 2002 and the results
+of their operations and their cash flows for each of the years in the
+three-year period ended December 31, 2002 in conformity with accounting
+principles generally accepted in the United States of America. Also, in our
+opinion, the related financial statement schedule, when considered in relation
+to the basic consolidated financial statements taken as a whole, presents
+fairly, in all material respects, the information set forth therein.
+KPMG LLP 
+Los Angeles, California 
+February 17, 2003
+F-2
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED BALANCE SHEETS 
+DECEMBER 31, 2001 AND 2002 
+(IN THOUSANDS) 
+ASSETS 
+2001 
+2002 
+Current assets: 
+Cash and cash equivalents 
+$ 
+15,554 
+$ 
+124,830 
+Trade accounts receivable, less allowances
+of $7,113 in 2001 and $8,498 in 2002 
+120,285 
+97,419 
+Due from officers and employees 
+1,013 
+617 
+Other receivables 
+1,816 
+7,144 
+Total receivables 
+123,114 
+105,180 
+Inventories 
+157,659 
+147,984 
+Prepaid expenses and other current assets 
+17,695 
+14,779 
+Deferred tax assets 
+4,804 
+703 
+Total current assets 
+318,826 
+393,476 
+Property and equipment, at cost, less accumulated depreciation
+and amortization 
+85,739 
+83,666 
+Intangible assets, at cost, less applicable amortization 
+458 
+927 
+Other assets, at cost 
+2,463 
+5,087 
+$ 
+407,486 
+$ 
+483,156 
+LIABILITIES AND STOCKHOLDERS’ EQUITY 
+Current liabilities: 
+Short-term borrowings 
+$ 
+84,175 
+$ 
+— 
+Current installments of long-term borrowings 
+2,140 
+2,442 
+Accounts payable 
+77,498 
+88,578 
+Accrued expenses 
+15,041 
+15,696 
+Total current liabilities 
+178,854 
+106,716 
+4.50% convertible subordinated notes 
+— 
+90,000 
+Long-term borrowings, excluding current installments 
+29,616 
+27,204 
+Total liabilities 
+208,470 
+223,920 
+Commitments and contingencies 
+Stockholders’ equity: 
+Preferred stock, $.001 par value. Authorized 10,000 shares;
+none issued and outstanding 
+— 
+— 
+Class A Common stock, $.001 par value. Authorized 100,000 shares; issued
+and outstanding 15,329 and 18,369 shares at December 31, 2001 and 2002,
+respectively 
+15 
+18 
+Class B Common stock, $.001 par value. Authorized 60,000 shares; issued
+and outstanding 21,482 and 19,317 shares at December 31, 2001 and 2002,
+respectively 
+21 
+19 
+Additional paid-in capital 
+91,909 
+102,109 
+Accumulated other comprehensive income 
+33 
+3,016 
+Retained earnings 
+107,038 
+154,074 
+Total stockholders’ equity 
+199,016 
+259,236 
+$ 
+407,486 
+$ 
+483,156 
+See accompanying notes to consolidated financial statements. 
+F-3
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF EARNINGS 
+YEARS ENDED DECEMBER 31, 2000, 2001, and 2002 
+(IN THOUSANDS, EXCEPT PER SHARE DATA) 
+2000 
+2001 
+2002 
+Net sales 
+$ 
+675,036 
+$ 
+960,385 
+$ 
+943,582 
+Cost of sales 
+390,811 
+554,205 
+556,909 
+Gross profit 
+284,225 
+406,180 
+386,673 
+Royalty income, net 
+316 
+(303 
+) 
+1,145 
+284,541 
+405,877 
+387,818 
+Operating expenses: 
+Selling 
+77,451 
+111,401 
+94,274 
+General and administrative 
+125,827 
+205,989 
+210,752 
+203,278 
+317,390 
+305,026 
+Earnings from operations 
+81,263 
+88,487 
+82,792 
+Other income (expense): 
+Interest, net 
+(9,230 
+) 
+(13,852 
+) 
+(8,927 
+) 
+Other, net 
+318 
+1,320 
+1,476 
+(8,912 
+) 
+(12,532 
+) 
+(7,451 
+) 
+Earnings before income taxes 
+72,351 
+75,955 
+75,341 
+Income taxes 
+28,600 
+28,685 
+28,305 
+Net earnings 
+$ 
+43,751 
+$ 
+47,270 
+$ 
+47,036 
+Net earnings per share: 
+Basic 
+$ 
+1.24 
+$ 
+1.30 
+$ 
+1.26 
+Diluted 
+$ 
+1.20 
+$ 
+1.24 
+$ 
+1.20 
+Weighted-average shares: 
+Basic 
+35,142 
+36,409 
+37,275 
+Diluted 
+36,563 
+38,059 
+40,854 
+See accompanying notes to consolidated financial statements.
+F-4
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME 
+YEARS’ ENDED DECEMBER 31, 2000, 2001, and 2002 
+(IN THOUSANDS) 
+See accompanying notes to consolidated financial statements. 
+COMMON STOCK 
+SHARES 
+AMOUNT 
+CLASS A 
+CLASS B 
+CLASS A 
+CLASS B 
+Balance at December 31, 1999 
+7,091 
+27,814 
+$ 
+7 
+$ 
+28 
+Net earnings 
+— 
+— 
+— 
+— 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+267 
+— 
+— 
+— 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+422 
+— 
+— 
+— 
+Tax effect of non-qualified stock options 
+— 
+— 
+— 
+— 
+Deferred compensation 
+— 
+— 
+— 
+— 
+Conversion of Class B common stock into
+Class A common stock 
+3,009 
+(3,009 
+) 
+3 
+(3 
+) 
+Balance at December 31, 2000 
+10,789 
+24,805 
+10 
+25 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+136 
+— 
+— 
+— 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+1,081 
+— 
+1 
+— 
+Tax effect of non-qualified stock options 
+— 
+— 
+— 
+— 
+Conversion of Class B common stock into
+Class A common stock 
+3,323 
+(3,323 
+) 
+4 
+(4 
+) 
+Balance at December 31, 2001 
+15,329 
+21,482 
+15 
+21 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+Contribution of common stock to the 401(k) Plan 
+48 
+— 
+— 
+— 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+175 
+— 
+— 
+— 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+652 
+— 
+1 
+— 
+Tax effect of non-qualified stock options 
+— 
+— 
+— 
+— 
+Conversion of Class B common stock into
+Class A common stock 
+2,165 
+(2,165 
+) 
+2 
+(2 
+) 
+Balance at December 31, 2002 
+18,369 
+19,317 
+$ 
+18 
+$ 
+19 
+[Additional columns below] 
+[Continued from above table, first column(s) repeated] 
+ACCUMULATED 
+ADDITIONAL 
+OTHER 
+TOTAL 
+PAID-IN 
+COMPREHENSIVE 
+RETAINED 
+STOCKHOLDERS' 
+CAPITAL 
+INCOME 
+EARNINGS 
+EQUITY 
+Balance at December 31, 1999 
+$ 
+69,948 
+— 
+$ 
+16,017 
+$ 
+86,000 
+Net earnings 
+— 
+— 
+43,751 
+43,751 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+1,073 
+— 
+— 
+1,073 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+1,499 
+— 
+— 
+1,499 
+Tax effect of non-qualified stock options 
+1,636 
+— 
+— 
+1,636 
+Deferred compensation 
+87 
+— 
+— 
+87 
+Conversion of Class B common stock into
+Class A common stock 
+— 
+— 
+— 
+— 
+Balance at December 31, 2000 
+74,243 
+— 
+59,768 
+134,046 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+47,270 
+47,270 
+Foreign currency translation adjustment 
+— 
+$ 
+33 
+— 
+33 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+1,689 
+— 
+— 
+1,689 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+7,679 
+— 
+— 
+7,680 
+Tax effect of non-qualified stock options 
+8,298 
+— 
+— 
+8,298 
+Conversion of Class B common stock into
+Class A common stock 
+— 
+— 
+— 
+— 
+Balance at December 31, 2001 
+91,909 
+33 
+107,038 
+199,016 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+47,036 
+47,036 
+Foreign currency translation adjustment 
+— 
+2,983 
+— 
+2,983 
+Contribution of common stock to the 401(k) Plan 
+702 
+— 
+— 
+702 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+1,777 
+— 
+— 
+1,777 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+4,674 
+— 
+— 
+4,675 
+Tax effect of non-qualified stock options 
+3,047 
+— 
+— 
+3,047 
+Conversion of Class B common stock into
+Class A common stock 
+— 
+— 
+— 
+— 
+Balance at December 31, 2002 
+$ 
+102,109 
+$ 
+3,016 
+$ 
+154,074 
+$ 
+259,236 
+F-5
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+YEARS ENDED DECEMBER 31, 2000, 2001, and 2002 
+(IN THOUSANDS) 
+2000 
+2001 
+2002 
+Cash flows from operating activities: 
+Net earnings 
+$ 
+43,751 
+$ 
+47,270 
+$ 
+47,036 
+Adjustments to reconcile net earnings to net cash
+provided by (used in) operating activities: 
+Depreciation and amortization of property and equipment 
+5,894 
+15,202 
+17,428 
+Amortization of debt offering costs 
+— 
+— 
+541 
+Amortization of intangible assets 
+104 
+101 
+101 
+Provision for bad debts and returns 
+4,626 
+5,507 
+4,963 
+Tax effect of non-qualified stock options 
+1,636 
+8,298 
+3,047 
+Deferred taxes 
+(1,604 
+) 
+(390 
+) 
+4,101 
+Deferred compensation 
+87 
+— 
+— 
+Loss on disposal of equipment 
+78 
+983 
+137 
+(Increase) decrease in assets: 
+Receivables 
+(36,137 
+) 
+(30,437 
+) 
+13,660 
+Inventories 
+(42,749 
+) 
+(45,951 
+) 
+9,825 
+Prepaid expenses and other current assets 
+(1,327 
+) 
+(11,238 
+) 
+2,973 
+Other assets 
+(1,437 
+) 
+429 
+197 
+Increase in liabilities: 
+Accounts payable 
+25,169 
+4,633 
+11,372 
+Accrued expenses 
+900 
+3,873 
+1,433 
+Net cash provided by (used in) operating activities 
+(1,009 
+) 
+(1,720 
+) 
+116,814 
+Cash flows used in investing activities: 
+Capital expenditures 
+(21,897 
+) 
+(31,519 
+) 
+(14,520 
+) 
+Proceeds from the sales of property and equipment 
+51 
+— 
+— 
+Net cash used in investing activities 
+(21,846 
+) 
+(31,519 
+) 
+(14,520 
+) 
+Cash flows from financing activities: 
+Net proceeds from issuance of common stock 
+2,572 
+9,369 
+6,452 
+Net proceeds (payments) related to short-term borrowings 
+19,372 
+34,421 
+(84,175 
+) 
+Payments on long-term debt 
+(1,144 
+) 
+(3,811 
+) 
+(2,453 
+) 
+Proceeds from the issuance of convertible subordinated Notes,
+net of offering costs 
+— 
+— 
+86,175 
+Net cash provided by financing activities 
+20,800 
+39,979 
+5,999 
+Net increase (decrease) in cash 
+(2,055 
+) 
+6,740 
+108,293 
+Effect of exchange rates on cash 
+— 
+33 
+983 
+Cash and cash equivalents at beginning of year 
+10,836 
+8,781 
+15,554 
+Cash and cash equivalents at end of year 
+$ 
+8,781 
+$ 
+15,554 
+$ 
+124,830 
+Supplemental disclosures of cash flow information: 
+Cash paid during the year for: 
+Interest 
+$ 
+8,386 
+$ 
+13,613 
+$ 
+8,283 
+Income taxes 
+27,712 
+27,220 
+19,192 
+SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: 
+During 2000, the Company acquired $14,444 of property and equipment under
+capital lease arrangements. In addition, the Company acquired an office
+building and distribution facility and issued two notes for $10,850 and $
+7,850, respectively.
+During, 2002, the Company issued 48,072 shares of Class A common stock to
+the Company’s 401k plan with a value of approximately $702,000. In addition,
+the Company acquired equipment aggregating $ 344,000 under capital lease
+obligations.
+See accompanying notes to consolidated financial statements. 
+F-6
+Table of Contents 
+SKECHERS U.S.A., INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+DECEMBER 31, 2001 AND 2002 
+(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
+(a) The Company
+Skechers U.S.A., Inc. (the Company) designs, develops, markets and
+distributes footwear. The Company also operates retail stores and e-commerce
+businesses.
+The accompanying consolidated financial statements include the accounts of
+the Company and its wholly owned subsidiaries. All significant intercompany
+balances and transactions have been eliminated in consolidation.
+(b) Business Segment Information
+Skechers operations are organized along its distribution channels and
+consists of the following operating segments: 
+WHOLESALE. We sell footwear directly to department stores and specialty
+retail stores both domestically and internationally. 
+RETAIL. We own and operate our own retail stores both domestically and, on a
+smaller scale, internationally through three integrated retail formats.
+Our three distinct retail formats are as follows: 
+Concept Stores. Our concept stores are located in marquee street
+locations and high performing regional malls, promote awareness of the
+Skechers brand and showcase a broad assortment of our in-season footwear
+styles. The products offered in our concept stores are full price in
+season product and typically attract fashion conscious customers. 
+Factory Outlet Stores. Our factory outlet stores are generally located in
+manufacturers’ outlet centers and provide opportunities to sell an
+assortment of in-season, discontinued and excess merchandise at lower
+price points. 
+Warehouse Outlet Stores. Our freestanding warehouse outlet stores appeal
+to our most value conscious customers and enable us to liquidate excess
+merchandise, discontinued lines and odd-size inventory in a
+cost-efficient manner. Our factory outlet stores are typically located
+in manufacturers direct outlet centers throughout the U.S. 
+DISTRIBUTORS. Internationally, we sell our footwear to our foreign
+distributors who distribute such footwear to department stores and specialty
+retail stores in Europe, Asia, Latin America, South America and numerous
+other countries and territories. 
+Detail segment information is provided in note 11. 
+(c) Revenue Recognition
+The Company recognizes revenue when products are shipped and the customer
+takes title and assumes risk of loss, collection of relevant receivable is
+probable, persuasive evidence of an arrangement exists and the sales price is
+fixed or determinable. Allowances for estimated returns, discounts, bad debts
+and chargebacks are provided for when related revenue is recorded. Amounts
+billed for shipping and handling costs are recorded as a component of net
+sales. Related costs paid to third-party shipping companies are recorded as a
+cost of sales.
+Revenues from royalty agreements are recognized as earned.
+(d) Cash Equivalents
+Cash equivalents consist primarily of certificates of deposit with an
+initial term of less than three months. For purposes of the consolidated
+statements of cash flows, the Company considers all highly liquid debt
+instruments with original maturities of three months or less to be cash
+equivalents.
+F-7
+Table of Contents 
+(e) Foreign Currency Translation 
+The Company considers the U.S. dollar as the functional currency. Assets
+and liabilities of the foreign operations denominated in local currencies are
+translated at the rate of exchange at the balance sheet date. Revenues and
+expenses are translated at the weighted average rate of exchange during the
+period. Translation of intercompany loans of a long-term investment nature are
+included as a component of translation adjustment in other comprehensive
+income. Total comprehensive income at December 31, consists of the following:
+2000 
+2001 
+2002 
+Net earnings 
+$ 
+43,751 
+$ 
+47,270 
+$ 
+47,036 
+Accumulated other comprehensive income: 
+Foreign currency translation adjustments 
+— 
+33 
+2,983 
+Total comprehensive income 
+$ 
+43,751 
+$ 
+47,303 
+$ 
+50,019 
+Accumulated other comprehensive income 
+$ 
+— 
+$ 
+33 
+$ 
+3,016 
+(f) Inventories
+Inventories, principally finished goods, are stated at the lower of cost
+(based on the first-in, first-out method) or market. The Company provides for
+estimated losses from obsolete or slow-moving inventories and writes down the
+cost of inventory at the time such determinations are made.
+(g) Income Taxes
+The Company accounts for income taxes under the asset and liability
+method. Deferred tax assets and liabilities are recognized for the future tax
+consequences attributable to the differences between the financial statement
+carrying amounts of existing assets and liabilities and their respective tax
+basis. The effect on deferred tax assets and liabilities of a change in tax
+rates is recognized in income in the period that includes the enactment date.
+(h) Depreciation and Amortization
+Depreciation and amortization of property and equipment is computed using
+the straight-line method based on the following estimated useful lives:
+Buildings 
+20 years 
+Building improvements 
+20 years or useful life, whichever is shorter 
+Furniture, fixtures and equipment 
+5 years 
+Leasehold improvements 
+Useful life or remaining lease term, whichever is shorter 
+Intangible assets consist of trademarks and are amortized on a
+straight-line basis over ten years. The accumulated amortization as of December
+31, 2001 and 2002 is $593,000 and $694,000, respectively.
+(i) Long-Lived Assets
+SFAS No. 144 provides a single accounting model for long-lived assets to
+be disposed of. SFAS No. 144 also changes the criteria for classifying an
+asset as held for sale; and broadens the scope of businesses to be disposed of
+that qualify for reporting as discontinued operations and changes the timing of
+recognizing losses on such operations. The Company adopted SFAS No. 144 on
+January 1, 2002. The adoption of SFAS No. 144 did not affect the Company’s
+financial statements.
+F-8
+Table of Contents 
+In accordance with SFAS No. 144, long-lived assets, such as property,
+plant, and equipment, and purchased intangibles subject to amortization, are
+reviewed for impairment whenever events or changes in circumstances indicate
+that the carrying amount of an asset may not be recoverable. Recoverability of
+assets to be held and used is measured by a comparison of the carrying amount
+of an asset to estimated undiscounted future cash flows expected to be
+generated by the asset. If the carrying amount of an asset exceeds its
+estimated future cash flows, an impairment charge is recognized by the amount
+by which the carrying amount of the asset exceeds the fair value of the asset.
+Prior to the adoption of SFAS No. 144, the Company accounted for
+long-lived assets in accordance with SFAS No. 121, Accounting for Impairment of
+Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
+(j) Advertising Costs
+Advertising costs are expensed in the period in which the advertisements
+are first run or over the life of the endorsement contract. Advertising expense
+for the years ended December 31, 2000, 2001 and 2002 was approximately
+$59,122,000, $86,625,000 and $76,824,000, respectively. Prepaid advertising
+costs at December 31, 2001 and 2002 were $1,440,000 and $1,114,000,
+respectively. Prepaid amounts outstanding at December 31, 2001 and 2002
+represents the unamortized portion of endorsement contracts and advertising in
+trade publications which had not run as of December 31, 2001 and 2002,
+respectively.
+(k) Earnings Per Share
+Basic earnings per share represents net earnings divided by the weighted
+average number of common shares outstanding for the period. Diluted earnings
+per share, in addition to the weighted average determined for basic earnings
+per share, includes common stock equivalents which would arise from the
+exercise of stock options using the treasury stock method, and assumes the
+conversion of the Company’s 4.50% Convertible Subordinated Notes for the period
+outstanding since their issuance in April 2002.
+The following is a reconciliation of net earnings and weighted average common
+shares outstanding for purposes of calculating basic earnings per share (in
+thousands):
+Fiscal Year Ended December 31, 
+Basic earnings per share 
+2000 
+2001 
+2002 
+Net earnings 
+$ 
+43,751 
+$ 
+47,270 
+$ 
+47,036 
+Weighted average common shares outstanding 
+35,142 
+36,409 
+37,275 
+Basic earnings per share 
+$ 
+1.24 
+$ 
+1.30 
+$ 
+1.26 
+The following is a reconciliation of net earnings and weighted average common
+shares outstanding for purposes of calculating diluted earnings per share (in
+thousands):
+Fiscal Year Ended December 31, 
+Diluted earnings per share 
+2000 
+2001 
+2002 
+Net earnings 
+$ 
+43,751 
+$ 
+47,270 
+$ 
+47,036 
+After tax effect equivalent of interest
+expense on 4.50% convertible
+subordinated notes 
+— 
+— 
+1,832 
+Earnings for purposes of computing
+diluted earnings per share 
+$ 
+— 
+$ 
+— 
+$ 
+48,868 
+Weighted average common shares outstanding 
+35,142 
+36,409 
+37,275 
+Dilutive stock options 
+1,421 
+1,650 
+1,063 
+Weighted average assumed conversion of
+4.50% convertible subordinated notes 
+— 
+— 
+2,516 
+Weighted average common shares outstanding 
+36,563 
+38,059 
+40,854 
+Diluted earnings per share 
+$ 
+1.20 
+$ 
+1.24 
+$ 
+1.20 
+F-9
+Table of Contents 
+Options to purchase 1,117,920, 279,500 and 931,922 shares of common stock
+at prices ranging from $12.38 to $29.45 were outstanding at December 31, 2000,
+2001 and 2002, respectively, but were not included in the computation of
+diluted earnings per share because the options’ exercise price was greater than
+the average market price of the common shares and therefore their inclusion
+would be anti-dilutive.
+(l) Stock Compensation
+The Company accounts for stock-based compensation under the provisions of
+Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
+Compensation (SFAS 123). Under the provisions of SFAS 123, the Company has
+elected to continue to measure compensation cost for employees and nonemployee
+directors of the Company under the intrinsic value method of APB No. 25 and
+comply with the pro forma disclosure requirements under SFAS 123. The Company
+applies the fair value techniques of SFAS 123 to measure compensation cost for
+options/warrants granted to nonemployees.
+The following table illustrates the effects on net earnings the fair
+value-based method had been applied to all outstanding and unvested awards in
+each period (in thousands).
+2000 
+2001 
+2002 
+Net earnings, as reported 
+$ 
+43,751 
+$ 
+47,270 
+$ 
+47,036 
+Add stock-based employee compensation
+expense included in reported net income,
+net of tax 
+52 
+— 
+— 
+Deduct total stock-based employee
+compensation expense under fair value-
+based method for all awards, net of tax 
+(3,432 
+) 
+(7,936 
+) 
+(7,378 
+) 
+Pro forma net earnings for basic
+pro forma earnings per share 
+$ 
+40,371 
+$ 
+39,334 
+$ 
+39,658 
+Add back interest on 4.50% debentures, net of tax 
+— 
+— 
+1,832 
+Pro forma net earnings for diluted
+pro forma earnings per share 
+$ 
+40,371 
+$ 
+39,334 
+$ 
+41,490 
+Pro forma net earnings per share: 
+Basic 
+$ 
+1.15 
+$ 
+1.08 
+$ 
+1.06 
+Diluted 
+1.10 
+1.03 
+1.02 
+Pro forma basic net earnings per share represents net pro forma earnings
+divided by the weighted average number of common shares outstanding for the
+period. Pro forma diluted earnings per share, in addition to the weighted
+average determined for pro forma basic earnings per share, includes common
+stock equivalents which would arise from the exercise of stock options using
+the treasury stock method, and assumes the conversion of the Company’s 4.50%
+Convertible Subordinated Notes for the period outstanding since their issuance
+in April 2002.
+(m) Use of Estimates
+Management has made a number of estimates and assumptions relating to the
+reporting of assets, liabilities, revenues and expenses and the disclosure of
+contingent assets and liabilities to prepare these consolidated financial
+statements in conformity with accounting principles generally accepted in the
+United States of America. Significant areas requiring the use of management
+estimates relate primarily to the valuation of inventories, accounts receivable
+allowances, the useful lives of assets for depreciation, evaluation of
+impairment, recoverability of deferred taxes and litigation reserves. Actual
+results could differ from those estimates.
+F-10
+Table of Contents 
+(n) Product Design and Development Costs
+The Company charges all product design and development costs to expense
+when incurred. Product design and development costs aggregated approximately
+$3,700,000, $5,493,000 and $5,984,000 during the years ended December 31, 2000,
+2001 and 2002, respectively.
+(o) Fair Value of Financial Instruments
+The carrying amount of the Company’s financial instruments, which
+principally include cash, accounts receivable, accounts payable and accrued
+expenses, approximates fair value due to the relatively short maturity of such
+instruments.
+The fair value of the Company’s short-term borrowings reflects the fair
+value based upon current rates available to the Company for similar debt. The
+fair value of the Company’s 4.50% Convertible Subordinated Notes at December
+31, 2002 was $71.4 million, based on the price of the debt in the public
+market.
+(p) New Accounting Standards
+In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement
+Obligations. SFAS No. 143 requires the Company to record the fair value of an
+asset retirement obligation as a liability in the period in which it incurs a
+legal obligation associated with the retirement of tangible long-lived assets
+that result from the acquisition, construction, development, and/or normal use
+of the assets. The Company also records a corresponding asset that is
+depreciated over the life of the asset. Subsequent to the initial measurement
+of the asset retirement obligation, the obligation will be adjusted at the end
+of each period to reflect the passage of time and changes in the estimated
+future cash flows underlying the obligation. The Company will adopt SFAS No.
+143 on January 1, 2003. The adoption of SFAS No. 143 is not expected to have a
+material effect on the Company’s financial statements.
+In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
+No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
+Corrections. SFAS No. 145 amends existing guidance on reporting gains and
+losses on the extinguishment of debt to prohibit the classification of the gain
+or loss as extraordinary, as the use of such extinguishments have become part
+of the risk management strategy of many companies. SFAS No. 145 also amends
+SFAS No. 13 to require sale-leaseback accounting for certain lease
+modifications that have economic effects similar to sale-leaseback
+transactions. The provisions of the Statement related to the rescission of
+Statement No. 4 is applied in fiscal years beginning after May 15, 2002.
+Earlier application of these provisions is encouraged. The provisions of the
+Statement related to Statement No. 13 were effective for transactions occurring
+after May 15, 2002, with early application encouraged. The adoption of SFAS No.
+145 is not expected to have a material effect on the Company’s financial
+statements.
+In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
+Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
+accounting and reporting for costs associated with exit or disposal activities
+and nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability
+Recognition for Certain Employee Termination Benefits and Other Costs to Exit
+an Activity. The provisions of this Statement are effective for exit or
+disposal activities that are initiated after December 31, 2002, with early
+application encouraged. The adoption of SFAS No. 146 is not expected to have a
+material effect on the Company’s financial statements.
+In September 2002, the FASB Emerging Issues Task Force issued EITF No.
+02-16, Accounting by a Reseller for Cash Consideration Received from a Vendor.
+EITF No. 02-16 addresses how a reseller of a vendor’s products should account
+for cash consideration (as that term is defined in EITF No. 01-9) received from
+a vendor. EITF 02-16 is not expected to have a material effect on the
+Company’s financial statements.
+In November 2002, the FASB issued Interpretation No. 45, Guarantor’s
+Accounting and Disclosure Requirements for Guarantees, Including Indirect
+Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
+5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
+Interpretation elaborates on the disclosures to be made by a guarantor in its
+interim and annual financial statements about its obligations under guarantees
+issued. The Interpretation also clarifies that a guarantor is required to
+recognize, at inception of a guarantee, a liability for the fair value of the
+obligation undertaken. The initial recognition and measurement provisions of
+the Interpretation are applicable to guarantees issued or modified after
+December 31, 2002 and are not expected to have a material effect on the
+Company’s financial statements. The disclosure requirements are effective for
+financial statements of interim and annual periods ending after December 31,
+2002.
+F-11
+Table of Contents 
+In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
+Compensation – Transition and Disclosure, an amendment of FASB Statement No.
+123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
+Compensation, to provide alternative methods of transition for a voluntary
+change to the fair value method of accounting for stock-based employee
+compensation. In addition, this Statement amends the disclosure requirements of
+Statement No. 123 to require prominent disclosures in both annual and interim
+financial statements. Certain of the disclosure modifications are required for
+fiscal years ending after December 15, 2002 and are included in the notes to
+these consolidated financial statements.
+In January 2003, the FASB issued Interpretation No. 46, Consolidation of
+Variable Interest Entities, an interpretation of ARB No. 51. This
+Interpretation addresses the consolidation by business enterprises of variable
+interest entities as defined in the Interpretation. The Interpretation applies
+immediately to variable interests in variable interest entities created after
+January 31, 2003, and to variable interests in variable interest entities
+obtained after January 31, 2003. The application of this Interpretation is not
+expected to have a material effect on the Company’s financial statements.
+(2) PROPERTY AND EQUIPMENT 
+Property and equipment is summarized as follows (in thousands):
+2001 
+2002 
+Land 
+$ 
+12,358 
+$ 
+12,358 
+Buildings and improvements 
+20,527 
+21,144 
+Furniture, fixtures and equipment 
+46,468 
+55,431 
+Leasehold improvements 
+35,765 
+41,149 
+Total property and equipment 
+115,118 
+130,082 
+Less accumulated depreciation and amortization 
+29,379 
+46,416 
+Property and equipment, net 
+$ 
+85,739 
+$ 
+83,666 
+(3) ACCRUED EXPENSES 
+Accrued expenses is summarized as follows (in thousands):
+2001 
+2002 
+Accrued inventory purchases 
+$ 
+8,208 
+$ 
+6,814 
+Accrued payroll and related taxed 
+5,751 
+6,327 
+Taxes payable 
+773 
+1,397 
+Accrued interest 
+— 
+839 
+Other accrued liabilities 
+309 
+319 
+Accrued expenses 
+$ 
+15,041 
+$ 
+15,696 
+(4) SHORT-TERM BORROWINGS 
+The Company has available a secured line of credit, as amended on July 12,
+2002, permitting borrowings up to $200.0 million based upon eligible accounts
+receivable and inventories. Borrowings bear interest at the prime rate (4.25%
+at December 31, 2002) minus 0.50%, and the agreement expires on December 31,
+2003. The agreement provides for the issuance of letters of credit up to a
+maximum of $30.0 million of which 50% decreases the amount available for
+borrowings under the agreement. Outstanding letters of credit at December 31,
+2002 were $5.0 million. Available borrowings under the line of credit at
+December 31, 2002 were $100.9 million and no amounts were outstanding at
+December 31, 2002 and $84.2 million was outstanding at
+December 31, 2001. The
+Company pays an unused line of credit fee of .25% annually. The agreement
+provides that stockholders’ equity shall not decrease by more than 20% in any
+given calendar quarter, contains a tangible net worth requirement, as defined
+in the agreement, and limits the payment of dividends if in default of any
+provision of the agreement. The Company was in compliance with these covenants
+at December 31, 2002.
+(5) LONG-TERM BORROWINGS 
+Long-term debt at December 31, 2001 and 2002 is as follows (in thousands):
+F-12
+Table of Contents 
+2001 
+2002 
+4.50% Convertible Subordinated Notes due April 15, 2007 (see below) 
+$ 
+— 
+$ 
+90,000 
+Note payable to bank, due in monthly installments of $82.2 (includes principal
+and interest), fixed rate interest at 7.79%, secured by property, balloon
+payment of $8,716 due January 2011 
+10,716 
+10,558 
+Note payable to bank, due in monthly installments of $57.6 (includes principal and
+interest), fixed rate interest at 7.89%, secured by property, balloon payment of
+$6,776 due February 2011 
+7,782 
+7,702 
+Capital lease obligation, due in aggregate monthly installments of $195, interest rate of 7.66%,
+secured by equipment, balloon payment of $4,431 due February 2006 (see note 10) 
+11,367 
+9,847 
+Capital lease obligations, due in aggregate monthly installments of $60, interest rates from
+7.25%-9.59%, secured by equipment, maturing in various installments through January 2007 (see
+note 10) 
+1,891 
+1,539 
+31,756 
+119,646 
+Less current installments 
+2,140 
+2,442 
+$ 
+29,616 
+$ 
+117,204 
+The aggregate maturities of long-term borrowings at December 31, 2001 are
+as follows:
+2003 
+$ 
+2,442 
+2004 
+2,644 
+2005 
+2,435 
+2006 
+5,005 
+2007 
+90,349 
+Thereafter 
+16,771 
+$ 
+119,646 
+In April 2002, the Company issued $90.0 million aggregate principal amount
+of 4.50% Convertible Subordinated Notes (the “Notes”) due April 15, 2007. The
+Notes are convertible into shares of Class A common stock. Interest on the
+Notes is paid semi-annually on April 15 and October 15 of each year, commencing
+October 15, 2002. The Notes are convertible at the option of the holder into
+shares of Class A common stock at a conversion rate of 38.5089 shares of Class
+A common stock per $1,000 principal amount of Notes, which is equivalent to a
+conversion price of approximately $25.968 per share. The conversion rate is
+subject to adjustment. The Notes may be converted at any time on or before the
+close of business on the maturity date, unless the Notes have been previously
+redeemed or repurchased; provided, however, that if a Note is called for
+redemption or repurchase, the holder will be entitled to convert the Notes at
+any time before the close of business on the date immediately preceding the
+date fixed for redemption or repurchase, as the case may be. The Notes are
+unsecured and subordinated to our present and future Senior Debt, as defined in
+the indenture. The Notes are also structurally subordinated in right of payment
+to all indebtedness and other liabilities of the Company’s subsidiaries. The
+indenture under which the Notes were issued does not restrict the incurrence of
+indebtedness, including Senior Debt, or the subsidiaries’ incurrence of
+indebtedness. Net proceeds from the issuance of the Notes were $86.2 million,
+of which $65.0 million was used to repay amounts owing under the Company’s line
+of credit and the remaining proceeds will be used for working capital. The
+costs associated with the issuance of the Notes, approximately $3.8 million,
+will be amortized using the effective interest method over the life of the
+Notes and are included in interest expense as amortized.
+(6) STOCKHOLDERS’ EQUITY 
+(a) Stock Issuances
+The authorized capital stock of the Company consists of 100,000,000 shares
+of Class A common stock, par value $.001 per share, and 60,000,000 shares of
+Class B common stock, par value $.001 per share. The Company has also
+authorized 10,000,000 shares of preferred stock, $.001 par value per share.
+The Class A common stock and Class B common stock have identical rights
+other than with respect to voting, conversion and transfer. The Class A common
+stock is entitled to one vote per share, while the Class B common stock is
+entitled to ten votes per share on all matters submitted to a vote of
+stockholders. The shares of Class B common stock are convertible at any time at
+the option of the holder into shares of Class A common stock on a
+share-for-share basis. In addition, shares of Class B common stock will be
+automatically converted into a like number of shares of Class A common stock
+upon any transfer to any person or entity which is not a
+F-13
+Table of Contents 
+permitted transferee.
+During 2001 and 2002 certain Class B stockholders converted 3,323,300 and
+2,164,554 shares of Class B common stock to Class A common stock, respectively.
+(b) Stock Option Plan
+In January 1998, the Board of Directors of the Company adopted the 1998
+Stock Option, Deferred Stock and Restricted Stock Plan (Stock Option Plan) for
+the grant of qualified incentive stock options (ISO), stock options not
+qualified and deferred stock and restricted stock. The exercise price for any
+option granted may not be less than fair value (110% of fair value for ISOs
+granted to certain employees). In June 2001, the stockholders approved an
+amendment to the plan to increase the number of shares of Class A common stock
+authorized for issuance under the plan to 8,215,154. The options expire ten
+years from the date of grant.
+Shares subject to option under the Stock Option Plan were as follows:
+WEIGHTED 
+SHARES 
+OPTION PRICE 
+Outstanding at December 31, 1999 
+2,515,574 
+$ 
+6.41 
+Granted 
+1,532,695 
+10.79 
+Exercised 
+(422,370 
+) 
+3.55 
+Canceled 
+(136,998 
+) 
+10.23 
+Outstanding at December 31, 2000 
+3,488,901 
+8.51 
+Granted 
+2,177,880 
+14.31 
+Exercised 
+(1,080,995 
+) 
+7.10 
+Canceled 
+(87,628 
+) 
+15.08 
+Outstanding at December 31, 2001 
+4,498,158 
+11.53 
+Granted 
+1,689,595 
+7.77 
+Exercised 
+(652,396 
+) 
+7.17 
+Canceled 
+(105,974 
+) 
+11.22 
+Outstanding at December 31, 2002 
+5,429,383 
+10.89 
+Options available for grant at December 31, 2002 
+630,011 
+The following table summarizes information about stock options outstanding and
+exercisable at December 31, 2002.
+OPTIONS OUTSTANDING 
+OPTIONS EXERCISABLE 
+WEIGHTED 
+NUMBER 
+WEIGHTED 
+WEIGHTED 
+NUMBER 
+AVERAGE 
+RANGE OF 
+OUTSTANDING 
+AVERAGE REMAINING 
+AVERAGE 
+EXERCISABLE AT 
+EXERCISE 
+EXERCISE PRICE 
+DECEMBER 31, 2002 
+CONTRACTUAL LIFE 
+EXERCISE PRICE 
+DECEMBER 31, 2002 
+PRICE 
+$2.78 to $9.28 
+1,852,078 
+8.9 years 
+$ 
+6.17 
+668,121 
+$ 
+5.14 
+$9.29 to $12.38 
+1,721,155 
+7.8 years 
+10.75 
+806,198 
+10.76 
+$12.39 to $15.75 
+1,519,150 
+7.7 years 
+14.07 
+811,280 
+13.70 
+$15.76 to $29.45 
+337,000 
+8.2 years 
+23.23 
+150,850 
+23.35 
+5,429,383 
+8.2 years 
+$ 
+10.89 
+2,436,449 
+$ 
+10.98 
+At December 31, 2000, 2001 and 2002, the number of options exercisable for
+each year was 862,111, 1,249,681, and 2,436,449 respectively. The
+weighted-average exercise price of those options was $7.87, $11.06 and $10.98
+respectively.
+(c) Stock Purchase Plan
+Effective July 1, 1998, the Company adopted the 1998 Employee Stock
+Purchase Plan (1998 Stock Purchase Plan). Under the terms of the 1998 Stock
+Purchase Plan, 2,781,415 shares of common stock are reserved for sale to
+employees at a price no less than 85% of the lower of the fair market value of
+the Class A common stock at the beginning of the one-year offering period or
+the end of each of the six-month purchase periods. During 2000, 2001 and 2002,
+266,865 and 135,600 and 175,098 shares were issued under the 1998 Stock
+Purchase Plan for which the Company received $1,073,000, $1,689,000, and
+$1,777,000, respectively.
+(d) Stock Compensation
+For pro forma net income purposes, the fair value of each option is
+estimated on the date of grant using the Black-Scholes option
+F-14
+Table of Contents 
+pricing model. The weighted-average assumptions used for grants were as
+follows:
+2000 
+2001 
+2002 
+Dividend yield 
+— 
+— 
+— 
+Expected volatility 
+70 
+% 
+80 
+% 
+82 
+% 
+Risk-free interest rate 
+6.3 
+% 
+4.2 
+% 
+2.7 
+% 
+Expected life of option 
+5 
+5 
+5 
+The weighted-average fair value of options granted during 2000, 2001, and
+2002 were $6.83, $9.55, and $5.02, respectively.
+(7) INCOME TAXES 
+The provisions for income tax expense were as follows (in thousands):
+2000 
+2001 
+2002 
+Actual income taxes: 
+Federal: 
+Current 
+$ 
+25,420 
+$ 
+24,134 
+$ 
+20,031 
+Deferred 
+(1,360 
+) 
+16 
+3,398 
+Total federal 
+24,060 
+24,150 
+23,429 
+State: 
+Current 
+4,784 
+4,627 
+3,592 
+Deferred 
+(244 
+) 
+(406 
+) 
+703 
+Total state 
+4,540 
+4,221 
+4,295 
+Foreign — current 
+— 
+314 
+581 
+Total actual income taxes 
+$ 
+28,600 
+$ 
+28,685 
+$ 
+28,305 
+Income taxes differs from the statutory tax rate as applied to earnings
+before income taxes as follows (in thousands):
+2000 
+2001 
+2002 
+Expected income tax expense 
+$ 
+25,323 
+$ 
+26,584 
+$ 
+26,364 
+State income tax, net of federal benefit 
+2,951 
+2,744 
+2,767 
+Rate differential on foreign income 
+— 
+(822 
+) 
+(1,003 
+) 
+Other 
+326 
+179 
+177 
+Total provision for income taxes 
+$ 
+28,600 
+$ 
+28,685 
+$ 
+28,305 
+The tax effects of temporary differences that give rise to significant
+portions of deferred tax assets and deferred tax liabilities at December 31,
+2001 and 2002 are presented below (in thousands):
+DEFERRED TAX ASSETS: 
+2001 
+2002 
+Inventory adjustments 
+$ 
+1,749 
+$ 
+2,221 
+Accrued expenses 
+1,379 
+1,354 
+Allowances for receivables 
+2,898 
+1,491 
+Other 
+— 
+163 
+Total deferred tax assets 
+6,026 
+5,229 
+Deferred tax liabilities: 
+Prepaid expenses 
+— 
+2,401 
+Deferred revenue 
+— 
+1,092 
+Depreciation of property and equipment 
+1,222 
+843 
+Other 
+— 
+190 
+Total deferred tax liabilities 
+1,222 
+4,526 
+Net deferred tax assets 
+$ 
+4,804 
+$ 
+703 
+Management believes it is more likely than not that the results of future
+operations will generate sufficient taxable income to realize the net deferred
+tax assets.
+Consolidated U.S. income before taxes was $72.4 million, $69.7 million,
+and $72.2 million for the years ended December 31,
+F-15
+Table of Contents 
+2000, 2001, and 2002, respectively. The corresponding income (loss) before
+taxes for non-U.S. based operations was ($0.1), $6.3, and $3.1 million for the
+years ended December 31, 2000, 2001, and 2002, respectively.
+The Company has not provided withholding and U.S. federal income taxes on
+approximately $9.3 million of undistributed earnings of its foreign
+subsidiaries because such earnings are or will be invested indefinitely in such
+subsidiaries or will be offset by approximate credits for foreign taxes paid.
+It is not practicable to determine the U.S. federal income tax liability, if
+any, which would be payable if such earnings were not reinvested indefinitely.
+(8) BUSINESS AND CREDIT CONCENTRATIONS 
+The Company operates in the footwear industry and generates most of its
+sales in the United States, although it’s products are sold into various
+foreign countries. The footwear industry is impacted by the general economy.
+Changes in the marketplace may significantly affect management’s estimates and
+the Company’s performance. Management performs regular evaluations concerning
+the ability of customers to satisfy their obligations and provides for
+estimated doubtful accounts. Domestic accounts receivable amounted to
+$102,543,000 and $86,801,000 before allowances for bad debts and sales returns,
+and chargebacks at December 31, 2001 and 2002, respectively, which generally do
+not require collateral from customers. Foreign accounts receivable amounted to
+$24,855,000 and $19,116,000 before allowance for bad debts, sales returns, and
+chargebacks at December 31, 2001 and 2002, respectively, which generally are
+collateralized by letters of credit. International net sales amounted to
+$65,159,000, $121,001,000 and $134,955,000 for the years ended December 31,
+2000, 2001 and 2002, respectively. The Company’s credit losses for the years
+ended December 31, 2000, 2001 and 2002 were $2,511,000, $3,546,000 and
+$2,654,000, respectively, and did not significantly differ from management’s
+expectations.
+Net sales to customers in the United States of America exceeded 85% of
+total net sales for each of the years in the three-year period ended December
+31, 2002. Assets located outside of the United States of America consists
+primarily of cash, accounts receivable, inventory, property and equipment, and
+other assets and totaled $59,795,000 and $66,850,000, at December 31, 2001 and
+2002, respectively.
+During 2000, 2001 and 2002, no customer accounted for 10% or more of net
+sales. The Company had one customer which accounted for 10.2% of trade accounts
+receivable at December 31, 2001. No one customer accounted for greater than
+10% of trade accounts receivable at December 31, 2002.
+During 2000, the Company had four manufacturers that accounted for between
+9.2% and 20.2% each of total purchases. During 2001, the company had four
+manufacturers that accounted for between 7.9% and 19.9%, each, of total
+purchases. During 2002, the company had four manufacturers that accounted for
+between 9.3% and 22.7%, each, of total purchases.
+Substantially all of the Company’s products are produced in China. The
+Company’s operations are subject to the customary risks of doing business
+abroad, including, but not limited to, currency fluctuations, custom duties and
+related fees, various import controls and other monetary barriers, restrictions
+on the transfer of funds, labor unrest and strikes and, in certain parts of the
+world, political instability. The Company believes it has acted to reduce these
+risks by diversifying manufacturing among various factories. To date, these
+risk factors have not had a material adverse impact on the Company’s
+operations.
+(9) BENEFIT PLAN 
+The Company has adopted a profit sharing plan covering all employees who
+are 21 years of age and have completed one year of service. The plan was
+amended in April 2001 to allow employees to enter into the plan after six
+months of service. Employees may contribute up to 15.0% of annual compensation.
+Company contributions to the plan are discretionary and vest over a five-year
+period.
+The Company’s contributions to the plan amounted to $500,000, $702,000 and
+$788,000 for the years ended December 31, 2000, 2001 and 2002, respectively. As
+its contribution to the plan in 2002, the Company has committed to issue 83,351
+shares of its Class A common stock, the shares will be issued in March 2003.
+The company’s contribution to the plan for 2001 was 48,072 shares which were
+issued in 2002. The shares contributed to the plan contain certain restrictions
+regarding the subsequent sales of those shares.
+F-16
+Table of Contents 
+(10) COMMITMENTS AND CONTINGENCIES 
+(a) Leases
+The Company leases facilities under operating lease agreements expiring
+through July 2027. The leases are on an all-net basis, whereby the Company pays
+taxes, maintenance and insurance. The Company also leases certain equipment and
+automobiles under operating lease agreements expiring at various dates through
+April 2006. Rent expense for the years ended December 31, 2000, 2001 and 2002
+approximated $13,200,000, $18,014,000 and $22,167,000, respectively.
+The Company also leases certain property and equipment under capital lease
+agreements requiring monthly installment payments through January 2007. The
+cost of this property and equipment was $15,456,000 with a net book value of $9,315,000 at December 31, 2002.
+Future minimum lease payments under noncancellable leases at December 31,
+2002 are as follows (in thousands):
+CAPITAL 
+OPERATING 
+LEASES 
+LEASES 
+Year ending December 31: 
+2003 
+$ 
+3,065 
+$ 
+23,634 
+2004 
+3,065 
+23,461 
+2005 
+2,714 
+22,237 
+2006 
+4,721 
+20,630 
+2007 
+1 
+18,692 
+Thereafter 
+— 
+78,666 
+$ 
+13,566 
+$ 
+187,320 
+Less imputed interest 
+2,180 
+Present value of net minimum lease payments 
+$ 
+11,386 
+The Company leases office space to unrelated third parties under
+noncancellable operating leases expiring through November 2004, annual rentals
+are approximately $96,000 and $49,000 for the years ended December 31, 2003 and
+2004, respectively.
+(c) Litigation 
+On October 28, 2002, Skechers settled the lawsuit captioned RAYMOND MEIER
+v. SKECHERS USA, INC. that had been filed in the United States District Court
+for the Southern District of New York (Case No. 02 CV 4139). The settlement is
+final and the terms are confidential. The obligations assumed will not have a
+material effect on Skechers’ financial position or results of operations.
+On December 13, 2002, Skechers finalized the settlement of various lawsuits
+pending between Skechers and Heeling Sports Limited and Heeling Management
+Corporation in the United States District Court for the Central District of
+California (Case No. 02-1906NM) and the United States District Court for the
+Eastern District of Texas (Civil Action Nos. 4:02cv101; 4:02cv169). The
+settlement is final and the terms are confidential. The obligations assumed
+will not have a material effect on Skechers’ financial position or results of
+operations.
+On November 7, 2002, Fortune Dynamic asserted counterclaims against Skechers in
+an action captioned SKECHERS USA, INC. et al. v. STEVEN MADDEN LTD., RSV SPORT
+INC. and FORTUNE DYNAMIC, INC. that Skechers had commenced in the United States
+District Court for the Central District of California (Case No. 02-07766 PA)
+asserting claims for, inter alia, patent infringement, dilution and unfair
+competition. Fortune Dynamics’ counterclaims allege violations of the federal
+antitrust laws, breach of contract, interference with economic relations and
+unfair competition. The counterclaims seek, inter alia, compensatory, treble
+and punitive damages, as well as injunctive relief. While it is too early in
+the litigation to predict the outcome of the claims against Skechers, Skechers
+believes that it has meritorious defenses to the claims asserted by Fortune
+Dynamic and intends to defend against those claims vigorously. Further,
+Skechers does not believe that an adverse result would have a material effect
+on Skechers’ financial position or results of operations.
+On December 2, 2002, a class action complaint entitled OMAR QUINONES v.
+SKECHERS USA, INC. et al. was filed in the Superior Court for the State of
+California for the County of Orange (Case No. 02CC00353). The complaint, as
+amended, alleges overtime and related violations of the California Labor Code
+on behalf of managers of Skechers’ retail stores and seeks, inter alia, damages
+and restitution, as well as injunctive and declaratory relief. On February 25,
+2003, another related class action complaint entitled MYRNA CORTEZ v. SKECHERS
+USA, INC. et al. was filed in the Superior Court for the State of California
+for the County of Los Angeles (Case No. BC290932) asserting similar claims and
+seeking similar relief on behalf of assistant managers. While it is too early
+in the litigation to predict the outcome of the claims against Skechers,
+Skechers believes that it has meritorious defenses to
+F-17
+Table of Contents 
+the claims asserted in both class actions and intends to defend against those
+claims vigorously. Further, Skechers does not believe that an adverse result
+would have a material effect on Skechers’ financial position or results of
+operations.
+On December 23, 2002, a complaint captioned BRITNEY BRANDS, INC. v. SKECHERS
+USA, INC. was filed against Skechers in the United States District Court for
+the Central District of California (Case No. 02-9774 AHM). The complaint, as
+amended, alleges breach of contract, fraud, trademark infringement, false
+impression of association, trademark dilution, unfair competition and related
+claims against Skechers in connection with a merchandising license agreement
+entered into between the parties relating to Skechers’ line of Britney 4
+Wheelers skates. The lawsuit seeks, inter alia, compensatory and punitive
+damages, imposition of a constructive trust, an accounting and declaratory
+relief. While it is too early in the litigation to predict the outcome of the
+claims against Skechers, Skechers believes that it has meritorious defenses to
+the claims asserted by Britney Brands and intends to defend against those
+claims vigorously. Skechers has also asserted counterclaims against Britney
+Brands. Further, Skechers does not believe that an adverse result would have a
+material effect on Skechers’ financial position or results of operations.
+On February 6, 2003, a complaint captioned ADIDAS AMERICA, INC. and
+ADIDAS-SALOMON AG v. SKECHERS USA, INC. et al. was filed against Skechers in
+the United States District Court for the District of Oregon (Case No. CV 03-170
+KI). The complaint alleges claims for trademark infringement, trademark
+dilution, unfair competition and deceptive trade practices arising out of
+Skechers’ alleged use of marks confusingly similar to Adidas’ three stripe
+mark. The lawsuit seeks, inter alia, compensatory, treble and punitive
+damages, as well as injunctive relief. While it is too early in the litigation
+to predict the outcome of the claims against Skechers, Skechers believes that
+it has meritorious defenses to the claims asserted by Adidas and intends to
+defend against those claims vigorously. Skechers also intends to assert
+counterclaims against Adidas. Further, Skechers does not believe that an
+adverse result would have a material effect on Skechers’ financial position or
+results of operations.
+On March 25, 2003, a class action complaint
+captioned HARVEY SOLOMON v. SKECHERS USA, INC. et al. was filed
+against Skechers and certain of its officers and directors in the
+United States District Court for the Central District of California
+(Case No. 03-2094 DDP). The complaint alleges violations of the
+federal securities laws and breach of fiduciary duty on behalf of
+persons who purchased publicly traded securities of SKECHERS
+between April 3, 2002 and December 9, 2002. The complaint
+seeks compensatory damages, interest, attorneys’ fees and injunctive
+and equitable relief. While it is too early to predict the outcome of
+the litigation, the Company believes the suit is without merit and
+intends to vigorously defend the suit.
+We occasionally become involved in litigation arising from the normal course of
+business. Other than the foregoing, we believe that any liability with respect
+to pending legal actions, individually or in the aggregate, will not have a
+material adverse effect on our business, final condition or results of
+operation.
+(c) Purchase Commitments
+At December 31, 2002, the Company had purchase commitments of
+approximately $201,287,000.
+The Company finances production activities in part through the use of
+interest-bearing open purchase arrangements with certain of its international
+manufacturers. These arrangements currently bear interest at rates between 0.5%
+and 1.5% per 30 to 60 day term. The amounts outstanding under these
+arrangements at December 31, 2001 and 2002 were $49,255,000 and $51,411,000,
+respectively, which are included in accounts payable in the accompanying
+consolidated balance sheets. Interest expense incurred by the Company under
+these arrangements amounted to $6,400,000 in 2000, $5,900,000 in 2001, and
+$2,278,000 in 2002.
+(d) Compensation
+Certain officers and key employees of the company are entitled to
+incentive bonuses under employment contracts. The bonuses are based on Company
+performance.
+(11) SEGMENT INFORMATION 
+In accordance with the requirement of SFAS 131, “Disclosures about Segments of
+an Enterprise and Related Information,” the Company’s reportable business
+segments and respective accounting policies of the segments are the same as
+described in Note 1. The only reportable segment in which the total assets or
+total net sales exceeds the quantitative thresholds established by SFAS No. 131
+is the domestic wholesale segment. Accordingly, all other segments have been
+combined for this presentation. Management evaluates segment performance
+based primarily on revenue and gross margins.
+All costs and expenses of the Company are analyzed on an aggregate basis and
+these costs are not allocated to the Company’s segments. The vast majority of
+the Company’s capital expenditures related to the retail operations both
+domestically and internationally. Net sales and gross margins for the
+domestic wholesale segment and the other segments on a combined basis were as follows
+(in thousands).
+F-18
+Table of Contents 
+2000 
+2001 
+2002 
+Net sales 
+Domestic
+wholesale 
+$ 
+532,600 
+$ 
+729,900 
+$ 
+682,600 
+All other 
+142,436 
+230,485 
+260,982 
+$ 
+675,036 
+$ 
+960,385 
+$ 
+943,582 
+Gross profit 
+Domestic wholesale 
+$ 
+214,637 
+$ 
+298,529 
+$ 
+262,118 
+All other 
+69,588 
+107,651 
+124,555 
+$ 
+284,225 
+$ 
+406,180 
+$ 
+386,673 
+Assets 
+Domestic wholesale 
+$ 
+234,624 
+$ 
+291,704 
+$ 
+352,205 
+All other 
+68,776 
+115,782 
+130,951 
+$ 
+303,400 
+$ 
+407,486 
+$ 
+483,156 
+(12) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) 
+Summarized unaudited financial data are as follows (in thousands):
+2001 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+227,494 
+$ 
+230,899 
+$ 
+287,900 
+$ 
+214,092 
+Gross profit 
+99,314 
+99,175 
+122,595 
+85,096 
+Net earnings 
+17,100 
+16,822 
+11,378 
+1,970 
+Net earnings per share: 
+Basic 
+$ 
+.48 
+$ 
+.46 
+$ 
+.31 
+$ 
+.05 
+Diluted 
+.45 
+.44 
+.30 
+.05 
+2002 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+244,949 
+$ 
+256,652 
+$ 
+261,147 
+$ 
+180,834 
+Gross profit 
+102,524 
+105,786 
+108,800 
+69,563 
+Net earnings (loss) 
+20,278 
+21,258 
+14,107 
+(8,607 
+) 
+Net earnings (loss) per share: 
+Basic 
+$ 
+.55 
+$ 
+.57 
+$ 
+.38 
+$ 
+(.23 
+) 
+Diluted 
+.53 
+.52 
+.35 
+(.23 
+) 
+F-19
+Table of Contents 
+SKECHERS U.S.A., INC. 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+YEARS ENDED DECEMBER 31, 2000, 2001, AND 2002 
+BALANCE AT 
+CHARGED TO 
+DEDUCTIONS 
+BALANCE 
+BEGINNING OF 
+COSTS AND 
+AND 
+AT END 
+DESCRIPTION 
+PERIOD 
+EXPENSES 
+WRITE-OFFS 
+OF PERIOD 
+As of December 31, 2000: 
+Allowance for doubtful accounts 
+$ 
+507,000 
+$ 
+1,526,000 
+$ 
+(737,000 
+) 
+$ 
+1,296,000 
+Reserve for sales returns and allowances 
+2,730,000 
+3,100,000 
+(1,974,000 
+) 
+3,856,000 
+As of December 31, 2001: 
+Allowance for chargebacks 
+$ 
+— 
+$ 
+3,618,000 
+$ 
+— 
+$ 
+3,618,000 
+Allowance for doubtful accounts 
+1,296,000 
+1,499,000 
+(1,723,000 
+) 
+1,072,000 
+Reserve for sales returns and allowances 
+3,856,000 
+390,000 
+(1,823,000 
+) 
+2,423,000 
+As of December 31, 2002: 
+Allowance for chargebacks 
+$ 
+3,618,000 
+$ 
+1,138,000 
+$ 
+(925,000 
+) 
+$ 
+3,831,000 
+Allowance for doubtful accounts 
+1,072,000 
+1,409,000 
+(854,000 
+) 
+1,627.000 
+Reserve for sales returns and allowances 
+2,423,000 
+2,416,000 
+(1,799,000 
+) 
+3,040,000 
+S-1
\ No newline at end of file
diff --git a/raw/filings/0001065837/2002/0000950148-03-000702/filing_metadata.csv b/raw/filings/0001065837/2002/0000950148-03-000702/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..926b0a35ecda4070043b1b4d9f7dd39a43ed39ee
--- /dev/null
+++ b/raw/filings/0001065837/2002/0000950148-03-000702/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0001065837,SKX,SKECHERS USA INC,10-K,2003-03-31,2002-12-31,2003-03-31T22:02:24.000Z,0000950148-03-000702,v88731e10vk.htm,FORM 10-K,786204,0,0,https://www.sec.gov/Archives/edgar/data/1065837/000095014803000702/v88731e10vk.htm,https://www.sec.gov/Archives/edgar/data/1065837/000095014803000702/,2002,2002,1
diff --git a/raw/filings/0001065837/2002/0000950148-03-000702/item1.txt b/raw/filings/0001065837/2002/0000950148-03-000702/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e268a30412ce9c6f87fd4da7ca76b008d9921a41
--- /dev/null
+++ b/raw/filings/0001065837/2002/0000950148-03-000702/item1.txt
@@ -0,0 +1,1420 @@
+ITEM 1. BUSINESS 
+Certain information contained in this report constitutes forward-looking
+statements which involve risks and uncertainties including, but not limited to,
+information with regard to our plans to increase the number of retail locations
+and styles of footwear, the maintenance of customer accounts and expansion of
+business with such accounts, the successful implementation of our strategies,
+future growth and growth rates and future increases in net sales, expenses,
+capital expenditures and net earnings. The words “believes,” “anticipates,”
+“plans,” “expects,” “endeavors,” “may,” “will,” “intends,” “estimates,” and
+similar expressions are intended to identify forward-looking statements. These
+forward-looking statements involve risks and uncertainties, and our actual
+results could differ materially from those anticipated in these forward-looking
+statements as a result of certain factors, including, but not limited to, those
+set forth under “Risk Factors” and elsewhere in this Report.
+We were incorporated in California in 1992 and reincorporated in Delaware in
+1999. Our Internet website address is www.skechers.com. We make our annual report on Form
+10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any
+amendments to those reports filed or furnished pursuant to Section 13(a) or
+15(d) of the Securities Exchange Act of 1934, available free of charge on our
+website as soon as reasonably practicable after we electronically file such
+material with, or furnish it to, the Securities and Exchange Commission (the
+“SEC”). You can learn more about us by reviewing such filings on our website or
+at the SEC’s website at www.sec.gov.
+GENERAL 
+We design and market a collection of Skechers-branded contemporary
+footwear for men, women and children as well as a designer line for women
+branded separately to appeal to a unique audience. Our footwear reflects a
+combination of style, quality and value that appeals to a broad range of
+customers. Our shoes are sold through a wide range of department stores and
+leading specialty stores, a growing network of our own retail stores, and our
+e-commerce Web site. Our objective is to profitably grow our operations
+worldwide while leveraging our brand, one of the most recognized names in the
+footwear industry, through its strong product lines, innovative advertising and
+diversified distribution channels.
+We seek to offer consumers a vast array of fashionable footwear that
+satisfies their active, casual, dress casual and dress footwear needs. Our
+product line currently consists of over 1,500 current styles that are organized
+in 11 distinct collections. Our core consumers are style-conscious 12- to
+24-year-old men and women attracted to our youthful brand image and fashion
+forward designs. Over the last several years, we have introduced and expanded
+several footwear lines that have broadened our customer base, including
+Somethin’ Else from Skechers for juniors, the designer line Michelle K for
+style-savvy women, and the category Skechers Comfort for men. Many of our
+best-selling and core styles are developed specifically for children with
+colors and materials that reflect a playful image appropriate for this
+demographic.
+We believe that brand recognition is an important element for success in
+the footwear business. We have aggressively promoted the Skechers brand through
+a comprehensive marketing campaign. In 2002, we developed image-oriented
+lifestyle ads for print and television that we believe resulted in a higher
+level of recognition of the Skechers brand across a variety of footwear
+categories. As part of this strategy, we incorporated celebrity endorsees
+Britney Spears, Rick Fox, and Robert Downey Jr. into our print and marketing
+campaigns. The strategy focuses on print advertisements in targeted
+publications such as GQ, Details, Vogue, Elle, Elle Girl and Seventeen , and is
+supported by television commercials for adults and children aired on major
+networks and leading cable channels such as MTV, ESPN and Nickelodeon.
+Product Lines 
+In December 1992, we introduced our first Skechers-branded line called
+Skechers USA Sport Utility Footwear. Since that time, we have expanded our
+product offering and grown our net sales while substantially increasing the
+breadth and penetration of our account base. Each of our Skechers-branded
+product lines benefits from the Skechers reputation for contemporary and
+progressive styling, quality, comfort, and affordability. To promote innovation
+and brand relevance, we manage our product lines separately by utilizing
+dedicated design and marketing teams. Our product lines share back office
+services in order to limit our operating expenses and fully utilize our
+management’s vast experience in the footwear industry.
+Skechers USA. Our Skechers USA category for men and women includes four
+types of footwear: (i) Casuals, (ii) Classics,
+(iii) Outdoor
+(for men only), and (iv) Comfort
+(for men only).
+4
+Table of Contents 
+• 
+The Casuals category includes “black and brown” boots and shoes that
+generally have a rugged urban design – some with industrial-inspired
+fashion features. This category is defined by the heavy-lugged outsole
+and value-oriented materials employed in the uppers. We design and price
+this category to appeal primarily to young persons with broad acceptance
+across age groups. Suggested retail price points range from $45.00 to
+$70.00 for this category. 
+• 
+The Classics category of boots and shoes employ softer outsoles,
+which are often constructed of polyvinyl carbon (“PVC”). The more
+refined design of this footwear utilizes better grades of leather and
+linings. Designs are sportier than the Casuals category and feature
+oxfords, wingtips, monk straps, demi-boots and boots. Suggested retail
+price points range from $50.00 to $75.00 for this category. 
+• 
+Our Outdoor styles for men primarily consist of hiker-influenced
+constructions that include boots and shoes. While this category includes
+many technical performance features, we market it primarily on the basis
+of style and comfort. However, many of the technical performance
+features in the Outdoor category contribute to the level of comfort this
+footwear provides. Outsoles generally consist of molded and contoured
+hardened rubber. Many designs include gussetted tongues to prevent
+penetration of water and debris, as well as cushioned mid-soles, motion
+control devices such as heel cups, water-resistant or water-proof
+construction and materials, and more durable hardware such as metal
+D-rings instead of eyelets. Uppers are generally constructed of heavily
+oiled nubuck and full-grain leathers. Suggested retail price points
+range from $45.00 to $75.00 for this category. 
+• 
+Skechers Comfort is a line of trend-right casuals for men who want
+all-day comfort without compromising style. Characteristics of the line
+include comfortable outsoles, cushioned insoles and quality leather
+uppers. Skechers Comfort is intended to be available in many of the same
+stores that carry Skechers USA as well as additional mid-tier and better
+department stores. Suggested retail price points range from $50.00 to
+$75.00 for this category. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes (i)
+Joggers, Trail runners, Sport hikers, Terrainers, (ii) Court, and (iii) Silver
+Series sneakers (for men only). Our Skechers Sport category is distinguished by
+its technical performance-inspired looks; generally, however, we do not promote
+the technical performance features of these shoes.
+• 
+Our Jogger, Trail runner, Sport hiker and cross trainer-inspired
+Terrainer designs are lightweight constructions that include cushioned
+heels, polyurethane midsoles, and phylon and other synthetic outsoles,
+as well as leather or synthetic uppers such as durabuck, cordura and
+nylon mesh. Careful attention is devoted to the design, pattern and
+construction of the outsoles, which vary greatly depending on the
+intended use. This category features earth tones and athletic-inspired
+hues with pop colors in addition to the traditional athletic white. The
+Jogger, Trail runner, Sport hiker and Terrainer styles are marketed
+through athletic footwear specialty retailers as well as basic existing
+accounts. Suggested retail price points range from $40.00 to $70.00 for
+this category. 
+• 
+The Court category is inspired from classic court shoes and includes
+technical features, but is not meant to be a performance shoe line. The
+court shoes feature lightweight constructions that include polyurethane
+and phylon midsoles, rubber low-profile outsoles, and heel airbag
+inserts for additional comfort and performance. The uppers are mostly
+mid-cut with some low tops, and constructed with better quality smooth,
+full-grain and tumbled leathers, typically in white. The court styles
+are marketed through athletic footwear specialty retailers as well as
+basic existing accounts. Suggested retail price points range from $40.00
+to $70.00 for this category. 
+• 
+The Skechers Sport Silver Series incorporates retro influences, lower
+profiles, simple styling, and classic details in a collection of
+sneakers. With groupings that are designed for everyday casual and
+casual work or school attire, the sneakers come in a variety of bright
+colors as well as basics. The uppers are designed in leather, suede
+and/or mesh. The Silver Series is marketed through department stores,
+and specialty and athletic retailers. Suggested retail price points
+range from $40.00 to $60.00 for this category. 
+Skechers Collection. The Skechers Collection line features stylish (i)
+dress casual and dress and (ii) EuroSport shoes for the young fashion-forward
+male consumer. In addition to basic “essential” styles, this category is
+comprised of more sophisticated designs influenced, in part, by prevailing
+trends in Italy and other European countries. Given the look, style and
+quality, this footwear is primarily sourced from Italy. We promoted Skechers
+Collection with advertising campaigns featuring Rick Fox and Robert Downey, Jr.
+in 2002, and Matt Dillon and Rob Lowe in 2001.
+5
+Table of Contents 
+• 
+Our dress and dress casuals include classic tailored and
+fashion-forward square, round and pointed lasts in a variety of styles,
+such as bicycle toes, monk straps, wingtips, oxfords, cap toes,
+demi-boots and boots. The outsoles project a sleeker profile and can be
+either leather or man-made. The uppers are high-quality leathers
+including glossy, “box,” and aniline. Suggested retail price points
+range from $70.00 to $155.00 for this category. 
+• 
+Inspired by the latest in European fashion, EuroSport blends classic
+dress casual styling with European sport fashions to create a versatile
+and comfortable casual shoe. Marked by details and unique styling, the
+EuroSport collection features high-quality leathers and
+suede in multiple colorations, and sport-inspired rubber outsoles.
+Suggested retail price points range from $65.00 to $100.00 for this
+category. 
+Skechers Kids. The Skechers Kids line features a range of products
+including boots, shoes and sneakers. Comprised primarily of shoes that are
+designed as “takedowns” of their adult counterparts, the line offers the
+younger set the same popular styles as their older siblings and schoolmates.
+This “takedown” strategy maintains the product’s integrity by offering premium
+leathers, hardware and outsoles without the attendant costs involved in
+designing and developing new products. In addition, we adapt current fashions
+from our men’s and women’s lines by modifying designs and choosing colors and
+materials that are more suitable for the playful image we have established in
+the children’s footwear market. Skechers Kids includes variations on Skechers
+Sport, Skechers USA, Skechers Collection, Skechers Retros, Skechers Active and
+Somethin’ Else from Skechers adult shoes. Unique to Skechers Kids, S-Lights is
+a line of lighted footwear, which combine a sequence of patterns and lights on
+the outsole and other areas of the shoes. Skechers Kids is available in
+department stores, specialty and athletic stores. Our children’s footwear is
+offered at retail prices ranging from $20.00 to $50.00.
+Somethin’ Else from Skechers. Targeted toward 12- to 25-year-old
+trend-savvy females, Somethin’ Else from Skechers focuses on current fashions
+with an array of stylish shoes, boots and sandals. With a growing offering of
+styles that includes flats, heeled boots, clogs and sport-influenced looks, the
+line is designed to meet junior consumers’ needs – from school to work to
+weekends to the prom – and is a complementary line for juniors who already wear
+Skechers USA and Skechers Sport. Many styles are made from more affordable
+materials such as man-made leather, offering more young consumers the
+opportunity to buy trend-right shoes at affordable prices. This line is
+typically retailed through department and specialty stores. Suggested retail
+price points range from $20.00 to $70.00 for this category.
+Michelle K. Targeted toward stylish 18- to 34-year-old women, Michelle K
+is a signature designer line comprised of high-fashion boots, pumps and flats,
+as well as an expanded division of sport shoes. Head designer and visionary
+Michelle Kelchak derives her inspiration from her extensive travels, which is
+evident in her collections reflective of the latest European, Asian and
+American trends and fashions. Made with the finest European materials and
+craftsmanship, Michelle K is marked by high-grade leathers, fine detailing and
+design and flattering silhouettes, including sculpted heels and lower kitten
+heels. Most styles are crafted in Italy, Portugal and Spain, with others made
+in Brazil. The line is available in better department stores and boutiques.
+Suggested retail price points range from $75.00 to $300.00 for this category.
+4 Wheelers by Skechers. Designed for the men, women and children, 4
+Wheelers by Skechers is a line of technical fashion roller skates that
+incorporates our most popular sneaker uppers, including the Energy and Energy
+II, on quality aluminum and nylon chassis and polyurethane wheels. Technical
+features include: full precision ABEC-1, 3 and 5 bearings, unique heel brakes
+for easy control, durable chassis, controllable steering, and reinforced upper.
+In 2002, we launched Britney 4 Wheelers, a signature Britney Spears roller
+skate line with an advertising campaign featuring the celebrated star.
+Suggested retail price points for adults range from $80.00 to $100.00, and for
+children from $60.00 to $75.00.
+Skechers Active. Launched in 2002, Skechers Active is a line of everyday,
+everywhere casual sneakers for females of all ages. Predominately a
+white-leather based line with bright and pastel pop colors, the line has grown
+to include select solid color styles and unique fabric treatments such as
+chrome and perforated metallic. Active sneakers are typically retailed through
+specialty casual shoe stores and department stores. Suggested retail price
+points range from $30.00 to $55.00 for this category.
+Skechers Retros. Launched in 2002, Skechers Retros are primarily
+high-contrast colored sneakers in leather or suede with low-profile outsoles.
+Retros sneakers are typically retailed through specialty casual shoe stores and
+department stores. Suggested retail price points range from $40.00 to $55.00
+for this category.
+Skechers Work. Expanding on our heritage of cutting-edge utility footwear,
+Skechers Work offers a complete line of men’s and women’s oxfords, boots, trail
+hikers and sport athletics. Launched in 2002, the Skechers Work line includes
+(i) Steel Toe, (ii) Work and (iii) Slip-Resistant. Our steel toe,
+electrostatic-dissipative, and electrical hazard technologies respectively meet
+and exceed the
+6
+Table of Contents 
+industry’s Mark II and ANSI standards, and our slip-resistant soles meet Mark II
+standards. The uppers are in high-quality leather, nubuck and durabuck.
+Constructed on high-abrasion, long wearing soles, the line is designed for men
+and women with jobs that require certain safety requirements. Skechers Work is
+primarily marketed through business-to-business channels, but is also available
+direct-to-consumers and through select department and specialty stores.
+• 
+The Skechers steel toe category of sneakers, hikers, oxfords and
+boots are ideal for environments requiring safety footwear or tough
+terrain. These durable styles feature breathable lining, oil- and
+abrasion-resistant outsoles and steel toe design for optimal protection,
+all-day comfort and prolonged durability. Some styles also offer
+electrical hazard, electrostatic-dissipative and water-resistant
+features. Suggested retail price points range from $45.00 to $110.00 for
+this category. 
+• 
+The Skechers Work line of boots, oxfords and hikers offer versatile
+features for utility-driven men without sacrificing style. Designed with
+an array of textured uppers and colorways, the footwear capitalizes on
+function and comfort – from breathable lining to contoured insoles and
+abrasion-resistant outsoles for prolonged wear. Suggested retail price
+points range from $60.00 to $100.00 for this category. 
+• 
+Ideal for the service industry, the Skechers Slip-Resistant line of
+boots, oxfords and sneakers offer comfort and safety in dry or wet
+conditions – from breathable lining to Mark II-tested slip-, oil- and
+abrasion-resistant outsoles for optimal safety and reliability.
+Electrostatic-dissipative features are also available on select styles.
+Suggested retail price points range from $50.00 to $75.00 for this
+category. 
+PRODUCT DESIGN AND DEVELOPMENT 
+Our principal goal in product design is to generate new and exciting
+footwear with contemporary and progressive styles and comfort-enhancing
+performance features. Targeted to the active, youthful and style-savvy, we
+design most new styles to be fashionable and marketable to the 12- to 25-year
+old consumer, while substantially all of our lines appeal to the broader range
+of 5- to 40-year old consumers, with an exclusive selection to infants and
+toddlers. While many of our shoes have performance features, we generally do
+not position our shoes in the marketplace as technical performance shoes.
+We believe that our products’ success is related to our ability to
+recognize trends in the footwear markets and to design products that anticipate
+and accommodate consumers’ ever-evolving preferences. We are able to quickly
+translate the latest trends in to stylish, quality footwear at a reasonable
+price. We strive to analyze, interpret and translate current and emerging
+lifestyle trends. Lifestyle trend information is compiled by our designers
+through various methods that monitor changes in culture and society, including
+the review and analysis of modern music, television, cinema, clothing,
+alternative sports and other trend-setting media; travel to domestic and
+international fashion markets to identify and confirm current trends;
+consultation with our retail customers for information on current retail
+selling trends; participation in major footwear trade shows to stay abreast of
+popular brands, fashions and styles; and subscription to various fashion and
+color information services. In addition, a key component of our design
+philosophy is to continually reinterpret our successful styles in the Skechers
+image.
+The footwear design process typically begins about nine months before the
+start of a season. Our products are designed and developed by our in-house
+staff. To promote innovation and brand relevance, we utilize dedicated design
+teams that focus on each of the men’s, women’s and children’s categories, and
+report to our senior design executives. In addition, we utilize outside design
+firms on an item-specific basis to supplement our design efforts. The design
+process is extremely collaborative; members of the design staff meet weekly
+with the heads of retail and merchandising, sales, production and sourcing to
+further refine our products to meet the particular needs of our markets.
+After a design team arrives at a consensus regarding the fashion themes
+for the coming season, the designers then translate these themes into our
+products. These interpretations include variations in product color, material
+structure and decoration, which are arrived at after close consultation with
+our production department. Prototype blueprints and specifications are created
+and forwarded to our prototype manufacturers located in Taiwan, which then
+forward design prototypes back to our domestic design team. Our major retail
+customers often also review these new design concepts. Customer input not only
+allows us to measure consumer reaction to the latest designs, but also affords
+us an opportunity to foster deeper and more collaborative relationships with
+our customers. Our design teams can easily and quickly modify and refine a
+design based on customer input.
+We occasionally order limited production runs which may initially be
+tested in our concept stores. By working closely with store
+7
+Table of Contents 
+personnel, we obtain customer feedback that often influences product
+design and development. We believe that sales in our concept stores can help
+forecast sales in national retail stores. We strive to determine within seven
+to 14 days after initial introduction of a product whether there is substantial
+demand for the style, thereby aiding us in our sourcing decisions. Styles that
+have substantial consumer appeal are highlighted in upcoming collections or
+offered as part of our periodic style offerings. The ability to initially test
+our products allows us to discontinue less popular styles after only a limited
+production run which affords us an indicator of future production and a hedge
+to fashion risks. Also, we strive to monitor five- and 10-week trailing trends
+of orders of our retail account base in order to manage future production of
+styles that are increasing or decreasing in popularity. Generally, the
+production process takes approximately six months from design concept to
+commercialization.
+SOURCING 
+Factories. Our products are produced by independent contract manufacturers
+primarily located in China and, to a lesser extent, in Italy, the Philippines,
+Brazil and various other countries. Substantially all of our products are
+manufactured in China. We do not own or operate any manufacturing facilities.
+We believe the use of independent manufacturers increases our production
+flexibility and capacity while at the same time substantially reduces capital
+expenditures and avoids the costs of managing a large production work force.
+We seek to use, whenever possible, manufacturers that have previously
+produced our footwear, which we believe enhances continuity and quality while
+controlling production costs. We attempt to monitor our selection of
+independent factories to ensure that no one manufacturer is responsible for a
+disproportionate amount of our merchandise. We source product for styles that
+account for a significant percentage of our net sales from at least four
+different manufacturers. During 2002, we had four manufacturers that accounted
+for approximately 53.8% of total purchases. One manufacturer accounted for
+22.7% of our total purchases during the year ended December 31, 2002. To date,
+we have not experienced difficulty in obtaining manufacturing services.
+We maintain an in-stock position for selected styles of footwear in order
+to minimize the time necessary to fill customer orders. In order to maintain an
+in-stock position, we place orders for selected footwear with our manufacturers
+prior to the time we receive customers’ orders for such footwear. In order to
+reduce the risk of overstocking, we seek to assess demand for our products by
+soliciting input from our customers and monitoring retail sell-through. In
+addition, we analyze historical and current sales and market data to develop
+internal product quantity forecasts which helps reduce inventory risks.
+We finance our production activities in part through the use of
+interest-bearing open purchase arrangements with certain of our Asian
+manufacturers. These facilities currently bear interest at a rate between 0.5%
+and 1.5% for 30 to 60 days financing, depending on the factory. We believe that
+the use of these arrangements affords us additional liquidity and flexibility.
+While we have long-standing relationships with many of our manufacturers and
+believe our relationships to be good, there are no long-term contracts between
+us and any of our manufacturers.
+Production Oversight. To safeguard product quality and consistency, we
+oversee the key aspects of production from initial prototype manufacture
+through initial production runs to final manufacture. Monitoring is performed
+domestically by our in-house production department and in Asia through an
+approximately 179-person staff working from our offices in China and Taiwan. We
+believe that our Asian presence allows us to negotiate supplier and
+manufacturer arrangements more effectively, decrease product turnaround time,
+and ensure timely delivery of finished footwear. In addition, we require our
+manufacturers to certify that neither convict, forced, indentured labor (as
+defined under U.S. law) nor child labor (as defined by the manufacturer’s
+country) is used in the production process, that compensation will be paid
+according to local law and that the factory is in compliance with local safety
+regulations.
+Quality Control. We believe that quality control is an important and
+effective means of maintaining the quality and reputation of our products. Our
+quality control program is designed to ensure that finished goods not only meet
+our established design specifications, but also that all goods bearing our
+trademarks meet our standards for quality. Quality control personnel perform an
+array of inspection procedures at various stages of the production process,
+including examination and testing of prototypes of key raw materials prior to
+manufacture, samples and materials at various stages of production and final
+products prior to shipment. Our employees are on-site at each of our major
+manufacturers to oversee key phases of production. In addition, unannounced
+visits to the manufacturing sites, to further monitor compliance with our
+manufacturing specifications, are made by our employees and agents.
+ADVERTISING AND MARKETING 
+Our advertising and marketing goal is to maintain and enhance recognition
+of the Skechers brand name as a casual, active youthful
+8
+Table of Contents 
+brand that stands for quality, comfort and design innovation. Senior
+management is directly involved in shaping our image and the conception,
+development and implementation of our advertising and marketing activities. We
+have and continue to adjust our advertising budget consistent with projected
+sales, which has included such avenues as magazines, television, trade shows,
+billboards, mall kiosks, radio spots and buses. Approximately 8% to 10% of
+annual net sales is dedicated to marketing Skechers footwear through
+advertising, promotions, public relations, trade shows and other efforts.
+Advertising 
+The majority of Skechers advertising is conceived and designed by our
+in-house team. By retaining our advertising functions in-house, we believe that
+we are able to maintain a greater degree of control over both the creative
+process and the integrity of the Skechers image, while realizing substantial
+savings compared to using outside agencies.
+We believe that our advertising strategies, methods and creative campaigns
+are directly related to our success as our advertisements promote Skechers
+product in edgy lifestyle settings. Our in-house advertising team has developed
+a comprehensive program to promote the Skechers brand through lifestyle- and
+image-driven advertising. While all of our advertisements feature our footwear,
+they generally seek to build and increase brand awareness by linking Skechers
+to youthful, contemporary lifestyles and attitudes rather than to market a
+particular footwear product. Our ads are designed with a broad approach to
+eliminate single categorization and to provide merchandise flexibility and
+facilitate the brand’s and product design’s direction of evolving footwear
+fashions and consumer preferences.
+To further establish Skechers as a household name, we signed endorsement
+agreements with celebrities we felt would reach new markets. In 2002, we signed
+professional basketball player and actor Rick Fox and actor Robert Downey, Jr.
+to contracts for separate limited term worldwide print media campaigns. We
+previously had similar relationships with actors Matt Dillon and Rob Lowe. From
+time to time, we may sign other celebrities to endorse our brand name and image
+in order to strategically market our products among specific consumer groups in
+the future.
+We use a variety of media for our national advertising. Print efforts are
+represented by one- and two- page ads displayed in popular fashion and
+lifestyle consumer publications that appeal to our target customer group, such
+as Elle, Details, Seventeen, GQ, People, Teen People, Rolling Stone, Vogue, and
+many others. Our progressive television advertisements are primarily produced
+in-house and air frequently on top television shows on major networks and cable
+channels. Different advertisements are created for each of the 5- to 11-, 12-
+to 24-, and 25- to 35-year-old male and female consumer groups. Our in-house
+media buyer strategically selects the ideal programs and geographic areas for
+our commercials for maximum consumer impact.
+Marketing and Promotions 
+By applying creative sales techniques via a broad spectrum of mediums, the
+marketing and promotions team seeks to build brand recognition and drive
+traffic to Skechers retail stores and our retail partners’ locations, serving
+as a catalyst for increased product sales. Skechers’ promotional strategies
+have encompassed in-store specials, concert promotions, charity events, product
+tie-ins and giveaways, and collaborations with national retailers and radio
+stations. Our imaginative promotions are consistent with Skechers’ imaging and
+lifestyle.
+Public Relations 
+Our public relations team’s objective is to garner positive and accurate
+press on our company, and to secure product placement in key fashion magazines
+and place Skechers footwear on the feet of trend-setting celebrities.
+During 2002, we received notable press coverage in numerous print
+publications, including a Top 10 ranking in BusinessWeek ’s Top 100 Growth
+Companies, and Top 5 status in Footwear News ’ list of 10 Most Profitable
+Footwear Vendors and Best-Selling Footwear Brands. We have also been featured
+in Investor’s Business Daily, Los Angeles Times, Wall Street Journal and
+Footwear News. 
+We have consistently received recognition in the footwear industry for our
+exciting and innovative products, marketing efforts and service. In 2002,
+Skechers was awarded the 2001 Corporate Vendor of the Year and Children’s
+Vendor of the Year awards from Shoe Carnival, which applauded the Company’s 112
+percent increase in sales and 105 percent increase in gross profit at the shoe
+chain’s stores in 2001 compared to 2000. Skechers also received the 2002
+Supplier of the Year award in the footwear category from Sporting Goods
+Business at their annual Trendsetter Awards. The accolades are a testament to
+the breadth of Skechers’ impact.
+9
+Table of Contents 
+Through our commitment to aggressively promoting our design and
+development teams’ upcoming styles, our products are often featured in leading
+fashion and pop culture magazines, as well as in select films and popular
+television shows. In addition to a high-profile scene at a Skechers retail
+store in the hit movie About A Boy , our footwear has been prominently displayed
+and referenced on The Today Show , Oprah , Good Morning America , E! Style , Six
+Feet Under and Fastlane , among others, and has amassed an array of prominent
+product placements in magazines including Lucky , GQ , YM , Seventeen , Elle ,
+InStyle and Footwear News . In addition, the Skechers brand has been associated
+with cutting edge events and select celebrities, and our product has been seen
+worn by trend-setters like Vin Diesel, Usher, Christina Ricci, Ali Landry,
+Daryl Hannah, and Gwen Stefani, among others.
+Trade Shows
+To best showcase our diverse products to footwear buyers across the
+nation, we exhibited at 27 trade shows during 2002. Our dynamic,
+state-of-the-art trade show exhibits, which are designed by our in-house
+architect and feature our latest product offerings, are specially planned and
+built to accommodate each trade show and are enhanced with lifestyle images
+reflective of our brand. By investing in innovative displays and individual
+rooms showcasing each line, our sales force can present a sales plan for each
+line and buyers are able to truly understand the breadth and depth of our
+offerings, optimizing commitments and sales at the retail level. Our innovative
+exhibits have won numerous awards, including Best Booth Design at the World
+Shoe Association, February 2001 and February 2003.
+Internet 
+We also promote our
+brand image through our website at www.skechers.com to customers who
+directly access the Internet. This website currently enables us to
+present information on our products and store locations to consumers.
+The website is interactive, affording customers the ability to
+directly order products on the Internet and to allow us to receive and
+respond directly to customer feedback. Our website is intended to
+enhance the Skechers brand without the associated costs of
+advertising. Our website provides fashion information, provides a
+mechanism for customer feedback, promotes customer loyalty and further
+enhances the Skechers brand image through interactive content,
+photos, interviews and information on Skechers-sponsored events.
+Visual Merchandising 
+Our in-house display-merchandising department supports retailers and
+distributors by developing point-of-purchase advertising to further promote our
+products in our wholesale customers’ stores and to leverage recognition of the
+Skechers brand name at the retail level. Our visual merchandising coordinators
+work with our sales department to ensure better sell-through at the retail
+level. Our coordinators communicate with and visit our wholesale customers on a
+regular basis to aid in the proper visual display of our merchandise and to
+distribute and display such point-of-purchase items as signage, packaging,
+displays, counter cards, banners, and other merchandising items. These
+materials mirror the look and feel of our national print advertising in order
+to reinforce brand image at the point-of-purchase. We believe these efforts
+help stimulate impulse sales and repeat purchases.
+Our merchandise personnel also work closely with our wholesale customers
+to ensure the optimal exposure of our products. We have concept shops
+in approximately 100 major accounts, which are exclusive selling areas
+within stores that offer our
+products and incorporate Skechers signage and customized fixture designs, and
+we have a visual presence in our major accounts, we are able to enhance brand
+recognition and ensure the consistent presentation of our products in our
+wholesale customers’ stores.
+DOMESTIC SALES AND DISTRIBUTION 
+Our products are sold in the United States through three primary
+distribution channels: to a network of wholesale accounts, in our own retail
+stores and, to a lesser extent, through electronic commerce on our interactive
+Web site. Each of these channels and the three distinct formats of our retail
+stores — concept stores, factory outlet stores and warehouse
+outlet stores — serve an integral function in the domestic distribution of our products.
+Wholesale Distribution 
+During fiscal 2002, we distributed our footwear to approximately 3,000
+wholesale accounts in the United States. We believe that our broad product line
+enables us to appeal to a variety of wholesale accounts, many of whom may
+operate stores within the same mall or other retail locations, because
+retailers can select those styles of ours that best satisfy the fashion,
+function and price criteria of their clients. Management has a clearly defined
+growth strategy for each of our channels of distribution. An integral component
+of our strategy is to offer our accounts the highest level of customer service
+so that our products will be more fully represented in existing retail
+locations and new locations within each account.
+We have approximately 101 sales and 13 visual merchandise coordinators to
+service our wholesale accounts. In an effort to provide knowledgeable and
+personalized service to our wholesale accounts, the sales force is segregated
+into geographical regions each headed by a regional sales manager. Reporting
+to each regional sales manager are knowledgeable sales representatives for each
+of our product lines. Each of these regional sales managers and the Vice
+President of Sales-Children’s Division reports to our Executive Vice President,
+Domestic U.S. Sales, who has over 20 years of experience in the branded
+consumer products industry. Each of the sales staff is compensated on a salary
+plus commission basis with none of the representatives selling competitive
+products. Senior management is actively involved in selling to and maintaining
+relationships with our major retail accounts.
+10
+Table of Contents 
+We believe that we have developed a loyal customer base of wholesale accounts
+through a heightened level of customer service. We believe that our close
+relationships with these accounts help us to maximize their retail
+sell-through, maintained margins and inventory turns which in turn minimizes
+our inventory markdowns, customer returns, allowances and chargebacks. Our
+visual merchandise coordinators work with our wholesale accounts to ensure that
+our merchandise and point-of-purchase marketing materials are properly
+presented. Sales executives and merchandise personnel work closely with
+accounts to ensure the appropriate styles are purchased for specific accounts
+and for specific stores within those accounts as well as ensure that
+appropriate inventory levels are carried at each store. Such information is
+then utilized to help develop sales projections and determine the product needs
+of wholesale accounts. The value added services we provide our wholesale
+customers help us maintain strong relationships with our existing wholesale
+customers and attract potential new wholesale customers.
+Retail Stores 
+We pursue our retail store strategy through our three integrated retail
+formats: the concept store, the factory outlet store and the warehouse outlet
+store. Our three-store format enables us to promote the full Skechers line in
+an attractive environment, appeal to a broad group of customers that are
+segmented by price points and manage inventory in an efficient and brand
+sensitive manner. In addition, most of our retail stores are profitable and
+have a positive effect on our operating results. As of December 31, 2002, we
+operated 34 concept stores, 34 factory outlet stores and 23 warehouse outlet
+stores in the United States. We plan to open between 20 to 25 retail stores
+during 2003.
+• 
+Concept Stores. Our concept stores are located at either marquee
+street locations or in major shopping malls in large metropolitan
+cities. Our concept stores serve a threefold purpose in our operating
+strategy. First, concept stores serve as a showcase for a wide range of
+our product offerings for the current season, providing the customer
+with the entire product story. The concept stores feature a cutting edge
+design, modern music and lighting and present an open floor design to
+allow customers to readily view the merchandise on display. In contrast,
+we estimate that our average wholesale customer carries no more than 5%
+of the complete Skechers line. Second, retail locations are generally
+chosen to generate maximum marketing value for the Skechers brand name
+through signage, store front presentation and interior design. These
+locations include concept stores on Times Square and 34th Street in New
+York City, Newbury Street in Boston and in Santa Monica’s Third Street
+Promenade. The stores are typically designed to create a distinctive
+Skechers look and feel and enhance customer association of the Skechers
+brand name with current youthful lifestyle trends and styles. Third, the
+concept stores serve as marketing and product testing venues that
+provide rapid product feedback from customers. We believe that product
+sell-through information derived from our concept stores enables our
+sales, merchandising and production staff to respond to market changes
+and new product introductions. Such responses serve to augment sales and
+limit our inventory markdowns and customer returns and allowances. We
+strive to adjust our product and sales strategy based upon seven to 14
+days of retail sales information. 
+The prototypical Skechers concept store is approximately 2,750 square feet
+although in certain selected markets we have opened concept stores as large
+as 7,000 square feet or as small as 1,200 square feet. When deciding where
+to open concept stores, we identify top geographic markets in the larger
+metropolitan cities in the United States. When selecting a specific site,
+we evaluate the proposed sites’ traffic pattern, co-tenancies, sales volume
+by neighboring concept stores, lease economics and other factors considered
+important within the specific location. If we are considering opening a
+concept store in a shopping mall, our strategy is to obtain space as
+centrally located as possible in the mall where we expect foot traffic to
+be most concentrated. We believe that the strength of the Skechers brand
+name has enabled us to negotiate more favorable terms with shopping malls
+that want us to open up concept stores to attract customer traffic to these
+malls. We opened five new domestic concept stores in each of 2001 and 2002. 
+• 
+Factory Outlet Stores. Our factory outlet stores are generally
+located in manufacturers’ direct outlet centers throughout the United
+States. Our factory outlet stores provide opportunities for us to sell
+discontinued and excess merchandise, thereby reducing the need to sell
+such merchandise to discounters at excessively low prices, which could
+otherwise compromise the Skechers brand image. Skechers factory outlet
+stores range in size from approximately 1,900 to 6,000 square feet.
+Inventory in these stores is supplemented by certain first-line styles
+sold at full retail price points generally of $60.00 or lower. We opened
+11 new factory outlet stores during 2001 and five new factory outlet
+stores during 2002. 
+• 
+Warehouse Outlet Stores. Our free-standing warehouse outlet stores,
+which are located throughout the United States, enable us to liquidate
+excess merchandise, discontinued lines and odd-size inventory in a
+cost-efficient manner. Skechers warehouse outlet stores range in size
+from approximately 5,600 to 14,800 square feet. Our warehouse outlet
+stores enable us to sell 
+11
+Table of Contents 
+discontinued and excess merchandise that would otherwise typically be sold
+to discounters at excessively low prices, thus compromising the Skechers
+brand image. We seek to open our warehouse outlet stores in areas that are
+in close proximity to our other retail stores in order to facilitate the
+timely transfer of inventory that we want to liquidate as soon as
+practicable. We opened 10 new warehouse outlet stores during 2001 and three
+new warehouse outlet stores during 2002. 
+Electronic Commerce. Our electronic commerce sales represented less than
+1.0% of total net sales for each of 2001 and 2002. Our website,
+www.skechers.com, is a virtual storefront that promotes the Skechers brand
+name. Designed as a customer center, our website showcases our products in an
+easy-to-navigate format, allowing customers to see and purchase our footwear.
+This virtual store has become a successful additional retail distribution
+channel, has improved customer service and is a fun and entertaining
+alternative-shopping environment.
+INTERNATIONAL OPERATIONS 
+We market our products in countries and territories throughout the world.
+We generate revenues from outside the United States from four principal
+sources: (1) sales of our footwear to foreign distributors who distribute such
+footwear to department stores and specialty retail stores in Europe, Asia,
+Latin America, South America and numerous other countries and territories, (2)
+in France, Germany, Spain, Italy, Portugal, Austria, the Benelux Region and the
+United Kingdom, we sell footwear directly to department stores and specialty
+retail stores and (3) in France, Germany, the United Kingdom, and Canada
+through retail stores that we own and operate and (4) to a lesser extent,
+royalties from licensees who manufacture and distribute our products outside
+the United States.
+We believe that international distribution of our products represents a
+significant opportunity to increase revenues and profits. We established
+subsidiaries in Spain, Belgium and Canada during 2002, and our products are
+sold in more than 100 countries and territories around the world. We intend to
+further increase our share of the international footwear market by heightening
+our marketing presence in those countries through our international advertising
+campaigns, which are designed to establish Skechers as a global brand
+synonymous with casual shoes.
+Europe 
+We have historically sold our footwear to selected wholesale customers in
+Europe through our foreign distributors. In 2001, we began expanding our
+European operations to directly sell our footwear to certain wholesale accounts
+and retail stores in Europe in an effort to increase profit margins and more
+effectively market and promote the Skechers brand name. By the end of 2002, we
+had organized Skechers U.S.A. Ltd., with its offices in London, England,
+Skechers S.a.r.l., with its offices in Lausanne, Switzerland, Skechers U.S.A.
+France SAS with its offices in Paris, France, Skechers U.S.A. Deutschland GmbH
+with its offices in Dietzenbach, Germany, Skechers USA Iberia, with its offices
+in Madrid, Spain, and Skechers USA Benelux B.V. with its offices in Waalwijk,
+the Netherlands. Each of these subsidiaries was formed to establish direct
+control over wholesale distribution, merchandising, and marketing of our
+products in their respective countries of organization, as well as certain
+surrounding countries.
+In February 2003, we established Skechers USA Italia S.r.l. and in March
+we leased an administrative office in Verona to support our direct selling efforts
+in that region.
+In 2001, we utilized a third party contract warehouse located in Belgium
+to distribute our footwear to our customers and retail stores in France,
+Germany and the United Kingdom. During 2002, we established Skechers EDC SPRL,
+and in August 2002, we entered into a lease agreement for an approximately
+240,000 square foot distribution center in Liege, Belgium. The distribution
+center will provide product to our subsidiaries and retail stores throughout
+Europe. We began shipping product out of the Liege, Belgium distribution
+center in December 2002.
+Canada 
+In November 2002, we established our subsidiary Skechers USA Canada and opened
+our first Canadian flagship store in Toronto’s Eaton Centre. In January 2003,
+Skechers USA Canada assumed, from our Canadian distributor, distribution,
+merchandising, and marketing of our product in Canada. Product sold in Canada
+is primarily sourced from our distribution center in Ontario, California, USA.
+We anticipate opening an administrative office and showroom in the Toronto
+region to support our direct selling efforts during the first quarter ending
+March 31, 2003.
+12
+Table of Contents 
+Asia 
+In Japan, through an agreement with our Japanese distributor Achilles
+Corporation, we have opened two flagship retail stores, one in Kichijuoji
+opened in December 2001 and one in Osaka opened in March 2002. Achilles
+Corporation is responsible for the store’s operations and selecting a broad
+collection of our products to sell to Japanese consumers. In order to maintain
+a globally consistent image, we provided architectural, graphic and visual
+guidance and materials for the design of the store, and we trained the local
+staff on our products and corporate culture. We intend to expand our
+international presence and global recognition of the Skechers brand name in
+Asia by continuing to sell our footwear to foreign distributors and opening
+flagship retail stores with distributors that have local market expertise.
+LICENSING 
+We believe that selective licensing of the Skechers brand name to
+non-footwear-related manufacturers may broaden and enhance the Skechers brand
+image without requiring significant capital investments or additional
+incremental operating expenses by us. Our diverse group of products presents
+many potential licensing opportunities on terms with licensees that we believe
+will provide more effective manufacturing, distribution or marketing of
+products such as accessories, backpacks and children’s clothing than could be
+achieved in-house; however, we intend to be selective in granting any use of
+the Skechers brand name for such licensed products. We believe that the
+strength of the Skechers brand name and the size of our business will enable us
+to attract premier licensing partners with a proven track record of brand
+sensitivity.
+During 2002, we entered into the following three primary licensing
+arrangements within the apparel and accessories sectors:
+1. 
+Socks and hosiery sector. In June 2002, we entered into an
+agreement with Renfro Corporation to be our licensee for hosiery in the
+United States. Under this arrangement, Renfro Corporation will create
+quality and stylish men and women’s sport, casual and fashion hosiery.
+Product is expected to be available in department stores and specialty
+retailers in late Spring 2003. 
+2. 
+Watch sector. In October 2002, we entered into an agreement with
+Advance Group Inc. to be our licensee for a Skechers Sport
+line of sport-related men and women’s watches in the United States and
+Canada. The watches are expected to be available in leading department
+stores, specialty stores and catalogs during the second quarter
+ending June 30, 2003. 
+3. 
+Children’s apparel sector. In December 2002, we entered into an
+agreement with Kids’ Headquarters to design and distribute children’s
+tops and bottoms in denim, woven and knit materials, as well as
+coordinating outerwear and headwear using select Skechers logo’s in the
+United States. The apparel is expected to be available through
+department stores and specialty stores in time for the 2003
+Back-to-School selling season. 
+In March 2003, we signed a license agreement with Garson International for
+Skechers Collection-branded outerwear, including men’s jackets and coats in
+leather, suede, and cloth materials. The product is expected to be available in
+major department stores and specialty stores in late 2003. We continue to
+review potential domestic licensing arrangements and hope to announce
+additional agreements during 2003.
+In addition, we periodically review potential international licensing
+arrangements for footwear in various geographical regions that present
+favorable business opportunities. We intend to maintain substantial control
+over the design, manufacturing specifications, advertising and distribution of
+any licensed products and to maintain a policy of evaluating any future
+licensing arrangements to ensure consistent representation of the Skechers
+image.
+DISTRIBUTION 
+We believe that strong distribution support is a critical factor in our
+operations. Once manufactured, our products are packaged in shoe boxes bearing
+bar codes and are shipped either to (1) our approximately 1.4 million square
+feet of internally managed distribution center located in Ontario, California,
+(2) to our approximately 240,000 square foot distribution center located in
+Liege, Belgium, which began shipping in December 2002 to our European customers
+and retail stores, or (3) directly from third party manufacturers to our other
+international customers. Upon receipt at the central distribution centers,
+merchandise is inspected and recorded in our management information system and
+packaged according to customers’ orders for delivery. Merchandise is shipped to
+the customer by whatever means the customer requests, which is usually by
+common carrier. The central distribution centers have multi-access docks,
+13
+Table of Contents 
+enabling us to receive and ship simultaneously and to pack separate
+trailers for shipments to different customers at the same time. We have an
+electronic data interchange system, or EDI system, to which some of our larger
+customers are linked. This system allows these customers to automatically place
+orders with us, thereby eliminating the time involved in transmitting and
+inputting orders, and includes direct billing and shipping information.
+The following table sets forth a summary of our distribution facilities:
+ADDRESS 
+STATUS 
+SQUARE FOOTAGE 
+Avenue du parc Industriel, Liege, Belgium 
+Leased since July 2002 
+241,700 
+4100 East Mission Blvd., Ontario, CA 
+Leased since June 2001 
+763,300 
+1670 Champagne Avenue, Ontario, CA 
+Owned since October 2000 
+263,700 
+1661 South Vintage Avenue, Ontario, CA 
+Leased since November 1997 
+127,800 
+1777 South Vintage Avenue, Ontario, CA 
+Leased since November 1997 
+284,600 
+1,681,100 
+(1) 
+(1) 
+Excludes 285,600 square feet located at 5725 East Jurupa Street that we
+leased in April 1998 and occupied until we subleased the facility in June
+2001. 
+We believe that we have the capacity at our Ontario distribution center to
+increase our current operations to meet any future growth, and if we should
+ever need to expand our distribution facilities to allow for further growth, we
+believe there is presently enough space available in close proximity that leads
+us to believe leasing or purchasing additional property will not be a problem
+in the foreseeable future.
+Our lease agreement for our Liege, Belgium distribution center provides
+for first right of refusal on three remaining facilities planned for
+development, allowing for expansion of up to approximately 967,000 square feet.
+We believe that the capacity available to us within our lease agreement will
+allow for further grow of our international operations.
+BACKLOG 
+As of December 31, 2002, our backlog was $205.0 million, compared to
+$222.2 million as of December 31, 2001. While backlog orders are subject to
+cancellation by customers, we have not experienced significant cancellation of
+orders in the past and we expect that substantially all the orders will be
+shipped in 2002. However, for a variety of reasons, including the timing of
+shipments, product mix of customer orders, the amount of in-season orders, a
+shift towards tighter lead times within backlog levels, backlog may not be a
+reliable measure of future sales for any succeeding period.
+INTELLECTUAL PROPERTY RIGHTS 
+We own and utilize a variety of trademarks, including the Skechers
+trademark. We have a significant number of both registrations and pending
+applications for our trademarks in the United States. In addition, we have
+trademark registrations and trademark applications in approximately 85 foreign
+countries. We also have design patents, and pending design and utility patent
+applications, in both the United States and various foreign countries. We
+continuously look to increase the number of our patents and trademarks, both
+domestically and internationally, where necessary to protect valuable
+intellectual property. We regard our trademarks and other intellectual property
+as valuable assets and believe that they have significant value in the
+marketing of our products. We vigorously protect our trademarks against
+infringement, including through the use of cease and desist letters,
+administrative proceedings and lawsuits.
+We rely on trademark, patent, copyright, trade secret protection,
+non-disclosure agreements and licensing arrangements to establish, protect and
+enforce intellectual property rights in our logos, tradenames and in the design
+of our products. In particular, we believe that our future success will largely
+depend on our ability to maintain and protect the Skechers trademark. Despite
+our efforts to safeguard and maintain our intellectual property rights, we
+cannot assure you that we will be successful in this regard. Furthermore, we
+cannot assure you that our trademarks, products and promotional materials or
+other intellectual property rights do not or will not violate the intellectual
+property rights of others, that our intellectual property would be upheld if
+challenged, or that we would, in such an event, not be prevented from using our
+trademarks or other intellectual property rights. Such claims, if proven, could
+materially and adversely affect our business, financial condition and results
+of operations. In addition, although any such claims may ultimately prove
+14
+Table of Contents 
+to be without merit, the necessary management attention to and legal costs
+associated with litigation or other resolution of future claims concerning
+trademarks and other intellectual property rights could materially and
+adversely affect our business, financial condition and results of operations.
+We have sued and have been sued by third parties for infringement of
+intellectual property. It is our opinion that none of these claims have
+materially impaired our ability to utilize our intellectual property rights.
+The laws of certain foreign countries do not protect intellectual property
+rights to the same extent or in the same manner as do the laws of the United
+States of America. Although we continue to implement protective measures and
+intend to defend our intellectual property rights vigorously, these efforts may
+not be successful or the costs associated with protecting our rights in certain
+jurisdictions may be prohibitive. From time to time, we discover products in
+the marketplace that are counterfeit reproductions of our products or that
+otherwise infringe upon intellectual property rights held by us. Actions taken
+by us to establish and protect our trademarks and other intellectual property
+rights may not be adequate to prevent imitation of our products by others or to
+prevent others from seeking to block sales of our products as violating
+trademarks and intellectual property rights. If we are unsuccessful in
+challenging a third party’s products on the basis of infringement of our
+intellectual property rights, continued sales of such products by that or any
+other third party could adversely impact the Skechers brand, result in the
+shift of consumer preferences away from us and generally have a material
+adverse effect on our business, financial condition and results of operations.
+COMPETITION 
+Competition in the footwear industry is intense. Although we believe that
+we do not compete directly with any single company with respect to its entire
+range of products, our products compete with other branded products within
+their product category as well as with private label products sold by
+retailers, including some of our customers. Our utility footwear and casual
+shoes compete with footwear offered by companies such as The Timberland
+Company, Dr. Martens, Kenneth Cole Productions, Steven Madden, Ltd. and
+Wolverine World Wide, Inc. Our athletic shoes compete with brands of athletic
+footwear offered by companies such as Nike, Inc., Reebok International Ltd.,
+Adidas-Salomon AG and New Balance. Our children’s shoes compete with brands of
+children’s footwear offered by The Stride Rite Corporation. In varying degrees,
+depending on the product category involved, we compete on the basis of style,
+price, quality, comfort and brand name prestige and recognition, among other
+considerations. These and other competitors pose challenges to our market share
+in our major domestic markets and may make it more difficult to establish our
+products in Europe, Asia and other international regions. We also compete with
+numerous manufacturers, importers and distributors of footwear for the limited
+shelf space available for the display of such products to the consumer.
+Moreover, the general availability of contract manufacturing capacity allows
+ease of access by new market entrants. Many of our competitors are larger, have
+achieved greater recognition for their brand names, have captured greater
+market share and/or have substantially greater financial, distribution,
+marketing and other resources than us. We cannot assure you that we will be
+able to compete successfully against present or future competitors or that
+competitive pressures faced by us will not have a material adverse effect on
+our business, financial condition and results of operations.
+EMPLOYEES 
+As of February 28, 2003, we employed 2,521 persons, 1,385 of which were
+employed on a full-time basis and 1,136 of which were employed on a part-time
+basis. None of our employees are subject to a collective bargaining agreement.
+We believe that our relations with our employees are satisfactory. We offer our
+employees a discount on Skechers merchandise to encourage enthusiasm for our
+products and loyalty to Skechers.
+RISK FACTORS 
+In addition to the other information in this Form 10-K, the following
+factors should be considered in evaluating us and our business.
+OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO RESPOND TO CHANGING CONSUMER
+DEMANDS, IDENTIFY AND INTERPRET FASHION TRENDS AND SUCCESSFULLY MARKET NEW
+PRODUCTS.
+The footwear industry is subject to rapidly changing consumer demands and
+fashion trends. Accordingly, we must identify and interpret fashion trends and
+respond in a timely manner. Demand for and market acceptance of new products
+are uncertain and achieving market acceptance for new products generally
+requires substantial product development and marketing efforts and
+expenditures. If we do not continue to meet changing consumer demands and
+develop successful styles in the future, our growth and profitability will be
+negatively impacted. We frequently make decisions about product designs and
+marketing expenditures several months in advance of the time when consumer
+acceptance can be determined. If we fail to anticipate, identify or react
+appropriately to changes in styles and trends or are not successful in
+marketing new products, we could experience excess inventories, higher than
+15
+Table of Contents 
+normal markdowns or an inability to profitably sell our products. Because
+of these risks, a number of companies in the footwear industry specifically,
+and the fashion and apparel industry in general, have experienced periods of
+rapid growth in revenues and earnings and thereafter periods of declining sales
+and losses, which in some cases have resulted in companies in these industries
+ceasing to do business. Similarly, these risks could have a severe negative
+effect on our results of operations or financial condition.
+OUR BUSINESS AND THE SUCCESS OF OUR PRODUCTS COULD BE HARMED IF WE ARE UNABLE
+TO MAINTAIN OUR BRAND IMAGE. 
+Our success to date has been due in large part to the strength of our
+brand. If we are unable to timely and appropriately respond to changing
+consumer demand, our brand name and brand image may be impaired. Even if we
+react appropriately to changes in consumer preferences, consumers may consider
+our brand image to be outmoded or associate our brand with styles of footwear
+that are no longer popular. In the past, several footwear companies have
+experienced periods of rapid growth in revenues and earnings followed by
+periods of declining sales and losses. Our business may be similarly affected
+in the future.
+OUR BUSINESS COULD BE HARMED IF WE FAIL TO MAINTAIN PROPER INVENTORY LEVELS. 
+We place orders with our manufacturers for some of our products prior to
+the time we receive all of our customers’ orders. We do this to minimize
+purchasing costs, the time necessary to fill customer orders and the risk of
+non-delivery. We also maintain an inventory of certain products that we
+anticipate will be in greater demand. However, we may be unable to sell the
+products we have ordered in advance from manufacturers or that we have in our
+inventory. Inventory levels in excess of customer demand may result in
+inventory write-downs, and the sale of excess inventory at discounted prices
+could significantly impair our brand image and have a material adverse effect
+on our operating results and financial condition. Conversely, if we
+underestimate consumer demand for our products or if our manufacturers fail to
+supply the quality products that we require at the time we need them, we may
+experience inventory shortages. Inventory shortages might delay shipments to
+customers, negatively impact retailer and distributor relationships, and
+diminish brand loyalty.
+WE MAY BE UNABLE TO SUCCESSFULLY EXECUTE OUR GROWTH STRATEGY OR MANAGE OR
+SUSTAIN OUR GROWTH. 
+We have grown quickly since we started our business. Our ability to grow
+in the future depends upon, among other things, the continued success of our
+efforts to expand our footwear offerings and distribution channels. However,
+our rate of growth may decline or we may not be profitable in future quarters
+or fiscal years. Furthermore, as our business becomes larger, we may not be
+able to maintain our historical growth rate or effectively manage our growth.
+We anticipate that as our business grows, we will have to improve and enhance
+our overall financial and managerial controls, reporting systems and
+procedures. We may be unable to successfully implement our current growth
+strategy or other growth strategies or effectively manage our growth, any of
+which would negatively impair our net sales and earnings.
+OUR BUSINESS MAY BE NEGATIVELY IMPACTED AS A RESULT OF CHANGES IN THE ECONOMY. 
+Our business depends on the general economic environment and levels of
+consumer spending that affect not only the ultimate consumer, but also
+retailers, our primary direct customers. Purchases of footwear tend to decline
+in periods of recession or uncertainty regarding future economic prospects,
+when consumer spending, particularly on discretionary items, declines. During
+periods of recession or economic uncertainty, we may not be able to maintain or
+increase our sales to existing customers, make sales to new customers, open and
+operate new retail stores, maintain sales levels at our existing stores,
+maintain or increase our international operations on a profitable basis, or
+maintain or improve our earnings from operations as a percentage of net sales.
+As a result, our operating results may be adversely and materially affected by
+downward trends in the economy or the occurrence of events that adversely
+affect the economy in general. Furthermore, in anticipation of continued
+increases in net sales, we have significantly expanded our infrastructure and
+workforce to achieve economies of scale. Because these expenses are fixed in
+the short term, our operating results and margins will be adversely impacted if
+we do not continue to grow as anticipated. For example, due in large part to
+the slowdown in the global economy, our net sales for 2002 were lower than
+anticipated. This lower level of sales adversely affected our operating results
+for 2002 and could continue to do so in 2003 and beyond.
+ECONOMIC, POLITICAL, MILITARY OR OTHER EVENTS IN THE UNITED STATES OR IN A
+COUNTRY WHERE WE MAKE SIGNIFICANT SALES OR HAVE SIGNIFICANT OPERATIONS COULD
+INTERFERE WITH OUR SUCCESS OR OPERATIONS THERE AND HARM OUR BUSINESS. 
+16
+Table of Contents 
+We market and sell our products and services throughout the world. The
+September 11, 2001 terrorist attacks disrupted commerce throughout the United
+States and other parts of the world. The continued threat of similar attacks
+throughout the world and the military action, or possible military action,
+taken by the United States and other nations, in Iraq or other countries may
+cause significant disruption to commerce throughout the world. To the extent
+that such disruptions further slow the global economy or, more particularly,
+result in delays or cancellations of purchase orders for our products, our
+business and results of operations could be materially adversely affected. We
+are unable to predict whether the threat of new attacks or the responses
+thereto will result in any long-term commercial disruptions or if such
+activities or responses will have a long-term material adverse effect on our
+business, results of operations or financial condition.
+WE DEPEND UPON A RELATIVELY SMALL GROUP OF CUSTOMERS FOR A LARGE PORTION OF OUR SALES. 
+During 2002, our net sales to our five largest customers accounted for
+approximately 25.4% of total net sales. No one customer accounted for 10.0% or
+more of our net sales during 2002. As of December 31, 2002, no one customer
+accounted for more than 10% of our net trade accounts receivable. Although we
+have long-term relationships with many of our customers, our customers do not
+have a contractual obligation to purchase our products and we cannot be certain
+that we will be able to retain our existing major customers. Furthermore, the
+retail industry regularly experiences consolidation, contractions and closings.
+If there are further consolidations, contractions or closings in the future, we
+may lose customers or be unable to collect accounts receivables of major
+customers in excess of amounts that we have insured. If we lose a major
+customer, experience a significant decrease in sales to a major customer, or
+are unable to collect the accounts receivable of a major customer in excess of
+amounts insured, our business could be harmed.
+OUR OPERATING RESULTS COULD BE NEGATIVELY IMPACTED IF OUR SALES ARE
+CONCENTRATED IN ANY ONE STYLE OR GROUP OF STYLES. 
+If any one style or group of similar styles of our footwear were to
+represent a substantial portion of our net sales, we could be exposed to risk
+should consumer demand for such style or group of styles decrease in subsequent
+periods. We attempt to hedge this risk by offering a broad range of products,
+and no style comprised over 5.0% of our gross wholesale sales for the years
+ended December 31, 2001 or 2002. However, this may change in the future and
+fluctuations in sales of any given style that represents a significant portion
+of our future net sales could have a negative impact on our operating results.
+WE RELY ON INDEPENDENT CONTRACT MANUFACTURERS AND, AS A RESULT, ARE EXPOSED TO
+POTENTIAL DISRUPTIONS IN PRODUCT SUPPLY. 
+Our footwear products are currently manufactured by independent contract
+manufacturers. During 2002, the top four manufacturers of our manufactured
+products produced approximately 53.8% of our total purchases. One manufacturer
+accounted for 22.7% of total purchases for the year ended December 31, 2002 and
+no one manufacturer accounted for more than 20% of total purchases for the year
+ended December 31, 2001. We do not have long-term contracts with manufacturers
+and we compete with other footwear companies for production facilities. We
+could experience difficulties with these manufacturers, including reductions in
+the availability of production capacity, failure to meet our quality control
+standards, failure to meet production deadlines or increased manufacturing
+costs. This could result in our customers canceling orders, refusing to accept
+deliveries or demanding reductions in purchase prices, any of which could have
+a negative impact on our cash flow and harm our business.
+If our current manufacturers cease doing business with us, we could
+experience an interruption in the manufacture of our products. Although we
+believe that we could find alternative manufacturers, we may be unable to
+establish relationships with alternative manufacturers that will be as
+favorable as the relationships we have now. For example, new manufacturers may
+have higher prices, less favorable payment terms, lower manufacturing capacity,
+lower quality standards or higher lead times for delivery. If we are unable to
+provide products consistent with our standards or the manufacture of our
+footwear is delayed or becomes more expensive, our business would be harmed.
+OUR INTERNATIONAL SALES AND MANUFACTURING OPERATIONS ARE SUBJECT TO THE RISKS
+OF DOING BUSINESS ABROAD, WHICH COULD AFFECT OUR ABILITY TO SELL OR MANUFACTURE
+OUR PRODUCTS IN INTERNATIONAL MARKETS, OBTAIN PRODUCTS FROM FOREIGN SUPPLIERS
+OR CONTROL THE COSTS OF OUR PRODUCTS. 
+Substantially all of our net sales during 2002 were derived from sales of
+footwear manufactured in foreign countries, with most manufactured in China
+and, to a lesser extent, in Italy, the Philippines and Brazil. We also sell our
+footwear in several foreign
+17
+Table of Contents 
+countries and plan to increase our international sales efforts as part of
+our growth strategy. Foreign manufacturing and sales are subject to a number of
+risks, including:
+• 
+political and social unrest, including the anticipated war with Iraq; 
+• 
+changing economic conditions; 
+• 
+international political tension and terrorism; 
+• 
+work stoppages; 
+• 
+transportation delays; 
+• 
+loss or damage to products in transit; 
+• 
+expropriation; 
+• 
+nationalization; 
+• 
+the imposition of tariffs and trade duties both international and domestically; 
+• 
+import and export controls and other nontariff barriers; 
+• 
+exposure to different legal standards (particularly with respect to intellectual property); 
+• 
+compliance with foreign laws; and 
+• 
+changes in domestic and foreign governmental policies. 
+In particular, because substantially all of our products are manufactured
+in China, adverse change in trade or political relations with China or
+political instability in China would severely interfere with the manufacture of
+our products and would materially adversely affect our operations.
+In addition, if we, or our foreign manufacturers, violate United States or
+foreign laws or regulations, we may be subjected to extra duties, significant
+monetary penalties, the seizure and the forfeiture of the products we are
+attempting to import or the loss of our import privileges. Possible violations
+of United States or foreign laws or regulations could include inadequate record
+keeping of our imported product, misstatements or errors as to the origin,
+quota category, classification, marketing or valuation of our imported
+products, fraudulent visas, or labor violations. The effects of these factors
+could render our conduct of business in a particular country undesirable or
+impractical and have a negative impact on our operating results.
+OUR BUSINESS COULD BE HARMED IF OUR CONTRACT MANUFACTURERS, SUPPLIERS OR
+LICENSEES VIOLATE LABOR OR OTHER LAWS. 
+We require our independent contract manufacturers, suppliers and licensees
+to operate in compliance with applicable United States and foreign laws and
+regulations. Manufacturers are required to certify that neither convicted,
+forced or indentured labor (as defined under United States law) nor child labor
+(as defined by the manufacturer’s country) is used in the production process,
+that compensation is paid in accordance with local law and that their factories
+are in compliance with local safety regulations. Although we promote ethical
+business practices and our sourcing personnel periodically visit and monitor
+the operations of our independent contract manufacturers, suppliers and
+licensees, we do not control them or their labor practices. If one of our
+independent contract manufacturers, suppliers or licensees violates labor or
+other laws or diverges from those labor practices generally accepted as ethical
+in the United States, it could result in adverse publicity for us, damage our
+reputation in the United States, or render our conduct of business in a
+particular foreign country undesirable or impractical, any of which could harm
+our business.
+OUR PLANNED EXPANSION INVOLVES A NUMBER OF RISKS THAT COULD PREVENT OR DELAY
+ANY SUCCESSFUL OPENING OF NEW STORES AS WELL AS IMPACT THE PERFORMANCE OF OUR
+EXISTING STORES. 
+18
+Table of Contents 
+Our ability to open and operate new stores successfully depends on many
+factors, including, among others, our ability to:
+• 
+identify suitable store locations, the availability of which is outside of our control; 
+• 
+negotiate acceptable lease terms, including desired tenant improvement allowances; 
+• 
+source sufficient levels of inventory to meet the needs of new stores; 
+• 
+hire, train and retain store personnel; 
+• 
+successfully integrate new stores into our existing operations; and 
+• 
+satisfy the fashion preferences in new geographic areas. 
+In addition, some or a substantial number of new stores could be opened in
+regions of the United States in which we currently have few or no stores. Any
+expansion into new markets may present competitive, merchandising and
+distribution challenges that are different from those currently encountered in
+our existing markets. Any of these challenges could adversely affect our
+business and results of operations. In addition, to the extent that any new
+store openings are in existing markets, we may experience reduced net sales
+volumes in existing stores in those markets.
+MANY OF OUR RETAIL STORES DEPEND HEAVILY ON THE CUSTOMER TRAFFIC GENERATED BY
+SHOPPING AND FACTORY OUTLET MALLS OR BY TOURISM. 
+Many of our concept stores are located in shopping malls and some of our
+factory outlet stores are located in manufacturers’ outlet malls where we
+depend on obtaining prominent locations in the malls and the overall success of
+the malls to generate customer traffic. We cannot control the development of
+new malls, the availability or cost of appropriate locations within existing or
+new malls or the success of individual malls. Some of our concept stores occupy
+street locations which are heavily dependent on customer traffic generated by
+tourism. Any substantial decrease in tourism resulting from the September 11,
+2001 terrorist attacks, the anticipated war with Iraq,a downturn in the economy
+or otherwise, is likely to adversely affect sales in our existing stores,
+particularly those with street locations. The effects of these factors could
+hinder our ability to open retail stores in new markets or reduce sales of
+particular existing stores, which could negatively affect our operating
+results.
+OUR QUARTERLY REVENUES AND OPERATING RESULTS FLUCTUATE AS A RESULT OF A VARIETY
+OF FACTORS, INCLUDING SEASONAL FLUCTUATIONS IN DEMAND FOR FOOTWEAR AND DELIVERY
+DATE DELAYS, WHICH MAY RESULT IN VOLATILITY OF OUR STOCK PRICE. 
+Our quarterly revenues and operating results have varied significantly in
+the past and can be expected to fluctuate in the future due to a number of
+factors, many of which are beyond our control. For example, sales of footwear
+products have historically been somewhat seasonal in nature with the strongest
+sales generally occurring in the third and fourth quarters. Also, delays in
+scheduling or pickup of purchased products by our domestic customers could
+negatively impact our net sales and results of operations for any given
+quarter. As a result of these specific and other general factors, our operating
+results will likely vary from quarter to quarter and the results for any
+particular quarter may not be necessarily indicative of results for the full
+year. Any shortfall in revenues or net income from levels expected by
+securities analysts and investors could cause a decrease in the trading price
+of our Class A common shares.
+WE FACE INTENSE COMPETITION, INCLUDING COMPETITION FROM COMPANIES WITH
+SIGNIFICANTLY GREATER RESOURCES THAN OURS, AND IF WE ARE UNABLE TO COMPETE
+EFFECTIVELY WITH THESE COMPANIES, OUR MARKET SHARE MAY DECLINE AND OUR BUSINESS
+COULD BE HARMED. 
+We face intense competition in the footwear industry from other
+established companies. A number of our competitors have significantly greater
+financial, technological, engineering, manufacturing, marketing and
+distribution resources than we do. Their greater capabilities in these areas
+may enable them to better withstand periodic downturns in the footwear
+industry, compete more effectively on the basis of price and production and
+more quickly develop new products. In addition, new companies may enter the
+markets in which we compete, further increasing competition in the footwear
+industry.
+We believe that our ability to compete successfully depends on a number of
+factors, including the style and quality of our products and the strength of
+our brand name, as well as many factors beyond our control. We may not be able
+to compete successfully in the
+19
+Table of Contents 
+future, and increased competition may result in price reductions, reduced
+profit margins, loss of market share, and inability to generate cash flows that
+are sufficient to maintain or expand our development and marketing of new
+products, which would adversely impact the trading price of our Class A common
+shares.
+OBTAINING ADDITIONAL CAPITAL TO FUND OUR OPERATIONS AND FINANCE OUR GROWTH
+COULD MAKE IT DIFFICULT FOR US TO SERVICE OUR DEBT OBLIGATIONS. 
+If our working capital needs exceed our current expectations, we may need
+to raise additional capital through public or private equity offerings or debt
+financings. If we cannot raise needed funds on acceptable terms, we may not be
+able to successfully execute our growth strategy, take advantage of future
+opportunities or respond to competitive pressures or unanticipated
+requirements. To the extent we raise additional capital by issuing debt, it may
+become difficult for us to meet debt service obligations. To the extent we
+raise additional capital by issuing equity securities, our stockholders may
+experience substantial dilution. Also, any new equity securities may have
+greater rights, preferences or privileges than our existing Class A common
+shares.
+WE DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
+CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN EXISTING PERSONNEL, OUR
+BUSINESS COULD BE HARMED. 
+Our future success depends upon the continued services of Robert
+Greenberg, Chairman of the Board and Chief Executive Officer, Michael
+Greenberg, President, and David Weinberg, Executive Vice President and Chief
+Financial Officer. The loss of the services of any of these individuals or any
+other key employee could harm us. Our future success also depends on our
+ability to identify, attract and retain additional qualified personnel.
+Competition for employees in our industry is intense and we may not be
+successful in attracting and retaining such personnel.
+OUR TRADEMARKS, DESIGN PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS MAY NOT
+BE ADEQUATELY PROTECTED OUTSIDE THE U.S. 
+We believe that our trademarks, design patents and other proprietary
+rights are important to our success and our competitive position. We devote
+substantial resources to the establishment and protection of our trademarks and
+design patents on a worldwide basis. In the course of our international
+expansion, we have, however, experienced conflicts with various third parties
+that have acquired or claimed ownership rights in certain trademarks similar to
+ours or have otherwise contested our rights to our trademarks. We have in the
+past successfully resolved these conflicts through both legal action and
+negotiated settlements, none of which we believe has had a material impact on
+our financial condition and results of operations. Nevertheless, we cannot
+assure you that the actions we have taken to establish and protect our
+trademarks and other proprietary rights outside the U.S. will be adequate to
+prevent imitation of our products by others or to prevent others from seeking
+to block sales of our products as a violation of the trademarks and proprietary
+rights of others. Also, we cannot assure you that others will not assert rights
+in, or ownership of, trademarks, designs and other proprietary rights of ours
+or that we will be able to successfully resolve these types of conflicts to our
+satisfaction. In addition, the laws of certain foreign countries may not
+protect proprietary rights to the same extent as do the laws of the U.S. We may
+face significant expenses and liability in connection with the protection of
+our intellectual property rights outside the U.S. and if we are unable to
+successfully protect our rights or resolve intellectual property conflicts with
+others, our business or financial condition may be adversely affected.
+OUR ABILITY TO COMPETE COULD BE JEOPARDIZED IF WE ARE UNABLE TO PROTECT OUR
+INTELLECTUAL PROPERTY RIGHTS OR IF WE ARE SUED FOR INTELLECTUAL PROPERTY
+INFRINGEMENT. 
+We use trademarks on nearly all of our products and believe that having
+distinctive marks that are readily identifiable is an important factor in
+creating a market for our goods, in identifying us, and in distinguishing our
+goods from the goods of others. We consider our Skechers® and S Design®
+trademarks to be among our most valuable assets and we have registered these
+trademarks in many countries. In addition, we own many other trademarks, which
+we utilize in marketing our products. We continue to vigorously protect our
+trademarks against infringement. We also have a number of design patents and a
+limited number of utility patents covering components and features used in
+various shoes. We believe that our success depends primarily upon skills in
+design, research and development, production and marketing rather than upon our
+patent position. However, we have followed a policy of filing applications for
+United States and foreign patents on designs and technologies that we deem
+valuable.
+We believe that our patents and trademarks are generally sufficient to
+permit us to carry on our business as presently conducted. We cannot, however,
+know whether we will be able to secure patents or trademark protection for our
+intellectual property in the future or that protection will be adequate for
+future products. Further, we face the risk of ineffective protection of
+intellectual property rights
+20
+Table of Contents 
+in the countries where we source and distribute our products. We have been
+sued for patent and trademark infringement and cannot be sure that our
+activities do not and will not infringe on the proprietary rights of others. If
+we are compelled to prosecute infringing parties, defend our intellectual
+property, or defend ourselves from intellectual property claims made by others,
+we may face significant expenses and liability which could negatively impact
+our business or financial condition.
+ENERGY SHORTAGES, NATURAL DISASTERS OR A DECLINE IN ECONOMIC CONDITIONS IN
+CALIFORNIA COULD INCREASE OUR OPERATING EXPENSES OR ADVERSELY AFFECT OUR SALES
+REVENUE. 
+A substantial portion of our operations are located in California,
+including 39 of our retail stores, our headquarters in Manhattan Beach and our
+domestic distribution center in Ontario. Because California has and may in the
+future experience energy and electricity shortages, we may be subject to
+increased operating costs as a result of higher electricity and energy rates
+and may be subject to rolling blackouts which could interrupt our business. Any
+such impact could be material and adversely affect our profitability. In
+addition, because a significant portion of our net sales is derived from sales
+in California, a decline in the economic conditions in California, whether or
+not such decline spreads beyond California, could materially adversely affect
+our business. Furthermore, a natural disaster or other catastrophic event, such
+as an earthquake affecting California, could significantly disrupt our
+business. We may be more susceptible to these issues than our competitors whose
+operations are not as concentrated in California.
+ONE PRINCIPAL STOCKHOLDER IS ABLE TO CONTROL SUBSTANTIALLY ALL MATTERS
+REQUIRING A VOTE OF OUR STOCKHOLDERS AND HIS INTERESTS MAY DIFFER FROM THE
+INTERESTS OF OUR OTHER STOCKHOLDERS. 
+As of December 31, 2002, Robert Greenberg, Chairman of the Board and Chief
+Executive Officer, beneficially owned 77.1% of our outstanding Class B common
+shares and members of Mr. Greenberg’s immediate family beneficially owned the
+remainder of our outstanding Class B common shares. The holders of Class A
+common shares and Class B common shares have identical rights except that
+holders of Class A common shares are entitled to one vote per share while
+holders of Class B common shares are entitled to ten votes per share on all
+matters submitted to a vote of our stockholders. As a result, as of December
+31, 2002, Mr. Greenberg held approximately 70.4% of the aggregate number of
+votes eligible to be cast by our stockholders and together with shares held by
+other members of his immediate family held approximately 91.3% of the aggregate
+number of votes eligible to be cast by our stockholders. Therefore, Mr.
+Greenberg is able to control substantially all matters requiring approval by
+our stockholders. Matters that require the approval of our stockholders include
+the election of directors and the approval of mergers or other business
+combination transactions. Mr. Greenberg also has control over our management
+and affairs. As a result of such control, certain transactions are not possible
+without the approval of Mr. Greenberg, including, proxy contests, tender
+offers, open market purchase programs, or other transactions that can give our
+stockholders the opportunity to realize a premium over the then-prevailing
+market prices for their shares of our Class A common shares. The differential
+in the voting rights may adversely affect the value of our Class A common
+shares to the extent that investors or any potential future purchaser view the
+superior voting rights of our Class B common shares to have value.
+OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER, WHICH MAY CAUSE
+A DECLINE IN THE VALUE OF OUR STOCK. 
+Provisions of Delaware law, our certificate of incorporation, or our
+bylaws could make it more difficult for a third party to acquire us, even if
+closing such a transaction would be beneficial to our stockholders. Mr.
+Greenberg’s substantial beneficial ownership position, together with the
+authorization of Preferred Stock, the disparate voting rights between the Class
+A common shares and Class B common shares, the classification of the Board of
+Directors and the lack of cumulative voting in our certificate of incorporation
+and bylaws, may have the effect of delaying, deferring or preventing a change
+in control, may discourage bids for our Class A common shares at a premium over
+the market price of the Class A common shares and may adversely affect the
+market price of the Class A common shares.
+SPECIAL NOTE ON FORWARD LOOKING STATEMENTS AND REPORTS PREPARED BY ANALYSTS. 
+This Form 10-K contains forward-looking statements within the meaning of
+the Private Securities Litigation Reform Act of 1995, including statements with
+regards to our revenues, earnings, spending, margins, cash flow, orders,
+inventory, products, actions, plans, strategies and objectives. Forward-looking
+statements include, without limitation, any statement that may predict,
+forecast, indicate or simply state future results, performance or achievements,
+and may contain the words “believe,” “anticipate,” “expect,” “estimate,”
+“intend,” “plan,” “project,” “will be,” “will continue,” “will,” “result,”
+“could,” “may,” “might,” or any variations of such words with similar meanings.
+Any such statements are subject to risks and uncertainties that would cause our
+actual results to differ materially from those which are management’s current
+expectations or forecasts. Such information is subject to the risk that such
+expectations or forecasts, or the assumptions underlying such exceptions or
+forecasts, become inaccurate. In addition, the risks included here are not
+21
+Table of Contents 
+exhaustive. Other sections of this report may include additional factors
+which could adversely impact our business and financial performance. Moreover,
+we operate in a very competitive and rapidly changing environment. New risk
+factors emerge from time to time and we cannot 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 do, from time to time, communicate with
+securities analysts, we do not disclose any material non-public information or
+other confidential commercial information to them. Accordingly, individuals
+should not assume that we agree with any statement or report issued by any
+analyst, regardless of the content of the report. Thus, to the extent that
+reports issued by securities analysts contain any projections, forecasts or
+opinions, such reports are not our responsibility.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2002/0000950148-03-000702/item13.txt b/raw/filings/0001065837/2002/0000950148-03-000702/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e5f5226c89c76306088dbc913c8e1cd295567f31
--- /dev/null
+++ b/raw/filings/0001065837/2002/0000950148-03-000702/item13.txt
@@ -0,0 +1,4 @@
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 
+The information required by this Item 13 is hereby incorporated by reference
+from our definitive proxy statement, to be filed pursuant to Regulation 14A
+within 120 days after the end of our 2002 fiscal year.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2002/0000950148-03-000702/item9a.txt b/raw/filings/0001065837/2002/0000950148-03-000702/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001065837/2002/0000950148-03-000702/rp_note.txt b/raw/filings/0001065837/2002/0000950148-03-000702/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001065837/2002/0000950148-03-000702/rpt_disclosure.txt b/raw/filings/0001065837/2002/0000950148-03-000702/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..51aeb4780f9fd8cb8a10d72cbe7ae6af0f3bfc90
--- /dev/null
+++ b/raw/filings/0001065837/2002/0000950148-03-000702/rpt_disclosure.txt
@@ -0,0 +1,38 @@
+CERTAIN RELATIONSHIPS AND RELATED
+TRANSACTIONS 
+Shares of Class A Common Stock issuable upon
+conversion of shares of Class B Common Stock held by the
+Greenberg Family Trust and Michael Greenberg, President of the
+Company, are subject to certain registration rights. The Company
+entered into a registration rights agreement with the Greenberg
+Family Trust and Michael Greenberg pursuant to which the Company
+agreed that it will, on up to two separate occasions per year,
+register up to one-third of the shares of Class A Common
+Stock issuable upon conversion of their Class B Common
+Stock beneficially owned as of the closing of the Company’s
+initial public offering of its Class A Common Stock by each
+such stockholder in any one year, provided, among other
+conditions, that the underwriters of any such offering have the
+right to limit the number of shares included in such
+registration. The Company also agreed that, if it shall cause to
+be filed with the Securities and Exchange Commission a
+registration statement, each such stockholder shall have the
+right to include up to one-third of the shares of Class A
+Common Stock issuable upon conversion of their Class B
+Common Stock beneficially owned as of the closing of the
+Company’s initial public offering of its Class A
+Common Stock by each of them in such registration statement
+provided, among other conditions, that the underwriters of any
+such offering have the right to limit the number of shares
+included in such registration. All expenses of such
+registrations shall be at the Company’s expense.
+Thomas J. Poletti, a director of the Company, is
+a partner of the law firm of Kirkpatrick & Lockhart, LLP
+which provides legal services to the Company. The Company paid
+$592,000 to Kirkpatrick & Lockhart, LLP for legal services
+that were provided to the Company in 2002.
+The Company believes that all of the foregoing
+transactions were on terms no less favorable than those that
+could have been received from unrelated third parties.
+14
+Table of Contents
\ No newline at end of file
diff --git a/raw/filings/0001065837/2006/0000950124-07-001540/filing.txt b/raw/filings/0001065837/2006/0000950124-07-001540/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..01a7e06d787941f12a546a31a2ffaf07cdb1b41c
--- /dev/null
+++ b/raw/filings/0001065837/2006/0000950124-07-001540/filing.txt
@@ -0,0 +1,5447 @@
+10-K
+1
+v28136e10vk.htm
+FORM 10-K
+e10vk 
+Table of Contents 
+UNITED STATES SECURITIES AND EXCHANGE COMMISSION 
+WASHINGTON, D.C. 20549 
+FORM 10-K 
+(Mark One) 
+þ 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31, 2006 
+OR 
+o 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 
+For the transition period from to 
+Commission File Number 001-14429 
+SKECHERS U.S.A., INC. 
+(Exact Name of Registrant as Specified in Its Charter) 
+Delaware 
+95-4376145 
+(State or Other Jurisdiction of Incorporation or Organization) 
+(I.R.S. Employer Identification No.) 
+228 Manhattan Beach Blvd., Manhattan Beach, California 
+90266 
+(Address of Principal Executive Offices) 
+(Zip Code) 
+Registrant’s telephone number, including area code: (310) 318-3100 
+Securities registered pursuant to Section 12(b) of the Act: 
+Title of Each Class 
+Name of Each Exchange on 
+Which Registered 
+Class A Common Stock, $0.001 par value
+New York Stock Exchange 
+Securities registered pursuant to Section 12(g) of the Act: 
+None 
+(Title of Class) 
+Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of
+the Securities Act. Yes o No þ 
+Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or
+Section 15(d) of the Act. Yes o No þ 
+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 þ No o 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
+not contained herein, and will not be contained, to the best of Registrant’s knowledge, in
+definitive proxy or information statements incorporated by reference in Part III of the Form 10-K
+or any amendment to this Form 10-K. þ 
+Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer,
+or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in
+Rule 12b-2 of the Exchange Act.
+(Check one): Large accelerated filer o Accelerated filer þ Non-accelerated filer o 
+Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
+Exchange Act). Yes o No þ 
+As of June 30, 2006, the aggregate market value of the voting and non-voting Class A and Class B
+Common Stock held by non-affiliates of the Registrant was approximately $615 million based upon the
+closing price of $24.11 of the Class A Common Stock on the New York Stock Exchange on such date.
+The number of shares of Class A Common Stock outstanding as of March 1, 2007: 31,674,250. 
+The number of shares of Class B Common Stock outstanding as of March 1, 2007: 13,768,189.
+DOCUMENTS INCORPORATED BY REFERENCE 
+Portions of the Registrant’s Definitive Proxy Statement issued in connection with the 2007 Annual
+Meeting of the Stockholders of the Registrant are incorporated by reference into Part III.
+SKECHERS U.S.A., INC. 
+TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K 
+FOR THE YEAR ENDED DECEMBER 31, 2006 
+PART I 
+ITEM 1.
+BUSINESS
+2 
+ITEM 1A.
+RISK FACTORS
+14 
+ITEM 1B.
+UNRESOLVED STAFF COMMENTS
+21 
+ITEM 2.
+PROPERTIES
+21 
+ITEM 3.
+LEGAL PROCEEDINGS
+22 
+ITEM 4.
+SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
+23 
+PART II 
+ITEM 5.
+MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND 
+ISSUER PURCHASES OF EQUITY SECURITIES
+23 
+ITEM 6.
+SELECTED FINANCIAL DATA
+25 
+ITEM 7.
+MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
+OF OPERATION
+26 
+ITEM 7A.
+QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
+38 
+ITEM 8.
+FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
+39 
+ITEM 9.
+CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL 
+DISCLOSURE
+63 
+ITEM 9A.
+CONTROLS AND PROCEDURES
+63 
+ITEM 9B.
+OTHER INFORMATION
+64 
+PART III 
+ITEM 10.
+DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNACE
+65 
+ITEM 11.
+EXECUTIVE COMPENSATION
+65 
+ITEM 12.
+SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND 
+RELATED STOCKHOLDER MATTERS
+65 
+ITEM 13.
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
+65 
+ITEM 14.
+PRINCIPAL ACCOUNTING FEES AND SERVICES
+65 
+PART IV 
+ITEM 15.
+EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
+65 
+EXHIBIT 21.1 
+EXHIBIT 23.1 
+EXHIBIT 31.1 
+EXHIBIT 31.2 
+EXHIBIT 32.1 
+i 
+Table of Contents 
+SPECIAL NOTE ON FORWARD LOOKING STATEMENTS 
+This annual report on Form 10-K contains forward-looking statements that are made pursuant to
+the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including
+statements with regards to future revenue, projected 2007 results, earnings, spending, margins,
+cash flow, orders, expected timing of shipment of products, inventory levels, future growth or
+success in specific countries, categories or market sectors, continued or expected distribution to
+specific retailers, liquidity, capital resources and market risk, strategies and objectives.
+Forward-looking statements include, without limitation, any statement that may predict, forecast,
+indicate or simply state future results, performance or achievements of our company, and can be
+identified by the use of forward looking language such as “believe,” “anticipate,” “expect,”
+“estimate,” “intend,” “plan,” “project,” “will be,” “will continue,” “will result,” “could,” “may,”
+“might,” or any variations of such words with similar meanings. Any such statements are subject to
+risks and uncertainties that could cause actual results to differ materially from those which are
+management’s current expectations or forecasts. Such information is subject to the risk that such
+expectations or forecasts, or the assumptions underlying such expectations or forecasts, become
+inaccurate.
+Risk factors include but are not limited to the following: international, national and local
+general economic, political and market conditions; intense competition among sellers of footwear
+for consumers; changes in fashion trends and consumer demands; popularity of particular designs and
+categories of products; the level of sales during the spring, back-to-school and holiday selling
+seasons; the ability to anticipate, identify, interpret or forecast changes in fashion trends,
+consumer demand for our products and the various market factors described above; the ability of our
+company to maintain its brand image; the ability to sustain, manage and forecast our company’s
+growth and inventories; the ability to secure and protect trademarks, patents and other
+intellectual property; the loss of any significant customers, decreased demand by industry
+retailers and cancellation of order commitments; potential disruptions in manufacturing related to
+overseas sourcing and concentration of production in China, including, without limitation,
+difficulties associated with political instability in China, the occurrence of a natural disaster
+or outbreak of a pandemic disease in China, or electrical shortages, labor shortages or work
+stoppages that may lead to higher production costs and/or production delays; changes in monetary
+controls and valuations of the Yuan by the Chinese government; increased costs of freight and
+transportation to meet delivery deadlines; violation of labor or other laws by our independent
+contract manufacturers, suppliers or licensees; potential imposition of additional duties, tariffs
+or other trade restrictions; business disruptions resulting from natural disasters such as an
+earthquake due to the location of our company’s domestic warehouse, headquarters and a substantial
+number of retail stores in California; changes in business strategy or development plans; the
+ability to attract and retain qualified personnel; the disruption, expense and potential liability
+associated with existing or unanticipated future litigation; and other factors referenced or
+incorporated by reference in this report and other reports that we filed with the United States
+Securities and Exchange Commission (the “SEC”).
+The risks included here are not exhaustive. Other sections of this report may include
+additional factors that could adversely impact our business and financial performance. Moreover, we
+operate in a very competitive and rapidly changing environment. New risk factors emerge from time
+to time and we cannot 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. Moreover, reported results shall not be considered
+an indication of our company’s future performance. Investors should also be aware that while we
+do, from time to time, communicate with securities analysts, we do not disclose any material
+non-public information or other confidential commercial information to them. Accordingly,
+individuals should not assume that we agree with any statement or report issued by any analyst,
+regardless of the content of the report. Thus, to the extent that reports issued by securities
+analysts contain any projections, forecasts or opinions, such reports are not our responsibility.
+1 
+Table of Contents 
+PART I 
+ITEM 1. BUSINESS 
+We were incorporated in California in 1992 and reincorporated in Delaware in 1999. Throughout
+this annual report, we refer to Skechers U.S.A., Inc., a Delaware corporation, and its consolidated
+subsidiaries as “we,” “us,” “our,” “our company” and “Skechers” unless otherwise indicated. Our
+Internet website address is www.skechers.com . Our annual report on Form 10-K, quarterly
+reports on Form 10-Q, current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of
+directors, officers and 10% stockholders, and any amendments to those reports filed or furnished
+pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of
+charge on our website as soon as reasonably practicable after we electronically file such material
+with, or furnish it to, the SEC. You can learn more about us by reviewing such filings on our
+website or at the SEC’s website at www.sec.gov .
+GENERAL
+We design and market Skechers-branded contemporary footwear for men, women and children under
+several unique lines. Our footwear reflects a combination of style, quality and value that appeals
+to a broad range of consumers. In addition to Skechers-branded lines, we also offer nine uniquely
+branded designer, fashion and street-focused footwear lines for men, women and children. These
+lines are branded and marketed separately from Skechers and appeal to specific audiences. Our
+brands are sold through department stores, specialty stores, athletic retailers, and boutiques as
+well as our e-commerce website and our own retail stores. We operate 50 concept stores, 61 factory
+outlet stores and 33 warehouse outlet stores in the United States, and 10 concept stores and two
+factory outlets internationally. Our objective is to profitably grow our operations worldwide
+while leveraging our recognizable Skechers brand through our strong product lines, innovative
+advertising and diversified distribution channels.
+We seek to offer consumers a vast array of fashionable footwear that satisfies their active,
+casual, dress casual and dress footwear needs. Our core consumers are style-conscious 12- to
+24-year-old men and women attracted to our youthful brand image and fashion forward designs. Many
+of our best-selling and core styles are also developed for children with colors and materials that
+reflect a playful image appropriate for this demographic.
+We believe that brand recognition is an important element for success in the footwear
+business. We have aggressively promoted our brands through comprehensive marketing campaigns for
+men, women and children. In 2005, we signed American Idol winner and rising star Carrie Underwood
+for our domestic and international print advertising which ran through the end of 2006. During
+2006, we continued our celebrity driven ads with the launch of platinum recording artist Ashlee
+Simpson as our new Skechers celebrity endorsee. In addition, we launched television sponsor spots
+for many of our Skechers branded men’s and women’s lines. Our strategy for kids continues to
+primarily focus on television ads. For adults, our strategy continues to focus on print
+advertisements in targeted publications, which are supported by sponsorship television spots . 
+Select fashion brands were also supported by television commercials, including 310 and Marc Ecko
+Footwear. For 310 Motoring, we also continued print ads featuring accomplished actor Terrence
+Howard, and multi-platinum hip hop recording artist The Game for his signature 310 footwear line.
+Our Unltd. by Marc Ecko and Rhino Red Footwear lines are also supported through print ads developed
+by Marc Ecko, as well as ads for Zoo York and Avirex. During 2006, we signed Evangeline Lilly, star
+of the hit TV show Lost, to support our Michelle K line.
+Since we introduced our first line, Skechers USA Sport Utility Footwear, in December 1992, we
+have expanded our product offering and grown our net sales while substantially increasing the
+breadth and penetration of our account base. Our men’s, women’s and children’s Skechers-branded
+product lines benefit from the Skechers reputation for contemporary and progressive styling,
+quality, comfort and affordability. Our lines that are not branded with the Skechers name benefit
+from our marketing support, quality management and expertise. To promote innovation and brand
+relevance, we manage our product lines separately by utilizing dedicated sales and design teams.
+Our product lines share back office services in order to limit our operating expenses and fully
+utilize our management’s vast experience in the footwear industry.
+SKECHERS LINES
+Skechers USA. Our Skechers USA category for men and women includes five types of footwear: (i)
+Casuals, (ii) Dress Casuals, (iii) Comfort (for men only), (iv) Outdoor (for men only) and (v)
+Casual Fusion. This category is generally sold through mid-tier retailers, department stores and
+some footwear specialty shops.
+2 
+Table of Contents 
+• 
+For men, the Casuals category includes “black and brown” boots, shoes and sandals that
+generally have a rugged urban design — some with industrial-inspired fashion features. This
+category is defined by the heavy-lugged outsole and value-oriented materials employed in the
+uppers. For women, the Casuals category includes basic “black and brown” oxfords and
+slip-ons, lug outsole boots, and casual sandals. The women’s line also uses value-oriented
+materials, but a growing number of styles may also be designed in leather. We design and
+price both the men’s and women’s categories to appeal primarily to younger consumers with
+broad acceptance across age groups. 
+• 
+For men, the Dress Casuals category is comprised of basic “black and brown” men’s shoes
+that feature shiny leathers and dress details, but may utilize traditional or lugged
+outsoles as well as value-oriented materials. For women, the Dress Casual line is comprised
+of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or
+faux fur lining or trim. 
+• 
+Skechers Comfort is a line of trend-right casuals for men who want all-day comfort
+without compromising style. Characteristics of the line include comfortable outsoles,
+cushioned insoles and quality leather uppers. A category with unique features, we market and
+package the Skechers Comfort styles in a shoe box that is distinct from that of other
+categories in the Skechers USA line of footwear. 
+• 
+Our Outdoor styles for men primarily consist of hiker-influenced constructions including
+boots and shoes. While this category includes many technical performance features, we market
+this category of footwear primarily on the basis of style and comfort. Outsoles generally
+consist of molded and contoured hardened rubber. Many designs include gussetted tongues to
+prevent penetration of water and debris, cushioned mid-soles, motion control devices such as
+heel cups, water-resistant or water-proof construction and materials, and more durable
+hardware such as metal D-rings instead of eyelets. Uppers are generally constructed of
+heavily oiled nubuck and full-grain leathers. 
+• 
+Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals
+targeted at trend-conscious young men and women. The outsoles are primarily rubber and
+adopted from our men’s Sport and women’s Active lines. This collection features leather or
+nubuck uppers, but may also include mesh, and may be in shades of browns and beiges as well
+as in black, gray, greens and blues. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes: (i) Joggers, Trail
+Runners, Sport Hikers, Terrainers, (ii) Performance (for men only), (iii) Street Casuals and (iv)
+Sport Sandals. Our Skechers Sport category is distinguished by its technical performance-inspired
+looks; however, we generally do not promote the technical performance features of these shoes.
+Skechers Sport is typically sold through specialty shoe stores, department stores and athletic
+footwear retailers.
+• 
+Our Jogger, Trail Runner, Sport Hiker and cross trainer-inspired Terrainer designs are
+lightweight constructions that include cushioned heels, polyurethane midsoles, phylon and
+other synthetic outsoles, as well as leather or synthetic uppers such as durabuck, cordura
+and nylon mesh. Careful attention is devoted to the design, pattern and construction of the
+outsoles, which vary greatly depending on the intended use. This category features earth
+tones and athletic-inspired hues with contrasting pop colors such as lime green, orange and
+red in addition to traditional athletic white. 
+• 
+The Performance category is comprised of multi-purpose running shoes that are marketed as
+men’s lifestyle athletic footwear. Some styles include 3M reflective accents, breathable
+upper construction, quality leathers, abrasion-resistant toe and heel cap, removable
+moisture wicking molded EVA sock liner, outsole forefoot flex grooves for improved
+flexibility, non-marking rubber lugs with impact dispersment technology (IDT), aggressive
+all terrain traction lugs, external torsion stabilizer and tuned dual-density molded ethyl
+vinyl acetate (EVA) midsole with pronation control. 
+• 
+Street Casual incorporates lower profiles, classic details and skate, street and fusion
+influences in a collection of essential, basic casual sneakers. The uppers are designed in
+leather, suede, nubuck, canvas and/or mesh, and many include vulcanized outsoles. Street
+Casual is targeted to young consumers, but also appeals to a broader demographic. 
+• 
+Our Sport Sandals are primarily designed from existing Skechers Sport outsoles and may
+include many of the same sport features as our sneakers with the addition of new
+technologies geared toward making a comfortable sport sandal. Sport sandals are designed as
+seasonal footwear for the consumer who already wears our Skechers Sport sneakers. 
+Skechers Active. A natural companion to Skechers Sport, Skechers Active has grown from a
+casual everyday line into a complete line of fusion and sport fusion sneakers for females of all
+ages. Marked by low-profile outsoles, the Active line is available in a multitude of colors as well
+as solid white or black, in fabrics, leathers and meshes, and with various closures – traditional
+laces, zig-
+3 
+Table of Contents 
+zag and cross straps, among others. The line also now includes Mary Janes, sandals and open
+back styles. Active sneakers are typically retailed through specialty casual shoe stores and
+department stores.
+Skechers Collection . The Skechers Collection line is comprised of stylish dress shoes, dress
+casual shoes and sandals for the young fashion-forward male consumer. The looks include classic
+tailored and fashion-forward square, round and pointed lasts in a variety of styles, such as
+bicycle toes, monk straps, wingtips, oxfords, cap toes, demi-boots and boots. The outsoles project
+a sleeker profile and may be either leather or man-made. The uppers are quality leathers including
+glossy, box, distressed and aniline. Skechers Collection is designed and priced for young men
+seeking their first dress or evening shoe. Adding to the line is a reasonably priced assortment of
+stylized boots and oxfords designed in Italy. This group is designed for the more style-conscious
+male consumer which can be worn at work, on weekends or in clubs. Skechers Collection is sold
+through specialty casual shoe stores and department stores.
+Skechers
+Cali. Launched in 2006, Skechers Cali is new line of sneakers, skimmers and sandals
+for young women designed to typify the California lifestyle. The sneakers are designed primarily
+with canvas uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers
+and flats are designed with many of the same upper materials and outsoles as the sneakers. The
+sandals range from dress casual looks to casual to beach thongs. Skechers Cali is sold through
+specialty casual shoe stores and department stores.
+Skechers
+Work. Expanding on our heritage of cutting-edge utility footwear, Skechers Work
+offers a complete line of men’s and women’s sport oxfords, field boots, trail hikers and athletic
+shoes. The Skechers Work line includes the (i) Lightweight Alloy Series (“LAS”), (ii) Safety Toe,
+(iii) Occupational and (iv) Slip-Resistant categories, which may feature electrical hazard,
+electrostatic-dissipative and slip-resistant technologies, as well as breathable, seam-sealed
+Hydroguard TM waterproof membranes. Our LAS, Safety Toe and Occupational products have
+been independently tested and certified to meet ASTM, CSA or SATRA standards, and our
+slip-resistant soles have been tested pursuant to the Mark II testing method for slip resistance.
+The uppers are in high-quality leather, nubuck, trubuck and durabuck. Constructed on high-abrasion,
+long wearing soles, the line is designed for men and women with jobs that require certain safety
+requirements. Skechers Work is primarily marketed through business-to-business channels, but is
+also available direct-to-consumers and through select department and specialty stores.
+• 
+Our LAS trail hikers and sport oxfords are exclusively designed for industry
+professionals who need lightweight, all-day footwear protection. Their innovative design
+includes a durable, ultra-lightweight safety toe, and high-grade materials for superior
+strength and comfort. 
+• 
+Our safety toe athletic sneakers, boots, hikers, oxfords and sport oxfords are ideal for
+environments requiring safety footwear. These durable styles feature breathable lining, oil
+and abrasion resistant outsoles and safety toe design for optimal protection, all-day
+comfort and prolonged durability. 
+• 
+Our occupational boots, oxfords and hikers offer versatile features for those requiring
+utility, safety and comfort features, but who also want style. Designed with an array of
+textured uppers and colorways, the footwear capitalizes on function and comfort – from
+breathable lining to contoured insoles and abrasion-resistant outsoles for prolonged wear. 
+• 
+Our slip-resistant boots, athletics, sport and slip-on oxfords, and clogs are ideal for
+the service industry. These shoes offer comfort and safety in dry or wet conditions by
+utilizing breathable lining and Mark II-tested slip, oil and abrasion resistant outsoles for
+optimal safety and reliability. 
+Skechers Kids. The Skechers Kids line includes: (i) Skechers Kids, which is a range of
+infants, toddlers, boys and girls boots, shoes and sneakers; (ii) S-Lights, which is lighted
+footwear for toddlers, boys and girls; (iii) Skechers Cali for Girls, which is trend-inspired
+boots, shoes, sandals and dress sneakers; and (iv) Airators by Skechers. Skechers Kids and Skechers
+Cali for Girls are comprised primarily of shoes that are designed as “takedowns” of their adult
+counterparts, allowing the younger set the opportunity to wear the same popular styles as their
+older siblings and schoolmates. This “takedown” strategy maintains the product’s integrity by
+offering premium leathers, hardware and outsoles without the attendant costs involved in designing
+and developing new products. In addition, we adapt current fashions from our men’s and women’s
+lines by modifying designs and choosing colors and materials that are more suitable for the playful
+image that we have established in the children’s footwear market. Each Skechers Kids line is
+marketed and packaged separately with a distinct shoe box. Skechers Kids shoes are available at
+department stores and specialty and athletic retailers.
+4 
+Table of Contents 
+• 
+The Skechers Kids line includes embellishments or adornments such as fresh colors and
+fabrics from our Skechers adult shoes. Some of these styles are also adapted for toddlers
+with softer, more pliable outsoles, and for infants with soft, leather-sole crib shoes. 
+• 
+S-Lights is a line of sneakers and sandals with a combined pattern of lights on the
+outsole and other areas of the shoes. We market and package the S-Lights styles in a shoe
+box that is distinct from that of other categories in the Skechers Kids line of footwear. 
+• 
+Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young women
+designed to typify the California lifestyle. The sneakers are designed primarily with canvas
+uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and
+flats are designed with many of the same upper materials and outsoles as the sneakers. 
+• 
+Airators by Skechers is a new line of boys sneakers with an air cooling system designed
+to pump air from the heel through to the toes. 
+FASHION AND STREET BRANDS
+The Fashion and Street Division and its brands are marketed separately from Skechers.
+Unltd. by Marc Ecko and Rhino Red. Unltd. by Marc Ecko is a line of men’s street-inspired
+traditional sneakers, fusion sneakers and urban-focused casuals. Rhino Red is a line of women’s
+classic and fashion-forward fusion sneakers and Mary Janes for young women, casual and dress causal
+heels and boots. Targeted to the street-savvy 18- to 34-year-old consumer, the footwear reflects
+Ecko Unltd.’s men’s apparel and the Ecko Red women’s apparel, and effectively utilizes the globally
+recognized Rhino logo on the majority of sneakers and casuals. Within the Rhino Red line is the
+Red by Marc Ecko offering, a line of designer dress and dress casual footwear for the urban chic
+woman. The men’s and women’s footwear collections are designed in leather, canvas, mesh, as well as
+other materials. Unltd. by Marc Ecko for boys and Rhino Red for girls sneaker lines primarily
+consist of takedowns from the adult Marc Ecko footwear lines with additional or different colorways
+geared toward children and that reflect the boys’ and girls’ Ecko Unltd. and Ecko Red clothing.
+The licensed brands are sold through select department stores and specialty retailers.
+310 Motoring. The 310 Motoring footwear collection for men utilizes top-quality leathers, a
+fashion-forward approach to design and comfort, and materials that are derived from 310 Motoring’s
+customized cars, including wood burl and carbon fiber. A multi-tiered approach, the line consists
+of high-end and high-design boots and shoes, sophisticated driving-inspired shoes and boots, and
+stylized athletics. 310 Motoring footwear is available in select department stores, specialty
+retailers and urban independents.
+In the last week of 2005, we launched multi-platinum hip hop recording artist The Game’s
+signature 310 sneaker, known as Hurricane by 310, in select specialty athletic stores in one color
+and one style that was followed by five additional colors in 2006. We also introduced the second
+Hurricane shoe in the fourth quarter of 2006. Hurricane sneakers are also available for boys and
+toddlers.
+Michelle K. Targeted toward stylish 18- to 34-year-old women, Michelle K is a signature
+designer line of fashion forward fusion sneakers, sporty boots and sandals. The Michelle K line is
+marked by a unique combination of materials, textures and colors. The line is available in select
+upscale department stores and better boutiques. This brand also includes Michelle K Girl, a
+fashion-forward line, primarily comprised of fusion casual sneakers as well as boots and sandals
+marked by a unique combination of colors, materials, textures and embellishments.
+Mark Nason and Siren by Mark Nason. Mark Nason is a sophisticated and fashion forward footwear
+collection, marketed to style-conscious men, designed to complement designer denim and dress casual
+wear. Primarily crafted and constructed in Italy, the Mark Nason collection is comprised of classic
+and modern boots, shoes and sandals with distinctive profiles and luxurious hand-distressed
+leathers. The Mark Nason line distinguishes itself with high quality individual styling and may
+utilize unique materials such as premium leathers, etched and tattooed leathers, hand-treated,
+hand-scraped and hand-cut leathers, hand-treated leather uppers and soles, snakeskin and eel skin.
+Within the Mark Nason line is Lounge by Mark Nason, which is a collection of high-end
+sport-influenced casuals. Siren by Mark Nason is the ultimate accompaniment to designer denim and
+casual couture for discerning women. The line’s boots are fueled with bold profiles, alluring
+details and distinct textures. Handcrafted in Italy, the boots utilize premium leathers,
+hand-treated details, leather outsoles, and some may include snakeskin and other exotic materials.
+The Mark Nason lines are available in upscale department stores and better boutiques.
+5 
+Table of Contents 
+SoHo Lab. Targeting 16- to 34-year-old trend-savvy females, SoHo Lab is designed to be a more
+fashionable and sophisticated line and is primarily made from higher quality materials and
+leathers. The stylish shoes, boots, heels, flats and sandals are manufactured in Europe and Brazil
+as well as China. This line is typically sold through department and specialty stores.
+Kitson . Launched in the fourth quarter of 2005, Kitson footwear is a line of fashion sneakers
+and sandals targeted to hip and trend-savvy women and girls. A licensed brand, Kitson is an
+ultra-hip Los Angeles boutique known for sparking the hottest and newest trends, and where young
+Hollywood celebrities come to shop. Kitson goods are must-have merchandise, featured in leading
+style and lifestyle magazines. Kitson footwear is available at the Kitson retail boutique, upscale
+department stores and other boutiques.
+Zoo York. Launched in the fourth quarter of 2006, Zoo York footwear is a line of action
+sports and lifestyle footwear for men. Zoo York footwear is designed by Marc Ecko Enterprises and
+borrows from the color palette and trends from Zoo York apparel that targets core skaters and those
+that embrace skate fashion. Zoo York footwear is available in skate and specialty shops as well as
+select athletic and department stores.
+Avirex . Launching in the first quarter of 2007, Avirex footwear is a line of athletic and
+skate-inspired sneakers and slip-ons that appeal to both urban and suburban consumers. Avirex is an
+authentic American-inspired aviation apparel brand with 30-plus years in the fashion industry that
+targets young men and the music community. Avirex footwear is designed by Mark Ecko Enterprises
+and complements Avirex’s apparel, using similar prints and graphics. Avirex footwear is available
+in national department and chain stores, and in select specialty retailers.
+PRODUCT DESIGN AND DEVELOPMENT
+Our principal goal in product design is to generate new and exciting footwear in all of our
+product lines with contemporary and progressive styles and comfort-enhancing performance features.
+Targeted to the active, youthful and style-savvy, we design most new styles to be fashionable and
+marketable to the 12- to 24-year old consumer, while substantially all of our lines appeal to the
+broader range of 5- to 40-year-old consumers, with an exclusive selection for infants and toddlers.
+While many of our shoes have performance features, we generally do not position our shoes in the
+marketplace as technical performance shoes.
+We believe that our products’ success is related to our ability to recognize trends in the
+footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving
+preferences. We are able to quickly translate the latest footwear trends into stylish, quality
+footwear at a reasonable price by analyzing and interpreting current and emerging lifestyle trends.
+Lifestyle trend information is compiled and analyzed by our designers from various sources,
+including the review and analysis of modern music, television, cinema, clothing, alternative sports
+and other trend-setting media; traveling to domestic and international fashion markets to identify
+and confirm current trends; consulting with our retail and e-commerce customers for information on
+current retail selling trends; participating in major footwear trade shows to stay abreast of
+popular brands, fashions and styles; and subscribing to various fashion and color information
+services. In addition, a key component of our design philosophy is to continually reinterpret and
+develop our successful styles in our brand’s image.
+The footwear design process typically begins about nine months before the start of a season.
+Our products are designed and developed primarily by our in-house design staff. To promote
+innovation and brand relevance, we utilize dedicated design teams, who report to our senior design
+executives, and focus on each of the men’s, women’s and children’s categories. In addition, we
+utilize outside design firms on an item-specific basis to supplement our internal design efforts.
+The design process is extremely collaborative, as members of the design staff frequently meet with
+the heads of retail, merchandising, sales, production and sourcing to further refine our products
+to meet the particular needs of the target market.
+After a design team arrives at a consensus regarding the fashion themes for the coming season,
+the designers then translate these themes into our products. These interpretations include
+variations in product color, material structure and embellishments, which are arrived at after
+close consultation with our production department. Prototype blueprints and specifications are
+created and forwarded to our manufacturers for a design prototype. The design prototypes are then
+sent back to our design teams. Our major retail customers may also review these new design
+concepts. Customer input not only allows us to measure consumer reaction to the latest designs, but
+also affords us an opportunity to foster deeper and more collaborative relationships with our
+customers. We also occasionally order limited production runs that may initially be tested in our
+concept stores. By working closely with store personnel, we obtain customer feedback that often
+influences product design and development. Our design teams can easily and quickly modify and
+refine a design based on customer input. Generally, the production process can take six months to
+nine months from design concept to commercialization.
+6 
+Table of Contents 
+SOURCING
+Factories. Our products are produced by independent contract manufacturers located primarily
+in China and, to a lesser extent, in Italy, Vietnam, Brazil and various other countries. We do not
+own or operate any manufacturing facilities as we believe that the use of independent manufacturers
+substantially increases our production flexibility and capacity while reducing capital expenditures
+and avoiding the costs of managing a large production work force.
+When possible, we seek to use manufacturers that have previously produced our footwear, which
+we believe enhances continuity and quality while controlling production costs. We attempt to
+monitor our selection of independent factories to ensure that no one manufacturer is responsible
+for a disproportionate amount of our merchandise. We source product for styles that account for a
+significant percentage of our net sales from at least four different manufacturers. During the year
+ended December 31, 2006, we had four manufacturers that accounted for approximately 59.6% of total
+purchases. One manufacturer accounted for 30.8%, and two others each accounted for over 10.0% of
+our total purchases. To date, we have not experienced difficulty in obtaining manufacturing
+services.
+We finance our production activities in part through the use of interest-bearing open purchase
+arrangements with certain of our Asian manufacturers. These facilities currently bear interest at a
+rate between 0% and 1.5% for 30 to 60 days financing, depending on the factory. We believe that the
+use of these arrangements afford us additional liquidity and flexibility. We do not have any
+long-term contracts with any of our manufacturers; however, we have long-standing relationships
+with many of our manufacturers and believe our relationships to be good.
+We closely monitor sales activity after initial introduction of a product in our concept
+stores to determine whether there is substantial demand for a style, thereby aiding us in our
+sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming
+collections or offered as part of our periodic style offerings, while less popular styles can be
+discontinued after only a limited production run. We believe that sales in our concept stores can
+also help forecast sales in national retail stores, and we share this sales information with our
+wholesale accounts. Sales, merchandising, production and allocations management analyze historical
+and current sales and market data from our wholesale account base and our own retail stores to
+develop an internal product quantity forecast that allows us to better manage our future production
+and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock
+position to minimize the time necessary to fill customer orders by placing orders with our
+manufacturers prior to the time we receive customers’ orders for such footwear.
+Production
+Oversight. To safeguard product quality and consistency, we oversee the key aspects
+of production from initial prototype manufacture through initial production runs to final
+manufacture. Monitoring of all production is performed in the United States by our in-house
+production department and in Asia through an approximately 250-person staff working from our
+offices in China and Taiwan. We believe that our Asian presence allows us to negotiate supplier and
+manufacturer arrangements more effectively, decrease product turnaround time and ensure timely
+delivery of finished footwear. In addition, we require our manufacturers to certify that neither
+convicted, forced or indentured labor (as defined under U.S. law) nor child labor (as defined by
+the manufacturer’s country) is used in the production process, and that compensation will be paid
+according to local law and that the factory is in compliance with local safety regulations.
+Quality Control. We believe that quality control is an important and effective means of
+maintaining the quality and reputation of our products. Our quality control program is designed to
+ensure that not only finished goods meet our established design specifications, but also that all
+goods bearing our trademarks meet our standards for quality. Our quality control personnel located
+in China and Taiwan perform an array of inspection procedures at various stages of the production
+process, including examination and testing of prototypes of key raw materials prior to manufacture,
+samples and materials at various stages of production and final products prior to shipment. Our
+employees are on-site at each of our major manufacturers to oversee production. For some of our
+lower volume manufacturers, our staff is on-site during significant production runs or we will
+perform unannounced visits to their manufacturing sites to further monitor compliance with our
+manufacturing specifications.
+ADVERTISING AND MARKETING
+With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted approach to
+marketing to drive traffic, build brand recognition and properly position our diverse lines within
+the marketplace. Senior management is directly involved in shaping our image and the conception,
+development and implementation of our advertising and marketing activities. The focus of our
+marketing plan is print and television advertising, which is supported by outdoor, trend-influenced
+marketing, public relations, promotions and
+7 
+Table of Contents 
+in-store support. In addition, we utilize celebrity endorsees in our advertisements. We also
+believe our Internet websites and trade shows are effective marketing tools to both consumers and
+corporate accounts. We have historically budgeted advertising as a percentage of projected net
+sales. During 2006, we broadened our marketing campaign which resulted in advertising and marketing
+expenditures equaling 6.9% of our annual net sales, which was higher than the prior year and below
+our targeted range of 8% to 10% of annual net sales.
+Advertising. The majority of our advertising is conceptualized by our in-house design team. We
+believe that our advertising strategies, methods and creative campaigns are directly related to our
+success. Through our lifestyle and image-driven advertising, we generally seek to build and
+increase brand awareness by linking the Skechers brand and our fashion and street brands to
+youthful, contemporary lifestyles and attitudes rather than to market a particular footwear
+product. In addition to our compelling Skechers lifestyle ads, we have also created product
+specific ads for our men’s lines to appeal to men as well as women who purchase footwear for men.
+Our ads are designed with a broad approach to eliminate single categorization and to provide
+merchandise flexibility and to facilitate the “brands and product designs” direction of evolving
+footwear fashions and consumer preferences.
+To further build brand awareness and influence consumer spending, we have selectively signed
+endorsement agreements with celebrities whom we believed would reach new markets. In 2005, we
+signed American Idol winner and rising star Carrie Underwood for a Skechers marketing agreement
+through 2006, and in 2006 we signed pop star Ashlee Simpson to appear in Skechers marketing
+campaigns through 2007. In past years, we had similar endorsement agreements for Skechers with
+singers Christina Aguilera and Britney Spears, professional basketball player and actor Rick Fox,
+and actors Robert Downey, Jr., Matt Dillon and Rob Lowe. From time to time, we may sign other
+celebrities to endorse our brand name and image in order to strategically market our products among
+specific consumer groups in the future.
+In addition to advertising our Skechers branded lines through men’s, women’s and children’s
+ads, we also support Michelle K, Mark Nason, 310 Motoring, Marc Ecko, Zoo York and Avirex lines
+through individual unique print advertisements – some which may include celebrity endorsees. In
+2006, we signed Evangeline Lilly, star of the hit TV show Lost, to appear in Michelle K
+advertisements through 2007. In 2005, we signed critically acclaimed actor Terrence Howard to
+appear in 310 lifestyle advertisements and we signed an agreement with multi-platinum hip hop
+superstar The Game to appear in marketing campaigns in support of his signature 310 shoe Hurricane.
+During 2006, we also signed an endorsement deal with Nas to support a 310 signature shoe. For
+Mark Nason, we have focused on key-selling styles in product-driven ads that captured the brand’s
+essence. For the Marc Ecko footwear brands, Marc Ecko’s design team has created relevant targeted
+ads for men and women. These include a multi-media men’s campaign featuring our graffiti painted
+shoe as well as the first Unltd. by Marc Ecko for boys spot. In 2007, singer/actress JoJo became
+the new face of Rhino Red, and she will appear in print and outdoor advertising and a compelling
+television commercial.
+With a targeted approach, our print ads appear regularly in popular fashion and lifestyle
+consumer publications, such as GQ, Cosmopolitan, Elle, Lucky, In Style, Seventeen, Maxim, Slam,
+Road & Track, and Complex, as well as in weekly publications such as People, Us Weekly, Star,
+Sports Illustrated and InTouch, among others.
+Our television commercials are produced both in-house and through producers we have utilized
+in the past and are familiar with our brands. In 2006, we created product-driven sponsor spots like
+our first animated spot for Skechers Airators as well as lifestyle campaigns for men, women and
+kids. We have found these to be a cost-effective way to advertise during key national and cable
+programming in key selling seasons. Our in-house media buyer strategically selects the ideal
+programs and geographic areas for our commercials for maximum consumer impact.
+Outdoor. In an effort to reach consumers where they shop and in high traffic areas as they
+travel to and from work or while running errands, we continued our multi-level outdoor campaign
+that included kiosks in key malls across the United States, and billboards, transportation systems
+and telephone kiosks in North America and Europe. We believe these are effective and efficient
+ways to reach a broad range of consumers and leave a lasting impression of our many brands.
+Trend-Influenced Marketing/Public Relations. Our public relations team’s objectives are to
+secure product placement in key fashion magazines, place our footwear on the feet of trend-setting
+celebrities, and garner positive and accurate press on our company. Through our commitment to
+aggressively promote our upcoming styles, our products are often featured in leading fashion and
+pop culture magazines, as well as in select films and popular television shows. Our footwear and
+our company have been prominently displayed and referenced on news and magazine shows including The
+Today Show , Good Day L.A., Entertainment Tonight, and E! ; and on television programs, including Law
+& Order, Entourage, and The Big Idea with Donny Deutsch , among others. We have also amassed an
+array of prominent product placements in magazines including Lucky , Seventeen , OK!, Teen Vogue,
+CosmoGirl, InStyle, Stuff, Maxim, Slam, Dime and Footwear News . In addition, our brands have been
+associated with cutting edge events and select
+8 
+Table of Contents 
+celebrities, and our product has been seen worn by trend-setters like Denis Leary, Chris
+Cornell, Debra Messing, Nicole Richie, Ashlee Simpson, The Game, Paris Hilton and Jamie Foxx, among
+others.
+Promotions. By applying creative sales techniques via a broad spectrum of mediums, our
+marketing team seeks to build brand recognition and drive traffic to Skechers’ retail stores,
+websites and our retail partners’ locations. Skechers’ promotional strategies have encompassed
+in-store specials, charity events, product tie-ins and giveaways, and collaborations with national
+retailers and radio stations. Our imaginative promotions are consistent with Skechers’ imaging and
+lifestyle.
+Visual Merchandising. Our in-house visual merchandising team supports wholesale accounts,
+distributors and our retail stores by developing displays that effectively leverage our products at
+the point of purchase. Our point-of-purchase display items include signage, graphics, displays,
+counter cards, banners and other merchandising items. These materials mirror the look and feel of
+our national print advertising in order to reinforce brand image at the point-of-purchase.
+Our visual merchandising coordinators (“VMC’s”) work with our sales force and directly with
+our customers to ensure better sell-through at the retail level by generating greater consumer
+awareness through Skechers brand displays. Our VMC’s communicate with and visit our wholesale
+customers on a regular basis to aid in proper display of our merchandise. They also run in-store
+promotions to enhance the sale of Skechers footwear and create excitement surrounding the Skechers
+brand. We believe that these efforts help stimulate impulse sales and repeat purchases.
+Trade Shows. To better showcase our diverse products to footwear buyers in the United States
+and Europe, and to distributors around the world, we regularly exhibit at leading trade shows.
+Along with specialty trade shows, we exhibit at WSA’s The Shoe Show, FFANY, ASR and MAGIC in the
+United States, and GDS, MICAM, Bread & Butter, MIDEC and Who’s Next in Europe. Our dynamic,
+state-of-the-art trade show exhibits are developed by our in-house architect to showcase our latest
+product offerings in a lifestyle setting reflective of each of our brands. By investing in
+innovative displays and individual rooms showcasing each line, our sales force can present a sales
+plan for each line and buyers are able to truly understand the breadth and depth of our offerings,
+thereby optimizing commitments and sales at the retail level. For select non-Skechers branded lines
+such as Michelle K, 310 Motoring and our Marc Ecko footwear lines, we have created individual
+exhibits to ensure their brand integrity. Our innovative exhibits have won numerous awards over the
+years, including Best Booth Design at the WSA Shoe Show, February 2001 and February 2003, and for
+our Unltd. by Marc Ecko and Rhino Red booth in August 2004 and February 2005.
+Internet. We also promote our brands through our e-commerce websites www.skechers.com 
+and www.soholab.com to consumers who access the Internet. These websites currently enable
+us to present information on our products, provide a brand experience and store locations to
+consumers, and allow consumers the ability to directly order products on the Internet. These sites
+also provide us a mechanism for customer feedback as well as allowing us to receive and respond
+directly to consumer feedback. Our websites are intended to enhance the Skechers brand and increase
+sales through all our retail channels. Similarly, www.soholab.com is an extension of our
+SoHo Lab retail stores and allows us the opportunity to offer consumers our fashion and street
+brands through an e-commerce site. Our websites also allow us to leverage our brand awareness at a
+lower cost than traditional distribution channels.
+Along with www.skechers.com and www.soholab.com , we have also established
+unique Internet websites for our fashion brands Mark Nason ( www.marknason.com ) and 310
+Motoring ( www.310motoring.com ). These websites are designed to serve as marketing tools,
+properly imaging these brands while also informing customers about the respective product lines.
+PRODUCT DISTRIBUTION CHANNELS
+We have four reportable segments – domestic wholesale sales, international wholesale sales,
+retail sales and e-commerce sales. In the United States, our products are available through a
+network of wholesale accounts comprised of department, athletic and specialty stores.
+Internationally, our products are available through wholesale accounts in more than 100 countries
+and territories through our global network of distributors and our Canadian and European
+subsidiaries. Additionally, 15 distributors have opened 52 distributor-owned Skechers retail
+stores in 21 countries as of December 31, 2006. Skechers owns and operates retail stores both
+domestically and internationally through three integrated retail formats—concept, factory outlet
+and warehouse outlet stores. Each of these channels serves an integral function in the global
+distribution of our products.
+Domestic Wholesale. We distribute our footwear through the following domestic wholesale
+distribution channels: department stores, specialty stores, athletic shoe stores and independent
+retailers. Department stores and specialty retailers are the largest distribution channels, but we
+believe that we appeal to a variety of wholesale accounts, many of whom may operate stores within
+the same retail location due to our distinct product lines and variety of styles, from which
+retailers can select those lines and styles that
+9 
+Table of Contents 
+best satisfy the fashion, function and price criteria of their customers. Management has a
+clearly defined growth strategy for each of our channels of distribution. An integral component of
+our strategy is to offer our accounts the highest level of customer service so that our products
+will be fully represented in existing retail locations and new locations within each account.
+In an effort to provide knowledgeable and personalized service to our wholesale accounts, the
+sales force is segregated by product line, each of which is headed by a vice president or national
+sales manager. Reporting to each sales manager are knowledgeable account executives and territory
+managers. Our vice presidents and national sales managers report to a senior vice president of
+sales. All of our vice presidents and national sales managers are compensated on a salary basis,
+while our account executives and territory managers are compensated on a commission basis. None of
+our domestic sales personnel sell competing products.
+We believe that we have developed a loyal customer base of wholesale accounts through a
+heightened level of customer service. We believe that our close relationships with these accounts
+help us to maximize their retail sell-throughs. Our visual merchandise coordinators work with our
+wholesale accounts to ensure that our merchandise and point-of-purchase marketing materials are
+properly presented. Sales executives and merchandise personnel work closely with accounts to ensure
+that appropriate styles are purchased for specific accounts and for specific stores within those
+accounts as well as to ensure that appropriate inventory levels are carried at each store. Such
+information is then utilized to help develop sales projections and determine the product needs of
+our wholesale accounts. The value-added services we provide our wholesale customers help us
+maintain strong relationships with our existing wholesale customers and attract potential new
+wholesale customers.
+International Wholesale. Our products are sold in more than 100 countries and territories
+throughout the world. We generate revenues from outside the United States from three principal
+sources: (i) direct sales to department stores and specialty retail stores through our subsidiaries
+in Canada, France, Germany, Spain, Italy, Portugal, Switzerland, Austria, the Benelux Region and
+the United Kingdom (ii) sales of our footwear to foreign distributors who distribute such footwear
+to department stores and specialty retail stores in countries and territories across Eastern
+Europe, Asia, Latin America, South America, Africa, the Middle East and Australia, among other
+regions and (iii) to a lesser extent, royalties from licensees who manufacture and distribute our
+non-footwear products outside the United States.
+We believe that international distribution of our products represents a significant
+opportunity to increase sales and profits. We intend to further increase our share of the
+international footwear market by heightening our marketing presence in those countries in which we
+currently have a presence through our international advertising campaigns, which are designed to
+establish Skechers as a global brand synonymous with trend-right casual shoes.
+• 
+International Subsidiaries 
+Europe 
+We currently distribute product in most of Western Europe through the following
+subsidiaries: Skechers USA Ltd., with its offices and showrooms in London, England;
+Skechers S.a.r.l., with its offices and showrooms in Lausanne, Switzerland; Skechers USA
+France S.A.S., with its offices and showrooms in Paris, France; Skechers USA Deutschland
+GmbH, with its offices and showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L.,
+with its offices and showrooms in Madrid, Spain; Skechers USA Benelux B.V., with its
+offices and showrooms in Waalwijk, the Netherlands; and Skechers USA Italia S.r.l., with
+its offices and showroom in Verona, Italy.
+Skechers-owned retail stores in Europe include nine concept stores and one factory
+outlet store located in five countries, including the key locations of Oxford Street in
+London, Alstadt District in Düsseldorf and Kalverstraat Street in Amsterdam.
+To accommodate our European subsidiaries’ operations, we operate an approximately
+240,000 square foot distribution center in Liege, Belgium. This distribution center is
+currently used to store and deliver product to our subsidiaries and retail stores
+throughout Europe.
+Canada 
+Merchandising and marketing of our product in Canada is managed by our wholly-owned
+subsidiary, Skechers USA Canada, Inc. with its offices and showrooms outside Toronto in
+Mississauga, Ontario. Product sold in Canada is
+10 
+Table of Contents 
+primarily sourced from our U.S. distribution center in Ontario, California. We have
+two concept stores, one located in Toronto’s Eaton Centre, and one in the West Edmonton
+Mall and one factory outlet store located in Toronto.
+• 
+Distributors 
+Outside of Western Europe and Canada, our footwear is distributed through an extensive
+network of more than 30 distributors, who sell our products to department, athletic and
+specialty stores in more than 100 countries around the world. Through agreements with 14 of
+these distributors, 51 distributor-owned Skechers retail stores are open in 20 countries,
+including 15 stores that were opened in 2006 and one that was opened to date in 2007. Two
+distributor-owned stores were closed in 2006.
+STORE 
+NUMBER OF 
+REGION 
+FORMAT 
+STORES 
+LOCATION (1) 
+Asia 
+Concept
+4 
+Osaka, Japan; Tokyo, Japan; Shanghai, China; Malaysia 
+Warehouse
+4 
+Osaka, Japan (2); Shizuoka, Japan; Tochigi-ken, Japan 
+Australia 
+Concept
+1 
+Sydney, Australia 
+Warehouse
+1 
+Sydney, Australia 
+Central America/South 
+America 
+Concept
+26 
+Chile (7); Columbia (6); Ecuador; El Salvador;
+Guatemala (2); Panama (2); Peru; Venezuela (6) 
+Western Europe 
+Concept
+6 
+Spain (6) 
+Eastern Europe 
+Concept
+4 
+Moscow, Russia (2); Kiev, Ukraine; Poland 
+Middle East 
+Concept
+4 
+Saudi Arabia (3); Dubai, UAE 
+South Africa 
+Concept
+1 
+Sandton, South Africa 
+(1) 
+One store per location except as otherwise noted. 
+The distributors are responsible for their respective store’s operations, have ownership
+of their respective store’s assets and select the broad collection of our products to sell to
+consumers in their regions. In order to maintain a globally consistent image, we provide
+architectural, graphic and visual guidance and materials for the design of the stores, and we
+train the local staff on our products and corporate culture. We intend to expand our
+international presence and global recognition of the Skechers brand name by continuing to
+sell our footwear to foreign distributors and by opening flagship retail stores with
+distributors that have local market expertise.
+Retail Stores. We pursue our retail store strategy through our three integrated retail
+formats: the concept store, the factory outlet store and the warehouse outlet store. Our
+three-store format enables us to promote the full Skechers product offering in an attractive
+environment that appeals to a broad group of consumers. In addition to Skechers stores, we also
+operate SoHo Lab concept stores, which are designed to specifically promote our SoHo Lab and other
+fashion brands as well as more fashionable Skechers styles. This format also allows us to manage
+our inventory in an efficient and brand sensitive manner. In addition, most of our retail stores
+are profitable and have a positive effect on our operating results. As of February 28, 2007, we
+owned and operated 50 concept stores, 61 factory outlet stores and 33 warehouse outlet stores in
+the United States, and 10 concept stores and two factory outlet stores internationally. We closed
+three stores and opened 23 new stores in 2006. We opened four new stores in the first two months
+of 2007, while closing one store in Germany, and we plan to open an additional 20 to 25 stores by
+the end of 2007. In addition, we own and operate six SoHo Lab concept stores, including four
+that opened in 2006.
+• 
+Concept Stores. 
+Our concept stores are located at either marquee street locations or in major shopping
+malls in large metropolitan cities. Our concept stores have a threefold purpose in our
+operating strategy. First, concept stores serve as a showcase for a wide range of our product
+offering for the current season as we estimate that our average wholesale customer carries no
+more than 5% of the complete Skechers line in any one location. Our concept stores showcase
+our products in a cutting-edge, open-floor setting, providing the customer with the complete
+Skechers story. Second, retail locations are generally chosen to generate maximum marketing
+value for the Skechers brand name through signage, store front presentation and interior
+design. Domestic locations include concept stores at Times Square and 34th Street in New
+York, Hollywood and Highland in Hollywood, Santa Monica’s Third Street Promenade, Dallas’
+Northpark Center, Las Vegas’ Fashion Show Mall, Seattle’s
+11 
+Table of Contents 
+Bellevue Square Mall, Woodfield Mall outside Chicago and international locations include
+Oxford Street in London, Alstadt District in Dusseldorf, Toronto’s Eaton Centre, and
+Kalverstraat Street in Amsterdam. The stores are typically designed to create a distinctive
+Skechers look and feel, and enhance customer association of the Skechers brand name with
+current youthful lifestyle trends and styles. Third, the concept stores serve as marketing
+and product testing venues. We believe that product sell-through information and rapid
+customer feedback derived from our concept stores enables our design, sales, merchandising
+and production staff to respond to market changes and new product introductions. Such
+responses serve to augment sales and limit our inventory markdowns and customer returns and
+allowances. We opened 13 domestic concept stores, one international concept store and closed
+one domestic concept store in 2006.
+The typical Skechers concept store is approximately 2,500 square feet, although in
+certain markets we have opened concept stores as large as 6,400 square feet or as small as
+1,200 square feet. When deciding where to open concept stores, we identify top geographic
+markets in the larger metropolitan cities in the United States, Europe and Canada. When
+selecting a specific site, we evaluate the proposed sites’ traffic pattern, co-tenancies,
+sales volume of neighboring concept stores, lease economics and other factors considered
+important within the specific location. If we are considering opening a concept store in a
+shopping mall, our strategy is to obtain space as centrally located as possible in the mall
+where we expect foot traffic to be most concentrated. We believe that the strength of the
+Skechers brand name has enabled us to negotiate more favorable terms with shopping malls that
+want us to open up concept stores to attract customer traffic to their venues.
+In an effort to market and test our non-Skechers brands, we opened a new concept format
+store, SoHo Lab. In 2004, we converted an existing Skechers concept store in New York’s SoHo
+district to the new format. In 2005, we converted two additional Skechers concept stores in
+urban and/or fashion locations to SoHo Lab stores. In 2006, we opened four more SoHo Lab
+locations built from the ground up, including San Diego’s Gas Lamp District. We also
+converted one SoHo Lab store back to a Skechers concept store in 2006, bringing our total for
+this concept to six. These stores may also include more fashion forward Skechers styles.
+• 
+Factory Outlet Stores. 
+Our factory outlet stores are generally located in manufacturers’ direct outlet centers
+throughout the United States. In addition, we have two international outlet stores – one in
+Canada and one in England. Our factory outlet stores provide opportunities for us to sell
+discontinued and excess merchandise, thereby reducing the need to sell such merchandise to
+discounters at excessively low prices, which could otherwise compromise the Skechers brand
+image. Skechers’ factory outlet stores range in size from approximately 1,900 to 9,000 square
+feet. Inventory in these stores is supplemented by certain first-line styles sold at full
+retail price points. We opened eight domestic factory outlet stores in 2006.
+• 
+Warehouse Outlet Stores. 
+Our free-standing warehouse outlet stores, which are located throughout the United
+States, enable us to liquidate excess merchandise, discontinued lines and odd-size inventory
+in a cost-efficient manner. Skechers’ warehouse outlet stores range in size from
+approximately 5,200 to 14,800 square feet. Our warehouse outlet stores enable us to sell
+discontinued and excess merchandise that would otherwise typically be sold to discounters at
+excessively low prices, which could otherwise compromise the Skechers brand image. We seek to
+open our warehouse outlet stores in areas that are in close proximity to our concept stores
+in order to facilitate the timely transfer of inventory that we want to liquidate as soon as
+practicable. We opened one new warehouse outlet store in 2006.
+Electronic Commerce. Our e-commerce sales represented less than 1.0% of total net sales in
+each of 2006, 2005 and 2004. Our websites, www.skechers.com and www.soholab.com are
+virtual storefronts that promote the Skechers and street and fashion brands. Our websites are
+designed to provide a positive shopping and brand experience, showcasing our products in an
+easy-to-navigate format, allowing consumers to browse our selections and purchase our footwear.
+This virtual store has provided a convenient alternative-shopping environment and brand experience.
+These websites have become an efficient and effective additional retail distribution channel, and
+have improved our customer service.
+LICENSING
+We believe that selective licensing of the Skechers brand name and our product line names to
+manufacturers may broaden and enhance the individual brands without requiring significant capital
+investments or additional incremental operating expenses. Our multiple product lines plus
+additional subcategories present many potential licensing opportunities on terms with licensees
+that we
+12 
+Table of Contents 
+believe will provide more effective manufacturing, distribution or marketing of non-footwear
+products. We also believe that the reputation of Skechers and its history in launching brands has
+also enabled us to partner with reputable non-footwear brands in order to design and market their
+footwear.
+The first launch of Skechers licensed product was Skechers Kids apparel for boys and girls
+from the licensee, Kids Headquarters, in the United States for the 2003 back-to-school selling
+season. Due to the successful in-store launch of Skechers Kids, we expanded our licensing agreement
+with Kids Headquarters to include infant and toddler apparel, boys’ and girls’ daywear and
+sleepwear, and swimwear for boys and girls.
+As of February 28, 2007, we had 10 active domestic and international licensing agreements in
+which we are the licensor. We have international licensing agreements for the design and
+distribution of men’s and women’s active apparel in Israel; men’s and women’s apparel in select
+European countries; bags in select Central and South American countries; watches in the
+Philippines, and bags in China.
+We have signed agreements to design, develop and market footwear for the street lifestyle
+apparel brands, Ecko Unltd., Ecko Red, Red by Marc Ecko, Zoo York and Avirex under the Marc Ecko
+Enterprises umbrella, and apparel and footwear for Kitson, the ultra-hip Hollywood boutique.
+DISTRIBUTION FACILITIES AND OPERATIONS
+We believe that strong distribution support is a critical factor in our operations. Once
+manufactured, our products are packaged in shoe boxes bearing bar codes that are shipped either (i)
+to our approximately 1.7 million square-foot distribution centers located in
+Ontario, California, (ii) to our approximately 240,000 square-foot distribution center located in
+Liege, Belgium or (iii) directly from third-party manufacturers to our other international
+customers. Upon receipt at either of the distribution centers, merchandise is inspected and
+recorded in our management information system and packaged according to customers’ orders for
+delivery. Merchandise is shipped to customers by whatever means each customer requests, which is
+usually by common carrier. The distribution centers have multi-access docks, enabling us to receive
+and ship simultaneously, and to pack separate trailers for shipments to different customers at the
+same time. We have an electronic data interchange system, or EDI system, to which some of our
+larger customers are linked. This system allows these customers to automatically place orders with
+us, thereby eliminating the time involved in transmitting and inputting orders, and it includes
+direct billing and shipping information.
+BACKLOG
+As of December 31, 2006, our backlog was $322.9 million, compared to $250.5 million as of
+December 31, 2005. While backlog orders are subject to cancellation by customers, we have not
+experienced significant cancellation of orders in the past, and we expect that substantially all
+the orders will be shipped in 2007. However, for a variety of reasons, including customer demand
+for our products, the timing of shipments, product mix of customer orders, the amount of in-season
+orders and a shift towards tighter lead times within backlog levels, backlog may not be a reliable
+measure of future sales for any succeeding period.
+INTELLECTUAL PROPERTY RIGHTS
+We own and utilize a variety of trademarks, including the Skechers trademark. We have a
+significant number of both registrations and pending applications for our trademarks in the United
+States. In addition, we have trademark registrations and trademark applications in approximately 80
+foreign countries. We also have design patents and pending design and utility patent applications
+in both the United States and approximately 25 foreign countries. We continuously look to increase
+the number of our patents and trademarks both domestically and internationally where necessary to
+protect valuable intellectual property. We regard our trademarks and other intellectual property as
+valuable assets and believe that they have significant value in the marketing of our products. We
+vigorously protect our trademarks against infringement, including through the use of cease and
+desist letters, administrative proceedings and lawsuits.
+We rely on trademark, patent, copyright and trade secret protection, non-disclosure agreements
+and licensing arrangements to establish, protect and enforce intellectual property rights in our
+logos, tradenames and in the design of our products. In particular, we believe that our future
+success will largely depend on our ability to maintain and protect the Skechers trademark. Despite
+our efforts to safeguard and maintain our intellectual property rights, we cannot be certain that
+we will be successful in this regard. Furthermore, we cannot be certain that our trademarks,
+products and promotional materials or other intellectual property rights do not or will not violate
+the intellectual property rights of others, that our intellectual property would be upheld if
+challenged, or that we would, in such an
+13 
+Table of Contents 
+event, not be prevented from using our trademarks or other intellectual property rights. Such
+claims, if proven, could materially and adversely affect our business, financial condition and
+results of operations. In addition, although any such claims may ultimately prove to be without
+merit, the necessary management attention to and legal costs associated with litigation or other
+resolution of future claims concerning trademarks and other intellectual property rights could
+materially and adversely affect our business, financial condition and results of operations. We
+have sued and have been sued by third parties for infringement of intellectual property. It is our
+opinion that none of these claims has materially impaired our ability to utilize our intellectual
+property rights.
+The laws of certain foreign countries do not protect intellectual property rights to the same
+extent or in the same manner as do the laws of the United States. Although we continue to implement
+protective measures and intend to defend our intellectual property rights vigorously, these efforts
+may not be successful or the costs associated with protecting our rights in certain jurisdictions
+may be prohibitive. From time to time we discover products in the marketplace that are counterfeit
+reproductions of our products or that otherwise infringe upon intellectual property rights held by
+us. Actions taken by us to establish and protect our trademarks and other intellectual property
+rights may not be adequate to prevent imitation of our products by others or to prevent others from
+seeking to block sales of our products as violating trademarks and intellectual property rights. If
+we are unsuccessful in challenging a third party’s products on the basis of infringement of our
+intellectual property rights, continued sales of such products by that or any other third party
+could adversely impact the Skechers brand, result in the shift of consumer preferences away from
+our products and generally have a material adverse effect on our business, financial condition and
+results of operations.
+COMPETITION
+Competition in the footwear industry is intense. Although we believe that we do not compete
+directly with any single company with respect to its entire range of products, our products compete
+with other branded products within their product category as well as with private label products
+sold by retailers, including some of our customers. Our utility footwear and casual shoes compete
+with footwear offered by companies such as The Timberland Company, Dr. Martens, Kenneth Cole
+Productions Inc., Steven Madden, Ltd., Wolverine World Wide, Inc., V.F. Corporation, and CROCS,
+Inc. Our athletic lifestyle shoes compete with footwear offered by companies such as Nike, Inc.,
+Reebok International Ltd., Adidas-Salomon AG, Puma AG and New Balance Athletic Shoe, Inc. Our
+children’s shoes compete with footwear offered by companies such as The Stride Rite Corporation. In
+varying degrees, depending on the product category involved, we compete on the basis of style,
+price, quality, comfort and brand name prestige and recognition, among other considerations. These
+and other competitors pose challenges to our market share in our major domestic markets and may
+make it more difficult to establish our products in Europe, Asia and other international regions.
+We also compete with numerous manufacturers, importers and distributors of footwear for the limited
+shelf space available for the display of such products to the consumer. Moreover, the general
+availability of contract manufacturing capacity allows ease of access by new market entrants. Many
+of our competitors are larger, have been in existence for a longer period of time, have achieved
+greater recognition for their brand names, have captured greater market share and/or have
+substantially greater financial, distribution, marketing and other resources than we do. We cannot
+be certain that we will be able to compete successfully against present or future competitors, or
+that competitive pressures will not have a material adverse effect on our business, financial
+condition and results of operations.
+EMPLOYEES
+As of February 28, 2007, we employed 3,628 persons, 1,982 of whom were employed on a full-time
+basis and 1,646 of whom were employed on a part-time basis. None of our employees are subject to a
+collective bargaining agreement. We believe that our relations with our employees are satisfactory.
+ITEM 1A. RISK FACTORS 
+In addition to the other information in this annual report, the following factors should be
+considered in evaluating us and our business.
+Our Future Success Depends On Our Ability To Respond To Changing Consumer Demands, Identify And
+Interpret Fashion Trends And Successfully Market New Products. 
+The footwear industry is subject to rapidly changing consumer demands and fashion trends.
+Accordingly, we must identify and interpret fashion trends and respond in a timely manner. Demand
+for and market acceptance of new products are uncertain and achieving market acceptance for new
+products generally requires substantial product development and marketing efforts and
+14 
+Table of Contents 
+expenditures. If we do not continue to meet changing consumer demands and develop successful
+styles in the future, our growth and profitability will be negatively impacted. We frequently make
+decisions about product designs and marketing expenditures several months in advance of the time
+when consumer acceptance can be determined. If we fail to anticipate, identify or react
+appropriately to changes in styles and trends or are not successful in marketing new products, we
+could experience excess inventories, higher than normal markdowns or an inability to profitably
+sell our products. Because of these risks, a number of companies in the footwear industry
+specifically, and others in the fashion and apparel industry in general, have experienced periods
+of rapid growth in revenues and earnings and thereafter periods of declining sales and losses,
+which in some cases have resulted in companies in these industries ceasing to do business.
+Similarly, these risks could have a material adverse effect on our results of operations or
+financial condition.
+Our Business And The Success Of Our Products Could Be Harmed If We Are Unable To Maintain Our Brand
+Image. 
+Our success to date has been due in large part to the strength of the Skechers brand, and to a
+lesser degree, the reputation of our fashion brands. If we are unable to timely and appropriately
+respond to changing consumer demand, our brand name and brand image may be impaired. Even if we
+react appropriately to changes in consumer preferences, consumers may consider our brand image to
+be outdated or associate our brand with styles of footwear that are no longer popular. In the past,
+several footwear companies including ours have experienced periods of rapid growth in revenues and
+earnings followed by periods of declining sales and losses. Our business may be similarly affected
+in the future.
+Our Business Could Be Harmed If We Fail To Maintain Proper Inventory Levels. 
+We place orders with our manufacturers for some of our products prior to the time we receive
+all of our customers’ orders. We do this to minimize purchasing costs, the time necessary to fill
+customer orders and the risk of non-delivery. We also maintain an inventory of certain products
+that we anticipate will be in greater demand. However, we may be unable to sell the products we
+have ordered in advance from manufacturers or that we have in our inventory. Inventory levels in
+excess of customer demand may result in inventory write-downs, and the sale of excess inventory at
+discounted prices could significantly impair our brand image and have a material adverse effect on
+our operating results and financial condition. Conversely, if we underestimate consumer demand for
+our products or if our manufacturers fail to supply the quality products that we require at the
+time we need them, we may experience inventory shortages. Inventory shortages might delay shipments
+to customers, negatively impact retailer and distributor relationships, and diminish brand loyalty.
+We Face Intense Competition, Including Competition From Companies With Significantly Greater
+Resources Than Ours, And If We Are Unable To Compete Effectively With These Companies, Our Market
+Share May Decline And Our Business Could Be Harmed. 
+We face intense competition in the footwear industry from other established companies. A
+number of our competitors have significantly greater financial, technological, engineering,
+manufacturing, marketing and distribution resources than we do. Their greater capabilities in these
+areas may enable them to better withstand periodic downturns in the footwear industry, compete more
+effectively on the basis of price and production and more quickly develop new products. In
+addition, new companies may enter the markets in which we compete, further increasing competition
+in the footwear industry.
+We believe that our ability to compete successfully depends on a number of factors, including
+the style and quality of our products and the strength of our brand name, as well as many factors
+beyond our control. We may not be able to compete successfully in the future, and increased
+competition may result in price reductions, reduced profit margins, loss of market share and an
+inability to generate cash flows that are sufficient to maintain or expand our development and
+marketing of new products, which would adversely impact the trading price of our Class A Common
+Stock.
+We Depend Upon A Relatively Small Group Of Customers For A Large Portion Of Our Sales. 
+During 2006, 2005 and 2004, our net sales to our five largest customers accounted for
+approximately 24.9%, 25.4%, and 26.8% of total net sales, respectively. No customer accounted for
+more than 10% of our net sales during 2006, 2005 and 2004. One customer accounted for 12.0% and
+10.3% of net trade receivables at December 31, 2006 and December 31, 2005, respectively. Although
+we have long-term relationships with many of our customers, our customers do not have a contractual
+obligation to purchase our products and we cannot be certain that we will be able to retain our
+existing major customers. Furthermore, the retail industry regularly experiences consolidation,
+contractions and closings which may result in our loss of customers or our inability to collect
+accounts receivable of major customers. If we lose a major customer, experience a significant
+decrease in sales to a major customer or are unable to collect the accounts receivable of a major
+customer, our business could be harmed.
+15 
+Table of Contents 
+Our International Sales And Manufacturing Operations Are Subject To The Risks Of Doing Business
+Abroad, Particularly In China, Which Could Affect Our Ability To Sell Or Manufacture Our Products
+In International Markets, Obtain Products From Foreign Suppliers Or Control The Costs Of Our
+Products. 
+Substantially all of our net sales during the year ended December 31, 2006 were derived from
+sales of footwear manufactured in foreign countries, with most manufactured in China and, to a
+lesser extent, in Italy, Vietnam and Brazil. We also sell our footwear in several foreign countries
+and plan to increase our international sales efforts as part of our growth strategy. Foreign
+manufacturing and sales are subject to a number of risks, including the following: political and
+social unrest, including the military presence in Iraq; changing economic conditions; currency
+exchange rate fluctuations; international political tension and terrorism; labor shortages and work
+stoppages; electrical shortages, transportation delays; loss or damage to products in transit;
+expropriation; nationalization; the imposition of domestic and international tariffs and trade
+duties, import and export controls and other non-tariff barriers, exposure to different legal
+standards (particularly with respect to intellectual property), compliance with foreign laws, and
+changes in domestic and foreign governmental policies. We have not, to date, been materially
+affected by any such risks, but we cannot predict the likelihood of such developments occurring or
+the resulting long-term adverse impact on our business, results of operations or financial
+condition.
+In particular, because most of our products are manufactured in China, adverse changes in
+trade or political relations with China, political instability in China, the occurrence of a
+natural disaster such as an earthquake or typhoon in China or the outbreak of a pandemic disease
+such as the Avian Flu in China could severely interfere with the manufacture of our products and
+would have a material adverse effect on our operations. In addition, electrical shortages, labor
+shortages or work stoppages may extend the production time necessary to produce our orders, and
+there may be circumstances in the future where we may have to incur premium freight charges to
+expedite the delivery of product to our customers. If we incur a significant amount of premium
+charges to airfreight product for our customers, our gross profit will be negatively affected if we
+are unable to collect those charges.
+Also, our manufacturers located in China may be subject to the effects of exchange rate
+fluctuations should the Chinese currency not remain stable with the U.S. dollar. The value of the
+Chinese currency depends to a large extent on the Chinese government’s policies and China’s
+domestic and international economic and political developments. Since 1994, the official exchange
+rate for the conversion of the Chinese currency was pegged to the U.S. dollar at a virtually fixed
+rate of approximately 8.28 Yuan per U.S. dollar. However, on July 21, 2005, the Chinese government
+revalued the Yuan by 2.1%, setting the exchange rate at 8.11 Yuan per U.S. dollar, and adopted a
+more flexible system based on a trade-weighted basket of foreign currencies of China’s main trading
+partners. Under the new “managed float” policy, the exchange rate of the Yuan may shift each day up
+to 0.3% in either direction from the previous day’s close, and as a result, the valuation of the
+Yuan may increase incrementally over time should the China central bank allow it to do so, which
+could significantly increase labor and other costs incurred in the production of our footwear in
+China.
+The Potential Imposition Of Additional Duties, Tariffs And Other Trade Restrictions Could Have An
+Adverse Impact On Our Sales And Profitability. 
+All of our products manufactured overseas and imported into the United States, the European
+Union (“EU”) and other countries are subject to customs duties collected by customs authorities.
+Customs information submitted by us is routinely subject to review by customs authorities. We are
+unable to predict whether additional customs duties, anti-dumping duties, quotas, safeguard
+measures or other trade restrictions may be imposed on the importation of our products in the
+future. Such actions could result in increases in the cost of our products generally and might
+adversely affect the sales and profitability of Skechers and the imported footwear industry as a
+whole.
+We May Be Unable To Successfully Execute Our Growth Strategy Or Maintain Our Growth. 
+Although our company has generally exhibited steady growth since we began operations, we had a
+decrease in net sales in the past and our rate of growth has declined at times as well, and we may
+experience similar decreases in net sales or declines in rate of growth again in the future. Our
+ability to grow in the future depends upon, among other things, the continued success of our
+efforts to maintain our brand image and expand our footwear offerings and distribution channels.
+Furthermore, as our business grows, we may need to improve and enhance our overall financial and
+managerial controls, reporting systems and procedures to effectively manage our growth. We may be
+unable to successfully implement our current growth strategy or other growth strategies or
+effectively manage our growth, any of which would negatively impact our business, results of
+operations and financial condition.
+16 
+Table of Contents 
+Our Business May Be Negatively Impacted As A Result Of Changes In The Economy. 
+Our business depends on the general economic environment and levels of consumer spending that
+affect not only the ultimate consumer, but also retailers, our primary direct customers. Purchases
+of footwear tend to decline in periods of recession or uncertainty regarding future economic
+prospects, when consumer spending, particularly on discretionary items, declines. During periods of
+recession or economic uncertainty, we may not be able to maintain or increase our sales to existing
+customers, make sales to new customers, open and operate new retail stores, maintain sales levels
+at our existing stores, maintain or increase our international operations on a profitable basis, or
+maintain or improve our earnings from operations as a percentage of net sales. As a result, our
+operating results may be adversely and materially affected by downward trends in the economy or the
+occurrence of events that adversely affect the economy in general. Furthermore, in anticipation of
+continued increases in net sales, we have significantly expanded our infrastructure and workforce
+to achieve economies of scale. Because these expenses are mostly fixed in the short term, our
+operating results and margins will be adversely impacted if we do not continue to grow as
+anticipated.
+Economic, Political, Military Or Other Events In The United States Or In A Country Where We Make
+Significant Sales Or Have Significant Operations Could Interfere With Our Success Or Operations
+There And Harm Our Business. 
+We market and sell our products and services throughout the world. The September 11, 2001
+terrorist attacks disrupted commerce throughout the United States and other parts of the world. The
+continued threat of similar attacks throughout the world and the military action, or possible
+military action, taken by the United States and other nations, in Iraq or other countries may cause
+significant disruption to commerce throughout the world. To the extent that such disruptions
+further slow the global economy or, more particularly, result in delays or cancellations of
+purchase orders for our products, our business and results of operations could be materially
+adversely affected. We are unable to predict whether the threat of new attacks or the responses
+thereto will result in any long-term commercial disruptions or if such activities or responses will
+have a long-term material adverse effect on our business, results of operations or financial
+condition.
+Our Quarterly Revenues And Operating Results Fluctuate As A Result Of A Variety Of Factors,
+Including Seasonal Fluctuations In Demand For Footwear, Delivery Date Delays And Potential
+Fluctuations In Our Annualized Tax Rate, Which May Result In Volatility Of Our Stock Price. 
+Our quarterly revenues and operating results have varied significantly in the past and can be
+expected to fluctuate in the future due to a number of factors, many of which are beyond our
+control. Our major customers generally have no obligation to purchase forecasted amounts and may
+cancel orders, change delivery schedules or change the mix of products ordered with minimal notice
+and without penalty. As a result, we may not be able to accurately predict our quarterly sales. In
+addition, sales of footwear products have historically been somewhat seasonal in nature with the
+strongest sales generally occurring in our second and third quarters for the back-to-school selling
+season. Back-to-school sales typically ship in June, July and August, and delays in the timing,
+cancellation, or rescheduling of these customer orders and shipments by our wholesale customers
+could negatively impact our net sales and results of operations for our second or third quarters.
+More specifically, the timing of when products are shipped is determined by the delivery schedules
+set by our wholesale customers, which could cause sales to shift between our second and third
+quarters. Because our expense levels are partially based on our expectations of future net sales,
+our expenses may be disproportionately large relative to our revenues, and we may be unable to
+adjust spending in a timely manner to compensate for any unexpected revenue shifts, which could
+have a material adverse effect on our operating results.
+Our annualized tax rate is based on projections of our domestic and international operating
+results for the year, which we review and revise as necessary at the end of each quarter, and it is
+highly sensitive to fluctuations in projected international earnings. Any quarterly fluctuations in
+our annualized tax rate that may occur could have a material impact on our quarterly operating
+results. As a result of these specific and other general factors, our operating results will likely
+vary from quarter to quarter and the results for any particular quarter may not be necessarily
+indicative of results for the full year. Any shortfall in revenues or net income from levels
+expected by securities analysts and investors could cause a decrease in the trading price of our
+Class A Common Stock.
+We Rely On Independent Contract Manufacturers And, As A Result, Are Exposed To Potential
+Disruptions In Product Supply. 
+Our footwear products are currently manufactured by independent contract manufacturers. During
+2006 and 2005, the top four manufacturers of our products produced approximately 59.6% and 59.7% of
+our total purchases, respectively. One manufacturer accounted for 30.8% and 32.4% of total
+purchases during 2006 and 2005, respectively. Two other manufacturers each accounted for over
+10.0% of our total purchases during 2006, and one other manufacturer accounted for over 10.0% of
+our total purchases during
+17 
+Table of Contents 
+2005. We do not have long-term contracts with our manufacturers, and we compete with other
+footwear companies for production facilities. We could experience difficulties with these
+manufacturers, including reductions in the availability of production capacity, failure to meet our
+quality control standards, failure to meet production deadlines or increased manufacturing costs.
+In particular, manufacturers in China are facing a labor shortage as migrant workers seek better
+wages and working conditions in farming and other vocations, and if this trend continues, our
+current manufacturers’ operations could be adversely affected.
+If our current manufacturers cease doing business with us, we could experience an interruption
+in the manufacture of our products. Although we believe that we could find alternative
+manufacturers, we may be unable to establish relationships with alternative manufacturers that will
+be as favorable as the relationships we have now. For example, new manufacturers may have higher
+prices, less favorable payment terms, lower manufacturing capacity, lower quality standards or
+higher lead times for delivery. If we are unable to provide products consistent with our standards
+or the manufacture of our footwear is delayed or becomes more expensive, this could result in our
+customers canceling orders, refusing to accept deliveries or demanding reductions in purchase
+prices, any of which could have a material adverse effect on our business and results of
+operations.
+Our Business Could Be Harmed If Our Contract Manufacturers, Suppliers Or Licensees Violate Labor,
+Trade Or Other Laws. 
+We require our independent contract manufacturers, suppliers and licensees to operate in
+compliance with applicable United States and foreign laws and regulations. Manufacturers are
+required to certify that neither convicted, forced or indentured labor (as defined under United
+States law) nor child labor (as defined by the manufacturer’s country) is used in the production
+process, that compensation is paid in accordance with local law and that their factories are in
+compliance with local safety regulations. Although we promote ethical business practices and our
+sourcing personnel periodically visit and monitor the operations of our independent contract
+manufacturers, suppliers and licensees, we do not control them or their labor practices. If one of
+our independent contract manufacturers, suppliers or licensees violates labor or other laws or
+diverges from those labor practices generally accepted as ethical in the United States, it could
+result in adverse publicity for us, damage our reputation in the United States or render our
+conduct of business in a particular foreign country undesirable or impractical, any of which could
+harm our business.
+In addition, if we, or our foreign manufacturers, violate United States or foreign trade laws
+or regulations, we may be subject to extra duties, significant monetary penalties, the seizure and
+the forfeiture of the products we are attempting to import or the loss of our import privileges.
+Possible violations of United States or foreign laws or regulations could include inadequate record
+keeping of our imported products, misstatements or errors as to the origin, quota category,
+classification, marketing or valuation of our imported products, fraudulent visas or labor
+violations. The effects of these factors could render our conduct of business in a particular
+country undesirable or impractical and have a negative impact on our operating results.
+Our Operating Results Could Be Negatively Impacted If Our Sales Are Concentrated In Any One Style
+Or Group Of Styles. 
+If any one style or group of similar styles of our footwear were to represent a substantial
+portion of our net sales, we could be exposed to risk should consumer demand for such style or
+group of styles decrease in subsequent periods. We attempt to mitigate this risk by offering a
+broad range of products, and no style comprised over 5% of our gross wholesale sales during 2006 or
+2005. However, this may change in the future and fluctuations in sales of any given style that
+represents a significant portion of our future net sales could have a negative impact on our
+operating results.
+Our Strategies Involve A Number Of Risks That Could Prevent Or Delay Any Successful Opening Of New
+Stores As Well As Impact The Performance Of Our Existing Stores. 
+Our ability to open and operate new stores successfully depends on many factors, including,
+among others, our ability to identify suitable store locations, the availability of which is
+outside of our control; negotiate acceptable lease terms, including desired tenant improvement
+allowances; source sufficient levels of inventory to meet the needs of new stores; hire, train and
+retain store personnel; successfully integrate new stores into our existing operations; and satisfy
+the fashion preferences in new geographic areas.
+In addition, some or a substantial number of new stores could be opened in regions of the
+United States in which we currently have few or no stores. Any expansion into new markets may
+present competitive, merchandising and distribution challenges that are different from those
+currently encountered in our existing markets. Any of these challenges could adversely affect our
+business and results of operations. In addition, to the extent that any new store openings are in
+existing markets, we may experience reduced net sales volumes in existing stores in those markets.
+18 
+Table of Contents 
+Many Of Our Retail Stores Depend Heavily On The Customer Traffic Generated By Shopping And Factory
+Outlet Malls Or By Tourism. 
+Many of our concept stores are located in shopping malls and some of our factory outlet stores
+are located in manufacturers’ outlet malls where we depend on obtaining prominent locations and the
+overall success of the malls to generate customer traffic. We cannot control the development of new
+malls, the availability or cost of appropriate locations within existing or new malls or the
+success of individual malls. Some of our concept stores occupy street locations that are heavily
+dependent on customer traffic generated by tourism. Any substantial decrease in tourism resulting
+from political, social or military events, a downturn in the economy or otherwise, is likely to
+adversely affect sales in our existing stores, particularly those with street locations. The
+effects of these factors could hinder our ability to open retail stores in new markets or reduce
+sales of particular existing stores, which could negatively affect our operating results.
+We Depend On Key Personnel To Manage Our Business Effectively In A Rapidly Changing Market, And If
+We Are Unable To Retain Existing Personnel, Our Business Could Be Harmed. 
+Our future success depends upon the continued services of Robert Greenberg, Chairman of the
+Board and Chief Executive Officer, Michael Greenberg, President, and David Weinberg, Executive Vice
+President and Chief Operating Officer. The loss of the services of any of these individuals or any
+other key employee could harm us. Our future success also depends on our ability to identify,
+attract and retain additional qualified personnel. Competition for employees in our industry is
+intense and we may not be successful in attracting and retaining such personnel.
+The Disruption, Expense And Potential Liability Associated With Existing And Unanticipated Future
+Litigation Against Us Could Have A Material Adverse Effect On Our Business, Results Of Operations
+And Financial Condition. 
+We are subject to various legal proceedings and threatened legal proceedings from time to time
+as part of our business. We are not currently a party to any legal proceedings or aware of any
+threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, we
+believe would have a material adverse effect on our business, results of operations or financial
+condition. However, any unanticipated litigation in the future, regardless of its merits, could
+significantly divert management’s attention from our operations and result in substantial legal
+fees to us. Further, there can be no assurance that any actions that have been or will be brought
+against us will be resolved in our favor or, if significant monetary judgments are rendered against
+us, that we will have the ability to pay such judgments. Such disruptions, legal fees and any
+losses resulting from these claims could have a material adverse effect on our business, results of
+operations and financial condition.
+Our Trademarks, Design Patents And Other Intellectual Property Rights May Not Be Adequately
+Protected Outside The United States. 
+We believe that our trademarks, design patents and other proprietary rights are important to
+our success and our competitive position. We devote substantial resources to the establishment and
+protection of our trademarks and design patents on a worldwide basis. In the course of our
+international expansion, we have, however, experienced conflicts with various third parties that
+have acquired or claimed ownership rights in certain trademarks similar to ours or have otherwise
+contested our rights to our trademarks. We have in the past successfully resolved these conflicts
+through both legal action and negotiated settlements, none of which we believe has had a material
+impact on our financial condition and results of operations. Nevertheless, we cannot assure you
+that the actions we have taken to establish and protect our trademarks and other proprietary rights
+outside the United States will be adequate to prevent imitation of our products by others or to
+prevent others from seeking to block sales of our products as a violation of the trademarks and
+proprietary rights of others. Also, we cannot assure you that others will not assert rights in, or
+ownership of, trademarks, designs and other proprietary rights of ours or that we will be able to
+successfully resolve these types of conflicts to our satisfaction. In addition, the laws of certain
+foreign countries may not protect proprietary rights to the same extent as do the laws of the
+United States. We may face significant expenses and liability in connection with the protection of
+our intellectual property rights outside the United States, and if we are unable to successfully
+protect our rights or resolve intellectual property conflicts with others, our business or
+financial condition may be adversely affected.
+Our Ability To Compete Could Be Jeopardized If We Are Unable To Protect Our Intellectual Property
+Rights Or If We Are Sued For Intellectual Property Infringement. 
+We use trademarks on nearly all of our products and believe that having distinctive marks that
+are readily identifiable is an important factor in creating a market for our goods, in identifying
+us and in distinguishing our goods from the goods of others. We
+19 
+Table of Contents 
+consider our Skechers ® , S in Shield Design ® and Performance-S Shifted Design ® trademarks to be
+among our most valuable assets and we have registered these trademarks in many countries. In
+addition, we own many other trademarks, which we utilize in marketing our products. We continue to
+vigorously protect our trademarks against infringement. We also have a number of design patents and
+a limited number of utility patents covering components and features used in various shoes. We
+believe that our success depends primarily upon skills in design, research and development,
+production and marketing rather than upon our patent position. However, we have followed a policy
+of filing applications for United States and foreign patents on designs and technologies that we
+deem valuable.
+We believe that our patents and trademarks are generally sufficient to permit us to carry on
+our business as presently conducted. We cannot, however, know whether we will be able to secure
+patents or trademark protection for our intellectual property in the future or that protection will
+be adequate for future products. Further, we face the risk of ineffective protection of
+intellectual property rights in the countries where we source and distribute our products. We have
+been sued for patent and trademark infringement and cannot be sure that our activities do not and
+will not infringe on the proprietary rights of others. If we are compelled to prosecute infringing
+parties, defend our intellectual property or defend ourselves from intellectual property claims
+made by others, we may face significant expenses and liability and necessary management attention
+to such matters, which could negatively impact our business or financial condition.
+Natural Disasters Or A Decline In Economic Conditions In California Could Increase Our Operating
+Expenses Or Adversely Affect Our Sales Revenue. 
+A substantial portion of our operations are located in California, including 40 of our retail
+stores, our headquarters in Manhattan Beach and our domestic distribution center in Ontario.
+Because a significant portion of our net sales is derived from sales in California, a decline in
+the economic conditions in California, whether or not such decline spreads beyond California, could
+materially adversely affect our business. Furthermore, a natural disaster or other catastrophic
+event, such as an earthquake or wild fires affecting California, could significantly disrupt our
+business including the operation of our only domestic distribution center. We may be more
+susceptible to these issues than our competitors whose operations are not as concentrated in
+California.
+Failure By Us To Comply With Any Of The Financial Covenants In Our Long-Term Debt Agreements And
+$150.0 Million Line Of Credit Facility Could Have A Material Adverse Impact On Our Business. 
+A significant decrease in our operating results could adversely affect our ability to maintain
+required financial covenants under our various long-term debt agreements and our $150.0 million
+credit facility. If these financial covenants are not maintained, the creditors will have the
+option to require immediate repayment of all outstanding long-term debt and any amounts outstanding
+under the credit facility, if any, and some of these agreements also contain cross-default
+provisions. The most likely result would require us to renegotiate certain terms of these
+agreements, obtain waivers from the creditors or obtain new debt agreements with other creditors,
+which may contain less favorable terms. If we are unable to renegotiate acceptable terms, obtain
+necessary waivers or obtain new debt agreements, this could have a material adverse effect on our
+business, results of operations and financial condition.
+One Principal Stockholder Is Able To Control Substantially All Matters Requiring A Vote Of Our
+Stockholders And His Interests May Differ From The Interests Of Our Other Stockholders. 
+As of December 31, 2006, Robert Greenberg, Chairman of the Board and Chief Executive Officer,
+beneficially owned 77.4% of our outstanding Class B Common Stock and members of Mr. Greenberg’s
+immediate family beneficially owned the remainder of our outstanding Class B Common Stock. The
+holders of Class A Common Stock and Class B Common Stock have identical rights except that holders
+of Class A Common Stock are entitled to one vote per share while holders of Class B Common Stock
+are entitled to ten votes per share on all matters submitted to a vote of our stockholders. As a
+result, as of December 31, 2006, Mr. Greenberg beneficially owned approximately 64.3% of the
+aggregate number of votes eligible to be cast by our stockholders, and together with shares
+beneficially owned by other members of his immediate family, he beneficially owned approximately
+83.1% of the aggregate number of votes eligible to be cast by our stockholders. Mr. Greenberg may
+have different interests than our other stockholders, and because he is able to control
+substantially all matters requiring approval by our stockholders, he may direct the operations of
+our business in a manner contrary to the interests of our other stockholders. Matters that require
+the approval of our stockholders include the election of directors and the approval of mergers or
+other business combination transactions. Mr. Greenberg also has control over our management and
+affairs. As a result of such control, certain transactions are not possible without the approval
+of Mr. Greenberg, including proxy contests, tender offers, open market purchase programs or other
+transactions that can give our stockholders the opportunity to realize a premium over the
+then-prevailing market prices for their shares of our Class A Common Stock. The
+20 
+Table of Contents 
+differential in the voting rights may adversely affect the value of our Class A Common Stock
+to the extent that investors or any potential future purchaser view the superior voting rights of
+our Class B Common Stock to have value.
+Our Charter Documents And Delaware Law May Inhibit A Takeover, Which May Cause A Decline In The
+Value Of Our Stock. 
+Provisions of Delaware law, our certificate of incorporation or our bylaws could make it more
+difficult for a third party to acquire us, even if closing such a transaction would be beneficial
+to our stockholders. Mr. Greenberg’s substantial beneficial ownership position, together with the
+authorization of Preferred Stock, the disparate voting rights between our Class A Common Stock and
+Class B Common Stock, the classification of our Board of Directors and the lack of cumulative
+voting in our certificate of incorporation and bylaws, may have the effect of delaying, deferring
+or preventing a change in control, may discourage bids for our Class A Common Stock at a premium
+over the market price of the Class A Common Stock and may adversely affect the market price of our
+Class A Common Stock.
+ITEM 1B. UNRESOLVED STAFF COMMENTS 
+None.
+ITEM 2. PROPERTIES 
+Our corporate headquarters and additional administrative offices are located at four premises
+in Manhattan Beach, California, which consist of an aggregate of approximately 100,000 square feet.
+We own and lease portions of our corporate headquarters and administrative offices. The property
+leases expire between October 2010 and February 2012, with options to extend these leases in some
+cases, and the current aggregate annual rent for the leased property is approximately $0.5 million.
+Also, construction commenced in 2005 on another corporate facility in Manhattan Beach, California
+that is expected to be approximately 55,000 square feet. This facility is scheduled to be
+completed by the end of 2007.
+Our U.S. distribution center consists of four leased facilities and one that we own, which are
+located in Ontario, California. The four leased facilities aggregate approximately 1,407,000 square
+feet, with an annual base rent of approximately $5.1 million. The owned distribution facility is
+approximately 264,000 square feet. The property leases expire between November 2007 and May 2011,
+and these leases contain rent escalation provisions. We believe that we have the capacity at our
+Ontario distribution center to increase our current operations to meet any future growth plans, and
+if we should ever need to expand our distribution facilities to allow for further growth, we
+believe there is presently enough space available in close proximity that we may lease or purchase
+in the foreseeable future.
+Our European distribution center consists of a 240,000 square-foot facility in Liege, Belgium
+under a 25-year operating lease with base rent of approximately $1.1 million per year. The lease
+provides for first right of refusal on three facilities planned for development, allowing for
+expansion up to a total of approximately 735,000 square feet. We believe that the capacity
+available to us within our lease agreement should allow for further growth of our international
+operations. The lease agreement also provides for early termination at five-year intervals
+beginning in February 2007, pending notification as prescribed in the lease, which has not been
+exercised.
+All of our domestic retail stores and showrooms are leased with terms expiring between July
+2007 and March 2018. The leases provide for rent escalations tied to either increases in the
+lessor’s operating expenses, fluctuations in the consumer price index in the relevant geographical
+area or a percentage of the store’s gross sales in excess of the base annual rent. Total base rent
+expense related to our domestic retail stores and showrooms was $20.4 million for the year ended
+December 31, 2006.
+We also lease all of our international administrative offices, retail stores and showrooms
+located in Canada, France, Germany, Switzerland, Italy, Spain, the Netherlands and the United
+Kingdom. The property leases expire at various dates between November 2007 and September 2018.
+Total rent for the leased properties aggregated approximately $6.3 million for the year ended
+December 31, 2006.
+21 
+Table of Contents 
+ITEM 3. LEGAL PROCEEDINGS 
+On March 25, 2003, a shareholder securities class action complaint captioned HARVEY SOLOMON v.
+SKECHERS USA, INC. et al. was filed against Skechers and certain of its officers and directors in
+the United States District Court for the Central District of California (Case No. 03-2094 DDP). On
+April 2, 2003, a shareholder securities class action complaint captioned CHARLES ZIMMER v. SKECHERS
+USA, INC. et al. was filed against our company and certain of its officers and directors in the
+United States District Court for the Central District of California (Case No. 03-2296 PA). On April
+15, 2003, a shareholder securities class action complaint captioned MARTIN H. SIEGEL v. SKECHERS
+USA, INC. et al. was filed against our company and certain of its officers and directors in the
+United States District Court for the Central District of California (Case No 03-2645 RMT). On May
+6, 2003, a shareholder securities class action complaint captioned ADAM D. SAPHIER v. SKECHERS USA,
+INC. et al. was served on our company and certain of its officers and directors in the United
+States District Court for the Central District of California (Case No. 03-3011 FMC). On May 9,
+2003, a shareholders securities class action complaint captioned LARRY L. ERICKSON v. SKECHERS USA,
+INC. et al. was served on our company and certain of its officers and directors in the United
+States District Court for the Central District of California (Case No. 03-3101 SJO). Each of these
+class action complaints alleged violations of the federal securities laws on behalf of persons who
+purchased our publicly traded securities between April 3, 2002 and December 9, 2002. In July 2003,
+the court in these federal securities class actions, all pending in the United States District
+Court for the Central District of California, ordered the cases consolidated and a consolidated
+complaint to be filed and served. On September 25, 2003, the plaintiffs filed a consolidated
+complaint entitled In re SKECHERS USA, Inc. Securities Litigation, Case No. CV-03-2094-PA in the
+United States District Court for the Central District of California, consolidating all of the
+federal securities actions above. The complaint names as defendants our company and certain
+officers and directors and alleges violations of the federal securities laws and breach of
+fiduciary duty on behalf of persons who purchased our publicly traded securities between April 3,
+2002 and December 9, 2002. The complaint seeks compensatory damages, interest, attorneys’ fees and
+injunctive and equitable relief. We moved to dismiss the consolidated complaint in its entirety. On
+May 10, 2004, the court granted our motion to dismiss with leave for plaintiffs to amend the
+complaint. On August 9, 2004, plaintiffs filed a first amended consolidated complaint for
+violations of the federal securities laws. The allegations and relief sought were virtually
+identical to the original consolidated complaint. We moved to dismiss the first amended
+consolidated complaint and the motion was set for hearing on December 6, 2004. On March 21, 2005,
+the court granted the motion to dismiss the first amended consolidated complaint with leave for
+plaintiffs to amend one final time. On April 7, 2005, plaintiffs elected to stand on the first
+amended consolidated complaint and requested entry of judgment so that an appeal from the court’s
+ruling could be taken. On April 26, 2005, the court entered judgment in favor of our company and
+the individual defendants, and on May 3, 2005, plaintiffs filed an appeal with the United States
+Court of Appeals for the Ninth Circuit. As of the date of filing this annual report, all briefing
+by the parties has been completed, and a hearing date has been scheduled for April 18, 2007.
+Discovery has not commenced in the underlying action. While it is too early to predict the outcome
+of the appeal and any subsequent litigation, we continue to believe the suit is without merit and
+continue to vigorously defend against the claims.
+On October 11, 2006, Violeta Gomez filed a lawsuit in the Superior Court of the State of
+California, County of Los Angeles, VIOLETA PIZA GOMEZ V. TEAM-ONE STAFFING SERVICES, INC., AB/T1,
+INC. AND SKECHERS U.S.A., INC. (Case No. BC360134). The complaint alleges wrongful termination
+under the California Fair Employment and Housing Act, Government Code §12900, et seq., as a result
+of discrimination against Ms. Gomez. The complaint seeks general, special, punitive and exemplary
+damages, interest, attorneys’ fees and reinstatement of employment. We plan on defending the
+allegations vigorously and believe the claims are without merit. Nonetheless, it is too early to
+predict the outcome and whether the outcome will have a material adverse effect on our financial
+condition or results of operations.
+On January 26, 2007, ASICS America Corporation and ASICS Corporation (Japan) (collectively,
+“ASICS”) filed a lawsuit in the U.S. District Court for the Central District of California against
+our company, Zappos.com, Inc., Brown Shoe Company, Inc. dba Famousfootwear.com and Brown Group
+Retail, Inc. dba Famous Footwear U.S.A., Inc. alleging trademark infringement, unfair competition,
+trademark dilution and false advertising arising out of our alleged use of marks similar to ASICS’s
+stripe design mark. The lawsuit seeks, inter alia, compensatory, treble and punitive damages,
+profits, attorney’s fees and costs, and a permanent injunction against us to prevent any future
+sales and distribution of shoes that allegedly bear a stripe design similar to the ASICS stripe
+design. On February 26, 2007, we filed a lawsuit against ASICS in the United States District Court
+for the Central District of California for trade libel, unfair competition and tortious
+interference with prospective economic advantage and economic business relations. We seek
+injunctive relief enjoining ASICS from engaging in further unlawful acts, disgorgement of ASICS’
+profits, attorneys’ fees and $100 million in punitive damages. We also seek a declaration that none
+of our designs infringe upon ASICS’ trademarks. While it is too early to predict the outcome of the
+litigation, we believe that we have meritorious defenses to the claims asserted by ASICS and intend
+to defend against those claims vigorously.
+22 
+Table of Contents 
+We have no reason to believe that any liability with respect to pending legal actions,
+individually or in the aggregate, will have a material adverse effect on our company’s consolidated
+financial statements or results of operations. We occasionally become involved in litigation
+arising from the normal course of business, and management is unable to determine the extent of any
+liability that may arise from unanticipated future litigation.
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
+No matters were submitted to our security holders to be voted on during the fourth quarter of
+2006.
+PART II 
+ITEM 5. 
+MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
+PURCHASES OF EQUITY SECURITIES 
+Our Class A Common Stock trades on the New York Stock Exchange under the symbol “SKX.” The
+following table sets forth, for the periods indicated, the high and low sales prices of our Class A
+Common Stock.
+HIGH 
+LOW 
+YEAR ENDED DECEMBER 31, 2006 
+First Quarter 
+$ 
+25.04 
+$ 
+14.80 
+Second Quarter 
+28.35 
+21.19 
+Third Quarter 
+26.00 
+19.70 
+Fourth Quarter 
+33.58 
+23.51 
+YEAR ENDED DECEMBER 31, 2005 
+First Quarter 
+$ 
+16.90 
+$ 
+12.80 
+Second Quarter 
+15.62 
+11.18 
+Third Quarter 
+18.19 
+13.94 
+Fourth Quarter 
+16.50 
+12.00 
+HOLDERS
+As of March 1, 2007, there were 103 holders of record of our Class A Common Stock (including
+holders who are nominees for an undetermined number of beneficial owners) and 17 holders of record
+of our Class B Common Stock. These figures do not include beneficial owners who hold shares in
+nominee name. The Class B Common Stock is not publicly traded but each share is convertible upon
+request of the holder into one share of Class A Common Stock.
+DIVIDEND POLICY
+Since our conversion from an S Corporation to a C Corporation prior to the initial public
+offering of our Class A Common Stock in 1999, earnings have been and will be retained for the
+foreseeable future in the operations of our business. We have not declared or paid any cash
+dividends on our Class A Common Stock and do not anticipate paying any cash dividends in the
+foreseeable future. Our current policy is to retain all of our earnings to finance the growth and
+development of our business.
+EQUITY COMPENSATION PLAN INFORMATION
+Our equity compensation plan information is provided as set forth in Part III, Item 12 of this
+annual report.
+23 
+Table of Contents 
+PERFORMANCE GRAPH
+The following graph demonstrates the total return to stockholders of our company’s Class A
+Common Stock from December 31, 2001 to December 31, 2006, relative to the performance of the
+Russell 2000 Index, which includes our Class A Common Stock, and our peer group index, which
+consists of eight companies believed to be engaged in similar businesses: Nike, Inc., Adidas AG,
+K-Swiss Inc., The Stride Rite Corporation, Kenneth Cole Productions, Inc., Steven Madden, Ltd., The
+Timberland Company and Wolverine World Wide, Inc.
+The graph assumes an investment of $100 on December 31, 2001 in each of our company’s Class A
+Common Stock and the stocks comprising each of the Russell 2000 Index and the customized peer group
+index. Each of the indices assumes that all dividends were reinvested. The stock performance of
+our company’s Class A Common Stock shown on the graph is not necessarily indicative of future
+performance. We will not make nor endorse any predictions as to our future stock performance.
+Company/Index 
+12/31/01 
+12/31/02 
+12/31/03 
+12/31/04 
+12/31/05 
+12/31/06 
+Skechers U.S.A., Inc. 
+$ 
+100.00 
+$ 
+58.07 
+$ 
+55.75 
+$ 
+88.65 
+$ 
+104.79 
+$ 
+227.84 
+Russell 2000 
+100.00 
+79.52 
+117.09 
+138.55 
+144.86 
+171.47 
+Custom Peer Group 
+100.00 
+88.44 
+126.85 
+166.93 
+178.49 
+196.07 
+24 
+Table of Contents 
+ITEM 6. SELECTED FINANCIAL DATA 
+The following tables set forth our company’s selected consolidated financial data as of and
+for each of the years in the five-year period ended December 31, 2006 and should be read in
+conjunction with our audited consolidated financial statements and notes thereto included under
+Part II, Item 8 of this annual report.
+(In thousands, except net earnings (loss) per share)
+AS OF DECEMBER 31, 
+STATEMENT OF EARNINGS DATA: 
+2006 
+2005 
+2004 
+2003 
+2002 
+Net sales 
+$ 
+1,205,368 
+$ 
+1,006,477 
+$ 
+920,322 
+$ 
+834,976 
+$ 
+943,582 
+Gross profit 
+523,346 
+420,482 
+370,857 
+317,686 
+386,673 
+Earnings (loss) from operations 
+112,544 
+76,296 
+49,245 
+(1,347 
+) 
+82,655 
+Earnings (loss) before income taxes 
+112,648 
+72,797 
+38,720 
+(10,373 
+) 
+75,341 
+Net earnings (loss) 
+70,994 
+44,717 
+23,553 
+(11,867 
+) 
+47,036 
+Net earnings (loss) per share:(1) 
+Basic 
+1.73 
+1.13 
+0.61 
+(0.31 
+) 
+1.26 
+Diluted 
+1.59 
+1.06 
+0.59 
+(0.31 
+) 
+1.20 
+Weighted average shares:(1) 
+Basic 
+41,079 
+39,686 
+38,638 
+37,840 
+37,275 
+Diluted 
+46,139 
+44,518 
+39,800 
+37,840 
+40,854 
+YEARS ENDED DECEMBER 31, 
+BALANCE SHEET DATA: 
+2006 
+2005 
+2004 
+2003 
+2002 
+Working capital 
+$ 
+450,787 
+$ 
+361,210 
+$ 
+313,883 
+$ 
+275,124 
+$ 
+286,760 
+Total assets 
+737,053 
+581,957 
+518,653 
+466,533 
+483,156 
+Long-term debt, excluding current portion 
+106,805 
+107,288 
+113,038 
+116,047 
+117,204 
+Stockholders’ equity 
+449,087 
+343,830 
+294,895 
+255,654 
+259,236 
+(1) 
+Basic earnings (loss) per share represents net earnings (loss) divided by the
+weighted-average number of common shares outstanding for the period. Diluted earnings (loss)
+per share, in addition to the weighted average determined for basic earnings per share,
+reflects the potential dilution that could occur if options to issue common stock were
+exercised or converted into common stock and assumes the conversion of our 4.50% convertible
+subordinated notes for the period outstanding since their issuance in April 2002, unless their
+inclusion would be anti-dilutive. 
+25 
+Table of Contents 
+ITEM 7. 
+MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
+OPERATION 
+GENERAL
+We design, market and sell contemporary footwear for men, women and children under the
+Skechers brand as well as nine other fashion and street brands. Our footwear is sold through a wide
+range of department stores and leading specialty retail stores, mid-tier retailers, boutiques, our
+own retail stores, distributor-owned international retail stores and our e-commerce website. Our
+objective is to continue to profitably grow our domestic operations, while leveraging our brand
+name to expand internationally.
+Our operations are organized along our distribution channels and have the following four
+reportable sales segments — domestic wholesale sales, international wholesale sales, retail sales
+and e-commerce sales. We evaluate segment performance based primarily on net sales and gross
+margins. See detailed segment information in note 14 to our consolidated financial statements
+included under Part II, Item 8 of this annual report.
+FINANCIAL OVERVIEW
+Skechers achieved record revenue and earnings during 2006. Our net sales for 2006 were
+$1.205 billion, an increase of $198.9 million or 19.8% percent over net sales of $1.006 billion in
+2005. Diluted earnings per share grew to a record $1.59, which reflected a 50.0% increase over
+the $1.06 reported in the prior year. Working capital was $450.8 million at December 31, 2006, an
+increase of $89.6 million from working capital of $361.2 million at December 31, 2005. Cash and
+short-term investments increased by $23.5 million to $220.5 million in 2006 compared to $197.0
+million at December 31, 2005, primarily due to our increased earnings.
+Our higher net sales and profitability for 2006 as compared to 2005 are the result of our
+dedicated efforts to consistently deliver trend-right styles, which has led to an increased demand
+for our in-season product, continued growth in our fashion and street lines, increased margins due
+to a shift in sales to our higher margin business units, increased international subsidiary and
+retail sales, and a reduction in general and administrative expenses as a percentage of net sales.
+Our domestic wholesale segment is our largest distribution channel comprising 64.1%, 63.0%, and
+63.3% of our consolidated net sales for the years ended December 31, 2006, 2005 and 2004,
+respectively. Our international wholesale sales comprised 15.2%, 16.3%, and 17.0% of our
+consolidated net sales for the years ended December 31, 2006, 2005 and 2004, respectively. Retail
+sales comprised 19.7%, 20.0%, and 19.2% of our consolidated net sales for the years ended December
+31, 2006, 2005 and 2004, respectively, of which our domestic retail sales comprised 18.1%, 18.4%,
+and 17.6% of our consolidated net sales for the years ended December 31, 2006, 2005 and 2004,
+respectively. Our international retail sales did not comprise more than 10% of our consolidated
+net sales in 2006, 2005 or 2004.
+Domestic wholesale unit sales volume increased 15.6% to 39.8 million pairs in 2006 from 34.4
+million pairs in 2005, and our average selling price per pair increased 5.4% to
+$19.44 in 2006 from $18.45 in 2005. These increases in average selling price per pair and
+increase in unit sales volume were due to the continued improvement and favorable response to our
+in-season product in 2006.
+2006 INITIATIVES
+Our positive results for 2006 were driven by focusing on our core strengths and initiatives
+which included:
+New product design and delivery . Our success depends on our ability to frequently introduce
+new styles and product lines as well as design products in anticipation of consumers’ ever-evolving
+preferences. This includes building our existing product lines with updates to proven sellers as
+well as creating new styles that we believe will become core to the line in upcoming seasons. Our
+focus in 2006 was primarily on updating many key sellers in our current lines and growing our
+fashion and street lines: 310 Motoring, Unltd. by Marc Ecko, Rhino Red, Kitson, Mark Nason, Siren
+by Mark Nason and Michelle K. During 2006 we introduced two new fashion lines: Red by Marc Ecko
+for women and Zoo York for men.
+Building our brands. As a marketing-driven company, we consistently focus on advertising the
+Skechers brand and our fashion and street brands in targeted publications, on key television
+programming and in high traffic areas and key malls. During 2006, we focused on creating effective
+and powerful advertising to communicate our message. We also continued our celebrity endorsee
+driven ads with the launch of our new Skechers celebrity endorsee, platinum recording artist Ashlee
+Simpson. We believe Ms. Simpson’s appeal and popularity has had a positive impact on our brand.
+In addition, we have increased the use of television campaigns for our Skechers men’s, women’s and
+children’s lines that we expect will further grow all of our brands.
+26 
+Table of Contents 
+Our goal with our fashion and street lines is to increase brand recognition through the
+continued presence of print and television advertising in targeted markets. Each brand has its own
+print campaign and some may have additional forms of marketing, such as television. Of the nine
+brands that comprise our fashion and street lines, Unltd. by Marc Ecko and Rhino Red are globally
+recognized brands, Michelle K and Mark Nason are becoming more established through several years of
+marketing efforts, and 310 Motoring, Kitson, Red by Marc Ecko, Zoo York and Avirex are brands with
+rapidly growing recognition. In 2006, we signed Lost star Evangeline Lilly to support Michelle K.
+With the appeal and uniqueness of the 310 Motoring brand, we were able to develop a signature line
+of sneakers with multi-platinum hip hop recording artist The Game. In 2006, we continued our
+marketing program featuring The Game and released a second Hurricane shoe. We believe that these
+celebrity endorsee driven ad campaigns generated additional demand
+for our fashion and street products in 2006.
+Further grow our company-owned retail business. With a focus on profitably growing our retail
+business, in 2006 we increased our store count by 20 stores, and we
+saw double digit comparable store sales growth in our domestic retail business during 2006 and
+believe that it will continue to grow as we expand into new domestic markets.
+Building on our strong executive team. We strengthened our management team to support our
+future growth. In January 2006, we promoted our Chief Financial Officer David Weinberg to the
+position of Chief Operating Officer and appointed Fred Schneider, who had been a member of our
+Board of Directors and Chairman of our Audit Committee, as our Chief Financial Officer. This
+addition provides us with the management resources necessary to continue to manage the growth in
+our operations and infrastructure.
+Expand our e-commerce business. We believe the internet is an efficient and high margin
+distribution channel which allows us to communicate with consumers and manage customer
+relationships. Our e-commerce business supports our brands by improving our customer service and
+providing feedback about customer tastes and preferences. Our websites also provide a platform
+with strong growth potential while leveraging our existing distribution systems with modest capital
+investments. During 2006, we continued to improve and expand our e-commerce business with the
+redesign of the Skechers web site and fulfillment process as well as the introduction of our new
+fashion brand website www.soholab.com .
+Further develop our international businesses. In 2006, we continued to focus on improving our
+international operations by (i) increasing our customer base within our subsidiary business, (ii)
+increasing the product count within each account, (iii) delivering the right product into the right
+markets, specifically with our distributor business and (iv) tailoring our product offerings
+currently available to our international customers to increase demand for our product. Our
+international business is supported by eight subsidiaries that sell direct to wholesale accounts in
+11 countries in Europe plus Canada. We believe the continued strength of our international business
+is a direct result of a broader acceptance of our trend-right product and increases in style
+counts. During 2006, several of our distributors implemented appropriate product and marketing
+efforts, which positioned them to improve their businesses during the year.
+OUTLOOK FOR 2007
+We will continue to broaden our product offering in 2007 with new lines that do not directly
+compete with our existing brands and allow us the opportunity to broaden the targeted demographic
+profile of our consumer base, increase our shelf space and enter into new doors without detracting
+from existing business. For example, we recently announced a licensed line of footwear for Avirex,
+which is an aviation-inspired brand that we introduced in Spring 2007. We believe that our
+marketing campaign with Ashlee Simpson will continue to have a positive impact on the Skechers
+brand and will create further demand for our product in 2007. Singer/actress JoJo became the new
+face of Rhino Red with print ads and a television campaign that began in the first quarter of 2007,
+and later this year, we will launch our second celebrity endorsee marketing program in support of
+the 310 Motoring brand, this campaign featuring legendary rapper
+Nas and his 310 signature shoe. We believe that these celebrity endorsee driven ad campaigns,
+as well as the existing ones with The Game, Terrence Howard and
+Evangeline Lilly, should continue to generate
+additional demand for our fashion and street products in 2007. In our ongoing efforts to increase
+our retail distribution channel, we opened four stores in the first two months of 2007 while
+closing one store in Germany, bringing our domestic and international company-owned store count to
+156. We plan to open another 20 to 25 company-owned stores in 2007.
+27 
+Table of Contents 
+YEAR ENDED DECEMBER 31, 2006 COMPARED TO THE YEAR ENDED DECEMBER 31, 2005
+Net sales 
+Net sales for 2006 were $1.205 billion, an increase of $198.9 million, or 19.8%, over net
+sales of $1.006 billion in 2005. The increase in net sales was due to increased domestic wholesale
+sales, retail sales and international wholesale sales. Our domestic wholesale segment increased
+21.9%, or $138.6 million, to $772.9 million compared to $634.3 million in 2005. The increase in
+domestic wholesale segment net sales came on a 15.6% unit sales volume increase to 39.8 million
+pairs from 34.4 million pairs in 2005. Our average selling price per pair increased 5.4% to $19.44
+from $18.45 in 2005. The increase in sales was a result of increased demand for our in-season
+products and broader acceptance of our new lines, including sport fusion and casual fusion
+footwear. The strongest increases came in our Women’s Active, Men’s USA, and Kids lines.
+Our retail segment sales increased $35.8 million to $237.4 million in 2006, a 17.8% increase
+over sales of $201.6 million in 2005. The increase in retail sales was due to a net increase of 20
+stores, increased sales across all three store formats and positive comparable store sales. During
+2006, we opened 22 new domestic stores, one international store and closed three other domestic
+stores. These new stores contributed $10.0 million in net sales during 2006 as compared to new
+store sales of $4.6 million for eleven other stores opened in 2005. Of our new store additions, 14
+were concept stores, eight were outlet stores, and one was a warehouse store. In addition, during
+2006, we realized positive comparable store sales increases in our domestic retail stores (those
+opened at least one year) of 10.7% and 14.6% in our international retail stores. Our domestic
+retail sales increased 17.3% due to positive comparable sales and having seven retail stores that
+were opened in 2005 being open the entire year in 2006. Our international retail sales increased
+22.6% in 2006 compared to 2005, due to increased comparable sales, the opening of one additional
+store, as well as favorable currency translation adjustments.
+We currently have 144 domestic retail stores as of February 28, 2007, and we believe that we
+have a presence in most major domestic markets. We currently plan to open between approximately 20
+to 25 domestic retail stores in 2007. During 2006 we closed three under-performing retail stores,
+the same number in 2005. We periodically review all of our stores for impairment. During 2006, we
+did not record an impairment charge. During 2005, we recorded an impairment charge of $0.9 million
+related to leasehold improvements for two of our stores. Further, we carefully review our
+under-performing
+stores and may consider the non-renewal of leases upon completion of the current term of the
+applicable lease.
+Our international wholesale segment sales increased $20.2 million to $183.7 million in 2006, a
+12.3% increase over sales of $163.5 million in 2005. Our international wholesale sales consist of
+direct subsidiary sales — those we make to department stores and specialty retailers — and sales
+to our distributors who in turn sell to department stores and specialty retailers in various
+international regions where we do not sell direct. Direct subsidiary sales increased $10.7
+million, or 12.8%, to $94.1 million compared to net sales of $83.4 million in 2005. The increase in
+direct subsidiary sales was primarily due to increased sales into UK, Germany, Benelux, and Canada.
+Our distributor sales increased $9.5 million to $89.6 million in 2006, an 11.8% increase over
+sales of $80.1 million in 2005. This was primarily due to increased sales to our distributors in
+Panama, Russia, and Serbia.
+Our e-commerce sales increased $4.4 million to $11.4 million in 2006, a 61.3% increase over
+sales of $7.0 million in 2005. Our
+e-commerce sales made up less than 1% of our consolidated net sales in both 2006 and 2005.
+Gross profit 
+Gross profit for 2006 increased $102.8 million to $523.3 million as compared to $420.5
+million in 2005. Our domestic wholesale segment increased $68.8 million, or 29.6%, to $301.2
+million in 2006 compared to $232.4 million in 2005. Gross profit as a percentage of net sales, or
+gross margin, increased to 43.4% in 2006 from 41.8% in 2005.
+This gross margin increase was the result of the increase in domestic wholesale margins, which
+increased to 39.0% in 2006 from 36.6% for 2005 and an increase in retail margins to 63.8% in 2006
+from 61.5% in 2005. This was partially offset by the decrease in international wholesale margins,
+which decreased to 35.4% in 2006 from 37.2% in 2005. Increased margins were a result of increased
+sales volume in our higher margin in-season products and broader acceptance of our new lines,
+including sport fusion and casual fusion footwear.
+Gross profit for our retail segment increased $27.5 million, or 22.2%, to $151.4 million in
+2006 as compared to $123.9 million in 2005. This increase in
+gross profit was due to eleven stores
+that were opened in 2005 being open the entire year in 2006 and positive comparable store sales
+increases of 14.6% and 10.7% in our international and domestic stores, respectively. During 2006,
+we opened
+28 
+Table of Contents 
+22 new domestic stores, one international store and closed three other domestic stores.
+Gross margins increased to 63.8% in 2006 as compared to 61.5% in 2005. Again, increased margins
+were a result of increased sales volume in our higher margin in-season products and broader
+acceptance of our new lines, including sport fusion and casual fusion footwear.
+Gross profit for our international wholesale segment increased $4.2 million, or 7.0%, to $65.0
+million for 2006 compared to $60.8 million in 2005. Gross margins were 35.4%
+for 2006 compared to 37.2% in 2005. International wholesale sales through our foreign
+subsidiaries achieve higher gross margins than our international wholesale sales through our
+foreign distributors. Gross margins for our direct subsidiary sales were 42.4% in 2006 as compared
+to 44.0% in 2005. Gross margins for our distributor sales were 28.1% in 2006 as compared to 30.1%
+in 2005. The decrease in gross margins was primarily due to increased discounts and allowances.
+Our cost of sales includes the cost of footwear purchased from our manufacturers, royalties,
+duties, quota costs, inbound freight (including ocean, air and freight from the dock to our
+distribution centers), broker fees and storage costs. Because we include expenses related to our
+distribution network in general and administrative expenses while some of our competitors may
+include expenses of this type in cost of sales, our gross margins may not be comparable, and we may
+report higher gross margins than some of our competitors in part for this reason.
+Licensing 
+Net licensing royalties decreased $2.5 million, or 37.9%, to $4.1 million for 2006
+compared to $6.6 million in 2005. The decrease in net licensing royalties is primarily the result
+of decreased royalty revenue associated with our various licensing agreements.
+Selling expenses 
+Selling expenses increased by $28.5 million, or 35.0%, to $109.9 million for 2006 from
+$81.4 million in 2005. As a percentage of net sales, selling expenses were 9.1% and 8.1% in 2006
+and 2005, respectively. Selling expenses consist primarily of the following accounts: sales
+representative sample costs, sales commissions, trade shows, advertising and promotional costs,
+which may include television and ad production costs, and expenses associated with marketing
+materials. The increase in selling expenses was primarily due to increased media advertising
+expenses of $22.1 million, increased sales commissions of $3.4 million due to higher revenues, and
+higher trade show expenses of $2.8 million.
+General and administrative expenses 
+General and administrative expenses increased by $35.6 million, or 13.2%, to $305.0
+million for 2006 from $269.4 million in 2005. As a percentage of sales, general and administrative
+expenses were 25.3% and 26.8% in 2006 and 2005, respectively. General and administrative expenses
+consist primarily of the following: salaries, wages and related taxes, various overhead costs
+associated with our corporate staff including stock-based compensation, domestic and international
+retail operations, non-selling related costs of our international operations, costs associated with
+our domestic and European distribution centers, professional fees related to both legal and
+accounting, insurance, and depreciation and amortization, amongst other expenses. Our distribution
+network related costs are included in general and administrative expenses and are not allocated to
+segments.
+The increase in general and administrative expenses was primarily due to increased salaries
+and wages of $21.2 million, which includes stock compensation costs of $2.0 million due to the
+adoption of SFAS 123(R) in January 2006, increased outside services of $3.5 million, higher rent
+expense of $3.2 million due to the opening of 23 retail stores, and increased warehouse and
+distribution costs of $3.0 million resulting from increased sales In addition, the expenses
+related to our distribution network, including the functions of purchasing, receiving, inspecting,
+allocating, warehousing and packaging of our products totaled $77.6 million and $70.5 million for
+2006 and 2005, respectively. We did not record any impairment charges in 2006. In 2005,
+impairment charges of $0.9 million related to the write-off of leasehold improvements at one of our
+domestic retail stores and one international retail store.
+We believe that we have established our presence in most major domestic and international
+retail markets. We opened 22 domestic retail stores and one international retail store in 2006,
+while closing three other domestic stores. We currently plan to open between 20 and 25 domestic
+stores in 2007. In addition, we plan to continue to pursue opportunistic international retail
+store locations.
+We continue to review our cost structure to develop efficiencies within our operations;
+however, we believe that our current cost structure is consistent with our anticipated sales levels
+in 2007.
+29 
+Table of Contents 
+Interest income 
+Interest income for 2006 increased $4.0 million to $8.4 million compared to $4.4 million for
+the same period in 2005. The increase in interest income resulted from higher interest rates and
+higher average cash and investment balances during 2006 when compared to the same period in 2005.
+Interest expense 
+Interest expense was $9.2 million for 2006 and 2005. Interest expense is incurred on our
+convertible notes, mortgages on our distribution center and our corporate office located in
+Manhattan Beach, California, our capital lease obligations and interest on amounts owed to our
+foreign manufacturers. We expect our interest expense to be lower in 2007 as compared to 2006 due
+to the conversion of our 4.5% convertible subordinated notes to common stock as of February 20,
+2007.
+Other income (expense) 
+Other income, net decreased $0.3 million to $1.0 million for 2006, compared to $1.3 million in
+2005. The decrease in other income was mainly due to lower recoveries related to the settlement of
+various lawsuits during 2006 as compared to 2005, offset by foreign currency gains.
+Income taxes 
+The effective tax rate for 2006 was 37.0% as compared to 38.6% in 2005. Income tax
+expense for 2006 was $41.7 million compared to $28.1 million for 2005. The tax
+provision was computed using the effective tax rates applicable to each of our domestic and
+international taxable jurisdictions. The 2006 rate is slightly lower than the expected domestic
+rate of approximately 40% due to our non-U.S. subsidiary earnings in lower tax rate jurisdictions
+and our reinvestment of undistributed earnings from our non-U.S. subsidiaries, thereby indefinitely
+postponing their remittance to the United States Internal Revenue Service. As such, we did not
+provide for deferred income taxes on accumulated undistributed earnings of our non-U.S.
+subsidiaries. As of December 31, 2006, withholding and U.S. taxes have not been provided on
+approximately $6.0 million of cumulative undistributed earnings.
+YEAR ENDED DECEMBER 31, 2005 COMPARED TO THE YEAR ENDED DECEMBER 31, 2004
+Net sales 
+Net sales for 2005 were $1.006 billion, an increase of $86.2 million, or 9.4%, over net
+sales of $920.3 million in 2004. The increase in net sales was due to increased domestic wholesale
+sales, retail sales and increased direct international sales in Germany, Spain, Benelux, Italy and
+Canada, offset by decreased sales in the United Kingdom and France. Our domestic wholesale segment
+increased 8.9%, or $52.1 million, to $634.3 million compared to $582.2 million in 2004. The
+increase in domestic wholesale segment net sales came on a 8.1% unit sales volume increase to 34.4
+million pairs from 31.8 million pairs in 2004. Our average selling price per pair increased 0.7% to
+$18.45 from $18.31 in 2004. The increase in sales was a result of increased demand for our
+in-season products and broader acceptance of our new lines, including sport fusion and casual
+fusion footwear. The strongest increases came in our Women’s Active, Mark Ecko Footwear, and Men’s
+USA lines.
+Our retail segment sales increased $24.8 million to $201.6 million in 2005, a 14.0% increase
+over sales of $176.8 million in 2004. The increase in retail sales was due to a net increase of
+eight stores, increased sales across all three store formats and positive comparable store sales.
+During 2005, we opened ten new domestic stores, one international store and closed three other
+domestic stores. These new stores contributed $4.6 million in net sales during 2005. Of our new
+store additions, ten were outlet stores and one was a concept store. In addition, during 2005, we
+realized positive comparable store sales increases in our domestic and international retail stores
+of 16.9% in our concept stores comparable sales and 3.7% in our international store comparable
+sales. Our domestic retail sales increased 14.7% due to positive comparable sales and having four
+retail stores that were opened in 2004 being open the entire year in 2005. Our international retail
+sales increased 6.7% in 2005 compared to 2004, due to increased comparable sales, the opening of
+one additional store, as well as favorable currency translation adjustments. During 2005 we closed
+three under-performing retail stores as compared to closing four retail stores in 2004. During
+2005, we recorded an impairment charge of $0.9 million related to leasehold improvements for two of
+our stores.
+Our international wholesale segment sales increased $7.0 million to $163.5 million in 2005, a
+4.5% increase over sales of $156.5 million in 2004. Our international wholesale sales consist of
+direct subsidiary sales — those we make to department stores and
+30 
+Table of Contents 
+specialty
+retailers — and sales to our distributors who in turn sell to department stores and specialty
+retailers in various international regions where we do not sell direct. The increase in
+international wholesale sales was primarily due to increased direct subsidiary sales, which were
+partially offset by reduced distributor sales. Direct subsidiary sales increased $11.1 million, or
+15.4%, to $83.4 million compared to net sales of $72.3 million in 2004. The increase in direct
+subsidiary sales was primarily due to increased sales into Germany, Canada, Spain and Italy. Our
+distributor sales decreased $4.1 million to $80.1 million in 2005, a 4.9% decrease over sales of
+$84.2 million in 2004. This was primarily due to decreased sales into Japan.
+Our e-commerce sales increased $2.2 million to $7.0 million in 2005, a 46.0% increase over
+sales of $4.8 million in 2004. Our
+e-commerce sales made up less than 1% of our consolidated net sales in both 2005 and 2004.
+Gross profit 
+Gross profit for 2005 increased $49.6 million to $420.5 million as compared to $370.9
+million in 2004. Our domestic wholesale segment increased $18.0 million, or 8.4%, to $232.4
+million in 2005 compared to $214.4 million in 2004. Gross profit as a percentage of net sales, or
+gross margin, increased to 41.8% in 2005 from 40.3% in 2004. This gross margin increase was the
+result of the increase in international wholesale margins, which increased to 37.2% in 2005 from
+34.6% for 2004, and as a result of retail sales becoming a larger portion of consolidated net
+sales, which achieve higher gross margins than our wholesale sales. Increased margins was also a
+result of increased demand for our in-season products and broader acceptance of our new lines,
+including sport fusion and casual fusion footwear.
+Gross profit for our retail segment increased $22.5 million, or 22.2%, to $123.9 million in
+2005 as compared to $101.4 million in 2004. This increase in gross profit was due to four stores
+that were opened in 2004 being open the entire year in 2005 and positive comparable store sales
+increases of 3.7% and 16.9% in our international and domestic stores, respectively. During 2005,
+we opened ten new domestic stores, one international store and closed three other domestic stores.
+Gross margins increased to 61.5% in 2005 as compared to 57.4% in 2004. The increase in margin was
+primarily due to a larger portion of our retail sales coming from our higher margin concept stores
+and positive comparable store sales increases.
+Gross profit for our international wholesale segment increased $6.7 million, or 12.4%, to
+$60.8 million for 2005 compared to $54.1 million in 2004. Gross margins were 37.2% for 2005
+compared to 34.6% in 2004. The increase in gross margins was primarily due to increased margins in
+our distributor business. The increase in distributor gross margins was primarily due to stronger
+sales of in-line merchandise and better product sell-throughs. International wholesale sales
+through our foreign subsidiaries achieve higher gross margins than our international wholesale
+sales through our foreign distributors. Gross margins for our direct subsidiary sales were 42.4%
+for both 2005 and 2004.
+Licensing 
+Net licensing royalties decreased $0.5 million, or 7.0%, to $6.6 million for 2005
+compared to $7.1 million in 2004. The decrease in net licensing royalties is primarily the result
+of decreased royalty revenue associated with our various licensing agreements.
+Selling expenses 
+Selling expenses increased by $1.7 million, or 2.1%, to $81.4 million for 2005 from $79.7
+million in 2004. As a percentage of net sales, selling expenses were 8.1% and 8.7% in 2005 and
+2004, respectively. The increase in selling expenses was primarily due to increased media
+advertising expenses of $3.2 million and increased sales commissions of $1.0 million, partially
+offset by lower sales representative samples of $1.6 million and trade show and catalog expenses of
+$0.9 million.
+General and administrative expenses 
+General and administrative expenses increased by $20.4 million, or 8.2%, to $269.4
+million for 2005 from $249.0 million in 2004. As a percentage of sales, general and administrative
+expenses were 26.8% and 27.1% in 2005 and 2004, respectively. The increase in general and
+administrative expenses was primarily due to increased salaries and wages and related payroll costs
+of $11.2 million, increased depreciation and repairs and maintenance for our stores of $2.5
+million, and increased warehouse and distribution costs of $1.7 million. We did not record any
+stock compensation costs in 2005. In addition, expenses related to our distribution network,
+including the functions of purchasing, receiving, inspecting, allocating, warehousing and packaging
+our products totaled $70.5 million and $71.3 million for 2005 and 2004, respectively. Impairment
+charges related to the write-off of leasehold improvements at one of our domestic and one
+international retail stores was $0.9 million in 2005 as compared to $40,000 for the same period
+last year.
+31 
+Table of Contents 
+Interest income 
+Interest income for 2005 increased $3.2 million to $4.4 million compared to $1.2 million for
+the same period in 2004. The increase in interest income resulted from higher interest rates and
+higher average cash and investment balances during 2005 when compared to the same period in 2004.
+Interest expense 
+Interest expense was $9.2 million for 2005 and 2004. Interest expense is incurred on our
+convertible notes, mortgages on our distribution center and our corporate office located in
+Manhattan Beach, California, our capital lease obligations and interest on amounts owed to our
+foreign manufacturers.
+Other income (expense) 
+Other income, net increased $3.9 million to $1.3 million for 2005, compared to $2.6 million
+expense in
+year 2004. The increase in other income was due to recoveries related to the settlement of
+various lawsuits for $1.6 million during 2005 as compared to settlement payments of $2.3 million in
+2004.
+Income taxes 
+The effective tax rate for 2005 was 38.6% as compared to 39.2% in 2004. Income tax
+expense for 2005 was $28.1 million compared to $15.2 million for 2004. The tax provision was
+computed using the effective tax rates applicable to each of our domestic and international taxable
+jurisdictions. The 2005 rate is slightly lower than the expected domestic rate of approximately
+40%, due to our non-U.S. subsidiary earnings in lower tax rate jurisdictions and our reinvestment
+of undistributed earnings from our non-U.S. subsidiaries, thereby indefinitely postponing their
+remittance to the United States Internal Revenue Service. As such, we did not provide for deferred
+income taxes on accumulated undistributed earnings of our non-U.S. subsidiaries.
+LIQUIDITY AND CAPITAL RESOURCES
+Our working capital at December 31, 2006 was $450.8 million, an increase of $89.6 million
+from working capital of $361.2 million at December 31, 2005. Our cash and cash equivalents at
+December 31, 2006 were $160.5 million compared to $197.0 million at December 31, 2005. The decrease
+in cash and cash equivalents of $36.5 million was the result of utilizing excess cash to purchase
+$60.0 million of short-term investments, additional inventory of $64.4 million and capital
+expenditures of $27.6 million which were offset by our cash flow from operations of $26.0 million,
+and proceeds of $19.0 million from stock options exercised.
+During 2006, our operating activities generated $26.0 million in net cash compared to cash
+provided by operating activities of $75.5 million for 2005. The significant reduction in our
+operating cash flows for 2006, when compared to 2005, was mainly the result of increased inventory
+and accounts receivable balances partially offset by increased cashflow from operations and an
+increase in accounts payable. We increased our inventory levels to accommodate the higher demand
+for our products and our receivables increased due to our increase in net sales.
+Net cash used in investing activities was $87.6 million for 2006 as compared to $13.6 million
+in 2005. During 2006, we purchased $60.0 million in short-term investments to better utilize our
+cash balances. Capital expenditures for 2006 were approximately $27.6 million, of which $12.5
+million related to the construction of our new corporate headquarters and the balance primarily
+consisted of new store openings and remodels. This was compared to capital expenditures of $13.6
+million in the prior year, which primarily consisted of new store openings and remodels and
+warehouse equipment upgrades. During 2005, we entered into a construction agreement with Morley
+Construction Company for the construction of our third corporate facility in Manhattan Beach,
+California. The agreement has a maximum payment clause in which Morley agrees that the
+construction cost of the facility will not exceed $18.1 million, of which $14.5 million was
+incurred as of December 31, 2006. We expect the building to be completed by the end of 2007.
+Excluding the construction of our corporate headquarters,
+we expect our ongoing capital expenditures for 2007 to be approximately $15.0 million, which
+includes opening between 20 to 25 domestic retail stores, capital improvements at our distribution
+centers and investments in information technology. We currently anticipate that our capital
+expenditure requirements for 2007 will be funded through our operating cash flows or current cash
+on hand, or available lines of credit.
+32 
+Table of Contents 
+Net cash provided by financing activities was $22.9 million during 2006 compared to net cash
+used by financing activities of $0.7 million during 2005. The increase in cash provided by
+financing activities was due to increased cash provided from the issuance of Class A Common Stock
+upon the exercise of stock options in 2006 as compared to the prior year and a balloon repayment of
+our long-term debt of $4.6 million in 2005.
+In April 2002, we issued $90.0 million aggregate principal amount of 4.50% convertible
+subordinated notes due April 15, 2007. Interest on the notes is paid semi-annually in April and
+October of each year. Discount and issuance costs of approximately $3.4 million are being
+amortized to interest expense over the term of the notes. The notes were convertible at the option
+of the holders into shares of Class A Common Stock at a conversion rate of 38.5089 shares of Class
+A Common Stock per $1,000 principal amount of notes, which is equivalent to a conversion price of
+approximately $25.968 per share. The notes were unsecured and subordinated to our present and
+future senior debt as well as indebtedness and other liabilities of our subsidiaries. The indenture
+did not restrict our incurrence of indebtedness, including senior debt, or our subsidiaries’
+incurrence of indebtedness.
+On January 19, 2007, we called these notes for redemption. The redemption date was February
+20, 2007. The aggregate principal amount of notes outstanding was $90.0 million. Holders of
+$89.969 million principal amount of the notes, which included $2.5 million of principal amount of
+the notes held by us, converted their notes into shares of our Class A Common Stock prior to the
+redemption date. As a result of these conversions, 3,464,594 shares of Class A Common Stock were
+issued to holders of the notes, which included 96,272 shares issued to us that were immediately
+retired. In connection with these conversions, we paid approximately $500 in cash to holders who
+elected to convert their notes, which represented cash paid in lieu of fractional shares. In
+addition, we paid approximately $32,000 to holders who redeemed their notes, which represented the
+redemption price of 100.9% of $31,000 principal amount of the notes plus accrued interest.
+On May 31, 2006, we amended our secured line of credit, which permits our company and certain
+of our subsidiaries to borrow up to $150.0 million based upon eligible accounts receivable and
+inventory, which line can be increased to $250.0 million at our request. Borrowings bear interest
+at the borrowers’ election based on either the prime rate or the London Interbank Offered Rate
+(“LIBOR”). Prime rate loans will bear interest at a rate equal to JPMorgan Chase Bank’s publicly
+announced prime rate less up to 0.50%. LIBOR loans will bear interest at a rate equal to the
+applicable LIBOR plus up to an additional 1.75%. We pay a monthly unused line of credit fee of
+0.25% per annum. The loan agreement, which expires on May 31, 2011, provides for the issuance of
+letters
+of credit up to a maximum of $30.0 million. The loan agreement contains customary affirmative
+and negative covenants for secured credit facilities of this type, including a financial covenant
+requiring a fixed charge coverage ratio of not less than 1.1 at the end of each quarter if excess
+availability of eligible account receivable and inventory is less than $50.0 million at any time
+during such quarter. Excess availability was not less than $50.0 million during the year-ended
+December 31, 2006; hence, the fixed charge ratio requirement was not applicable at such date. No
+amounts were outstanding and we were in compliance with all other covenants of the loan agreement
+at December 31, 2006.
+We believe that anticipated cash flows from operations, available borrowings under our secured
+line of credit, cash on hand, short-term investments and our financing arrangements will be
+sufficient to provide us with the liquidity necessary to fund our anticipated working capital and
+capital requirements through 2007. However, in connection with our current strategies, we will
+incur significant working capital requirements and capital expenditures. Our future capital
+requirements will depend on many factors, including, but not limited to, the levels at which we
+maintain inventory, the market acceptance of our footwear, the success of our international
+operations, the levels of promotion and advertising required to promote our footwear, the extent to
+which we invest in new product design and improvements to our existing product design, acquisition
+of other brands or companies, and the number and timing of new store openings. To the extent that
+available funds are insufficient to fund our future activities, we may need to raise additional
+funds through public or private financing of debt or equity. We cannot be assured that additional
+financing will be available or that, if available, it can be obtained on terms favorable to our
+stockholders and us. Failure to obtain such financing could delay or prevent our planned expansion,
+which could adversely affect our business, financial condition and results of operations. In
+addition, if additional capital is raised through the sale of additional equity or convertible
+securities, dilution to our stockholders could occur.
+33 
+Table of Contents 
+DISCLOSURE ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
+The following table aggregates all material contractual obligations and commercial commitments
+as of December 31, 2006:
+Payments Due by Period (In Thousands) 
+Less than 
+One to 
+Three to 
+More Than 
+One 
+Three 
+Five 
+Five 
+Total 
+Year 
+Years 
+Years 
+Years 
+Long-term obligations (1) 
+$ 
+90,000 
+$ 
+90,000 
+— 
+— 
+— 
+Other long-term debt 
+22,865 
+1,783 
+$ 
+3,567 
+$ 
+17,515 
+— 
+Capital lease obligations 
+216 
+216 
+— 
+— 
+— 
+Operating lease obligations (2) 
+241,582 
+37,766 
+68,662 
+56,341 
+$ 
+78,813 
+Purchase obligations (3) 
+210,331 
+210,331 
+— 
+— 
+— 
+Construction contract (4) 
+4,038 
+4,038 
+— 
+— 
+— 
+Minimum payments related to our
+licensing arrangements 
+8,855 
+4,375 
+2,240 
+2,240 
+— 
+Financed insurance premiums 
+1,304 
+1,304 
+— 
+— 
+— 
+$ 
+579,191 
+$ 
+349,813 
+$ 
+74,469 
+$ 
+76,096 
+$ 
+78,813 
+(1) 
+The long-term notes consists of our 4.50% convertible notes due April 15, 2007, of
+which $89.969 million were redeemed and converted to equity as of February 20, 2007. 
+(2) 
+Operating lease commitments consists primarily of real property leases for our retail
+stores, corporate offices and distribution centers. These leases frequently include
+options that permit us to extend beyond the terms of the initial fixed term. Payments for
+these lease terms are provided for by cash flows generated from operations or, if needed,
+by our $150.0 million secured line of credit, for which no amounts were outstanding at
+December 31, 2006. 
+(3) 
+Purchase obligations includes the following: (i) accounts payable balances for the
+purchase of footwear of $85.0 million, (ii) outstanding letters of credit of $10.0 million
+and (iii) open purchase commitments with our foreign manufacturers for $115.3 million. We
+currently expect to fund these commitments with cash flows from operations and/or cash on
+hand. 
+(4) 
+During 2005, we entered into a construction agreement with Morley Construction
+Company for the construction of our third corporate facility in Manhattan Beach,
+California. The agreement has a maximum payment clause in which Morley agrees that the
+construction cost of the facility will not exceed $18.1 million, of
+which $14.5 million was incurred at December 31, 2006. We expect the building to be
+completed by the end of 2007. 
+OFF-BALANCE SHEET ARRANGEMENTS
+We do not have any relationships with unconsolidated entities or financial partnerships such
+as entities often referred to as structured finance or special purpose entities that would have
+been established for the purpose of facilitating off-balance-sheet arrangements or for other
+contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity,
+market or credit risk that could arise if we had engaged in such relationships.
+CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
+Management’s Discussion and Analysis of Financial Condition and Results of Operations is
+based upon our consolidated financial statements, which have been prepared in accordance with
+accounting principles generally accepted in the United States of America. The preparation of these
+financial statements requires us to make estimates and judgments that affect the reported amounts
+of assets, liabilities, sales and expenses, and related disclosure of contingent assets and
+liabilities. We base our estimates on historical experience and on various other assumptions that
+are believed to be reasonable under the circumstances, the results of which form the basis for
+making judgments about the carrying values of assets and liabilities that are not readily apparent
+from other sources. Actual results may differ from these estimates under different assumptions or
+conditions.
+We believe the following critical accounting estimates are affected by more significant
+judgments used in the preparation of our consolidated financial statements: revenue recognition,
+allowance for bad debts, returns, sales allowances and customer chargebacks, inventory write-downs,
+valuation of long-lived assets, litigation reserves, valuations of deferred income taxes, foreign
+currency translation and stock-based compensation.
+34 
+Table of Contents 
+Revenue Recognition . We derive income from the sale of footwear and royalties earned from
+licensing the Skechers brand. Domestically, goods are shipped Free on Board (“FOB”) shipping point
+directly from our domestic distribution center in Ontario, California. For our European
+international wholesale accounts, product is shipped FOB shipping point direct from our
+distribution center in Liege, Belgium. For our distributor sales, the goods are delivered directly
+from the independent factories to our distributors’ freight forwarders on a Free Named Carrier
+(FCA) basis. We recognize revenue on wholesale sales when products are shipped and the customer
+takes title and assumes risk of loss, collection of relevant receivable is probable, persuasive
+evidence of an arrangement exists and the sales price is fixed or determinable. This generally
+occurs at time of shipment. Allowances for estimated returns, discounts, doubtful accounts and
+chargebacks are provided for when related revenue is recorded. Related costs paid to third-party
+shipping companies are recorded as a cost of sales. We recognize revenue from retail sales at the
+point of sale.
+Royalty income is earned from our licensing arrangements. Upon signing a new licensing
+agreement, we receive up-front fees, which are generally characterized as prepaid royalties. These
+fees are initially deferred and recognized as revenue as earned (i.e., as licensed sales are
+reported to the company or on a straight line basis over the term of the agreement). The first
+calculated royalty payment is based on actual sales of the licensed product. Typically, at each
+quarter end we receive correspondence from our licensees indicating what the actual sales for the
+period were. This information is used to calculate and accrue the related royalties currently
+receivable based on the terms of the agreement.
+Allowance for bad debts, returns, sales allowances and customer chargebacks. We provide a
+reserve against our receivables for estimated losses that may result from our customers’ inability
+to pay. To minimize the likelihood of uncollectibility, customers’ credit-worthiness is reviewed
+periodically based on external credit reporting services and our experience with the account, and
+it is adjusted accordingly. Should a customer’s account become past due, we generally place a hold
+on the account and discontinue further shipments to that customer, minimizing further risk of loss.
+We determine the amount of the reserve by analyzing known uncollectible accounts, aged receivables,
+economic conditions in the customers’ country or industry, historical losses and our customers’
+credit-worthiness. Amounts later determined and specifically identified to be uncollectible are
+charged or written off against this reserve.
+We also reserve for potential disputed amounts or chargebacks with our customers. Our
+chargeback reserve is based on a collectibility percentage based on factors such as historical
+trend, current economic conditions, and nature of the chargeback receivables. We also reserve for
+potential sales returns and allowances based on historical trends.
+The likelihood of a material loss on an uncollectible account would be mainly dependent on
+deterioration in the overall economic conditions in a particular country or environment. Reserves
+are fully provided for all probable losses of this nature. For receivables that are not
+specifically identified as high risk, we provide a reserve based upon a percent of sales for the
+last two months. This percentage is based on our historical loss rate. Gross trade accounts
+receivable balance was $188.3 million and the allowance for bad debts, returns, sales allowances
+and customer chargebacks was $10.6 million at December 31, 2006.
+Inventory write-downs . Inventories are stated at the lower of cost or market. We review our
+inventory on a regular basis for excess and slow moving inventory. Our review is based on inventory
+on hand, prior sales and our expected net realizable value. Our analysis includes a review of
+inventory quantities on hand at period end in relation to year-to-date sales and projections for
+sales in the near future. The net realizable value, or market value, is determined based on our
+estimate of sales prices of such inventory through off-price or discount store channels. A
+write-down of inventory is considered permanent and creates a new cost basis for those units. The
+likelihood of any material inventory write-down is dependent primarily on our expectation of future
+consumer
+demand for our product. A misinterpretation or misunderstanding of future consumer demand for
+our product or of the economy, or other failure to estimate correctly, could result in inventory
+valuation changes, either favorably or unfavorably, compared to the requirement determined to be
+appropriate as of the balance sheet date. At December 31, 2006, our gross inventory value was
+$201.5 million and our inventory reserve was $0.6 million.
+Valuation of long-lived assets . When circumstances warrant, we assess the impairment of
+long-lived assets that require us to make assumptions and judgments regarding the carrying value of
+these assets. The assets are considered to be impaired if we determine that the carrying value may
+not be recoverable based upon our assessment of the following events or changes in circumstances:
+• 
+the asset’s ability to continue to generate income; 
+• 
+any loss of legal ownership or title to the asset(s); 
+35 
+Table of Contents 
+• 
+any significant changes in our strategic business objectives and utilization of the
+asset(s); or 
+• 
+the impact of significant negative industry or economic trends. 
+If the assets are considered to be impaired, the impairment we recognize is the amount by
+which the carrying value of the assets exceeds the fair value of the assets. In addition, we base
+the useful lives and related amortization or depreciation expense on our estimate of the period
+that the assets will generate revenues or otherwise be used by us. If a change were to occur in any
+of the above-mentioned factors or estimates, the likelihood of a material change in our reported
+results would increase. In addition, we prepare a summary of store contribution from our domestic
+retail stores to assess potential impairment of the fixed assets and leasehold improvements. Stores
+with negative contribution opened in excess of twenty-four months are then reviewed in detail to
+determine if impairment exists. For the year ended December 31, 2006, we did not record an
+impairment charge.
+Litigation reserves . Estimated amounts for claims that are probable and can be reasonably
+estimated are recorded as liabilities in our consolidated balance sheets. The likelihood of a
+material change in these estimated reserves would depend on new claims as they may arise and the
+favorable or unfavorable outcome of the particular litigation. Both the amount and range of loss on
+a large portion of the remaining pending litigation is uncertain. As such, we are unable to make a
+reasonable estimate of the liability that could result from unfavorable outcomes in litigation. As
+additional information becomes available, we will assess the potential liability related to our
+pending litigation and revise our estimates. Such revisions in our estimates of the potential
+liability could materially impact our results of operations and financial position.
+Valuation of deferred income taxes . We record a valuation allowance when necessary to reduce
+our deferred tax assets to the amount that is more likely than not to be realized. The likelihood
+of a material change in our expected realization of our deferred tax assets depends on future
+taxable income and the effectiveness of our tax planning strategies amongst the various domestic
+and international tax jurisdictions in which we operate. We evaluate our projections of taxable
+income to determine the recoverability of our deferred tax assets and the need for a valuation
+allowance. As of December 31, 2006, we had net deferred tax assets of $21.5 million and a
+valuation allowance of $0.5 million against losses not expected to be utilized by certain foreign
+subsidiaries. See “—Future Accounting Changes” for a discussion of the application of FIN 48.
+Foreign currency translation . Our international operations generally use their respective
+local currencies as their functional currency. In accordance with Statement of Financial Accounting
+Standards No. 52, “ Foreign Currency Translation ” (“SFAS 52”), revenues and expenses from our
+international subsidiaries are translated using the monthly average exchange rates in effect for
+the period in which such revenues and expenses occur. International subsidiaries that use their
+local currency as their functional currency translate their assets and liabilities using current
+rates of exchange at the balance sheet date. The resulting translation gains and losses for such
+subsidiaries are included within accumulated other comprehensive income as a separate component of
+stockholders’ equity. One international subsidiary has a functional currency of the U.S. dollar.
+Resulting remeasurement gains and losses from this subsidiary are included in the determination of
+net earnings. A substantial portion of our intercompany loans are considered long-term investments
+and the gains or losses from currency fluctuations are included as a component of translation
+adjustment in other comprehensive income.
+Stock-based compensation. Beginning on January 1, 2006, we implemented and adopted a new
+critical accounting policy, Financial Accounting Standards No. 123 (revised 2004), “ Share-Based
+Payment ” (“SFAS 123(R)”), which requires us to recognize compensation for stock options, nonvested
+shares and employee stock purchase plan (ESPP) shares at fair value. Under the fair value
+recognition provisions for SFAS 123(R), stock-based compensation cost is estimated at the grant
+date based on the fair value of the awards expected to vest and recognized as expense ratably over
+the requisite service period of the award. We have used the Black-Scholes valuation model to
+estimate the fair value of our stock option awards, which requires various judgmental assumptions
+including estimating stock price volatility, forfeiture rates, and expected life. Our computation
+of expected volatility is based on historical volatility. In addition, we consider many factors
+when estimating expected forfeitures and expected life, including types of awards, employee class,
+and historical experience. If any of the assumptions used in the Black-Scholes model change
+significantly, stock-based compensation expense may differ materially in the future from that
+recorded in the current period. We adopted SFAS 123(R) using the modified prospective method which
+requires the application of the accounting standard as of January 1, 2006. Our consolidated
+financial statements for the year-ended December 31, 2006 reflect the impact of SFAS 123(R). Stock
+compensation expense as a result of SFAS 123(R) was recorded to general and
+administrative expenses and was $2.0 million for the year ended December 31, 2006. In
+accordance with the modified prospective method, the consolidated financial statements for prior
+periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). The
+impact of the adoption is discussed in note 7 to the Consolidated Financial Statements.
+36 
+Table of Contents 
+INFLATION
+We do not believe that the relatively moderate rates of inflation experienced in the
+United States over the last three years have had a significant effect on our sales or
+profitability. However, we cannot accurately predict the effect of inflation on future operating
+results. Although higher rates of inflation have been experienced in a number of foreign countries
+in which our products are manufactured, we do not believe that inflation has had a material effect
+on our sales or profitability. While we have been able to offset our foreign product cost increases
+by increasing prices or changing suppliers in the past, we cannot assure you that we will be able
+to continue to make such increases or changes in the future.
+EXCHANGE RATES
+We receive U.S. dollars for substantially all of our product sales and our royalty
+income. Inventory purchases from offshore contract manufacturers are primarily denominated in U.S.
+dollars; however, purchase prices for our products may be impacted by fluctuations in the exchange
+rate between the U.S. dollar and the local currencies of the contract manufacturers, which may have
+the effect of increasing our cost of goods in the future. During 2006 and 2005, exchange rate
+fluctuations did not have a material impact on our inventory costs. We do not engage in hedging
+activities with respect to such exchange rate risk.
+FUTURE ACCOUNTING CHANGES
+In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157 “ Fair
+Value Measurements ”, (“SFAS 157”). The standard provides guidance for using fair value to measure
+assets and liabilities. The standard also responds to investors’ requests for expanded information
+about the extent to which companies measure assets and liabilities at fair value, the information
+used to measure fair value, and the effect of fair value measurements on earnings. The standard
+applies whenever other standards require (or permit) assets or liabilities to be measured at fair
+value. The standard does not expand the use of fair value in any new circumstances. Statement 157
+is effective for financial statements issued for fiscal years beginning after November 15, 2007,
+and interim periods within those fiscal years. Early adoption is permitted. We are currently
+evaluating the impact of this standard on our Consolidated Financial Statements; however, we do not
+expect that the adoption of SFAS 157 will have a material impact on our financial condition or
+results of operations.
+In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “ Considering the Effects
+of Prior Year Misstatements when Quantifying Misstatements in Current Year
+Financial Statements” (“SAB 108”). SAB 108 provides guidance on how prior year misstatements
+should be taken into consideration when quantifying misstatements in current year financial
+statements for purposes of determining whether the current year’s financial statements are
+materially misstated. SAB 108 permits companies to record the cumulative effect of initial adoption
+by recording the necessary “correcting” adjustments to the carrying values of assets and
+liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening
+balance of retained earnings only if material under the dual method. We adopted the provisions of
+SAB 108 on December 31, 2006 and such adoption did not have a material impact on our consolidated
+financial statements.
+In June 2006, the FASB issued FASB Interpretation No. 48, “ Accounting for Uncertainty in
+Income Taxes ,” (“FIN 48”) an interpretation of FASB Statement No. 109, “ Accounting for Income
+Taxes ”. FIN 48 requires that a position taken or expected to be taken in a tax return be recognized
+in the financial statements when it is more likely than not (i.e. a likelihood of more than fifty
+percent) that the position would be sustained upon examination by tax authorities. A recognized tax
+position is then measured at the largest amount of benefit that is greater than fifty percent
+likely of being realized upon ultimate settlement. Upon adoption, the cumulative effect of applying
+the recognition and measurement provisions of FIN 48, if any, shall be reflected as an adjustment
+to the opening balance of retained earnings.
+FIN 48 requires that subsequent to initial adoption a change in judgment that results in
+subsequent recognition, derecognition or change in a measurement of a tax position taken in a prior
+annual period (including any related interest and penalties) be recognized as a discrete item in
+the period in which the change occurs. Currently, we record such changes in judgment, including
+audit settlements, as a component of our annual effective rate except for reversals due to statute
+of limitation expirations which are recorded as discrete items during the quarter they expire.
+Thus, our reported quarterly income tax rate may become more volatile upon adoption of FIN 48. This
+change will not impact the manner in which we record income tax expense on an annual basis.
+FIN 48 also requires expanded disclosures including identification of tax positions for which
+it is reasonably possible that total amounts of unrecognized tax benefits will significantly change
+in the next twelve months, a description of tax years that remain subject to examination by major
+tax jurisdiction, a tabular reconciliation of the total amount of unrecognized tax benefits at the
+37 
+Table of Contents 
+beginning and end of each annual reporting period, the total amount of unrecognized tax benefits
+that, if recognized, would affect the effective tax rate and the total amounts of interest and
+penalties recognized in the balance sheet and statement of earnings. FIN 48 is effective for
+fiscal years beginning after December 15, 2006. We are currently evaluating the impact of this
+standard on our Consolidated Financial Statements, however, we do not expect the adoption of FIN 48
+will have a material impact on our financial condition or results of operations.
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+MARKET RISK
+We do not hold any derivative securities that require fair value presentation under FASB
+Statement No. 133.
+Market risk is the potential loss arising from the adverse changes in market rates and prices,
+such as interest rates and foreign currency exchange rates. Changes in interest rates and changes
+in foreign currency exchange rates have and will have an impact on our results of operations.
+Interest rate fluctuations . The interest rate charged on our line of credit facility is based
+on either the prime rate of interest or the LIBOR, and changes in the either of these rates of
+interest could have an effect on the interest charged on our outstanding balances. At December 31,
+2006, no amounts were outstanding that were subject to changes in interest rates.
+Foreign exchange rate fluctuations . We face market risk to the extent that changes in foreign
+currency exchange rates affect our non-U.S. dollar functional currency foreign subsidiary’s
+revenues, expenses, assets and liabilities. In addition, changes in foreign exchange rates may
+affect the value of our inventory commitments. Also, inventory purchases of our products may be
+impacted by fluctuations in the exchange rates between the U.S. dollar and the local currencies of
+the contract manufacturers, which could have the effect of increasing the cost of goods sold in the
+future. We manage these risks by primarily denominating these purchases and commitments in U.S.
+dollars. We do not engage in hedging activities with respect to such exchange rate risks.
+38 
+Table of Contents 
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 
+Page 
+REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+40 
+CONSOLIDATED BALANCE SHEETS 
+42 
+CONSOLIDATED STATEMENTS OF EARNINGS 
+43 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME 
+44 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+45 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+46 
+39 
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+The Board of Directors and Stockholders 
+Skechers U.S.A., Inc.:
+We have audited the accompanying consolidated balance sheets of Skechers U.S.A., Inc. and
+subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of earnings,
+stockholders’ equity and comprehensive income, and cash flows for each of the years in the
+three-year period ended December 31, 2006. In connection with our audits of the consolidated
+financial statements, we also have audited the related financial statement schedule. These
+consolidated financial statements and financial statement schedule are the responsibility of the
+Company’s management. Our responsibility is to express an opinion on these consolidated financial
+statements and financial statement schedule based on our audits.
+We conducted our audits in accordance with the standards of the Public Company Accounting
+Oversight Board (United States). Those standards require that we plan and perform the audit to
+obtain reasonable assurance about whether the financial statements are free of material
+misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
+disclosures in the financial statements. An audit also includes assessing the accounting principles
+used and significant estimates made by management, as well as evaluating the overall financial
+statement presentation. We believe that our audits provide a reasonable basis for our opinion.
+In our opinion, the consolidated financial statements referred to above present fairly, in all
+material respects, the financial position of Skechers U.S.A., Inc. and subsidiaries as of December
+31, 2006 and 2005, and the results of their operations and their cash flows for each of the years
+in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted
+accounting principles. Also in our opinion, the related financial statement schedule, when
+considered in relation to the basic consolidated financial statements taken as a whole, presents
+fairly, in all material respects, the information set forth therein.
+As discussed in note 7 to the consolidated financial statements, effective January 1, 2006 the
+Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised
+2004), Share-Based Payment .
+We also have audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), the effectiveness of Skechers U.S.A. Inc’s., internal control over
+financial reporting as of December 31, 2006, based on criteria established in Internal
+Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
+Commission (COSO), and our report dated March 14, 2007 expressed an unqualified opinion on
+management’s assessment of, and the effective operation of, internal control over financial
+reporting.
+/s/ KPMG LLP
+Los Angeles, California 
+March 14, 2007
+40 
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+The Board of Directors and Stockholders 
+Skechers U.S.A., Inc.:
+We have audited management’s assessment, included in the accompanying Management’s Report on
+Internal Control Over Financial Reporting appearing under Item 9A, that Skechers U.S.A., Inc.
+maintained effective internal control over financial reporting as of December 31, 2006, based on
+criteria established in Internal Control—Integrated Framework issued by the Committee of
+Sponsoring Organizations of the Treadway Commission (COSO). Skechers U.S.A., Inc’s. management is
+responsible for maintaining effective internal control over financial reporting and for its
+assessment of the effectiveness of internal control over financial reporting. Our responsibility is
+to express an opinion on management’s assessment and an opinion on the effectiveness of the
+Company’s internal control over financial reporting based on our audit.
+We conducted our audit in accordance with the standards of the Public Company Accounting
+Oversight Board (United States). Those standards require that we plan and perform the audit to
+obtain reasonable assurance about whether effective internal control over financial reporting was
+maintained in all material respects. Our audit included obtaining an understanding of internal
+control over financial reporting, evaluating management’s assessment, testing and evaluating the
+design and operating effectiveness of internal control, and performing such other procedures as we
+considered necessary in the circumstances. We believe that our audit provides a reasonable basis
+for our opinion.
+A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and
+procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
+and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
+reasonable assurance that transactions are recorded as necessary to permit preparation of financial
+statements in accordance with generally accepted accounting principles, and that receipts and
+expenditures of the company are being made only in accordance with authorizations of management and
+directors of the company; and (3) provide reasonable assurance regarding prevention or timely
+detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
+a material effect on the financial statements.
+Because of its inherent limitations, internal control over financial reporting may not prevent
+or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
+subject to the risk that controls may become inadequate because of changes in conditions, or that
+the degree of compliance with the policies or procedures may deteriorate.
+In our opinion, management’s assessment that Skechers U.S.A., Inc. maintained effective
+internal control over financial reporting as of December 31, 2006, is fairly stated, in all
+material respects, based on criteria established in Internal Control—Integrated Framework issued
+by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our
+opinion, Skechers U.S.A., Inc. maintained, in all material respects, effective internal control
+over financial reporting as of December 31, 2006, based on criteria established in Internal
+Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
+Commission (COSO).
+We also have audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), the consolidated balance sheets of Skechers U.S.A., Inc. and
+subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of earnings,
+stockholders’ equity and comprehensive income, and cash flows for each of the years in the
+three-year period ended December 31, 2006, and the related financial statement schedule, and our
+report dated March 14, 2007 expressed an unqualified opinion on those consolidated financial
+statements and financial statement schedule.
+/s/ KPMG LLP
+Los Angeles, California 
+March 14, 2007
+41 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED BALANCE SHEETS 
+(In thousands) 
+December 31, 
+December 31, 
+2006 
+2005 
+ASSETS 
+Current Assets: 
+Cash and cash equivalents 
+$ 
+160,485 
+$ 
+197,007 
+Short-term investments 
+60,000 
+— 
+Trade accounts receivable, less allowances of $10,558 in 2006 and $7,196 in 2005 
+177,740 
+134,600 
+Other receivables 
+8,035 
+6,888 
+Total receivables 
+185,775 
+141,488 
+Inventories 
+200,877 
+136,171 
+Prepaid expenses and other current assets 
+15,321 
+11,628 
+Deferred tax assets 
+9,490 
+5,755 
+Total current assets 
+631,948 
+492,049 
+Property and equipment, at cost, less accumulated depreciation and amortization 
+87,645 
+72,945 
+Intangible assets, less accumulated amortization 
+633 
+1,131 
+Deferred tax assets 
+11,984 
+9,337 
+Other assets, at cost 
+4,843 
+6,495 
+TOTAL ASSETS 
+$ 
+737,053 
+$ 
+581,957 
+LIABILITIES AND STOCKHOLDERS’ EQUITY 
+Current Liabilities: 
+Current installments of long-term borrowings 
+576 
+1,040 
+Accounts payable 
+161,150 
+108,395 
+Accrued expenses 
+19,435 
+21,404 
+Total current liabilities 
+181,161 
+130,839 
+4.50% convertible subordinated notes 
+89,969 
+90,000 
+Long-term borrowings, excluding current installments 
+16,836 
+17,288 
+Total liabilities 
+287,966 
+238,127 
+Commitments and contingencies 
+Stockholders’ equity: 
+Preferred Stock, $.001 par value; 10,000 authorized; none issued and outstanding 
+— 
+— 
+Class A
+Common Stock, $.001 par value; 100,000 shares authorized; 28,103 and 23,382 shares issued and outstanding at
+December 31, 2006 and 2005, respectively 
+28 
+23 
+Class B Common Stock, $.001 par value; 60,000 shares authorized; 13,768 and
+16,651 shares issued and outstanding at December 31, 2006 and 2005, respectively 
+14 
+17 
+Additional paid-in capital 
+156,374 
+126,274 
+Accumulated other comprehensive income 
+11,200 
+7,039 
+Retained earnings 
+281,471 
+210,477 
+Total stockholders’ equity 
+449,087 
+343,830 
+TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 
+$ 
+737,053 
+$ 
+581,957 
+See accompanying notes to consolidated financial statements.
+42 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF EARNINGS 
+(In thousands, except per share data) 
+2006 
+2005 
+2004 
+Net sales 
+$ 
+1,205,368 
+$ 
+1,006,477 
+$ 
+920,322 
+Cost of sales 
+682,022 
+585,995 
+549,465 
+Gross profit 
+523,346 
+420,482 
+370,857 
+Royalty income, net 
+4,114 
+6,628 
+7,060 
+527,460 
+427,110 
+377,917 
+Operating expenses: 
+Selling 
+109,886 
+81,378 
+79,673 
+General and administrative 
+305,030 
+269,436 
+248,999 
+414,916 
+350,814 
+328,672 
+Earnings from operations 
+112,544 
+76,296 
+49,245 
+Other income (expense): 
+Interest income 
+8,351 
+4,368 
+1,179 
+Interest expense 
+(9,227 
+) 
+(9,154 
+) 
+(9,152 
+) 
+Other, net 
+980 
+1,287 
+(2,552 
+) 
+104 
+(3,499 
+) 
+(10,525 
+) 
+Earnings before income taxes 
+112,648 
+72,797 
+38,720 
+Income tax expense 
+41,654 
+28,080 
+15,167 
+Net earnings 
+$ 
+70,994 
+$ 
+44,717 
+$ 
+23,553 
+Net earnings per share: 
+Basic 
+$ 
+1.73 
+$ 
+1.13 
+$ 
+0.61 
+Diluted 
+$ 
+1.59 
+$ 
+1.06 
+$ 
+0.59 
+Weighted average shares: 
+Basic 
+41,079 
+39,686 
+38,638 
+Diluted 
+46,139 
+44,518 
+39,800 
+See accompanying notes to consolidated financial statements.
+43 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME 
+(In thousands) 
+SHARES 
+AMOUNT 
+ACCUMULATED 
+CLASS A 
+CLASS B 
+CLASS A 
+CLASS B 
+ADDITIONAL 
+OTHER 
+TOTAL 
+COMMON 
+COMMON 
+COMMON 
+COMMON 
+PAID-IN 
+COMPREHENSIVE 
+RETAINED 
+STOCKHOLDERS’ 
+STOCK 
+STOCK 
+STOCK 
+STOCK 
+CAPITAL 
+INCOME 
+EARNINGS 
+EQUITY 
+Balance at December 31, 2003 
+19,116 
+18,886 
+19 
+19 
+105,272 
+8,137 
+142,207 
+255,654 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+23,553 
+23,553 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+3,868 
+— 
+3,868 
+Total comprehensive 
+27,421 
+Deferred compensation 
+— 
+— 
+— 
+— 
+129 
+— 
+— 
+129 
+Contribution of common stock to the 401(k)
+Plan 
+94 
+— 
+— 
+— 
+763 
+— 
+— 
+763 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+165 
+— 
+— 
+— 
+1,384 
+— 
+— 
+1,384 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+984 
+— 
+1 
+— 
+7,521 
+— 
+— 
+7,522 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+2,022 
+— 
+— 
+2,022 
+Conversion of Class B Common Stock into
+Class A Common Stock 
+1,875 
+(1,875 
+) 
+2 
+(2 
+) 
+— 
+— 
+— 
+— 
+Balance at December 31, 2004 
+22,234 
+17,011 
+$ 
+22 
+$ 
+17 
+$ 
+117,091 
+$ 
+12,005 
+$ 
+165,760 
+$ 
+294,895 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+44,717 
+44,717 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+(4,966 
+) 
+— 
+(4,966 
+) 
+Total comprehensive income 
+39,751 
+Contribution of common stock to the 401(k)
+Plan 
+59 
+— 
+— 
+— 
+767 
+— 
+— 
+767 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+135 
+— 
+— 
+— 
+1,550 
+— 
+— 
+1,550 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+594 
+— 
+1 
+— 
+5,365 
+— 
+— 
+5,366 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+1,501 
+— 
+— 
+1,501 
+Conversion of Class B Common Stock into
+Class A Common Stock 
+360 
+(360 
+) 
+— 
+— 
+— 
+— 
+— 
+— 
+Balance at December 31, 2005 
+23,382 
+16,651 
+$ 
+23 
+$ 
+17 
+$ 
+126,274 
+$ 
+7,039 
+$ 
+210,477 
+$ 
+343,830 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+70,994 
+70,994 
+Foreign currency
+translation adjustment 
+— 
+— 
+— 
+— 
+— 
+4,161 
+— 
+4,161 
+Total comprehensive income 
+75,155 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+2,029 
+— 
+— 
+2,029 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+122 
+— 
+1 
+— 
+1,907 
+— 
+— 
+1,908 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+1,716 
+— 
+1 
+— 
+17,054 
+— 
+— 
+17,055 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+9,110 
+— 
+— 
+9,110 
+Conversion of Class B Common Stock into
+Class A Common Stock 
+2,883 
+(2,883 
+) 
+3 
+(3 
+) 
+— 
+— 
+— 
+— 
+Balance at December 31, 2006 
+28,103 
+13,768 
+$ 
+28 
+$ 
+14 
+$ 
+156,374 
+$ 
+11,200 
+$ 
+281,471 
+$ 
+449,087 
+See accompanying notes to consolidated financial statements
+44 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+(In thousands) 
+2006 
+2005 
+2004 
+Cash flows from operating activities: 
+Net earnings 
+$ 
+70,994 
+$ 
+44,717 
+$ 
+23,553 
+Adjustments to reconcile net earnings to net cash
+provided by operating activities: 
+Depreciation and amortization of property and equipment 
+16,203 
+22,070 
+20,523 
+Amortization of deferred financing costs 
+765 
+765 
+765 
+Amortization of intangible assets 
+502 
+523 
+490 
+Provision for bad debts and returns 
+4,591 
+2,882 
+4,871 
+Tax benefits from stock-based compensation 
+4,144 
+1,501 
+2,022 
+Non cash stock compensation 
+2,030 
+— 
+129 
+Provision for deferred taxes 
+(6,382 
+) 
+(6,322 
+) 
+(3,150 
+) 
+Loss on disposal of equipment 
+299 
+170 
+163 
+(Increase) decrease in assets: 
+Receivables 
+(47,994 
+) 
+(22,106 
+) 
+(24,150 
+) 
+Inventories 
+(64,364 
+) 
+13,202 
+(11,560 
+) 
+Prepaid expenses and other current assets 
+(3,530 
+) 
+(871 
+) 
+216 
+Other assets 
+1,340 
+(2,476 
+) 
+93 
+Increase (decrease) in liabilities: 
+Accounts payable 
+49,563 
+13,777 
+16,387 
+Accrued expenses 
+(2,122 
+) 
+7,664 
+2,694 
+Net cash provided by operating activities 
+26,039 
+75,496 
+33,046 
+Cash flows used in investing activities: 
+Capital expenditures 
+(27,560 
+) 
+(13,627 
+) 
+(15,875 
+) 
+Purchases of short-term investments 
+(113,100 
+) 
+— 
+— 
+Maturities of short-term investments 
+53,100 
+— 
+— 
+Purchase of intellectual property 
+— 
+— 
+(125 
+) 
+Proceeds from the sales of property and equipment 
+— 
+— 
+35 
+Net cash used in investing activities 
+(87,560 
+) 
+(13,627 
+) 
+(15,965 
+) 
+Cash flows from financing activities: 
+Net proceeds from the issuances of stock through employee
+stock purchase plan and the exercise of stock options 
+18,963 
+6,916 
+8,906 
+Excess tax benefits from stock-based compensation 
+4,966 
+— 
+— 
+Payments on long-term debt 
+(1,008 
+) 
+(7,660 
+) 
+(3,043 
+) 
+Net cash provided by (used in) financing activities 
+22,921 
+(744 
+) 
+5,863 
+Net increase (decrease) in cash and cash equivalents 
+(38,600 
+) 
+61,125 
+22,944 
+Effect of exchange rates on cash and cash equivalents 
+2,078 
+(1,771 
+) 
+1,230 
+Cash and cash equivalents at beginning of year 
+197,007 
+137,653 
+113,479 
+Cash and cash equivalents at end of year 
+$ 
+160,485 
+$ 
+197,007 
+$ 
+137,653 
+Supplemental disclosures of cash flow information: 
+Cash paid during the year for: 
+Interest 
+$ 
+8,560 
+$ 
+8,374 
+$ 
+8,190 
+Income taxes 
+47,064 
+27,914 
+15,761 
+SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
+The Company issued 59,203, and 93,692 shares of Class A Common Stock to the Company’s 401(k)
+plan, with a value of $767,000, and $763,000 for the years ended December 31, 2005 and 2004,
+respectively. No shares of Class A Common Stock were issued to the Company’s 401(k) plan in 2006.
+See accompanying notes to consolidated financial statements.
+45 
+Table of Contents 
+SKECHERS U.S.A., INC .
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+DECEMBER 31, 2006, 2005 and 2004 
+(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
+(a) 
+The Company 
+Skechers U.S.A., Inc. (the “Company”) designs, develops, markets and distributes footwear. The
+Company also operates retail stores and an e-commerce business.
+The consolidated financial statements have been prepared in accordance with accounting
+principles generally accepted in the United States and include the accounts of the Company and its
+wholly owned subsidiaries. All significant intercompany balances and transactions have been
+eliminated in consolidation. Certain reclassifications have been made to prior year amounts to
+conform to the current year’s presentation.
+(b) 
+Use of Estimates 
+Management has made a number of estimates and assumptions relating to the reporting of assets,
+liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to
+prepare these consolidated financial statements in conformity with accounting principles generally
+accepted in the United States. Significant areas requiring the use of management estimates relate
+primarily to the revenue recognition, valuation allowances, inventory reserves, valuation of
+intangible and long-lived assets, litigation accruals, valuations of deferred income taxes,
+accruals for tax exposures, foreign currency translation and stock-based compensation. Actual
+results could differ from those estimates.
+(c) 
+Business Segment Information 
+Skechers operations and segments are organized along its distribution channels and consists of
+the following: domestic wholesale, international wholesale, retail and e-commerce sales.
+Information regarding these segments is summarized in Note 14 to the Consolidated Financial
+Statements.
+(d) 
+Revenue Recognition 
+The Company recognizes revenue on wholesale sales when products are shipped and the customer
+takes ownership and assumes risk of loss, collection of the relevant receivable is probable,
+persuasive evidence of an arrangement exists and the sales price is fixed or determinable. This
+generally occurs at the time of shipment. Allowances for estimated returns, sales allowances,
+discounts, doubtful accounts and chargebacks are provided for when related revenue is recorded.
+Related costs paid to third-party shipping companies are recorded as a cost of sales.
+The Company recognizes revenue from retail sales at the point of sale.
+Net royalty income is earned from our licensing arrangements. Upon signing a new licensing
+agreement, we receive up-front fees, which are generally characterized as prepaid royalties. These
+fees are initially deferred and recognized as revenue as earned based on
+the terms of the contract (i.e., as licensed sales are reported to the company or on a
+straight line basis over the term of the agreement). The first calculated royalty payment is based
+on actual sales of the licensed product. Typically, at each quarter end we receive correspondence
+from our licensees indicating what the actual sales for the period were. This information is used
+to calculate and accrue the related royalties based on the terms of the agreement.
+(e) 
+Cash and Cash Equivalents 
+Cash and cash equivalents consist primarily of certificates of deposit with an initial term of
+less than three months. For purposes of the consolidated statements of cash flows, the Company
+considers all highly liquid debt instruments with original maturities of three months or less to be
+cash equivalents.
+(f) 
+Short–Term Investments 
+In general, investments with original maturities of greater than three months and remaining
+maturities of less than one year are classified as short-term investments. Highly liquid
+investments with maturities beyond one year may also be classified as short-term based on their
+liquidity, management’s intentions and because such marketable securities represent the investment
+of cash that is available for current operations. Short-term investments consist of auction rate
+securities and corporate and municipal debt securities. Auction rate securities have an underlying
+long-term maturity; however, they are traded and interest rates reset through a modified
+46 
+Table of Contents 
+Dutch
+auction at predetermined short-term intervals of usually 7, 28, or 35 days, which makes them highly
+liquid by nature. Corporate and municipal debt securities typically have maturities or interest
+rate resets of less than 180 days. Fair market values of short-term investments are based on
+quoted market prices. These securities are considered available-for-sale and recorded on the
+Company’s books at fair market value, with the unrealized gains and losses, net of tax, included in
+stockholders’ equity.
+(g) 
+Foreign Currency Translation 
+In accordance with Statement of Financial Accounting Standards No. 52, Foreign Currency
+Translation (“SFAS 52”), certain international operations use the respective local currencies as
+their functional currency, while other international operations use the U.S. Dollar as their
+functional currency. The Company considers the U.S. dollar as its functional currency. The
+Company operates internationally through the following foreign subsidiaries: Skechers USA Ltd.,
+located in the United Kingdom, with a functional currency of the British Pound; Skechers USA
+Canada, Inc., located in Canada, with a functional currency of the Canadian dollar; Skechers USA
+Iberia, SL located in Spain, Skechers USA Deutschland GmbH located in Germany, Skechers USA France
+S.A.S. located in France, Skechers EDC SPRL located in Belgium, Skechers USA Benelux B.V. located
+in the Netherlands, Skechers USA Italia S.r.l., located in Italy, all with a functional currency of
+the Euro. Translation adjustments for these subsidiaries are included in other comprehensive
+income. Additionally, one international subsidiary, Skechers S.a.r.l. located in Switzerland,
+operates with a functional currency of the U.S. dollar. Resulting remeasurement gains and losses
+from this subsidiary are included in the determination of net earnings (loss). Assets and
+liabilities of the foreign operations denominated in local currencies are translated at the rate of
+exchange at the balance sheet date. Revenues and expenses are translated at the weighted average
+rate of exchange during the period. Translation of intercompany loans of a long-term investment
+nature are included as a component of translation adjustment in other comprehensive income.
+(h) 
+Inventories 
+Inventories, principally finished goods, are stated at the lower of cost (based on the
+first-in, first-out method) or market. The Company provides for estimated losses from obsolete or
+slow-moving inventories and writes down the cost of inventory at the time such determinations are
+made. Reserves are estimated based upon inventory on hand, historical sales activity, and the
+expected net realizable value. The net realizable value is determined based upon estimated sales
+prices of such inventory through off-price or discount store channels.
+(i) 
+Income Taxes 
+The Company accounts for income taxes in accordance with Statement of Financial Accounting
+Standards No. 109, Accounting for Income Taxes (“SFAS 109”), which requires that the Company
+recognize deferred tax liabilities and assets based on the differences between the financial
+statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in
+effect in the years the differences are expected to reverse. Deferred income tax benefit (expense)
+results from the change in net deferred tax assets
+or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that
+some or all or any deferred tax assets will not be realized.
+We record liabilities for probable income tax assessments based on our estimate of potential
+tax related exposures. Recording of these assessments requires significant judgment as
+uncertainties often exist in respect to new laws, new interpretations of existing laws and rulings
+by taxing authorities. Differences between actual results and our assumptions, or changes in our
+assumptions in future periods, are recorded in the period they become known.
+(j) 
+Depreciation and Amortization 
+Depreciation and amortization of property and equipment is computed using the straight-line
+method based on the following estimated useful lives:
+Buildings
+20 years 
+Building improvements
+10 years 
+Furniture, fixtures and equipment
+5 years 
+Leasehold improvements
+Useful life or remaining lease term, which ever is shorter 
+47 
+Table of Contents 
+(k) 
+Intangible Assets 
+Goodwill and indefinite-lived intangible assets are measured for impairment at least annually,
+and more often when events indicate that impairment exists. Intangible assets with finite lives
+continue to be amortized over their useful lives ranging from 5–10 years, generally on a
+straight-line basis. Intangible assets, all subject to amortization, as of December 31, 2006 and
+2005 are as follows (in thousands):
+2006 
+2005 
+Intellectual property 
+$ 
+1,250 
+$ 
+1,250 
+Other intangibles 
+1,000 
+1,000 
+Trademarks 
+1,050 
+1,050 
+Less accumulated amortization 
+(2,667 
+) 
+(2,169 
+) 
+Total Intangible Assets 
+$ 
+633 
+$ 
+1,131 
+(l) 
+Long-Lived Assets 
+Long-lived assets such as property, plant, and equipment, and purchased intangibles subject to
+amortization, are reviewed for impairment whenever events or changes in circumstances indicate that
+the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
+used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted
+future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds
+its estimated future cash flows, an impairment charge is recognized by the amount by which the
+carrying amount of the asset exceeds the fair value of the asset. The Company recognized impairment
+charges of approximately $0.9 million, and $40,000 for the years ended December 31, 2005 and 2004,
+respectively. The Company did not record an impairment charge in 2006. The impairment charges in
+2005 and 2004 related to the write down of leasehold improvements at six under-performing company
+owned retail stores. Fair value was based on estimated future cash flows.
+(m) 
+Advertising Costs 
+Advertising costs are expensed in the period in which the advertisements are first run or over
+the life of the endorsement contract. Advertising expense for the years ended December 31, 2006,
+2005 and 2004 was approximately $83.0 million, $58.2 million, and $56.0 million, respectively.
+Prepaid advertising costs at December 31, 2006 and 2005 were $3.0 million and $2.4 million,
+respectively. Prepaid amounts outstanding at December 31, 2006 and 2005 represent the unamortized
+portion of endorsement contracts and advertising in trade publications which had not run as of
+December 31, 2006 and 2005, respectively.
+(n) 
+Earnings Per Share 
+Basic earnings per share represents net earnings divided by the weighted average number of
+common shares outstanding for the period. Diluted earnings per share, in addition to the weighted
+average determined for basic earnings per share, includes potential common shares which would arise
+from the exercise of stock options using the treasury stock method, and the conversion of the
+Company’s 4.50% convertible subordinated notes for the period outstanding since their issuance in
+April 2002, if their effects are dilutive.
+The following is a reconciliation of net earnings and weighted average common shares
+outstanding for purposes of calculating earnings per share (in thousands):
+Year Ended December 31, 
+Basic earnings per share 
+2006 
+2005 
+2004 
+Net earnings 
+$ 
+70,994 
+$ 
+44,717 
+$ 
+23,553 
+Weighted average common shares outstanding 
+41,079 
+39,686 
+38,638 
+Basic earnings per share 
+$ 
+1.73 
+$ 
+1.13 
+$ 
+0.61 
+48 
+Table of Contents 
+Year Ended December 31, 
+Diluted earnings per share 
+2006 
+2005 
+2004 
+Net earnings 
+$ 
+70,994 
+$ 
+44,717 
+$ 
+23,553 
+After tax effect of interest expense on 4.50%
+convertible subordinated notes 
+2,553 
+2,487 
+— 
+Earnings for purposes of
+computing diluted earnings per share 
+$ 
+73,547 
+$ 
+47,204 
+$ 
+23,553 
+Weighted average common shares outstanding 
+41,079 
+39,686 
+38,638 
+Dilutive stock options 
+1,594 
+1,366 
+1,162 
+Weighted average assumed conversion of
+4.50% convertible subordinated notes 
+3,466 
+3,466 
+— 
+Weighted average common shares outstanding 
+46,139 
+44,518 
+39,800 
+Diluted earnings per share 
+$ 
+1.59 
+$ 
+1.06 
+$ 
+0.59 
+Options to purchase 764,500, and 1,689,717 shares of Class A common stock at prices ranging
+from $2.78 to $24.00 that were outstanding at December 31, 2005 and 2004, respectively were not
+included in the computation of diluted earnings per share because the options’ exercise price was
+greater than the average market price of the common shares and therefore their inclusion would be
+anti-dilutive. There were no options were excluded from the calculation at December 31, 2006. The
+impact from the assumed conversion of the 4.50% convertible subordinated notes in 2004 was
+anti-dilutive and, was therefore excluded from those calculations.
+(o) 
+Product Design and Development Costs 
+The Company charges all product design and development costs to expense when incurred. Product
+design and development costs aggregated approximately $8.3 million, $6.0 million, and $5.7 million
+during the years ended December 31, 2006, 2005 and 2004, respectively.
+(p) 
+Fair Value of Financial Instruments 
+The carrying amount of the Company’s financial instruments, which principally include cash and
+cash equivalents, short-term investments, accounts receivable, accounts payable and accrued
+expenses, approximates fair value due to the relatively short maturity of such instruments.
+The fair value of the Company’s long-term borrowings reflects the fair value based upon
+current rates available to the Company for similar debt. The fair value of the Company’s 4.50%
+Convertible Subordinated Notes at December 31, 2006 was $115.4 million, based on the price of the
+debt in the public market, which was above the carrying value of $90.0 million.
+(q) 
+New Accounting Standards 
+In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157 “ Fair
+Value Measurements ”, (“SFAS 157”). The standard provides guidance for using fair value to measure
+assets and liabilities. The standard also responds to investors’ requests for expanded information
+about the extent to which companies measure assets and liabilities at fair value, the information
+used to measure fair value, and the effect of fair value measurements on earnings. The standard
+applies whenever other standards require (or permit) assets or liabilities to be measured at fair
+value. The standard does not expand the use of fair value in any new circumstances. Statement 157
+is effective for financial statements issued for fiscal years beginning after November 15, 2007,
+and interim periods within those fiscal years. Early adoption is permitted. We are currently
+evaluating the impact of this standard on our Consolidated Financial Statements; however, we do not
+expect that the adoption of SFAS 157 will have a material impact on our financial condition or
+results of operations.
+In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “ Considering the Effects
+of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” 
+(“SAB 108”). SAB 108 provides guidance on how prior year misstatements should be taken into
+consideration when quantifying misstatements in current year financial statements for purposes of
+determining whether the current year’s financial statements are materially misstated. SAB 108
+permits companies to record the cumulative effect of initial adoption by recording the necessary
+“correcting” adjustments to the carrying values of assets and liabilities as of the beginning of
+that year with the offsetting adjustment recorded to the opening balance of retained earnings only
+if material
+49 
+Table of Contents 
+under the dual method. We adopted the provisions of SAB 108 on December 31, 2006 and
+such adoption did not have any impact on our consolidated financial statements.
+In June 2006, the FASB issued FASB Interpretation No. 48, “ Accounting for Uncertainty in
+Income Taxes ,” (“FIN 48”) an interpretation of FASB Statement No. 109, “ Accounting for Income
+Taxes ”. FIN 48 requires that a position taken or expected to be taken in a tax return be recognized
+in the financial statements when it is more likely than not (i.e. a likelihood of more than fifty
+percent) that the position would be sustained upon examination by tax authorities. A recognized tax
+position is then measured at the largest amount of benefit that is greater than fifty percent
+likely of being realized upon ultimate settlement. Upon adoption, the cumulative effect of applying
+the recognition and measurement provisions of FIN 48, if any, shall be reflected as an adjustment
+to the opening balance of retained earnings.
+FIN 48 requires that subsequent to initial adoption a change in judgment that results in
+subsequent recognition, derecognition or change in a measurement of a tax position taken in a prior
+annual period (including any related interest and penalties) be recognized as a discrete item in
+the period in which the change occurs. Currently, we record such changes in judgment, including
+audit settlements, as a component of our annual effective rate except for reversals due to statute
+of limitation expirations which are recorded as discrete items during the quarter they expire.
+Thus, our reported quarterly income tax rate may become more volatile upon adoption of FIN 48. This
+change will not impact the manner in which we record income tax expense on an annual basis.
+FIN 48 also requires expanded disclosures including identification of tax positions for which
+it is reasonably possible that total amounts of unrecognized tax benefits will significantly change
+in the next twelve months, a description of tax years that remain subject to examination by major
+tax jurisdiction, a tabular reconciliation of the total amount of unrecognized tax benefits at the
+beginning and end of each annual reporting period, the total amount of unrecognized tax benefits
+that, if recognized, would affect the effective tax rate and the total amounts of interest and
+penalties recognized in the balance sheet and statement of earnings. FIN 48 is effective for fiscal
+years beginning after December 15, 2006. We are currently evaluating the impact of this standard on
+our Consolidated Financial Statements, however, we do not expect the adoption of FIN 48 will have a
+material impact on our financial condition or results of operations.
+In May 2005, the FASB issued SFAS No. 154, “ Accounting Changes and Error Corrections, a
+replacement of Accounting Principles Board Opinion (APB) No. 20, Accounting Changes, and FASB
+Statement No. 3, Reporting Accounting Changes in Interim Financial Statements ” (“SFAS 154”). This
+Statement requires retrospective application to prior periods’ financial statements of a change in
+accounting principle. It applies both to voluntary changes and to changes required by an accounting
+pronouncement if the pronouncement does not include specific transition provisions. APB 20
+previously required that most voluntary changes in accounting principles be recognized by recording
+the cumulative effect of a change in accounting principle. SFAS 154 is effective for fiscal years
+beginning after December 15, 2005. We adopted this statement on January 1, 2006. The adoption of
+SFAS 154 did not have a significant impact on our financial position or results of operations.
+In November 2004, the FASB issued SFAS No. 151, “ Inventory Costs ” (“SFAS 151”), an amendment
+of ARB No. 43, Chapter 4. SFAS 151 clarifies the accounting for abnormal amounts of idle facility
+expense, freight, handling costs and wasted material. SFAS
+151 is effective for inventory costs incurred during fiscal years beginning after June 15,
+2005. We adopted this statement on January 1, 2006. The adoption of SFAS 151 did not have a
+significant impact our financial position or results of operations.
+(2) SHORT TERM INVESTMENTS 
+Short-term investments consist of certain marketable equity securities and other investments
+aggregating $60.0 million at December 31, 2006, and are included in current assets in the
+accompanying consolidated balance sheet. Unrealized gains and losses related to marketable equity
+securities at December 31, 2006, were negligible.
+50 
+Table of Contents 
+(3) PROPERTY AND EQUIPMENT 
+Property and equipment at December 31, 2006 and 2005 is summarized as follows (in thousands):
+2006 
+2005 
+Land 
+$ 
+14,358 
+$ 
+14,358 
+Buildings and improvements 
+49,454 
+33,536 
+Furniture, fixtures and equipment 
+81,164 
+74,034 
+Leasehold improvements 
+66,708 
+56,177 
+Total property and equipment 
+211,684 
+178,105 
+Less accumulated depreciation and amortization 
+124,039 
+105,160 
+Property and equipment, net 
+$ 
+87,645 
+$ 
+72,945 
+The Company capitalized $0.3 million of interest expense during 2006 relating to the
+construction of our corporate headquarters.
+(4) ACCRUED EXPENSES 
+Accrued expenses at December 31, 2006 and 2005 is summarized as follows (in thousands):
+2006 
+2005 
+Accrued inventory purchases 
+$ 
+4,678 
+$ 
+4,535 
+Accrued payroll and related taxes 
+13,914 
+10,140 
+Income taxes payable 
+— 
+5,885 
+Accrued interest 
+843 
+844 
+Accrued expenses 
+$ 
+19,435 
+$ 
+21,404 
+(5) SHORT-TERM BORROWINGS 
+On May 31, 2006, the Company amended its secured line of credit, which permits the Company and
+certain of its subsidiaries to borrow up to $150.0 million based upon eligible accounts receivable
+and inventory, which line can be increased to $250.0 million at our request. Borrowings bear
+interest at the borrowers’ election based on either the prime rate or the London Interbank Offered
+Rate (“LIBOR”). Prime rate loans will bear interest at a rate equal to JPMorgan Chase Bank’s
+publicly announced prime rate less up to 0.50%. LIBOR loans will bear interest at a rate equal to
+the applicable LIBOR plus up to an additional 1.75%. The Company pays a monthly unused line of
+credit fee of 0.25% per annum. The loan agreement, which expires on May 31, 2011, provides for the
+issuance of letters of credit up to a maximum of $30.0 million. The loan agreement contains
+customary affirmative and negative covenants for secured credit facilities of this type, including
+a financial covenant requiring a fixed charge coverage ratio of not less than 1.1 at the end of
+each quarter if excess availability of eligible account receivable and inventory is less than $50.0
+million at any time during such quarter. Excess availability was not less than $50.0 million
+during the three months ended December 31, 2006; hence, the fixed charge ratio requirement was not
+applicable at such date. No amounts were outstanding and the Company was in compliance with all
+other covenants of the loan agreement at December 31, 2006. The Company had $10.0 million of
+outstanding letters of credit as of December 31, 2006.
+51 
+Table of Contents 
+(6) LONG-TERM BORROWINGS 
+Long-term debt at December 31, 2006 and 2005 is as follows (in thousands):
+2006 
+2005 
+4.50% convertible subordinated notes due April 15,
+2007 (see below) 
+$ 
+90,000 
+$ 
+90,000 
+Note payable to bank, due in monthly installments of
+$82.2 (includes principal and interest), fixed rate
+interest at 7.79%, secured by property, balloon
+payment of $8,716 due January 2011 
+9,790 
+10,004 
+Note payable to bank, due in monthly installments of
+$57.6 (includes principal and interest), fixed rate
+interest at 7.89%, secured by property, balloon
+payment of $6,776 due February 2011 
+7,383 
+7,420 
+Capital lease obligation, due in quarterly
+installments of $171.6 (includes principal and
+interest), fixed rate of interest at 7.0%, secured by
+property, through July 2007 (see note 13) 
+206 
+805 
+Capital lease obligations, interest rates from
+7.12%-7.9%, secured by equipment, maturing in various
+installments through January 2007 (see note 13) 
+2 
+99 
+Subtotal 
+107,381 
+108,328 
+Less current installments 
+576 
+1,040 
+Total long-term debt 
+$ 
+106,805 
+$ 
+107,288 
+The aggregate maturities of long-term borrowings at December 31, 2006 are as follows:
+2007 (Includes $89.969 million converted to equity as of February 20, 2007.) 
+$ 
+90,545 
+2008 
+363 
+2009 
+394 
+2010 
+426 
+2011 
+15,653 
+$ 
+107,381 
+On January 19, 2007, we called our 4.5% convertible subordinated notes for redemption. The
+redemption date was February 20, 2007. The aggregate principal amount of notes outstanding was
+$90.0 million. Holders of $89.969 million principal amount of the notes, which included $2.5
+million of principal amount of the notes held by us, converted their notes into shares of our Class
+A Common Stock prior to the redemption date. As a result of these conversions, 3,464,594 shares of
+Class A Common Stock were issued to holders of the notes, which included 96,272 shares issued to
+the Company that were immediately retired. In connection with these conversions, the Company paid
+approximately $500 in cash to holders who elected to convert their notes, which represented cash
+paid in lieu of fractional shares. In addition, the Company paid approximately $32,000 to holders
+who redeemed their notes, which represented the redemption price of 100.9% of $31,000 principal
+amount of the notes plus accrued interest. As a result of the subsequent conversion of $89.969
+million of the notes into equity, the Company has classified such amount as a long-term liability
+at December 31, 2006, under Statement of Financial Accounting Standards No. 6, Classification of
+Short-Term Obligations Expected to Be Refinanced an amendment of ARB No. 43, Chapter 3. 
+The Company’s long-term debt obligations contain both financial and non-financial covenants,
+including cross default provisions. The Company is in compliance with all its material
+non-financial covenants, including any cross default provisions, and financial covenants of our
+long-term debt as of December 31, 2006.
+(7) STOCK COMPENSATION 
+(a) 
+Impact of the adoption of Statement of Financial Accounting Standards No. 123
+(revised 2004), “Share-Based Payment” (“SFAS 123(R)”) 
+On January 1, 2006, the Company adopted SFAS 123(R) using the modified prospective transition
+method. Previously, the Company had followed Accounting Principles Board, Opinion No. 25,
+“Accounting for Stock Issued to Employees,” (“APB 25”), and
+accounted for employee stock options at intrinsic value. Accordingly, during the year ended
+December 31, 2006, we
+recorded
+52 
+Table of Contents 
+stock-based compensation expense for awards granted prior to, but
+not yet vested as of, January 1, 2006, as if the fair value method required for pro forma
+disclosure under SFAS 123 were in effect for expense recognition purposes, adjusted for estimated
+forfeitures. For stock-based awards granted after January 1, 2006, we have recognized compensation
+expense based on the grant date fair value using the Black-Scholes valuation model. For these
+awards, we have recognized compensation expense on a straight-line basis. As SFAS 123(R) requires
+that stock-based compensation expense be based on awards that are ultimately expected to vest,
+stock-based compensation for the year-ended December 31, 2006 has been reduced for estimated
+forfeitures. For the year ended December 31, 2006, stock compensation expense as a result of SFAS
+123(R) was $2.0 million and was recorded to general and administrative expenses which represented a
+reduction of earnings before income taxes in the same amount. The impact to 2006 net income was a
+reduction of $1.6 million. No stock compensation expense was recorded during 2004 or 2005.
+(b) 
+Equity Incentive Plan 
+In January 1998, the Board of Directors of the Company adopted the 1998 Stock Option, Deferred
+Stock and Restricted Stock Plan for the grant of qualified incentive stock options (ISO), stock
+options not qualified and deferred stock and restricted stock (the “Equity Incentive Plan”). The
+exercise price for any option granted may not be less than fair value (110% of fair value for ISOs
+granted to certain employees). In June 2001, the stockholders approved an amendment to the plan to
+increase the number of shares of Class A Common Stock authorized for issuance under the plan to
+8,215,154. In May 2003, stockholders approved an amendment to the plan to increase the number of
+Class A Common Stock authorized for issuance under the plan to 11,215,154. Option awards are
+generally granted with an exercise price equal to the market price of the Company’s stock at the
+date of grant. Stock option awards generally become exercisable over a four-year graded vesting
+period and expire ten years from the date of grant.
+Prior to adopting SFAS 123(R), we presented all tax benefits resulting from the exercise of
+stock options as operating cash flows in the Statement of Cash Flows. SFAS 123(R) requires cash
+flows resulting from excess tax benefits to be classified as a part of cash flows from financing
+activities. Excess tax benefits are realized from tax deductions for exercised options and vesting
+of nonvested stock in excess of the deferred tax assets attributable to stock compensation costs
+for such options. As a result of adopting SFAS 123(R), $5.0 million of excess tax benefits for the
+year-ended December 31, 2006 have been classified as a financing cash inflow. Cash received from
+stock option exercises for the year-ended December 31, 2006, 2005 and 2004 was $17.1 million, $5.4
+million and $7.5 million, respectively. The actual tax benefit realized for the tax deductions
+from option exercise of stock options and vesting of nonvested shares totaled $9.3 million, $1.5
+million and $2.0 million for the year-ended December 31, 2006, 2005 and 2004, respectively. The
+total income tax benefit recognized for stock-based compensation costs was $0.4 million for the
+year-ended December 31, 2006. No income tax benefit for stock-based compensation costs was
+recognized for the year ended December 31, 2005 or 2004. The impact of SFAS 123(R) stock-based
+compensation expense was a reduction of $0.05 earnings per basic and $0.04 per diluted share for
+the year ended December 31, 2006. The Company plans to issue new shares for stock options
+exercised and nonvested shares that vest.
+(c) 
+Valuation Assumptions 
+For pro forma net earnings purposes, the fair value of each option is estimated on the date of
+grant using the Black-Scholes option pricing model that uses the assumptions noted in the following
+table. Expected volatility is based on historical share price data. The Company uses historical
+employee exercise and cancellation data to estimate expected term and forfeiture rates. The
+risk-free rate is based on U.S. Treasury yields in effect at the time of grant. Employees that
+have similar historical exercise behavior are considered separately for valuation purposes. Option
+valuation methods require the input of highly subjective assumptions including the expected stock
+price volatility, expected term and forfeiture rate. Because the Black-Scholes based option
+valuation models incorporate ranges of assumptions for inputs, those inputs are disclosed in the
+table as follows:
+2006 
+2005 
+2004 
+Dividend yield 
+— 
+— 
+— 
+Expected volatility 
+62 
+% 
+71 
+% 
+73 
+% 
+Risk-free interest rate 
+4.52 
+% 
+3.88 
+% 
+3.23 
+% 
+Expected life of option 
+7 
+5 
+5 
+Using the Black-Scholes option valuation model the weighted-average fair value per share of
+options granted during 2006, 2005 and 2004 was $12.70, $8.28, and $5.39, respectively. The total
+intrinsic value of options exercised during 2006, 2005 and 2004 was $25.5 million, $4.0 million,
+and $5.2 million, respectively.
+53 
+Table of Contents 
+(d) 
+Stock-Based Payment Awards 
+Shares subject to option under the Equity Incentive Plan were as follows:
+WEIGHTED 
+SHARES 
+OPTION EXERCISE PRICE 
+Outstanding at December 31, 2003 
+5,232,487 
+$ 
+10.75 
+Granted 
+905,000 
+8.47 
+Exercised 
+(983,947 
+) 
+7.75 
+Canceled 
+(178,199 
+) 
+11.40 
+Outstanding at December 31, 2004 
+4,975,341 
+10.90 
+Granted 
+35,000 
+13.52 
+Exercised 
+(593,671 
+) 
+9.04 
+Canceled 
+(207,233 
+) 
+14.89 
+Outstanding at December 31, 2005 
+4,209,437 
+10.98 
+Granted 
+15,000 
+19.49 
+Exercised 
+(1,711,945 
+) 
+9.96 
+Canceled 
+(26,910 
+) 
+10.35 
+Outstanding at December 31, 2006 
+2,485,582 
+$ 
+11.74 
+Options available for grant at December 31, 2006 
+3,238,757 
+As of December 31, 2006, there was approximately $0.6 million of total unrecognized
+compensation cost related to unvested share-based compensation arrangements (i.e. stock options and
+restricted stock) granted under our Equity Incentive Plan. That cost is expected to be recognized
+over a weighted average period of 1.3 years. The total fair value of shares vested during the
+period ended December 31, 2006 was $1.6 million.
+The following table summarizes information about stock options outstanding and exercisable at
+December 31, 2006:
+OPTIONS OUTSTANDING 
+OPTIONS EXERCISABLE 
+WEIGHTED 
+NUMBER 
+WEIGHTED 
+WEIGHTED 
+NUMBER 
+AVERAGE 
+RANGE OF 
+OUTSTANDING 
+AVERAGE REMAINING 
+AVERAGE 
+EXERCISABLE AT 
+EXERCISE 
+EXERCISE PRICE 
+DECEMBER 31, 2006 
+CONTRACTUAL LIFE 
+EXERCISE PRICE 
+DECEMBER 31, 2006 
+PRICE 
+$2.78 to $3.94 
+41,783 
+3.0 years 
+$ 
+3.94 
+41,783 
+$ 
+3.94 
+$6.95 to $8.35 
+860,439 
+6.4 years 
+7.44 
+687,939 
+7.34 
+$9.07 to $11.00 
+507,941 
+4.1 years 
+10.68 
+498,191 
+10.68 
+$12.31 to $19.49 
+855,919 
+3.7 years 
+14.07 
+814,294 
+13.99 
+$21.60 to $24.00 
+219,500 
+4.4 years 
+23.45 
+219,500 
+23.45 
+2,485,582 
+4.8 years 
+$ 
+11.74 
+2,261,707 
+$ 
+11.97 
+As of December 31, 2006, 2005 and 2004, the number of options exercisable for each year was
+2,261,707, 3,718,812, and 3,889,109, respectively. The weighted-average exercise price of those
+options was $11.97, $11.27, and $11.00, respectively. The total intrinsic value of options
+outstanding and exercisable at December 31, 2006 was $29.2 million and $27.1 million, respectively.
+The aggregate intrinsic value is calculated as the difference between the exercise price of the
+underlying awards and the quoted price of our common stock for the 2.3 million options that were
+in-the-money at December 31, 2006.
+54 
+Table of Contents 
+A summary of the status and changes of our nonvested shares related to our Equity Incentive
+Plan as of and during the period ended December 31, 2006 is presented below:
+WEIGHTED AVERAGE 
+GRANT-DATE FAIR 
+SHARES 
+VALUE 
+Nonvested at December 31, 2005 
+— 
+— 
+Granted 
+22,000 
+$ 
+16.52 
+Vested 
+(4,667 
+) 
+17.01 
+Nonvested at December 31, 2006 
+17,333 
+$ 
+16.38 
+The nonvested shares generally vest over a four-year graded vesting period and expire ten
+years from the date of grant.
+(e) 
+Stock Purchase Plan 
+Effective July 1, 1998, the Company adopted the 1998 Employee Stock Purchase Plan (the
+“ESPP”). The ESPP provides that a total of 2,781,415, shares of Class A Common Stock are reserved
+for issuance under the plan. The ESPP, which is intended to qualify as an “employee stock purchase
+plan” under Section 423 of the Internal Revenue Code of 1986, as amended, is implemented utilizing
+six-month offerings with purchases occurring at six-month intervals. The ESPP administration is
+overseen by the Board of Directors. Employees are eligible to participate if they are employed by
+the Company for at least 20 hours per week and more than five months in any calendar year. The
+ESPP permits eligible employees to purchase Class A Common Stock through payroll deductions, which
+may not exceed 15% of an employee’s compensation. The price of Class A Common Stock purchased
+under the ESPP is 85% of the lower of the fair market value of the Class A Common Stock at the
+beginning of each six-month offering period or on the applicable purchase date. Employees may end
+their participation in an offering at any time during the offering period. The Board may at any
+time amend or terminate the ESPP, except that no such amendment or termination may adversely affect
+shares previously granted under the ESPP. During 2006, 2005 and 2004, 121,378, 135,387, and
+164,502 shares were issued, respectively, under the ESPP for which the Company received
+approximately $1.9 million, $1.6 million, and $1.4 million, respectively.
+(f) 
+Pro Forma Information for Periods Prior to the Adoption of SFAS 123(R) 
+The following table illustrates the effects on net earnings if compensation cost for the
+Company’s stock option plans and its stock purchase plans had been determined based on the
+estimated fair value at the grant dates for awards under those plans consistent with the fair value
+method of SFAS 123 utilizing the Black-Scholes option-pricing model in each period (in thousands):
+2005 
+2004 
+Net earnings, as reported 
+$ 
+44,717 
+$ 
+23,553 
+Deduct total stock-based employee compensation
+expense under fair value-based method for all
+awards, net of related tax effects 
+(1,853 
+) 
+(4,012 
+) 
+Pro forma net earnings for basic pro
+forma earnings per share 
+42,864 
+19,541 
+Add back interest on 4.50% debentures, net of tax 
+2,487 
+— 
+Pro forma net earnings for diluted pro forma
+earnings per share 
+$ 
+45,351 
+$ 
+19,541 
+Pro forma net earnings per share: 
+Basic 
+$ 
+1.08 
+$ 
+0.51 
+Diluted 
+1.02 
+0.49 
+Pro forma basic net earnings per share represents net pro forma earnings divided by the
+weighted average number of common shares outstanding for the period. Pro forma diluted earnings per
+share, in addition to the weighted average determined for pro forma basic earnings per share,
+includes the dilutive effect of common stock equivalents which would arise from the exercise of
+stock options using the treasury stock method, and assumes the conversion of the Company’s 4.50%
+convertible subordinated notes if their effects are dilutive.
+55 
+Table of Contents 
+(8) STOCKHOLDERS’ EQUITY 
+Stock Issuances
+The authorized capital stock of the Company consists of 100,000,000 shares of Class A Common
+Stock, par value $.001 per share, 60,000,000 shares of Class B Common Stock, par value $.001 per
+share, and 10,000,000 shares of preferred stock, $.001 par value per share.
+The Class A Common Stock and Class B Common Stock have identical rights other than with
+respect to voting, conversion and transfer. The Class A Common Stock is entitled to one vote per
+share, while the Class B Common Stock is entitled to ten votes per share on all matters submitted
+to a vote of stockholders. The shares of Class B Common Stock are convertible at any time at the
+option of the holder into shares of Class A Common Stock on a share-for-share basis. In addition,
+shares of Class B Common Stock will be automatically converted into a like number of shares of
+Class A Common Stock upon any transfer to any person or entity which is not a permitted transferee.
+During 2006, 2005 and 2004 certain Class B stockholders converted 2,883,000, 360,000, and
+1,875,372 shares, respectively, of Class B Common Stock to Class A Common Stock.
+(9) TOTAL OTHER INCOME (EXPENSE), NET 
+Other income (expense), net at December 31, 2006, 2005 and 2004 is summarized as follows (in
+thousands):
+2006 
+2005 
+2004 
+Gain (loss) on foreign currency transactions 
+$ 
+116 
+$ 
+(351 
+) 
+$ 
+(258 
+) 
+Legal settlements 
+864 
+1,638 
+(2,294 
+) 
+Total other income, net 
+$ 
+980 
+$ 
+1,287 
+$ 
+(2,552 
+) 
+(10) INCOME TAXES 
+The provisions for income tax expense were as follows (in thousands):
+2006 
+2005 
+2004 
+Federal: 
+Current 
+$ 
+38,252 
+$ 
+27,562 
+$ 
+15,060 
+Deferred 
+(4,451 
+) 
+(4,157 
+) 
+(2,328 
+) 
+Total federal 
+33,801 
+23,405 
+12,732 
+State: 
+Current 
+7,398 
+5,417 
+3,087 
+Deferred 
+(586 
+) 
+(588 
+) 
+(1,415 
+) 
+Total state 
+6,812 
+4,829 
+1,672 
+Foreign : 
+Current 
+2,192 
+1,423 
+170 
+Deferred 
+(1,151 
+) 
+(1,577 
+) 
+593 
+Total foreign 
+1,041 
+(154 
+) 
+763 
+Total income taxes 
+$ 
+41,654 
+$ 
+28,080 
+$ 
+15,167 
+56 
+Table of Contents 
+Income taxes differ from the statutory tax rates as applied to earnings before income taxes as
+follows (in thousands):
+2006 
+2005 
+2004 
+Expected income tax expense 
+$ 
+39,427 
+$ 
+25,479 
+$ 
+13,552 
+State income tax, net of federal benefit 
+4,611 
+3,585 
+1,296 
+Rate differential on foreign income 
+(379 
+) 
+(720 
+) 
+721 
+Non-deductible expenses 
+689 
+321 
+301 
+Change in valuation allowance 
+(967 
+) 
+(974 
+) 
+(288 
+) 
+Other 
+(1,727 
+) 
+389 
+(415 
+) 
+Total provision for income taxes 
+$ 
+41,654 
+$ 
+28,080 
+$ 
+15,167 
+The tax effects of temporary differences that give rise to significant portions of deferred
+tax assets and deferred tax liabilities at December 31, 2006 and 2005 are presented below (in
+thousands):
+DEFERRED TAX ASSETS: 
+2006 
+2005 
+Deferred tax assets — current: 
+Inventory adjustments 
+$ 
+2,991 
+$ 
+2,037 
+Accrued expenses 
+4,661 
+4,160 
+Allowances for bad debts and chargebacks 
+4,732 
+2,293 
+Total current assets 
+12,384 
+8,490 
+Deferred tax assets — long term: 
+Depreciation on property and equipment 
+9,633 
+8,351 
+Loss carryforwards 
+2,737 
+2,441 
+Valuation allowance 
+(488 
+) 
+(1,455 
+) 
+Stock-based compensation 
+102 
+— 
+Total long term assets 
+11,984 
+9,337 
+Total deferred tax assets 
+24,368 
+17,827 
+Deferred tax liabilities — current: 
+Prepaid expenses 
+2,710 
+2,551 
+Other 
+184 
+184 
+Total deferred tax liabilities 
+2,894 
+2,735 
+Net deferred tax assets 
+$ 
+21,474 
+$ 
+15,092 
+Management believes it is more likely than not that the results of future operations will
+generate sufficient taxable income to realize the net deferred tax assets.
+Consolidated U.S. income before income taxes was $104.8 million, $66.0 million, and $35.0
+million for the years ended December 31, 2006, 2005 and 2004, respectively. The corresponding
+income before income taxes for non-U.S. based operations was $7.8 million, $6.8 million, and $3.7
+million for the years ended December 31, 2006, 2005 and 2004, respectively.
+As of December 31, 2006 and 2005, Skechers had combined foreign operating loss carry-forwards
+to reduce future taxable income of approximately $7.4 million and $6.7 million, respectively. Some
+of these net operating losses expire beginning in 2008 and several can be carried forward
+indefinitely. As of December 31, 2006 and 2005, a valuation allowance of $0.5 million and $1.5
+million, respectively, had been set up for those carryforwards not expected to be utilized before
+their expiration date.
+As of December 31, 2006, withholding and U.S. taxes have not been provided on approximately
+$6.0 million of cumulative undistributed earnings of the Company’s non-U.S. subsidiaries because
+the Company intends to indefinitely reinvest these earnings in its non-U.S. subsidiaries.
+(11) BUSINESS AND CREDIT CONCENTRATIONS 
+The Company operates in the footwear industry and generates most of its sales in the United
+States, although its products are sold into various foreign countries. The footwear industry is
+impacted by the general economy. Changes in the marketplace may significantly affect management’s
+estimates and the Company’s performance. Management performs regular evaluations concerning
+57 
+Table of Contents 
+the
+ability of its customers to satisfy their obligations and provides for estimated doubtful accounts.
+Domestic accounts receivable, which generally do not require collateral from customers, amounted
+to $141.7 million and $103.9 million before allowances for bad debts and sales returns, and
+chargebacks at December 31, 2006 and 2005, respectively. Foreign accounts receivable, which
+generally are collateralized by letters of credit, amounted to $46.6 million and $37.9 million
+before allowance for bad debts, sales returns, and chargebacks at December 31, 2006 and 2005,
+respectively. International net sales amounted to $203.3 million, $179.6 million, and $171.5
+million for the years ended December 31, 2006, 2005 and 2004, respectively. The Company’s credit
+losses due to write-off’s for the years ended December 31, 2006, 2005 and 2004 were $4.6 million,
+$2.9 million, and $4.9 million respectively, and did not significantly differ from management’s
+expectations.
+Net sales to customers in North America exceeded 80% of total net sales for each of the years
+in the three-year period ended December 31, 2006. Assets located outside the United States consist
+primarily of cash, accounts receivable, inventory, property and equipment, and other assets. Net
+assets held outside the United States were $119.1 million and $106.1 million at December 31, 2006
+and 2005, respectively.
+During 2006, 2005, and 2004, no customer accounted for 10% or more of net sales. One customer
+accounted for 12.0% and 10.3% of net trade receivables at December 31, 2006 and 2005, respectively.
+During 2006, 2005 and 2004, our net sales to our five largest customers accounted for
+approximately 24.9%, 25.4%, and 26.8%, respectively.
+During 2006, the Company had four manufacturers, each of which accounted for between 8.9% and
+30.8% of total purchases. During 2005, the Company had four manufacturers, each of which accounted
+for between 7.9% and 32.4% of total purchases. During 2004, the Company had four manufacturers,
+each of which accounted for between 7.9% and 28.2% of total purchases.
+Most of the Company’s products are produced in China. The Company’s operations are subject to
+the customary risks of doing business abroad, including, but not limited to, currency fluctuations,
+custom duties and related fees, various import controls and other monetary barriers, restrictions
+on the transfer of funds, labor unrest and strikes and, in certain parts of the world, political
+instability. The Company believes it has acted to reduce these risks by diversifying manufacturing
+among various factories. To date, these risk factors have not had a material adverse impact on the
+Company’s operations.
+(12) BENEFIT PLAN 
+The Company has adopted a profit sharing plan covering all employees who are 21 years of age
+and have completed six months of service. Employees may contribute up to 15.0% of annual
+compensation. Company contributions to the plan are discretionary and vest over a six year period.
+The Company’s contributions to the plan amounted to $1.1 million, $0.8 million, and $0.8
+million for the years ended December 31, 2006, 2005 and 2004, respectively. For 2006, the Company
+made a cash contribution. For its contribution to the plan for 2005 and 2004, the Company issued
+59,203, and 93,692 shares of its Class A Common Stock, respectively. The shares contributed to the
+plan contain certain restrictions regarding the subsequent sales of those shares.
+(13) COMMITMENTS AND CONTINGENCIES 
+(a) 
+Construction 
+During 2005, we entered into a construction agreement with Morley Construction Company for the
+construction of our third corporate facility in Manhattan Beach, California. The agreement has a
+maximum payment clause in which Morley agrees that the construction cost of the facility will not
+exceed $18.1 million, of which $14.5 million was incurred as of December 31, 2006. We expect the
+building to be completed by the end of 2007.
+(b) 
+Leases 
+The Company leases facilities under operating lease agreements expiring through July 2027. The
+Company pays taxes, maintenance and insurance in addition to the lease obligation. The Company also
+leases certain equipment and automobiles under
+operating lease agreements expiring at various dates through April 2007. Rent expense for the
+years ended December 31, 2006, 2005 and 2004 approximated $40.4 million, $37.2 million, and $31.4
+million, respectively.
+58 
+Table of Contents 
+The Company also leases certain property and equipment under capital lease agreements
+requiring monthly installment payments through July 2007. The cost of this property and equipment
+was $2.0 million with a net book value of $0.5 million at December 31, 2006. The cost of this
+property and equipment was $2.8 million with a net book value of $1.1 million at December 31, 2005.
+Amortization of these assets is included in depreciation expense in the accompanying consolidated
+statements of cash flows.
+Minimum lease payments, which takes into account escalation clauses, are recognized on a
+straight-line basis over the minimum lease term. Subsequent adjustments to our lease payments due
+to changes in an existing index, usually the consumer price index, are typically included in our
+calculation of the minimum lease payments when the adjustment is known. Reimbursements for
+leasehold improvements are recorded as liabilities and are amortized over the lease term. Lease
+concessions, in our case usually a free rent period, are considered in the calculation of our
+minimum lease payments for the minimum lease term.
+Future minimum lease payments under noncancellable leases at December 31, 2006 are as follows (in
+thousands):
+CAPITAL 
+OPERATING 
+LEASES 
+LEASES 
+Year ending December 31: 
+2007 
+$ 
+216 
+$ 
+37,766 
+2008 
+— 
+35,590 
+2009 
+— 
+33,072 
+2010 
+— 
+31,264 
+2011 
+— 
+25,077 
+Thereafter 
+— 
+78,813 
+216 
+$ 
+241,582 
+Less imputed interest 
+8 
+Present value of net minimum lease payments 
+$ 
+208 
+(c) 
+Litigation 
+The Company recognizes legal expense in connection with loss contingencies as incurred.
+On March 25, 2003, a shareholder securities class action complaint captioned HARVEY SOLOMON v.
+SKECHERS USA, INC. et al. was filed against the Company and certain of its officers and directors
+in the United States District Court for the Central District of California (Case No. 03-2094 DDP).
+On April 2, 2003, a shareholder securities class action complaint captioned CHARLES ZIMMER v.
+SKECHERS USA, INC. et al. was filed against the Company and certain of its officers and directors
+in the United States District Court for the Central District of California (Case No. 03-2296 PA).
+On April 15, 2003, a shareholder securities class action complaint captioned MARTIN H. SIEGEL v.
+SKECHERS USA, INC. et al. was filed against the Company and certain of its officers and directors
+in the United States District Court for the Central District of California (Case No 03-2645 RMT).
+On May 6, 2003, a shareholder securities class action complaint captioned ADAM D. SAPHIER v.
+SKECHERS USA, INC. et al. was served on the Company and certain of its officers and directors in
+the United States District Court for the Central District of California (Case No. 03-3011 FMC). On
+May 9, 2003, a shareholders securities class action complaint captioned LARRY L. ERICKSON v.
+SKECHERS USA, INC. et al. was served on the Company and certain of its officers and directors in
+the United States District Court for the Central District of California (Case No. 03-3101 SJO).
+Each of these class action complaints alleged violations of the federal securities laws on behalf
+of persons who purchased publicly traded securities of the Company between April 3, 2002 and
+December 9, 2002. In July 2003, the court in these federal securities class actions, all pending in
+the United States District Court for the Central District of California, ordered the cases
+consolidated and a consolidated complaint to be filed and served. On September 25, 2003, the
+plaintiffs filed a consolidated complaint entitled In re SKECHERS USA, Inc. Securities Litigation,
+Case No. CV-03-2094-PA in the United States District Court for the Central District of California,
+consolidating all of the federal securities actions above. The complaint names as defendants the
+Company and certain officers and directors and alleges violations of the federal securities laws
+and breach of fiduciary duty on behalf of persons who purchased publicly traded securities of the
+Company between April 3, 2002 and December 9, 2002. The complaint seeks compensatory damages,
+interest, attorneys’ fees and injunctive and equitable relief. The Company moved to dismiss the
+consolidated complaint in its entirety. On May 10, 2004, the court granted the Company’s motion to
+dismiss with leave for plaintiffs to amend the complaint. On August 9, 2004, plaintiffs filed a
+first amended consolidated complaint for violations of the federal securities laws. The allegations
+and relief sought were virtually identical to the original consolidated complaint. The Company
+has moved to dismiss the first amended consolidated complaint and the motion was set for
+hearing on December 6, 2004. On March 21, 2005, the court granted the motion to dismiss the first
+amended consolidated complaint with leave for plaintiffs to amend one final time. On April 7, 2005,
+plaintiffs elected to stand on the first amended consolidated complaint and requested entry of
+judgment so that
+59 
+Table of Contents 
+an appeal from the court’s ruling could be taken. On April 26, 2005, the court
+entered judgment in favor of the Company and the individual defendants, and on May 3, 2005,
+plaintiffs filed an appeal with the United States Court of Appeals for the Ninth Circuit. As of the
+date of filing this annual report, all briefing by the parties has been completed, and a hearing
+date has been scheduled for April 18, 2007. Discovery has not commenced in the underlying action.
+While it is too early to predict the outcome of the appeal and any subsequent litigation, the
+Company continues to believe the suit is without merit and continues to vigorously defend against
+the claims.
+On October 11, 2006, Violeta Gomez filed a lawsuit in the Superior Court of the State of
+California, County of Los Angeles, VIOLETA PIZA GOMEZ V. TEAM-ONE STAFFING SERVICES, INC., AB/T1,
+INC. AND SKECHERS U.S.A., INC. (Case No. BC360134). The complaint alleges wrongful termination
+under the California Fair Employment and Housing Act, Government Code §12900, et seq., as a result
+of discrimination against Ms. Gomez. The complaint seeks general, special, punitive and exemplary
+damages, interest, attorneys’ fees and reinstatement of employment. The Company plans on defending
+the allegations vigorously and believes the claims are without merit. Nonetheless, it is too early
+to predict the outcome and whether the outcome will have a material adverse effect on the Company’s
+financial condition or results of operations.
+On January 26, 2007, ASICS America Corporation and ASICS Corporation (Japan) (collectively,
+“ASICS”) filed a lawsuit in the U.S. District Court for the Central District of California against
+Skechers, Zappos.com, Inc., Brown Shoe Company, Inc. dba Famousfootwear.com and Brown Group Retail,
+Inc. dba Famous Footwear U.S.A., Inc. alleging trademark infringement, unfair competition,
+trademark dilution and false advertising arising out of the Company’s alleged use of marks similar
+to ASICS’ stripe design mark. The lawsuit seeks, inter alia, compensatory, treble and punitive
+damages, profits, attorney’s fees and costs, and a permanent injunction against the Company to
+prevent any future sales and distribution of shoes that allegedly bear a stripe design similar to
+the ASICS stripe design. On February 26, 2007, the Company filed a lawsuit against ASICS in the
+United States District Court for the Central District of California for trade libel, unfair
+competition and tortious interference with prospective economic advantage and economic business
+relations. The Company seeks injunctive relief enjoining ASICS from engaging in further unlawful
+acts, disgorgement of ASICS’ profits, attorneys’ fees and $100 million in punitive damages. The
+Company also seeks a declaration that none of its designs infringe upon ASICS’ trademarks. While it
+is too early to predict the outcome of the litigation, the Company believes that it has meritorious
+defenses to the claims asserted by ASICS and intends to defend against those claims vigorously.
+The Company has no reason to believe that any liability with respect to pending legal actions,
+individually or in the aggregate, will have a material adverse effect on the Company’s consolidated
+financial statements or results of operations. The Company occasionally becomes involved in
+litigation arising from the normal course of business, and management is unable to determine the
+extent of any liability that may arise from unanticipated future litigation.
+(d) 
+Product and Other Financing 
+The Company finances production activities in part through the use of interest-bearing open
+purchase arrangements with certain of its international manufacturers. These arrangements currently
+bear interest at rates between 0% and 1.5% per 30 to 60 day term. The amounts outstanding under
+these arrangements at December 31, 2006 and 2005 were $85.0 million and $57.8 million,
+respectively, which are included in accounts payable in the accompanying consolidated balance
+sheets. Interest expense incurred by the Company under these arrangements amounted to $3.7 million
+in 2006, $2.8 million in 2005, and $3.1 million in 2004. The Company has contractual commitments
+relating to licensing arrangements of $8.9 million through 2011 and financed insurance premiums of
+$1.3 million through 2007.
+60 
+Table of Contents 
+(14) SEGMENT INFORMATION 
+In accordance with the requirement of SFAS 131, “Disclosures about Segments of an Enterprise
+and Related Information,” the Company’s reportable business segments and respective accounting
+policies of the segments are the same as described in note 1. We have four reportable segments –
+domestic wholesale sales, international wholesale sales, retail sales, and e-commerce sales.
+Management evaluates segment performance based primarily on net sales and gross margins.
+All costs and expenses of the Company are analyzed on an aggregate basis, and these costs are
+not allocated to the Company’s segments. Net sales, gross margins and identifiable assets for the
+domestic wholesale segment, international wholesale, retail, and the e-commerce segment on a
+combined basis were as follows (in thousands):
+2006 
+2005 
+2004 
+Net sales 
+Domestic wholesale 
+$ 
+772,920 
+$ 
+634,294 
+$ 
+582,240 
+International wholesale 
+183,687 
+163,523 
+156,470 
+Retail 
+237,390 
+201,610 
+176,783 
+E-commerce 
+11,371 
+7,050 
+4,829 
+Total 
+$ 
+1,205,368 
+$ 
+1,006,477 
+$ 
+920,322 
+2006 
+2005 
+2004 
+Gross profit 
+Domestic wholesale 
+$ 
+301,215 
+$ 
+232,401 
+$ 
+214,356 
+International wholesale 
+65,034 
+60,758 
+54,128 
+Retail 
+151,456 
+123,928 
+101,402 
+E-commerce 
+5,641 
+3,395 
+971 
+Total 
+$ 
+523,346 
+$ 
+420,482 
+$ 
+370,857 
+2006 
+2005 
+Identifiable assets 
+Domestic wholesale 
+$ 
+563,956 
+$ 
+417,859 
+International wholesale 
+108,210 
+95,285 
+Retail 
+64,634 
+68,649 
+E-commerce 
+253 
+164 
+Total 
+$ 
+737,053 
+$ 
+581,957 
+2006 
+2005 
+Additions to property, plant and equipment 
+Domestic wholesale 
+$ 
+17,453 
+$ 
+5,989 
+International wholesale 
+348 
+394 
+Retail 
+9,759 
+7,244 
+Total 
+$ 
+27,560 
+$ 
+13,627 
+61 
+Table of Contents 
+Geographic Information
+The following summarizes our operations in different geographic areas for the year indicated:
+2006 
+2005 
+2004 
+Net Sales (1) 
+United States 
+$ 
+1,002,022 
+$ 
+826,920 
+$ 
+748,818 
+Canada 
+25,276 
+18,350 
+14,406 
+Europe (2) 
+178,070 
+161,207 
+157,098 
+Total 
+$ 
+1,205,368 
+$ 
+1,006,477 
+$ 
+920,322 
+2006 
+2005 
+Long-lived Assets 
+United States 
+$ 
+81,161 
+$ 
+63,840 
+Canada 
+764 
+717 
+Europe (2) 
+5,720 
+8,388 
+Total 
+$ 
+87,645 
+$ 
+72,945 
+(1) 
+The Company has subsidiaries in Canada, United Kingdom, Germany, France, Spain, Italy, and
+the Netherlands that generate net sales within those respective countries and in some cases
+the neighboring regions. The Company also has a subsidiary in Switzerland that generates net
+sales to that region in addition to net sales to our distributors located in numerous
+non-European countries. Net sales are attributable to geographic regions based on the location
+of the Company subsidiary headquarters. 
+(2) 
+Europe consists of Switzerland, United Kingdom, Germany, France, Spain, Italy, and the
+Netherlands. 
+(15) RELATED PARTY TRANSACTIONS 
+The Company had net sales to R. Siskind & Company in the amount of $0.9 million for the year
+ended December 31, 2004. The Company had no outstanding accounts receivable from R. Siskind &
+Company at December 31, 2006 and 2005, respectively. Mr. Siskind, who is a director of the
+Company, founded R. Siskind & Company, which is a business that purchases brand name men’s and
+women’s apparel and accessories and redistributes those items to off-price retailers, and he is its
+sole shareholder, Chief Executive Officer, President and sole member of its Board of Directors.
+The Company paid approximately $177,000 and $47,000 during 2006 and 2005, respectively to the
+Manhattan Inn Operating Company, LLC (“MIOC”) for lodging, food and events including the Company’s
+holiday party at the Shade Hotel, which is owned and operated by MIOC. Michael Greenberg,
+President and a director of the Company, owns a 12.5% beneficial ownership interest in MIOC, and
+four other officers, directors and vice presidents of the Company own in aggregate an additional
+5.0% beneficial ownership in MIOC. The Company had no outstanding accounts receivable or payable
+with MIOC or the Shade Hotel at December 31, 2006.
+The
+Company had receivables from officers and employees of $0.5 million and $0.5 million at
+December 31, 2006 and 2005, respectively. These amounts primarily relate to travel advances and
+incidental personal purchases on Company-issued credit cards that are not business-related
+expenses. These receivables are short-term and are expected to be repaid within a reasonable
+period of time.
+We had no other significant transactions with or payables to officers, directors or
+significant shareholders of the Company.
+62 
+Table of Contents 
+(16) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) 
+Summarized unaudited financial data are as follows (in thousands):
+2006 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+277,565 
+$ 
+292,183 
+$ 
+331,126 
+$ 
+304,494 
+Gross profit 
+118,374 
+130,736 
+146,303 
+127,933 
+Net earnings 
+16,598 
+17,616 
+22,199 
+14,582 
+Net earnings per share: 
+Basic 
+$ 
+0.41 
+$ 
+0.43 
+$ 
+0.54 
+$ 
+0.35 
+Diluted 
+0.38 
+0.40 
+0.49 
+0.33 
+2005 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+246,219 
+$ 
+263,928 
+$ 
+272,836 
+$ 
+223,494 
+Gross profit 
+100,436 
+111,536 
+115,473 
+93,037 
+Net earnings 
+10,267 
+15,917 
+12,632 
+5,901 
+Net earnings per share: 
+Basic 
+$ 
+0.26 
+$ 
+0.40 
+$ 
+0.32 
+$ 
+0.15 
+Diluted 
+0.25 
+0.38 
+0.30 
+0.14 
+ITEM 9. 
+CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
+FINANCIAL DISCLOSURE 
+None.
+ITEM 9A. 
+CONTROLS AND PROCEDURES 
+Attached as exhibits to this annual report on Form 10-K are certifications of our Chief
+Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance
+with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This
+“Controls and Procedures” section includes information concerning the controls and controls
+evaluation referred to in the certifications.
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
+The term “disclosure controls and procedures” refers to the controls and other procedures of a
+company that are designed to provide reasonable assurance that information required to be disclosed
+by a company in the reports that it files or submits under the Exchange Act, is recorded,
+processed, summarized and reported within required time periods. We have established disclosure
+controls and procedures to ensure that material information relating to Skechers and its
+consolidated subsidiaries is made known to the officers who certify our financial reports, as well
+as other members of senior management and the Board of Directors, to allow timely decisions
+regarding required disclosures. As of the end of the period covered by this annual report on Form
+10-K, we carried out an evaluation under the supervision and with the participation of our
+management, including our CEO and CFO, of the effectiveness of the design and operation of our
+disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that
+evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective.
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
+Our management is responsible for establishing and maintaining adequate internal control over
+financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal
+control over financial reporting includes those policies and procedures that (i)
+63 
+Table of Contents 
+pertain to the maintenance of records that, in reasonable detail, accurately and fairly
+reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that
+transactions are recorded as necessary to permit preparation of financial statements in accordance
+with generally accepted accounting principles, and that our receipts and expenditures are being
+made only in accordance with authorizations of our management and directors; and (iii) provide
+reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
+disposition of our assets that could have a material effect on our financial statements.
+We conducted an evaluation of the effectiveness of our internal control over financial
+reporting based on the framework in Internal Control – Integrated Framework issued by the Committee
+of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the
+framework in Internal Control- Integrated Framework, our management has concluded that as of
+December 31, 2006, our internal control over financial reporting is effective.
+Our independent registered public accountants, KPMG LLP, audited the financial statements
+included in this annual report on Form 10-K and have issued an attestation report on management’s
+assessment of, and the effectiveness of our internal control over financial reporting as of
+December 31, 2006, which is included in Part II, Item 8 of this annual report on Form 10-K.
+INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
+Our management, including our Chief Executive Officer and Chief Financial Officer, does
+not expect that our disclosure controls and procedures or our internal control over financial
+reporting will prevent or detect all error and all fraud. A control system, no matter how well
+designed and operated, can provide only reasonable, not absolute, assurance that the control
+system’s objectives will be met. The design of a control system must reflect the fact that there
+are resource constraints, and the benefits of controls must be considered relative to their costs.
+Further, because of the inherent limitations in all control systems, no evaluation of controls can
+provide absolute assurance that misstatements due to error or fraud will not occur or that all
+control issues and instances of fraud, if any, within the company have been detected. These
+inherent limitations include the realities that judgments in decision-making can be faulty and that
+breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the
+individual acts of some persons, by collusion of two or more people, or by management override of
+the controls. The design of any system of controls is based in part on certain assumptions about
+the likelihood of future events, and there can be no assurance that any design will succeed in
+achieving its stated goals under all potential future conditions. Projections of any evaluation of
+controls effectiveness to future periods are subject to risks. Over time, controls may become
+inadequate because of changes in conditions or deterioration in the degree of compliance with
+policies or procedures.
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
+There were no significant changes to our internal controls over financial reporting that have
+materially affected, or are reasonably likely to materially affect, our internal controls over
+financial reporting during the fourth quarter of 2006, we have completed our efforts regarding
+compliance with Section 404 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2006.
+The results of our evaluation are discussed above in Management’s Report on Internal Control Over
+Financial Reporting.
+ITEM 9B. 
+OTHER INFORMATION 
+None.
+64 
+Table of Contents 
+PART III 
+ITEM 10. 
+DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNACE 
+The information required by this Item 10 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2006 fiscal year.
+ITEM 11. 
+EXECUTIVE COMPENSATION 
+The information required by this Item 11 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2006 fiscal year.
+ITEM 12. 
+SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
+STOCKHOLDER MATTERS 
+The information required by this Item 12 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2006 fiscal year.
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE 
+The information required by this Item 13 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2006 fiscal year.
+ITEM 14. 
+PRINCIPAL ACCOUNTING FEES AND SERVICES 
+The information required by this Item 14 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2006 fiscal year.
+PART IV 
+ITEM 15. 
+EXHIBITS, FINANCIAL STATEMENT SCHEDULES 
+1. 
+Financial Statements: See “Index to Consolidated Financial Statements” in Part II, Item 8 on
+page 39 of this annual report on Form 10-K. 
+2. 
+Financial Statement Schedule: See “Schedule II—Valuation and Qualifying Accounts” on page 66
+of this annual report on Form 10-K. 
+3. 
+Exhibits: The exhibits listed in the accompanying “Index to Exhibits” are filed or
+incorporated by reference as part of this Form 10-K. 
+65 
+Table of Contents 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+(in thousands) 
+Years Ended December 31, 2006, 2005 and 2004 
+BALANCE AT 
+CHARGED TO 
+DEDUCTIONS 
+BALANCE 
+BEGINNING OF 
+COSTS AND 
+AND 
+AT END 
+DESCRIPTION 
+PERIOD 
+EXPENSES 
+WRITE-OFFS 
+OF PERIOD 
+Year-ended December 31, 2004: 
+Allowance for chargebacks 
+$ 
+1,020 
+$ 
+1,858 
+$ 
+(2,300 
+) 
+$ 
+578 
+Allowance for
+doubtful accounts 
+1,199 
+1,814 
+(1,126 
+) 
+1,887 
+Reserve for sales returns and
+allowances 
+5,642 
+1,199 
+(3,263 
+) 
+3,578 
+Year-ended December 31, 2005: 
+Allowance for chargebacks 
+$ 
+578 
+$ 
+368 
+$ 
+(323 
+) 
+$ 
+623 
+Allowance for doubtful accounts 
+1,887 
+870 
+(792 
+) 
+1,965 
+Reserve for sales returns and
+allowances 
+3,578 
+1,644 
+(614 
+) 
+4,608 
+Year-ended December 31, 2006: 
+Allowance for chargebacks 
+$ 
+623 
+$ 
+1,237 
+$ 
+(359 
+) 
+$ 
+1,501 
+Allowance for doubtful accounts 
+1,965 
+1,307 
+(573 
+) 
+2,699 
+Reserve for sales returns and
+allowances 
+4,608 
+2,047 
+(297 
+) 
+6,358 
+See accompanying report of independent registered public accounting firm
+66 
+Table of Contents 
+INDEX TO EXHIBITS 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+3.1
+Amended and Restated Certificate of Incorporation dated April 29, 1999 (incorporated by
+reference to exhibit number 3.1 of the Registrant’s Registration Statement on Form S-1, as
+amended (File No. 333-60065), filed with the Securities and Exchange Commission on May 12,
+1999). 
+3.2
+Bylaws dated May 28, 1998 (incorporated by reference to exhibit number 3.2 of the
+Registrant’s Registration Statement on Form S-1 (File No. 333-60065) filed with the
+Securities and Exchange Commission on July 29, 1998). 
+3.2(a)
+Amendment to Bylaws dated as of April 8, 1999. 
+4.1
+Form of Specimen Class A Common Stock Certificate (incorporated by reference to exhibit
+number 4.1 of the Registrant’s Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange Commission on May 12, 1999). 
+4.2
+Indenture, dated April 9, 2002, between the Registrant and Wells Fargo Bank, National
+Association, as Trustee, relating to the 4.5% Convertible Subordinated Notes (incorporated
+by reference to exhibit number 4.2 of the Registrant’s Form 10-Q for the quarter ended June
+30, 2002). 
+4.3
+Form of Specimen Restricted Global Security (incorporated by reference to exhibit number 4.3
+of the Registrant’s Form 10-Q for the quarter ended June 30, 2002). 
+10.1**
+Amended and Restated 1998 Stock Option, Deferred Stock and Restricted Stock Plan
+(incorporated by reference to exhibit number 10.1 of the Registrant’s Registration Statement
+on Form S-1 (File No. 333-60065) filed with the Securities and Exchange Commission on July
+29, 1998). 
+10.1(a)**
+Amendment No. 1 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted
+Stock Plan (incorporated by reference to exhibit number 4.4 of the Registrant’s Registration
+Statement on Form S-8 (File No. 333-71114), filed with the Securities and Exchange
+Commission on October 5, 2001). 
+10.1(b)**
+Amendment No. 2 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted
+Stock Plan (incorporated by reference to exhibit number 4.5 of the Registrant’s Registration
+Statement on Form S-8 (File No. 333-135049), filed with the Securities and Exchange
+Commission on June 15, 2006). 
+10.1(c)**
+Amendment No. 3 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted
+Stock Plan (incorporated by reference to exhibit number 10.1 of the Registrant’s Form 8-K
+filed with the Securities and Exchange Commission on February 23, 2007). 
+10.2**
+Amended and Restated 1998 Employee Stock Purchase Plan (incorporated by reference to exhibit
+number 10.1 of the Registrant’s Form 10-Q, for the quarter ended June 30, 2000). 
+10.3-10.5
+[Reserved]. 
+10.6**
+Indemnification Agreement dated June 7, 1999 between the Registrant and its directors and
+executive officers (incorporated by reference to exhibit number 10.6 of the Registrant’s
+Form 10-K for the year ended December 31, 1999). 
+10.6(a)**
+List of Registrant’s directors and executive officers who entered into Indemnification
+Agreement referenced in Exhibit 10.6 with the Registrant (incorporated by reference to
+exhibit number 10.6(a) of the Registrant’s Form 10-K for the year ended December 31, 2005). 
+10.7
+Registration Rights Agreement dated June 9, 1999, between the Registrant, the Greenberg
+Family Trust and Michael Greenberg (incorporated by reference to exhibit number 10.7 of the
+Registrant’s Form 10-Q for the quarter ended June 30, 1999). 
+67 
+Table of Contents 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+10.8
+Tax Indemnification Agreement dated June 8, 1999, between the Registrant and certain
+shareholders (incorporated by reference to exhibit number 10.8 of the Registrant’s Form 10-Q
+for the quarter ended June 30, 1999). 
+10.9
+Second Amended and Restated Loan and Security Agreement, dated May 31, 2006, by and among
+the Registrant and certain of its subsidiaries that are also borrowers under the Agreement,
+certain of its subsidiaries who are guarantors under the Agreement, and certain lenders
+including The CIT Group/Commericial Services, Inc., which acts as agent for the lenders
+(incorporated by reference to exhibit number 10.1 of the Registrant’s Form 8-K filed with
+the Securities and Exchange Commission on June 6, 2006). 
+10.10
+Promissory Note, dated December 27, 2000, between the Registrant and Washington Mutual Bank,
+FA, for the purchase of property located at 225 South Sepulveda Boulevard, Manhattan Beach,
+California (incorporated by reference to exhibit number 10.23 of the Registrant’s Form 10-K
+for the year ended December 31, 2000). 
+10.11
+Loan Agreement, dated December 21, 2000, between Yale Investments, LLC, and MONY Life
+Insurance Company, for the purchase of property located at 1670 South Champagne Avenue,
+Ontario, California (incorporated by reference to exhibit number 10.25 of the Registrant’s
+Form 10-K for the year ended December 31, 2000). 
+10.12
+Promissory Note, dated December 21, 2000, between Yale Investments, LLC, and MONY Life
+Insurance Company, for the purchase of property located at 1670 Champagne Avenue, Ontario,
+California (incorporated by reference to exhibit number 10.26 of the Registrant’s Form 10-K
+for the year ended December 31, 2000). 
+10.13
+Agreement dated August 25, 2005 between Duncan Investments, LLC, a wholly owned subsidiary
+of the Registrant, and Morley Construction Company regarding 330 South Sepulveda Boulevard,
+Manhattan Beach, California (incorporated by reference to exhibit number 10.1 of the
+Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 29, 2005). 
+10.14
+General Conditions of the Contract for Construction regarding 330 South Sepulveda Boulevard,
+Manhattan Beach, California (incorporated by reference to exhibit number 10.2 of the
+Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 29, 2005). 
+10.15
+Lease Agreement, dated November 21, 1997, between the Registrant and The Prudential
+Insurance Company of America, regarding 1661 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.14 of the Registrant’s Registration
+Statement on Form S-1 (File No. 333-60065) filed with the Securities and Exchange Commission
+on July 29, 1998). 
+10.15(a)
+First Amendment to Lease Agreement, dated April 26, 2002, between the Registrant and
+ProLogis California I LLC, regarding 1661 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.14(a) of the Registrant’s Form 10-K for the
+year ended December 21, 2002). 
+10.16
+Lease Agreement, dated November 21, 1997, between the Registrant and The Prudential
+Insurance Company of America, regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.15 of the Registrant’s Registration
+Statement on Form S-1 (File No. 333-60065) filed with the Securities and Exchange Commission
+on July 29, 1998). 
+10.16(a)
+First Amendment to Lease Agreement, dated April 26, 2002, between the Registrant and Cabot
+Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.15(a) of the Registrant’s Form 10-K for the
+year ended December 21, 2002). 
+10.17
+Lease Agreement, dated April 10, 2001, between the Registrant and ProLogis California I LLC,
+regarding 4100 East Mission Boulevard, Ontario, California (incorporated by reference to
+exhibit number 10.28 of the Registrant’s Form 10-K for the year ended December 31, 2001). 
+68 
+Table of Contents 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+10.17(a)
+First Amendment to Lease Agreement, dated October 22, 2003, between the Registrant and
+ProLogis California I LLC, regarding 4100 East Mission Boulevard, Ontario, California
+(incorporated by reference to exhibit number 10.28(a) of the Registrant’s Form 10-K for the
+year ended December 31, 2003). 
+10.18
+Lease Agreement, dated February 8, 2002, between Skechers International, a subsidiary of the
+Registrant, and ProLogis Belgium II SPRL, regarding ProLogis Park Liege Distribution Center
+I in Liege, Belgium (incorporated by reference to exhibit number 10.29 of the Registrant’s
+Form 10-K for the year ended December 31, 2002). 
+21.1
+Subsidiaries of the Registrant. 
+23.1
+Consent of Independent Registered Public Accounting Firm. 
+31.1
+Certification of the Chief Executive Officer pursuant Securities Exchange Act Rule 13a-14(a). 
+31.2
+Certification of the Chief Financial Officer pursuant Securities Exchange Act Rule 13a-14(a). 
+32.1
+Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
+Sarbanes-Oxley Act of 2002. 
+** 
+Management contract or compensatory plan or arrangement required to be filed as an exhibit. 
+69 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Manhattan Beach, State of California on the 16th day of March 2007.
+SKECHERS U.S.A., INC. 
+By:
+/S/ ROBERT GREENBERG 
+Robert Greenberg
+Chairman of the Board and 
+Chief Executive Officer 
+Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
+signed by the following persons on behalf of the Registrant and in the capacities and on the dates
+indicated.
+SIGNATURE 
+TITLE 
+DATE 
+/S/ ROBERT GREENBERG
+Robert Greenberg
+Chief Executive Officer (Principal
+Executive Officer)
+March 16, 2007 
+/S/ MICHAEL GREENBERG
+Michael Greenberg
+President and Director 
+March 16, 2007 
+/S/ DAVID WEINBERG
+David Weinberg
+Executive Vice President, Chief Operating
+Officer and Director 
+March 16, 2007 
+/S/ FREDERICK H. SCHNEIDER
+Frederick H. Schneider
+Chief Financial Officer (Principal
+Financial and Accounting Officer)
+March 16, 2007 
+/S/ JEFFREY GREENBERG
+Jeffrey Greenberg
+Director 
+March 16, 2007 
+/S/ J. GEYER KOSINSKI
+J. Geyer Kosinski
+Director 
+March 16, 2007 
+/S/ MORTON D. ERLICH
+Morton D. Erlich
+Director 
+March 16, 2007 
+/S/ RICHARD SISKIND
+Richard Siskind
+Director 
+March 16, 2007 
+70
\ No newline at end of file
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new file mode 100644
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+0001065837,SKX,SKECHERS USA INC,10-K,2007-03-16,2006-12-31,2007-03-16T17:17:04.000Z,0000950124-07-001540,v28136e10vk.htm,FORM 10-K,736356,0,0,https://www.sec.gov/Archives/edgar/data/1065837/000095012407001540/v28136e10vk.htm,https://www.sec.gov/Archives/edgar/data/1065837/000095012407001540/,2006,2006,1
diff --git a/raw/filings/0001065837/2006/0000950124-07-001540/item1.txt b/raw/filings/0001065837/2006/0000950124-07-001540/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4054c56f3e70c54a9f42ebd3daf1a22ae1cc0e96
--- /dev/null
+++ b/raw/filings/0001065837/2006/0000950124-07-001540/item1.txt
@@ -0,0 +1,855 @@
+ITEM 1. BUSINESS 
+We were incorporated in California in 1992 and reincorporated in Delaware in 1999. Throughout
+this annual report, we refer to Skechers U.S.A., Inc., a Delaware corporation, and its consolidated
+subsidiaries as “we,” “us,” “our,” “our company” and “Skechers” unless otherwise indicated. Our
+Internet website address is www.skechers.com . Our annual report on Form 10-K, quarterly
+reports on Form 10-Q, current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of
+directors, officers and 10% stockholders, and any amendments to those reports filed or furnished
+pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of
+charge on our website as soon as reasonably practicable after we electronically file such material
+with, or furnish it to, the SEC. You can learn more about us by reviewing such filings on our
+website or at the SEC’s website at www.sec.gov .
+GENERAL
+We design and market Skechers-branded contemporary footwear for men, women and children under
+several unique lines. Our footwear reflects a combination of style, quality and value that appeals
+to a broad range of consumers. In addition to Skechers-branded lines, we also offer nine uniquely
+branded designer, fashion and street-focused footwear lines for men, women and children. These
+lines are branded and marketed separately from Skechers and appeal to specific audiences. Our
+brands are sold through department stores, specialty stores, athletic retailers, and boutiques as
+well as our e-commerce website and our own retail stores. We operate 50 concept stores, 61 factory
+outlet stores and 33 warehouse outlet stores in the United States, and 10 concept stores and two
+factory outlets internationally. Our objective is to profitably grow our operations worldwide
+while leveraging our recognizable Skechers brand through our strong product lines, innovative
+advertising and diversified distribution channels.
+We seek to offer consumers a vast array of fashionable footwear that satisfies their active,
+casual, dress casual and dress footwear needs. Our core consumers are style-conscious 12- to
+24-year-old men and women attracted to our youthful brand image and fashion forward designs. Many
+of our best-selling and core styles are also developed for children with colors and materials that
+reflect a playful image appropriate for this demographic.
+We believe that brand recognition is an important element for success in the footwear
+business. We have aggressively promoted our brands through comprehensive marketing campaigns for
+men, women and children. In 2005, we signed American Idol winner and rising star Carrie Underwood
+for our domestic and international print advertising which ran through the end of 2006. During
+2006, we continued our celebrity driven ads with the launch of platinum recording artist Ashlee
+Simpson as our new Skechers celebrity endorsee. In addition, we launched television sponsor spots
+for many of our Skechers branded men’s and women’s lines. Our strategy for kids continues to
+primarily focus on television ads. For adults, our strategy continues to focus on print
+advertisements in targeted publications, which are supported by sponsorship television spots . 
+Select fashion brands were also supported by television commercials, including 310 and Marc Ecko
+Footwear. For 310 Motoring, we also continued print ads featuring accomplished actor Terrence
+Howard, and multi-platinum hip hop recording artist The Game for his signature 310 footwear line.
+Our Unltd. by Marc Ecko and Rhino Red Footwear lines are also supported through print ads developed
+by Marc Ecko, as well as ads for Zoo York and Avirex. During 2006, we signed Evangeline Lilly, star
+of the hit TV show Lost, to support our Michelle K line.
+Since we introduced our first line, Skechers USA Sport Utility Footwear, in December 1992, we
+have expanded our product offering and grown our net sales while substantially increasing the
+breadth and penetration of our account base. Our men’s, women’s and children’s Skechers-branded
+product lines benefit from the Skechers reputation for contemporary and progressive styling,
+quality, comfort and affordability. Our lines that are not branded with the Skechers name benefit
+from our marketing support, quality management and expertise. To promote innovation and brand
+relevance, we manage our product lines separately by utilizing dedicated sales and design teams.
+Our product lines share back office services in order to limit our operating expenses and fully
+utilize our management’s vast experience in the footwear industry.
+SKECHERS LINES
+Skechers USA. Our Skechers USA category for men and women includes five types of footwear: (i)
+Casuals, (ii) Dress Casuals, (iii) Comfort (for men only), (iv) Outdoor (for men only) and (v)
+Casual Fusion. This category is generally sold through mid-tier retailers, department stores and
+some footwear specialty shops.
+2 
+Table of Contents 
+• 
+For men, the Casuals category includes “black and brown” boots, shoes and sandals that
+generally have a rugged urban design — some with industrial-inspired fashion features. This
+category is defined by the heavy-lugged outsole and value-oriented materials employed in the
+uppers. For women, the Casuals category includes basic “black and brown” oxfords and
+slip-ons, lug outsole boots, and casual sandals. The women’s line also uses value-oriented
+materials, but a growing number of styles may also be designed in leather. We design and
+price both the men’s and women’s categories to appeal primarily to younger consumers with
+broad acceptance across age groups. 
+• 
+For men, the Dress Casuals category is comprised of basic “black and brown” men’s shoes
+that feature shiny leathers and dress details, but may utilize traditional or lugged
+outsoles as well as value-oriented materials. For women, the Dress Casual line is comprised
+of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or
+faux fur lining or trim. 
+• 
+Skechers Comfort is a line of trend-right casuals for men who want all-day comfort
+without compromising style. Characteristics of the line include comfortable outsoles,
+cushioned insoles and quality leather uppers. A category with unique features, we market and
+package the Skechers Comfort styles in a shoe box that is distinct from that of other
+categories in the Skechers USA line of footwear. 
+• 
+Our Outdoor styles for men primarily consist of hiker-influenced constructions including
+boots and shoes. While this category includes many technical performance features, we market
+this category of footwear primarily on the basis of style and comfort. Outsoles generally
+consist of molded and contoured hardened rubber. Many designs include gussetted tongues to
+prevent penetration of water and debris, cushioned mid-soles, motion control devices such as
+heel cups, water-resistant or water-proof construction and materials, and more durable
+hardware such as metal D-rings instead of eyelets. Uppers are generally constructed of
+heavily oiled nubuck and full-grain leathers. 
+• 
+Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals
+targeted at trend-conscious young men and women. The outsoles are primarily rubber and
+adopted from our men’s Sport and women’s Active lines. This collection features leather or
+nubuck uppers, but may also include mesh, and may be in shades of browns and beiges as well
+as in black, gray, greens and blues. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes: (i) Joggers, Trail
+Runners, Sport Hikers, Terrainers, (ii) Performance (for men only), (iii) Street Casuals and (iv)
+Sport Sandals. Our Skechers Sport category is distinguished by its technical performance-inspired
+looks; however, we generally do not promote the technical performance features of these shoes.
+Skechers Sport is typically sold through specialty shoe stores, department stores and athletic
+footwear retailers.
+• 
+Our Jogger, Trail Runner, Sport Hiker and cross trainer-inspired Terrainer designs are
+lightweight constructions that include cushioned heels, polyurethane midsoles, phylon and
+other synthetic outsoles, as well as leather or synthetic uppers such as durabuck, cordura
+and nylon mesh. Careful attention is devoted to the design, pattern and construction of the
+outsoles, which vary greatly depending on the intended use. This category features earth
+tones and athletic-inspired hues with contrasting pop colors such as lime green, orange and
+red in addition to traditional athletic white. 
+• 
+The Performance category is comprised of multi-purpose running shoes that are marketed as
+men’s lifestyle athletic footwear. Some styles include 3M reflective accents, breathable
+upper construction, quality leathers, abrasion-resistant toe and heel cap, removable
+moisture wicking molded EVA sock liner, outsole forefoot flex grooves for improved
+flexibility, non-marking rubber lugs with impact dispersment technology (IDT), aggressive
+all terrain traction lugs, external torsion stabilizer and tuned dual-density molded ethyl
+vinyl acetate (EVA) midsole with pronation control. 
+• 
+Street Casual incorporates lower profiles, classic details and skate, street and fusion
+influences in a collection of essential, basic casual sneakers. The uppers are designed in
+leather, suede, nubuck, canvas and/or mesh, and many include vulcanized outsoles. Street
+Casual is targeted to young consumers, but also appeals to a broader demographic. 
+• 
+Our Sport Sandals are primarily designed from existing Skechers Sport outsoles and may
+include many of the same sport features as our sneakers with the addition of new
+technologies geared toward making a comfortable sport sandal. Sport sandals are designed as
+seasonal footwear for the consumer who already wears our Skechers Sport sneakers. 
+Skechers Active. A natural companion to Skechers Sport, Skechers Active has grown from a
+casual everyday line into a complete line of fusion and sport fusion sneakers for females of all
+ages. Marked by low-profile outsoles, the Active line is available in a multitude of colors as well
+as solid white or black, in fabrics, leathers and meshes, and with various closures – traditional
+laces, zig-
+3 
+Table of Contents 
+zag and cross straps, among others. The line also now includes Mary Janes, sandals and open
+back styles. Active sneakers are typically retailed through specialty casual shoe stores and
+department stores.
+Skechers Collection . The Skechers Collection line is comprised of stylish dress shoes, dress
+casual shoes and sandals for the young fashion-forward male consumer. The looks include classic
+tailored and fashion-forward square, round and pointed lasts in a variety of styles, such as
+bicycle toes, monk straps, wingtips, oxfords, cap toes, demi-boots and boots. The outsoles project
+a sleeker profile and may be either leather or man-made. The uppers are quality leathers including
+glossy, box, distressed and aniline. Skechers Collection is designed and priced for young men
+seeking their first dress or evening shoe. Adding to the line is a reasonably priced assortment of
+stylized boots and oxfords designed in Italy. This group is designed for the more style-conscious
+male consumer which can be worn at work, on weekends or in clubs. Skechers Collection is sold
+through specialty casual shoe stores and department stores.
+Skechers
+Cali. Launched in 2006, Skechers Cali is new line of sneakers, skimmers and sandals
+for young women designed to typify the California lifestyle. The sneakers are designed primarily
+with canvas uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers
+and flats are designed with many of the same upper materials and outsoles as the sneakers. The
+sandals range from dress casual looks to casual to beach thongs. Skechers Cali is sold through
+specialty casual shoe stores and department stores.
+Skechers
+Work. Expanding on our heritage of cutting-edge utility footwear, Skechers Work
+offers a complete line of men’s and women’s sport oxfords, field boots, trail hikers and athletic
+shoes. The Skechers Work line includes the (i) Lightweight Alloy Series (“LAS”), (ii) Safety Toe,
+(iii) Occupational and (iv) Slip-Resistant categories, which may feature electrical hazard,
+electrostatic-dissipative and slip-resistant technologies, as well as breathable, seam-sealed
+Hydroguard TM waterproof membranes. Our LAS, Safety Toe and Occupational products have
+been independently tested and certified to meet ASTM, CSA or SATRA standards, and our
+slip-resistant soles have been tested pursuant to the Mark II testing method for slip resistance.
+The uppers are in high-quality leather, nubuck, trubuck and durabuck. Constructed on high-abrasion,
+long wearing soles, the line is designed for men and women with jobs that require certain safety
+requirements. Skechers Work is primarily marketed through business-to-business channels, but is
+also available direct-to-consumers and through select department and specialty stores.
+• 
+Our LAS trail hikers and sport oxfords are exclusively designed for industry
+professionals who need lightweight, all-day footwear protection. Their innovative design
+includes a durable, ultra-lightweight safety toe, and high-grade materials for superior
+strength and comfort. 
+• 
+Our safety toe athletic sneakers, boots, hikers, oxfords and sport oxfords are ideal for
+environments requiring safety footwear. These durable styles feature breathable lining, oil
+and abrasion resistant outsoles and safety toe design for optimal protection, all-day
+comfort and prolonged durability. 
+• 
+Our occupational boots, oxfords and hikers offer versatile features for those requiring
+utility, safety and comfort features, but who also want style. Designed with an array of
+textured uppers and colorways, the footwear capitalizes on function and comfort – from
+breathable lining to contoured insoles and abrasion-resistant outsoles for prolonged wear. 
+• 
+Our slip-resistant boots, athletics, sport and slip-on oxfords, and clogs are ideal for
+the service industry. These shoes offer comfort and safety in dry or wet conditions by
+utilizing breathable lining and Mark II-tested slip, oil and abrasion resistant outsoles for
+optimal safety and reliability. 
+Skechers Kids. The Skechers Kids line includes: (i) Skechers Kids, which is a range of
+infants, toddlers, boys and girls boots, shoes and sneakers; (ii) S-Lights, which is lighted
+footwear for toddlers, boys and girls; (iii) Skechers Cali for Girls, which is trend-inspired
+boots, shoes, sandals and dress sneakers; and (iv) Airators by Skechers. Skechers Kids and Skechers
+Cali for Girls are comprised primarily of shoes that are designed as “takedowns” of their adult
+counterparts, allowing the younger set the opportunity to wear the same popular styles as their
+older siblings and schoolmates. This “takedown” strategy maintains the product’s integrity by
+offering premium leathers, hardware and outsoles without the attendant costs involved in designing
+and developing new products. In addition, we adapt current fashions from our men’s and women’s
+lines by modifying designs and choosing colors and materials that are more suitable for the playful
+image that we have established in the children’s footwear market. Each Skechers Kids line is
+marketed and packaged separately with a distinct shoe box. Skechers Kids shoes are available at
+department stores and specialty and athletic retailers.
+4 
+Table of Contents 
+• 
+The Skechers Kids line includes embellishments or adornments such as fresh colors and
+fabrics from our Skechers adult shoes. Some of these styles are also adapted for toddlers
+with softer, more pliable outsoles, and for infants with soft, leather-sole crib shoes. 
+• 
+S-Lights is a line of sneakers and sandals with a combined pattern of lights on the
+outsole and other areas of the shoes. We market and package the S-Lights styles in a shoe
+box that is distinct from that of other categories in the Skechers Kids line of footwear. 
+• 
+Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young women
+designed to typify the California lifestyle. The sneakers are designed primarily with canvas
+uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and
+flats are designed with many of the same upper materials and outsoles as the sneakers. 
+• 
+Airators by Skechers is a new line of boys sneakers with an air cooling system designed
+to pump air from the heel through to the toes. 
+FASHION AND STREET BRANDS
+The Fashion and Street Division and its brands are marketed separately from Skechers.
+Unltd. by Marc Ecko and Rhino Red. Unltd. by Marc Ecko is a line of men’s street-inspired
+traditional sneakers, fusion sneakers and urban-focused casuals. Rhino Red is a line of women’s
+classic and fashion-forward fusion sneakers and Mary Janes for young women, casual and dress causal
+heels and boots. Targeted to the street-savvy 18- to 34-year-old consumer, the footwear reflects
+Ecko Unltd.’s men’s apparel and the Ecko Red women’s apparel, and effectively utilizes the globally
+recognized Rhino logo on the majority of sneakers and casuals. Within the Rhino Red line is the
+Red by Marc Ecko offering, a line of designer dress and dress casual footwear for the urban chic
+woman. The men’s and women’s footwear collections are designed in leather, canvas, mesh, as well as
+other materials. Unltd. by Marc Ecko for boys and Rhino Red for girls sneaker lines primarily
+consist of takedowns from the adult Marc Ecko footwear lines with additional or different colorways
+geared toward children and that reflect the boys’ and girls’ Ecko Unltd. and Ecko Red clothing.
+The licensed brands are sold through select department stores and specialty retailers.
+310 Motoring. The 310 Motoring footwear collection for men utilizes top-quality leathers, a
+fashion-forward approach to design and comfort, and materials that are derived from 310 Motoring’s
+customized cars, including wood burl and carbon fiber. A multi-tiered approach, the line consists
+of high-end and high-design boots and shoes, sophisticated driving-inspired shoes and boots, and
+stylized athletics. 310 Motoring footwear is available in select department stores, specialty
+retailers and urban independents.
+In the last week of 2005, we launched multi-platinum hip hop recording artist The Game’s
+signature 310 sneaker, known as Hurricane by 310, in select specialty athletic stores in one color
+and one style that was followed by five additional colors in 2006. We also introduced the second
+Hurricane shoe in the fourth quarter of 2006. Hurricane sneakers are also available for boys and
+toddlers.
+Michelle K. Targeted toward stylish 18- to 34-year-old women, Michelle K is a signature
+designer line of fashion forward fusion sneakers, sporty boots and sandals. The Michelle K line is
+marked by a unique combination of materials, textures and colors. The line is available in select
+upscale department stores and better boutiques. This brand also includes Michelle K Girl, a
+fashion-forward line, primarily comprised of fusion casual sneakers as well as boots and sandals
+marked by a unique combination of colors, materials, textures and embellishments.
+Mark Nason and Siren by Mark Nason. Mark Nason is a sophisticated and fashion forward footwear
+collection, marketed to style-conscious men, designed to complement designer denim and dress casual
+wear. Primarily crafted and constructed in Italy, the Mark Nason collection is comprised of classic
+and modern boots, shoes and sandals with distinctive profiles and luxurious hand-distressed
+leathers. The Mark Nason line distinguishes itself with high quality individual styling and may
+utilize unique materials such as premium leathers, etched and tattooed leathers, hand-treated,
+hand-scraped and hand-cut leathers, hand-treated leather uppers and soles, snakeskin and eel skin.
+Within the Mark Nason line is Lounge by Mark Nason, which is a collection of high-end
+sport-influenced casuals. Siren by Mark Nason is the ultimate accompaniment to designer denim and
+casual couture for discerning women. The line’s boots are fueled with bold profiles, alluring
+details and distinct textures. Handcrafted in Italy, the boots utilize premium leathers,
+hand-treated details, leather outsoles, and some may include snakeskin and other exotic materials.
+The Mark Nason lines are available in upscale department stores and better boutiques.
+5 
+Table of Contents 
+SoHo Lab. Targeting 16- to 34-year-old trend-savvy females, SoHo Lab is designed to be a more
+fashionable and sophisticated line and is primarily made from higher quality materials and
+leathers. The stylish shoes, boots, heels, flats and sandals are manufactured in Europe and Brazil
+as well as China. This line is typically sold through department and specialty stores.
+Kitson . Launched in the fourth quarter of 2005, Kitson footwear is a line of fashion sneakers
+and sandals targeted to hip and trend-savvy women and girls. A licensed brand, Kitson is an
+ultra-hip Los Angeles boutique known for sparking the hottest and newest trends, and where young
+Hollywood celebrities come to shop. Kitson goods are must-have merchandise, featured in leading
+style and lifestyle magazines. Kitson footwear is available at the Kitson retail boutique, upscale
+department stores and other boutiques.
+Zoo York. Launched in the fourth quarter of 2006, Zoo York footwear is a line of action
+sports and lifestyle footwear for men. Zoo York footwear is designed by Marc Ecko Enterprises and
+borrows from the color palette and trends from Zoo York apparel that targets core skaters and those
+that embrace skate fashion. Zoo York footwear is available in skate and specialty shops as well as
+select athletic and department stores.
+Avirex . Launching in the first quarter of 2007, Avirex footwear is a line of athletic and
+skate-inspired sneakers and slip-ons that appeal to both urban and suburban consumers. Avirex is an
+authentic American-inspired aviation apparel brand with 30-plus years in the fashion industry that
+targets young men and the music community. Avirex footwear is designed by Mark Ecko Enterprises
+and complements Avirex’s apparel, using similar prints and graphics. Avirex footwear is available
+in national department and chain stores, and in select specialty retailers.
+PRODUCT DESIGN AND DEVELOPMENT
+Our principal goal in product design is to generate new and exciting footwear in all of our
+product lines with contemporary and progressive styles and comfort-enhancing performance features.
+Targeted to the active, youthful and style-savvy, we design most new styles to be fashionable and
+marketable to the 12- to 24-year old consumer, while substantially all of our lines appeal to the
+broader range of 5- to 40-year-old consumers, with an exclusive selection for infants and toddlers.
+While many of our shoes have performance features, we generally do not position our shoes in the
+marketplace as technical performance shoes.
+We believe that our products’ success is related to our ability to recognize trends in the
+footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving
+preferences. We are able to quickly translate the latest footwear trends into stylish, quality
+footwear at a reasonable price by analyzing and interpreting current and emerging lifestyle trends.
+Lifestyle trend information is compiled and analyzed by our designers from various sources,
+including the review and analysis of modern music, television, cinema, clothing, alternative sports
+and other trend-setting media; traveling to domestic and international fashion markets to identify
+and confirm current trends; consulting with our retail and e-commerce customers for information on
+current retail selling trends; participating in major footwear trade shows to stay abreast of
+popular brands, fashions and styles; and subscribing to various fashion and color information
+services. In addition, a key component of our design philosophy is to continually reinterpret and
+develop our successful styles in our brand’s image.
+The footwear design process typically begins about nine months before the start of a season.
+Our products are designed and developed primarily by our in-house design staff. To promote
+innovation and brand relevance, we utilize dedicated design teams, who report to our senior design
+executives, and focus on each of the men’s, women’s and children’s categories. In addition, we
+utilize outside design firms on an item-specific basis to supplement our internal design efforts.
+The design process is extremely collaborative, as members of the design staff frequently meet with
+the heads of retail, merchandising, sales, production and sourcing to further refine our products
+to meet the particular needs of the target market.
+After a design team arrives at a consensus regarding the fashion themes for the coming season,
+the designers then translate these themes into our products. These interpretations include
+variations in product color, material structure and embellishments, which are arrived at after
+close consultation with our production department. Prototype blueprints and specifications are
+created and forwarded to our manufacturers for a design prototype. The design prototypes are then
+sent back to our design teams. Our major retail customers may also review these new design
+concepts. Customer input not only allows us to measure consumer reaction to the latest designs, but
+also affords us an opportunity to foster deeper and more collaborative relationships with our
+customers. We also occasionally order limited production runs that may initially be tested in our
+concept stores. By working closely with store personnel, we obtain customer feedback that often
+influences product design and development. Our design teams can easily and quickly modify and
+refine a design based on customer input. Generally, the production process can take six months to
+nine months from design concept to commercialization.
+6 
+Table of Contents 
+SOURCING
+Factories. Our products are produced by independent contract manufacturers located primarily
+in China and, to a lesser extent, in Italy, Vietnam, Brazil and various other countries. We do not
+own or operate any manufacturing facilities as we believe that the use of independent manufacturers
+substantially increases our production flexibility and capacity while reducing capital expenditures
+and avoiding the costs of managing a large production work force.
+When possible, we seek to use manufacturers that have previously produced our footwear, which
+we believe enhances continuity and quality while controlling production costs. We attempt to
+monitor our selection of independent factories to ensure that no one manufacturer is responsible
+for a disproportionate amount of our merchandise. We source product for styles that account for a
+significant percentage of our net sales from at least four different manufacturers. During the year
+ended December 31, 2006, we had four manufacturers that accounted for approximately 59.6% of total
+purchases. One manufacturer accounted for 30.8%, and two others each accounted for over 10.0% of
+our total purchases. To date, we have not experienced difficulty in obtaining manufacturing
+services.
+We finance our production activities in part through the use of interest-bearing open purchase
+arrangements with certain of our Asian manufacturers. These facilities currently bear interest at a
+rate between 0% and 1.5% for 30 to 60 days financing, depending on the factory. We believe that the
+use of these arrangements afford us additional liquidity and flexibility. We do not have any
+long-term contracts with any of our manufacturers; however, we have long-standing relationships
+with many of our manufacturers and believe our relationships to be good.
+We closely monitor sales activity after initial introduction of a product in our concept
+stores to determine whether there is substantial demand for a style, thereby aiding us in our
+sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming
+collections or offered as part of our periodic style offerings, while less popular styles can be
+discontinued after only a limited production run. We believe that sales in our concept stores can
+also help forecast sales in national retail stores, and we share this sales information with our
+wholesale accounts. Sales, merchandising, production and allocations management analyze historical
+and current sales and market data from our wholesale account base and our own retail stores to
+develop an internal product quantity forecast that allows us to better manage our future production
+and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock
+position to minimize the time necessary to fill customer orders by placing orders with our
+manufacturers prior to the time we receive customers’ orders for such footwear.
+Production
+Oversight. To safeguard product quality and consistency, we oversee the key aspects
+of production from initial prototype manufacture through initial production runs to final
+manufacture. Monitoring of all production is performed in the United States by our in-house
+production department and in Asia through an approximately 250-person staff working from our
+offices in China and Taiwan. We believe that our Asian presence allows us to negotiate supplier and
+manufacturer arrangements more effectively, decrease product turnaround time and ensure timely
+delivery of finished footwear. In addition, we require our manufacturers to certify that neither
+convicted, forced or indentured labor (as defined under U.S. law) nor child labor (as defined by
+the manufacturer’s country) is used in the production process, and that compensation will be paid
+according to local law and that the factory is in compliance with local safety regulations.
+Quality Control. We believe that quality control is an important and effective means of
+maintaining the quality and reputation of our products. Our quality control program is designed to
+ensure that not only finished goods meet our established design specifications, but also that all
+goods bearing our trademarks meet our standards for quality. Our quality control personnel located
+in China and Taiwan perform an array of inspection procedures at various stages of the production
+process, including examination and testing of prototypes of key raw materials prior to manufacture,
+samples and materials at various stages of production and final products prior to shipment. Our
+employees are on-site at each of our major manufacturers to oversee production. For some of our
+lower volume manufacturers, our staff is on-site during significant production runs or we will
+perform unannounced visits to their manufacturing sites to further monitor compliance with our
+manufacturing specifications.
+ADVERTISING AND MARKETING
+With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted approach to
+marketing to drive traffic, build brand recognition and properly position our diverse lines within
+the marketplace. Senior management is directly involved in shaping our image and the conception,
+development and implementation of our advertising and marketing activities. The focus of our
+marketing plan is print and television advertising, which is supported by outdoor, trend-influenced
+marketing, public relations, promotions and
+7 
+Table of Contents 
+in-store support. In addition, we utilize celebrity endorsees in our advertisements. We also
+believe our Internet websites and trade shows are effective marketing tools to both consumers and
+corporate accounts. We have historically budgeted advertising as a percentage of projected net
+sales. During 2006, we broadened our marketing campaign which resulted in advertising and marketing
+expenditures equaling 6.9% of our annual net sales, which was higher than the prior year and below
+our targeted range of 8% to 10% of annual net sales.
+Advertising. The majority of our advertising is conceptualized by our in-house design team. We
+believe that our advertising strategies, methods and creative campaigns are directly related to our
+success. Through our lifestyle and image-driven advertising, we generally seek to build and
+increase brand awareness by linking the Skechers brand and our fashion and street brands to
+youthful, contemporary lifestyles and attitudes rather than to market a particular footwear
+product. In addition to our compelling Skechers lifestyle ads, we have also created product
+specific ads for our men’s lines to appeal to men as well as women who purchase footwear for men.
+Our ads are designed with a broad approach to eliminate single categorization and to provide
+merchandise flexibility and to facilitate the “brands and product designs” direction of evolving
+footwear fashions and consumer preferences.
+To further build brand awareness and influence consumer spending, we have selectively signed
+endorsement agreements with celebrities whom we believed would reach new markets. In 2005, we
+signed American Idol winner and rising star Carrie Underwood for a Skechers marketing agreement
+through 2006, and in 2006 we signed pop star Ashlee Simpson to appear in Skechers marketing
+campaigns through 2007. In past years, we had similar endorsement agreements for Skechers with
+singers Christina Aguilera and Britney Spears, professional basketball player and actor Rick Fox,
+and actors Robert Downey, Jr., Matt Dillon and Rob Lowe. From time to time, we may sign other
+celebrities to endorse our brand name and image in order to strategically market our products among
+specific consumer groups in the future.
+In addition to advertising our Skechers branded lines through men’s, women’s and children’s
+ads, we also support Michelle K, Mark Nason, 310 Motoring, Marc Ecko, Zoo York and Avirex lines
+through individual unique print advertisements – some which may include celebrity endorsees. In
+2006, we signed Evangeline Lilly, star of the hit TV show Lost, to appear in Michelle K
+advertisements through 2007. In 2005, we signed critically acclaimed actor Terrence Howard to
+appear in 310 lifestyle advertisements and we signed an agreement with multi-platinum hip hop
+superstar The Game to appear in marketing campaigns in support of his signature 310 shoe Hurricane.
+During 2006, we also signed an endorsement deal with Nas to support a 310 signature shoe. For
+Mark Nason, we have focused on key-selling styles in product-driven ads that captured the brand’s
+essence. For the Marc Ecko footwear brands, Marc Ecko’s design team has created relevant targeted
+ads for men and women. These include a multi-media men’s campaign featuring our graffiti painted
+shoe as well as the first Unltd. by Marc Ecko for boys spot. In 2007, singer/actress JoJo became
+the new face of Rhino Red, and she will appear in print and outdoor advertising and a compelling
+television commercial.
+With a targeted approach, our print ads appear regularly in popular fashion and lifestyle
+consumer publications, such as GQ, Cosmopolitan, Elle, Lucky, In Style, Seventeen, Maxim, Slam,
+Road & Track, and Complex, as well as in weekly publications such as People, Us Weekly, Star,
+Sports Illustrated and InTouch, among others.
+Our television commercials are produced both in-house and through producers we have utilized
+in the past and are familiar with our brands. In 2006, we created product-driven sponsor spots like
+our first animated spot for Skechers Airators as well as lifestyle campaigns for men, women and
+kids. We have found these to be a cost-effective way to advertise during key national and cable
+programming in key selling seasons. Our in-house media buyer strategically selects the ideal
+programs and geographic areas for our commercials for maximum consumer impact.
+Outdoor. In an effort to reach consumers where they shop and in high traffic areas as they
+travel to and from work or while running errands, we continued our multi-level outdoor campaign
+that included kiosks in key malls across the United States, and billboards, transportation systems
+and telephone kiosks in North America and Europe. We believe these are effective and efficient
+ways to reach a broad range of consumers and leave a lasting impression of our many brands.
+Trend-Influenced Marketing/Public Relations. Our public relations team’s objectives are to
+secure product placement in key fashion magazines, place our footwear on the feet of trend-setting
+celebrities, and garner positive and accurate press on our company. Through our commitment to
+aggressively promote our upcoming styles, our products are often featured in leading fashion and
+pop culture magazines, as well as in select films and popular television shows. Our footwear and
+our company have been prominently displayed and referenced on news and magazine shows including The
+Today Show , Good Day L.A., Entertainment Tonight, and E! ; and on television programs, including Law
+& Order, Entourage, and The Big Idea with Donny Deutsch , among others. We have also amassed an
+array of prominent product placements in magazines including Lucky , Seventeen , OK!, Teen Vogue,
+CosmoGirl, InStyle, Stuff, Maxim, Slam, Dime and Footwear News . In addition, our brands have been
+associated with cutting edge events and select
+8 
+Table of Contents 
+celebrities, and our product has been seen worn by trend-setters like Denis Leary, Chris
+Cornell, Debra Messing, Nicole Richie, Ashlee Simpson, The Game, Paris Hilton and Jamie Foxx, among
+others.
+Promotions. By applying creative sales techniques via a broad spectrum of mediums, our
+marketing team seeks to build brand recognition and drive traffic to Skechers’ retail stores,
+websites and our retail partners’ locations. Skechers’ promotional strategies have encompassed
+in-store specials, charity events, product tie-ins and giveaways, and collaborations with national
+retailers and radio stations. Our imaginative promotions are consistent with Skechers’ imaging and
+lifestyle.
+Visual Merchandising. Our in-house visual merchandising team supports wholesale accounts,
+distributors and our retail stores by developing displays that effectively leverage our products at
+the point of purchase. Our point-of-purchase display items include signage, graphics, displays,
+counter cards, banners and other merchandising items. These materials mirror the look and feel of
+our national print advertising in order to reinforce brand image at the point-of-purchase.
+Our visual merchandising coordinators (“VMC’s”) work with our sales force and directly with
+our customers to ensure better sell-through at the retail level by generating greater consumer
+awareness through Skechers brand displays. Our VMC’s communicate with and visit our wholesale
+customers on a regular basis to aid in proper display of our merchandise. They also run in-store
+promotions to enhance the sale of Skechers footwear and create excitement surrounding the Skechers
+brand. We believe that these efforts help stimulate impulse sales and repeat purchases.
+Trade Shows. To better showcase our diverse products to footwear buyers in the United States
+and Europe, and to distributors around the world, we regularly exhibit at leading trade shows.
+Along with specialty trade shows, we exhibit at WSA’s The Shoe Show, FFANY, ASR and MAGIC in the
+United States, and GDS, MICAM, Bread & Butter, MIDEC and Who’s Next in Europe. Our dynamic,
+state-of-the-art trade show exhibits are developed by our in-house architect to showcase our latest
+product offerings in a lifestyle setting reflective of each of our brands. By investing in
+innovative displays and individual rooms showcasing each line, our sales force can present a sales
+plan for each line and buyers are able to truly understand the breadth and depth of our offerings,
+thereby optimizing commitments and sales at the retail level. For select non-Skechers branded lines
+such as Michelle K, 310 Motoring and our Marc Ecko footwear lines, we have created individual
+exhibits to ensure their brand integrity. Our innovative exhibits have won numerous awards over the
+years, including Best Booth Design at the WSA Shoe Show, February 2001 and February 2003, and for
+our Unltd. by Marc Ecko and Rhino Red booth in August 2004 and February 2005.
+Internet. We also promote our brands through our e-commerce websites www.skechers.com 
+and www.soholab.com to consumers who access the Internet. These websites currently enable
+us to present information on our products, provide a brand experience and store locations to
+consumers, and allow consumers the ability to directly order products on the Internet. These sites
+also provide us a mechanism for customer feedback as well as allowing us to receive and respond
+directly to consumer feedback. Our websites are intended to enhance the Skechers brand and increase
+sales through all our retail channels. Similarly, www.soholab.com is an extension of our
+SoHo Lab retail stores and allows us the opportunity to offer consumers our fashion and street
+brands through an e-commerce site. Our websites also allow us to leverage our brand awareness at a
+lower cost than traditional distribution channels.
+Along with www.skechers.com and www.soholab.com , we have also established
+unique Internet websites for our fashion brands Mark Nason ( www.marknason.com ) and 310
+Motoring ( www.310motoring.com ). These websites are designed to serve as marketing tools,
+properly imaging these brands while also informing customers about the respective product lines.
+PRODUCT DISTRIBUTION CHANNELS
+We have four reportable segments – domestic wholesale sales, international wholesale sales,
+retail sales and e-commerce sales. In the United States, our products are available through a
+network of wholesale accounts comprised of department, athletic and specialty stores.
+Internationally, our products are available through wholesale accounts in more than 100 countries
+and territories through our global network of distributors and our Canadian and European
+subsidiaries. Additionally, 15 distributors have opened 52 distributor-owned Skechers retail
+stores in 21 countries as of December 31, 2006. Skechers owns and operates retail stores both
+domestically and internationally through three integrated retail formats—concept, factory outlet
+and warehouse outlet stores. Each of these channels serves an integral function in the global
+distribution of our products.
+Domestic Wholesale. We distribute our footwear through the following domestic wholesale
+distribution channels: department stores, specialty stores, athletic shoe stores and independent
+retailers. Department stores and specialty retailers are the largest distribution channels, but we
+believe that we appeal to a variety of wholesale accounts, many of whom may operate stores within
+the same retail location due to our distinct product lines and variety of styles, from which
+retailers can select those lines and styles that
+9 
+Table of Contents 
+best satisfy the fashion, function and price criteria of their customers. Management has a
+clearly defined growth strategy for each of our channels of distribution. An integral component of
+our strategy is to offer our accounts the highest level of customer service so that our products
+will be fully represented in existing retail locations and new locations within each account.
+In an effort to provide knowledgeable and personalized service to our wholesale accounts, the
+sales force is segregated by product line, each of which is headed by a vice president or national
+sales manager. Reporting to each sales manager are knowledgeable account executives and territory
+managers. Our vice presidents and national sales managers report to a senior vice president of
+sales. All of our vice presidents and national sales managers are compensated on a salary basis,
+while our account executives and territory managers are compensated on a commission basis. None of
+our domestic sales personnel sell competing products.
+We believe that we have developed a loyal customer base of wholesale accounts through a
+heightened level of customer service. We believe that our close relationships with these accounts
+help us to maximize their retail sell-throughs. Our visual merchandise coordinators work with our
+wholesale accounts to ensure that our merchandise and point-of-purchase marketing materials are
+properly presented. Sales executives and merchandise personnel work closely with accounts to ensure
+that appropriate styles are purchased for specific accounts and for specific stores within those
+accounts as well as to ensure that appropriate inventory levels are carried at each store. Such
+information is then utilized to help develop sales projections and determine the product needs of
+our wholesale accounts. The value-added services we provide our wholesale customers help us
+maintain strong relationships with our existing wholesale customers and attract potential new
+wholesale customers.
+International Wholesale. Our products are sold in more than 100 countries and territories
+throughout the world. We generate revenues from outside the United States from three principal
+sources: (i) direct sales to department stores and specialty retail stores through our subsidiaries
+in Canada, France, Germany, Spain, Italy, Portugal, Switzerland, Austria, the Benelux Region and
+the United Kingdom (ii) sales of our footwear to foreign distributors who distribute such footwear
+to department stores and specialty retail stores in countries and territories across Eastern
+Europe, Asia, Latin America, South America, Africa, the Middle East and Australia, among other
+regions and (iii) to a lesser extent, royalties from licensees who manufacture and distribute our
+non-footwear products outside the United States.
+We believe that international distribution of our products represents a significant
+opportunity to increase sales and profits. We intend to further increase our share of the
+international footwear market by heightening our marketing presence in those countries in which we
+currently have a presence through our international advertising campaigns, which are designed to
+establish Skechers as a global brand synonymous with trend-right casual shoes.
+• 
+International Subsidiaries 
+Europe 
+We currently distribute product in most of Western Europe through the following
+subsidiaries: Skechers USA Ltd., with its offices and showrooms in London, England;
+Skechers S.a.r.l., with its offices and showrooms in Lausanne, Switzerland; Skechers USA
+France S.A.S., with its offices and showrooms in Paris, France; Skechers USA Deutschland
+GmbH, with its offices and showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L.,
+with its offices and showrooms in Madrid, Spain; Skechers USA Benelux B.V., with its
+offices and showrooms in Waalwijk, the Netherlands; and Skechers USA Italia S.r.l., with
+its offices and showroom in Verona, Italy.
+Skechers-owned retail stores in Europe include nine concept stores and one factory
+outlet store located in five countries, including the key locations of Oxford Street in
+London, Alstadt District in Düsseldorf and Kalverstraat Street in Amsterdam.
+To accommodate our European subsidiaries’ operations, we operate an approximately
+240,000 square foot distribution center in Liege, Belgium. This distribution center is
+currently used to store and deliver product to our subsidiaries and retail stores
+throughout Europe.
+Canada 
+Merchandising and marketing of our product in Canada is managed by our wholly-owned
+subsidiary, Skechers USA Canada, Inc. with its offices and showrooms outside Toronto in
+Mississauga, Ontario. Product sold in Canada is
+10 
+Table of Contents 
+primarily sourced from our U.S. distribution center in Ontario, California. We have
+two concept stores, one located in Toronto’s Eaton Centre, and one in the West Edmonton
+Mall and one factory outlet store located in Toronto.
+• 
+Distributors 
+Outside of Western Europe and Canada, our footwear is distributed through an extensive
+network of more than 30 distributors, who sell our products to department, athletic and
+specialty stores in more than 100 countries around the world. Through agreements with 14 of
+these distributors, 51 distributor-owned Skechers retail stores are open in 20 countries,
+including 15 stores that were opened in 2006 and one that was opened to date in 2007. Two
+distributor-owned stores were closed in 2006.
+STORE 
+NUMBER OF 
+REGION 
+FORMAT 
+STORES 
+LOCATION (1) 
+Asia 
+Concept
+4 
+Osaka, Japan; Tokyo, Japan; Shanghai, China; Malaysia 
+Warehouse
+4 
+Osaka, Japan (2); Shizuoka, Japan; Tochigi-ken, Japan 
+Australia 
+Concept
+1 
+Sydney, Australia 
+Warehouse
+1 
+Sydney, Australia 
+Central America/South 
+America 
+Concept
+26 
+Chile (7); Columbia (6); Ecuador; El Salvador;
+Guatemala (2); Panama (2); Peru; Venezuela (6) 
+Western Europe 
+Concept
+6 
+Spain (6) 
+Eastern Europe 
+Concept
+4 
+Moscow, Russia (2); Kiev, Ukraine; Poland 
+Middle East 
+Concept
+4 
+Saudi Arabia (3); Dubai, UAE 
+South Africa 
+Concept
+1 
+Sandton, South Africa 
+(1) 
+One store per location except as otherwise noted. 
+The distributors are responsible for their respective store’s operations, have ownership
+of their respective store’s assets and select the broad collection of our products to sell to
+consumers in their regions. In order to maintain a globally consistent image, we provide
+architectural, graphic and visual guidance and materials for the design of the stores, and we
+train the local staff on our products and corporate culture. We intend to expand our
+international presence and global recognition of the Skechers brand name by continuing to
+sell our footwear to foreign distributors and by opening flagship retail stores with
+distributors that have local market expertise.
+Retail Stores. We pursue our retail store strategy through our three integrated retail
+formats: the concept store, the factory outlet store and the warehouse outlet store. Our
+three-store format enables us to promote the full Skechers product offering in an attractive
+environment that appeals to a broad group of consumers. In addition to Skechers stores, we also
+operate SoHo Lab concept stores, which are designed to specifically promote our SoHo Lab and other
+fashion brands as well as more fashionable Skechers styles. This format also allows us to manage
+our inventory in an efficient and brand sensitive manner. In addition, most of our retail stores
+are profitable and have a positive effect on our operating results. As of February 28, 2007, we
+owned and operated 50 concept stores, 61 factory outlet stores and 33 warehouse outlet stores in
+the United States, and 10 concept stores and two factory outlet stores internationally. We closed
+three stores and opened 23 new stores in 2006. We opened four new stores in the first two months
+of 2007, while closing one store in Germany, and we plan to open an additional 20 to 25 stores by
+the end of 2007. In addition, we own and operate six SoHo Lab concept stores, including four
+that opened in 2006.
+• 
+Concept Stores. 
+Our concept stores are located at either marquee street locations or in major shopping
+malls in large metropolitan cities. Our concept stores have a threefold purpose in our
+operating strategy. First, concept stores serve as a showcase for a wide range of our product
+offering for the current season as we estimate that our average wholesale customer carries no
+more than 5% of the complete Skechers line in any one location. Our concept stores showcase
+our products in a cutting-edge, open-floor setting, providing the customer with the complete
+Skechers story. Second, retail locations are generally chosen to generate maximum marketing
+value for the Skechers brand name through signage, store front presentation and interior
+design. Domestic locations include concept stores at Times Square and 34th Street in New
+York, Hollywood and Highland in Hollywood, Santa Monica’s Third Street Promenade, Dallas’
+Northpark Center, Las Vegas’ Fashion Show Mall, Seattle’s
+11 
+Table of Contents 
+Bellevue Square Mall, Woodfield Mall outside Chicago and international locations include
+Oxford Street in London, Alstadt District in Dusseldorf, Toronto’s Eaton Centre, and
+Kalverstraat Street in Amsterdam. The stores are typically designed to create a distinctive
+Skechers look and feel, and enhance customer association of the Skechers brand name with
+current youthful lifestyle trends and styles. Third, the concept stores serve as marketing
+and product testing venues. We believe that product sell-through information and rapid
+customer feedback derived from our concept stores enables our design, sales, merchandising
+and production staff to respond to market changes and new product introductions. Such
+responses serve to augment sales and limit our inventory markdowns and customer returns and
+allowances. We opened 13 domestic concept stores, one international concept store and closed
+one domestic concept store in 2006.
+The typical Skechers concept store is approximately 2,500 square feet, although in
+certain markets we have opened concept stores as large as 6,400 square feet or as small as
+1,200 square feet. When deciding where to open concept stores, we identify top geographic
+markets in the larger metropolitan cities in the United States, Europe and Canada. When
+selecting a specific site, we evaluate the proposed sites’ traffic pattern, co-tenancies,
+sales volume of neighboring concept stores, lease economics and other factors considered
+important within the specific location. If we are considering opening a concept store in a
+shopping mall, our strategy is to obtain space as centrally located as possible in the mall
+where we expect foot traffic to be most concentrated. We believe that the strength of the
+Skechers brand name has enabled us to negotiate more favorable terms with shopping malls that
+want us to open up concept stores to attract customer traffic to their venues.
+In an effort to market and test our non-Skechers brands, we opened a new concept format
+store, SoHo Lab. In 2004, we converted an existing Skechers concept store in New York’s SoHo
+district to the new format. In 2005, we converted two additional Skechers concept stores in
+urban and/or fashion locations to SoHo Lab stores. In 2006, we opened four more SoHo Lab
+locations built from the ground up, including San Diego’s Gas Lamp District. We also
+converted one SoHo Lab store back to a Skechers concept store in 2006, bringing our total for
+this concept to six. These stores may also include more fashion forward Skechers styles.
+• 
+Factory Outlet Stores. 
+Our factory outlet stores are generally located in manufacturers’ direct outlet centers
+throughout the United States. In addition, we have two international outlet stores – one in
+Canada and one in England. Our factory outlet stores provide opportunities for us to sell
+discontinued and excess merchandise, thereby reducing the need to sell such merchandise to
+discounters at excessively low prices, which could otherwise compromise the Skechers brand
+image. Skechers’ factory outlet stores range in size from approximately 1,900 to 9,000 square
+feet. Inventory in these stores is supplemented by certain first-line styles sold at full
+retail price points. We opened eight domestic factory outlet stores in 2006.
+• 
+Warehouse Outlet Stores. 
+Our free-standing warehouse outlet stores, which are located throughout the United
+States, enable us to liquidate excess merchandise, discontinued lines and odd-size inventory
+in a cost-efficient manner. Skechers’ warehouse outlet stores range in size from
+approximately 5,200 to 14,800 square feet. Our warehouse outlet stores enable us to sell
+discontinued and excess merchandise that would otherwise typically be sold to discounters at
+excessively low prices, which could otherwise compromise the Skechers brand image. We seek to
+open our warehouse outlet stores in areas that are in close proximity to our concept stores
+in order to facilitate the timely transfer of inventory that we want to liquidate as soon as
+practicable. We opened one new warehouse outlet store in 2006.
+Electronic Commerce. Our e-commerce sales represented less than 1.0% of total net sales in
+each of 2006, 2005 and 2004. Our websites, www.skechers.com and www.soholab.com are
+virtual storefronts that promote the Skechers and street and fashion brands. Our websites are
+designed to provide a positive shopping and brand experience, showcasing our products in an
+easy-to-navigate format, allowing consumers to browse our selections and purchase our footwear.
+This virtual store has provided a convenient alternative-shopping environment and brand experience.
+These websites have become an efficient and effective additional retail distribution channel, and
+have improved our customer service.
+LICENSING
+We believe that selective licensing of the Skechers brand name and our product line names to
+manufacturers may broaden and enhance the individual brands without requiring significant capital
+investments or additional incremental operating expenses. Our multiple product lines plus
+additional subcategories present many potential licensing opportunities on terms with licensees
+that we
+12 
+Table of Contents 
+believe will provide more effective manufacturing, distribution or marketing of non-footwear
+products. We also believe that the reputation of Skechers and its history in launching brands has
+also enabled us to partner with reputable non-footwear brands in order to design and market their
+footwear.
+The first launch of Skechers licensed product was Skechers Kids apparel for boys and girls
+from the licensee, Kids Headquarters, in the United States for the 2003 back-to-school selling
+season. Due to the successful in-store launch of Skechers Kids, we expanded our licensing agreement
+with Kids Headquarters to include infant and toddler apparel, boys’ and girls’ daywear and
+sleepwear, and swimwear for boys and girls.
+As of February 28, 2007, we had 10 active domestic and international licensing agreements in
+which we are the licensor. We have international licensing agreements for the design and
+distribution of men’s and women’s active apparel in Israel; men’s and women’s apparel in select
+European countries; bags in select Central and South American countries; watches in the
+Philippines, and bags in China.
+We have signed agreements to design, develop and market footwear for the street lifestyle
+apparel brands, Ecko Unltd., Ecko Red, Red by Marc Ecko, Zoo York and Avirex under the Marc Ecko
+Enterprises umbrella, and apparel and footwear for Kitson, the ultra-hip Hollywood boutique.
+DISTRIBUTION FACILITIES AND OPERATIONS
+We believe that strong distribution support is a critical factor in our operations. Once
+manufactured, our products are packaged in shoe boxes bearing bar codes that are shipped either (i)
+to our approximately 1.7 million square-foot distribution centers located in
+Ontario, California, (ii) to our approximately 240,000 square-foot distribution center located in
+Liege, Belgium or (iii) directly from third-party manufacturers to our other international
+customers. Upon receipt at either of the distribution centers, merchandise is inspected and
+recorded in our management information system and packaged according to customers’ orders for
+delivery. Merchandise is shipped to customers by whatever means each customer requests, which is
+usually by common carrier. The distribution centers have multi-access docks, enabling us to receive
+and ship simultaneously, and to pack separate trailers for shipments to different customers at the
+same time. We have an electronic data interchange system, or EDI system, to which some of our
+larger customers are linked. This system allows these customers to automatically place orders with
+us, thereby eliminating the time involved in transmitting and inputting orders, and it includes
+direct billing and shipping information.
+BACKLOG
+As of December 31, 2006, our backlog was $322.9 million, compared to $250.5 million as of
+December 31, 2005. While backlog orders are subject to cancellation by customers, we have not
+experienced significant cancellation of orders in the past, and we expect that substantially all
+the orders will be shipped in 2007. However, for a variety of reasons, including customer demand
+for our products, the timing of shipments, product mix of customer orders, the amount of in-season
+orders and a shift towards tighter lead times within backlog levels, backlog may not be a reliable
+measure of future sales for any succeeding period.
+INTELLECTUAL PROPERTY RIGHTS
+We own and utilize a variety of trademarks, including the Skechers trademark. We have a
+significant number of both registrations and pending applications for our trademarks in the United
+States. In addition, we have trademark registrations and trademark applications in approximately 80
+foreign countries. We also have design patents and pending design and utility patent applications
+in both the United States and approximately 25 foreign countries. We continuously look to increase
+the number of our patents and trademarks both domestically and internationally where necessary to
+protect valuable intellectual property. We regard our trademarks and other intellectual property as
+valuable assets and believe that they have significant value in the marketing of our products. We
+vigorously protect our trademarks against infringement, including through the use of cease and
+desist letters, administrative proceedings and lawsuits.
+We rely on trademark, patent, copyright and trade secret protection, non-disclosure agreements
+and licensing arrangements to establish, protect and enforce intellectual property rights in our
+logos, tradenames and in the design of our products. In particular, we believe that our future
+success will largely depend on our ability to maintain and protect the Skechers trademark. Despite
+our efforts to safeguard and maintain our intellectual property rights, we cannot be certain that
+we will be successful in this regard. Furthermore, we cannot be certain that our trademarks,
+products and promotional materials or other intellectual property rights do not or will not violate
+the intellectual property rights of others, that our intellectual property would be upheld if
+challenged, or that we would, in such an
+13 
+Table of Contents 
+event, not be prevented from using our trademarks or other intellectual property rights. Such
+claims, if proven, could materially and adversely affect our business, financial condition and
+results of operations. In addition, although any such claims may ultimately prove to be without
+merit, the necessary management attention to and legal costs associated with litigation or other
+resolution of future claims concerning trademarks and other intellectual property rights could
+materially and adversely affect our business, financial condition and results of operations. We
+have sued and have been sued by third parties for infringement of intellectual property. It is our
+opinion that none of these claims has materially impaired our ability to utilize our intellectual
+property rights.
+The laws of certain foreign countries do not protect intellectual property rights to the same
+extent or in the same manner as do the laws of the United States. Although we continue to implement
+protective measures and intend to defend our intellectual property rights vigorously, these efforts
+may not be successful or the costs associated with protecting our rights in certain jurisdictions
+may be prohibitive. From time to time we discover products in the marketplace that are counterfeit
+reproductions of our products or that otherwise infringe upon intellectual property rights held by
+us. Actions taken by us to establish and protect our trademarks and other intellectual property
+rights may not be adequate to prevent imitation of our products by others or to prevent others from
+seeking to block sales of our products as violating trademarks and intellectual property rights. If
+we are unsuccessful in challenging a third party’s products on the basis of infringement of our
+intellectual property rights, continued sales of such products by that or any other third party
+could adversely impact the Skechers brand, result in the shift of consumer preferences away from
+our products and generally have a material adverse effect on our business, financial condition and
+results of operations.
+COMPETITION
+Competition in the footwear industry is intense. Although we believe that we do not compete
+directly with any single company with respect to its entire range of products, our products compete
+with other branded products within their product category as well as with private label products
+sold by retailers, including some of our customers. Our utility footwear and casual shoes compete
+with footwear offered by companies such as The Timberland Company, Dr. Martens, Kenneth Cole
+Productions Inc., Steven Madden, Ltd., Wolverine World Wide, Inc., V.F. Corporation, and CROCS,
+Inc. Our athletic lifestyle shoes compete with footwear offered by companies such as Nike, Inc.,
+Reebok International Ltd., Adidas-Salomon AG, Puma AG and New Balance Athletic Shoe, Inc. Our
+children’s shoes compete with footwear offered by companies such as The Stride Rite Corporation. In
+varying degrees, depending on the product category involved, we compete on the basis of style,
+price, quality, comfort and brand name prestige and recognition, among other considerations. These
+and other competitors pose challenges to our market share in our major domestic markets and may
+make it more difficult to establish our products in Europe, Asia and other international regions.
+We also compete with numerous manufacturers, importers and distributors of footwear for the limited
+shelf space available for the display of such products to the consumer. Moreover, the general
+availability of contract manufacturing capacity allows ease of access by new market entrants. Many
+of our competitors are larger, have been in existence for a longer period of time, have achieved
+greater recognition for their brand names, have captured greater market share and/or have
+substantially greater financial, distribution, marketing and other resources than we do. We cannot
+be certain that we will be able to compete successfully against present or future competitors, or
+that competitive pressures will not have a material adverse effect on our business, financial
+condition and results of operations.
+EMPLOYEES
+As of February 28, 2007, we employed 3,628 persons, 1,982 of whom were employed on a full-time
+basis and 1,646 of whom were employed on a part-time basis. None of our employees are subject to a
+collective bargaining agreement. We believe that our relations with our employees are satisfactory.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2006/0000950124-07-001540/item13.txt b/raw/filings/0001065837/2006/0000950124-07-001540/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6224e0ba8e3e593c629215adbe0a12f16d8f6f77
--- /dev/null
+++ b/raw/filings/0001065837/2006/0000950124-07-001540/item13.txt
@@ -0,0 +1,5 @@
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE 
+The information required by this Item 13 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2006 fiscal year.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2006/0000950124-07-001540/item9a.txt b/raw/filings/0001065837/2006/0000950124-07-001540/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..208dd4e30a7fc640b27889558205e9e3552f6738
--- /dev/null
+++ b/raw/filings/0001065837/2006/0000950124-07-001540/item9a.txt
@@ -0,0 +1,68 @@
+ITEM 9A. 
+CONTROLS AND PROCEDURES 
+Attached as exhibits to this annual report on Form 10-K are certifications of our Chief
+Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance
+with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This
+“Controls and Procedures” section includes information concerning the controls and controls
+evaluation referred to in the certifications.
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
+The term “disclosure controls and procedures” refers to the controls and other procedures of a
+company that are designed to provide reasonable assurance that information required to be disclosed
+by a company in the reports that it files or submits under the Exchange Act, is recorded,
+processed, summarized and reported within required time periods. We have established disclosure
+controls and procedures to ensure that material information relating to Skechers and its
+consolidated subsidiaries is made known to the officers who certify our financial reports, as well
+as other members of senior management and the Board of Directors, to allow timely decisions
+regarding required disclosures. As of the end of the period covered by this annual report on Form
+10-K, we carried out an evaluation under the supervision and with the participation of our
+management, including our CEO and CFO, of the effectiveness of the design and operation of our
+disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that
+evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective.
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
+Our management is responsible for establishing and maintaining adequate internal control over
+financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal
+control over financial reporting includes those policies and procedures that (i)
+63 
+Table of Contents 
+pertain to the maintenance of records that, in reasonable detail, accurately and fairly
+reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that
+transactions are recorded as necessary to permit preparation of financial statements in accordance
+with generally accepted accounting principles, and that our receipts and expenditures are being
+made only in accordance with authorizations of our management and directors; and (iii) provide
+reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
+disposition of our assets that could have a material effect on our financial statements.
+We conducted an evaluation of the effectiveness of our internal control over financial
+reporting based on the framework in Internal Control – Integrated Framework issued by the Committee
+of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the
+framework in Internal Control- Integrated Framework, our management has concluded that as of
+December 31, 2006, our internal control over financial reporting is effective.
+Our independent registered public accountants, KPMG LLP, audited the financial statements
+included in this annual report on Form 10-K and have issued an attestation report on management’s
+assessment of, and the effectiveness of our internal control over financial reporting as of
+December 31, 2006, which is included in Part II, Item 8 of this annual report on Form 10-K.
+INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
+Our management, including our Chief Executive Officer and Chief Financial Officer, does
+not expect that our disclosure controls and procedures or our internal control over financial
+reporting will prevent or detect all error and all fraud. A control system, no matter how well
+designed and operated, can provide only reasonable, not absolute, assurance that the control
+system’s objectives will be met. The design of a control system must reflect the fact that there
+are resource constraints, and the benefits of controls must be considered relative to their costs.
+Further, because of the inherent limitations in all control systems, no evaluation of controls can
+provide absolute assurance that misstatements due to error or fraud will not occur or that all
+control issues and instances of fraud, if any, within the company have been detected. These
+inherent limitations include the realities that judgments in decision-making can be faulty and that
+breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the
+individual acts of some persons, by collusion of two or more people, or by management override of
+the controls. The design of any system of controls is based in part on certain assumptions about
+the likelihood of future events, and there can be no assurance that any design will succeed in
+achieving its stated goals under all potential future conditions. Projections of any evaluation of
+controls effectiveness to future periods are subject to risks. Over time, controls may become
+inadequate because of changes in conditions or deterioration in the degree of compliance with
+policies or procedures.
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
+There were no significant changes to our internal controls over financial reporting that have
+materially affected, or are reasonably likely to materially affect, our internal controls over
+financial reporting during the fourth quarter of 2006, we have completed our efforts regarding
+compliance with Section 404 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2006.
+The results of our evaluation are discussed above in Management’s Report on Internal Control Over
+Financial Reporting.
\ No newline at end of file
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index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001065837/2006/0000950124-07-001540/rpt_disclosure.txt b/raw/filings/0001065837/2006/0000950124-07-001540/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..dc939db48d93debaa19a641001f9e6a15357adb8
--- /dev/null
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@@ -0,0 +1,96 @@
+transactions with Related Persons that require the
+Committee’s approval. If advance approval by the Audit
+Committee of a transaction with a Related Person is not
+feasible, then the transaction shall be considered and, if the
+Committee determines it to be appropriate, ratified at the
+Committee’s next regularly scheduled meeting. Factors that
+the Audit Committee will take into account include whether the
+transaction with a Related Person is on terms no less favorable
+than terms generally available to an unaffiliated third-party
+under the same or similar circumstances and the extent of the
+Related Person’s interest in the transaction. No Audit
+Committee member shall participate in any discussion or approval
+of a transaction with a Related Person pursuant to which he is a
+Related Person except for providing material information
+concerning the transaction. For those transactions with a
+Related Person that are ongoing, the Audit Committee, on at
+least an annual basis, shall review and assess ongoing
+relationships with the Related Person to determine that the
+Related Person remains appropriate.
+The following list of transactions with Related Persons includes
+all such transactions that took place since January 1,
+2006, which were identified by the Audit Committee, and each of
+these transactions was reviewed, and approved or ratified by the
+Audit Committee, pursuant to the policies and procedures
+discussed herein.
+Related
+Person Transactions 
+As of March 31, 2007, Robert Greenberg, who is our Chairman
+of the Board and Chief Executive Officer, his children and the
+Greenberg Family Trust beneficially own 99.7% of our
+Class B Common Stock and approximately 80.4% of the
+combined voting power of our Class A and Class B
+Common Stock. By virtue of this stock ownership, Robert
+Greenberg may be deemed to be a “control person” of
+Skechers within the meaning of the rules and regulations
+promulgated under the Securities Act of 1933, as amended, and
+the Greenberg Family Trust influences
+40
+Table of Contents 
+the election of Robert Greenberg. Michael Greenberg, who is our
+President, and Jeffrey Greenberg, both of whom are members of
+our Board of Directors, are each beneficiaries of the Greenberg
+Family Trust. Additionally, Robert Greenberg, directly and
+indirectly through the Greenberg Family Trust, beneficially owns
+approximately 61.5% of the combined voting power of our
+Class A and Class B Common Stock. As a result, we are
+considered a “Controlled Company” under the NYSE Rules
+and are thereby exempt from certain listing requirements and
+regulations as set forth in the NYSE Rules.
+Shares of our Class A Common Stock issuable upon conversion
+of shares of Class B Common Stock held by the Greenberg
+Family Trust and Michael Greenberg are subject to certain
+registration rights. We entered into a registration rights
+agreement with the Greenberg Family Trust and Michael Greenberg
+pursuant to which we agreed that we will, on up to two separate
+occasions per year, register up to one-third of the shares of
+our Class A Common Stock issuable upon conversion of their
+shares of Class B Common Stock beneficially owned as of the
+closing of our initial public offering of Class A Common
+Stock by each such stockholder in any one year, provided, among
+other conditions, that the underwriters of any such offering
+have the right to limit the number of shares included in such
+registration. We also agreed that, if it shall cause to be filed
+with the SEC a registration statement, each such stockholder
+shall have the right to include up to one-third of the shares of
+our Class A Common Stock issuable upon conversion of their
+shares of Class B Common Stock beneficially owned as of the
+closing of our initial public offering of Class A Common
+Stock by each of them in such registration statement provided,
+among other conditions, that the underwriters of any such
+offering have the right to limit the number of shares included
+in such registration. All expenses of such registrations shall
+be at our expense.
+Michael Greenberg owns a 12% beneficial ownership interest in
+Manhattan Inn Operating Company, LLC (“MIOC”), the
+primary business of which is to own and operate the Shade Hotel,
+which opened in Manhattan Beach, California in November 2005.
+Michael Greenberg, David Weinberg, who is our Chief Operating
+Officer, Executive Vice President and a member of our Board of
+Directors, and Michael Greenberg’s brothers Jeffrey
+Greenberg, who is a director of Skechers, and Jason and Joshua
+Greenberg, all of whom are senior vice presidents of Skechers,
+own in aggregate a 17% beneficial ownership interest in MIOC.
+During 2006, we paid approximately $177,000 to the Shade Hotel
+for lodging, food and events that were held there including our
+annual holiday party.
+Jeffrey Greenberg, Jason Greenberg and Joshua Greenberg, who are
+the children of Robert Greenberg and also the siblings of
+Michael Greenberg, are non-executive employees of Skechers, and
+they earned total compensation of $641,218, $660,273 and
+$625,193, respectively, in 2006. Jeffrey Greenberg was also a
+member of our Board of Directors in 2006, but did not earn any
+additional compensation for services provided as a director.
+41
+Table of Contents 
+NOMINATIONS
\ No newline at end of file
diff --git a/raw/filings/0001065837/2007/0000950124-08-000975/filing.txt b/raw/filings/0001065837/2007/0000950124-08-000975/filing.txt
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@@ -0,0 +1,5288 @@
+10-K
+1
+v38308e10vk.htm
+FORM 10-K
+Skechers U.S.A., Inc. 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+WASHINGTON, D.C. 20549 
+FORM 10-K 
+(Mark One) 
+þ 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31, 2007 
+OR 
+o 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 
+For the transition period from to 
+Commission File Number 001-14429 
+SKECHERS U.S.A., INC. 
+(Exact Name of Registrant as Specified in Its Charter) 
+Delaware 
+95-4376145 
+(State or Other Jurisdiction of Incorporation or Organization) 
+(I.R.S. Employer Identification No.) 
+228 Manhattan Beach Blvd., Manhattan Beach, California 
+90266 
+(Address of Principal Executive Offices) 
+(Zip Code) 
+Registrant’s telephone number, including area code: (310) 318-3100 
+Securities registered pursuant to Section 12(b) of the Act: 
+Name of Each Exchange on 
+Title of Each Class 
+Which Registered 
+Class A Common Stock, $0.001 par value
+New York Stock Exchange 
+Securities registered pursuant to Section 12(g) of the Act: 
+None
+(Title of Class) 
+Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of
+the Securities Act. Yes þ No o 
+Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or
+Section 15(d) of the Act. Yes o No þ 
+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 þ No o 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§
+229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge,
+in definitive proxy or information statements incorporated by reference in Part III of this Form
+10-K or any amendment to this Form 10-K. þ 
+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 the definitions of “large
+accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 
+Large accelerated filer þ 
+Accelerated filer o 
+Non-accelerated filer o 
+(Do not check if a smaller reporting company) 
+Smaller reporting company o 
+Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
+Exchange Act). Yes o No þ 
+As of June 30, 2007, the aggregate market value of the voting and non-voting Class A and Class B
+Common Stock held by non-affiliates of the Registrant was approximately $957 million based upon the
+closing price of $29.20 of the Class A Common Stock on the New York Stock Exchange on such date.
+The number of shares of Class A Common Stock outstanding as of February 15, 2008: 33,009,788. 
+The number of shares of Class B Common Stock outstanding as of February 15, 2008: 12,851,789.
+DOCUMENTS INCORPORATED BY REFERENCE 
+Portions of the Registrant’s Definitive Proxy Statement issued in connection with the 2008 Annual
+Meeting of the Stockholders of the Registrant are incorporated by reference into Part III.
+SKECHERS U.S.A., INC. 
+TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K 
+FOR THE YEAR ENDED DECEMBER 31, 2007 
+PART I 
+ITEM 1. BUSINESS 
+2 
+ITEM 1A. RISK FACTORS 
+14 
+ITEM 1B. UNRESOLVED STAFF COMMENTS 
+20 
+ITEM 2. PROPERTIES 
+20 
+ITEM 3. LEGAL PROCEEDINGS 
+20 
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
+20 
+PART II 
+ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
+ISSUER PURCHASES OF EQUITY SECURITIES 
+21 
+ITEM 6. SELECTED FINANCIAL DATA 
+23 
+ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
+OF OPERATION 
+24 
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+35 
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+36 
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
+DISCLOSURE 
+60 
+ITEM 9A. CONTROLS AND PROCEDURES 
+60 
+ITEM 9B. OTHER INFORMATION 
+61 
+PART III 
+ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 
+63 
+ITEM 11. EXECUTIVE COMPENSATION 
+63 
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
+RELATED STOCKHOLDER MATTERS 
+63 
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 
+63 
+ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 
+63 
+PART IV 
+ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 
+63 
+EXHIBIT 10.3 
+EXHIBIT 10.15(b) 
+EXHIBIT 10.16(b) 
+EXHIBIT 10.16(c) 
+EXHIBIT 10.16(d) 
+EXHIBIT 21.1 
+EXHIBIT 23.1 
+EXHIBIT 31.1 
+EXHIBIT 31.2 
+EXHIBIT 32.1 
+i 
+Table of Contents 
+SPECIAL NOTE ON FORWARD LOOKING STATEMENTS 
+This annual report on Form 10-K contains forward-looking statements that are made pursuant to
+the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including
+statements with regards to future revenue, projected 2008 results, earnings, spending, margins,
+cash flow, orders, expected timing of shipment of products, inventory levels, future growth or
+success in specific countries, categories or market sectors, continued or expected distribution to
+specific retailers, liquidity, capital resources and market risk, strategies and objectives.
+Forward-looking statements include, without limitation, any statement that may predict, forecast,
+indicate or simply state future results, performance or achievements of our company, and can be
+identified by the use of forward looking language such as “believe,” “anticipate,” “expect,”
+“estimate,” “intend,” “plan,” “project,” “will be,” “will continue,” “will result,” “could,” “may,”
+“might,” or any variations of such words with similar meanings. Any such statements are subject to
+risks and uncertainties that could cause actual results to differ materially from those which are
+management’s current expectations or forecasts. Such information is subject to the risk that such
+expectations or forecasts, or the assumptions underlying such expectations or forecasts, become
+inaccurate.
+Risk factors include but are not limited to the following: international, national and local
+general economic, political and market conditions; intense competition among sellers of footwear
+for consumers; changes in fashion trends and consumer demands; popularity of particular designs and
+categories of products; the level of sales during the spring, back-to-school and holiday selling
+seasons; the ability to anticipate, identify, interpret or forecast changes in fashion trends,
+consumer demand for our products and the various market factors described above; the ability of our
+company to maintain its brand image; the ability to sustain, manage and forecast our company’s
+growth and inventories; the ability to secure and protect trademarks, patents and other
+intellectual property; the loss of any significant customers, decreased demand by industry
+retailers and cancellation of order commitments; potential disruptions in manufacturing related to
+overseas sourcing and concentration of production in China, including, without limitation,
+difficulties associated with political instability in China, increases in labor or raw material
+costs, the occurrence of prolonged adverse weather conditions, a natural disaster or outbreak of a
+pandemic disease in China, or electrical shortages, labor shortages or work stoppages that may lead
+to higher production costs, production delays and/or transportation delays; changes in monetary
+controls and valuations of the Yuan by the Chinese government; increased costs of freight and
+transportation to meet delivery deadlines; violation of labor or other laws by our independent
+contract manufacturers, suppliers or licensees; potential imposition of additional duties, tariffs
+or other trade restrictions; business disruptions resulting from natural disasters such as an
+earthquake due to the location of our company’s domestic warehouse, headquarters and a substantial
+number of retail stores in California; changes in business strategy or development plans; changes
+in economic conditions that could affect the Company’s ability to open retail stores in new markets
+and/or the sales performance of the Company’s existing stores; the ability to attract and retain
+qualified personnel; the disruption, expense and potential liability associated with existing or
+unanticipated future litigation; and other factors referenced or incorporated by reference in this
+report and other reports that we filed with the United States Securities and Exchange Commission
+(the “SEC”).
+The risks included here are not exhaustive. Other sections of this report may include
+additional factors that could adversely impact our business and financial performance. Moreover, we
+operate in a very competitive and rapidly changing environment. New risk factors emerge from time
+to time and we cannot 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. Moreover, reported results shall not be considered
+an indication of our company’s future performance. Investors should also be aware that while we
+do, from time to time, communicate with securities analysts, we do not disclose any material
+non-public information or other confidential commercial information to them. Accordingly,
+individuals should not assume that we agree with any statement or report issued by any analyst,
+regardless of the content of the report. Thus, to the extent that reports issued by securities
+analysts contain any projections, forecasts or opinions, such reports are not our responsibility.
+1 
+Table of Contents 
+PART I 
+ITEM 1. BUSINESS 
+We were incorporated in California in 1992 and reincorporated in Delaware in 1999. Throughout
+this annual report, we refer to Skechers U.S.A., Inc., a Delaware corporation, and its consolidated
+subsidiaries as “we,” “us,” “our,” “our company” and “Skechers” unless otherwise indicated. Our
+Internet website address is www.skechers.com . Our annual report on Form 10-K, quarterly reports on
+Form 10-Q, current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of directors,
+officers and 10% stockholders, and any amendments to those reports filed or furnished pursuant to
+Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our
+website as soon as reasonably practicable after we electronically file such material with, or
+furnish it to, the SEC. You can learn more about us by reviewing such filings on our website or at
+the SEC’s website at www.sec.gov .
+GENERAL
+We design and market Skechers-branded contemporary footwear for men, women and children under
+several unique lines. Our footwear reflects a combination of style, quality and value that appeals
+to a broad range of consumers. In addition to Skechers-branded lines, we also offer eight uniquely
+branded designer, fashion and street-focused footwear lines for men, women and children. These
+lines are branded and marketed separately from Skechers and appeal to specific audiences. Our
+brands are sold through department stores, specialty stores, athletic retailers, and boutiques as
+well as our e-commerce website and our own retail stores. We operate 70 concept stores, 72 factory
+outlet stores and 35 warehouse outlet stores in the United States, and 14 concept stores and two
+factory outlets internationally. Our objective is to profitably grow our operations worldwide
+while leveraging our recognizable Skechers brand through our strong product lines, innovative
+advertising and diversified distribution channels.
+We seek to offer consumers a vast array of fashionable footwear that satisfies their active,
+casual, dress casual and dress footwear needs. Our core consumers are style-conscious 12 to 24
+year-old men and women attracted to our youthful brand image and fashion forward designs. Many of
+our best-selling and core styles are also developed for children with colors and materials that
+reflect a playful image appropriate for this demographic.
+We believe that brand recognition is an important element for success in the footwear
+business. We have aggressively promoted our brands through comprehensive marketing campaigns for
+men, women and children. During 2007, we continued our celebrity driven ads with platinum
+recording artist Ashlee Simpson as our Skechers celebrity endorsee. We also developed television
+campaigns for our men’s, women’s and children’s lines, including our first animated campaign for
+Airators by Skechers and Cali Gear from Skechers. In 2007, our marketing for children focused on
+television spots, while our adult efforts utilized television, print and outdoor. Select fashion
+brands including Marc Ecko Footwear are supported by television commercials. Our Unltd. by Marc
+Ecko Rhino Red and Zoo York footwear lines are also supported through print ads developed by Marc
+Ecko. The Red by Marc Ecko line was also supported by print and television campaigns featuring
+platinum recording artist and actress JoJo, and High School Musical stars Ashley Tisdale and
+Vanessa Hudgens.
+Since we introduced our first line, Skechers USA Sport Utility Footwear, in December 1992, we
+have expanded our product offering and grown our net sales while substantially increasing the
+breadth and penetration of our account base. Our men’s, women’s and children’s Skechers-branded
+product lines benefit from the Skechers reputation for contemporary and progressive styling,
+quality, comfort and affordability. Our lines that are not branded with the Skechers name benefit
+from our marketing support, quality management and expertise. To promote innovation and brand
+relevance, we manage our product lines separately by utilizing dedicated sales and design teams.
+Our product lines share back office services in order to limit our operating expenses and fully
+utilize our management’s vast experience in the footwear industry.
+SKECHERS LINES
+Skechers USA. Our Skechers USA category for men and women includes five types of footwear: (i)
+Casuals, (ii) Dress Casuals, (iii) Comfort and Lightweight (for men only), (iv) Outdoor (for men
+only) (v) Sandals and (vi) Casual Fusion. This category is generally sold through mid-tier
+retailers, department stores and some footwear specialty shops.
+• 
+The Casuals line for men and women is defined by lugged outsoles and utilizes
+value-oriented and leather materials in the uppers. For men, the Casuals category includes
+“black and brown” boots, shoes and sandals that generally have a rugged urban design — some
+with industrial-inspired fashion features. For women, the Casuals category includes basic
+“black and brown” 
+2 
+Table of Contents 
+oxfords and slip-ons, lug outsole boots, and casual sandals. We design and price both the
+men’s and women’s categories to appeal primarily to younger consumers with broad acceptance
+across age groups. 
+• 
+For men, the Dress Casuals category is comprised of basic “black and brown” men’s shoes
+that feature shiny leathers and dress details, but may utilize traditional or lugged
+outsoles as well as value-oriented materials. For women, the Dress Casual line is comprised
+of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or
+faux fur lining or trim. 
+• 
+Skechers Comfort is a line of trend-right casuals for men who want all-day comfort
+without compromising style. Characteristics of the line include comfortable outsoles,
+cushioned insoles and quality leather uppers. A category with unique features, we market and
+package the Skechers Comfort styles in a shoe box that is distinct from that of other
+categories in the Skechers USA line of footwear. 
+• 
+Our Outdoor styles for men primarily consist of hiker-influenced constructions including
+boots and shoes. While this category includes many technical performance features, we market
+this category of footwear primarily on the basis of style and comfort. Outsoles generally
+consist of molded and contoured hardened rubber. Many designs include gussetted tongues to
+prevent penetration of water and debris, cushioned mid-soles, motion control devices such as
+heel cups, water-resistant or water-proof construction and materials, and more durable
+hardware such as metal D-rings instead of eyelets. Uppers are generally constructed of
+heavily oiled nubuck and full-grain leathers. 
+• 
+Our Sandals collection for men and women is designed with many of our existing and proven
+outsoles for our Casuals, Dress Casuals and Casual Fusion lines, stylized with basic or core
+uppers as well as fresh looks. These styles are generally made with quality leather uppers,
+but may also be in canvas or fabric. 
+• 
+Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals
+targeted at trend-conscious young men and women. The outsoles are primarily rubber and
+adopted from our men’s Sport and women’s Active lines. This collection features leather or
+nubuck uppers, but may also include mesh, and may be in shades of browns and beiges as well
+as in black, gray, greens and blues. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes: (i) Joggers, Trail
+Runners, Sport Hikers, Terrainers, (ii) Performance (for men only), (iii) Street Casuals and (iv)
+Sport Sandals. Our Skechers Sport category is distinguished by its technical performance-inspired
+looks; however, we generally do not promote the technical performance features of these shoes.
+Skechers Sport is typically sold through specialty shoe stores, department stores and athletic
+footwear retailers.
+• 
+Our Jogger, Trail Runner, Sport Hiker and cross trainer-inspired Terrainer designs are
+lightweight constructions that include cushioned heels, polyurethane midsoles, phylon and
+other synthetic outsoles, as well as leather or synthetic uppers such as durabuck, cordura
+and nylon mesh. Careful attention is devoted to the design, pattern and construction of the
+outsoles, which vary greatly depending on the intended use. This category features earth
+tones and athletic-inspired hues with contrasting pop colors such as lime green, orange and
+red in addition to traditional athletic white. 
+• 
+The Performance category is comprised of multi-purpose running shoes that are marketed as
+men’s lifestyle athletic footwear. Some styles include 3M reflective accents, breathable
+upper construction, quality leathers, abrasion-resistant toe and heel cap, removable
+moisture wicking molded ethyl vinyl acetate (“EVA”) sock liner, outsole forefoot flex
+grooves for improved flexibility, non-marking rubber lugs with impact dispersment technology
+(“IDT”), aggressive all terrain traction lugs, external torsion stabilizer and tuned
+dual-density molded EVA midsole with pronation control. 
+• 
+Street Casual incorporates lower profiles, classic details and skate, street and fusion
+influences in a collection of essential, basic casual sneakers. The uppers are designed in
+leather, suede, nubuck, canvas and/or mesh, and many include vulcanized outsoles. Street
+Casual is targeted to young consumers, but also appeals to a broader demographic. 
+• 
+Our Sport Sandals are primarily designed from existing Skechers Sport outsoles and may
+include many of the same sport features as our sneakers with the addition of new
+technologies geared toward making a comfortable sport sandal. Sport sandals are designed as
+seasonal footwear for the consumer who already wears our Skechers Sport sneakers. 
+Skechers Active. A natural companion to Skechers Sport, Skechers Active has grown from a
+casual everyday line into a complete line of fusion and sport fusion sneakers for females of all
+ages. Marked by low-profile outsoles, the Active line is available in a multitude of colors as well
+as solid white or black, in fabrics, leathers and meshes, and with various closures – traditional
+laces, zig-
+3 
+Table of Contents 
+zag and cross straps, among others. The line also now includes Mary Janes, sandals and open
+back styles. Active sneakers are typically retailed through specialty casual shoe stores and
+department stores.
+Skechers Cali . Launched in 2006, Skechers Cali is a line of sneakers, skimmers, wedges and
+sandals for young women designed to typify the California lifestyle. The uppers are primarily in
+canvas, fabrics and leather with unique prints, some with patch details. The sandals range from
+dress casual looks to casual to beach thongs. Skechers Cali is sold through specialty casual shoe
+stores and department stores.
+Skechers Work. Expanding on our heritage of cutting-edge utility footwear, Skechers Work
+offers a complete line of men’s and women’s casuals, field boots, hikers and athletic shoes. The
+Skechers Work line includes athletic-inspired, casual safety toe, and non-slip safety toe
+categories that may feature lightweight aluminum safety toe, electrical hazard, and slip-resistant
+technologies, as well as breathable, seam-sealed waterproof membranes. Designed for men and women
+with jobs that require certain safety requirements, these durable styles are constructed on
+high-abrasion, long wearing soles, and feature breathable lining, oil and abrasion resistant
+outsoles offering all-day comfort and prolonged durability. The uppers are comprised of
+high-quality leather, nubuck, trubuck and durabuck. Our safety toe athletic sneakers, boots,
+hikers, and casuals are ideal for environments requiring safety footwear and offer comfort and
+safety in dry or wet conditions. Our slip-resistant boots, hikers, athletics, casuals and clogs
+are ideal for the service industry. Our safety toe products have been independently tested and
+certified to meet ASTM standards, and our slip-resistant soles have been tested pursuant to the
+Mark II testing method for slip resistance. Skechers Work is typically sold through department
+stores, athletic footwear retailers and specialty shoe stores, as well as marketed directly to
+consumers through business-to-business channels.
+Skechers Kids. The Skechers Kids line includes: (i) Skechers Kids, which is a range of
+infants, toddlers, boys and girls boots, shoes and sneakers; (ii) S-Lights, which is lighted
+footwear for toddlers, boys and girls; (iii) Skechers Cali for Girls, which is trend-inspired
+boots, shoes, sandals and dress sneakers; (iv) Airators by Skechers; (v) Skechers Super Z-Strap;
+and (vi) Babiez by Skechers. Skechers Kids and Skechers Cali for Girls are comprised primarily of
+shoes that are designed as “takedowns” of their adult counterparts, allowing the younger set the
+opportunity to wear the same popular styles as their older siblings and schoolmates. This
+“takedown” strategy maintains the product’s integrity by offering premium leathers, hardware and
+outsoles without the attendant costs involved in designing and developing new products. In
+addition, we adapt current fashions from our men’s and women’s lines by modifying designs and
+choosing colors and materials that are more suitable for the playful image that we have established
+in the children’s footwear market. Each Skechers Kids line is marketed and packaged separately with
+a distinct shoe box. Skechers Kids shoes are available at department stores and specialty and
+athletic retailers.
+• 
+The Skechers Kids line includes embellishments or adornments such as fresh colors and
+fabrics from our Skechers adult shoes. Some of these styles are also adapted for toddlers
+with softer, more pliable outsoles and for infants with soft, leather-sole crib shoes. 
+• 
+S-Lights is a line of sneakers and sandals with a combined pattern of lights on the
+outsole and other areas of the shoes. We market and package the S-Lights styles in a shoe
+box that is distinct from that of other categories in the Skechers Kids line of footwear. 
+• 
+Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young women
+designed to typify the California lifestyle. The sneakers are designed primarily with canvas
+uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and
+flats are designed with many of the same upper materials and outsoles as the sneakers. 
+• 
+Airators by Skechers is a line of boys sneakers with a foot-cooling system designed to
+pump air from the heel through to the toes. 
+• 
+Skechers Super Z-Strap is a line of athletic styled sneakers with a unique “z” shaped
+closure system for easy closure. 
+• 
+Babiez by Skechers is a line of crib shoes for infants. The uppers and outsoles are
+designed in leather and are extremely flexible for newborn feet. 
+Cali Gear by Skechers. Launched in 2007, Cali Gear by Skechers is a new line of nano
+lite TM molded footwear for men, women and children. Designed with many of our signature
+outsoles as well as uppers, the lightweight footwear is available in a multitude of colors and
+patterns consistent with the Skechers image. The majority of styles for children, as well as some
+adult styles, are available with Skechers Cali Bits, which are decorative accessories inserted into
+designed holes in the uppers. The Skechers Cali Bits are also
+4 
+Table of Contents 
+available for purchase and include licensed properties such as The Simpsons and Spiderman. The
+Cali Gear footwear is also non-slip and odor-resistant. Primarily displayed on hanging fixtures and
+wall units, the footwear is available at department stores, footwear specialty chains and
+independents.
+FASHION AND STREET BRANDS
+The Fashion and Street Division and its brands are marketed and packaged separately from Skechers.
+Unltd. by Marc Ecko, Rhino Red and Red by Marc Ecko. Unltd. by Marc Ecko is a line of men’s
+street-inspired traditional sneakers, fusion sneakers and urban-focused casuals. Rhino Red is a
+line of women’s classic and fashion-forward fusion sneakers sandals and Mary Janes for young women.
+Targeted to the street-savvy 18 to 34 year-old consumer, the footwear reflects Ecko Unltd.’s men’s
+apparel and the Ecko Red women’s apparel, and effectively utilizes the globally recognized Rhino
+logo on the majority of sneakers and casuals. Within the Rhino Red line is the Red by Marc Ecko
+offering, a line of designer dress and dress casual footwear for the urban chic woman. The men’s
+and women’s footwear collections are designed in leather, canvas, mesh, as well as other materials.
+Unltd. by Marc Ecko for boys and Rhino Red for girls sneaker lines primarily consist of takedowns
+from the adult Marc Ecko footwear lines with additional or different colorways geared toward
+children and that reflect the boys’ and girls’ Ecko Unltd. and Ecko Red clothing. The licensed
+brands are sold through select department stores and specialty retailers.
+Zoo York. Zoo York footwear is a line of action sports and lifestyle footwear for men. Zoo
+York footwear is designed by Marc Ecko Enterprises and borrows from the color palette and trends
+from Zoo York apparel that targets core skaters and those that embrace skate fashion. Zoo York
+footwear is available in skate and specialty shops as well as select athletic and department
+stores.
+310 Motoring. The 310 footwear collection for men utilizes top-quality leathers, a
+fashion-forward approach to design and comfort, and materials that are derived from 310 Motoring’s
+customized cars, including wood burl and carbon fiber. A multi-tiered approach, the line consists
+of high-end and high-design boots and shoes, sophisticated driving-inspired shoes and boots, and
+stylized athletics. 310 footwear is available in select department stores, specialty retailers and
+urban independents.
+Mark Nason and Siren by Mark Nason. Mark Nason is a sophisticated and fashion forward footwear
+collection, marketed to style-conscious men, designed to complement designer denim and dress casual
+wear. Primarily crafted and constructed in Italy, the Mark Nason collection is comprised of classic
+and modern boots, shoes and sandals with distinctive profiles and luxurious hand-distressed
+leathers. The Mark Nason line distinguishes itself with high quality individual styling and may
+utilize unique materials such as premium leathers, etched and tattooed leathers, hand-treated,
+hand-scraped and hand-cut leathers, hand-treated leather uppers and soles, snakeskin and eel skin.
+Siren by Mark Nason is the ultimate accompaniment to designer denim and casual couture for
+discerning women. The line’s boots are fueled with bold profiles, alluring details and distinct
+textures. Handcrafted in Italy, the boots utilize premium leathers, hand-treated details, leather
+outsoles, and some may include snakeskin and other exotic materials. The Mark Nason lines are
+available in better department stores and boutiques.
+SoHo Lab. Targeting 18 to 34 year-old trend-savvy women and men, SoHo Lab is comprised of
+stylish dress shoes, boots and sandals. The men’s SoHo Lab collection includes classic tailored and
+fashion-forward lasts in a variety of styles. The women’s styles also include heels and flats. The
+footwear is manufactured in Europe, Brazil and China. The men’s styles are typically sold in
+department stores, specialty stores and independent merchants, while the women’s styles are only
+available at Skechers retail stores.
+PRODUCT DESIGN AND DEVELOPMENT
+Our principal goal in product design is to generate new and exciting footwear in all of our
+product lines with contemporary and progressive styles and comfort-enhancing performance features.
+Targeted to the active, youthful and style-savvy, we design most new styles to be fashionable and
+marketable to the 12 to 24 year-old consumer, while substantially all of our lines appeal to the
+broader range of 5 to 40 year-old consumers, with an exclusive selection for infants and toddlers.
+While some of our shoes have performance features, we generally do not position our shoes in the
+marketplace as technical performance shoes.
+We believe that our products’ success is related to our ability to recognize trends in the
+footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving
+preferences. We are able to quickly translate the latest fashion trends into stylish, quality
+footwear at a reasonable price by analyzing and interpreting current and emerging lifestyle trends.
+Lifestyle trend information is compiled and analyzed by our designers from various sources,
+including the review and analysis of modern music, television, cinema, clothing, alternative sports
+and other trend-setting media; traveling to domestic and international fashion markets to identify
+and confirm current trends; consulting with our retail and e-commerce customers for information on
+current retail selling
+5 
+Table of Contents 
+trends; participating in major footwear trade shows to stay abreast of popular brands,
+fashions and styles; and subscribing to various fashion and color information services. In
+addition, a key component of our design philosophy is to continually reinterpret and develop our
+successful styles in our brands’ image.
+The footwear design process typically begins about nine months before the start of a season.
+Our products are designed and developed primarily by our in-house design staff. To promote
+innovation and brand relevance, we utilize dedicated design teams, who report to our senior design
+executives and focus on each of the men’s, women’s and children’s categories. In addition, we
+utilize outside design firms on an item-specific basis to supplement our internal design efforts.
+The design process is extremely collaborative, as members of the design staff frequently meet with
+the heads of retail, merchandising, sales, production and sourcing to further refine our products
+to meet the particular needs of the target market.
+After a design team arrives at a consensus regarding the fashion themes for the coming season,
+the designers then translate these themes into our products. These interpretations include
+variations in product color, material structure and embellishments, which are arrived at after
+close consultation with our production department. Prototype blueprints and specifications are
+created and forwarded to our manufacturers for a design prototype. The design prototypes are then
+sent back to our design teams. Our major retail customers may also review these new design
+concepts. Customer input not only allows us to measure consumer reaction to the latest designs, but
+also affords us an opportunity to foster deeper and more collaborative relationships with our
+customers. We also occasionally order limited production runs that may initially be tested in our
+concept stores. By working closely with store personnel, we obtain customer feedback that often
+influences product design and development. Our design teams can easily and quickly modify and
+refine a design based on customer input. Generally, the production process can take six months to
+nine months from design concept to commercialization.
+SOURCING
+Factories. Our products are produced by independent contract manufacturers located primarily
+in China and, to a lesser extent, in Italy, Vietnam, Brazil and various other countries. We do not
+own or operate any manufacturing facilities as we believe that the use of independent manufacturers
+substantially increases our production flexibility and capacity while reducing capital expenditures
+and avoiding the costs of managing a large production work force.
+When possible, we seek to use manufacturers that have previously produced our footwear, which
+we believe enhances continuity and quality while controlling production costs. We attempt to
+monitor our selection of independent factories to ensure that no one manufacturer is responsible
+for a disproportionate amount of our merchandise. We source product for styles that account for a
+significant percentage of our net sales from at least four different manufacturers. During 2007,
+four of our contract manufacturers accounted for approximately 58.4% of total purchases. One
+manufacturer accounted for 29.7%, and two others each accounted for over 10.0% of our total
+purchases. To date, we have not experienced difficulty in obtaining manufacturing services.
+We finance our production activities in part through the use of interest-bearing open purchase
+arrangements with certain of our Asian manufacturers. These facilities currently bear interest at a
+rate between 0% and 1.5% for 30 to 60 days financing, depending on the factory. We believe that the
+use of these arrangements afford us additional liquidity and flexibility. We do not have any
+long-term contracts with any of our manufacturers; however, we have long-standing relationships
+with many of our manufacturers and believe our relationships to be good.
+We closely monitor sales activity after initial introduction of a product in our concept
+stores to determine whether there is substantial demand for a style, thereby aiding us in our
+sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming
+collections or offered as part of our periodic style offerings, while less popular styles can be
+discontinued after only a limited production run. We believe that sales in our concept stores can
+also help forecast sales in national retail stores, and we share this sales information with our
+wholesale customers. Sales, merchandising, production and allocations management analyze historical
+and current sales and market data from our wholesale account base and our own retail stores to
+develop an internal product quantity forecast that allows us to better manage our future production
+and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock
+position to minimize the time necessary to fill customer orders by placing orders with our
+manufacturers prior to the time we receive customers’ orders for such footwear.
+Production Oversight . To safeguard product quality and consistency, we oversee the key aspects
+of production from initial prototype manufacture through initial production runs to final
+manufacture. Monitoring of all production is performed in the United States by our in-house
+production department and in Asia through an approximately 250-person staff working from our
+offices in China. We believe that our Asian presence allows us to negotiate supplier and
+manufacturer arrangements more effectively, decrease
+6 
+Table of Contents 
+product turnaround time and ensure timely delivery of finished footwear. In addition, we
+require our manufacturers to certify that neither convicted, forced or indentured labor (as defined
+under U.S. law) nor child labor (as defined by law in the manufacturer’s country) is used in the
+production process, and that compensation will be paid according to local law and that the factory
+is in compliance with local safety regulations.
+Quality Control. We believe that quality control is an important and effective means of
+maintaining the quality and reputation of our products. Our quality control program is designed to
+ensure that not only finished goods meet our established design specifications, but also that all
+goods bearing our trademarks meet our standards for quality. Our quality control personnel located
+in China perform an array of inspection procedures at various stages of the production process,
+including examination and testing of prototypes of key raw materials prior to manufacture, samples
+and materials at various stages of production and final products prior to shipment. Our employees
+are on-site at each of our major manufacturers to oversee production. For some of our lower volume
+manufacturers, our staff is on-site during significant production runs or we will perform
+unannounced visits to their manufacturing sites to further monitor compliance with our
+manufacturing specifications.
+ADVERTISING AND MARKETING
+With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted approach to
+marketing to drive traffic, build brand recognition and properly position our diverse lines within
+the marketplace. Senior management is directly involved in shaping our image and the conception,
+development and implementation of our advertising and marketing activities. The focus of our
+marketing plan is print and television advertising, which is supported by outdoor, trend-influenced
+marketing, public relations, promotions and in-store support. In addition, we utilize celebrity
+endorsers in our advertisements. We also believe our Internet websites and trade shows are
+effective marketing tools to both consumers and corporate accounts. We have historically budgeted
+advertising as a percentage of projected net sales.
+Advertising. The majority of our advertising is conceptualized by our in-house design team. We
+believe that our advertising strategies, methods and creative campaigns are directly related to our
+success. Through our lifestyle and image-driven advertising, we generally seek to build and
+increase brand awareness by linking the Skechers brand and our fashion and street brands to
+youthful, contemporary lifestyles and attitudes. We have built on this approach by featuring
+select styles in our lifestyle ads. In addition to our compelling Skechers lifestyle ads, we have
+also created product specific ads for our men’s lines to appeal to men as well as women who
+purchase footwear for men. Our ads are designed to provide merchandise flexibility and to
+facilitate the “brands and product designs” direction of evolving footwear fashions and consumer
+preferences.
+To further build brand awareness and influence consumer spending, we have selectively signed
+endorsement agreements with celebrities whom we believed would reach new markets. In 2006, we
+signed pop star Ashlee Simpson to appear in Skechers marketing campaigns through 2007. In past
+years, we had similar endorsement agreements for Skechers with singers Carrie Underwood, Christina
+Aguilera and Britney Spears, professional basketball player and actor Rick Fox, and actors Robert
+Downey, Jr., Matt Dillon and Rob Lowe. From time to time, we may sign other celebrities to endorse
+our brand name and image in order to strategically market our products among specific consumer
+groups in the future.
+In addition to advertising our Skechers branded lines through men’s, women’s and children’s
+ads, we also support Mark Nason, 310, Marc Ecko and Zoo York lines through individual unique print
+and/or television advertisements – some which may include celebrity endorsees. For Mark Nason, we
+have focused on key-selling styles in product-driven ads that captured the brand’s essence. For
+the Marc Ecko footwear brands, Marc Ecko’s design team has created relevant targeted print and
+television commercials for men and women. These include a multi-media men’s campaign featuring our
+graffiti painted shoe as well as the first commercial for Unltd. by Marc Ecko for boys. In 2007,
+singer/actress JoJo became the new face of Rhino Red and appeared in print and outdoor advertising
+and a television commercial, and in late 2007, High School Musical stars Ashley Tisdale and Vanessa
+Hudgens became the faces of Red by Marc Ecko, appearing in print campaigns. Television commercials
+have also been developed and are being run in 2008.
+With a targeted approach, our print ads appear regularly in popular fashion and lifestyle
+consumer publications, such as GQ, Cosmopolitan, Elle, Lucky, In Style, Seventeen, Maxim, Slam,
+Road & Track, and Complex, as well as in weekly publications such as People, Us Weekly, Star,
+Sports Illustrated and InTouch, among others.
+Our television commercials are produced both in-house and through producers we have utilized
+in the past and are familiar with our brands. In 2007, we developed commercials for men, women and
+children for our Skechers brands, including our first animated spots for Airators by Skechers and
+Cali Gear by Skechers for kids. We have found these to be a cost-effective way to advertise during
+7 
+Table of Contents 
+key national and cable programming in key selling seasons. Our media buyer strategically
+selects the ideal programs and geographic areas for our commercials for maximum consumer impact.
+Outdoor. In an effort to reach consumers where they shop and in high traffic areas as they
+travel to and from work or while running errands, we continued our multi-level outdoor campaign
+that included kiosks in key malls across the United States, and billboards, transportation systems
+and telephone kiosks in North America and Europe. We believe these are effective and efficient
+ways to reach a broad range of consumers and leave a lasting impression of our many brands.
+Trend-Influenced Marketing/Public Relations. Our public relations objectives are to secure
+product placement in key fashion magazines, place our footwear on the feet of trend-setting
+celebrities, and garner positive and accurate press on our company. Through our commitment to
+aggressively promote our upcoming styles, our products are often featured in leading fashion and
+pop culture magazines, as well as in select films and popular television shows. Our footwear and
+our company have been prominently displayed and referenced on news and magazine shows including The
+Today Show , Good Day L.A., Entertainment Tonight, and E! ; and on television programs, including Law
+& Order, Entourage, and The Big Idea with Donny Deutsch , among others. We have also amassed an
+array of prominent product placements in magazines including Lucky , Seventeen , OK!, Teen Vogue,
+CosmoGirl, InStyle, Maxim, Slam, Dime and Footwear News . In addition, our brands have been
+associated with cutting edge events and select celebrities, and our product has been seen worn by
+trend-setters like Denis Leary, Chris Cornell, Debra Messing, Nicole Richie, Paris Hilton and Jamie
+Foxx, among others.
+Promotions. By applying creative sales techniques via a broad spectrum of mediums, our
+marketing team seeks to build brand recognition and drive traffic to Skechers’ retail stores,
+websites and our retail partners’ locations. Skechers’ promotional strategies have encompassed
+in-store specials, charity events, product tie-ins and giveaways, and collaborations with national
+retailers and radio stations. Our imaginative promotions are consistent with Skechers’ imaging and
+lifestyle.
+Visual Merchandising. Our in-house visual merchandising department supports wholesale
+customers, distributors and our retail stores by developing displays that effectively leverage our
+products at the point of sale. Our point-of-purchase display items include signage, graphics,
+displays, counter cards, banners and other merchandising items for each of our brands. These
+materials mirror the look and feel of each brand and reinforce the image as well as draw consumers
+into stores.
+Our visual merchandising coordinators (“VMC’s”) work with our sales force and directly with
+our customers to ensure better sell-through at the retail level by generating greater consumer
+awareness through Skechers brand displays. Our VMC’s communicate with and visit our wholesale
+customers on a regular basis to aid in proper display of our merchandise. They also run in-store
+promotions to enhance the sale of Skechers footwear and create excitement surrounding the Skechers
+brand. We believe that these efforts help stimulate impulse sales and repeat purchases.
+Trade Shows. To better showcase our diverse products to footwear buyers in the United States
+and Europe, and to distributors around the world, we regularly exhibit at leading trade shows.
+Along with specialty trade shows, we exhibit at WSA’s The Shoe Show, FFANY, ASR and MAGIC in the
+United States, and GDS, MICAM, Bread & Butter, MODA, MIDEC and Who’s Next in Europe. Our dynamic,
+state-of-the-art trade show exhibits are developed by our in-house architect to showcase our latest
+product offerings in a lifestyle setting reflective of each of our brands. By investing in
+innovative displays and individual rooms showcasing each line, our sales force can present a sales
+plan for each line and buyers are able to truly understand the breadth and depth of our offerings,
+thereby optimizing commitments and sales at the retail level. For select non-Skechers branded lines
+such as 310, Zoo York and Marc Ecko Footwear, we have created individual exhibits to ensure their
+brand integrity.
+Internet. We also promote our brands through our e-commerce websites www.skechers.com and
+www.soholab.com to consumers who access the Internet. We have also established a unique Internet
+website for Mark Nason (www.marknason.com) designed to serve primarily as a marketing tool. These
+websites currently enable us to present information on our products, provide a brand experience and
+store locations to consumers, and allow consumers the ability to directly order products on the
+Internet. These sites also provide us a mechanism for customer feedback as well as allowing us to
+receive and respond directly to consumer feedback. Our websites are intended to enhance the
+Skechers and fashion brands and increase sales through all our retail channels. Our websites also
+allow us to leverage our brand awareness at a lower cost than traditional distribution channels.
+PRODUCT DISTRIBUTION CHANNELS
+We have four reportable segments – domestic wholesale sales, international wholesale sales,
+retail sales and e-commerce sales. In the United States, our products are available through a
+network of wholesale customers comprised of department, athletic and
+8 
+Table of Contents 
+specialty stores. Internationally, our products are available through wholesale customers in
+more than 100 countries and territories through our global network of distributors and our
+Canadian, Brazilian, Asian and European subsidiaries. Skechers owns and operates retail stores
+both domestically and internationally through three integrated retail formats—concept, factory
+outlet and warehouse outlet stores. Each of these channels serves an integral function in the
+global distribution of our products. Fourteen distributors have opened 60 distributor-owned
+Skechers retail stores in 21 countries as of December 31, 2007.
+Domestic Wholesale. We distribute our footwear through the following domestic wholesale
+distribution channels: department stores, specialty stores, athletic shoe stores and independent
+retailers. Department stores and specialty retailers are the largest distribution channels, but we
+believe that we appeal to a variety of wholesale customers, many of whom may operate stores within
+the same retail location due to our distinct product lines and variety of styles, from which
+retailers can select those lines and styles that best satisfy the fashion, function and price
+criteria of their specific customers. Management has a clearly defined growth strategy for each of
+our channels of distribution. An integral component of our strategy is to offer our accounts the
+highest level of customer service so that our products will be fully represented in existing retail
+locations and new locations of each customer.
+In an effort to provide knowledgeable and personalized service to our wholesale customers, the
+sales force is segregated by product line, each of which is headed by a vice president or national
+sales manager. Reporting to each sales manager are knowledgeable account executives and territory
+managers. Our vice presidents and national sales managers report to a senior vice president of
+sales. All of our vice presidents and national sales managers are compensated on a salary basis,
+while our account executives and territory managers are compensated on a commission basis. None of
+our domestic sales personnel sells competing products.
+We believe that we have developed a loyal customer base through exceptional customer service.
+We believe that our close relationships with these accounts help us to maximize their retail
+sell-throughs. Our visual merchandise coordinators work with our wholesale customers to ensure that
+our merchandise and point-of-purchase marketing materials are properly presented. Sales executives
+and merchandise personnel work closely with accounts to ensure that appropriate styles are
+purchased for specific accounts and for specific stores within those accounts as well as to ensure
+that appropriate inventory levels are carried at each store. Such information is then utilized to
+help develop sales projections and determine the product needs of our wholesale customers. The
+value-added services we provide our wholesale customers help us maintain strong relationships with
+our existing wholesale customers and attract potential new wholesale customers.
+International Wholesale. Our products are sold in more than 100 countries and territories
+throughout the world. We generate revenues from outside the United States from three principal
+sources: (i) direct sales to department stores and specialty retail stores through our subsidiaries
+in Canada, France, Germany, Spain, Italy, Portugal, Switzerland, Austria, Malaysia, Thailand, the
+Benelux Region, the United Kingdom and Brazil; (ii) sales to foreign distributors who distribute
+our footwear to department stores and specialty retail stores in countries and territories across
+Eastern Europe, Asia, Latin America, South America, Africa, the Middle East and Australia, among
+other regions and (iii) to a lesser extent, royalties from licensees who manufacture and distribute
+our non-footwear products outside the United States.
+We believe that international distribution of our products represents a significant
+opportunity to increase sales and profits. We intend to further increase our share of the
+international footwear market by heightening our marketing in those countries in which we currently
+have a presence through our international advertising campaigns, which are designed to establish
+Skechers as a global brand synonymous with trend-right casual shoes.
+• 
+International Subsidiaries 
+Europe 
+We currently distribute product in most of Western Europe through the following
+subsidiaries: Skechers USA Ltd., with its offices and showrooms in London, England;
+Skechers S.a.r.l., with its offices and showrooms in Lausanne, Switzerland; Skechers USA
+France S.A.S., with its offices and showrooms in Paris, France; Skechers USA Deutschland
+GmbH, with its offices and showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L.,
+with its offices and showrooms in Madrid, Spain; Skechers USA Benelux B.V., with its
+offices and showrooms in Waalwijk, the Netherlands; and Skechers USA Italia S.r.l., with
+its offices and showroom in Verona, Italy.
+9 
+Table of Contents 
+Skechers-owned retail stores in Europe include eight concept stores and one factory
+outlet store located in five countries, including the key locations of Oxford Street in
+London, Alstadt District in Düsseldorf and Kalverstraat Street in Amsterdam.
+To accommodate our European subsidiaries’ operations, we operate an approximately
+240,000 square foot distribution center in Liege, Belgium. This distribution center is
+currently used to store and deliver product to our subsidiaries and retail stores
+throughout Europe.
+Canada 
+Merchandising and marketing of our product in Canada is managed by our wholly-owned
+subsidiary, Skechers USA Canada, Inc. with its offices and showrooms outside Toronto in
+Mississauga, Ontario. Product sold in Canada is primarily sourced from our U.S.
+distribution center in Ontario, California. We have two concept stores, one located in
+Toronto’s Eaton Centre, and one in the West Edmonton Mall and one factory outlet store
+located in Toronto.
+Malaysia and Thailand 
+Merchandising and marketing of our product in Asia is managed by two of our
+wholly-owned subsidiaries, Skechers Malaysia Sdn Bhd and Skechers (Thailand) Ltd. with
+their respective offices in Kuala Lumpur, Malaysia and Bangkok, Thailand. Product sold
+in Asia is primarily sourced from a third party distribution center in Selangor,
+Malaysia. We have four concept stores, one located in Kuala Lumpur, Malaysia, two
+located in Selangor, Malaysia, and one in Bangkok, Thailand.
+Brazil 
+Merchandising and marketing of our product in Brazil is managed by our wholly-owned
+subsidiary, Skechers Do Brasil Calcados LTDA., with its offices located in Sao Paulo,
+Brazil. Product sold in Brazil is primarily shipped directly from our contract
+manaufacturer’s factories in China and occasionally from our U.S. distribution center in
+Ontario, California.
+• 
+Distributors 
+Outside of Western Europe and Canada, our footwear is distributed through an extensive
+network of more than 30 distributors, who sell our products to department, athletic and
+specialty stores in more than 100 countries around the world. Through agreements with 14 of
+these distributors, 60 distributor-owned Skechers retail stores are open in 21 countries,
+including 13 stores that were opened in 2007. One distributor-owned store was closed and two
+became company operated in 2007.
+STORE 
+NUMBER OF 
+REGION 
+FORMAT 
+STORES 
+LOCATION (1) 
+Asia 
+Concept
+4 
+Japan (2); Philippines; Taiwan 
+Warehouse
+4 
+Japan (4) 
+Australia 
+Concept
+1 
+Sydney 
+Warehouse
+2 
+Melbourne, Sydney 
+Central America/South
+America 
+Concept
+34 
+Chile (10); Columbia (8); Ecuador; El Salvador;
+Guatemala (2); Panama (4); Peru (2); Venezuela
+(6) 
+Eastern Europe 
+Concept
+7 
+Baltics (2); Greece; Poland; Russia (2); Ukraine 
+Northern Europe 
+Concept
+1 
+Finland 
+Middle East 
+Concept
+6 
+Saudi Arabia; UAE (5) 
+South Africa 
+Concept
+1 
+Sandton 
+(1) 
+One store per location except as otherwise noted. 
+10 
+Table of Contents 
+The distributors are responsible for their respective store’s operations, have ownership
+of their respective store’s assets and select the broad collection of our products to sell to
+consumers in their regions. In order to maintain a globally consistent image, we provide
+architectural, graphic and visual guidance and materials for the design of the stores, and we
+train the local staff on our products and corporate culture. We intend to expand our
+international presence and global recognition of the Skechers brand name by continuing to
+sell our footwear to foreign distributors and by opening flagship retail stores with
+distributors that have local market expertise.
+Retail Stores. We pursue our retail store strategy through our three integrated retail
+formats: the concept store, the factory outlet store and the warehouse outlet store. Our
+three-store format enables us to promote the full Skechers product offering in an attractive
+environment that appeals to a broad group of consumers. In addition, most of our retail stores are
+profitable and have a positive effect on our operating results. As of February 15, 2008, we owned
+and operated 70 concept stores, 72 factory outlet stores and 35 warehouse outlet stores in the
+United States, and 14 concept stores and two factory outlet stores internationally. We closed
+three stores and opened 42 new stores in 2007. We plan to open an additional 25 to 30 stores by
+the end of 2008.
+• 
+Concept Stores. 
+Our concept stores are located at either marquee street locations or in major shopping
+malls in large metropolitan cities. Our concept stores have a threefold purpose in our
+operating strategy. First, concept stores serve as a showcase for a wide range of our product
+offering for the current season as we estimate that our average wholesale customer carries no
+more than 5% of the complete Skechers line in any one location. Our concept stores showcase
+our products in a cutting-edge, open-floor setting, providing the customer with the complete
+Skechers story. Second, retail locations are generally chosen to generate maximum marketing
+value for the Skechers brand name through signage, store front presentation and interior
+design. Domestic locations include concept stores at Times Square and 34th Street in New
+York, Hollywood and Highland in Hollywood, Santa Monica’s Third Street Promenade, Dallas’
+Northpark Center, Las Vegas’ Fashion Show Mall, Seattle’s Bellevue Square Mall, and Woodfield
+Mall outside Chicago. International locations include Oxford Street in London, Alstadt
+District in Dusseldorf, Toronto’s Eaton Centre, Kalverstraat Street in Amsterdam. The stores
+are typically designed to create a distinctive Skechers look and feel, and enhance customer
+association of the Skechers brand name with current youthful lifestyle trends and styles.
+Third, the concept stores serve as marketing and product testing venues. We believe that
+product sell-through information and rapid customer feedback derived from our concept stores
+enables our design, sales, merchandising and production staff to respond to market changes
+and new product introductions. Such responses serve to augment sales and limit our inventory
+markdowns and customer returns and allowances. We opened 24 domestic
+concept stores and four international concept stores, and we closed one domestic concept store and one international
+concept store in 2007.
+The typical Skechers concept store is approximately 2,500 square feet, although in
+certain markets we have opened concept stores as large as 6,400 square feet or as small as
+1,500 square feet. When deciding where to open concept stores, we identify top geographic
+markets in the larger metropolitan cities in the United States, Canada, Europe and Asia. When
+selecting a specific site, we evaluate the proposed sites’ traffic pattern, co-tenancies,
+sales volume of neighboring concept stores, lease economics and other factors considered
+important within the specific location. If we are considering opening a concept store in a
+shopping mall, our strategy is to obtain space as centrally located as possible in the mall
+where we expect foot traffic to be most concentrated. We believe that the strength of the
+Skechers brand name has enabled us to negotiate more favorable terms with shopping malls that
+want us to open up concept stores to attract customer traffic to their venues.
+• 
+Factory Outlet Stores. 
+Our factory outlet stores are generally located in manufacturers’ direct outlet centers
+throughout the United States. In addition, we have two international outlet stores – one in
+Canada and one in England. Our factory outlet stores provide opportunities for us to sell
+discontinued and excess merchandise, thereby reducing the need to sell such merchandise to
+discounters at excessively low prices and potentially compromise the Skechers brand image.
+Skechers’ factory outlet stores range in size from approximately 1,900 to 9,000 square feet.
+Inventory in these stores is supplemented by certain first-line styles sold at full retail
+price points. We opened 11 domestic factory outlet stores in 2007.
+• 
+Warehouse Outlet Stores. 
+Our free-standing warehouse outlet stores, which are located throughout the United
+States, enable us to liquidate excess merchandise, discontinued lines and odd-size inventory
+in a cost-efficient manner. Skechers’ warehouse outlet stores range in size from
+approximately 5,200 to 13,500 square feet. Our warehouse outlet stores enable us to sell
+discontinued and excess
+11 
+Table of Contents 
+merchandise that would otherwise typically be sold to discounters at excessively low
+prices, which could otherwise compromise the Skechers brand image. We seek to open our
+warehouse outlet stores in areas that are in close proximity to our concept stores in order
+to facilitate the timely transfer of inventory that we want to liquidate as soon as
+practicable. We opened three new domestic warehouse outlet stores and closed one domestic
+warehouse store in 2007.
+Electronic Commerce. Our websites, www.skechers.com and www.soholab.com are virtual
+storefronts that promote the Skechers and street and fashion brands. Our websites are designed to
+provide a positive shopping and brand experience, showcasing our products in an easy-to-navigate
+format, allowing consumers to browse our selections and purchase our footwear. This virtual store
+has provided a convenient alternative-shopping environment and brand experience. These websites
+have become an efficient and effective additional retail distribution channel, and have improved
+our customer service.
+LICENSING
+We believe that selective licensing of the Skechers brand name and our product line names to
+manufacturers may broaden and enhance the individual brands without requiring significant capital
+investments or additional incremental operating expenses. Our multiple product lines plus
+additional subcategories present many potential licensing opportunities on terms with licensees
+that we believe will provide more effective manufacturing, distribution or marketing of
+non-footwear products. We also believe that the reputation of Skechers and its history in launching
+brands has also enabled us to partner with reputable non-footwear brands in order to design and
+market their footwear.
+As of January 31, 2008, we had 24 active domestic and international licensing agreements in
+which we are the licensor. We have international licensing agreements for the design and
+distribution of men’s and women’s active apparel in Israel; men’s and women’s apparel in select
+European countries; bags in select Central and South American countries; watches in the
+Philippines, and bags in China.
+Additionally, we have signed agreements to design, develop and market footwear for the street
+lifestyle apparel brands Ecko Unltd., Ecko Red, Red by Marc Ecko, and Zoo York under the Marc Ecko
+Enterprises umbrella.
+DISTRIBUTION FACILITIES AND OPERATIONS
+We believe that strong distribution support is a critical factor in our operations. Once
+manufactured, our products are packaged in shoe boxes bearing bar codes that are shipped either (i)
+to our five distribution centers located in Ontario, California, which measure in aggregate
+approximately 1.7 million square-feet; (ii) to our approximately 240,000 square-foot distribution
+center located in Liege, Belgium or (iii) directly from third-party manufacturers to our other
+international customers and other international third party distribution centers. Upon receipt at
+either of the distribution centers, merchandise is inspected and recorded in our management
+information system and packaged according to customers’ orders for delivery. Merchandise is shipped
+to customers by whatever means each customer requests, which is usually by common carrier. The
+distribution centers have multi-access docks, enabling us to receive and ship simultaneously, and
+to pack separate trailers for shipments to different customers at the same time. We have an
+electronic data interchange system, or EDI system, to which some of our larger customers are
+linked. This system allows these customers to automatically place orders with us, thereby
+eliminating the time involved in transmitting and inputting orders, and it includes direct billing
+and shipping information.
+During 2007, we entered into a lease to build a new approximately 1.8 million square foot
+distribution facility in Moreno Valley, California. Once completed, we will occupy the facility
+under an eleven-year lease with one option to extend the lease four years followed by two options
+to extend the lease by additional five-year terms, and we will move out of our existing
+distribution facilities in Ontario, California.
+BACKLOG
+As of December 31, 2007, our backlog was $416.5 million, compared to $322.9 million as of
+December 31, 2006. While backlog orders are subject to cancellation by customers, we have not
+experienced significant cancellation of orders in the past, and we expect that substantially all
+the orders will be shipped in 2008. However, for a variety of reasons, including changes in the
+economy, customer demand for our products, the timing of shipments, product mix of customer orders,
+the amount of in-season orders and a shift towards tighter lead times within backlog levels,
+backlog may not be a reliable measure of future sales for any succeeding period.
+12 
+Table of Contents 
+INTELLECTUAL PROPERTY RIGHTS
+We own and utilize a variety of trademarks, including the Skechers trademark. We have a
+significant number of both registrations and pending applications for our trademarks in the United
+States. In addition, we have trademark registrations and trademark applications in approximately 80
+foreign countries. We also have design patents and pending design and utility patent applications
+in both the United States and approximately 25 foreign countries. We continuously look to increase
+the number of our patents and trademarks both domestically and internationally where necessary to
+protect valuable intellectual property. We regard our trademarks and other intellectual property as
+valuable assets and believe that they have significant value in the marketing of our products. We
+vigorously protect our trademarks against infringement, including through the use of cease and
+desist letters, administrative proceedings and lawsuits.
+We rely on trademark, patent, copyright and trade secret protection, non-disclosure agreements
+and licensing arrangements to establish, protect and enforce intellectual property rights in our
+logos, tradenames and in the design of our products. In particular, we believe that our future
+success will largely depend on our ability to maintain and protect the Skechers trademark and other
+key trademarks. Despite our efforts to safeguard and maintain our intellectual property rights, we
+cannot be certain that we will be successful in this regard. Furthermore, we cannot be certain that
+our trademarks, products and promotional materials or other intellectual property rights do not or
+will not violate the intellectual property rights of others, that our intellectual property would
+be upheld if challenged, or that we would, in such an event, not be prevented from using our
+trademarks or other intellectual property rights. Such claims, if proven, could materially and
+adversely affect our business, financial condition and results of operations. In addition, although
+any such claims may ultimately prove to be without merit, the necessary management attention to and
+legal costs associated with litigation or other resolution of future claims concerning trademarks
+and other intellectual property rights could materially and adversely affect our business,
+financial condition and results of operations. We have sued and have been sued by third parties for
+infringement of intellectual property. It is our opinion that none of these claims has materially
+impaired our ability to utilize our intellectual property rights.
+The laws of certain foreign countries do not protect intellectual property rights to the same
+extent or in the same manner as do the laws of the United States. Although we continue to implement
+protective measures and intend to defend our intellectual property rights vigorously, these efforts
+may not be successful or the costs associated with protecting our rights in certain jurisdictions
+may be prohibitive. From time to time we discover products in the marketplace that are counterfeit
+reproductions of our products or that otherwise infringe upon intellectual property rights held by
+us. Actions taken by us to establish and protect our trademarks and other intellectual property
+rights may not be adequate to prevent imitation of our products by others or to prevent others from
+seeking to block sales of our products as violating trademarks and intellectual property rights. If
+we are unsuccessful in challenging a third party’s products on the basis of infringement of our
+intellectual property rights, continued sales of such products by that or any other third party
+could adversely impact the Skechers brand, result in the shift of consumer preferences away from
+our products and generally have a material adverse effect on our business, financial condition and
+results of operations.
+COMPETITION
+Competition in the footwear industry is intense. Although we believe that we do not compete
+directly with any single company with respect to its entire range of products, our products compete
+with other branded products within their product category as well as with private label products
+sold by retailers, including some of our customers. Our utility footwear and casual shoes compete
+with footwear offered by companies such as The Timberland Company, Dr. Martens, Kenneth Cole
+Productions Inc., Steven Madden, Ltd., Wolverine World Wide, Inc., V.F. Corporation, and CROCS,
+Inc. Our athletic lifestyle shoes compete with footwear offered by companies such as Nike, Inc.,
+adidas AG, Puma AG, New Balance Athletic Shoe, Inc. and K-Swiss Inc. Our children’s shoes compete
+with footwear offered by companies such as Collective Brands Inc. In varying degrees, depending on
+the product category involved, we compete on the basis of style, price, quality, comfort and brand
+name prestige and recognition, among other considerations. These and other competitors pose
+challenges to our market share in our major domestic markets and may make it more difficult to
+establish our products in Europe, Asia and other international regions. We also compete with
+numerous manufacturers, importers and distributors of footwear for the limited shelf space
+available for the display of such products to the consumer. Moreover, the general availability of
+contract manufacturing capacity allows ease of access by new market entrants. Many of our
+competitors are larger, have been in existence for a longer period of time, have achieved greater
+recognition for their brand names, have captured greater market share and/or have substantially
+greater financial, distribution, marketing and other resources than we do. We cannot be certain
+that we will be able to compete successfully against present or future competitors, or that
+competitive pressures will not have a material adverse effect on our business, financial condition
+and results of operations.
+13 
+Table of Contents 
+EMPLOYEES
+As of February 1, 2008, we employed 4,182 persons, 2,157 of whom were employed on a full-time
+basis and 2,025 of whom were employed on a part-time basis. None of our employees are subject to a
+collective bargaining agreement. We believe that our relations with our employees are satisfactory.
+ITEM 1A. RISK FACTORS 
+In addition to the other information in this annual report, the following factors should be
+considered in evaluating us and our business.
+Our Future Success Depends On Our Ability To Respond To Changing Consumer Demands, Identify And
+Interpret Fashion Trends And Successfully Market New Products. 
+The footwear industry is subject to rapidly changing consumer demands and fashion trends.
+Accordingly, we must identify and interpret fashion trends and respond in a timely manner. Demand
+for and market acceptance of new products are uncertain and achieving market acceptance for new
+products generally requires substantial product development and marketing efforts and expenditures.
+If we do not continue to meet changing consumer demands and develop successful styles in the
+future, our growth and profitability will be negatively impacted. We frequently make decisions
+about product designs and marketing expenditures several months in advance of the time when
+consumer acceptance can be determined. If we fail to anticipate, identify or react appropriately to
+changes in styles and trends or are not successful in marketing new products, we could experience
+excess inventories, higher than normal markdowns or an inability to profitably sell our products.
+Because of these risks, a number of companies in the footwear industry specifically, and others in
+the fashion and apparel industry in general, have experienced periods of rapid growth in revenues
+and earnings and thereafter periods of declining sales and losses, which in some cases have
+resulted in companies in these industries ceasing to do business. Similarly, these risks could have
+a material adverse effect on our results of operations or financial condition.
+Our Business And The Success Of Our Products Could Be Harmed If We Are Unable To Maintain Our Brand
+Image. 
+Our success to date has been due in large part to the strength of the Skechers brand, and to a
+lesser degree, the reputation of our fashion brands. If we are unable to timely and appropriately
+respond to changing consumer demand, our brand name and brand image may be impaired. Even if we
+react appropriately to changes in consumer preferences, consumers may consider our brand image to
+be outdated or associate our brand with styles of footwear that are no longer popular. In the past,
+several footwear companies including ours have experienced periods of rapid growth in revenues and
+earnings followed by periods of declining sales and losses. Our business may be similarly affected
+in the future.
+Our Business May Be Negatively Impacted As A Result Of Changes In The Economy. 
+Our business depends on the general economic environment and levels of consumer spending in
+the United States and other parts of the world that affect not only the ultimate consumer, but also
+retailers, who are our primary direct customers. Purchases of footwear tend to decline in periods of
+recession or uncertainty regarding future economic prospects, when consumer spending, particularly
+on discretionary items, declines. During periods of recession or economic uncertainty, we may not
+be able to maintain or increase our sales to existing customers, make sales to new customers, open
+and operate new retail stores, maintain sales levels at our existing stores, maintain or increase
+our international operations on a profitable basis, or maintain or improve our earnings from
+operations as a percentage of net sales. In addition, the continued threat of terrorist attacks
+throughout the world similar to those on September 11, 2001, and the military action, or possible
+military action, taken by the United States and other nations in Iraq or other countries may cause
+significant disruption to commerce throughout the world. As a result, our operating results may be
+adversely and materially affected by downward trends in the domestic economy or the occurrence of
+events that slow the global economy or, more particularly, result in delays or cancellations of
+purchase orders for our products.
+Our Business Could Be Harmed If We Fail To Maintain Proper Inventory Levels. 
+We place orders with our manufacturers for some of our products prior to the time we receive
+all of our customers’ orders. We do this to minimize purchasing costs, the time necessary to fill
+customer orders and the risk of non-delivery. We also maintain an
+14 
+Table of Contents 
+inventory of certain products that we anticipate will be in greater demand. However, we may be
+unable to sell the products we have ordered in advance from manufacturers or that we have in our
+inventory. Inventory levels in excess of customer demand may result in inventory write-downs, and
+the sale of excess inventory at discounted prices could significantly impair our brand image and
+have a material adverse effect on our operating results and financial condition. Conversely, if we
+underestimate consumer demand for our products or if our manufacturers fail to supply the quality
+products that we require at the time we need them, we may experience inventory shortages. Inventory
+shortages might delay shipments to customers, negatively impact retailer and distributor
+relationships, and diminish brand loyalty.
+We Face Intense Competition, Including Competition From Companies With Significantly Greater
+Resources Than Ours, And If We Are Unable To Compete Effectively With These Companies, Our Market
+Share May Decline And Our Business Could Be Harmed. 
+We face intense competition in the footwear industry from other established companies. A
+number of our competitors have significantly greater financial, technological, engineering,
+manufacturing, marketing and distribution resources than we do. Their greater capabilities in these
+areas may enable them to better withstand periodic downturns in the footwear industry, compete more
+effectively on the basis of price and production and more quickly develop new products. In
+addition, new companies may enter the markets in which we compete, further increasing competition
+in the footwear industry.
+We believe that our ability to compete successfully depends on a number of factors, including
+the style and quality of our products and the strength of our brand name, as well as many factors
+beyond our control. We may not be able to compete successfully in the future, and increased
+competition may result in price reductions, reduced profit margins, loss of market share and an
+inability to generate cash flows that are sufficient to maintain or expand our development and
+marketing of new products, which would adversely impact the trading price of our Class A Common
+Stock.
+We Depend Upon A Relatively Small Group Of Customers For A Large Portion Of Our Sales. 
+During 2007, 2006 and 2005, our net sales to our five largest customers accounted for
+approximately 25.3%, 24.9%, and 25.4% of total net sales, respectively. No customer accounted for
+more than 10% of our net sales during 2007, 2006 and 2005. One customer accounted for 10.0% and
+12.0% of net trade receivables at December 31, 2007 and December 31, 2006, respectively. Although
+we have long-term relationships with many of our customers, our customers do not have a contractual
+obligation to purchase our products and we cannot be certain that we will be able to retain our
+existing major customers. Furthermore, the retail industry regularly experiences consolidation,
+contractions and closings which may result in our loss of customers or our inability to collect
+accounts receivable of major customers. If we lose a major customer, experience a significant
+decrease in sales to a major customer or are unable to collect the accounts receivable of a major
+customer, our business could be harmed.
+We May Be Unable To Successfully Execute Our Growth Strategy Or Maintain Our Growth. 
+Although our company has generally exhibited steady growth since we began operations, we had a
+decrease in net sales in the past and our rate of growth has declined at times as well, and we may
+experience similar decreases in net sales or declines in rate of growth again in the future. Our
+ability to grow in the future depends upon, among other things, the continued success of our
+efforts to maintain our brand image and expand our footwear offerings and distribution channels.
+As our business grows, we may need to improve and enhance our overall financial and
+managerial controls, reporting systems and procedures to effectively manage our growth. We may be
+unable to successfully implement our current growth strategy or other growth strategies or
+effectively manage our growth, any of which would negatively impact our business, results of
+operations and financial condition. Furthermore, in anticipation of continued increases in net sales,
+we have significantly expanded our infrastructure and workforce to achieve economies of scale.
+Because these expenses are mostly fixed in the short term, our operating results and margins will
+be adversely impacted if we do not continue to grow as anticipated.
+Our International Sales And Manufacturing Operations Are Subject To The Risks Of Doing Business
+Abroad, Particularly In China, Which Could Affect Our Ability To Sell Or Manufacture Our Products
+In International Markets, Obtain Products From Foreign Suppliers Or Control The Costs Of Our
+Products. 
+Substantially all of our net sales during the year ended December 31, 2007 were derived from
+sales of footwear manufactured in foreign countries, with most manufactured in China and, to a
+lesser extent, in Italy, Vietnam and Brazil. We also sell our footwear in several foreign countries
+and plan to increase our international sales efforts as part of our growth strategy. Foreign
+manufacturing and sales are subject to a number of risks, including the following: political and
+social unrest, including the military presence in Iraq and terrorism; changing economic conditions,
+including higher labor costs; increased costs of raw materials; currency exchange rate
+fluctuations; labor shortages and work stoppages; electrical shortages; transportation delays; loss
+or damage to products in transit; expropriation; nationalization; the adjustment, elimination or
+imposition of domestic and international duties, tariffs, quotas, import
+15 
+Table of Contents 
+and export controls and other non-tariff barriers; exposure to different legal standards
+(particularly with respect to intellectual property); compliance with foreign laws; and changes in
+domestic and foreign governmental policies. We have not, to date, been materially affected by any
+such risks, but we cannot predict the likelihood of such developments occurring or the resulting
+long-term adverse impact on our business, results of operations or financial condition.
+In particular, because most of our products are manufactured in China, the possibility of
+adverse changes in trade or political relations with China, political instability in China,
+increases in labor costs, the occurrence of prolonged adverse weather conditions or a natural
+disaster such as an earthquake or typhoon in China, or the outbreak of a pandemic disease such as
+the Avian Flu in China could severely interfere with the manufacture and/or shipment of our
+products and would have a material adverse effect on our operations. In addition, electrical
+shortages, labor shortages or work stoppages may extend the production time necessary to produce
+our orders, and there may be circumstances in the future where we may have to incur premium freight
+charges to expedite the delivery of product to our customers. If we incur a significant amount of
+premium charges to airfreight product for our customers, our gross profit will be negatively
+affected if we are unable to collect those charges.
+Currency Exchange Rate Fluctuations In China Could Result In Higher Costs And Decreased Margins. 
+Our manufacturers located in China may be subject to the effects of exchange rate fluctuations
+should the Chinese currency not remain stable with the U.S. dollar. The value of the Chinese
+currency depends to a large extent on the Chinese government’s policies and China’s domestic and
+international economic and political developments. Since 1994, the official exchange rate for the
+conversion of the Chinese currency was pegged to the U.S. dollar at a virtually fixed rate of
+approximately 8.28 Yuan per U.S. dollar. However, on July 21, 2005, the Chinese government revalued
+the Yuan by 2.1%, setting the exchange rate at 8.11 Yuan per U.S. dollar, and adopted a more
+flexible system based on a trade-weighted basket of foreign currencies of China’s main trading
+partners. Under the new “managed float” policy, the exchange rate of the Yuan may shift each day up
+to 0.3% in either direction from the previous day’s close, and as a result, the exchange rate
+measured 7.29 Yuan per U.S. dollar at December 31, 2007. The valuation of the Yuan may continue to
+increase incrementally over time should the China central bank allow it to do so, which could
+significantly increase labor and other costs incurred in the production of our footwear in China,
+resulting in an adverse effect on our results of operations and financial condition.
+The Potential Imposition Of Additional Duties, Quotas, Tariffs And Other Trade Restrictions Could
+Have An Adverse Impact On Our Sales And Profitability. 
+All of our products manufactured overseas and imported into the United States, the European
+Union (“EU”) and other countries are subject to customs duties collected by customs authorities.
+Customs information submitted by us is routinely subject to review by customs authorities. We are
+unable to predict whether additional customs duties, quotas, tariffs, anti-dumping duties,
+safeguard measures, cargo restrictions to prevent terrorism or other trade restrictions may be
+imposed on the importation of our products in the future. Such actions could result in increases
+in the cost of our products generally and might adversely affect the sales and profitability of
+Skechers and the imported footwear industry as a whole.
+Our Quarterly Revenues And Operating Results Fluctuate As A Result Of A Variety Of Factors,
+Including Seasonal Fluctuations In Demand For Footwear, Delivery Date Delays And Potential
+Fluctuations In Our Annualized Tax Rate, Which May Result In Volatility Of Our Stock Price. 
+Our quarterly revenues and operating results have varied significantly in the past and can be
+expected to fluctuate in the future due to a number of factors, many of which are beyond our
+control. Our major customers generally have no obligation to purchase forecasted amounts and may
+cancel orders, change delivery schedules or change the mix of products ordered with minimal notice
+and without penalty. As a result, we may not be able to accurately predict our quarterly sales. In
+addition, sales of footwear products have historically been somewhat seasonal in nature with the
+strongest sales generally occurring in our second and third quarters for the back-to-school selling
+season. Back-to-school sales typically ship in June, July and August, and delays in the timing,
+cancellation, or rescheduling of these customer orders and shipments by our wholesale customers
+could negatively impact our net sales and results of operations for our second or third quarters.
+More specifically, the timing of when products are shipped is determined by the delivery schedules
+set by our wholesale customers, which could cause sales to shift between our second and third
+quarters. Because our expense levels are partially based on our expectations of future net sales,
+our expenses may be disproportionately large relative to our revenues, and we may be unable to
+adjust spending in a timely manner to compensate for any unexpected revenue shifts, which could
+have a material adverse effect on our operating results.
+16 
+Table of Contents 
+Our annualized tax rate is based on projections of our domestic and international operating
+results for the year, which we review and revise as necessary at the end of each quarter, and it is
+highly sensitive to fluctuations in projected international earnings. Any quarterly fluctuations in
+our annualized tax rate that may occur could have a material impact on our quarterly operating
+results. As a result of these specific and other general factors, our operating results will likely
+vary from quarter to quarter and the results for any particular quarter may not be necessarily
+indicative of results for the full year. Any shortfall in revenues or net income from levels
+expected by securities analysts and investors could cause a decrease in the trading price of our
+Class A Common Stock.
+We Rely On Independent Contract Manufacturers And, As A Result, Are Exposed To Potential
+Disruptions In Product Supply. 
+Our footwear products are currently manufactured by independent contract manufacturers. During
+2007 and 2006, the top four manufacturers of our products produced approximately 58.4% and 59.6% of
+our total purchases, respectively. One manufacturer accounted for 29.7% and 30.8% of total
+purchases during 2007 and 2006, respectively. Two other manufacturers each accounted for over
+10.0% of our total purchases during 2007 and 2006. We do not have long-term contracts with our
+manufacturers, and we compete with other footwear companies for production facilities. We could
+experience difficulties with these manufacturers, including reductions in the availability of
+production capacity, failure to meet our quality control standards, failure to meet production
+deadlines or increased manufacturing costs. In particular, manufacturers in China are facing a
+labor shortage as migrant workers seek better wages and working conditions in farming and other
+vocations, and if this trend continues, our current manufacturers’ operations could be adversely
+affected.
+If our current manufacturers cease doing business with us, we could experience an interruption
+in the manufacture of our products. Although we believe that we could find alternative
+manufacturers, we may be unable to establish relationships with alternative manufacturers that will
+be as favorable as the relationships we have now. For example, new manufacturers may have higher
+prices, less favorable payment terms, lower manufacturing capacity, lower quality standards or
+higher lead times for delivery. If we are unable to provide products consistent with our standards
+or the manufacture of our footwear is delayed or becomes more expensive, this could result in our
+customers canceling orders, refusing to accept deliveries or demanding reductions in purchase
+prices, any of which could have a material adverse effect on our business and results of
+operations.
+Our Business Could Be Harmed If Our Contract Manufacturers, Suppliers Or Licensees Violate Labor,
+Trade Or Other Laws. 
+We require our independent contract manufacturers, suppliers and licensees to operate in
+compliance with applicable laws and regulations. Manufacturers are required to certify that neither
+convicted, forced or indentured labor (as defined under United States law) nor child labor (as
+defined by law in the manufacturer’s country) is used in the production process, that compensation
+is paid in accordance with local law and that their factories are in compliance with local safety
+regulations. Although we promote ethical business practices and our sourcing personnel periodically
+visit and monitor the operations of our independent contract manufacturers, suppliers and
+licensees, we do not control them or their labor practices. If one of our independent contract
+manufacturers, suppliers or licensees violates labor or other laws or diverges from those labor
+practices generally accepted as ethical in the United States, it could result in adverse publicity
+for us, damage our reputation in the United States or render our conduct of business in a
+particular foreign country undesirable or impractical, any of which could harm our business.
+In addition, if we, or our foreign manufacturers, violate United States or foreign trade laws
+or regulations, we may be subject to extra duties, significant monetary penalties, the seizure and
+the forfeiture of the products we are attempting to import or the loss of our import privileges.
+Possible violations of United States or foreign laws or regulations could include inadequate record
+keeping of our imported products, misstatements or errors as to the origin, quota category,
+classification, marketing or valuation of our imported products, fraudulent visas or labor
+violations. The effects of these factors could render our conduct of business in a particular
+country undesirable or impractical and have a negative impact on our operating results.
+Our Operating Results Could Be Negatively Impacted If Our Sales Are Concentrated In Any One Style
+Or Group Of Styles. 
+If any one style or group of similar styles of our footwear were to represent a substantial
+portion of our net sales, we could be exposed to risk should consumer demand for such style or
+group of styles decrease in subsequent periods. We attempt to mitigate this risk by offering a
+broad range of products, and no style comprised over 5% of our gross wholesale sales during 2007 or
+2006. However, this may change in the future and fluctuations in sales of any given style that
+represents a significant portion of our future net sales could have a negative impact on our
+operating results.
+17 
+Table of Contents 
+Our Strategies Involve A Number Of Risks That Could Prevent Or Delay Any Successful Opening Of New
+Stores As Well As Impact The Performance Of Our Existing Stores. 
+Our ability to open and operate new stores successfully depends on many factors, including,
+among others, our ability to identify suitable store locations, the availability of which is
+outside of our control; negotiate acceptable lease terms, including desired tenant improvement
+allowances; source sufficient levels of inventory to meet the needs of new stores; hire, train and
+retain store personnel; successfully integrate new stores into our existing operations; and satisfy
+the fashion preferences in new geographic areas.
+In addition, some or a substantial number of new stores could be opened in regions of the
+United States in which we currently have few or no stores. Any expansion into new markets may
+present competitive, merchandising and distribution challenges that are different from those
+currently encountered in our existing markets. Any of these challenges could adversely affect our
+business and results of operations. In addition, to the extent that any new store openings are in
+existing markets, we may experience reduced net sales volumes in existing stores in those markets.
+Many Of Our Retail Stores Depend Heavily On The Customer Traffic Generated By Shopping And Factory
+Outlet Malls Or By Tourism. 
+Many of our concept stores are located in shopping malls and some of our factory outlet stores
+are located in manufacturers’ outlet malls where we depend on obtaining prominent locations and the
+overall success of the malls to generate customer traffic. We cannot control the development of new
+malls, the availability or cost of appropriate locations within existing or new malls or the
+success of individual malls. Some of our concept stores occupy street locations that are heavily
+dependent on customer traffic generated by tourism. Any substantial decrease in tourism resulting
+from political, social or military events, a downturn in the economy or otherwise, is likely to
+adversely affect sales in our existing stores, particularly those with street locations. The
+effects of these factors could hinder our ability to open retail stores in new markets or reduce
+sales of particular existing stores, which could negatively affect our operating results.
+We Depend On Key Personnel To Manage Our Business Effectively In A Rapidly Changing Market, And If
+We Are Unable To Retain Existing Personnel, Our Business Could Be Harmed. 
+Our future success depends upon the continued services of Robert Greenberg, Chairman of the
+Board and Chief Executive Officer, Michael Greenberg, President, and David Weinberg, Executive Vice
+President and Chief Operating Officer. The loss of the services of any of these individuals or any
+other key employee could harm us. Our future success also depends on our ability to identify,
+attract and retain additional qualified personnel. Competition for employees in our industry is
+intense and we may not be successful in attracting and retaining such personnel.
+The Disruption, Expense And Potential Liability Associated With Existing And Unanticipated Future
+Litigation Against Us Could Have A Material Adverse Effect On Our Business, Results Of Operations
+And Financial Condition. 
+We are subject to various legal proceedings and threatened legal proceedings from time to time
+as part of our business. We are not currently a party to any legal proceedings or aware of any
+threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, we
+believe would have a material adverse effect on our business, results of operations or financial
+condition. However, any unanticipated litigation in the future, regardless of its merits, could
+significantly divert management’s attention from our operations and result in substantial legal
+fees to us. Further, there can be no assurance that any actions that have been or will be brought
+against us will be resolved in our favor or, if significant monetary judgments are rendered against
+us, that we will have the ability to pay such judgments. Such disruptions, legal fees and any
+losses resulting from these claims could have a material adverse effect on our business, results of
+operations and financial condition.
+Our Ability To Compete Could Be Jeopardized If We Are Unable To Protect Our Intellectual Property
+Rights Or If We Are Sued For Intellectual Property Infringement. 
+We believe that our trademarks, design patents and other proprietary rights are important to
+our success and our competitive position. We use trademarks on nearly all of our products and
+believe that having distinctive marks that are readily identifiable is an important factor in
+creating a market for our goods, in identifying us and in distinguishing our goods from the goods
+of others. We consider our Skechers ® , S in Shield Design ® and Performance-S Shifted Design ® 
+trademarks to be among our most valuable assets, and we have registered these trademarks in many
+countries. In addition, we own many other trademarks that we utilize in marketing our products. We
+also have a number of design patents and a limited number of utility patents covering components
+and features used
+18 
+Table of Contents 
+in various shoes. We believe that our patents and trademarks are generally sufficient to
+permit us to carry on our business as presently conducted. While we vigorously protect our
+trademarks against infringement, we cannot assure you that we will be able to secure patents or
+trademark protection for our intellectual property in the future or that protection will be
+adequate for future products. Further, we have been sued for patent and trademark infringement and
+cannot be sure that our activities do not and will not infringe on the intellectual property rights
+of others. If we are compelled to prosecute infringing parties, defend our intellectual property or
+defend ourselves from intellectual property claims made by others, we may face significant expenses
+and liability as well as the diversion of management’s attention from our business, each of which
+could negatively impact our business or financial condition.
+In addition, the laws of foreign countries where we source and distribute our products may not
+protect intellectual property rights to the same extent as do the laws of the United States. We
+cannot assure you that the actions we have taken to establish and protect our trademarks and other
+intellectual property rights outside the United States will be adequate to prevent imitation of our
+products by others or, if necessary, successfully challenge another party’s counterfeit products or
+products that otherwise infringe on our intellectual property rights on the basis of trademark or
+patent infringement. Continued sales of these products could adversely affect our sales and our
+brand and result in the shift of consumer preference away from our products. We may face
+significant expenses and liability in connection with the protection of our intellectual property
+rights outside the United States, and if we are unable to successfully protect our rights or
+resolve intellectual property conflicts with others, our business or financial condition could be
+adversely affected.
+Natural Disasters Or A Decline In Economic Conditions In California Could Increase Our Operating
+Expenses Or Adversely Affect Our Sales Revenue. 
+A substantial portion of our operations are located in California, including 46 of our retail
+stores, our headquarters in Manhattan Beach, our current domestic distribution center in Ontario
+and our future domestic distribution center in Moreno Valley. Because a significant portion of our
+net sales is derived from sales in California, a decline in the economic conditions in California,
+whether or not such decline spreads beyond California, could materially adversely affect our
+business. Furthermore, a natural disaster or other catastrophic event, such as an earthquake or
+wild fires affecting California, could significantly disrupt our business including the operation
+of our only domestic distribution center. We may be more susceptible to these issues than our
+competitors whose operations are not as concentrated in California.
+One Principal Stockholder Is Able To Control Substantially All Matters Requiring A Vote Of Our
+Stockholders And His Interests May Differ From The Interests Of Our Other Stockholders. 
+As of December 31, 2007, Robert Greenberg, Chairman of the Board and Chief Executive Officer,
+beneficially owned 78.1% of our outstanding Class B Common Stock and members of Mr. Greenberg’s
+immediate family beneficially owned the remainder of our outstanding Class B Common Stock. The
+holders of Class A Common Stock and Class B Common Stock have identical rights except that holders
+of Class A Common Stock are entitled to one vote per share while holders of Class B Common Stock
+are entitled to ten votes per share on all matters submitted to a vote of our stockholders. As a
+result, as of December 31, 2007, Mr. Greenberg beneficially owned approximately 62.1% of the
+aggregate number of votes eligible to be cast by our stockholders, and together with shares
+beneficially owned by other members of his immediate family, he beneficially owned approximately
+79.6% of the aggregate number of votes eligible to be cast by our stockholders. Mr. Greenberg may
+have different interests than our other stockholders, and because he is able to control
+substantially all matters requiring approval by our stockholders, he may direct the operations of
+our business in a manner contrary to the interests of our other stockholders. Matters that require
+the approval of our stockholders include the election of directors and the approval of mergers or
+other business combination transactions. Mr. Greenberg also has control over our management and
+affairs. As a result of such control, certain transactions are not possible without the approval
+of Mr. Greenberg, including proxy contests, tender offers, open market purchase programs or other
+transactions that can give our stockholders the opportunity to realize a premium over the
+then-prevailing market prices for their shares of our Class A Common Stock. The differential in the
+voting rights may adversely affect the value of our Class A Common Stock to the extent that
+investors or any potential future purchaser view the superior voting rights of our Class B Common
+Stock to have value.
+Our Charter Documents And Delaware Law May Inhibit A Takeover, Which May Cause A Decline In The
+Value Of Our Stock. 
+Provisions of Delaware law, our certificate of incorporation or our bylaws could make it more
+difficult for a third party to acquire us, even if closing such a transaction would be beneficial
+to our stockholders. Mr. Greenberg’s substantial beneficial ownership position, together with the
+authorization of Preferred Stock, the disparate voting rights between our Class A Common Stock and
+Class B Common Stock, the classification of our Board of Directors and the lack of cumulative
+voting in our certificate of incorporation and
+19 
+Table of Contents 
+bylaws, may have the effect of delaying, deferring or preventing a change in control, may
+discourage bids for our Class A Common Stock at a premium over the market price of the Class A
+Common Stock and may adversely affect the market price of our Class A Common Stock.
+ITEM 1B. UNRESOLVED STAFF COMMENTS 
+None.
+ITEM 2. PROPERTIES 
+Our corporate headquarters and additional administrative offices are located at four premises
+in Manhattan Beach, California, which consist of an aggregate of approximately 100,000 square feet.
+We own and lease portions of our corporate headquarters and administrative offices. The property
+leases expire between October 2010 and February 2012, with options to extend these leases in some
+cases, and the current aggregate annual rent for the leased property is approximately $0.5 million.
+Also, construction commenced in 2005 on another corporate facility in Manhattan Beach, California
+that is expected to be approximately 55,000 square feet. The exterior of the facility was
+completed in 2007, and we are currently working on the interior improvements and we expect to move
+in during 2008.
+Our U.S. distribution center consists of four leased facilities and one that we own, which are
+located in Ontario, California. The four leased facilities aggregate approximately 1,407,000 square
+feet, with an annual base rent of approximately $5.3 million. The owned distribution facility is
+approximately 264,000 square feet. The property leases expire between May 2009 and May 2011, and
+these leases contain rent escalation provisions. During 2007, we entered into a lease to build a
+new approximately 1.8 million square foot distribution facility in Moreno Valley, California. Once
+completed, we will occupy the facility under an eleven-year lease with one option to extend the
+lease four years followed by two options to extend the lease by additional five-year terms, and we
+will move out of our existing distribution facilities in Ontario, California. Base rent for the
+new facility will be $679,540 per month for month 1 through month 60 and $788,267 per month for
+month 61 through month 132.
+Our European distribution center consists of a 240,000 square-foot facility in Liege, Belgium
+under a 25-year operating lease with base rent of approximately $1.3 million per year. The lease
+provides for first right of refusal on three facilities planned for development, allowing for
+expansion up to a total of approximately 735,000 square feet. We believe that the capacity
+available to us within our lease agreement should allow for further growth of our international
+operations. The lease agreement also provides for early termination rights at five-year intervals
+beginning in February 2007, pending notification as prescribed in the lease, of which the first
+such right was not exercised.
+All of our domestic retail stores and showrooms are leased with terms expiring between
+February 2008 and January 2019. The leases provide for rent escalations tied to either increases in
+the lessor’s operating expenses, fluctuations in the consumer price index in the relevant
+geographical area or a percentage of the store’s gross sales in excess of the base annual rent.
+Total base rent expense related to our domestic retail stores and showrooms was $24.9 million for
+the year ended December 31, 2007.
+We also lease all of our international administrative offices, retail stores and showrooms
+located in Brazil, Malaysia, Thailand, Canada, Switzerland, United Kingdom, Germany, France, Spain,
+Italy, and Netherlands. The property leases expire at various dates between February 2008 and
+September 2018. Total rent for the leased properties aggregated approximately $7.4 million for the
+year ended December 31, 2007.
+ITEM 3. LEGAL PROCEEDINGS 
+See note 13 to the financial statements on page 56 of this annual report for a discussion of
+legal proceedings as required under applicable SEC disclosure rules and regulations.
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
+No matters were submitted to our security holders to be voted on during the fourth quarter of
+2007.
+20 
+Table of Contents 
+PART II 
+ITEM 5. 
+MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
+PURCHASES OF EQUITY SECURITIES 
+Our Class A Common Stock trades on the New York Stock Exchange under the symbol “SKX.” The
+following table sets forth, for the periods indicated, the high and low sales prices of our Class A
+Common Stock.
+HIGH 
+LOW 
+YEAR ENDED DECEMBER 31, 2007 
+First Quarter 
+$ 
+38.03 
+$ 
+31.95 
+Second Quarter 
+36.87 
+28.41 
+Third Quarter 
+30.44 
+17.36 
+Fourth Quarter 
+25.57 
+18.75 
+YEAR ENDED DECEMBER 31, 2006 
+First Quarter 
+$ 
+25.04 
+$ 
+14.80 
+Second Quarter 
+28.35 
+21.19 
+Third Quarter 
+26.00 
+19.70 
+Fourth Quarter 
+33.58 
+23.51 
+HOLDERS
+As of February 1, 2008, there were 101 holders of record of our Class A Common Stock
+(including holders who are nominees for an undetermined number of beneficial owners) and 16 holders
+of record of our Class B Common Stock. These figures do not include beneficial owners who hold
+shares in nominee name. The Class B Common Stock is not publicly traded but each share is
+convertible upon request of the holder into one share of Class A Common Stock.
+DIVIDEND POLICY
+Since our conversion from an S Corporation to a C Corporation prior to the initial public
+offering of our Class A Common Stock in 1999, earnings have been and will be retained for the
+foreseeable future in the operations of our business. We have not declared or paid any cash
+dividends on our Class A Common Stock and do not anticipate paying any cash dividends in the
+foreseeable future. Our current policy is to retain all of our earnings to finance the growth and
+development of our business.
+EQUITY COMPENSATION PLAN INFORMATION
+Our equity compensation plan information is provided as set forth in Part III, Item 12 of this
+annual report.
+21 
+Table of Contents 
+PERFORMANCE GRAPH
+The following graph demonstrates the total return to stockholders of our company’s Class A
+Common Stock from December 31, 2002 to December 31, 2007, relative to the performance of the
+Russell 2000 Index, which includes our Class A Common Stock, and our peer group index, which
+consists of seven companies believed to be engaged in similar businesses: Nike, Inc., adidas AG,
+K-Swiss Inc., Kenneth Cole Productions, Inc., Steven Madden, Ltd., The Timberland Company and
+Wolverine World Wide, Inc. The Stride Rite Corporation was removed from the peer group index
+because its stock is no longer actively traded after being acquired by Payless ShoeSource, Inc. in
+August 2007.
+The graph assumes an investment of $100 on December 31, 2002 in each of our company’s Class A
+Common Stock and the stocks comprising each of the Russell 2000 Index and the customized peer group
+index. Each of the indices assumes that all dividends were reinvested. The stock performance of
+our company’s Class A Common Stock shown on the graph is not necessarily indicative of future
+performance. We will not make nor endorse any predictions as to our future stock performance.
+Company/Index 
+12/31/02 
+12/31/03 
+12/31/04 
+12/31/05 
+12/31/06 
+12/31/07 
+Skechers U.S.A., Inc. 
+$ 
+100.00 
+$ 
+96.00 
+$ 
+152.65 
+$ 
+180.45 
+$ 
+392.34 
+$ 
+229.80 
+Russell 2000 
+100.00 
+147.25 
+174.24 
+182.18 
+215.64 
+212.26 
+Custom Peer Group 
+100.00 
+153.96 
+203.47 
+202.10 
+227.13 
+288.77 
+22 
+Table of Contents 
+ITEM 6. SELECTED FINANCIAL DATA 
+The following tables set forth our company’s selected consolidated financial data as of and
+for each of the years in the five-year period ended December 31, 2007 and should be read in
+conjunction with our audited consolidated financial statements and notes thereto included under
+Part II, Item 8 of this annual report.
+(In thousands, except net earnings (loss) per share)
+YEARS ENDED DECEMBER 31, 
+STATEMENT OF EARNINGS DATA: 
+2007 
+2006 
+2005 
+2004 
+2003 
+Net sales 
+$ 
+1,394,181 
+$ 
+1,205,368 
+$ 
+1,006,477 
+$ 
+920,322 
+$ 
+834,976 
+Gross profit 
+599,989 
+523,346 
+420,482 
+370,857 
+317,686 
+Earnings (loss) from operations 
+112,930 
+112,544 
+76,296 
+49,245 
+(1,347 
+) 
+Earnings (loss) before income taxes 
+118,305 
+112,648 
+72,797 
+38,720 
+(10,373 
+) 
+Net earnings (loss) 
+75,686 
+70,994 
+44,717 
+23,553 
+(11,867 
+) 
+Net earnings (loss) per share:(1)
+Basic 
+1.67 
+1.73 
+1.13 
+0.61 
+(0.31 
+) 
+Diluted 
+1.63 
+1.59 
+1.06 
+0.59 
+(0.31 
+) 
+Weighted average shares:(1)
+Basic 
+45,262 
+41,079 
+39,686 
+38,638 
+37,840 
+Diluted 
+46,741 
+46,139 
+44,518 
+39,800 
+37,840 
+AS OF DECEMBER 31, 
+BALANCE SHEET DATA: 
+2007 
+2006 
+2005 
+2004 
+2003 
+Working capital 
+$ 
+523,888 
+$ 
+450,787 
+$ 
+361,210 
+$ 
+313,883 
+$ 
+275,124 
+Total assets 
+827,977 
+737,053 
+581,957 
+518,653 
+466,533 
+Long-term debt, excluding current portion 
+16,462 
+106,805 
+107,288 
+113,038 
+116,047 
+Stockholders’ equity 
+626,663 
+449,087 
+343,830 
+294,895 
+255,654 
+(1) 
+Basic earnings (loss) per share represents net earnings (loss) divided by the
+weighted-average number of common shares outstanding for the period. Diluted earnings (loss)
+per share, in addition to the weighted average determined for basic earnings per share,
+reflects the potential dilution that could occur if options to issue common stock were
+exercised or converted into common stock and assumes the conversion of our 4.50% convertible
+subordinated notes for the period outstanding since their issuance in April 2002 until their
+conversion in February 2007, unless their inclusion would be anti-dilutive. 
+23 
+Table of Contents 
+ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 
+GENERAL
+We design, market and sell contemporary footwear for men, women and children under the
+Skechers brand as well as eight other fashion and street brands. Our footwear is sold through a
+wide range of department stores and leading specialty retail stores, mid-tier retailers, boutiques,
+our own retail stores, distributor-owned international retail stores and our e-commerce website.
+Our objective is to continue to profitably grow our domestic operations while leveraging our brand
+name to expand internationally.
+Our operations are organized along our distribution channels, and we have the following four
+reportable sales segments – domestic wholesale sales, international wholesale sales, retail sales
+and e-commerce sales. We evaluate segment performance based primarily on net sales and gross
+margins. See detailed segment information in note 14 to our consolidated financial statements
+included under Part II, Item 8 of this annual report.
+FINANCIAL OVERVIEW
+Skechers achieved record revenue during 2007. Our net sales for 2007 were $1.394 billion, an
+increase of $188.8 million or 15.7% percent over net sales of $1.205 billion in 2006. Diluted
+earnings per share were $1.63, which reflected a 2.5% increase over the $1.59 reported in the prior
+year. Working capital was $523.9 million at December 31, 2007, an increase of $73.1 million from
+working capital of $450.8 million at December 31, 2006. Cash and short-term investments increased
+by $83.5 million to $304.0 million in 2007 compared to $220.5 million at December 31, 2006,
+primarily due to our 2007 earnings.
+Our domestic wholesale segment is our largest distribution channel comprising 59.6%, 64.1%,
+and 63.0% of our consolidated net sales for the years ended December 31, 2007, 2006 and 2005,
+respectively. Our international wholesale sales comprised 19.2%, 15.2%, and 16.3% of our
+consolidated net sales for the years ended December 31, 2007, 2006 and 2005, respectively. Retail
+sales comprised 20.0%, 19.7%, and 20.0% of our consolidated net sales for the years ended December
+31, 2007, 2006 and 2005, respectively, of which our domestic retail sales comprised 18.3%, 18.1%,
+and 18.4% of our consolidated net sales for the years ended December 31, 2007, 2006 and 2005,
+respectively. Our international retail sales did not comprise more than 10% of our consolidated
+net sales in 2007, 2006 or 2005.
+Domestic wholesale unit sales volume increased 8.7% to 43.2 million pairs in 2007 from 39.8
+million pairs in 2006, and our average selling price per pair decreased 1.2% to $19.22 in 2007 from
+$19.44 in 2006. The decrease in average selling price per pair and increase in unit sales volume
+were primarily due to the introduction of our Cali Gear line.
+2007 INITIATIVES
+Our positive results for 2007 were driven by focusing on our core strengths and initiatives
+for the year, which included:
+New product design and delivery . Our success depends on our ability to frequently introduce
+new styles and product lines as well as to design products in anticipation of consumers’
+ever-evolving preferences. This includes building our existing product lines with updates to
+proven sellers as well as creating new styles that we believe will become core to these lines in
+upcoming seasons. In 2007, we focused primarily on key sellers in our current divisions, launching
+our Cali Gear line and eliminating underperforming brands. During 2007, we discontinued three of
+our fashion lines—Michelle K, Avirex and Kitson footwear.
+Building our brands. As a marketing-driven company, we consistently focus on advertising our
+brands in targeted publications, on key television programming and in high traffic areas in better
+malls. During 2007, we increased our exposure on TV with more campaigns targeted to men, women and
+children for Skechers and our fashion brands. This included our first animated spot for Airators by
+Skechers. We also utilized the power of celebrities for Skechers and several of our fashion lines.
+Develop our infrastructure to support continued growth. During 2007, we entered into a lease
+agreement to build a new approximately 1.8 million square foot distribution facility to consolidate
+all of our domestic distribution facilities into one location. Once this new facility is built, we
+will move out of our five existing distribution facilities in Ontario, California.
+24 
+Table of Contents 
+Further grow our company-owned retail business. With a focus on profitably growing our retail
+business, we increased our store count by 39 stores in 2007, and we saw single digit comparable
+store sales growth in our domestic retail business during 2007 despite a challenging retail
+environment.
+Further develop our international businesses. In 2007, we continued to focus on improving our
+international operations by (i) increasing our customer base within our existing subsidiary
+business; (ii) increasing the product count within each account; (iii) delivering the right product
+into the right markets; (iv) launching the Marc Ecko and Zoo York branded lines in select global
+markets, including through our European subsidiaries and (v) establishing new opportunities for
+growth by entering new markets and growing in existing markets. We also increased our direct
+selling effort by opening subsidiaries in Brazil, Malaysia and Thailand as well as increasing our
+distributor network into Scandinavia and the Ukraine.
+OUTLOOK FOR 2008
+We will continue to focus our product offering in 2008 with new products, such as our Cali
+Gear line, which do not directly compete with our existing brands and allow us the opportunity to
+broaden the targeted demographic profile of our consumer base, increase our shelf space and open
+new doors without detracting from existing business. In addition, we will continue to grow our
+international business with the goal of increasing that business to 25% to 30% of our total
+business. We are also seeking to increase our global presence through a joint venture agreement in
+China. We will also continue to expand our retail distribution channel by opening another 25 to 30
+company-owned stores in 2008.
+YEAR ENDED DECEMBER 31, 2007 COMPARED TO THE YEAR ENDED DECEMBER 31, 2006
+Net sales 
+Net sales for 2007 were $1.394 billion, an increase of $188.8 million, or 15.7%, over net
+sales of $1.205 billion in 2006. The increase in net sales was due to increased international
+wholesale sales, domestic wholesale sales, and retail sales primarily due to acceptance of new
+designs and styles for our in-season product including sport fusion, casual fusion footwear and the
+introduction of our Cali Gear footwear. The increase in net sales was also due growth within the
+domestic retail segment from an increased store base as well as positive domestic and international
+comparative store sales increases ( i.e., stores open for at least one year).
+Our domestic wholesale segment increased 7.5%, or $58.3 million, to $831.2 million compared to
+$772.9 million in 2006. The increase in domestic wholesale segment net sales came on an 8.7% unit
+sales volume increase to 43.2 million pairs from 39.8 million pairs in 2006. The strongest
+increases in domestic wholesale came in our Women’s Active, Men’s USA, and Kids lines, along with
+the introduction of our Cali Gear line. Our average selling price per pair decreased 1.2% to
+$19.22 from $19.44 in 2006.
+Our international wholesale segment sales increased $83.9 million to $267.6 million in 2007, a
+45.7% increase over sales of $183.7 million in 2006. Our international wholesale sales consist of
+direct subsidiary sales – those we make to department stores and specialty retailers — and sales to
+our distributors who in turn sell to department stores and specialty retailers in various
+international regions where we do not sell direct. Direct subsidiary sales increased $49.9
+million, or 53.1%, to $144.0 million compared to net sales of $94.1 million in 2006. The increase
+in direct subsidiary sales was primarily due to increased sales into UK, Canada, Benelux, and
+Germany. Our distributor sales increased $34.0 million to $123.6 million in 2007, a 37.9% increase
+over sales of $89.6 million in 2006. This was primarily due to increased sales to our distributors
+in Russia, Panama, Serbia and Japan.
+Our retail segment sales increased $42.0 million to $279.4 million in 2007, a 17.7% increase
+over sales of $237.4 million in 2006. The increase in retail sales was due to a net increase of 36
+domestic stores, increased sales across all three store formats and positive comparable store
+sales. During 2007, we opened 42 new stores and closed three stores. These new stores contributed
+$16.9 million in net sales during 2007 as compared to new store sales of $10.0 million for 22 other
+stores opened in 2006. Of our new store additions, 28 were concept stores, 11 were outlet stores,
+and three were warehouse stores. In addition, during 2007, we realized positive comparable store
+sales increases in our domestic retail stores of 5.1% and 16.7% in our international retail stores.
+Our domestic retail sales increased 17.5% due to positive comparable sales and having 22 retail
+stores that were opened in 2006 being open the entire year in 2007. Our international retail sales
+increased 20.2% in 2007 compared to 2006, due to increased comparable sales, the opening of three
+additional stores, as well as favorable currency translation adjustments.
+We had 177 domestic retail stores as of February 15, 2008, and we believe that we have a
+presence in most major domestic markets. We currently plan to open approximately 25 to 30 domestic
+retail stores in 2008. During 2007, we closed two under-performing domestic retail stores, while
+we closed three in 2006. We periodically review all of our stores for impairment. During
+25 
+Table of Contents 
+2007 and 2006, we did not record an impairment charge. Further, we carefully review our
+under-performing stores and may consider the non-renewal of leases upon completion of the current
+term of the applicable lease.
+Our e-commerce sales increased $4.5 million to $15.9 million in 2007, a 40.2% increase over
+sales of $11.4 million in 2006. Our e-commerce sales made up 1% of our consolidated net sales in both 2007 and 2006.
+Gross profit 
+Gross profit for 2007 increased $76.7 million to $600.0 million as compared to $523.3 million
+in 2006. Gross profit as a percentage of net sales, or gross margin, decreased to 43.0% in 2007
+from 43.4% in 2006. This gross margin decrease was the result of the decrease in domestic
+wholesale margins and a decrease in retail margins to 61.5% in 2007 from 63.8% in 2006. This was
+partially offset by the increase in international wholesale margins, which increased to 37.3% in
+2007 from 35.4% in 2006.
+Our domestic wholesale segment increased $19.2 million, or 6.4%, to $320.4 million in 2006
+compared to $301.2 million in 2006. Domestic wholesale margins decreased to 38.5% in 2007 from
+39.0% for 2006. The decrease in domestic wholesale margins was due to lower average selling prices
+related to the introduction of our Cali Gear line and lower margins from closing out our
+discontinued fashion brands.
+Gross profit for our international wholesale segment increased $34.8 million, or 53.4%, to
+$99.8 million for 2007 compared to $65.0 million in 2006. Gross margins were 37.3% for 2007
+compared to 35.4% in 2006. Gross margins for our direct subsidiary sales were 45.0% in 2007 as
+compared to 42.4% in 2006. Gross margins for our distributor sales were 28.2% in 2007 as compared
+to 28.1% in 2006. The increase in gross margins for the international wholesale segment was due to
+increased subsidiary sales, which achieve higher gross margins than our international wholesale
+sales through our foreign distributors.
+Gross profit for our retail segment increased $20.4 million, or 13.4%, to $171.8 million in
+2007 as compared to $151.4 million in 2006. This increase in gross profit was due to 22 stores
+that were opened in 2006 being open the entire year in 2007 and positive comparable store sales
+increases of 16.7% and 5.1% in our international and domestic stores, respectively. During 2007,
+we opened 38 new domestic stores, and closed two other domestic stores. Gross margins decreased to
+61.5% in 2007 as compared to 63.8% in 2006. Again, the decrease in margins was due to lower
+average selling prices related to the introduction of our Cali Gear line and lower margins from
+closing out our discontinued fashion brands.
+Our cost of sales includes the cost of footwear purchased from our manufacturers, royalties,
+duties, quota costs, inbound freight (including ocean, air and freight from the dock to our
+distribution centers), broker fees and storage costs. Because we include expenses related to our
+distribution network in general and administrative expenses while some of our competitors may
+include expenses of this type in cost of sales, our gross margins may not be comparable, and we may
+report higher gross margins than some of our competitors in part for this reason.
+Licensing 
+Net licensing royalties increased $0.1 million, or 1.6%, to $4.2 million for 2007 compared to
+$4.1 million in 2006.
+Selling expenses 
+Selling expenses increased by $16.6 million, or 15.1%, to $126.5 million for 2007 from $109.9
+million in 2006. As a percentage of net sales, selling expenses were 9.1% in 2007 and 2006. The
+increase in selling expenses was primarily due to increased television and print advertising of
+$14.5 million and increased promotional costs of $2.4 million due to the launch of our Cali Gear
+line. Selling expenses consist primarily of the following: sales representative sample costs,
+sales commissions, trade shows, advertising and promotional costs, which may include television and
+ad production costs, and expenses associated with marketing materials.
+General and administrative expenses 
+General and administrative expenses increased by $59.7 million, or 19.6%, to $364.7 million
+for 2007 from $305.0 million in 2006. As a percentage of sales, general and administrative
+expenses were 26.2% and 25.3% in 2007 and 2006, respectively. The increase in general and
+administrative expenses was primarily due to increased salaries and wages of $19.3 million, which
+includes stock compensation costs of $1.1 million, higher rent expense of $8.5 million due to the
+opening of 42 retail stores, and increased warehouse and distribution costs of $8.2 million and
+increased temporary help of $5.1 million due to increased sales and the addition
+26 
+Table of Contents 
+of another domestic distribution facility. In addition, the expenses related to our
+distribution network, including the functions of purchasing, receiving, inspecting, allocating,
+warehousing and packaging of our products totaled $97.6 million and $77.6 million for 2007 and
+2006, respectively. The $20.0 million increase was due in part to the addition of our fifth
+domestic distribution facility in Ontario, California and its functional integration with the
+existing domestic distribution facility, as well as increased sales volume.
+General and administrative expenses consist primarily of the following: salaries, wages and
+related taxes, various overhead costs associated with our corporate staff , stock-based
+compensation, domestic and international retail operations, non-selling related costs of our
+international operations, costs associated with our domestic and European distribution centers,
+professional fees related to both legal and accounting, insurance, and depreciation and
+amortization, asset impairment, amongst other expenses. Our distribution network related costs are
+included in general and administrative expenses and are not allocated to specific segments.
+We believe that we have established our presence in most major domestic and international
+retail markets. We opened 38 domestic retail stores and four international retail stores in 2007,
+while closing two domestic stores and one international store. We currently plan to open between
+25 and 30 domestic stores in 2008. In addition, we plan to continue to pursue opportunistic
+international retail store locations.
+We continue to review our cost structure to develop efficiencies within our operations;
+however, we believe that our current cost structure is consistent with our anticipated sales levels
+in 2008.
+Interest income 
+Interest income for 2007 increased $1.6 million to $10.0 million as compared to $8.4 million
+for the same period in 2006. The increase in interest income resulted from higher average cash and
+investment balances during 2007 when compared to the same period in 2006 and interest received on a
+legal settlement in 2007. Interest income earned on our short-term investment balances was
+primarily tax exempt.
+Interest expense 
+Interest expense for 2007 decreased $4.4 million to $4.8 million as compared to $9.2 million
+for the same period in 2006. The decrease in interest expense was primarily due to the conversion
+of our 4.5% convertible subordinated notes to shares of our Class A common stock on or prior to
+February 20, 2007. Interest expense was incurred on mortgages on our distribution center and our
+corporate office located in Manhattan Beach, California, and amounts owed to our foreign
+manufacturers.
+Other income (expense) 
+Other income, net for 2007 decreased $0.9 million to $0.1 million as compared to $1.0 million
+for the same period in 2006. The decrease in other income was mainly due to foreign currency
+losses.
+Income taxes 
+The effective tax rate for 2007 was 36.0% as compared to 37.0% in 2006. Income tax expense
+for 2007 was $42.6 million compared to $41.7 million for 2006. The tax provision was computed
+using the effective tax rates applicable to each of our domestic and international taxable
+jurisdictions. The 2007 rate is slightly lower than the expected domestic rate of approximately
+40% due to our non-U.S. subsidiary earnings in lower tax rate jurisdictions and our reinvestment of
+undistributed earnings from our non-U.S. subsidiaries, thereby indefinitely postponing their
+remittance to the U.S. parent. As such, we did not provide for deferred income taxes on
+accumulated undistributed earnings of our non-U.S. subsidiaries. As of December 31, 2007,
+withholding and U.S. taxes have not been recorded on approximately $15.5 million of cumulative
+undistributed earnings.
+YEAR ENDED DECEMBER 31, 2006 COMPARED TO THE YEAR ENDED DECEMBER 31, 2005
+Net sales 
+Net sales for 2006 were $1.205 billion, an increase of $198.9 million, or 19.8%, over net
+sales of $1.006 billion in 2005. The increase in net sales was due to increased domestic wholesale
+sales, retail sales and international wholesale sales. The increase in sales was a result of
+increased demand for our in-season products and broader acceptance of our new lines, including
+sport fusion and casual fusion footwear.
+27 
+Table of Contents 
+Our domestic wholesale segment increased 21.9%, or $138.6 million, to $772.9 million compared
+to $634.3 million in 2005. The increase in domestic wholesale segment net sales came on a 15.6%
+unit sales volume increase to 39.8 million pairs from 34.4 million pairs in 2005. The strongest
+increases came in our Women’s Active, Men’s USA, and Kids lines. Our average selling price per
+pair increased 5.4% to $19.44 from $18.45 in 2005.
+Our international wholesale segment sales increased $20.2 million to $183.7 million in 2006, a
+12.3% increase over sales of $163.5 million in 2005. Direct subsidiary sales increased $10.7
+million, or 12.8%, to $94.1 million compared to net sales of $83.4 million in 2005. The increase in
+direct subsidiary sales was primarily due to increased sales into UK, Germany, Benelux, and Canada.
+Our distributor sales increased $9.5 million to $89.6 million in 2006, an 11.8% increase over
+sales of $80.1 million in 2005. This was primarily due to increased sales to our distributors in
+Panama, Russia and Serbia.
+Our retail segment sales increased $35.8 million to $237.4 million in 2006, a 17.8% increase
+over sales of $201.6 million in 2005. The increase in retail sales was due to a net increase of 20
+stores, increased sales across all three store formats and positive comparable store sales. During
+2006, we opened 22 new domestic stores and one international store, and we closed three other
+domestic stores. These new stores contributed $10.0 million in net sales during 2006 as compared
+to new store sales of $4.6 million for eleven other stores opened in 2005. Of our new store
+additions, 14 were concept stores, eight were outlet stores, and one was a warehouse store. In
+addition, during 2006, we realized positive comparable store sales increases in our domestic retail
+stores of 10.7% and 14.6% in our international retail stores. Our domestic retail sales increased
+17.3% due to positive comparable sales and having seven retail stores that were opened in 2005
+being open the entire year in 2006. Our international retail sales increased 22.6% in 2006
+compared to 2005, due to increased comparable sales, the opening of one additional store, as well
+as favorable currency translation adjustments.
+During 2006, we closed three under-performing retail stores, which was the same number closed
+in 2005. During 2006, we did not record an impairment charge. During 2005, we recorded an
+impairment charge of $0.9 million related to leasehold improvements for two of our stores.
+Our e-commerce sales increased $4.4 million to $11.4 million in 2006, a 61.3% increase over
+sales of $7.0 million in 2005. Our e-commerce sales made up less than 1% of our consolidated net
+sales in both 2006 and 2005.
+Gross profit 
+Gross profit for 2006 increased $102.8 million to $523.3 million as compared to $420.5 million
+in 2005. Gross profit as a percentage of net sales, or gross margin, increased to 43.4% in 2006
+from 41.8% in 2005. This gross margin increase was primarily the result of increased retail
+margins to 63.8% in 2006 from 61.5% in 2005. This was partially offset by the decrease in
+international wholesale margins, which decreased to 35.4% in 2006 from 37.2% in 2005. Increased
+margins were a result of increased sales volume in our higher margin in-season products and broader
+acceptance of our new lines, including sport fusion and casual fusion footwear.
+Our domestic wholesale segment gross margin increased $68.8 million, or 29.6%, to $301.2
+million in 2006 compared to $232.4 million in 2005. Domestic wholesale margins increased to 39.0%
+in 2006 from 36.6% for 2005.
+Gross profit for our international wholesale segment increased $4.2 million, or 7.0%, to $65.0
+million for 2006 compared to $60.8 million in 2005. Gross margins were 35.4% for 2006 compared to
+37.2% in 2005. International wholesale sales through our foreign subsidiaries achieve higher gross
+margins than our international wholesale sales through our foreign distributors. Gross margins for
+our direct subsidiary sales were 42.4% in 2006 as compared to 44.0% in 2005. Gross margins for our
+distributor sales were 28.1% in 2006 as compared to 30.1% in 2005. The decrease in gross margins
+was primarily due to increased discounts and allowances.
+Gross profit for our retail segment increased $27.5 million, or 22.2%, to $151.4 million in
+2006 as compared to $123.9 million in 2005. This increase in gross profit was due to eleven stores
+that were opened in 2005 being open the entire year in 2006 and positive comparable store sales
+increases of 14.6% and 10.7% in our international and domestic stores, respectively. During 2006,
+we opened 22 new domestic stores, one international store and closed three other domestic stores.
+Gross margins increased to 63.8% in 2006 as compared to 61.5% in 2005. Again, increased margins
+were a result of increased sales volume in our higher margin in-season products and broader
+acceptance of our new lines, including sport fusion and casual fusion footwear.
+28 
+Table of Contents 
+Licensing 
+Net licensing royalties decreased $2.5 million, or 37.9%, to $4.1 million for 2006 as compared
+to $6.6 million in 2005. The decrease in net licensing royalties is primarily the result of
+decreased royalty revenue associated with our various licensing agreements.
+Selling expenses 
+Selling expenses increased by $28.5 million, or 35.0%, to $109.9 million for 2006 from $81.4
+million in 2005. As a percentage of net sales, selling expenses were 9.1% and 8.1% in 2006 and
+2005, respectively. The increase in selling expenses was primarily due to increased media
+advertising expenses of $22.1 million, increased sales commissions of $3.4 million due to higher
+revenues, and higher trade show expenses of $2.8 million.
+General and administrative expenses 
+General and administrative expenses increased by $35.6 million, or 13.2%, to $305.0 million
+for 2006 from $269.4 million in 2005. As a percentage of sales, general and administrative
+expenses were 25.3% and 26.8% in 2006 and 2005, respectively. The increase in general and
+administrative expenses was primarily due to increased salaries and wages of $21.2 million, which
+includes stock compensation costs of $2.0 million due to the adoption of SFAS 123(R) in January
+2006, increased outside services of $3.5 million, higher rent expense of $3.2 million due to the
+opening of 23 retail stores, and increased warehouse and distribution costs of $3.0 million
+resulting from increased sales. In addition, the expenses related to our distribution network,
+including the functions of purchasing, receiving, inspecting, allocating, warehousing and packaging
+of our products totaled $77.6 million and $70.5 million for 2006 and 2005, respectively. We did
+not record any impairment charges in 2006. In 2005, impairment charges of $0.9 million related to
+the write-off of leasehold improvements at one of our domestic retail stores and one international
+retail store.
+Interest income 
+Interest income for 2006 increased $4.0 million to $8.4 million as compared to $4.4 million
+for the same period in 2005. The increase in interest income resulted from higher interest rates
+and higher average cash and investment balances during 2006 when compared to the same period in
+2005.
+Interest expense 
+Interest expense was $9.2 million for both 2006 and 2005. Interest expense is incurred on our
+convertible notes, mortgages on our distribution center and our corporate office located in
+Manhattan Beach, California, our capital lease obligations, and interest on amounts owed to our
+foreign manufacturers.
+Other income (expense) 
+Other income, net decreased $0.3 million to $1.0 million for 2006 as compared to $1.3 million
+in 2005. The decrease in other income was mainly due to lower recoveries related to the settlement
+of various lawsuits during 2006 as compared to 2005, offset by foreign currency gains.
+Income taxes 
+The effective tax rate for 2006 was 37.0% as compared to 38.6% in 2005. Income tax expense
+for 2006 was $41.7 million compared to $28.1 million for 2005. The tax provision was computed
+using the effective tax rates applicable to each of our domestic and international taxable
+jurisdictions. The 2006 rate is slightly lower than the expected domestic rate of approximately
+40% due to our non-U.S. subsidiary earnings in lower tax rate jurisdictions and our reinvestment of
+undistributed earnings from our non-U.S. subsidiaries, thereby indefinitely postponing their
+remittance to the U.S. parent. As such, we did not provide for deferred income taxes on
+accumulated undistributed earnings of our non-U.S. subsidiaries. As of December 31, 2006,
+withholding and U.S. taxes have not been provided on approximately $6.0 million of cumulative
+undistributed earnings.
+29 
+Table of Contents 
+LIQUIDITY AND CAPITAL RESOURCES
+Our working capital at December 31, 2007 was $523.9 million, an increase of $73.1 million from
+working capital of $450.8 million at December 31, 2006. Our cash and cash equivalents at December
+31, 2007 were $199.5 million compared to $160.5 million at December 31, 2006. The increase in cash
+and cash equivalents of $39.0 million was the result of our cash flow from operations of $101.4
+million and proceeds of $8.2 million from stock options exercised, which was offset by utilizing
+excess cash to purchase $44.5 million of short-term investments and capital expenditures of $31.2
+million.
+During 2007, our operating activities generated $101.4 million in net cash compared to cash
+provided by operating activities of $26.0 million for 2006. The significant increase in our
+operating cash flows for 2007, when compared to 2006, was mainly the result of our earnings and
+lower accounts receivable balances, which was partially offset by a smaller decrease in accounts
+payable in 2007 compared to 2006.
+Net cash used in investing activities was $75.7 million for 2007 as compared to $87.6 million
+in 2006. During 2007, we purchased $44.5 million in short-term investments to better utilize our
+cash balances. Capital expenditures for 2007 were approximately $31.2 million, of which $7.1
+million related to the construction of our new corporate headquarters and the balance primarily
+consisted of new store openings and remodels. This was compared to capital expenditures of $27.6
+million in the prior year, which primarily consisted of new store openings and remodels and
+warehouse equipment upgrades. During 2005, we entered into a construction agreement with Morley
+Construction Company for the construction of our third owned corporate facility in Manhattan Beach,
+California. The agreement has a maximum payment clause in which Morley agreed that the
+construction cost of the facility will not exceed $18.1 million plus change orders of $1.7 million,
+of which $19.2 million was incurred at December 31, 2007. The exterior of the facility was
+completed in 2007, and while we are currently working on the interior improvements, we expect to
+move in during 2008. Excluding the construction of our corporate headquarters and our new
+distribution center in Moreno Valley, California, we expect our ongoing capital expenditures for
+2008 to be approximately $25.0 million, which includes opening between 25 to 30 domestic retail
+stores and investments in information technology. We are currently in the process of designing and
+purchasing the equipment to be used in our new distribution center and estimate the cost of this
+equipment to be between $75.0 million and $85.0 million. We currently anticipate that our capital
+expenditure requirements will be funded through our operating cash flows, current cash and
+short-term investments on hand, or available lines of credit.
+Net cash provided by financing activities was $9.9 million during 2007 compared to net cash
+provided by financing activities of $22.9 million during 2006. The decrease in cash provided by
+financing activities was due to lower proceeds from the issuance of Class A common stock upon the
+exercise of stock options during the year ended December 31, 2007 as compared to the prior year.
+In April 2002, we issued $90.0 million aggregate principal amount of 4.50% convertible
+subordinated notes due April 15, 2007. On January 19, 2007, we called these notes for redemption.
+The redemption date was February 20, 2007. The aggregate principal amount of notes outstanding was
+$90.0 million. Holders of $89.969 million principal amount of the notes converted their notes into
+shares of our Class A common stock prior to the redemption date, which included $2.5 million of
+principal amount of the notes held by us. As a result of these conversions, 3,464,594 shares of
+Class A common stock were issued to holders of the notes, which included 96,272 shares issued to us
+that were immediately retired. In connection with these conversions, we paid approximately $500 in
+cash to holders who elected to convert their notes, which represented cash paid in lieu of
+fractional shares. In addition, we paid approximately $32,000 to holders who redeemed their notes,
+which represented the redemption price of 100.9% of $31,000 principal amount of the notes plus
+accrued interest.
+We have outstanding debt of $16.9 million that primarily relates to notes payable for one of
+our distribution center warehouses and one of our administrative offices, which notes are secured
+by the respective properties.
+On May 31, 2006, we amended our secured line of credit, which permits our company and certain
+of our subsidiaries to borrow up to $150.0 million based upon eligible accounts receivable and
+inventory, which line of credit can be increased to $250.0 million at our request. Borrowings bear
+interest at the borrowers’ election based on either the prime rate or the London Interbank Offered
+Rate (“LIBOR”). Prime rate loans will bear interest at a rate equal to JPMorgan Chase Bank’s
+publicly announced prime rate less up to 0.50%. LIBOR loans will bear interest at a rate equal to
+the applicable LIBOR plus up to an additional 1.75%. We pay a monthly unused line of credit fee of
+0.25% per annum. The loan agreement, which expires on May 31, 2011, provides for the issuance of
+letters of credit up to a maximum of $30.0 million. The loan agreement contains customary
+affirmative and negative covenants for secured credit facilities of this type, including a
+financial covenant requiring a fixed charge coverage ratio of not less than 1.1 at the end of each
+quarter if excess availability of eligible account receivable and inventory is less than $50.0
+million at any time during such quarter. Excess availability was not less than $50.0 million
+during the year-ended December 31, 2007; hence, the fixed charge ratio
+30 
+Table of Contents 
+requirement was not applicable at such date. No amounts were outstanding and we were in
+compliance with all other covenants of the loan agreement at December 31, 2007. We had $9.6
+million of outstanding letters of credit as December 31, 2007.
+We believe that anticipated cash flows from operations, available borrowings under our secured
+line of credit, cash on hand, short-term investments and our financing arrangements will be
+sufficient to provide us with the liquidity necessary to fund our anticipated working capital and
+capital requirements through 2008. However, in connection with our current strategies, we will
+incur significant working capital requirements and capital expenditures. Our future capital
+requirements will depend on many factors, including, but not limited to, costs associated with
+moving to a new distribution facility, the levels at which we maintain inventory, the market
+acceptance of our footwear, the success of our international operations, the levels of promotion
+and advertising required to promote our footwear, the extent to which we invest in new product
+design and improvements to our existing product design, acquisition of other brands or companies,
+and the number and timing of new store openings. To the extent that available funds are
+insufficient to fund our future activities, we may need to raise additional funds through public or
+private financing of debt or equity. We cannot be assured that additional financing will be
+available or that, if available, it can be obtained on terms favorable to our stockholders and us.
+Failure to obtain such financing could delay or prevent our planned expansion, which could
+adversely affect our business, financial condition and results of operations. In addition, if
+additional capital is raised through the sale of additional equity or convertible securities,
+dilution to our stockholders could occur.
+DISCLOSURE ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
+The following table aggregates all material contractual obligations and commercial commitments as
+of December 31, 2007:
+Payments Due by Period (In Thousands) 
+Less than 
+One to 
+Three to 
+More Than 
+One 
+Three 
+Five 
+Five 
+Total 
+Year 
+Years 
+Years 
+Years 
+Other long-term debt 
+$ 
+21,082 
+$ 
+1,783 
+$ 
+3,567 
+$ 
+15,732 
+— 
+Operating lease obligations (1) 
+411,576 
+47,124 
+106,339 
+81,496 
+$ 
+176,617 
+Purchase obligations (2) 
+239,523 
+239,523 
+— 
+— 
+— 
+Construction contract (3) 
+663 
+663 
+— 
+— 
+— 
+Minimum payments related to our
+licensing arrangements 
+41,110 
+10,055 
+15,655 
+15,400 
+— 
+$ 
+713,954 
+$ 
+299,148 
+$ 
+125,561 
+$ 
+112,628 
+$ 
+176,617 
+(1) 
+Operating lease obligations consists primarily of real property leases for our retail
+stores, corporate offices and distribution centers. These leases frequently include options
+that permit us to extend beyond the terms of the initial fixed term. Payments for these
+lease terms are provided for by cash flows generated from operations or, if needed, by our
+$150.0 million secured line of credit, for which no amounts were outstanding at December
+31, 2007. 
+(2) 
+Purchase obligations includes the following: (i) accounts payable balances for the
+purchase of footwear of $81.3 million, (ii) outstanding letters of credit of $9.6 million
+and (iii) open purchase commitments with our foreign manufacturers for $148.7 million. We
+currently expect to fund these commitments with cash flows from operations and/or cash on
+hand. 
+(3) 
+During 2005, we entered into a construction agreement with Morley Construction Company
+for the construction of our third owned corporate facility in Manhattan Beach, California.
+The agreement has a maximum payment clause in which Morley agrees that the construction
+cost of the core and shell of the facility will not exceed $18.1 million plus change orders
+of $1.7 million, of which $19.2 million was incurred at December 31, 2007. The exterior of
+the facility was completed in 2007, and we are currently working on the interior
+improvements and we expect to move in during 2008. 
+OFF-BALANCE SHEET ARRANGEMENTS
+We do not have any relationships with unconsolidated entities or financial partnerships such
+as entities often referred to as structured finance or special purpose entities that would have
+been established for the purpose of facilitating off-balance-sheet arrangements or for other
+contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity,
+market or credit risk that could arise if we had engaged in such relationships.
+31 
+Table of Contents 
+CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
+Management’s Discussion and Analysis of Financial Condition and Results of Operations is based
+upon our consolidated financial statements, which have been prepared in accordance with accounting
+principles generally accepted in the United States of America. The preparation of these financial
+statements requires us to make estimates and judgments that affect the reported amounts of assets,
+liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. We
+base our estimates on historical experience and on various other assumptions that are believed to
+be reasonable under the circumstances, the results of which form the basis for making judgments
+about the carrying values of assets and liabilities that are not readily apparent from other
+sources. Actual results may differ from these estimates under different assumptions or conditions.
+We believe the following critical accounting estimates are affected by more significant
+judgments used in the preparation of our consolidated financial statements: revenue recognition,
+allowance for bad debts, returns, sales allowances and customer chargebacks, inventory write-downs,
+valuation of long-lived assets, litigation reserves, valuations of deferred income taxes, uncertain
+tax positions, foreign currency translation and stock-based compensation.
+Revenue Recognition . We derive income from the sale of footwear and royalties earned from
+licensing the Skechers brand. Domestically, goods are shipped Free on Board (“FOB”) shipping point
+directly from our domestic distribution center in Ontario, California. For our European
+international wholesale customers, product is shipped FOB shipping point direct from our
+distribution center in Liege, Belgium. For our distributor sales, the goods are generally delivered
+directly from the independent factories to our distributors’ freight forwarders on a Free Named
+Carrier (“FCA”) basis. We recognize revenue on wholesale sales when products are shipped and the
+customer takes title and assumes risk of loss, collection of relevant receivable is probable,
+persuasive evidence of an arrangement exists and the sales price is fixed or determinable. This
+generally occurs at time of shipment. Allowances for estimated returns, discounts, doubtful
+accounts and chargebacks are provided for when related revenue is recorded. Related costs paid to
+third-party shipping companies are recorded as a cost of sales. We recognize revenue from retail
+sales at the point of sale.
+Royalty income is earned from our licensing arrangements. Upon signing a new licensing
+agreement, we receive up-front fees, which are generally characterized as prepaid royalties. These
+fees are initially deferred and recognized as revenue as earned (i.e., as licensed sales are
+reported to the company or on a straight line basis over the term of the agreement). The first
+calculated royalty payment is based on actual sales of the licensed product. Typically, at each
+quarter end we receive correspondence from our licensees indicating what the actual sales for the
+period were. This information is used to calculate and accrue the related royalties currently
+receivable based on the terms of the agreement.
+Allowance for bad debts, returns, sales allowances and customer chargebacks. We provide a
+reserve against our receivables for estimated losses that may result from our customers’ inability
+to pay. To minimize the likelihood of uncollectibility, customers’ credit-worthiness is reviewed
+periodically based on external credit reporting services and our experience with the account, and
+it is adjusted accordingly. When a customer’s account become past due, we generally place a hold on
+the account and discontinue further shipments to that customer, minimizing further risk of loss. We
+determine the amount of the reserve by analyzing known uncollectible accounts, aged receivables,
+economic conditions in the customers’ country or industry, historical losses and our customers’
+credit-worthiness. Amounts later determined and specifically identified to be uncollectible are
+charged or written off against this reserve.
+We also reserve for potential disputed amounts or chargebacks with our customers. Our
+chargeback reserve is based on a collectibility percentage based on factors such as historical
+trends, current economic conditions, and nature of the chargeback receivables. We also reserve for
+potential sales returns and allowances based on historical trends.
+The likelihood of a material loss on an uncollectible account would be mainly dependent on
+deterioration in the overall economic conditions in a particular country or environment. Reserves
+are fully provided for all probable losses of this nature. For receivables that are not
+specifically identified as high risk, we provide a reserve based upon a percent of sales for the
+preceding two months. This percentage is based on our historical loss rate. Gross trade accounts
+receivable balance was $177.7 million and the allowance for bad debts, returns, sales allowances
+and customer chargebacks was $10.3 million at December 31, 2007.
+Inventory write-downs . Inventories are stated at the lower of cost or market. We review our
+inventory on a regular basis for excess and slow moving inventory. Our review is based on inventory
+on hand, prior sales and our expected net realizable value. Our analysis includes a review of
+inventory quantities on hand at period end in relation to year-to-date sales and projections for
+sales in the near future. The net realizable value, or market value, is determined based on our
+estimate of sales prices of such inventory through off-price or discount store channels. A
+write-down of inventory is considered permanent and creates a new cost basis for those units. The
+likelihood of any material inventory write-down is dependent primarily on our expectation of future
+consumer demand for our
+32 
+Table of Contents 
+product. A misinterpretation or misunderstanding of future consumer demand for our product or
+of the economy, or other failure to estimate correctly, could result in inventory valuation
+changes, either favorably or unfavorably, compared to the requirement determined to be appropriate
+as of the balance sheet date. At December 31, 2007, our gross inventory value was $206.1 million
+and our inventory reserve was $1.9 million.
+Valuation of long-lived assets . When circumstances warrant, we assess the impairment of
+long-lived assets that require us to make assumptions and judgments regarding the carrying value of
+these assets. The assets are considered to be impaired if we determine that the carrying value may
+not be recoverable based upon our assessment of the following events or changes in circumstances:
+• 
+the asset’s ability to continue to generate income; 
+• 
+any loss of legal ownership or title to the asset(s); 
+• 
+any significant changes in our strategic business objectives and utilization of the
+asset(s); or 
+• 
+the impact of significant negative industry or economic trends. 
+If the assets are considered to be impaired, the impairment we recognize is the amount by
+which the carrying value of the assets exceeds the fair value of the assets. In addition, we base
+the useful lives and related amortization or depreciation expense on our estimate of the period
+that the assets will generate revenues or otherwise be used by us. If a change were to occur in any
+of the above-mentioned factors or estimates, the likelihood of a material change in our reported
+results would increase. In addition, we prepare a summary of store contribution from our domestic
+retail stores to assess potential impairment of the fixed assets and leasehold improvements. Stores
+with negative contribution opened in excess of twenty-four months are then reviewed in detail to
+determine if impairment exists. For the year ended December 31, 2007, we did not record an
+impairment charge.
+Litigation reserves . Estimated amounts for claims that are probable and can be reasonably
+estimated are recorded as liabilities in our consolidated balance sheets. The likelihood of a
+material change in these estimated reserves would depend on new claims as they may arise and the
+favorable or unfavorable outcome of the particular litigation. Both the amount and range of loss on
+a large portion of the remaining pending litigation is uncertain. As such, we are unable to make a
+reasonable estimate of the liability that could result from unfavorable outcomes in litigation. As
+additional information becomes available, we will assess the potential liability related to our
+pending litigation and revise our estimates. Such revisions in our estimates of the potential
+liability could materially impact our results of operations and financial position.
+Valuation of deferred income taxes . We record a valuation allowance when necessary to reduce
+our deferred tax assets to the amount that is more likely than not to be realized. The likelihood
+of a material change in our expected realization of our deferred tax assets depends on future
+taxable income and the effectiveness of our tax planning strategies amongst the various domestic
+and international tax jurisdictions in which we operate. We evaluate our projections of taxable
+income to determine the recoverability of our deferred tax assets and the need for a valuation
+allowance. As of December 31, 2007, we had net deferred tax assets of $23.3 million reduced by a
+valuation allowance of $0.7 million against loss carry-forwards not expected to be utilized by
+certain foreign subsidiaries.
+Uncertain tax positions . Effective January 1, 2007, we adopted the provisions of Financial
+Accounting Standards Board Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income
+Taxes—an interpretation of FASB Statement No. 109 “Accounting for Income Taxes ” (“SFAS 109”), which
+contains a two-step process for recognizing and measuring uncertain tax positions accounted for in
+accordance with SFAS No. 109. The first step is to determine whether or not a tax benefit should
+be recognized. A tax benefit will be recognized if the weight of available evidence indicates that
+the tax position is more likely than not to be sustained upon examination by the relevant tax
+authorities, assuming the tax authorities have full knowledge of all the relevant information. The
+second step is to measure the tax benefit of those tax positions meeting the more-likely-than-not
+recognition threshold. The tax benefit is measured at the largest amount of benefit that is more
+than 50% likely of being realized upon ultimate settlement with the tax authorities. The
+recognition and measurement of benefits related to our tax positions requires significant judgment
+as uncertainties often exist with respect to new laws, new interpretations of existing laws, and
+rulings by taxing authorities. We recognized approximately a $3.4 million increase in the liability
+for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007
+balance of retained earnings.
+33 
+Table of Contents 
+Foreign currency translation . Our international operations generally use their respective
+local currencies as their functional currency. In accordance with Statement of Financial Accounting
+Standards No. 52, “ Foreign Currency Translation ” (“SFAS 52”), revenues and expenses from our
+international subsidiaries are translated using the monthly average exchange rates in effect for
+the period in which such revenues and expenses occur. International subsidiaries that use their
+local currency as their functional currency translate their assets and liabilities using current
+rates of exchange at the balance sheet date. The resulting translation gains and losses for such
+subsidiaries are included within accumulated other comprehensive income as a separate component of
+stockholders’ equity. One international subsidiary has a functional currency of the U.S. dollar.
+Resulting remeasurement gains and losses from this subsidiary are included in the determination of
+net earnings. A substantial portion of our intercompany loans are considered long-term investments
+and the gains or losses from currency fluctuations are included as a component of translation
+adjustment in other comprehensive income.
+Stock-based compensation. Beginning on January 1, 2006, we implemented and adopted a new
+critical accounting policy, Financial Accounting Standards No. 123 (revised 2004), “ Share-Based
+Payment ” (“SFAS 123(R)”), which requires us to recognize compensation for stock options, nonvested
+shares and employee stock purchase plan (“ESPP”) shares at fair value. Under the fair value
+recognition provisions for SFAS 123(R), stock-based compensation cost is estimated at the grant
+date based on the fair value of the awards expected to vest and recognized as expense ratably over
+the requisite service period of the award. We have used the Black-Scholes valuation model to
+estimate the fair value of our stock option awards, which requires various judgmental assumptions
+including estimating stock price volatility, forfeiture rates, and expected life. Our computation
+of expected volatility is based on historical volatility. In addition, we consider many factors
+when estimating expected forfeitures and expected life, including types of awards, employee class,
+and historical experience. If any of the assumptions used in the Black-Scholes model change
+significantly, stock-based compensation expense may differ materially in the future from that
+recorded in the current period. We adopted SFAS 123(R) using the modified prospective method which
+requires the application of the accounting standard as of January 1, 2006. Stock compensation
+expense as a result of SFAS 123(R) was recorded to general and administrative expenses and was $1.1
+million and $2.0 million for the year ended December 31, 2007 and 2006, respectively. In
+accordance with the modified prospective method, the consolidated financial statements for prior
+periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). The
+impact of the adoption is discussed in note 7 to the Consolidated Financial Statements.
+INFLATION
+We do not believe that the relatively moderate rates of inflation experienced in the United
+States over the last three years have had a significant effect on our sales or profitability.
+However, we cannot accurately predict the effect of inflation on future operating results. Although
+higher rates of inflation have been experienced in a number of foreign countries in which our
+products are manufactured, we do not believe that inflation has had a material effect on our sales
+or profitability. While we have been able to offset our foreign product cost increases by
+increasing prices or changing suppliers in the past, we cannot assure you that we will be able to
+continue to make such increases or changes in the future.
+EXCHANGE RATES
+We receive U.S. dollars for substantially all of our product sales and our royalty income.
+Inventory purchases from offshore contract manufacturers are primarily denominated in U.S. dollars;
+however, purchase prices for our products may be impacted by fluctuations in the exchange rate
+between the U.S. dollar and the local currencies of the contract manufacturers, which may have the
+effect of increasing our cost of goods in the future. During 2007 and 2006, exchange rate
+fluctuations did not have a material impact on our inventory costs. We do not engage in hedging
+activities with respect to such exchange rate risk.
+FUTURE ACCOUNTING CHANGES
+In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of
+Financial Accounting Standards Statement No. 160 “ Accounting for Noncontrolling Interests ” (“SFAS
+160”), which clarifies the classification of noncontrolling interests in consolidated statements of
+financial position and the accounting for and reporting of transactions between the reporting
+entity and holders of such noncontrolling interests. SFAS 160 will be effective for fiscal years
+beginning after December 15, 2008. We are currently evaluating the impact of this standard on our
+Consolidated Financial Statements; however, we do not expect that the adoption of SFAS 160 will
+have a material impact on our financial condition or results of operations.
+In December 2007, the FASB issued Statement of Financial Accounting Standards Statement No.
+141(R) “ Applying the Acquisition Method (“SFAS 141(R)”), which clarifies the accounting for a
+business combination and requires an acquirer to recognize the assets acquired, the liabilities
+assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their
+34 
+Table of Contents 
+fair values as of that date. SFAS 141(R) will be effective for fiscal years beginning after
+December 15, 2008. We are currently evaluating the impact of this standard on our Consolidated
+Financial Statements; however, we do not expect that the adoption of SFAS 141(R) will have a
+material impact on our financial condition or results of operations.
+In February 2007, the FASB issued Statement of Financial Accounting Standards Statement No.
+159 “ The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment
+of FASB Statement No. 115 ” (“SFAS 159”), which provides companies with an option to report selected
+financial assets and liabilities at fair value. Furthermore, SFAS 159 establishes presentation and
+disclosure requirements designed to facilitate comparisons between companies that choose different
+measurement attributes for similar types of assets and liabilities. SFAS 159 will be effective for
+fiscal years beginning after November 15, 2007. We are currently evaluating the impact of this
+standard on our Consolidated Financial Statements; however, we do not expect that the adoption of
+SFAS 159 will have a material impact on our financial condition or results of operations.
+In September 2006, the FASB issued Statement of Financial Accounting Standards Statement No.
+157 “ Fair Value Measurements ”, (“SFAS 157”). The standard provides guidance for using fair value
+to measure assets and liabilities. The standard also responds to investors’ requests for expanded
+information about the extent to which companies measure assets and liabilities at fair value, the
+information used to measure fair value, and the effect of fair value measurements on earnings. The
+standard applies whenever other standards require (or permit) assets or liabilities to be measured
+at fair value. The standard does not expand the use of fair value in any new circumstances.
+Statement 157 is effective for financial statements issued for fiscal years beginning after
+November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted. We
+are currently evaluating the impact of this standard on our Consolidated Financial Statements;
+however, we do not expect that the adoption of SFAS 157 will have a material impact on our
+financial condition or results of operations.
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+MARKET RISK
+Market risk is the potential loss arising from the adverse changes in market rates and prices,
+such as interest rates, marketable debt security prices and foreign currency exchange rates.
+Changes in interest rates, marketable debt security prices and changes in foreign currency exchange
+rates have and will have an impact on our results of operations. We do not hold any derivative
+securities that require fair value presentation under FASB Statement No. 133.
+Market risk and interest rate fluctuations. Our short-term investments consist of corporate
+and municipal debt and preferred stock auction rate securities. Recently, several auctions have
+failed as a result of illiquidity and imbalance in order flow for auction rate securities. A
+failed auction is not an indication of an increased credit risk or a reduction in the underlying
+collateral, however, parties wishing to sell securities could not do so. Based on current market
+conditions, it is not known when or if the capital markets will come back into balance to achieve
+successful auctions for these securities. If these auctions continue to fail, it could result in
+our holding securities beyond their next scheduled auction reset dates and will limit the
+short-term liquidity of these investments. We currently believe these securities are not
+significantly impaired, primarily due to the collateral underlying these securities and/or the
+creditworthiness of the issuer. Based on our expected operating cash flows, and our other sources
+and uses of cash, we do not anticipate that the potential lack of liquidity on these investments
+will affect our ability to execute our current business plan.
+The interest rate charged on our line of credit facility is based on either the prime rate of
+interest or the LIBOR, and changes in the either of these rates of interest could have an effect on
+the interest charged on our outstanding balances. At December 31, 2007, no amounts were
+outstanding that were subject to changes in interest rates.
+Foreign exchange rate fluctuations . We face market risk to the extent that changes in foreign
+currency exchange rates affect our non-U.S. dollar functional currency foreign subsidiary’s
+revenues, expenses, assets and liabilities. In addition, changes in foreign exchange rates may
+affect the value of our inventory commitments. Also, inventory purchases of our products may be
+impacted by fluctuations in the exchange rates between the U.S. dollar and the local currencies of
+the contract manufacturers, which could have the effect of increasing the cost of goods sold in the
+future. We manage these risks by primarily denominating these purchases and commitments in U.S.
+dollars. We do not engage in hedging activities with respect to such exchange rate risks.
+35 
+Table of Contents 
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE 
+Page 
+REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+37 
+CONSOLIDATED BALANCE SHEETS 
+39 
+CONSOLIDATED STATEMENTS OF EARNINGS 
+40 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME 
+41 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+42 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+43 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+64 
+36 
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+The Board of Directors and Stockholders 
+Skechers U.S.A., Inc.:
+We have audited the accompanying consolidated balance sheets of Skechers U.S.A., Inc. and
+subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of earnings,
+stockholders’ equity and comprehensive income, and cash flows for each of the years in the
+three-year period ended December 31, 2007. In connection with our audits of the consolidated
+financial statements, we also have audited the related financial statement schedule. These
+consolidated financial statements and financial statement schedule are the responsibility of the
+Company’s management. Our responsibility is to express an opinion on these consolidated financial
+statements and financial statement schedule based on our audits.
+We conducted our audits in accordance with the standards of the Public Company Accounting
+Oversight Board (United States). Those standards require that we plan and perform the audit to
+obtain reasonable assurance about whether the financial statements are free of material
+misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
+disclosures in the financial statements. An audit also includes assessing the accounting principles
+used and significant estimates made by management, as well as evaluating the overall financial
+statement presentation. We believe that our audits provide a reasonable basis for our opinion.
+In our opinion, the consolidated financial statements referred to above present fairly, in all
+material respects, the financial position of Skechers U.S.A., Inc. and subsidiaries as of December
+31, 2007 and 2006, and the results of their operations and their cash flows for each of the years
+in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted
+accounting principles. Also in our opinion, the related financial statement schedule, when
+considered in relation to the basic consolidated financial statements taken as a whole, presents
+fairly, in all material respects, the information set forth therein.
+As discussed in note 7 to the consolidated financial statements, effective January 1, 2006 the
+Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised
+2004), Share-Based Payment . As discussed in note 10 to the consolidated financial statements,
+effective January 1, 2007 the Company adopted the provisions of Financial Accounting Standards
+Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes .
+We also have audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), Skechers U.S.A. Inc’s., internal control over financial reporting
+as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework
+issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
+report dated February 28, 2008 expressed an unqualified opinion on the effectiveness of the
+Company’s internal control over financial reporting.
+/s/ KPMG LLP
+Los Angeles, California 
+February 28, 2008
+37 
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+The Board of Directors and Stockholders 
+Skechers U.S.A., Inc.:
+We have audited Skechers U.S.A., Inc’s internal control over financial reporting as of
+December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by
+the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Skechers U.S.A.,
+Inc’s. management is responsible for maintaining effective internal control over financial
+reporting and for its assessment of the effectiveness of internal control over financial reporting.
+Our responsibility is to express an opinion on the effectiveness of the Company’s internal control
+over financial reporting based on our audit.
+We conducted our audit in accordance with the standards of the Public Company Accounting
+Oversight Board (United States). Those standards require that we plan and perform the audit to
+obtain reasonable assurance about whether effective internal control over financial reporting was
+maintained in all material respects. Our audit included obtaining an understanding of internal
+control over financial reporting, assessing the risk that a material weakness exists, and testing
+and evaluating the design and operating effectiveness of internal control based on the assessed
+risk. Our audit also included performing such other procedures as we considered necessary in the
+circumstances. We believe that our audit provides a reasonable basis for our opinion.
+A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and
+procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
+and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
+reasonable assurance that transactions are recorded as necessary to permit preparation of financial
+statements in accordance with generally accepted accounting principles, and that receipts and
+expenditures of the company are being made only in accordance with authorizations of management and
+directors of the company; and (3) provide reasonable assurance regarding prevention or timely
+detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
+a material effect on the financial statements.
+Because of its inherent limitations, internal control over financial reporting may not prevent
+or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
+subject to the risk that controls may become inadequate because of changes in conditions, or that
+the degree of compliance with the policies or procedures may deteriorate.
+In our opinion, Skechers U.S.A., Inc. maintained in all material respects effective internal
+control over financial reporting as of December 31, 2007, based on criteria established in Internal
+Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
+Commission (COSO).
+We also have audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), the consolidated balance sheets of Skechers U.S.A., Inc. and
+subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of earnings,
+stockholders’ equity and comprehensive income, and cash flows for each of the years in the
+three-year period ended December 31, 2007, and the related financial statement schedule, and our
+report dated February 28, 2008 expressed an unqualified opinion on those consolidated financial
+statements and financial statement schedule.
+/s/ KPMG LLP
+Los Angeles, California 
+February 28, 2008
+38 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED BALANCE SHEETS 
+(In thousands) 
+December 31, 
+December 31, 
+2007 
+2006 
+ASSETS 
+Current Assets: 
+Cash and cash equivalents 
+$ 
+199,516 
+$ 
+160,485 
+Short-term investments 
+104,500 
+60,000 
+Trade accounts receivable, less allowances of $10,284 in 2007 and $10,558 in 2006 
+167,406 
+177,740 
+Other receivables 
+10,520 
+8,035 
+Total receivables 
+177,926 
+185,775 
+Inventories 
+204,211 
+200,877 
+Prepaid expenses and other current assets 
+13,993 
+15,321 
+Deferred tax assets 
+8,594 
+9,490 
+Total current assets 
+708,740 
+631,948 
+Property and equipment, at cost, less accumulated depreciation and amortization 
+98,400 
+87,645 
+Intangible assets, less accumulated amortization 
+78 
+633 
+Deferred tax assets 
+13,983 
+11,984 
+Other assets, at cost 
+6,776 
+4,843 
+TOTAL ASSETS 
+$ 
+827,977 
+$ 
+737,053 
+LIABILITIES AND STOCKHOLDERS’ EQUITY 
+Current Liabilities: 
+Current installments of long-term borrowings 
+437 
+576 
+Accounts payable 
+164,466 
+161,150 
+Accrued expenses 
+19,949 
+19,435 
+Total current liabilities 
+184,852 
+181,161 
+4.50% convertible subordinated notes 
+— 
+89,969 
+Long-term borrowings, excluding current installments 
+16,462 
+16,836 
+Total liabilities 
+201,314 
+287,966 
+Commitments and contingencies 
+Stockholders’ equity: 
+Preferred Stock, $.001 par value; 10,000 authorized; none issued and outstanding 
+— 
+— 
+Class A Common Stock, $.001 par value; 100,000 shares authorized; 32,992 and
+28,103 shares issued and outstanding at December 31, 2007 and 2006, respectively 
+33 
+28 
+Class B Common Stock, $.001 par value; 60,000 shares authorized; 12,852 and
+13,768 shares issued and outstanding at December 31, 2007 and 2006, respectively 
+13 
+14 
+Additional paid-in capital 
+258,084 
+156,374 
+Accumulated other comprehensive income 
+14,763 
+11,200 
+Retained earnings 
+353,770 
+281,471 
+Total stockholders’ equity 
+626,663 
+449,087 
+TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 
+$ 
+827,977 
+$ 
+737,053 
+See accompanying notes to consolidated financial statements.
+39 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF EARNINGS 
+(In thousands, except per share data) 
+Years ended December 31, 
+2007 
+2006 
+2005 
+Net sales 
+$ 
+1,394,181 
+$ 
+1,205,368 
+$ 
+1,006,477 
+Cost of sales 
+794,192 
+682,022 
+585,995 
+Gross profit 
+599,989 
+523,346 
+420,482 
+Royalty income, net 
+4,179 
+4,114 
+6,628 
+604,168 
+527,460 
+427,110 
+Operating expenses: 
+Selling 
+126,527 
+109,886 
+81,378 
+General and administrative 
+364,711 
+305,030 
+269,436 
+491,238 
+414,916 
+350,814 
+Earnings from operations 
+112,930 
+112,544 
+76,296 
+Other income (expense): 
+Interest income 
+10,040 
+8,351 
+4,368 
+Interest expense 
+(4,763 
+) 
+(9,227 
+) 
+(9,154 
+) 
+Other, net 
+98 
+980 
+1,287 
+5,375 
+104 
+(3,499 
+) 
+Earnings before income taxes 
+118,305 
+112,648 
+72,797 
+Income tax expense 
+42,619 
+41,654 
+28,080 
+Net earnings 
+$ 
+75,686 
+$ 
+70,994 
+$ 
+44,717 
+Net earnings per share: 
+Basic 
+$ 
+1.67 
+$ 
+1.73 
+$ 
+1.13 
+Diluted 
+$ 
+1.63 
+$ 
+1.59 
+$ 
+1.06 
+Weighted average shares: 
+Basic 
+45,262 
+41,079 
+39,686 
+Diluted 
+46,741 
+46,139 
+44,518 
+See accompanying notes to consolidated financial statements.
+40 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME 
+(In thousands) 
+SHARES 
+AMOUNT 
+ACCUMULATED 
+CLASS A 
+CLASS B 
+CLASS A 
+CLASS B 
+ADDITIONAL 
+OTHER 
+TOTAL 
+COMMON 
+COMMON 
+COMMON 
+COMMON 
+PAID-IN 
+COMPREHENSIVE 
+RETAINED 
+STOCKHOLDERS’ 
+STOCK 
+STOCK 
+STOCK 
+STOCK 
+CAPITAL 
+INCOME 
+EARNINGS 
+EQUITY 
+Balance at December 31, 2004 
+22,234 
+17,011 
+$ 
+22 
+$ 
+17 
+$ 
+117,091 
+$ 
+12,005 
+$ 
+165,760 
+$ 
+294,895 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+44,717 
+44,717 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+(4,966 
+) 
+— 
+(4,966 
+) 
+Total comprehensive income 
+39,751 
+Contribution of common stock to the 401(k)
+Plan 
+59 
+— 
+— 
+— 
+767 
+— 
+— 
+767 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+135 
+— 
+— 
+— 
+1,550 
+— 
+— 
+1,550 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+594 
+— 
+1 
+— 
+5,365 
+— 
+— 
+5,366 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+1,501 
+— 
+— 
+1,501 
+Conversion of Class B Common Stock into
+Class A Common Stock 
+360 
+(360 
+) 
+— 
+— 
+— 
+— 
+— 
+— 
+Balance at December 31, 2005 
+23,382 
+16,651 
+$ 
+23 
+$ 
+17 
+$ 
+126,274 
+$ 
+7,039 
+$ 
+210,477 
+$ 
+343,830 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+70,994 
+70,994 
+Foreign
+currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+4,161 
+— 
+4,161 
+Total comprehensive income 
+75,155 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+2,029 
+— 
+— 
+2,029 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+122 
+— 
+1 
+— 
+1,907 
+— 
+— 
+1,908 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+1,716 
+— 
+1 
+— 
+17,054 
+— 
+— 
+17,055 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+9,110 
+— 
+— 
+9,110 
+Conversion of Class B Common Stock into
+Class A Common Stock 
+2,883 
+(2,883 
+) 
+3 
+(3 
+) 
+— 
+— 
+— 
+— 
+Balance at December 31, 2006 
+28,103 
+13,768 
+$ 
+28 
+$ 
+14 
+$ 
+156,374 
+$ 
+11,200 
+$ 
+281,471 
+$ 
+449,087 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+75,686 
+75,686 
+Foreign
+currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+3,563 
+— 
+3,563 
+Total comprehensive income 
+79,249 
+Cumulative effect of accounting change -
+adjustment to retained earnings upon
+adoption of FIN 48 
+— 
+— 
+— 
+— 
+— 
+— 
+(3,387 
+) 
+(3,387 
+) 
+Redemption of convertible subordinated
+notes 
+3,368 
+— 
+3 
+— 
+88,743 
+— 
+— 
+88,746 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+1,081 
+— 
+— 
+1,081 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+99 
+— 
+— 
+— 
+2,066 
+— 
+— 
+2,066 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+506 
+— 
+1 
+— 
+6,126 
+— 
+— 
+6,127 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+3,694 
+— 
+— 
+3,694 
+Conversion of Class B Common Stock into
+Class A Common Stock 
+916 
+(916 
+) 
+1 
+(1 
+) 
+— 
+— 
+— 
+— 
+Balance at December 31, 2007 
+32,992 
+12,852 
+$ 
+33 
+$ 
+13 
+$ 
+258,084 
+$ 
+14,763 
+$ 
+353,770 
+$ 
+626,663 
+See accompanying notes to consolidated financial statements
+41 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+(In thousands) 
+Years ended December 31, 
+2007 
+2006 
+2005 
+Cash flows from operating activities: 
+Net earnings 
+$ 
+75,686 
+$ 
+70,994 
+$ 
+44,717 
+Adjustments to reconcile net earnings to net cash
+provided by operating activities: 
+Depreciation and amortization of property and equipment 
+17,220 
+16,203 
+22,070 
+Amortization of deferred financing costs 
+95 
+765 
+765 
+Amortization of intangible assets 
+437 
+502 
+523 
+Provision for bad debts and returns 
+1,610 
+4,591 
+2,882 
+Tax benefits from stock-based compensation 
+1,456 
+4,144 
+1,501 
+Non cash stock compensation 
+1,081 
+2,030 
+— 
+Provision for deferred taxes 
+(1,102 
+) 
+(6,382 
+) 
+(6,322 
+) 
+Loss on disposal of equipment 
+272 
+299 
+170 
+(Increase) decrease in assets: 
+Receivables 
+7,948 
+(47,994 
+) 
+(22,106 
+) 
+Inventories 
+(3,045 
+) 
+(64,364 
+) 
+13,202 
+Prepaid expenses and other current assets 
+1,417 
+(3,530 
+) 
+(871 
+) 
+Other assets 
+(1,671 
+) 
+1,340 
+(2,476 
+) 
+Increase (decrease) in liabilities: 
+Accounts payable 
+2,956 
+49,563 
+13,777 
+Accrued expenses 
+(3,005 
+) 
+(2,122 
+) 
+7,664 
+Net cash provided by operating activities 
+101,355 
+26,039 
+75,496 
+Cash flows used in investing activities: 
+Capital expenditures 
+(31,175 
+) 
+(27,560 
+) 
+(13,627 
+) 
+Purchases of short-term investments 
+(249,450 
+) 
+(113,100 
+) 
+— 
+Maturities of short-term investments 
+204,950 
+53,100 
+— 
+Net cash used in investing activities 
+(75,675 
+) 
+(87,560 
+) 
+(13,627 
+) 
+Cash flows from financing activities: 
+Net proceeds from the issuances of stock through employee
+stock purchase plan and the exercise of stock options 
+8,193 
+18,963 
+6,916 
+Excess tax benefits from stock-based compensation 
+2,238 
+4,966 
+— 
+Payments on long-term debt 
+(520 
+) 
+(1,008 
+) 
+(7,660 
+) 
+Net cash provided by (used in) financing activities 
+9,911 
+22,921 
+(744 
+) 
+Net increase (decrease) in cash and cash equivalents 
+35,591 
+(38,600 
+) 
+61,125 
+Effect of exchange rates on cash and cash equivalents 
+3,440 
+2,078 
+(1,771 
+) 
+Cash and cash equivalents at beginning of year 
+160,485 
+197,007 
+137,653 
+Cash and cash equivalents at end of year 
+$ 
+199,516 
+$ 
+160,485 
+$ 
+197,007 
+Supplemental disclosures of cash flow information: 
+Cash paid during the year for: 
+Interest 
+$ 
+4,714 
+$ 
+8,560 
+$ 
+8,374 
+Income taxes 
+41,481 
+47,064 
+27,914 
+SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
+The Company issued 59,203 shares of Class A Common Stock to the Company’s 401(k) plan, with a
+value of $767,000 for the year ended December 31, 2005. No shares of Class A Common Stock were
+issued to the Company’s 401(k) plan in 2006 or 2007. The Company issued approximately 3.5 million
+shares of Class A common stock to note holders upon conversion of our 4.50% convertible
+subordinated debt with a carrying value of $89,969 for the year ended December 31, 2007.
+See accompanying notes to consolidated financial statements.
+42 
+Table of Contents 
+SKECHERS U.S.A., INC .
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+DECEMBER 31, 2007, 2006 and 2005 
+(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
+(a) The Company
+Skechers U.S.A., Inc. (the “Company”) designs, develops, markets and distributes footwear. The
+Company also operates retail stores and an e-commerce business.
+The consolidated financial statements have been prepared in accordance with accounting
+principles generally accepted in the United States and include the accounts of the Company and its
+wholly-owned subsidiaries. All significant intercompany balances and transactions have been
+eliminated in consolidation.
+(b) Use of Estimates
+Management has made a number of estimates and assumptions relating to the reporting of assets,
+liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to
+prepare these consolidated financial statements in conformity with accounting principles generally
+accepted in the United States. Significant areas requiring the use of management estimates relate
+primarily to the revenue recognition, allowance for bad debts, returns, sales allowances and
+customer chargebacks, inventory write-downs, valuation of long-lived assets, litigation reserves,
+valuation of deferred income taxes, uncertain tax positions, foreign currency translation and
+stock-based compensation. Actual results could differ from those estimates.
+(c) Business Segment Information
+Skechers operations and segments are organized along its distribution channels and consists of
+the following: domestic wholesale, international wholesale, retail and e-commerce sales.
+Information regarding these segments is summarized in Note 14 to the Consolidated Financial
+Statements.
+(d) Revenue Recognition
+The Company recognizes revenue on wholesale sales when products are shipped and the customer
+takes ownership and assumes risk of loss, collection of the relevant receivable is probable,
+persuasive evidence of an arrangement exists and the sales price is fixed or determinable. This
+generally occurs at the time of shipment. Allowances for estimated returns, sales allowances,
+discounts, doubtful accounts and chargebacks are provided for when related revenue is recorded.
+Related costs paid to third-party shipping companies are recorded as a cost of sales. The Company
+recognizes revenue from retail sales at the point of sale.
+Net royalty income is earned from our licensing arrangements. Upon signing a new licensing
+agreement, we receive up-front fees, which are generally characterized as prepaid royalties. These
+fees are initially deferred and recognized as revenue as earned based on the terms of the contract
+(i.e., as licensed sales are reported to the company or on a straight line basis over the term of
+the agreement). The first calculated royalty payment is based on actual sales of the licensed
+product. Typically, at each quarter end we receive correspondence from our licensees indicating
+what the actual sales for the period were. This information is used to calculate and accrue the
+related royalties based on the terms of the agreement.
+(e) Cash and Cash Equivalents
+Cash and cash equivalents consist primarily of certificates of deposit with an initial term of
+less than three months. For purposes of the consolidated statements of cash flows, the Company
+considers all highly liquid debt instruments with original maturities of three months or less to be
+cash equivalents.
+(f) Short–Term Investments
+In general, investments with original maturities of greater than three months and remaining
+maturities of less than one year are classified as short-term investments. Highly liquid
+investments with maturities beyond one year may also be classified as short-term based on their
+liquidity, management’s intentions and because such marketable securities represent the investment
+of cash that is available for current operations. Short-term investments consist of auction rate
+securities, which are corporate and municipal debt securities and preferred stocks which have
+underlying long-term maturities or preferred equity; however, they are traded and interest rates
+reset through a modified Dutch auction at predetermined short-term intervals of between 7 and 90
+days.
+43 
+Table of Contents 
+Recently, several auctions have failed as a result of illiquidity and the imbalance in order
+flow for auction rate securities. An auction failure means that the parties wishing to sell
+securities could not do so. Accordingly, there is no assurance that future auctions will continue
+to succeed, and as a result, our ability to liquidate our investments in the near term may be
+limited or may not exist. A failed auction is not an indication of an increased credit risk or a
+reduction in the underlying collateral. These securities are considered available-for-sale and
+recorded on the Company’s consolidated financial statements at fair market value, with the
+unrealized gains and losses, net of tax, included in stockholders’ equity.
+(g) Foreign Currency Translation
+In accordance with SFAS 52, certain international operations use the respective local
+currencies as their functional currency, while other international operations use the U.S. Dollar
+as their functional currency. The Company considers the U.S. dollar as its functional currency.
+The Company operates internationally through several foreign subsidiaries. Translation adjustments
+for these subsidiaries are included in other comprehensive income. Additionally, one international
+subsidiary, Skechers S.a.r.l. located in Switzerland, operates with a functional currency of the
+U.S. dollar. Resulting remeasurement gains and losses from this subsidiary are included in the
+determination of net earnings (loss). Assets and liabilities of the foreign operations denominated
+in local currencies are translated at the rate of exchange at the balance sheet date. Revenues and
+expenses are translated at the weighted average rate of exchange during the period. Translation of
+intercompany loans of a long-term investment nature are included as a component of translation
+adjustment in other comprehensive income.
+(h) Inventories
+Inventories, principally finished goods, are stated at the lower of cost (based on the
+first-in, first-out method) or market. The Company provides for estimated losses from obsolete or
+slow-moving inventories and writes down the cost of inventory at the time such determinations are
+made. Reserves are estimated based upon inventory on hand, historical sales activity, and the
+expected net realizable value. The net realizable value is determined based upon estimated sales
+prices of such inventory through off-price or discount store channels.
+(i) Income Taxes
+The Company accounts for income taxes in accordance with SFAS 109, which requires that the
+Company recognize deferred tax liabilities for taxable temporary differences and deferred assets
+for deductible temporary differences and operating loss carry-forwards using enacted tax rates in
+effect in the years the differences are expected to reverse. Deferred income tax benefit or expense
+is recognized as a result of changes in net deferred tax assets or deferred tax liabilities. A
+valuation allowance is recorded when it is more likely than not that some or all of any deferred
+tax assets will not be realized.
+Effective January 1, 2007, we adopted the provisions of FIN 48, which contains a two-step
+process for recognizing and measuring uncertain tax positions accounted for in accordance with SFAS
+No. 109. The first step is to determine whether or not a tax benefit should be recognized. A tax
+benefit will be recognized if the weight of available evidence indicates that the tax position is
+more likely than not to be sustained upon examination by the relevant tax authorities, The
+recognition and measurement of benefits related to our tax positions requires significant judgment
+as uncertainties often exist with respect to new laws, new interpretations of existing laws, and
+rulings by taxing authorities. Differences between actual results and our assumptions, or changes
+in our assumptions in future periods, are recorded in the period they become known.
+(j) Depreciation and Amortization
+Depreciation and amortization of property and equipment is computed using the straight-line
+method based on the following estimated useful lives:
+Buildings
+20 years 
+Building improvements
+10 years 
+Furniture, fixtures and equipment
+5 years 
+Leasehold improvements
+Useful life or remaining lease term, which ever is shorter 
+44 
+Table of Contents 
+(k) Intangible Assets
+Goodwill and indefinite-lived intangible assets are measured for impairment at least annually,
+and more often when events indicate that impairment exists. Intangible assets with finite lives
+continue to be amortized over their useful lives ranging from 5–10 years, generally on a
+straight-line basis. Intangible assets, all subject to amortization, as of December 31, 2007 and
+2006 are as follows (in thousands):
+2007 
+2006 
+Intellectual property 
+$ 
+1,250 
+$ 
+1,250 
+Other intangibles 
+1,000 
+1,000 
+Trademarks 
+1,050 
+1,050 
+Less accumulated amortization 
+(3,222 
+) 
+(2,667 
+) 
+Total Intangible Assets 
+$ 
+78 
+$ 
+633 
+(l) Long-Lived Assets
+Long-lived assets such as property and equipment, and purchased intangibles subject to
+amortization, are reviewed for impairment whenever events or changes in circumstances indicate that
+the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
+used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted
+future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds
+its estimated future cash flows, an impairment charge is recognized by the amount by which the
+carrying amount of the asset exceeds the fair value of the asset. The Company recognized impairment
+charges of approximately $0.9 million 2005. The Company did not record an impairment charge in
+2006 or 2007. The impairment charges in 2005 related to the write down of leasehold improvements
+of under-performing company owned retail stores. Fair value was based on estimated future cash
+flows.
+(m) Advertising Costs
+Advertising costs are expensed in the period in which the advertisements are first run or over
+the life of the endorsement contract. Advertising expense for the years ended December 31, 2007,
+2006 and 2005 was approximately $99.2 million, $83.0 million, and $58.2 million, respectively.
+Prepaid advertising costs at December 31, 2007 and 2006 were $0.8 million and $3.0 million,
+respectively. Prepaid amounts outstanding at December 31, 2007 and 2006 represent the unamortized
+portion of endorsement contracts and advertising in trade publications which had not run as of
+December 31, 2007 and 2006, respectively.
+(n) Earnings Per Share
+Basic earnings per share represents net earnings divided by the weighted average number of
+common shares outstanding for the period. Diluted earnings per share, in addition to the weighted
+average determined for basic earnings per share, includes potential common shares which would arise
+from the exercise of stock options using the treasury stock method, and the conversion of the
+Company’s 4.50% convertible subordinated notes for the period outstanding since their issuance in
+April 2002 until their conversion in February 2007, if their effects are dilutive.
+The following is a reconciliation of net earnings and weighted average common shares
+outstanding for purposes of calculating earnings per share (in thousands):
+Years Ended December 31, 
+Basic earnings per share 
+2007 
+2006 
+2005 
+Net earnings 
+$ 
+75,686 
+$ 
+70,994 
+$ 
+44,717 
+Weighted average common shares outstanding 
+45,262 
+41,079 
+39,686 
+Basic earnings per share 
+$ 
+1.67 
+$ 
+1.73 
+$ 
+1.13 
+45 
+Table of Contents 
+Years Ended December 31, 
+Diluted earnings per share 
+2007 
+2006 
+2005 
+Net earnings 
+$ 
+75,686 
+$ 
+70,994 
+$ 
+44,717 
+After tax effect of interest expense on 4.50%
+convertible subordinated notes 
+361 
+2,553 
+2,487 
+Earnings for purposes of
+computing diluted earnings per share 
+$ 
+76,047 
+$ 
+73,547 
+$ 
+47,204 
+Weighted average common shares outstanding 
+45,262 
+41,079 
+39,686 
+Dilutive stock options 
+1,121 
+1,594 
+1,366 
+Weighted average assumed conversion of
+4.50% convertible subordinated notes 
+358 
+3,466 
+3,466 
+Weighted average common shares outstanding 
+46,741 
+46,139 
+44,518 
+Diluted earnings per share 
+$ 
+1.63 
+$ 
+1.59 
+$ 
+1.06 
+Options to purchase 764,500 shares of Class A common stock at prices ranging from $2.78 to
+$24.00 that were outstanding at December 31, 2005 were not included in the computation of diluted
+earnings per share because the options’ exercise prices were greater than the average market price
+of the common shares and therefore their inclusion would have been anti-dilutive. There were no
+options excluded from the calculation at December 31, 2006 or 2007.
+(o) Product Design and Development Costs
+The Company charges all product design and development costs to expense when incurred. Product
+design and development costs aggregated approximately $9.2 million, $8.3 million, and $6.0 million
+during the years ended December 31, 2007, 2006 and 2005, respectively.
+(p) Fair Value of Financial Instruments
+The carrying amount of the Company’s financial instruments, which principally include cash and
+cash equivalents, short-term investments, accounts receivable, accounts payable and accrued
+expenses, approximates fair value due to the relatively short maturity of such instruments.
+The carrying amount of the Company’s long-term borrowings approximates the fair value based
+upon current rates and terms available to the Company for similar debt.
+(q) New Accounting Standards
+In December 2007, the FASB issued SFAS 160 “ Accounting for Noncontrolling Interests ”, which
+clarifies the classification of noncontrolling interests in consolidated statements of financial
+position and the accounting for and reporting of transactions between the reporting entity and
+holders of such noncontrolling interests. SFAS 160 will be effective for fiscal years beginning
+after December 15, 2008. We are currently evaluating the impact of this standard on our
+Consolidated Financial Statements; however, we do not expect that the adoption of SFAS 160 will
+have a material impact on our financial condition or results of operations.
+In December 2007, the FASB issued SFAS 141(R) “ Applying the Acquisition Method”, which
+clarifies the accounting for a business combination and requires an acquirer to recognize the
+assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the
+acquisition date, measured at their fair values as of that date. SFAS 141(R) will be effective for
+fiscal years beginning after December 15, 2008. We are currently evaluating the impact of this
+standard on our Consolidated Financial Statements; however, we do not expect that the adoption of
+SFAS 141(R) will have a material impact on our financial condition or results of operations.
+In February 2007, the FASB issued SFAS 159 “ The Fair Value Option for Financial Assets and
+Financial Liabilities, Including an amendment of FASB Statement No. 115 ”, which provides companies
+with an option to report selected financial assets and liabilities at fair value. Furthermore, SFAS
+159 establishes presentation and disclosure requirements designed to facilitate comparisons between
+companies that choose different measurement attributes for similar types of assets and liabilities.
+SFAS 159 will be effective for fiscal years beginning after November 15, 2007. We are currently
+evaluating the impact of this standard on our Consolidated Financial
+46 
+Table of Contents 
+Statements; however, we do not expect that the adoption of SFAS 159 will have a material
+impact on our financial condition or results of operations.
+In September 2006, the FASB issued SFAS 157 “ Fair Value Measurements ”, which provides guidance
+for using fair value to measure assets and liabilities. The standard also responds to investors’
+requests for expanded information about the extent to which companies measure assets and
+liabilities at fair value, the information used to measure fair value, and the effect of fair value
+measurements on earnings. The standard applies whenever other standards require (or permit) assets
+or liabilities to be measured at fair value. The standard does not expand the use of fair value in
+any new circumstances. Statement 157 is effective for financial statements issued for fiscal years
+beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is
+permitted. We are currently evaluating the impact of this standard on our Consolidated Financial
+Statements; however, we do not expect that the adoption of SFAS 157 will have a material impact on
+our financial condition or results of operations.
+(2) SHORT TERM INVESTMENTS 
+Short-term investments consist of certain marketable equity securities and other investments
+aggregating $104.5 million and $60.0 million at December 31, 2007 and 2006, respectively, and are
+included in current assets in the accompanying consolidated balance sheets. Investments in highly
+liquid debt securities, municipal bonds and preferred stock are stated at fair value, which
+approximates cost. Unrealized gains and losses related to marketable equity securities at December
+31, 2007 and 2006 were negligible.
+Our available-for-sale securities at December 31, 2007 consisted of $78.8 million of auction
+rate preferred stocks and $25.7 million of auction rate municipal and corporate bonds whereby
+interest rates are reset on a recurring basis of between 7 and 90 days. The auction rate preferred
+stocks are collateralized by portfolios of municipal bonds issued by various state and local
+governments, and the fair value of the underlying collateral is required to be maintained at 200%
+of the amount of preferred stock. While all of the auctions involving all of the securities were
+successful during January 2008, the auctions failed in February 2008, resulting in our continuing
+to hold such securities. These failed auction are not an indication of an increased credit risk or
+a reduction in the underlying collateral, however it means that parties wishing to sell these
+securities could not do so. Based on current market conditions, it is
+not known when or if the
+capital markets will come back into balance to achieve successful auctions related for these
+securities. As of February 22, 2008, including the securities involved in failed auctions, we held
+$110.7 million of these auction rate securities.
+(3) PROPERTY AND EQUIPMENT 
+Property and equipment at December 31, 2007 and 2006 is summarized as follows (in thousands):
+2007 
+2006 
+Land 
+$ 
+14,358 
+$ 
+14,358 
+Buildings and improvements 
+56,012 
+49,454 
+Furniture, fixtures and equipment 
+85,354 
+81,164 
+Leasehold improvements 
+79,377 
+66,708 
+Total property and equipment 
+235,101 
+211,684 
+Less accumulated depreciation and amortization 
+136,701 
+124,039 
+Property and equipment, net 
+$ 
+98,400 
+$ 
+87,645 
+The Company capitalized $0.9 million and $0.3 million of interest expense during 2007 and
+2006, respectively relating to the construction of our corporate headquarters.
+47 
+Table of Contents 
+(4) ACCRUED EXPENSES 
+Accrued expenses at December 31, 2007 and 2006 are summarized as follows (in thousands):
+2007 
+2006 
+Accrued inventory purchases 
+$ 
+3,937 
+$ 
+4,678 
+Accrued payroll and related taxes 
+14,919 
+13,914 
+Income taxes payable 
+1,058 
+— 
+Accrued interest 
+35 
+843 
+Accrued expenses 
+$ 
+19,949 
+$ 
+19,435 
+(5) SHORT-TERM BORROWINGS 
+On May 31, 2006, the Company amended its secured line of credit, which permits the Company and
+certain of its subsidiaries to borrow up to $150.0 million based upon eligible accounts receivable
+and inventory, which line can be increased to $250.0 million at our request. Borrowings bear
+interest at the borrowers’ election based on either the prime rate or LIBOR. Prime rate loans will
+bear interest at a rate equal to JPMorgan Chase Bank’s publicly announced prime rate less up to
+0.50%. LIBOR loans will bear interest at a rate equal to the applicable LIBOR plus up to an
+additional 1.75%. The Company pays a monthly unused line of credit fee of 0.25% per annum. The
+loan agreement, which expires on May 31, 2011, provides for the issuance of letters of credit up to
+a maximum of $30.0 million. The loan agreement contains customary affirmative and negative
+covenants for secured credit facilities of this type, including a financial covenant requiring a
+fixed charge coverage ratio of not less than 1.1 at the end of each quarter if excess availability
+of eligible account receivable and inventory is less than $50.0 million at any time during such
+quarter. Excess availability was not less than $50.0 million during the three months ended
+December 31, 2007; hence, the fixed charge ratio requirement was not applicable at such date. No
+amounts were outstanding and the Company was in compliance with all other covenants of the loan
+agreement at December 31, 2007. The Company had $9.6 million and $10.0 million of outstanding
+letters of credit as of December 31, 2007 and 2006, respectively.
+(6) LONG-TERM BORROWINGS 
+Long-term debt at December 31, 2007 and 2006 is as follows (in thousands):
+2007 
+2006 
+4.50% convertible subordinated notes due April 15,
+2007 (see below) 
+— 
+$ 
+90,000 
+Note payable to bank, due in monthly installments
+of $82.2 (includes principal and interest), fixed
+rate interest at 7.79%, secured by property,
+balloon payment of $8,716 due January 2011 
+$ 
+9,557 
+9,790 
+Note payable to bank, due in monthly installments
+of $57.6 (includes principal and interest), fixed
+rate interest at 7.89%, secured by property,
+balloon payment of $6,776 due February 2011 
+7,268 
+7,383 
+Capital lease obligations 
+74 
+208 
+Subtotal 
+16,899 
+107,381 
+Less current installments 
+437 
+576 
+Total long-term debt 
+$ 
+16,462 
+$ 
+106,805 
+The aggregate maturities of long-term borrowings at December 31, 2007 are as follows:
+2008 
+$ 
+437 
+2009 
+395 
+2010 
+427 
+2011 
+15,640 
+$ 
+16,899 
+48 
+Table of Contents 
+On January 19, 2007, we called our 4.5% convertible subordinated notes for redemption. The
+redemption date was February 20, 2007. The aggregate principal amount of notes outstanding was
+$90.0 million. Holders of $89.969 million principal amount of the notes, which included $2.5
+million of principal amount of the notes held by us, converted their notes into shares of our Class
+A Common Stock prior to the redemption date. As a result of these conversions, 3,464,594 shares of
+Class A Common Stock were issued to holders of the notes, which included 96,272 shares issued to
+the Company that were immediately retired. In connection with these conversions, the Company paid
+approximately $500 in cash to holders who elected to convert their notes, which represented cash
+paid in lieu of fractional shares. In addition, the Company paid approximately $32,000 to holders
+who redeemed their notes, which represented the redemption price of 100.9% of $31,000 principal
+amount of the notes plus accrued interest. As a result of the subsequent conversion of $89.969
+million of the notes into equity, the Company has classified such amount as a long-term liability
+at December 31, 2006, under Statement of Financial Accounting Standards No. 6, Classification of
+Short-Term Obligations Expected to Be Refinanced an amendment of ARB No. 43, Chapter 3. 
+The Company’s long-term debt obligations contain both financial and non-financial covenants,
+including cross default provisions. The Company is in compliance with all its material
+non-financial covenants, including any cross default provisions, and financial covenants of our
+long-term debt as of December 31, 2007.
+(7) STOCK COMPENSATION 
+(a) Impact of the adoption of SFAS No. 123 (revised 2004), “ Share-Based Payment ”
+(“SFAS 123(R)”)
+On January 1, 2006, the Company adopted SFAS 123(R) using the modified prospective transition
+method. Previously, the Company had followed Accounting Principles Board, Opinion No. 25,
+“ Accounting for Stock Issued to Employees ,” (“APB 25”), and accounted for employee stock options at
+intrinsic value. Accordingly, during the year ended December 31, 2006, we recorded stock-based
+compensation expense for awards granted prior to, but not yet vested as of, January 1, 2006, as if
+the fair value method required for pro forma disclosure under SFAS 123 were in effect for expense
+recognition purposes, adjusted for estimated forfeitures. For stock-based awards granted after
+January 1, 2006, we have recognized compensation expense based on the grant date fair value using
+the Black-Scholes valuation model. For these awards, we have recognized compensation expense on a
+straight-line basis. As SFAS 123(R) requires that stock-based compensation expense be based on
+awards that are ultimately expected to vest, stock-based compensation for the year ended December
+31, 2007 and 2006 has been reduced for estimated forfeitures. For the year ended December 31, 2007
+and 2006, stock compensation expense as a result of SFAS 123(R) was $1.1 million and $2.0 million,
+respectively, and was recorded to general and administrative expenses which represented a reduction
+of earnings before income taxes in the same amount. The impact to 2007 and 2006 net income was a
+reduction of $0.9 million and $1.6 million, respectively. No stock compensation expense was
+recorded during 2005.
+(b) Equity Incentive Plans
+In January 1998, the Company’s Board of Directors adopted the 1998 Stock Option, Deferred
+Stock and Restricted Stock Plan for the grant of qualified incentive stock options (“ISOs”), non
+qualified stock options and deferred and restricted stock (the “Equity Incentive Plan”). The
+exercise price for any option granted may not be less than fair value (110% of fair value for ISOs
+granted to certain employees). In June 2001, the stockholders approved an amendment to the plan to
+increase the number of shares of Class A Common Stock authorized for issuance under the plan to
+8,215,154. In May 2003, stockholders approved an amendment to the plan to increase the number of
+shares of Class A Common Stock authorized for issuance under the plan to 11,215,154. Option awards
+are generally granted with an exercise price equal to the market price of the Company’s stock at
+the date of grant. Stock option awards generally become exercisable over a four-year graded
+vesting period and expire ten years from the date of grant.
+On April 16, 2007, the Company’s Board of Directors adopted the 2007 Incentive Award Plan (the
+“2007 Plan”), and the 2007 Plan became effective upon approval by the Company’s stockholders on May
+24, 2007. The Company’s Board of Directors terminated the Equity Incentive Plan as of May 24,
+2007, with no additional granting of awards being permitted thereafter, although any awards then
+outstanding under the Equity Incentive Plan remain in force according to the terms of the
+terminated plan and the applicable award agreements. A total of 7,500,000 shares of Class A Common
+Stock are reserved for issuance under the 2007 Plan, which provides for grants of stock options,
+restricted stock and various other types of awards as described in the plan to the employees,
+consultants and directors of the Company and its subsidiaries. The 2007 Plan is administered by
+the Compensation Committee of the Company’s Board of Directors.
+Prior to adopting SFAS 123(R), we presented all tax benefits resulting from the exercise of
+stock options as operating cash flows in the Statement of Cash Flows. SFAS 123(R) requires cash
+flows resulting from excess tax benefits to be classified as a part of cash
+49 
+Table of Contents 
+flows from financing activities. Excess tax benefits are realized from tax deductions for
+exercised options and vesting of nonvested stock in excess of the deferred tax assets attributable
+to stock compensation costs for such options. As a result of adopting SFAS 123(R), $2.2 million
+and $5.0 million of excess tax benefits for the year-ended December 31, 2007 and 2006 have been
+classified as a financing cash inflow. Cash received from stock option exercises for the year-ended
+December 31, 2007, 2006 and 2005 was $6.1 million, $17.1 million and $5.4 million, respectively.
+The actual tax benefit realized for the tax deductions from option exercise of stock options and
+vesting of nonvested shares totaled $3.4 million, $9.3 million and $1.5 million for the year-ended
+December 31, 2007, 2006 and 2005, respectively. The total income tax benefit recognized for
+stock-based compensation costs was $0.1 million and $0.4 million for the year ended December 31,
+2007 and 2006, respectively. No income tax benefit for stock-based compensation costs was
+recognized for the year ended December 31, 2005. The impact of SFAS 123(R) stock-based
+compensation expense was a reduction of $0.02 earnings per basic and per diluted share for the year
+ended December 31, 2007. The impact of SFAS 123(R) stock-based compensation expense was a
+reduction of $0.05 earnings per basic and $0.04 per diluted share for the year ended December 31,
+2006. The Company plans to issue new shares for stock options exercised and nonvested shares that
+vest.
+(c) Valuation Assumptions
+For pro forma net earnings purposes, the fair value of each option is estimated on the date of
+grant using the Black-Scholes option pricing model that uses the assumptions noted in the following
+table. Expected volatility is based on historical share price data. The Company uses historical
+employee exercise and cancellation data to estimate expected term and forfeiture rates. The
+risk-free rate is based on U.S. Treasury yields in effect at the time of grant. Employees that
+have similar historical exercise behavior are considered separately for valuation purposes. Option
+valuation methods require the input of highly subjective assumptions including the expected stock
+price volatility, expected term and forfeiture rate. Because the Black-Scholes based option
+valuation models incorporate ranges of assumptions for inputs, those inputs are disclosed in the
+table as follows:
+2006 
+2005 
+Dividend yield 
+— 
+— 
+Expected volatility 
+62 
+% 
+71 
+% 
+Risk-free interest rate 
+4.52 
+% 
+3.88 
+% 
+Expected life of option 
+7 
+5 
+There were no ISO’s granted during 2007. Using the Black-Scholes option valuation model the
+weighted-average fair value per share of options granted during 2006 and 2005 was $12.70, and
+$8.28, respectively. The total intrinsic value of options exercised during 2007, 2006 and 2005 was
+$9.9 million, $25.5 million, and $4.0 million, respectively.
+(d) Stock-Based Payment Awards
+Shares subject to option under the Equity Incentive Plan were as follows:
+WEIGHTED 
+SHARES 
+OPTION EXERCISE PRICE 
+Outstanding at December 31, 2004 
+4,975,341 
+$ 
+10.90 
+Granted 
+35,000 
+13.52 
+Exercised 
+(593,671 
+) 
+9.04 
+Canceled 
+(207,233 
+) 
+14.89 
+Outstanding at December 31, 2005 
+4,209,437 
+10.98 
+Granted 
+15,000 
+19.49 
+Exercised 
+(1,711,945 
+) 
+9.96 
+Canceled 
+(26,910 
+) 
+10.35 
+Outstanding at December 31, 2006 
+2,485,582 
+11.74 
+Granted 
+— 
+Exercised 
+(501,874 
+) 
+12.23 
+Canceled 
+(21,952 
+) 
+16.86 
+Outstanding at December 31, 2007 
+1,961,756 
+$ 
+11.56 
+Options available for grant at December 31, 2007 
+3,258,209 
+50 
+Table of Contents 
+As of December 31, 2007, there was approximately $0.3 million of total unrecognized
+compensation cost related to unvested stock options and restricted stock granted under our Equity
+Incentive Plan. That cost is expected to be recognized over a weighted average period of 1 year.
+The total fair value of shares vested during the period ended December 31, 2007 was $1.1 million.
+The following table summarizes information about stock options outstanding and exercisable at
+December 31, 2007:
+OPTIONS OUTSTANDING 
+OPTIONS EXERCISABLE 
+WEIGHTED 
+NUMBER 
+WEIGHTED 
+WEIGHTED 
+NUMBER 
+AVERAGE 
+RANGE OF 
+OUTSTANDING 
+AVERAGE REMAINING 
+AVERAGE 
+EXERCISABLE AT 
+EXERCISE 
+EXERCISE PRICE 
+DECEMBER 31, 2007 
+CONTRACTUAL LIFE 
+EXERCISE PRICE 
+DECEMBER 31, 2007 
+PRICE 
+$2.78 to $3.94 
+29,812 
+2.1 years 
+$ 
+3.93 
+29,812 
+$ 
+3.93 
+$6.95 to $9.28 
+717,873 
+5.4 years 
+7.46 
+717,873 
+7.46 
+$10.48 to $15.50 
+1,047,355 
+3.0 years 
+12.65 
+1,033,355 
+12.64 
+$19.19 to $24.00 
+166,716 
+3.1 years 
+23.71 
+166,716 
+23.71 
+1,961,756 
+3.9 years 
+$ 
+11.56 
+1,947,756 
+$ 
+11.55 
+As of December 31, 2007, 2006 and 2005, the number of options exercisable for each year was
+1,947,756, 2,261,707, and 3,718,812, respectively. The weighted-average exercise price of those
+options was $11.55, $11.97, and $11.27, respectively. The total intrinsic value of options
+outstanding and exercisable at December 31, 2007 was $16.3 million and $16.2 million, respectively.
+The total intrinsic value of options outstanding and exercisable at December 31, 2006 was $29.2
+million and $27.1 million, respectively. The aggregate intrinsic value is calculated as the
+difference between the exercise price of the underlying awards and the quoted price of our common
+stock for the 1.8 million options that were in-the-money at December 31, 2007.
+A summary of the status and changes of our nonvested shares related to our Equity Incentive
+Plan as of and during the period ended December 31, 2007 is presented below:
+WEIGHTED AVERAGE 
+GRANT-DATE FAIR 
+SHARES 
+VALUE 
+Nonvested at December 31, 2006 
+17,333 
+$ 
+16.38 
+Granted 
+2,500 
+29.26 
+Vested 
+(4,666 
+) 
+17.00 
+Nonvested at December 31, 2007 
+15,167 
+$ 
+18.32 
+The nonvested shares generally vest over a four-year graded vesting period and expire ten
+years from the date of grant.
+(e) Stock Purchase Plans
+Effective July 1, 1998, the Company’s Board of Directors adopted the 1998 Employee Stock
+Purchase Plan (the “1998 ESPP”). The 1998 ESPP provides that a total of 2,781,415 shares of Class A
+Common Stock are reserved for issuance under the plan. The 1998 ESPP, which is intended to qualify
+as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as
+amended, is implemented utilizing six-month offerings with purchases occurring at six-month
+intervals. The 1998 ESPP administration is overseen by the Board of Directors. Employees are
+eligible to participate if they are employed by the Company for at least 20 hours per week and more
+than five months in any calendar year. The 1998 ESPP permits eligible employees to purchase Class
+A Common Stock through payroll deductions, which may not exceed 15% of an employee’s compensation.
+The price of Class A Common Stock purchased under the 1998 ESPP is 85% of the lower of the fair
+market value of the Class A Common Stock at the beginning of each six-month offering period or on
+the applicable purchase date. Employees may end their participation in an offering at any time
+during the offering period. The Board may at any time amend or terminate the 1998 ESPP, except
+that no such amendment or termination may adversely affect shares previously granted under the 1998
+ESPP. During 2007, 2006 and 2005, 98,349, 121,378, and 135,387 shares were issued, respectively,
+under the 1998 ESPP for which the Company received approximately $2.1 million, $1.9 million, and
+$1.6 million, respectively.
+51 
+Table of Contents 
+On April 16, 2007, the Company’s Board of Directors adopted the 2008 Employee Stock Purchase
+Plan (the “2008 ESPP”), and the Company’s stockholders approved the 2008 ESPP on May 24, 2007. The
+2008 ESPP became effective on January 1, 2008, and the Company’s Board of Directors terminated the
+1998 ESPP as of such date, with no additional granting of rights being permitted under the 1998
+ESPP. The 2008 ESPP provides that a total of 3,000,000 shares of Class A Common Stock are reserved
+for issuance under the plan. This number of shares that may be made available for sale is subject
+to automatic increases on the first day of each fiscal year during the term of the 2008 ESPP as
+provided in the plan. The 2008 ESPP is intended to qualify as an “employee stock purchase plan”
+under Section 423 of the Internal Revenue Code of 1986, as amended. The terms of the 2008 ESPP,
+which are substantially similar to those of the 1998 ESPP, permit eligible employees to purchase
+Class A Common Stock at six-month intervals through payroll deductions, which may not exceed 15% of
+an employee’s compensation. The price of Class A Common Stock purchased under the 2008 ESPP is 85%
+of the lower of the fair market value of the Class A Common Stock at the beginning of each
+six-month offering period or on the applicable purchase date. The 2008 ESPP is administered by the
+Company’s Board of Directors.
+(f) Pro Forma Information for Periods Prior to the Adoption of SFAS 123(R)
+The following table illustrates the effects on net earnings if compensation cost for the
+Company’s stock option plans and its stock purchase plans had been determined based on the
+estimated fair value at the grant dates for awards under those plans consistent with the fair value
+method of SFAS 123 utilizing the Black-Scholes option-pricing model in each period (in thousands):
+2005 
+Net earnings, as reported 
+$ 
+44,717 
+Deduct total stock-based employee compensation expense under
+fair value-based method for all awards, net of related tax
+effects 
+(1,853 
+) 
+Pro forma net earnings for basic pro
+forma earnings per share 
+42,864 
+Add back interest on 4.50% debentures, net of tax 
+2,487 
+Pro forma net earnings for diluted pro forma earnings per share 
+$ 
+45,351 
+Pro forma net earnings per share: 
+Basic 
+$ 
+1.08 
+Diluted 
+1.02 
+Pro forma basic net earnings per share represents net pro forma earnings divided by the
+weighted average number of common shares outstanding for the period. Pro forma diluted earnings per
+share, in addition to the weighted average determined for pro forma basic earnings per share,
+includes the dilutive effect of potentially dilutive securities which would arise from the
+exercise of stock options using the treasury stock method, and assumes the conversion of the
+Company’s 4.50% convertible subordinated notes if their effects are dilutive.
+(8) STOCKHOLDERS’ EQUITY 
+Stock Issuances
+The authorized capital stock of the Company consists of 100,000,000 shares of Class A Common
+Stock, par value $.001 per share, 60,000,000 shares of Class B Common Stock, par value $.001 per
+share, and 10,000,000 shares of preferred stock, $.001 par value per share.
+The Class A Common Stock and Class B Common Stock have identical rights other than with
+respect to voting, conversion and transfer. The Class A Common Stock is entitled to one vote per
+share, while the Class B Common Stock is entitled to ten votes per share on all matters submitted
+to a vote of stockholders. The shares of Class B Common Stock are convertible at any time at the
+option of the holder into shares of Class A Common Stock on a share-for-share basis. In addition,
+shares of Class B Common Stock will be automatically converted into a like number of shares of
+Class A Common Stock upon any transfer to any person or entity which is not a permitted transferee.
+During 2007, 2006 and 2005 certain Class B stockholders converted 916,400, 2,883,000, and
+360,000 shares, respectively, of Class B Common Stock to Class A Common Stock.
+52 
+Table of Contents 
+(9) TOTAL OTHER INCOME (EXPENSE), NET 
+Other income (expense), net at December 31, 2007, 2006 and 2005 is summarized as follows (in
+thousands):
+2007 
+2006 
+2005 
+Gain (loss) on foreign currency transactions 
+$ 
+(295 
+) 
+$ 
+116 
+$ 
+(351 
+) 
+Legal settlements 
+393 
+864 
+1,638 
+Total other income, net 
+$ 
+98 
+$ 
+980 
+$ 
+1,287 
+(10) INCOME TAXES 
+The provisions for income tax expense were as follows (in thousands):
+2007 
+2006 
+2005 
+Federal: 
+Current 
+$ 
+33,354 
+$ 
+38,252 
+$ 
+27,562 
+Deferred 
+(301 
+) 
+(4,451 
+) 
+(4,157 
+) 
+Total federal 
+33,053 
+33,801 
+23,405 
+State: 
+Current 
+7,255 
+7,398 
+5,417 
+Deferred 
+(66 
+) 
+(586 
+) 
+(588 
+) 
+Total state 
+7,189 
+6,812 
+4,829 
+Foreign : 
+Current 
+2,686 
+2,192 
+1,423 
+Deferred 
+(309 
+) 
+(1,151 
+) 
+(1,577 
+) 
+Total foreign 
+2,377 
+1,041 
+(154 
+) 
+Total income taxes 
+$ 
+42,619 
+$ 
+41,654 
+$ 
+28,080 
+Income taxes differ from the statutory tax rates as applied to earnings before income taxes as
+follows (in thousands):
+2007 
+2006 
+2005 
+Expected income tax expense 
+$ 
+41,407 
+$ 
+39,427 
+$ 
+25,479 
+State income tax, net of federal benefit 
+4,444 
+4,611 
+3,585 
+Rate differential on foreign income 
+(3,119 
+) 
+(379 
+) 
+(720 
+) 
+Exempt income 
+(1,026 
+) 
+(260 
+) 
+— 
+Non-deductible expenses 
+464 
+949 
+321 
+Change in valuation allowance 
+194 
+(967 
+) 
+(974 
+) 
+Other 
+255 
+(1,727 
+) 
+389 
+Total provision for income taxes 
+$ 
+42,619 
+$ 
+41,654 
+$ 
+28,080 
+53 
+Table of Contents 
+The tax effects of temporary differences that give rise to significant portions of deferred
+tax assets and deferred tax liabilities at December 31, 2007 and 2006 are presented below (in
+thousands):
+2007 
+2006 
+DEFERRED TAX ASSETS: 
+Deferred tax assets — current: 
+Inventory adjustments 
+$ 
+2,555 
+$ 
+2,991 
+Accrued expenses 
+6,540 
+4,661 
+Allowances for bad debts and chargebacks 
+2,570 
+4,732 
+Total current assets 
+11,665 
+12,384 
+Deferred tax assets — long term: 
+Depreciation on property and equipment 
+11,441 
+9,633 
+Loss carryforwards 
+3,133 
+2,737 
+Valuation allowance 
+(682 
+) 
+(488 
+) 
+Stock-based compensation 
+91 
+102 
+Total long term assets 
+13,983 
+11,984 
+Total deferred tax assets 
+25,648 
+24,368 
+Deferred tax liabilities — current: 
+Prepaid expenses 
+3,071 
+2,710 
+Other 
+— 
+184 
+Total deferred tax liabilities 
+3,071 
+2,894 
+Net deferred tax assets 
+$ 
+22,577 
+$ 
+21,474 
+Management believes it is more likely than not that the results of future operations will
+generate sufficient taxable income to realize the net deferred tax assets.
+Consolidated U.S. income before income taxes was $101.4 million, $104.8 million, and $66.0
+million for the years ended December 31, 2007, 2006 and 2005, respectively. The corresponding
+income before income taxes for non-U.S. based operations was $16.9 million, $7.8 million, and $6.8
+million for the years ended December 31, 2007, 2006 and 2005, respectively.
+As of December 31, 2007 and 2006, Skechers had combined foreign operating loss carry-forwards
+available to reduce future taxable income of approximately $8.7 million and $7.4 million,
+respectively. Some of these net operating losses expire beginning in 2011, however others can be
+carried forward indefinitely. As of December 31, 2007 and 2006, a valuation allowance against
+deferred tax assets of $0.7 million and $0.5 million, respectively, had been set up for those loss
+carry-forwards not expected to be fully utilized in reducing future taxable income.
+As of December 31, 2007, withholding and U.S. taxes have not been provided on approximately
+$15.5 million of cumulative undistributed earnings of the Company’s non-U.S. subsidiaries because
+the Company intends to indefinitely reinvest these earnings in its non-U.S. subsidiaries.
+We adopted the provisions FIN 48 on January 1, 2007. As a result of the implementation of FIN
+48, we recognized approximately a $3.4 million increase in the liability for unrecognized tax
+benefits, which was accounted for as a reduction to the January 1, 2007 balance of retained
+earnings. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
+follows:
+Balance as of January 1, 2007 
+$ 
+11,241 
+Additions based on current year tax positions 
+6,836 
+Additions for prior year tax positions 
+1,015 
+Reductions for prior year tax positions 
+(287 
+) 
+Settlement of uncertain tax positions 
+(504 
+) 
+Reductions related to lapse of statute of limitations 
+(36 
+) 
+Balance at December 31, 2007 
+$ 
+18,265 
+If recognized, the entire amount of unrecognized tax benefits would be recorded as a reduction
+in income tax expense.
+54 
+Table of Contents 
+Estimated interest and penalties related to the underpayment of income taxes are classified as
+a component of income tax expense and totaled $0.5 million, $0.1 million, and $0.1 million for the
+years ended December 31, 2007, 2006 and 2005, respectively. Accrued interest and penalties were
+$1.3 million and $1.1 million as of December 31, 2007 and December 31, 2006, respectively.
+The Company files income tax returns in the U.S. federal jurisdiction and various state, local
+and foreign jurisdictions. The Company has completed U.S. federal audits through 2003, and is not
+currently under examination by the United States Internal Revenue Service (the “IRS”); however the
+company is under examination by a number of states. It is reasonably possible that most or all of
+these examinations could be settled within the next twelve months which would reduce the balance of
+2007 and prior year unrecognized tax benefits by $1.2 million.
+With few exceptions, the Company is no longer subject to state, local or non-U.S. income tax
+examinations by tax authorities for years before 2004. Tax years 2004 through 2006 remain open to
+examination by the U.S. federal, state, and foreign taxing jurisdictions under which we are
+subject. It is reasonably possible that the statute of limitations for the 2004 tax year will
+lapse for the U.S. federal and most state tax jurisdictions during 2008, which would reduce the
+balance of 2007 and prior year unrecognized tax benefits by $2.5 million.
+We have applied for advanced pricing agreements with various tax authorities related to
+the pricing of certain intercompany transactions. It is reasonably possible that we will receive
+final decisions on these applications within the next twelve months which would reduce the balance
+of 2007 and prior year unrecognized tax benefits by $11.2 million, and, depending on how it is
+resolved, that reduction may or may not impact earnings. If the advanced pricing agreements are
+not resolved in 2008, we will continue to add to the unrecognized tax benefits, as we did in 2006
+and 2007, and that increase could be approximately $8.0 million to $10.0 million.
+(11) BUSINESS AND CREDIT CONCENTRATIONS 
+The Company operates in the footwear industry and generates most of its sales in the United
+States, although its products are sold into various foreign countries. The footwear industry is
+impacted by the general economy. Changes in the marketplace may significantly affect management’s
+estimates and the Company’s performance. Management performs regular evaluations concerning the
+ability of its customers to satisfy their obligations and provides for estimated doubtful accounts.
+Domestic accounts receivable, which generally do not require collateral from customers, amounted
+to $110.3 million and $141.7 million before allowances for bad debts and sales returns, and
+chargebacks at December 31, 2007 and 2006, respectively. Foreign accounts receivable, which
+generally are collateralized by letters of credit, amounted to $67.4 million and $46.6 million
+before allowance for bad debts, sales returns, and chargebacks at December 31, 2007 and 2006,
+respectively. International net sales amounted to $291.3 million, $203.3 million, and $179.6
+million for the years ended December 31, 2007, 2006 and 2005, respectively. The Company’s credit
+losses due to write-off’s for the years ended December 31, 2007, 2006 and 2005 were $1.6 million,
+$4.6 million, and $2.9 million respectively, and did not significantly differ from management’s
+expectations.
+Net sales to customers in North America exceeded 75% of total net sales for each of the years
+in the three-year period ended December 31, 2007. Assets located outside the United States consist
+primarily of cash, accounts receivable, inventory, property and equipment, and other assets. Net
+assets held outside the United States were $126.1 million and $119.1 million at December 31, 2007
+and 2006, respectively.
+During 2007, 2006, and 2005, no customer accounted for 10% or more of net sales. One customer
+accounted for 10.0%, 12.0% and 10.3% of net trade receivables at December 31, 2007, 2006 and 2005,
+respectively. During 2007, 2006 and 2005, our net sales to our five largest customers were
+approximately 25.3%, 24.9%, and 25.4%, respectively.
+During 2007, the Company had four manufacturers which accounted for between 7.9% and 29.7% of
+total purchases. During 2006, the Company had four manufacturers which accounted for between 8.9%
+and 30.8% of total purchases. During 2005, the Company had four manufacturers which accounted for
+between 7.9% and 32.4% of total purchases.
+Most of the Company’s products are produced in China. The Company’s operations are subject to
+the customary risks of doing business abroad, including, but not limited to, currency fluctuations,
+custom duties and related fees, various import controls and other monetary barriers, restrictions
+on the transfer of funds, labor unrest and strikes and, in certain parts of the world, political
+instability. The Company believes it has acted to reduce these risks by diversifying manufacturing
+among various factories. To date, these risk factors have not had a material adverse impact on the
+Company’s operations.
+55 
+Table of Contents 
+(12) BENEFIT PLAN 
+The Company has adopted a profit sharing plan covering all employees who are 21 years of age
+and have completed six months of service. Employees may contribute up to 15.0% of annual
+compensation. Company contributions to the plan are discretionary and vest over a six year period.
+The Company’s contributions to the plan amounted to $1.2 million, $1.1 million, and $0.8
+million for the years ended December 31, 2007, 2006 and 2005, respectively. For 2006 and 2007, the
+Company made a cash contribution. For its contribution to the plan for 2005, the Company issued
+59,203, shares of its Class A Common Stock. The shares contributed to the plan contain certain
+restrictions regarding the subsequent sales of those shares.
+(13) COMMITMENTS AND CONTINGENCIES 
+(a) Construction
+During 2005, we entered into a construction agreement with Morley Construction Company for the
+construction of our third corporate facility in Manhattan Beach, California. The agreement has a
+maximum payment clause in which Morley agrees that the construction cost of the facility will not
+exceed $18.1 million plus change orders of $1.7 million, of which $19.2 million was incurred as of
+December 31, 2007. The exterior of the facility was completed in 2007, and while we are currently
+working on the interior improvements, we expect to move in during 2008.
+(b) Leases
+The Company leases facilities under operating lease agreements expiring through July 2027. The
+Company pays taxes, maintenance and insurance in addition to the lease obligation. The Company also
+leases certain equipment and automobiles under operating lease agreements expiring at various dates
+through April 2007. Rent expense for the years ended December 31, 2007, 2006 and 2005 approximated
+$48.9 million, $40.4 million, and $37.2 million, respectively.
+The Company also leases certain property and equipment under capital lease agreements
+requiring monthly installment payments through February 2010. The cost of this property and
+equipment was $0.1 million with a net book value of $0.1 million at December 31, 2007. The cost of
+this property and equipment was $2.0 million with a net book value of $0.5 million at December 31,
+2006. Amortization of these assets is included in depreciation expense in the accompanying
+consolidated statements of cash flows.
+Minimum lease payments, which takes into account escalation clauses, are recognized on a
+straight-line basis over the minimum lease term. Subsequent adjustments to our lease payments due
+to changes in an existing index, usually the consumer price index, are typically included in our
+calculation of the minimum lease payments when the adjustment is known. Reimbursements for
+leasehold improvements are recorded as liabilities and are amortized over the lease term. Lease
+concessions, in our case usually a free rent period, are considered in the calculation of our
+minimum lease payments for the minimum lease term.
+Future minimum lease payments under noncancellable leases at December 31, 2007 are as follows (in
+thousands):
+CAPITAL 
+OPERATING 
+LEASES 
+LEASES 
+Year ending December 31: 
+2008 
+$ 
+74 
+$ 
+47,124 
+2009 
+6 
+55,068 
+2010 
+— 
+51,271 
+2011 
+— 
+44,559 
+2012 
+— 
+36,937 
+Thereafter 
+— 
+176,617 
+80 
+$ 
+411,576 
+Less imputed interest 
+6 
+Present value of net minimum lease payments 
+$ 
+74 
+56 
+Table of Contents 
+(c) Litigation
+The Company recognizes legal expense in connection with loss contingencies as incurred.
+On March 25, 2003, a shareholder securities class action complaint captioned HARVEY SOLOMON v.
+SKECHERS USA, INC. et al. was filed against the Company and certain of its officers and directors
+in the United States District Court for the Central District of California (Case No. 03-2094 DDP).
+On April 2, 2003, a shareholder securities class action complaint captioned CHARLES ZIMMER v.
+SKECHERS USA, INC. et al. was filed against the Company and certain of its officers and directors
+in the United States District Court for the Central District of California (Case No. 03-2296 PA).
+On April 15, 2003, a shareholder securities class action complaint captioned MARTIN H. SIEGEL v.
+SKECHERS USA, INC. et al. was filed against the Company and certain of its officers and directors
+in the United States District Court for the Central District of California (Case No 03-2645 RMT).
+On May 6, 2003, a shareholder securities class action complaint captioned ADAM D. SAPHIER v.
+SKECHERS USA, INC. et al. was served on the Company and certain of its officers and directors in
+the United States District Court for the Central District of California (Case No. 03-3011 FMC). On
+May 9, 2003, a shareholders securities class action complaint captioned LARRY L. ERICKSON v.
+SKECHERS USA, INC. et al. was served on the Company and certain of its officers and directors in
+the United States District Court for the Central District of California (Case No. 03-3101 SJO).
+Each of these class action complaints alleged violations of the federal securities laws on behalf
+of persons who purchased publicly traded securities of the Company between April 3, 2002 and
+December 9, 2002. In July 2003, the court in these federal securities class actions, all pending in
+the United States District Court for the Central District of California, ordered the cases
+consolidated and a consolidated complaint to be filed and served. On September 25, 2003, the
+plaintiffs filed a consolidated complaint entitled In re SKECHERS USA, Inc. Securities Litigation,
+Case No. CV-03-2094-PA in the United States District Court for the Central District of California,
+consolidating all of the federal securities actions above. The complaint names as defendants the
+Company and certain officers and directors and alleges violations of the federal securities laws
+and breach of fiduciary duty on behalf of persons who purchased publicly traded securities of the
+Company between April 3, 2002 and December 9, 2002. The complaint seeks compensatory damages,
+interest, attorneys’ fees and injunctive and equitable relief. The Company moved to dismiss the
+consolidated complaint in its entirety. On May 10, 2004, the court granted the Company’s motion to
+dismiss with leave for plaintiffs to amend the complaint. On August 9, 2004, plaintiffs filed a
+first amended consolidated complaint for violations of the federal securities laws. The allegations
+and relief sought were virtually identical to the original consolidated complaint. The Company has
+moved to dismiss the first amended consolidated complaint and the motion was set for hearing on
+December 6, 2004. On March 21, 2005, the court granted the motion to dismiss the first amended
+consolidated complaint with leave for plaintiffs to amend one final time. On April 7, 2005,
+plaintiffs elected to stand on the first amended consolidated complaint and requested entry of
+judgment so that an appeal from the court’s ruling could be taken. On April 26, 2005, the court
+entered judgment in favor of the Company and the individual defendants, and on May 3, 2005,
+plaintiffs filed an appeal with the United States Court of Appeals for the Ninth Circuit. As of the
+filing date of the Company’s quarterly report for the first quarter of 2007, all briefing by the
+parties had been completed, and a hearing date had been scheduled for April 18, 2007, but the court
+took it off calendar pending a decision from the United States Supreme Court in another matter on
+the grounds that the decision from the Supreme Court could affect the outcome of the appeal. The
+United States Supreme Court handed down its decision in that matter on September 20, 2007. The
+parties prepared briefs based on that decision and oral arguments were presented before the Ninth
+Circuit on November 6, 2007. Discovery has not commenced in the underlying action. While it is too
+early to predict the outcome of the appeal and any subsequent litigation, the Company continues to
+believe the suit is without merit and continues to vigorously defend against the claims.
+On March 15, 2007, the Company filed a lawsuit against Vans, Inc. in the U.S. District Court
+for the Central District of California (Case No. CV 07-10703 (PLA)) seeking a declaration, inter
+alia, that certain of its footwear designs do not infringe Vans’ claimed checkerboard design and
+waffle outsole design trademarks. On April 4, 2007, in its answer to the Company’s complaint, Vans
+filed counter-claims and cross-claims against the Company and Ecko Unlimited, Inc., respectively,
+for trademark infringement, trademark dilution, unfair competition and misappropriation. Vans is
+seeking, inter alia, compensatory, treble and punitive damages, profits, attorneys’ fees and costs,
+and injunctive relief against the Company to prevent any future sales and distribution of footwear
+that allegedly bears a design similar to Vans’ checkerboard design or waffle outsole design. On
+November 20, 2007, the court denied Vans’ preliminary
+injunction, and Vans appealed this ruling on
+December 20, 2007. While it is too early to predict the outcome of the litigation, the Company
+believes that it has meritorious defenses to the claims asserted by Vans and intends to defend
+against those claims vigorously.
+The Company has no reason to believe that any liability with respect to pending legal actions,
+individually or in the aggregate, will have a material adverse effect on the Company’s consolidated
+financial statements or results of operations. The Company occasionally becomes involved in
+litigation arising from the normal course of business, and management is unable to determine the
+extent of any liability that may arise from unanticipated future litigation.
+57 
+Table of Contents 
+(d) Product and Other Financing
+The Company finances production activities in part through the use of interest-bearing open
+purchase arrangements with certain of its international manufacturers. These arrangements currently
+bear interest at rates between 0% and 1.5% per 30 to 60 day term. The amounts outstanding under
+these arrangements at December 31, 2007 and 2006 were $81.3 million and $85.0 million,
+respectively, which are included in accounts payable in the accompanying consolidated balance
+sheets. Interest expense incurred by the Company under these arrangements amounted to $3.3 million
+in 2007, $2.9 million in 2006, and $2.3 million in 2005. The Company has contractual commitments
+relating to licensing arrangements of $41.1 million through 2012 and open purchase commitments with
+our foreign manufacturers of $148.7 million which are not included in the accompanying consolidated
+balance sheets. The company is currently in the process of designing and purchasing the equipment
+to be used in its new distribution center. The total cost of this equipment is expected to be
+between $75.0 million and $85.0 million.
+(e) Tax Contingencies
+See discussion regarding the liability for unrecognized tax benefits in Footnote 10 Income
+Taxes.
+(14) SEGMENT INFORMATION 
+We have four reportable segments – domestic wholesale sales, international wholesale sales,
+retail sales, and e-commerce sales. Management evaluates segment performance based primarily on
+net sales and gross margins. All other costs and expenses of the Company are analyzed on an
+aggregate basis, and these costs are not allocated to the Company’s segments. Net sales, gross
+margins and identifiable assets for the domestic wholesale segment, international wholesale,
+retail, and the e-commerce segment on a combined basis were as follows (in thousands):
+2007 
+2006 
+2005 
+Net sales 
+Domestic wholesale 
+$ 
+831,235 
+$ 
+772,920 
+$ 
+634,294 
+International wholesale 
+267,648 
+183,687 
+163,523 
+Retail 
+279,361 
+237,390 
+201,610 
+E-commerce 
+15,937 
+11,371 
+7,050 
+Total 
+$ 
+1,394,181 
+$ 
+1,205,368 
+$ 
+1,006,477 
+2007 
+2006 
+2005 
+Gross profit 
+Domestic wholesale 
+$ 
+320,364 
+$ 
+301,215 
+$ 
+232,401 
+International wholesale 
+99,759 
+65,034 
+60,758 
+Retail 
+171,758 
+151,456 
+123,928 
+E-commerce 
+8,108 
+5,641 
+3,395 
+Total 
+$ 
+599,989 
+$ 
+523,346 
+$ 
+420,482 
+2007 
+2006 
+Identifiable assets 
+Domestic wholesale 
+$ 
+629,377 
+$ 
+563,956 
+International wholesale 
+118,195 
+108,210 
+Retail 
+80,250 
+64,634 
+E-commerce 
+155 
+253 
+Total 
+$ 
+827,977 
+$ 
+737,053 
+58 
+Table of Contents 
+2007 
+2006 
+Additions to property, plant and equipment 
+Domestic wholesale 
+$ 
+11,371 
+$ 
+17,453 
+International wholesale 
+1,346 
+348 
+Retail 
+18,458 
+9,759 
+Total 
+$ 
+31,175 
+$ 
+27,560 
+Geographic Information
+The following summarizes our operations in different geographic areas for the year indicated:
+2007 
+2006 
+2005 
+Net Sales (1) 
+United States 
+$ 
+1,102,895 
+$ 
+1,002,022 
+$ 
+826,920 
+Canada 
+38,060 
+25,276 
+18,350 
+Other International (2) 
+253,226 
+178,070 
+161,207 
+Total 
+$ 
+1,394,181 
+$ 
+1,205,368 
+$ 
+1,006,477 
+2007 
+2006 
+Long-lived Assets 
+United States 
+$ 
+96,044 
+$ 
+81,161 
+Canada 
+343 
+764 
+Other International (2) 
+2,013 
+5,720 
+Total 
+$ 
+98,400 
+$ 
+87,645 
+(1) 
+The Company has subsidiaries in Canada, United Kingdom, Germany, France, Spain, Italy,
+Netherlands, Brazil, Thailand and Malaysia that generate net sales within those respective
+countries and in some cases the neighboring regions. The Company also has a subsidiary in
+Switzerland that generates net sales from that country in addition to net sales to our
+distributors located in numerous non-European countries. Net sales are attributable to
+geographic regions based on the location of the Company subsidiary. 
+(2) 
+Other international consists of Brazil, Malaysia, Thailand, Switzerland, United Kingdom,
+Germany, France, Spain, Italy, and Netherlands. 
+(15) RELATED PARTY TRANSACTIONS 
+The
+Company paid approximately $175,000, $177,000 and $47,000 during 2007, 2006 and 2005,
+respectively, to the Manhattan Inn Operating Company, LLC (“MIOC”) for lodging, food and events
+including the Company’s holiday party at the Shade Hotel, which is owned and operated by MIOC.
+Michael Greenberg, President and a director of the Company, owns a 12% beneficial ownership
+interest in MIOC, and four other officers, directors and vice presidents of the Company own in
+aggregate an additional 5% beneficial ownership in MIOC. The Company had no outstanding accounts
+receivable or payable with MIOC or the Shade Hotel at December 31, 2007.
+The Company had receivables from officers and employees of $0.3 million and $0.5 million at
+December 31, 2007 and 2006, respectively. These amounts primarily relate to travel advances and
+incidental personal purchases on Company-issued credit cards that are not business-related
+expenses. These receivables are short-term and are expected to be repaid within a reasonable
+period of time.
+We had no other significant transactions with or payables to officers, directors or
+significant shareholders of the Company.
+59 
+Table of Contents 
+(16) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) 
+Summarized unaudited financial data are as follows (in thousands):
+2007 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+344,896 
+$ 
+352,211 
+$ 
+395,033 
+$ 
+302,041 
+Gross profit 
+149,039 
+152,028 
+171,670 
+127,252 
+Net earnings 
+23,900 
+14,948 
+24,744 
+12,095 
+Net earnings per share: 
+Basic 
+$ 
+0.54 
+$ 
+0.33 
+$ 
+0.54 
+$ 
+0.26 
+Diluted 
+0.52 
+0.32 
+0.53 
+0.26 
+2006 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+277,565 
+$ 
+292,183 
+$ 
+331,126 
+$ 
+304,494 
+Gross profit 
+118,374 
+130,736 
+146,303 
+127,933 
+Net earnings 
+16,598 
+17,616 
+22,199 
+14,582 
+Net earnings per share: 
+Basic 
+$ 
+0.41 
+$ 
+0.43 
+$ 
+0.54 
+$ 
+0.35 
+Diluted 
+0.38 
+0.40 
+0.49 
+0.33 
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
+None.
+ITEM 9A. CONTROLS AND PROCEDURES 
+Attached as exhibits to this annual report on Form 10-K are certifications of our Chief
+Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance
+with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This
+“Controls and Procedures” section includes information concerning the controls and controls
+evaluation referred to in the certifications.
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
+The term “disclosure controls and procedures” refers to the controls and other procedures of a
+company that are designed to provide reasonable assurance that information required to be disclosed
+by a company in the reports that it files or submits under the Exchange Act, is recorded,
+processed, summarized and reported within required time periods. We have established disclosure
+controls and procedures to ensure that material information relating to Skechers and its
+consolidated subsidiaries is made known to the officers who certify our financial reports, as well
+as other members of senior management and the Board of Directors, to allow timely decisions
+regarding required disclosures. As of the end of the period covered by this annual report on Form
+10-K, we carried out an evaluation under the supervision and with the participation of our
+management, including our CEO and CFO, of the effectiveness of the design and operation of our
+disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that
+evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective.
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
+Our management is responsible for establishing and maintaining adequate internal control over
+financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal
+control over financial reporting includes those policies and procedures that (i)
+60 
+Table of Contents 
+pertain to the maintenance of records that, in reasonable detail, accurately and fairly
+reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that
+transactions are recorded as necessary to permit preparation of financial statements in accordance
+with generally accepted accounting principles, and that our receipts and expenditures are being
+made only in accordance with authorizations of our management and directors; and (iii) provide
+reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
+disposition of our assets that could have a material effect on our financial statements.
+We conducted an evaluation of the effectiveness of our internal control over financial
+reporting based on the framework in Internal Control – Integrated Framework issued by the Committee
+of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the
+framework in Internal Control- Integrated Framework, our management has concluded that as of
+December 31, 2007, our internal control over financial reporting is effective.
+Our independent registered public accountants, KPMG LLP, audited the financial statements
+included in this annual report on Form 10-K and have issued an attestation report on the
+effectiveness of our internal control over financial reporting as of December 31, 2007, which is
+included in Part II, Item 8 of this annual report on Form 10-K.
+INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
+Our management, including our Chief Executive Officer and Chief Financial Officer, does not
+expect that our disclosure controls and procedures or our internal control over financial reporting
+will prevent or detect all error and all fraud. A control system, no matter how well designed and
+operated, can provide only reasonable, not absolute, assurance that the control system’s objectives
+will be met. The design of a control system must reflect the fact that there are resource
+constraints, and the benefits of controls must be considered relative to their costs. Further,
+because of the inherent limitations in all control systems, no evaluation of controls can provide
+absolute assurance that misstatements due to error or fraud will not occur or that all control
+issues and instances of fraud, if any, within the company have been detected. These inherent
+limitations include the realities that judgments in decision-making can be faulty and that
+breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the
+individual acts of some persons, by collusion of two or more people, or by management override of
+the controls. The design of any system of controls is based in part on certain assumptions about
+the likelihood of future events, and there can be no assurance that any design will succeed in
+achieving its stated goals under all potential future conditions. Projections of any evaluation of
+controls effectiveness to future periods are subject to risks. Over time, controls may become
+inadequate because of changes in conditions or deterioration in the degree of compliance with
+policies or procedures.
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
+There were no significant changes to our internal controls over financial reporting that have
+materially affected, or are reasonably likely to materially affect, our internal controls over
+financial reporting during the fourth quarter of 2007, we have completed our efforts regarding
+compliance with Section 404 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2007.
+The results of our evaluation are discussed above in Management’s Report on Internal Control Over
+Financial Reporting.
+ITEM 9B. OTHER INFORMATION 
+On January 18, 2008, our Compensation Committee approved the 2008 annual incentive
+compensation formulae for our executive management, including the “Named Executive Officers” (as
+defined in Item 402 of Regulation S-K), which will allow for executive management to earn incentive
+compensation on a quarterly basis in the event that certain specified performance goals are
+achieved under our 2006 Annual Incentive Compensation Plan (the “2006 Plan”). The purpose is to
+provide our executive management with the opportunity to earn incentive compensation based on our
+financial performance by linking incentive award opportunities to the achievement of certain
+performance goals.
+The Compensation Committee approved the business criteria to be used in the formulae to
+calculate the incentive compensation to be paid to our executive management on a quarterly basis
+for 2008. The business criteria that will be used to calculate the incentive compensation of
+Robert Greenberg (Chairman and Chief Executive Officer), Michael Greenberg (President), David
+Weinberg (Chief Operating Officer) and Mark Nason (Executive Vice President of Product Development)
+are our net sales and net earnings, while our net sales will be used for calculating the incentive
+compensation of Fred Schneider (Chief Financial Officer). The Compensation Committee believes that
+each of these criteria provides an accurate and comprehensive measure of our annual performance.
+The potential payments of incentive compensation to our executive management, including the
+Named Executive Officers, are performance-driven and therefore completely at risk. The payment of
+any incentive compensation is conditioned on our company
+61 
+Table of Contents 
+achieving at least certain threshold performance levels of the business criteria approved by
+the Compensation Committee, and no payments will be made to the Named Executive Officers if the
+threshold performance levels are not met. Any incentive compensation to be paid to the Named
+Executive Officers in excess of the threshold amounts are based on the Compensation Committee’s
+pre-approved business criteria and formulae for the respective Named Executive Officers. In
+approving the percentages that will be used in the formulae to calculate the Named Executive
+Officers’ potential payments of incentive compensation for 2008, the Compensation Committee
+considered each Named Executive Officer’s position, responsibilities and prospective contribution
+to the attainment of the Company’s specified performance goals. The threshold performance levels
+for 2008 are “attainable,” and additional incentive compensation may be earned based on our
+company’s financial performance exceeding increasingly challenging levels of performance goals,
+none of which is certain to be achieved. Consistent with the prior year, the Compensation
+Committee did not place a maximum limit on the incentive compensation that may be earned by the
+Named Executive Officers in 2008, although the maximum amount of incentive compensation that any
+Named Executive Officer may earn in a 12-month period under the 2006 Plan is $5,000,000.
+62 
+Table of Contents 
+PART III 
+ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 
+The information required by this Item 10 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2007 fiscal year.
+ITEM 11. EXECUTIVE COMPENSATION 
+The information required by this Item 11 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2007 fiscal year.
+ITEM 12. 
+SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
+STOCKHOLDER MATTERS 
+The information required by this Item 12 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2007 fiscal year.
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 
+The information required by this Item 13 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2007 fiscal year.
+ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 
+The information required by this Item 14 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2007 fiscal year.
+PART IV 
+ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 
+1. 
+Financial Statements: See “Index to Consolidated
+Financial Statements and Financial Statement Schedule” in Part II, Item 8 on
+page 36 of this annual report on Form 10-K. 
+2. 
+Financial Statement Schedule: See “Schedule II—Valuation and Qualifying Accounts” on page 64
+of this annual report on Form 10-K. 
+3. 
+Exhibits: The exhibits listed in the accompanying “Index to Exhibits” are filed or
+incorporated by reference as part of this Form 10-K. 
+63 
+Table of Contents 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+(in thousands) 
+Years Ended December 31, 2007, 2006 and 2005 
+BALANCE AT 
+CHARGED TO 
+DEDUCTIONS 
+BALANCE 
+BEGINNING OF 
+COSTS AND 
+AND 
+AT END 
+DESCRIPTION 
+PERIOD 
+EXPENSES 
+WRITE-OFFS 
+OF PERIOD 
+Year-ended December 31, 2005: 
+Allowance for chargebacks 
+$ 
+578 
+$ 
+368 
+$ 
+(323 
+) 
+$ 
+623 
+Allowance for doubtful accounts 
+1,887 
+870 
+(792 
+) 
+1,965 
+Reserve for sales returns and
+allowances 
+3,578 
+1,644 
+(614 
+) 
+4,608 
+Year-ended December 31, 2006: 
+Allowance for chargebacks 
+$ 
+623 
+$ 
+1,237 
+$ 
+(359 
+) 
+$ 
+1,501 
+Allowance for doubtful accounts 
+1,965 
+1,307 
+(573 
+) 
+2,699 
+Reserve for sales returns and
+allowances 
+4,608 
+2,047 
+(297 
+) 
+6,358 
+Year-ended December 31, 2007: 
+Allowance for chargebacks 
+$ 
+1,501 
+$ 
+1,684 
+$ 
+(613 
+) 
+$ 
+2,572 
+Allowance for doubtful accounts 
+2,699 
+284 
+(635 
+) 
+2,348 
+Reserve for sales returns and
+allowances 
+6,358 
+(358 
+) 
+(636 
+) 
+5,364 
+See accompanying report of independent registered public accounting firm
+64 
+Table of Contents 
+INDEX TO EXHIBITS 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+3.1
+Amended and Restated Certificate of Incorporation dated April 29, 1999 (incorporated by
+reference to exhibit number 3.1 of the Registrant’s Registration Statement on Form S-1, as
+amended (File No. 333-60065), filed with the Securities and Exchange Commission on May 12,
+1999). 
+3.2
+Bylaws dated May 28, 1998 (incorporated by reference to exhibit number 3.2 of the
+Registrant’s Registration Statement on Form S-1 (File No. 333-60065) filed with the
+Securities and Exchange Commission on July 29, 1998). 
+3.2(a)
+Amendment to Bylaws dated as of April 8, 1999 (incorporated by reference to exhibit number
+3.2(a) of the Registrant’s Form 10-K for the year ended December 31, 2005). 
+3.2(b)
+Second Amendment to Bylaws dated as of December 18, 2007 (incorporated by reference to
+exhibit number 3.1 of the Registrant’s Form 8-K filed with the Securities and Exchange
+Commission on December 20, 2007). 
+4.1
+Form of Specimen Class A Common Stock Certificate (incorporated by reference to exhibit
+number 4.1 of the Registrant’s Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange Commission on May 12, 1999). 
+4.2
+Indenture, dated April 9, 2002, between the Registrant and Wells Fargo Bank, National
+Association, as Trustee, relating to the 4.5% Convertible Subordinated Notes (incorporated
+by reference to exhibit number 4.2 of the Registrant’s Form 10-Q for the quarter ended June
+30, 2002). 
+4.3
+Form of Specimen Restricted Global Security (incorporated by reference to exhibit number 4.3
+of the Registrant’s Form 10-Q for the quarter ended June 30, 2002). 
+10.1**
+Amended and Restated 1998 Stock Option, Deferred Stock and Restricted Stock Plan
+(incorporated by reference to exhibit number 10.1 of the Registrant’s Registration Statement
+on Form S-1 (File No. 333-60065) filed with the Securities and Exchange Commission on July
+29, 1998). 
+10.1(a)**
+Amendment No. 1 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted
+Stock Plan (incorporated by reference to exhibit number 4.4 of the Registrant’s Registration
+Statement on Form S-8 (File No. 333-71114), filed with the Securities and Exchange
+Commission on October 5, 2001). 
+10.1(b)**
+Amendment No. 2 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted
+Stock Plan (incorporated by reference to exhibit number 4.5 of the Registrant’s Registration
+Statement on Form S-8 (File No. 333-135049), filed with the Securities and Exchange
+Commission on June 15, 2006). 
+10.1(c)**
+Amendment No. 3 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted
+Stock Plan (incorporated by reference to exhibit number 10.1 of the Registrant’s Form 8-K
+filed with the Securities and Exchange Commission on February 23, 2007). 
+10.2**
+2007 Incentive Award Plan (incorporated by reference to exhibit number 10.1 of the
+Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 24, 2007). 
+10.3**
+Form of Restricted Stock Agreement under 2007 Incentive Award Plan. 
+10.4**
+2008 Employee Stock Purchase Plan (incorporated by reference to exhibit number 10.2 of the
+Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 24, 2007). 
+10.5**
+2006 Annual Incentive Compensation Plan (incorporated by reference to Appendix A of the
+Registrant’s Definitive Proxy Statement filed with the Securities and Exchange Commission on
+May 1, 2006). 
+65 
+Table of Contents 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+10.6**
+Indemnification Agreement dated June 7, 1999 between the Registrant and its directors and
+executive officers (incorporated by reference to exhibit number 10.6 of the Registrant’s
+Form 10-K for the year ended December 31, 1999). 
+10.6(a)**
+List of Registrant’s directors and executive officers who entered into Indemnification
+Agreement referenced in Exhibit 10.6 with the Registrant (incorporated by reference to
+exhibit number 10.6(a) of the Registrant’s Form 10-K for the year ended December 31, 2005). 
+10.7
+Registration Rights Agreement dated June 9, 1999, between the Registrant, the Greenberg
+Family Trust and Michael Greenberg (incorporated by reference to exhibit number 10.7 of the
+Registrant’s Form 10-Q for the quarter ended June 30, 1999). 
+10.8
+Tax Indemnification Agreement dated June 8, 1999, between the Registrant and certain
+shareholders (incorporated by reference to exhibit number 10.8 of the Registrant’s Form 10-Q
+for the quarter ended June 30, 1999). 
+10.9
+Second Amended and Restated Loan and Security Agreement, dated May 31, 2006, by and among
+the Registrant and certain of its subsidiaries that are also borrowers under the Agreement,
+certain of its subsidiaries who are guarantors under the Agreement, and certain lenders
+including The CIT Group/Commericial Services, Inc., which acts as agent for the lenders
+(incorporated by reference to exhibit number 10.1 of the Registrant’s Form 8-K filed with
+the Securities and Exchange Commission on June 6, 2006). 
+10.10
+Promissory Note, dated December 27, 2000, between the Registrant and Washington Mutual Bank,
+FA, for the purchase of property located at 225 South Sepulveda Boulevard, Manhattan Beach,
+California (incorporated by reference to exhibit number 10.23 of the Registrant’s Form 10-K
+for the year ended December 31, 2000). 
+10.11
+Loan Agreement, dated December 21, 2000, between Yale Investments, LLC, and MONY Life
+Insurance Company, for the purchase of property located at 1670 South Champagne Avenue,
+Ontario, California (incorporated by reference to exhibit number 10.25 of the Registrant’s
+Form 10-K for the year ended December 31, 2000). 
+10.12
+Promissory Note, dated December 21, 2000, between Yale Investments, LLC, and MONY Life
+Insurance Company, for the purchase of property located at 1670 Champagne Avenue, Ontario,
+California (incorporated by reference to exhibit number 10.26 of the Registrant’s Form 10-K
+for the year ended December 31, 2000). 
+10.13
+Agreement dated August 25, 2005 between Duncan Investments, LLC, a wholly owned subsidiary
+of the Registrant, and Morley Construction Company regarding 330 South Sepulveda Boulevard,
+Manhattan Beach, California (incorporated by reference to exhibit number 10.1 of the
+Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 29, 2005). 
+10.14
+General Conditions of the Contract for Construction regarding 330 South Sepulveda Boulevard,
+Manhattan Beach, California (incorporated by reference to exhibit number 10.2 of the
+Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 29, 2005). 
+10.15
+Lease Agreement, dated November 21, 1997, between the Registrant and The Prudential
+Insurance Company of America, regarding 1661 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.14 of the Registrant’s Registration
+Statement on Form S-1 (File No. 333-60065) filed with the Securities and Exchange Commission
+on July 29, 1998). 
+10.15(a)
+First Amendment to Lease Agreement, dated April 26, 2002, between the Registrant and
+ProLogis California I LLC, regarding 1661 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.14(a) of the Registrant’s Form 10-K for the
+year ended December 21, 2002). 
+10.15(b)
+Second Amendment to Lease Agreement, dated December 10, 2007, between the Registrant and
+ProLogis California I LLC, regarding 1661 South Vintage Avenue, Ontario, California. 
+66 
+Table of Contents 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+10.16
+Lease Agreement, dated November 21, 1997, between the Registrant and The Prudential
+Insurance Company of America, regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.15 of the Registrant’s Registration
+Statement on Form S-1 (File No. 333-60065) filed with the Securities and Exchange Commission
+on July 29, 1998). 
+10.16(a)
+First Amendment to Lease Agreement, dated April 26, 2002, between the Registrant and Cabot
+Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.15(a) of the Registrant’s Form 10-K for the
+year ended December 21, 2002). 
+10.16(b)
+Second Amendment to Lease Agreement, dated May 14, 2002, between the Registrant and Cabot
+Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California. 
+10.16(c)
+Third Amendment to Lease Agreement, dated May 7, 2007, between the Registrant and Cabot
+Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California. 
+10.16(d)
+Fourth Amendment to Lease Agreement, dated November 10, 2007, between the Registrant and
+Cabot Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California. 
+10.17
+Lease Agreement, dated April 10, 2001, between the Registrant and ProLogis California I LLC,
+regarding 4100 East Mission Boulevard, Ontario, California (incorporated by reference to
+exhibit number 10.28 of the Registrant’s Form 10-K for the year ended December 31, 2001). 
+10.17(a)
+First Amendment to Lease Agreement, dated October 22, 2003, between the Registrant and
+ProLogis California I LLC, regarding 4100 East Mission Boulevard, Ontario, California
+(incorporated by reference to exhibit number 10.28(a) of the Registrant’s Form 10-K for the
+year ended December 31, 2003). 
+10.18
+Lease Agreement, dated February 8, 2002, between Skechers International, a subsidiary of the
+Registrant, and ProLogis Belgium II SPRL, regarding ProLogis Park Liege Distribution Center
+I in Liege, Belgium (incorporated by reference to exhibit number 10.29 of the Registrant’s
+Form 10-K for the year ended December 31, 2002). 
+10.19
+Lease Agreement dated September 25, 2007 between the Registrant and HF Logistics I, LLC,
+regarding distribution facility in Moreno Valley, California (incorporated by reference to
+exhibit number 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange
+Commission on September 27, 2007). 
+10.20**
+Amended and Restated 1998 Employee Stock Purchase Plan (incorporated by reference to exhibit
+number 10.1 of the Registrant’s Form 10-Q, for the quarter ended June 30, 2000). 
+21.1
+Subsidiaries of the Registrant. 
+23.1
+Consent of Independent Registered Public Accounting Firm. 
+31.1
+Certification of the Chief Executive Officer pursuant Securities Exchange Act Rule 13a-14(a). 
+31.2
+Certification of the Chief Financial Officer pursuant Securities Exchange Act Rule 13a-14(a). 
+32.1
+Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
+Sarbanes-Oxley Act of 2002. 
+** 
+Management contract or compensatory plan or arrangement required to be filed as an exhibit. 
+67 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Manhattan Beach, State of California on the 29th day of February
+2008.
+SKECHERS U.S.A., INC. 
+By: 
+/S/ ROBERT GREENBERG
+Robert Greenberg 
+Chairman of the Board and 
+Chief Executive Officer 
+Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
+signed by the following persons on behalf of the Registrant and in the capacities and on the dates
+indicated.
+SIGNATURE 
+TITLE 
+DATE 
+/S/ ROBERT GREENBERG
+Robert Greenberg
+Chief Executive Officer 
+(Principal Executive Officer)
+February 29, 2008 
+/S/ MICHAEL GREENBERG
+Michael Greenberg
+President and Director
+February 29, 2008 
+/S/ DAVID WEINBERG
+David Weinberg
+Executive Vice President, Chief Operating Officer
+and Director
+February 29, 2008 
+/S/ FREDERICK H. SCHNEIDER
+Frederick H. Schneider
+Chief Financial Officer 
+(Principal Financial and Accounting Officer)
+February 29, 2008 
+/S/ JEFFREY GREENBERG
+Jeffrey Greenberg
+Director
+February 29, 2008 
+/S/ J. GEYER KOSINSKI
+J. Geyer Kosinski
+Director
+February 29, 2008 
+/S/ MORTON D. ERLICH
+Morton D. Erlich
+Director
+February 29, 2008 
+/S/ RICHARD SISKIND
+Richard Siskind
+Director
+February 29, 2008 
+68
\ No newline at end of file
diff --git a/raw/filings/0001065837/2007/0000950124-08-000975/filing_metadata.csv b/raw/filings/0001065837/2007/0000950124-08-000975/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..e5454010cf5638436c6d43be8ad338234d159b4c
--- /dev/null
+++ b/raw/filings/0001065837/2007/0000950124-08-000975/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0001065837,SKX,SKECHERS USA INC,10-K,2008-02-29,2007-12-31,2008-02-29T20:43:40.000Z,0000950124-08-000975,v38308e10vk.htm,FORM 10-K,801503,0,0,https://www.sec.gov/Archives/edgar/data/1065837/000095012408000975/v38308e10vk.htm,https://www.sec.gov/Archives/edgar/data/1065837/000095012408000975/,2007,2007,1
diff --git a/raw/filings/0001065837/2007/0000950124-08-000975/item1.txt b/raw/filings/0001065837/2007/0000950124-08-000975/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..84252575e2278480caeeb23f64408a2c1aa0e900
--- /dev/null
+++ b/raw/filings/0001065837/2007/0000950124-08-000975/item1.txt
@@ -0,0 +1,810 @@
+ITEM 1. BUSINESS 
+We were incorporated in California in 1992 and reincorporated in Delaware in 1999. Throughout
+this annual report, we refer to Skechers U.S.A., Inc., a Delaware corporation, and its consolidated
+subsidiaries as “we,” “us,” “our,” “our company” and “Skechers” unless otherwise indicated. Our
+Internet website address is www.skechers.com . Our annual report on Form 10-K, quarterly reports on
+Form 10-Q, current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of directors,
+officers and 10% stockholders, and any amendments to those reports filed or furnished pursuant to
+Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our
+website as soon as reasonably practicable after we electronically file such material with, or
+furnish it to, the SEC. You can learn more about us by reviewing such filings on our website or at
+the SEC’s website at www.sec.gov .
+GENERAL
+We design and market Skechers-branded contemporary footwear for men, women and children under
+several unique lines. Our footwear reflects a combination of style, quality and value that appeals
+to a broad range of consumers. In addition to Skechers-branded lines, we also offer eight uniquely
+branded designer, fashion and street-focused footwear lines for men, women and children. These
+lines are branded and marketed separately from Skechers and appeal to specific audiences. Our
+brands are sold through department stores, specialty stores, athletic retailers, and boutiques as
+well as our e-commerce website and our own retail stores. We operate 70 concept stores, 72 factory
+outlet stores and 35 warehouse outlet stores in the United States, and 14 concept stores and two
+factory outlets internationally. Our objective is to profitably grow our operations worldwide
+while leveraging our recognizable Skechers brand through our strong product lines, innovative
+advertising and diversified distribution channels.
+We seek to offer consumers a vast array of fashionable footwear that satisfies their active,
+casual, dress casual and dress footwear needs. Our core consumers are style-conscious 12 to 24
+year-old men and women attracted to our youthful brand image and fashion forward designs. Many of
+our best-selling and core styles are also developed for children with colors and materials that
+reflect a playful image appropriate for this demographic.
+We believe that brand recognition is an important element for success in the footwear
+business. We have aggressively promoted our brands through comprehensive marketing campaigns for
+men, women and children. During 2007, we continued our celebrity driven ads with platinum
+recording artist Ashlee Simpson as our Skechers celebrity endorsee. We also developed television
+campaigns for our men’s, women’s and children’s lines, including our first animated campaign for
+Airators by Skechers and Cali Gear from Skechers. In 2007, our marketing for children focused on
+television spots, while our adult efforts utilized television, print and outdoor. Select fashion
+brands including Marc Ecko Footwear are supported by television commercials. Our Unltd. by Marc
+Ecko Rhino Red and Zoo York footwear lines are also supported through print ads developed by Marc
+Ecko. The Red by Marc Ecko line was also supported by print and television campaigns featuring
+platinum recording artist and actress JoJo, and High School Musical stars Ashley Tisdale and
+Vanessa Hudgens.
+Since we introduced our first line, Skechers USA Sport Utility Footwear, in December 1992, we
+have expanded our product offering and grown our net sales while substantially increasing the
+breadth and penetration of our account base. Our men’s, women’s and children’s Skechers-branded
+product lines benefit from the Skechers reputation for contemporary and progressive styling,
+quality, comfort and affordability. Our lines that are not branded with the Skechers name benefit
+from our marketing support, quality management and expertise. To promote innovation and brand
+relevance, we manage our product lines separately by utilizing dedicated sales and design teams.
+Our product lines share back office services in order to limit our operating expenses and fully
+utilize our management’s vast experience in the footwear industry.
+SKECHERS LINES
+Skechers USA. Our Skechers USA category for men and women includes five types of footwear: (i)
+Casuals, (ii) Dress Casuals, (iii) Comfort and Lightweight (for men only), (iv) Outdoor (for men
+only) (v) Sandals and (vi) Casual Fusion. This category is generally sold through mid-tier
+retailers, department stores and some footwear specialty shops.
+• 
+The Casuals line for men and women is defined by lugged outsoles and utilizes
+value-oriented and leather materials in the uppers. For men, the Casuals category includes
+“black and brown” boots, shoes and sandals that generally have a rugged urban design — some
+with industrial-inspired fashion features. For women, the Casuals category includes basic
+“black and brown” 
+2 
+Table of Contents 
+oxfords and slip-ons, lug outsole boots, and casual sandals. We design and price both the
+men’s and women’s categories to appeal primarily to younger consumers with broad acceptance
+across age groups. 
+• 
+For men, the Dress Casuals category is comprised of basic “black and brown” men’s shoes
+that feature shiny leathers and dress details, but may utilize traditional or lugged
+outsoles as well as value-oriented materials. For women, the Dress Casual line is comprised
+of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or
+faux fur lining or trim. 
+• 
+Skechers Comfort is a line of trend-right casuals for men who want all-day comfort
+without compromising style. Characteristics of the line include comfortable outsoles,
+cushioned insoles and quality leather uppers. A category with unique features, we market and
+package the Skechers Comfort styles in a shoe box that is distinct from that of other
+categories in the Skechers USA line of footwear. 
+• 
+Our Outdoor styles for men primarily consist of hiker-influenced constructions including
+boots and shoes. While this category includes many technical performance features, we market
+this category of footwear primarily on the basis of style and comfort. Outsoles generally
+consist of molded and contoured hardened rubber. Many designs include gussetted tongues to
+prevent penetration of water and debris, cushioned mid-soles, motion control devices such as
+heel cups, water-resistant or water-proof construction and materials, and more durable
+hardware such as metal D-rings instead of eyelets. Uppers are generally constructed of
+heavily oiled nubuck and full-grain leathers. 
+• 
+Our Sandals collection for men and women is designed with many of our existing and proven
+outsoles for our Casuals, Dress Casuals and Casual Fusion lines, stylized with basic or core
+uppers as well as fresh looks. These styles are generally made with quality leather uppers,
+but may also be in canvas or fabric. 
+• 
+Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals
+targeted at trend-conscious young men and women. The outsoles are primarily rubber and
+adopted from our men’s Sport and women’s Active lines. This collection features leather or
+nubuck uppers, but may also include mesh, and may be in shades of browns and beiges as well
+as in black, gray, greens and blues. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes: (i) Joggers, Trail
+Runners, Sport Hikers, Terrainers, (ii) Performance (for men only), (iii) Street Casuals and (iv)
+Sport Sandals. Our Skechers Sport category is distinguished by its technical performance-inspired
+looks; however, we generally do not promote the technical performance features of these shoes.
+Skechers Sport is typically sold through specialty shoe stores, department stores and athletic
+footwear retailers.
+• 
+Our Jogger, Trail Runner, Sport Hiker and cross trainer-inspired Terrainer designs are
+lightweight constructions that include cushioned heels, polyurethane midsoles, phylon and
+other synthetic outsoles, as well as leather or synthetic uppers such as durabuck, cordura
+and nylon mesh. Careful attention is devoted to the design, pattern and construction of the
+outsoles, which vary greatly depending on the intended use. This category features earth
+tones and athletic-inspired hues with contrasting pop colors such as lime green, orange and
+red in addition to traditional athletic white. 
+• 
+The Performance category is comprised of multi-purpose running shoes that are marketed as
+men’s lifestyle athletic footwear. Some styles include 3M reflective accents, breathable
+upper construction, quality leathers, abrasion-resistant toe and heel cap, removable
+moisture wicking molded ethyl vinyl acetate (“EVA”) sock liner, outsole forefoot flex
+grooves for improved flexibility, non-marking rubber lugs with impact dispersment technology
+(“IDT”), aggressive all terrain traction lugs, external torsion stabilizer and tuned
+dual-density molded EVA midsole with pronation control. 
+• 
+Street Casual incorporates lower profiles, classic details and skate, street and fusion
+influences in a collection of essential, basic casual sneakers. The uppers are designed in
+leather, suede, nubuck, canvas and/or mesh, and many include vulcanized outsoles. Street
+Casual is targeted to young consumers, but also appeals to a broader demographic. 
+• 
+Our Sport Sandals are primarily designed from existing Skechers Sport outsoles and may
+include many of the same sport features as our sneakers with the addition of new
+technologies geared toward making a comfortable sport sandal. Sport sandals are designed as
+seasonal footwear for the consumer who already wears our Skechers Sport sneakers. 
+Skechers Active. A natural companion to Skechers Sport, Skechers Active has grown from a
+casual everyday line into a complete line of fusion and sport fusion sneakers for females of all
+ages. Marked by low-profile outsoles, the Active line is available in a multitude of colors as well
+as solid white or black, in fabrics, leathers and meshes, and with various closures – traditional
+laces, zig-
+3 
+Table of Contents 
+zag and cross straps, among others. The line also now includes Mary Janes, sandals and open
+back styles. Active sneakers are typically retailed through specialty casual shoe stores and
+department stores.
+Skechers Cali . Launched in 2006, Skechers Cali is a line of sneakers, skimmers, wedges and
+sandals for young women designed to typify the California lifestyle. The uppers are primarily in
+canvas, fabrics and leather with unique prints, some with patch details. The sandals range from
+dress casual looks to casual to beach thongs. Skechers Cali is sold through specialty casual shoe
+stores and department stores.
+Skechers Work. Expanding on our heritage of cutting-edge utility footwear, Skechers Work
+offers a complete line of men’s and women’s casuals, field boots, hikers and athletic shoes. The
+Skechers Work line includes athletic-inspired, casual safety toe, and non-slip safety toe
+categories that may feature lightweight aluminum safety toe, electrical hazard, and slip-resistant
+technologies, as well as breathable, seam-sealed waterproof membranes. Designed for men and women
+with jobs that require certain safety requirements, these durable styles are constructed on
+high-abrasion, long wearing soles, and feature breathable lining, oil and abrasion resistant
+outsoles offering all-day comfort and prolonged durability. The uppers are comprised of
+high-quality leather, nubuck, trubuck and durabuck. Our safety toe athletic sneakers, boots,
+hikers, and casuals are ideal for environments requiring safety footwear and offer comfort and
+safety in dry or wet conditions. Our slip-resistant boots, hikers, athletics, casuals and clogs
+are ideal for the service industry. Our safety toe products have been independently tested and
+certified to meet ASTM standards, and our slip-resistant soles have been tested pursuant to the
+Mark II testing method for slip resistance. Skechers Work is typically sold through department
+stores, athletic footwear retailers and specialty shoe stores, as well as marketed directly to
+consumers through business-to-business channels.
+Skechers Kids. The Skechers Kids line includes: (i) Skechers Kids, which is a range of
+infants, toddlers, boys and girls boots, shoes and sneakers; (ii) S-Lights, which is lighted
+footwear for toddlers, boys and girls; (iii) Skechers Cali for Girls, which is trend-inspired
+boots, shoes, sandals and dress sneakers; (iv) Airators by Skechers; (v) Skechers Super Z-Strap;
+and (vi) Babiez by Skechers. Skechers Kids and Skechers Cali for Girls are comprised primarily of
+shoes that are designed as “takedowns” of their adult counterparts, allowing the younger set the
+opportunity to wear the same popular styles as their older siblings and schoolmates. This
+“takedown” strategy maintains the product’s integrity by offering premium leathers, hardware and
+outsoles without the attendant costs involved in designing and developing new products. In
+addition, we adapt current fashions from our men’s and women’s lines by modifying designs and
+choosing colors and materials that are more suitable for the playful image that we have established
+in the children’s footwear market. Each Skechers Kids line is marketed and packaged separately with
+a distinct shoe box. Skechers Kids shoes are available at department stores and specialty and
+athletic retailers.
+• 
+The Skechers Kids line includes embellishments or adornments such as fresh colors and
+fabrics from our Skechers adult shoes. Some of these styles are also adapted for toddlers
+with softer, more pliable outsoles and for infants with soft, leather-sole crib shoes. 
+• 
+S-Lights is a line of sneakers and sandals with a combined pattern of lights on the
+outsole and other areas of the shoes. We market and package the S-Lights styles in a shoe
+box that is distinct from that of other categories in the Skechers Kids line of footwear. 
+• 
+Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young women
+designed to typify the California lifestyle. The sneakers are designed primarily with canvas
+uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and
+flats are designed with many of the same upper materials and outsoles as the sneakers. 
+• 
+Airators by Skechers is a line of boys sneakers with a foot-cooling system designed to
+pump air from the heel through to the toes. 
+• 
+Skechers Super Z-Strap is a line of athletic styled sneakers with a unique “z” shaped
+closure system for easy closure. 
+• 
+Babiez by Skechers is a line of crib shoes for infants. The uppers and outsoles are
+designed in leather and are extremely flexible for newborn feet. 
+Cali Gear by Skechers. Launched in 2007, Cali Gear by Skechers is a new line of nano
+lite TM molded footwear for men, women and children. Designed with many of our signature
+outsoles as well as uppers, the lightweight footwear is available in a multitude of colors and
+patterns consistent with the Skechers image. The majority of styles for children, as well as some
+adult styles, are available with Skechers Cali Bits, which are decorative accessories inserted into
+designed holes in the uppers. The Skechers Cali Bits are also
+4 
+Table of Contents 
+available for purchase and include licensed properties such as The Simpsons and Spiderman. The
+Cali Gear footwear is also non-slip and odor-resistant. Primarily displayed on hanging fixtures and
+wall units, the footwear is available at department stores, footwear specialty chains and
+independents.
+FASHION AND STREET BRANDS
+The Fashion and Street Division and its brands are marketed and packaged separately from Skechers.
+Unltd. by Marc Ecko, Rhino Red and Red by Marc Ecko. Unltd. by Marc Ecko is a line of men’s
+street-inspired traditional sneakers, fusion sneakers and urban-focused casuals. Rhino Red is a
+line of women’s classic and fashion-forward fusion sneakers sandals and Mary Janes for young women.
+Targeted to the street-savvy 18 to 34 year-old consumer, the footwear reflects Ecko Unltd.’s men’s
+apparel and the Ecko Red women’s apparel, and effectively utilizes the globally recognized Rhino
+logo on the majority of sneakers and casuals. Within the Rhino Red line is the Red by Marc Ecko
+offering, a line of designer dress and dress casual footwear for the urban chic woman. The men’s
+and women’s footwear collections are designed in leather, canvas, mesh, as well as other materials.
+Unltd. by Marc Ecko for boys and Rhino Red for girls sneaker lines primarily consist of takedowns
+from the adult Marc Ecko footwear lines with additional or different colorways geared toward
+children and that reflect the boys’ and girls’ Ecko Unltd. and Ecko Red clothing. The licensed
+brands are sold through select department stores and specialty retailers.
+Zoo York. Zoo York footwear is a line of action sports and lifestyle footwear for men. Zoo
+York footwear is designed by Marc Ecko Enterprises and borrows from the color palette and trends
+from Zoo York apparel that targets core skaters and those that embrace skate fashion. Zoo York
+footwear is available in skate and specialty shops as well as select athletic and department
+stores.
+310 Motoring. The 310 footwear collection for men utilizes top-quality leathers, a
+fashion-forward approach to design and comfort, and materials that are derived from 310 Motoring’s
+customized cars, including wood burl and carbon fiber. A multi-tiered approach, the line consists
+of high-end and high-design boots and shoes, sophisticated driving-inspired shoes and boots, and
+stylized athletics. 310 footwear is available in select department stores, specialty retailers and
+urban independents.
+Mark Nason and Siren by Mark Nason. Mark Nason is a sophisticated and fashion forward footwear
+collection, marketed to style-conscious men, designed to complement designer denim and dress casual
+wear. Primarily crafted and constructed in Italy, the Mark Nason collection is comprised of classic
+and modern boots, shoes and sandals with distinctive profiles and luxurious hand-distressed
+leathers. The Mark Nason line distinguishes itself with high quality individual styling and may
+utilize unique materials such as premium leathers, etched and tattooed leathers, hand-treated,
+hand-scraped and hand-cut leathers, hand-treated leather uppers and soles, snakeskin and eel skin.
+Siren by Mark Nason is the ultimate accompaniment to designer denim and casual couture for
+discerning women. The line’s boots are fueled with bold profiles, alluring details and distinct
+textures. Handcrafted in Italy, the boots utilize premium leathers, hand-treated details, leather
+outsoles, and some may include snakeskin and other exotic materials. The Mark Nason lines are
+available in better department stores and boutiques.
+SoHo Lab. Targeting 18 to 34 year-old trend-savvy women and men, SoHo Lab is comprised of
+stylish dress shoes, boots and sandals. The men’s SoHo Lab collection includes classic tailored and
+fashion-forward lasts in a variety of styles. The women’s styles also include heels and flats. The
+footwear is manufactured in Europe, Brazil and China. The men’s styles are typically sold in
+department stores, specialty stores and independent merchants, while the women’s styles are only
+available at Skechers retail stores.
+PRODUCT DESIGN AND DEVELOPMENT
+Our principal goal in product design is to generate new and exciting footwear in all of our
+product lines with contemporary and progressive styles and comfort-enhancing performance features.
+Targeted to the active, youthful and style-savvy, we design most new styles to be fashionable and
+marketable to the 12 to 24 year-old consumer, while substantially all of our lines appeal to the
+broader range of 5 to 40 year-old consumers, with an exclusive selection for infants and toddlers.
+While some of our shoes have performance features, we generally do not position our shoes in the
+marketplace as technical performance shoes.
+We believe that our products’ success is related to our ability to recognize trends in the
+footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving
+preferences. We are able to quickly translate the latest fashion trends into stylish, quality
+footwear at a reasonable price by analyzing and interpreting current and emerging lifestyle trends.
+Lifestyle trend information is compiled and analyzed by our designers from various sources,
+including the review and analysis of modern music, television, cinema, clothing, alternative sports
+and other trend-setting media; traveling to domestic and international fashion markets to identify
+and confirm current trends; consulting with our retail and e-commerce customers for information on
+current retail selling
+5 
+Table of Contents 
+trends; participating in major footwear trade shows to stay abreast of popular brands,
+fashions and styles; and subscribing to various fashion and color information services. In
+addition, a key component of our design philosophy is to continually reinterpret and develop our
+successful styles in our brands’ image.
+The footwear design process typically begins about nine months before the start of a season.
+Our products are designed and developed primarily by our in-house design staff. To promote
+innovation and brand relevance, we utilize dedicated design teams, who report to our senior design
+executives and focus on each of the men’s, women’s and children’s categories. In addition, we
+utilize outside design firms on an item-specific basis to supplement our internal design efforts.
+The design process is extremely collaborative, as members of the design staff frequently meet with
+the heads of retail, merchandising, sales, production and sourcing to further refine our products
+to meet the particular needs of the target market.
+After a design team arrives at a consensus regarding the fashion themes for the coming season,
+the designers then translate these themes into our products. These interpretations include
+variations in product color, material structure and embellishments, which are arrived at after
+close consultation with our production department. Prototype blueprints and specifications are
+created and forwarded to our manufacturers for a design prototype. The design prototypes are then
+sent back to our design teams. Our major retail customers may also review these new design
+concepts. Customer input not only allows us to measure consumer reaction to the latest designs, but
+also affords us an opportunity to foster deeper and more collaborative relationships with our
+customers. We also occasionally order limited production runs that may initially be tested in our
+concept stores. By working closely with store personnel, we obtain customer feedback that often
+influences product design and development. Our design teams can easily and quickly modify and
+refine a design based on customer input. Generally, the production process can take six months to
+nine months from design concept to commercialization.
+SOURCING
+Factories. Our products are produced by independent contract manufacturers located primarily
+in China and, to a lesser extent, in Italy, Vietnam, Brazil and various other countries. We do not
+own or operate any manufacturing facilities as we believe that the use of independent manufacturers
+substantially increases our production flexibility and capacity while reducing capital expenditures
+and avoiding the costs of managing a large production work force.
+When possible, we seek to use manufacturers that have previously produced our footwear, which
+we believe enhances continuity and quality while controlling production costs. We attempt to
+monitor our selection of independent factories to ensure that no one manufacturer is responsible
+for a disproportionate amount of our merchandise. We source product for styles that account for a
+significant percentage of our net sales from at least four different manufacturers. During 2007,
+four of our contract manufacturers accounted for approximately 58.4% of total purchases. One
+manufacturer accounted for 29.7%, and two others each accounted for over 10.0% of our total
+purchases. To date, we have not experienced difficulty in obtaining manufacturing services.
+We finance our production activities in part through the use of interest-bearing open purchase
+arrangements with certain of our Asian manufacturers. These facilities currently bear interest at a
+rate between 0% and 1.5% for 30 to 60 days financing, depending on the factory. We believe that the
+use of these arrangements afford us additional liquidity and flexibility. We do not have any
+long-term contracts with any of our manufacturers; however, we have long-standing relationships
+with many of our manufacturers and believe our relationships to be good.
+We closely monitor sales activity after initial introduction of a product in our concept
+stores to determine whether there is substantial demand for a style, thereby aiding us in our
+sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming
+collections or offered as part of our periodic style offerings, while less popular styles can be
+discontinued after only a limited production run. We believe that sales in our concept stores can
+also help forecast sales in national retail stores, and we share this sales information with our
+wholesale customers. Sales, merchandising, production and allocations management analyze historical
+and current sales and market data from our wholesale account base and our own retail stores to
+develop an internal product quantity forecast that allows us to better manage our future production
+and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock
+position to minimize the time necessary to fill customer orders by placing orders with our
+manufacturers prior to the time we receive customers’ orders for such footwear.
+Production Oversight . To safeguard product quality and consistency, we oversee the key aspects
+of production from initial prototype manufacture through initial production runs to final
+manufacture. Monitoring of all production is performed in the United States by our in-house
+production department and in Asia through an approximately 250-person staff working from our
+offices in China. We believe that our Asian presence allows us to negotiate supplier and
+manufacturer arrangements more effectively, decrease
+6 
+Table of Contents 
+product turnaround time and ensure timely delivery of finished footwear. In addition, we
+require our manufacturers to certify that neither convicted, forced or indentured labor (as defined
+under U.S. law) nor child labor (as defined by law in the manufacturer’s country) is used in the
+production process, and that compensation will be paid according to local law and that the factory
+is in compliance with local safety regulations.
+Quality Control. We believe that quality control is an important and effective means of
+maintaining the quality and reputation of our products. Our quality control program is designed to
+ensure that not only finished goods meet our established design specifications, but also that all
+goods bearing our trademarks meet our standards for quality. Our quality control personnel located
+in China perform an array of inspection procedures at various stages of the production process,
+including examination and testing of prototypes of key raw materials prior to manufacture, samples
+and materials at various stages of production and final products prior to shipment. Our employees
+are on-site at each of our major manufacturers to oversee production. For some of our lower volume
+manufacturers, our staff is on-site during significant production runs or we will perform
+unannounced visits to their manufacturing sites to further monitor compliance with our
+manufacturing specifications.
+ADVERTISING AND MARKETING
+With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted approach to
+marketing to drive traffic, build brand recognition and properly position our diverse lines within
+the marketplace. Senior management is directly involved in shaping our image and the conception,
+development and implementation of our advertising and marketing activities. The focus of our
+marketing plan is print and television advertising, which is supported by outdoor, trend-influenced
+marketing, public relations, promotions and in-store support. In addition, we utilize celebrity
+endorsers in our advertisements. We also believe our Internet websites and trade shows are
+effective marketing tools to both consumers and corporate accounts. We have historically budgeted
+advertising as a percentage of projected net sales.
+Advertising. The majority of our advertising is conceptualized by our in-house design team. We
+believe that our advertising strategies, methods and creative campaigns are directly related to our
+success. Through our lifestyle and image-driven advertising, we generally seek to build and
+increase brand awareness by linking the Skechers brand and our fashion and street brands to
+youthful, contemporary lifestyles and attitudes. We have built on this approach by featuring
+select styles in our lifestyle ads. In addition to our compelling Skechers lifestyle ads, we have
+also created product specific ads for our men’s lines to appeal to men as well as women who
+purchase footwear for men. Our ads are designed to provide merchandise flexibility and to
+facilitate the “brands and product designs” direction of evolving footwear fashions and consumer
+preferences.
+To further build brand awareness and influence consumer spending, we have selectively signed
+endorsement agreements with celebrities whom we believed would reach new markets. In 2006, we
+signed pop star Ashlee Simpson to appear in Skechers marketing campaigns through 2007. In past
+years, we had similar endorsement agreements for Skechers with singers Carrie Underwood, Christina
+Aguilera and Britney Spears, professional basketball player and actor Rick Fox, and actors Robert
+Downey, Jr., Matt Dillon and Rob Lowe. From time to time, we may sign other celebrities to endorse
+our brand name and image in order to strategically market our products among specific consumer
+groups in the future.
+In addition to advertising our Skechers branded lines through men’s, women’s and children’s
+ads, we also support Mark Nason, 310, Marc Ecko and Zoo York lines through individual unique print
+and/or television advertisements – some which may include celebrity endorsees. For Mark Nason, we
+have focused on key-selling styles in product-driven ads that captured the brand’s essence. For
+the Marc Ecko footwear brands, Marc Ecko’s design team has created relevant targeted print and
+television commercials for men and women. These include a multi-media men’s campaign featuring our
+graffiti painted shoe as well as the first commercial for Unltd. by Marc Ecko for boys. In 2007,
+singer/actress JoJo became the new face of Rhino Red and appeared in print and outdoor advertising
+and a television commercial, and in late 2007, High School Musical stars Ashley Tisdale and Vanessa
+Hudgens became the faces of Red by Marc Ecko, appearing in print campaigns. Television commercials
+have also been developed and are being run in 2008.
+With a targeted approach, our print ads appear regularly in popular fashion and lifestyle
+consumer publications, such as GQ, Cosmopolitan, Elle, Lucky, In Style, Seventeen, Maxim, Slam,
+Road & Track, and Complex, as well as in weekly publications such as People, Us Weekly, Star,
+Sports Illustrated and InTouch, among others.
+Our television commercials are produced both in-house and through producers we have utilized
+in the past and are familiar with our brands. In 2007, we developed commercials for men, women and
+children for our Skechers brands, including our first animated spots for Airators by Skechers and
+Cali Gear by Skechers for kids. We have found these to be a cost-effective way to advertise during
+7 
+Table of Contents 
+key national and cable programming in key selling seasons. Our media buyer strategically
+selects the ideal programs and geographic areas for our commercials for maximum consumer impact.
+Outdoor. In an effort to reach consumers where they shop and in high traffic areas as they
+travel to and from work or while running errands, we continued our multi-level outdoor campaign
+that included kiosks in key malls across the United States, and billboards, transportation systems
+and telephone kiosks in North America and Europe. We believe these are effective and efficient
+ways to reach a broad range of consumers and leave a lasting impression of our many brands.
+Trend-Influenced Marketing/Public Relations. Our public relations objectives are to secure
+product placement in key fashion magazines, place our footwear on the feet of trend-setting
+celebrities, and garner positive and accurate press on our company. Through our commitment to
+aggressively promote our upcoming styles, our products are often featured in leading fashion and
+pop culture magazines, as well as in select films and popular television shows. Our footwear and
+our company have been prominently displayed and referenced on news and magazine shows including The
+Today Show , Good Day L.A., Entertainment Tonight, and E! ; and on television programs, including Law
+& Order, Entourage, and The Big Idea with Donny Deutsch , among others. We have also amassed an
+array of prominent product placements in magazines including Lucky , Seventeen , OK!, Teen Vogue,
+CosmoGirl, InStyle, Maxim, Slam, Dime and Footwear News . In addition, our brands have been
+associated with cutting edge events and select celebrities, and our product has been seen worn by
+trend-setters like Denis Leary, Chris Cornell, Debra Messing, Nicole Richie, Paris Hilton and Jamie
+Foxx, among others.
+Promotions. By applying creative sales techniques via a broad spectrum of mediums, our
+marketing team seeks to build brand recognition and drive traffic to Skechers’ retail stores,
+websites and our retail partners’ locations. Skechers’ promotional strategies have encompassed
+in-store specials, charity events, product tie-ins and giveaways, and collaborations with national
+retailers and radio stations. Our imaginative promotions are consistent with Skechers’ imaging and
+lifestyle.
+Visual Merchandising. Our in-house visual merchandising department supports wholesale
+customers, distributors and our retail stores by developing displays that effectively leverage our
+products at the point of sale. Our point-of-purchase display items include signage, graphics,
+displays, counter cards, banners and other merchandising items for each of our brands. These
+materials mirror the look and feel of each brand and reinforce the image as well as draw consumers
+into stores.
+Our visual merchandising coordinators (“VMC’s”) work with our sales force and directly with
+our customers to ensure better sell-through at the retail level by generating greater consumer
+awareness through Skechers brand displays. Our VMC’s communicate with and visit our wholesale
+customers on a regular basis to aid in proper display of our merchandise. They also run in-store
+promotions to enhance the sale of Skechers footwear and create excitement surrounding the Skechers
+brand. We believe that these efforts help stimulate impulse sales and repeat purchases.
+Trade Shows. To better showcase our diverse products to footwear buyers in the United States
+and Europe, and to distributors around the world, we regularly exhibit at leading trade shows.
+Along with specialty trade shows, we exhibit at WSA’s The Shoe Show, FFANY, ASR and MAGIC in the
+United States, and GDS, MICAM, Bread & Butter, MODA, MIDEC and Who’s Next in Europe. Our dynamic,
+state-of-the-art trade show exhibits are developed by our in-house architect to showcase our latest
+product offerings in a lifestyle setting reflective of each of our brands. By investing in
+innovative displays and individual rooms showcasing each line, our sales force can present a sales
+plan for each line and buyers are able to truly understand the breadth and depth of our offerings,
+thereby optimizing commitments and sales at the retail level. For select non-Skechers branded lines
+such as 310, Zoo York and Marc Ecko Footwear, we have created individual exhibits to ensure their
+brand integrity.
+Internet. We also promote our brands through our e-commerce websites www.skechers.com and
+www.soholab.com to consumers who access the Internet. We have also established a unique Internet
+website for Mark Nason (www.marknason.com) designed to serve primarily as a marketing tool. These
+websites currently enable us to present information on our products, provide a brand experience and
+store locations to consumers, and allow consumers the ability to directly order products on the
+Internet. These sites also provide us a mechanism for customer feedback as well as allowing us to
+receive and respond directly to consumer feedback. Our websites are intended to enhance the
+Skechers and fashion brands and increase sales through all our retail channels. Our websites also
+allow us to leverage our brand awareness at a lower cost than traditional distribution channels.
+PRODUCT DISTRIBUTION CHANNELS
+We have four reportable segments – domestic wholesale sales, international wholesale sales,
+retail sales and e-commerce sales. In the United States, our products are available through a
+network of wholesale customers comprised of department, athletic and
+8 
+Table of Contents 
+specialty stores. Internationally, our products are available through wholesale customers in
+more than 100 countries and territories through our global network of distributors and our
+Canadian, Brazilian, Asian and European subsidiaries. Skechers owns and operates retail stores
+both domestically and internationally through three integrated retail formats—concept, factory
+outlet and warehouse outlet stores. Each of these channels serves an integral function in the
+global distribution of our products. Fourteen distributors have opened 60 distributor-owned
+Skechers retail stores in 21 countries as of December 31, 2007.
+Domestic Wholesale. We distribute our footwear through the following domestic wholesale
+distribution channels: department stores, specialty stores, athletic shoe stores and independent
+retailers. Department stores and specialty retailers are the largest distribution channels, but we
+believe that we appeal to a variety of wholesale customers, many of whom may operate stores within
+the same retail location due to our distinct product lines and variety of styles, from which
+retailers can select those lines and styles that best satisfy the fashion, function and price
+criteria of their specific customers. Management has a clearly defined growth strategy for each of
+our channels of distribution. An integral component of our strategy is to offer our accounts the
+highest level of customer service so that our products will be fully represented in existing retail
+locations and new locations of each customer.
+In an effort to provide knowledgeable and personalized service to our wholesale customers, the
+sales force is segregated by product line, each of which is headed by a vice president or national
+sales manager. Reporting to each sales manager are knowledgeable account executives and territory
+managers. Our vice presidents and national sales managers report to a senior vice president of
+sales. All of our vice presidents and national sales managers are compensated on a salary basis,
+while our account executives and territory managers are compensated on a commission basis. None of
+our domestic sales personnel sells competing products.
+We believe that we have developed a loyal customer base through exceptional customer service.
+We believe that our close relationships with these accounts help us to maximize their retail
+sell-throughs. Our visual merchandise coordinators work with our wholesale customers to ensure that
+our merchandise and point-of-purchase marketing materials are properly presented. Sales executives
+and merchandise personnel work closely with accounts to ensure that appropriate styles are
+purchased for specific accounts and for specific stores within those accounts as well as to ensure
+that appropriate inventory levels are carried at each store. Such information is then utilized to
+help develop sales projections and determine the product needs of our wholesale customers. The
+value-added services we provide our wholesale customers help us maintain strong relationships with
+our existing wholesale customers and attract potential new wholesale customers.
+International Wholesale. Our products are sold in more than 100 countries and territories
+throughout the world. We generate revenues from outside the United States from three principal
+sources: (i) direct sales to department stores and specialty retail stores through our subsidiaries
+in Canada, France, Germany, Spain, Italy, Portugal, Switzerland, Austria, Malaysia, Thailand, the
+Benelux Region, the United Kingdom and Brazil; (ii) sales to foreign distributors who distribute
+our footwear to department stores and specialty retail stores in countries and territories across
+Eastern Europe, Asia, Latin America, South America, Africa, the Middle East and Australia, among
+other regions and (iii) to a lesser extent, royalties from licensees who manufacture and distribute
+our non-footwear products outside the United States.
+We believe that international distribution of our products represents a significant
+opportunity to increase sales and profits. We intend to further increase our share of the
+international footwear market by heightening our marketing in those countries in which we currently
+have a presence through our international advertising campaigns, which are designed to establish
+Skechers as a global brand synonymous with trend-right casual shoes.
+• 
+International Subsidiaries 
+Europe 
+We currently distribute product in most of Western Europe through the following
+subsidiaries: Skechers USA Ltd., with its offices and showrooms in London, England;
+Skechers S.a.r.l., with its offices and showrooms in Lausanne, Switzerland; Skechers USA
+France S.A.S., with its offices and showrooms in Paris, France; Skechers USA Deutschland
+GmbH, with its offices and showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L.,
+with its offices and showrooms in Madrid, Spain; Skechers USA Benelux B.V., with its
+offices and showrooms in Waalwijk, the Netherlands; and Skechers USA Italia S.r.l., with
+its offices and showroom in Verona, Italy.
+9 
+Table of Contents 
+Skechers-owned retail stores in Europe include eight concept stores and one factory
+outlet store located in five countries, including the key locations of Oxford Street in
+London, Alstadt District in Düsseldorf and Kalverstraat Street in Amsterdam.
+To accommodate our European subsidiaries’ operations, we operate an approximately
+240,000 square foot distribution center in Liege, Belgium. This distribution center is
+currently used to store and deliver product to our subsidiaries and retail stores
+throughout Europe.
+Canada 
+Merchandising and marketing of our product in Canada is managed by our wholly-owned
+subsidiary, Skechers USA Canada, Inc. with its offices and showrooms outside Toronto in
+Mississauga, Ontario. Product sold in Canada is primarily sourced from our U.S.
+distribution center in Ontario, California. We have two concept stores, one located in
+Toronto’s Eaton Centre, and one in the West Edmonton Mall and one factory outlet store
+located in Toronto.
+Malaysia and Thailand 
+Merchandising and marketing of our product in Asia is managed by two of our
+wholly-owned subsidiaries, Skechers Malaysia Sdn Bhd and Skechers (Thailand) Ltd. with
+their respective offices in Kuala Lumpur, Malaysia and Bangkok, Thailand. Product sold
+in Asia is primarily sourced from a third party distribution center in Selangor,
+Malaysia. We have four concept stores, one located in Kuala Lumpur, Malaysia, two
+located in Selangor, Malaysia, and one in Bangkok, Thailand.
+Brazil 
+Merchandising and marketing of our product in Brazil is managed by our wholly-owned
+subsidiary, Skechers Do Brasil Calcados LTDA., with its offices located in Sao Paulo,
+Brazil. Product sold in Brazil is primarily shipped directly from our contract
+manaufacturer’s factories in China and occasionally from our U.S. distribution center in
+Ontario, California.
+• 
+Distributors 
+Outside of Western Europe and Canada, our footwear is distributed through an extensive
+network of more than 30 distributors, who sell our products to department, athletic and
+specialty stores in more than 100 countries around the world. Through agreements with 14 of
+these distributors, 60 distributor-owned Skechers retail stores are open in 21 countries,
+including 13 stores that were opened in 2007. One distributor-owned store was closed and two
+became company operated in 2007.
+STORE 
+NUMBER OF 
+REGION 
+FORMAT 
+STORES 
+LOCATION (1) 
+Asia 
+Concept
+4 
+Japan (2); Philippines; Taiwan 
+Warehouse
+4 
+Japan (4) 
+Australia 
+Concept
+1 
+Sydney 
+Warehouse
+2 
+Melbourne, Sydney 
+Central America/South
+America 
+Concept
+34 
+Chile (10); Columbia (8); Ecuador; El Salvador;
+Guatemala (2); Panama (4); Peru (2); Venezuela
+(6) 
+Eastern Europe 
+Concept
+7 
+Baltics (2); Greece; Poland; Russia (2); Ukraine 
+Northern Europe 
+Concept
+1 
+Finland 
+Middle East 
+Concept
+6 
+Saudi Arabia; UAE (5) 
+South Africa 
+Concept
+1 
+Sandton 
+(1) 
+One store per location except as otherwise noted. 
+10 
+Table of Contents 
+The distributors are responsible for their respective store’s operations, have ownership
+of their respective store’s assets and select the broad collection of our products to sell to
+consumers in their regions. In order to maintain a globally consistent image, we provide
+architectural, graphic and visual guidance and materials for the design of the stores, and we
+train the local staff on our products and corporate culture. We intend to expand our
+international presence and global recognition of the Skechers brand name by continuing to
+sell our footwear to foreign distributors and by opening flagship retail stores with
+distributors that have local market expertise.
+Retail Stores. We pursue our retail store strategy through our three integrated retail
+formats: the concept store, the factory outlet store and the warehouse outlet store. Our
+three-store format enables us to promote the full Skechers product offering in an attractive
+environment that appeals to a broad group of consumers. In addition, most of our retail stores are
+profitable and have a positive effect on our operating results. As of February 15, 2008, we owned
+and operated 70 concept stores, 72 factory outlet stores and 35 warehouse outlet stores in the
+United States, and 14 concept stores and two factory outlet stores internationally. We closed
+three stores and opened 42 new stores in 2007. We plan to open an additional 25 to 30 stores by
+the end of 2008.
+• 
+Concept Stores. 
+Our concept stores are located at either marquee street locations or in major shopping
+malls in large metropolitan cities. Our concept stores have a threefold purpose in our
+operating strategy. First, concept stores serve as a showcase for a wide range of our product
+offering for the current season as we estimate that our average wholesale customer carries no
+more than 5% of the complete Skechers line in any one location. Our concept stores showcase
+our products in a cutting-edge, open-floor setting, providing the customer with the complete
+Skechers story. Second, retail locations are generally chosen to generate maximum marketing
+value for the Skechers brand name through signage, store front presentation and interior
+design. Domestic locations include concept stores at Times Square and 34th Street in New
+York, Hollywood and Highland in Hollywood, Santa Monica’s Third Street Promenade, Dallas’
+Northpark Center, Las Vegas’ Fashion Show Mall, Seattle’s Bellevue Square Mall, and Woodfield
+Mall outside Chicago. International locations include Oxford Street in London, Alstadt
+District in Dusseldorf, Toronto’s Eaton Centre, Kalverstraat Street in Amsterdam. The stores
+are typically designed to create a distinctive Skechers look and feel, and enhance customer
+association of the Skechers brand name with current youthful lifestyle trends and styles.
+Third, the concept stores serve as marketing and product testing venues. We believe that
+product sell-through information and rapid customer feedback derived from our concept stores
+enables our design, sales, merchandising and production staff to respond to market changes
+and new product introductions. Such responses serve to augment sales and limit our inventory
+markdowns and customer returns and allowances. We opened 24 domestic
+concept stores and four international concept stores, and we closed one domestic concept store and one international
+concept store in 2007.
+The typical Skechers concept store is approximately 2,500 square feet, although in
+certain markets we have opened concept stores as large as 6,400 square feet or as small as
+1,500 square feet. When deciding where to open concept stores, we identify top geographic
+markets in the larger metropolitan cities in the United States, Canada, Europe and Asia. When
+selecting a specific site, we evaluate the proposed sites’ traffic pattern, co-tenancies,
+sales volume of neighboring concept stores, lease economics and other factors considered
+important within the specific location. If we are considering opening a concept store in a
+shopping mall, our strategy is to obtain space as centrally located as possible in the mall
+where we expect foot traffic to be most concentrated. We believe that the strength of the
+Skechers brand name has enabled us to negotiate more favorable terms with shopping malls that
+want us to open up concept stores to attract customer traffic to their venues.
+• 
+Factory Outlet Stores. 
+Our factory outlet stores are generally located in manufacturers’ direct outlet centers
+throughout the United States. In addition, we have two international outlet stores – one in
+Canada and one in England. Our factory outlet stores provide opportunities for us to sell
+discontinued and excess merchandise, thereby reducing the need to sell such merchandise to
+discounters at excessively low prices and potentially compromise the Skechers brand image.
+Skechers’ factory outlet stores range in size from approximately 1,900 to 9,000 square feet.
+Inventory in these stores is supplemented by certain first-line styles sold at full retail
+price points. We opened 11 domestic factory outlet stores in 2007.
+• 
+Warehouse Outlet Stores. 
+Our free-standing warehouse outlet stores, which are located throughout the United
+States, enable us to liquidate excess merchandise, discontinued lines and odd-size inventory
+in a cost-efficient manner. Skechers’ warehouse outlet stores range in size from
+approximately 5,200 to 13,500 square feet. Our warehouse outlet stores enable us to sell
+discontinued and excess
+11 
+Table of Contents 
+merchandise that would otherwise typically be sold to discounters at excessively low
+prices, which could otherwise compromise the Skechers brand image. We seek to open our
+warehouse outlet stores in areas that are in close proximity to our concept stores in order
+to facilitate the timely transfer of inventory that we want to liquidate as soon as
+practicable. We opened three new domestic warehouse outlet stores and closed one domestic
+warehouse store in 2007.
+Electronic Commerce. Our websites, www.skechers.com and www.soholab.com are virtual
+storefronts that promote the Skechers and street and fashion brands. Our websites are designed to
+provide a positive shopping and brand experience, showcasing our products in an easy-to-navigate
+format, allowing consumers to browse our selections and purchase our footwear. This virtual store
+has provided a convenient alternative-shopping environment and brand experience. These websites
+have become an efficient and effective additional retail distribution channel, and have improved
+our customer service.
+LICENSING
+We believe that selective licensing of the Skechers brand name and our product line names to
+manufacturers may broaden and enhance the individual brands without requiring significant capital
+investments or additional incremental operating expenses. Our multiple product lines plus
+additional subcategories present many potential licensing opportunities on terms with licensees
+that we believe will provide more effective manufacturing, distribution or marketing of
+non-footwear products. We also believe that the reputation of Skechers and its history in launching
+brands has also enabled us to partner with reputable non-footwear brands in order to design and
+market their footwear.
+As of January 31, 2008, we had 24 active domestic and international licensing agreements in
+which we are the licensor. We have international licensing agreements for the design and
+distribution of men’s and women’s active apparel in Israel; men’s and women’s apparel in select
+European countries; bags in select Central and South American countries; watches in the
+Philippines, and bags in China.
+Additionally, we have signed agreements to design, develop and market footwear for the street
+lifestyle apparel brands Ecko Unltd., Ecko Red, Red by Marc Ecko, and Zoo York under the Marc Ecko
+Enterprises umbrella.
+DISTRIBUTION FACILITIES AND OPERATIONS
+We believe that strong distribution support is a critical factor in our operations. Once
+manufactured, our products are packaged in shoe boxes bearing bar codes that are shipped either (i)
+to our five distribution centers located in Ontario, California, which measure in aggregate
+approximately 1.7 million square-feet; (ii) to our approximately 240,000 square-foot distribution
+center located in Liege, Belgium or (iii) directly from third-party manufacturers to our other
+international customers and other international third party distribution centers. Upon receipt at
+either of the distribution centers, merchandise is inspected and recorded in our management
+information system and packaged according to customers’ orders for delivery. Merchandise is shipped
+to customers by whatever means each customer requests, which is usually by common carrier. The
+distribution centers have multi-access docks, enabling us to receive and ship simultaneously, and
+to pack separate trailers for shipments to different customers at the same time. We have an
+electronic data interchange system, or EDI system, to which some of our larger customers are
+linked. This system allows these customers to automatically place orders with us, thereby
+eliminating the time involved in transmitting and inputting orders, and it includes direct billing
+and shipping information.
+During 2007, we entered into a lease to build a new approximately 1.8 million square foot
+distribution facility in Moreno Valley, California. Once completed, we will occupy the facility
+under an eleven-year lease with one option to extend the lease four years followed by two options
+to extend the lease by additional five-year terms, and we will move out of our existing
+distribution facilities in Ontario, California.
+BACKLOG
+As of December 31, 2007, our backlog was $416.5 million, compared to $322.9 million as of
+December 31, 2006. While backlog orders are subject to cancellation by customers, we have not
+experienced significant cancellation of orders in the past, and we expect that substantially all
+the orders will be shipped in 2008. However, for a variety of reasons, including changes in the
+economy, customer demand for our products, the timing of shipments, product mix of customer orders,
+the amount of in-season orders and a shift towards tighter lead times within backlog levels,
+backlog may not be a reliable measure of future sales for any succeeding period.
+12 
+Table of Contents 
+INTELLECTUAL PROPERTY RIGHTS
+We own and utilize a variety of trademarks, including the Skechers trademark. We have a
+significant number of both registrations and pending applications for our trademarks in the United
+States. In addition, we have trademark registrations and trademark applications in approximately 80
+foreign countries. We also have design patents and pending design and utility patent applications
+in both the United States and approximately 25 foreign countries. We continuously look to increase
+the number of our patents and trademarks both domestically and internationally where necessary to
+protect valuable intellectual property. We regard our trademarks and other intellectual property as
+valuable assets and believe that they have significant value in the marketing of our products. We
+vigorously protect our trademarks against infringement, including through the use of cease and
+desist letters, administrative proceedings and lawsuits.
+We rely on trademark, patent, copyright and trade secret protection, non-disclosure agreements
+and licensing arrangements to establish, protect and enforce intellectual property rights in our
+logos, tradenames and in the design of our products. In particular, we believe that our future
+success will largely depend on our ability to maintain and protect the Skechers trademark and other
+key trademarks. Despite our efforts to safeguard and maintain our intellectual property rights, we
+cannot be certain that we will be successful in this regard. Furthermore, we cannot be certain that
+our trademarks, products and promotional materials or other intellectual property rights do not or
+will not violate the intellectual property rights of others, that our intellectual property would
+be upheld if challenged, or that we would, in such an event, not be prevented from using our
+trademarks or other intellectual property rights. Such claims, if proven, could materially and
+adversely affect our business, financial condition and results of operations. In addition, although
+any such claims may ultimately prove to be without merit, the necessary management attention to and
+legal costs associated with litigation or other resolution of future claims concerning trademarks
+and other intellectual property rights could materially and adversely affect our business,
+financial condition and results of operations. We have sued and have been sued by third parties for
+infringement of intellectual property. It is our opinion that none of these claims has materially
+impaired our ability to utilize our intellectual property rights.
+The laws of certain foreign countries do not protect intellectual property rights to the same
+extent or in the same manner as do the laws of the United States. Although we continue to implement
+protective measures and intend to defend our intellectual property rights vigorously, these efforts
+may not be successful or the costs associated with protecting our rights in certain jurisdictions
+may be prohibitive. From time to time we discover products in the marketplace that are counterfeit
+reproductions of our products or that otherwise infringe upon intellectual property rights held by
+us. Actions taken by us to establish and protect our trademarks and other intellectual property
+rights may not be adequate to prevent imitation of our products by others or to prevent others from
+seeking to block sales of our products as violating trademarks and intellectual property rights. If
+we are unsuccessful in challenging a third party’s products on the basis of infringement of our
+intellectual property rights, continued sales of such products by that or any other third party
+could adversely impact the Skechers brand, result in the shift of consumer preferences away from
+our products and generally have a material adverse effect on our business, financial condition and
+results of operations.
+COMPETITION
+Competition in the footwear industry is intense. Although we believe that we do not compete
+directly with any single company with respect to its entire range of products, our products compete
+with other branded products within their product category as well as with private label products
+sold by retailers, including some of our customers. Our utility footwear and casual shoes compete
+with footwear offered by companies such as The Timberland Company, Dr. Martens, Kenneth Cole
+Productions Inc., Steven Madden, Ltd., Wolverine World Wide, Inc., V.F. Corporation, and CROCS,
+Inc. Our athletic lifestyle shoes compete with footwear offered by companies such as Nike, Inc.,
+adidas AG, Puma AG, New Balance Athletic Shoe, Inc. and K-Swiss Inc. Our children’s shoes compete
+with footwear offered by companies such as Collective Brands Inc. In varying degrees, depending on
+the product category involved, we compete on the basis of style, price, quality, comfort and brand
+name prestige and recognition, among other considerations. These and other competitors pose
+challenges to our market share in our major domestic markets and may make it more difficult to
+establish our products in Europe, Asia and other international regions. We also compete with
+numerous manufacturers, importers and distributors of footwear for the limited shelf space
+available for the display of such products to the consumer. Moreover, the general availability of
+contract manufacturing capacity allows ease of access by new market entrants. Many of our
+competitors are larger, have been in existence for a longer period of time, have achieved greater
+recognition for their brand names, have captured greater market share and/or have substantially
+greater financial, distribution, marketing and other resources than we do. We cannot be certain
+that we will be able to compete successfully against present or future competitors, or that
+competitive pressures will not have a material adverse effect on our business, financial condition
+and results of operations.
+13 
+Table of Contents 
+EMPLOYEES
+As of February 1, 2008, we employed 4,182 persons, 2,157 of whom were employed on a full-time
+basis and 2,025 of whom were employed on a part-time basis. None of our employees are subject to a
+collective bargaining agreement. We believe that our relations with our employees are satisfactory.
\ No newline at end of file
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new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001065837/2007/0000950124-08-000975/rpt_disclosure.txt b/raw/filings/0001065837/2007/0000950124-08-000975/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..370b9fee0524ef7c91238058e9d980ae3e15bb7e
--- /dev/null
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@@ -0,0 +1,95 @@
+transactions with Related Persons that require the
+Committee’s approval. If advance approval by the Audit
+Committee of a transaction with a Related Person is not
+feasible, then the transaction shall be considered and, if the
+Committee determines it to be appropriate, ratified at the
+Committee’s next regularly scheduled meeting. Factors that
+the Audit Committee will take into account include whether the
+transaction with a Related Person is on terms no less favorable
+than terms generally available to an unaffiliated third-party
+under the same or similar circumstances and the extent of the
+Related Person’s interest in the transaction. No Audit
+Committee member shall participate in any discussion or approval
+of a transaction with a Related Person pursuant to which he is a
+Related Person except for providing material information
+concerning the transaction. For those transactions with a
+Related Person that are ongoing, the Audit Committee, on at
+least an annual basis, shall review and assess ongoing
+relationships with the Related Person to determine that the
+Related Person remains appropriate.
+The following list of transactions with Related Persons includes
+all such transactions that took place since January 1,
+2007, which were identified by the Audit Committee, and each of
+these transactions was reviewed, and approved or ratified by the
+Audit Committee, pursuant to the policies and procedures
+discussed herein.
+Related
+Person Transactions 
+As of March 31, 2008, Robert Greenberg, who is our Chairman
+of the Board and Chief Executive Officer, his children and the
+Greenberg Family Trust, collectively, beneficially own 99.6% of
+our Class B Common Stock and
+24
+Table of Contents 
+approximately 79.5% of the combined voting power of our
+Class A and Class B Common Stock. Robert Greenberg,
+directly and indirectly through the Greenberg Family Trust,
+beneficially owns approximately 62.0% of the combined voting
+power of our Class A and Class B Common Stock. As a
+result, Robert Greenberg is a “control person” of
+Skechers within the meaning of the rules and regulations
+promulgated under the Securities Act of 1933, as amended, and we
+are considered a “Controlled Company” under the NYSE
+Rules and are thereby exempt from certain listing requirements
+and regulations as set forth in the NYSE Rules. Michael
+Greenberg, who is our President, and Jeffrey Greenberg, both of
+whom are members of our Board of Directors, are each
+beneficiaries of the Greenberg Family Trust, which influences
+the election of Robert Greenberg, Michael Greenberg and Jeffrey
+Greenberg to our Board of Directors.
+Shares of our Class A Common Stock issuable upon conversion
+of shares of Class B Common Stock held by the Greenberg
+Family Trust and Michael Greenberg are subject to certain
+registration rights. We entered into a registration rights
+agreement with the Greenberg Family Trust and Michael Greenberg
+pursuant to which we agreed that we will, on up to two separate
+occasions per year, register up to one-third of the shares of
+our Class A Common Stock issuable upon conversion of their
+shares of Class B Common Stock beneficially owned as of our
+initial public offering of Class A Common Stock by each
+such stockholder in any one year, provided, among other
+conditions, that the underwriters of any such offering have the
+right to limit the number of shares included in such
+registration. We also agreed that, if we cause a registration
+statement to be filed with the SEC, each such stockholder shall
+have the right to include in such registration statement up to
+one-third of the shares of our Class A Common Stock
+issuable upon conversion of their shares of Class B Common
+Stock beneficially owned as of our initial public offering of
+Class A Common Stock provided, among other conditions, that
+the underwriters of any such offering have the right to limit
+the number of shares included in such registration. All expenses
+of such registrations shall be at our expense.
+Michael Greenberg owns a 12% beneficial ownership interest in
+Manhattan Inn Operating Company, LLC (“MIOC”), the
+primary business of which is to own and operate the Shade Hotel,
+which opened in Manhattan Beach, California in November 2005.
+Michael Greenberg, David Weinberg, who is our Chief Operating
+Officer, Executive Vice President and a member of our Board of
+Directors, and Michael Greenberg’s brothers Jeffrey
+Greenberg, who is a director of Skechers, and Jason and Joshua
+Greenberg, all of whom are senior vice presidents of Skechers,
+own in aggregate a 17% beneficial ownership interest in MIOC.
+During 2007, we paid approximately $175,000 to the Shade Hotel
+for lodging, food and events that were held there including our
+annual holiday party.
+Jeffrey Greenberg, Jason Greenberg and Joshua Greenberg, who are
+the children of Robert Greenberg and also the siblings of
+Michael Greenberg, are non-executive employees of Skechers, and
+they earned total compensation of $746,843, $793,105 and
+$772,900, respectively, in 2007. Jeffrey Greenberg was also a
+member of our Board of Directors in 2007, but did not earn any
+additional compensation for services provided as a director.
+25
+Table of Contents 
+NOMINATIONS
\ No newline at end of file
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+10-K
+1
+v51596e10vk.htm
+FORM 10-K
+e10vk 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+WASHINGTON, D.C. 20549 
+FORM 10-K 
+(Mark One) 
+þ 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31, 2008 
+OR 
+o 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 
+For the transition period from to 
+Commission File Number 001-14429 
+SKECHERS U.S.A., INC. 
+(Exact Name of Registrant as Specified in Its Charter) 
+Delaware 
+(State or Other Jurisdiction of Incorporation or Organization) 
+95-4376145 
+(I.R.S. Employer Identification No.) 
+228 Manhattan Beach Blvd., Manhattan Beach, California 
+90266 
+(Address of Principal Executive Offices) 
+(Zip Code) 
+Registrant’s telephone number, including area code: (310) 318-3100 
+Securities registered pursuant to Section 12(b) of the Act: 
+Title of Each Class 
+Name of Each Exchange on 
+Which Registered 
+Class A Common Stock, $0.001 par value
+New York Stock Exchange 
+Securities registered pursuant to Section 12(g) of the Act: 
+None 
+(Title of Class) 
+Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of
+the Securities Act. Yes þ No o 
+Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or
+Section 15(d) of the Act. Yes o No þ 
+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 þ No o 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
+S-K(§229.405) is not contained herein, and will not be contained, to the best of registrant’s
+knowledge, in definitive proxy or information statements incorporated by reference in Part III of
+this Form 10-K or any amendment to this Form 10-K. þ 
+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 the definitions of “large accelerated
+filer,” “accelerated
+filer”
+and “smaller reporting company” in
+Rule 12b-2 of the Exchange Act. (Check one):
+Large accelerated filer
+þ 
+Accelerated filer
+o 
+Non-accelerated filer o 
+(Do not check if a smaller reporting company) 
+Smaller reporting company
+o 
+Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
+Exchange Act). Yes o No þ 
+As of June 30, 2008, the aggregate market value of the voting and non-voting Class A and Class B
+Common Stock held by non-affiliates of the Registrant was approximately $657 million based upon the
+closing price of $19.76 of the Class A Common Stock on the New York Stock Exchange on such date.
+The number of shares of Class A Common Stock outstanding as of February 15, 2009: 33,412,409.
+The number of shares of Class B Common Stock outstanding as of February 15, 2009: 12,782,385.
+DOCUMENTS INCORPORATED BY REFERENCE 
+Portions of the Registrant’s Definitive Proxy Statement issued in connection with the 2009 Annual
+Meeting of the Stockholders of the Registrant are incorporated by reference into Part III.
+SKECHERS U.S.A., INC. 
+TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K 
+FOR THE YEAR ENDED DECEMBER 31, 2008 
+PART I 
+ITEM 1. BUSINESS 
+2 
+ITEM 1A. RISK FACTORS 
+14 
+ITEM 1B. UNRESOLVED STAFF COMMENTS 
+21 
+ITEM 2. PROPERTIES 
+21 
+ITEM 3. LEGAL PROCEEDINGS 
+21 
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
+22 
+PART II 
+ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 
+22 
+ITEM 6. SELECTED FINANCIAL DATA 
+24 
+ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
+25 
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+37 
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+38 
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
+61 
+ITEM 9A. CONTROLS AND PROCEDURES 
+61 
+ITEM 9B. OTHER INFORMATION 
+62 
+PART III 
+ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 
+64 
+ITEM 11. EXECUTIVE COMPENSATION 
+64 
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 
+64 
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+64 
+ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 
+64 
+PART IV 
+ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 
+64 
+EX-21.1 
+EX-23.1 
+EX-31.1 
+EX-31.2 
+EX-32.1 
+i 
+Table of Contents 
+SPECIAL NOTE ON FORWARD LOOKING STATEMENTS 
+This annual report on Form 10-K contains forward-looking statements that are made pursuant to
+the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including
+statements with regards to future revenue, projected 2009 results, earnings, spending, margins,
+cash flow, orders, expected timing of shipment of products, inventory levels, future growth or
+success in specific countries, categories or market sectors, continued or expected distribution to
+specific retailers, liquidity, capital resources and market risk, strategies and objectives.
+Forward-looking statements include, without limitation, any statement that may predict, forecast,
+indicate or simply state future results, performance or achievements, and can be identified by the
+use of forward looking language such as “believe,” “anticipate,” “expect,” “estimate,” “intend,”
+“plan,” “project,” “will be,” “will continue,” “will result,” “could,” “may,” “might,” or any
+variations of such words with similar meanings. Any such statements are subject to risks and
+uncertainties that could cause actual results to differ materially from those projected in
+forward-looking statements.
+Factors that might cause or contribute to such differences include: international, national
+and local general economic, political and market conditions including the recent global economic
+slowdown and financial crisis; the ability to sustain, manage and forecast our costs and proper
+inventory levels; the loss of any significant customers, decreased demand by industry retailers and
+cancellation of order commitments due to the credit crisis in the global financial markets or other
+difficulties in their businesses; the failure of financial institutions to fulfill their
+commitments under our secured line of credit; changes in fashion trends and consumer demands; the
+level of sales during the spring, back-to-school and holiday selling seasons; the ability to
+anticipate, identify, interpret or forecast changes in fashion trends, consumer demand for the
+products and the various market factors described above; new standards regarding lead content in
+children’s products including footwear under the Consumer Product Safety Improvement Act of 2008;
+the ability to maintain brand image; intense competition among sellers of footwear for consumers;
+further changes to the global economic slowdown that could affect our ability to open retail stores
+in new markets and/or the sales performance of existing stores; potential disruptions in
+manufacturing related to overseas sourcing and concentration of production in China, including,
+without limitation, difficulties associated with political instability in China, the occurrence of
+a natural disaster or outbreak of a pandemic disease in China, or electrical shortages, labor
+shortages or work stoppages that may lead to higher production costs and/or production delays;
+changes in monetary controls and valuations of the Yuan by the Chinese government; increased costs
+of freight and transportation to meet delivery deadlines; potential imposition of additional
+duties, tariffs or other trade restrictions; violation of labor or other laws by independent
+contract manufacturers, suppliers or licensees; popularity of particular designs and categories of
+products; changes in business strategy or development plans; the ability to attract and retain
+qualified personnel; the disruption, expense and potential liability associated with existing or
+unanticipated future litigation; the ability to secure and protect trademarks, patents and other
+intellectual property; business disruptions resulting from natural disasters such as an earthquake
+due to the location of domestic warehouse, headquarters and a substantial number of retail stores
+in California; and other factors referenced or incorporated by reference in this report and other
+reports that we filed with the United States Securities and Exchange Commission (the “SEC”).
+The risks included here are not exhaustive. Other sections of this report may include
+additional factors that could adversely impact our business and financial performance. We operate
+in a very competitive and rapidly changing environment. New risks emerge from time to time and we
+cannot predict all such risk factors, nor can we assess the impact of all such risk factors on the
+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, you should not place undue reliance on forward-looking statements as a prediction of
+actual results. Moreover, reported results should not be considered an indication of future
+performance. Investors should also be aware that while we do, from time to time, communicate with
+securities analysts, we do not disclose any material non-public information or other confidential
+commercial information to them. Accordingly, individuals should not assume that we agree with any
+statement or report issued by any analyst, regardless of the content of the report. Thus, to the
+extent that reports issued by securities analysts contain any projections, forecasts or opinions,
+such reports are not our responsibility.
+1 
+Table of Contents 
+PART I 
+ITEM 1. BUSINESS 
+We were incorporated in California in 1992 and reincorporated in Delaware in 1999. Throughout
+this annual report, we refer to Skechers U.S.A., Inc., a Delaware corporation, and its consolidated
+subsidiaries as “we,” “us,” “our,” “our company” and “Skechers” unless otherwise indicated. Our
+Internet website address is www.skechers.com . Our annual report on Form 10-K, quarterly reports on
+Form 10-Q, current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of directors,
+officers and 10% stockholders, and any amendments to those reports filed or furnished pursuant to
+Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our
+website as soon as reasonably practicable after we electronically file such material with, or
+furnish it to, the SEC. You can learn more about us by reviewing such filings on our website or at
+the SEC’s website at www.sec.gov .
+GENERAL
+We design and market Skechers-branded contemporary footwear for men, women and children under
+several unique lines. Our footwear reflects a combination of style, quality and value that appeals
+to a broad range of consumers. In addition to Skechers-branded lines, we also offer several
+uniquely branded designer, fashion and street-focused footwear lines for men, women and children.
+These lines are branded and marketed separately from Skechers and appeal to specific audiences. Our
+brands are sold through department stores, specialty stores, athletic retailers, and boutiques as
+well as catalog and Internet retailers. Along with wholesale distribution, our footwear is
+available at our e-commerce website and our own retail stores. We operate 84 concept stores, 83
+factory outlet stores and 37 warehouse outlet stores in the United States, and 16 concept stores
+and three factory outlets internationally. Our objective is to profitably grow our operations
+worldwide while leveraging our recognizable Skechers brand through our strong product lines,
+innovative advertising and diversified distribution channels.
+We seek to offer consumers a vast array of fashionable footwear that satisfies their active,
+casual, dress casual and dress footwear needs. Our core consumers are style-conscious 12 to 24
+year-old men and women attracted to our youthful brand image and fashion forward designs. Many of
+our best-selling and core styles are also developed for children with colors and materials that
+reflect a playful image appropriate for this demographic.
+We believe that brand recognition is an important element for success in the footwear
+business. We have aggressively promoted our brands through comprehensive marketing campaigns for
+men, women and children. During 2008, our Skechers brand was supported by print, television and
+outdoor campaigns for men and women; animated kids’ television campaigns featuring our own action
+heroes and characters; print and outdoor campaigns featuring our endorsee and American Idol winner
+David Cook; and family-focused celebrity ads that included singer Brandy and reality stars Trista
+and Ryan Sutter. Our Marc Ecko and Zoo York footwear lines are also supported by print and
+television ads developed by Marc Ecko. The Red by Marc Ecko women’s line featured High School
+Musical stars Ashley Tisdale and Vanessa Hudgens in print and television campaigns through 2008,
+while the Zoo York campaign featured skateboarders Donny Barley and Kevin Shetler. Actress Eva
+Longoria appeared in the Bebe Sport footwear campaign in 2008.
+Since we introduced our first line, Skechers USA Sport Utility Footwear, in December 1992, we
+have expanded our product offering and grown our net sales while substantially increasing the
+breadth and penetration of our account base. Our men’s, women’s and children’s Skechers-branded
+product lines benefit from the Skechers reputation for contemporary and progressive styling,
+quality, comfort and affordability. Our lines that are not branded with the Skechers name benefit
+from our marketing support, quality management and expertise. To promote innovation and brand
+relevance, we manage our product lines separately by utilizing dedicated sales and design teams.
+Our product lines share back office services in order to limit our operating expenses and fully
+utilize our management’s vast experience in the footwear industry.
+SKECHERS LINES
+Skechers USA. Our Skechers USA category for men and women includes: (i) Casuals, (ii) Dress
+Casuals, (iii) Relaxed Fit (for men only), (iv) Seriously Lightweight (for men only) (v) Sandals
+and (vi) Casual Fusion. This category is generally sold through mid-tier retailers, department
+stores and some footwear specialty shops.
+• 
+The Casuals line for men and women is defined by lugged outsoles and utilizes
+value-oriented and leather materials in the uppers. For men, the Casuals category includes
+“black and brown” boots, shoes and sandals that generally have a rugged urban 
+2 
+Table of Contents 
+design — some with industrial-inspired fashion features. For women, the Casuals category
+includes basic “black and brown” oxfords and slip-ons, lug outsole boots, and casual sandals.
+We design and price both the men’s and women’s categories to appeal primarily to younger
+consumers with broad acceptance across age groups. 
+• 
+The Dress Casuals category for men is comprised of basic “black and brown” men’s shoes
+that feature shiny leathers and dress details, but may utilize traditional or lugged
+outsoles as well as value-oriented materials. The Dress Casual line for women is comprised
+of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or
+faux fur lining or trim. 
+• 
+Skechers Relaxed Fit is a line of trend-right casuals for men who want all-day comfort
+without compromising style. Characteristics of the line include comfortable outsoles,
+cushioned insoles and quality leather uppers. A category with unique features, we market and
+package the Skechers Relaxed Fit styles in a shoe box that is distinct from that of other
+categories in the Skechers USA line of footwear. 
+• 
+Our Seriously Lightweight styles for men primarily consist of designs similar to our
+casual looks, but feature ultra lightweight outsoles, making them ideal travel and work
+shoes. A category with unique features, we market and package the Skechers Seriously
+Lightweight styles in a shoe box that is distinct from that of other categories in the
+Skechers USA line of footwear. 
+• 
+Our Sandals collection for men and women is designed with many of our existing and proven
+outsoles for our Casuals, Dress Casuals and Casual Fusion lines, stylized with basic or core
+uppers as well as fresh looks. These styles are generally made with quality leather uppers,
+but may also be in canvas or fabric. 
+• 
+Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals
+targeted to trend-conscious young men and women. The outsoles are primarily rubber and
+adopted from our men’s Sport and women’s Active lines. This collection features leather or
+nubuck uppers, but may also include mesh. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes: (i) Joggers, Trail
+Runners, Sport Hikers, Terrainers, (ii) Performance (for men only), (iii) Skechers D’Lites (for
+women only), and (iv) Sport Sandals. Our Skechers Sport category is distinguished by its technical
+performance-inspired looks; however, we generally do not promote the technical performance features
+of these shoes. Skechers Sport is typically sold through specialty shoe stores, department stores
+and athletic footwear retailers.
+• 
+Our Jogger, Trail Runner, Sport Hiker and cross trainer-inspired Terrainer designs are
+lightweight constructions that include cushioned heels, polyurethane midsoles, phylon and
+other synthetic outsoles, as well as leather or synthetic uppers such as durabuck, cordura
+and nylon mesh. Careful attention is devoted to the design, pattern and construction of the
+outsoles, which vary greatly depending on the intended use. This category features earth
+tones and athletic-inspired hues with contrasting pop colors such as lime green, orange and
+red in addition to traditional athletic white. 
+• 
+The Performance category is comprised of multi-purpose running shoes that are marketed as
+men’s lifestyle athletic footwear. Some styles include 3M reflective accents, breathable
+upper construction, quality leathers, abrasion-resistant toe and heel cap, removable
+moisture wicking molded ethyl vinyl acetate (“EVA”) sock liner, outsole forefoot flex
+grooves for improved flexibility, non-marking rubber lugs with impact dispersment technology
+(“IDT”), aggressive all terrain traction lugs, external torsion stabilizer and tuned
+dual-density molded EVA midsole with pronation control. 
+• 
+Skechers D’Lites are ultra lightweight women’s sneakers that feature sturdy, sculpted
+midsoles for all-day comfort, durable rubber treads for improved traction and a sole design
+that provides superior flexibility and cushioning. The uppers are designed in leather,
+suede, nubuck and mesh. A category with unique features, we market and package Skechers
+D’Lites in a shoe box that is distinct from that of other categories in the Skechers Sport
+line of footwear. 
+• 
+Our Sport Sandals are primarily designed from existing Skechers Sport outsoles and may
+include many of the same sport features as our sneakers with the addition of new
+technologies geared toward making a comfortable sport sandal. Sport sandals are designed as
+seasonal footwear for the consumer who already wears our Skechers Sport sneakers. 
+Skechers Active. A natural companion to Skechers Sport, Skechers Active has grown from a
+casual everyday line into a complete line of fusion and sport fusion sneakers for females of all
+ages. Marked by low-profile outsoles, the Active line is available in a multitude of colors as well
+as solid white or black, in fabrics, leathers and meshes, and with various closures – traditional
+laces, zig-zag and cross straps, among others. The line also now includes Mary Janes, sandals and
+open back styles. Active sneakers are typically retailed through specialty casual shoe stores and
+department stores.
+3 
+Table of Contents 
+Skechers Cali . Our Skechers Cali is a line of sneakers, skimmers, wedges and sandals for young
+women designed to typify the California lifestyle. The uppers are primarily in canvas, fabrics and
+leather with unique prints, some with patch details. The sandals range from dress casual looks to
+casual to beach thongs. Skechers Cali is sold through specialty casual shoe stores and department
+stores.
+Skechers Work. Expanding on our heritage of cutting-edge utility footwear, Skechers Work
+offers a complete line of men’s and women’s casuals, field boots, hikers and athletic shoes. The
+Skechers Work line includes athletic-inspired, casual safety toe, and non-slip safety toe
+categories that may feature lightweight aluminum safety toe, electrical hazard, and slip-resistant
+technologies, as well as breathable, seam-sealed waterproof membranes. Designed for men and women
+with jobs that require certain safety requirements, these durable styles are constructed on
+high-abrasion, long wearing soles, and feature breathable lining, oil and abrasion resistant
+outsoles offering all-day comfort and prolonged durability. The uppers are comprised of
+high-quality leather, nubuck, trubuck and durabuck. Our safety toe athletic sneakers, boots,
+hikers, and casuals are ideal for environments requiring safety footwear and offer comfort and
+safety in dry or wet conditions. Our slip-resistant boots, hikers, athletics, casuals and clogs
+are ideal for the service industry. Our safety toe products have been independently tested and
+certified to meet ASTM standards, and our slip-resistant soles have been tested pursuant to the
+Mark II testing method for slip resistance. Skechers Work is typically sold through department
+stores, athletic footwear retailers and specialty shoe stores, as well as marketed directly to
+consumers through business-to-business channels.
+Skechers Kids. The Skechers Kids line includes: (i) Skechers Kids, which is a range of
+infants, toddlers, boys and girls boots, shoes and sneakers; (ii) S-Lights and Hot Lights by
+Skechers; (iii) Skechers Cali for Girls, which is trend-inspired boots, shoes, sandals and dress
+sneakers; (iv) Airators by Skechers; (v) Skechers Super Z-Strap; (vi) Skechers Bungees; (vii) HyDee
+HyTop from Skechers; and (viii) Babiez by Skechers. Skechers Kids and Skechers Cali for Girls are
+comprised primarily of shoes that are designed as “takedowns” of their adult counterparts, allowing
+the younger set the opportunity to wear the same popular styles as their older siblings and
+schoolmates. This “takedown” strategy maintains the product’s integrity by offering premium
+leathers, hardware and outsoles without the attendant costs involved in designing and developing
+new products. In addition, we adapt current fashions from our men’s and women’s lines by modifying
+designs and choosing colors and materials that are more suitable for the playful image that we have
+established in the children’s footwear market. Each Skechers Kids line is marketed and packaged
+separately with a distinct shoe box. Skechers Kids shoes are available at department stores and
+specialty and athletic retailers.
+• 
+The Skechers Kids line includes embellishments or adornments such as fresh colors and
+fabrics from our Skechers adult shoes. Some of these styles are also adapted for toddlers
+with softer, more pliable outsoles and for infants with soft, leather-sole crib shoes. 
+• 
+S-Lights and Hot Lights by Skechers are lighted sneakers and sandals for boys and girls.
+The S-Lights combine patterns of lights on the outsoles and sides of the shoes while Hot
+Lights feature lights on the front of the toe to simulate headlights as well as on other
+areas of the shoes. We market and package each of these lines in unique shoe boxes that are
+distinct from that of other categories in the Skechers Kids line of footwear. 
+• 
+Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young women
+designed to typify the California lifestyle. The sneakers are designed primarily with canvas
+uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and
+flats are designed with many of the same upper materials and outsoles as the sneakers. 
+• 
+Airators by Skechers is a line of boys sneakers with a foot-cooling system designed to
+pump air from the heel through to the toes. The line is marketed with the character Kewl
+Breeze. 
+• 
+Skechers Super Z-Strap is a line of athletic styled sneakers with a unique “z” shaped
+closure system for easy closure. The line is marketed with the character Z-Strap. 
+• 
+Skechers Bungees is a line of girls’ sneakers with bungee closures. The line is marketed
+with the character Elastika. 
+• 
+HyDee HyTop from Skechers is a line of colorful high-top sneakers for young girls. The
+line is marketed with the character HyDee HyTop. 
+4 
+Table of Contents 
+• 
+Babiez by Skechers is a line of crib shoes for infants. The uppers and outsoles are
+designed in leather and are extremely flexible for newborn feet. 
+FASHION AND STREET BRANDS
+The Fashion and Street Division and its brands are marketed and packaged separately from Skechers.
+Unltd. by Marc Ecko and Red by Marc Ecko. Unltd. by Marc Ecko is a line of men’s
+street-inspired traditional sneakers, fusion sneakers and urban-focused casuals. Red by Marc Ecko
+is a line of women’s classic and fashion-forward fusion sneakers, sandals and Mary Janes for young
+women. Targeted to the street-savvy 18 to 34 year-old consumer, the footwear reflects Ecko Unltd.’s
+men’s apparel and the Ecko Red women’s apparel, and effectively utilizes the globally recognized
+Rhino logo on the majority of sneakers and casuals. The men’s and women’s footwear collections are
+designed in leather, canvas, mesh, as well as other materials. Unltd. by Marc Ecko for boys and
+Rhino Red for girls sneaker lines primarily consist of takedowns from the adult Marc Ecko footwear
+lines with additional or different colorways geared toward children and that reflect the boys’ and
+girls’ Ecko Unltd. and Ecko Red clothing. The licensed brands are sold through select department
+stores and specialty retailers.
+Zoo York. Zoo York footwear is a line of action sports and lifestyle footwear for men, women
+and boys. The Zoo York footwear follows the color palette and trends of Zoo York apparel and
+targets skateboarders and those that embrace skate fashion. The licensed brand is available in
+skate and specialty shops as well as select athletic and department stores.
+310 Premium Footwear. The 310 Premium Footwear collection for men utilizes top-quality
+leathers, a fashion-forward approach to design and comfort, and materials that are derived from 310
+Motoring’s customized cars, including wood burl and carbon fiber. The line consists of high-design
+boots, shoes, and stylized athletics. 310 Premium Footwear is available in select department
+stores, specialty retailers and urban independents.
+Mark Nason and Siren by Mark Nason. Mark Nason is a sophisticated and fashion forward footwear
+collection, marketed to style-conscious men, designed to complement designer denim and dress casual
+wear. Primarily crafted and constructed in Italy, the Mark Nason collection is comprised of classic
+and modern boots, shoes and sandals with distinctive profiles and luxurious hand-distressed
+leathers. The Mark Nason line distinguishes itself with high quality individual styling and may
+utilize unique materials such as premium leathers, etched and tattooed leathers, hand-treated,
+hand-scraped and hand-cut leathers, hand-treated leather uppers and soles, snakeskin and eel skin.
+Siren by Mark Nason is the ultimate accompaniment to designer denim and casual couture for
+discerning women. The line’s boots are fueled with bold profiles, alluring details and distinct
+textures. Handcrafted in Italy, the boots utilize premium leathers, hand-treated details, leather
+outsoles, and some may include snakeskin and other exotic materials. The Mark Nason lines are
+available in better department stores and boutiques.
+Bebe Sport. Skechers acquired the footwear license for Bebe Sport footwear in 2008.
+Embracing the style and design of the Bebe Sport apparel, the sneaker and sandal line features such
+details as rhinestones, satin laces, and patent leather. The footwear is designed for women 18 to
+34. The licensed brand is available at department stores and specialty boutiques.
+Punkrose and Public Royalty. Skechers acquired the junior brands Punkrose and Public Royalty
+in 2008. Punkrose for women and Public Royalty for men are cutting-edge street ready footwear.
+Inspired by music, art, fashion, and action sports, the Public Royalty collection consists of
+high-top and low-top sneakers, slip-ons and boots. Punkrose styles include sneakers, high-tops,
+skimmers, boots and sandals. Vibrant color combos and get-noticed prints are a trademark of this
+brand. Both brands are available at department stores, sneaker shops and specialty boutiques.
+PRODUCT DESIGN AND DEVELOPMENT
+Our principal goal in product design is to generate new and exciting footwear in all of our
+product lines with contemporary and progressive styles and comfort-enhancing performance features.
+Targeted to the active, youthful and style-savvy, we design most new styles to be fashionable and
+marketable to the 12 to 24 year-old consumer, while substantially all of our lines appeal to the
+broader range of 5 to 40 year-old consumers, with an exclusive selection for infants and toddlers.
+While some of our shoes have performance features, we generally do not position our shoes in the
+marketplace as technical performance shoes.
+We believe that our products’ success is related to our ability to recognize trends in the
+footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving
+preferences. We are able to quickly translate the latest fashion trends into stylish, quality
+footwear at a reasonable price by analyzing and interpreting current and emerging lifestyle trends.
+Lifestyle trend
+5 
+Table of Contents 
+information is compiled and analyzed by our designers from various sources, including the
+review and analysis of modern music, television, cinema, clothing, alternative sports and other
+trend-setting media; traveling to domestic and international fashion markets to identify and
+confirm current trends; consulting with our retail and e-commerce customers for information on
+current retail selling trends; participating in major footwear trade shows to stay abreast of
+popular brands, fashions and styles; and subscribing to various fashion and color information
+services. In addition, a key component of our design philosophy is to continually reinterpret and
+develop our successful styles in our brands’ image.
+The footwear design process typically begins about nine months before the start of a season.
+Our products are designed and developed primarily by our in-house design staff. To promote
+innovation and brand relevance, we utilize dedicated design teams, who report to our senior design
+executives and focus on each of the men’s, women’s and children’s categories. In addition, we
+utilize outside design firms on an item-specific basis to supplement our internal design efforts.
+The design process is extremely collaborative, as members of the design staff frequently meet with
+the heads of retail, merchandising, sales, production and sourcing to further refine our products
+to meet the particular needs of the target market.
+After a design team arrives at a consensus regarding the fashion themes for the coming season,
+the designers then translate these themes into our products. These interpretations include
+variations in product color, material structure and embellishments, which are arrived at after
+close consultation with our production department. Prototype blueprints and specifications are
+created and forwarded to our manufacturers for a design prototype. The design prototypes are then
+sent back to our design teams. Our major retail customers may also review these new design
+concepts. Customer input not only allows us to measure consumer reaction to the latest designs, but
+also affords us an opportunity to foster deeper and more collaborative relationships with our
+customers. We also occasionally order limited production runs that may initially be tested in our
+concept stores. By working closely with store personnel, we obtain customer feedback that often
+influences product design and development. Our design teams can easily and quickly modify and
+refine a design based on customer input. Generally, the production process can take six months to
+nine months from design concept to commercialization.
+SOURCING
+Factories. Our products are produced by independent contract manufacturers located primarily
+in China and, to a lesser extent, in Italy, Vietnam, Brazil and various other countries. We do not
+own or operate any manufacturing facilities as we believe that the use of independent manufacturers
+substantially increases our production flexibility and capacity while reducing capital expenditures
+and avoiding the costs of managing a large production work force.
+When possible, we seek to use manufacturers that have previously produced our footwear, which
+we believe enhances continuity and quality while controlling production costs. We attempt to
+monitor our selection of independent factories to ensure that no one manufacturer is responsible
+for a disproportionate amount of our merchandise. We source product for styles that account for a
+significant percentage of our net sales from at least four different manufacturers. During 2008,
+four of our contract manufacturers accounted for approximately 58.2% of total purchases. One
+manufacturer accounted for 30.6%, and one other accounted for over 10.0% of our total purchases. To
+date, we have not experienced difficulty in obtaining manufacturing services.
+We finance our production activities in part through the use of interest-bearing open purchase
+arrangements with certain of our Asian manufacturers. These facilities currently bear interest at a
+rate between 0% and 1.5% for 30 to 60 days financing, depending on the factory. We believe that the
+use of these arrangements afford us additional liquidity and flexibility. We do not have any
+long-term contracts with any of our manufacturers; however, we have long-standing relationships
+with many of our manufacturers and believe our relationships to be good.
+We closely monitor sales activity after initial introduction of a product in our concept
+stores to determine whether there is substantial demand for a style, thereby aiding us in our
+sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming
+collections or offered as part of our periodic style offerings, while less popular styles can be
+discontinued after only a limited production run. We believe that sales in our concept stores can
+also help forecast sales in national retail stores, and we share this sales information with our
+wholesale customers. Sales, merchandising, production and allocations management analyze historical
+and current sales and market data from our wholesale account base and our own retail stores to
+develop an internal product quantity forecast that allows us to better manage our future production
+and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock
+position to minimize the time necessary to fill customer orders by placing orders with our
+manufacturers prior to the time we receive customers’ orders for such footwear.
+6 
+Table of Contents 
+Production Oversight . To safeguard product quality and consistency, we oversee the key aspects
+of production from initial prototype manufacture through initial production runs to final
+manufacture. Monitoring of all production is performed in the United States by our in-house
+production department and in Asia through an approximately 200-person staff working from our
+offices in China. We believe that our Asian presence allows us to negotiate supplier and
+manufacturer arrangements more effectively, decrease product turnaround time and ensure timely
+delivery of finished footwear. In addition, we require our manufacturers to certify that neither
+convicted, forced nor indentured labor (as defined under U.S. law) nor child labor (as defined by
+law in the manufacturer’s country) is used in the production process, and that compensation will be
+paid according to local law and that the factory is in compliance with local safety regulations.
+Quality Control. We believe that quality control is an important and effective means of
+maintaining the quality and reputation of our products. Our quality control program is designed to
+ensure that not only finished goods meet our established design specifications, but also that all
+goods bearing our trademarks meet our standards for quality. Our quality control personnel located
+in China perform an array of inspection procedures at various stages of the production process,
+including examination and testing of prototypes of key raw materials prior to manufacture, samples
+and materials at various stages of production and final products prior to shipment. Our employees
+are on-site at each of our major manufacturers to oversee production. For some of our lower volume
+manufacturers, our staff is on-site during significant production runs or we will perform
+unannounced visits to their manufacturing sites to further monitor compliance with our
+manufacturing specifications.
+ADVERTISING AND MARKETING
+With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted approach to
+marketing to drive traffic, build brand recognition and properly position our diverse lines within
+the marketplace. Senior management is directly involved in shaping our image and the conception,
+development and implementation of our advertising and marketing activities. The focus of our
+marketing plan is print and television advertising, which is supported by outdoor, trend-influenced
+marketing, public relations, promotions and in-store support. In addition, we utilize celebrity
+endorsers in our advertisements. We also believe our websites and trade shows are effective
+marketing tools to both consumers and corporate accounts. We have historically budgeted advertising
+as a percentage of projected net sales.
+The majority of our advertising is conceptualized by our in-house design team. We believe that
+our advertising strategies, methods and creative campaigns are directly related to our success.
+Through our lifestyle and image-driven advertising, we generally seek to build and increase brand
+awareness by linking the Skechers brand and our fashion and street brands to youthful, contemporary
+lifestyles and attitudes. We have built on this approach by featuring select styles in our
+lifestyle ads. In addition to our compelling Skechers lifestyle ads, we have also created product
+specific ads for our men’s lines to appeal to men as well as women who purchase footwear for men.
+Our ads are designed to provide merchandise flexibility and to facilitate the “brands and product
+designs” direction of evolving footwear fashions and consumer preferences.
+To further build brand awareness and influence consumer spending, we have selectively signed
+endorsement agreements with celebrities whom we believe would reach new markets. In 2008, we signed
+American Idol winner David Cook to appear in Skechers marketing campaigns through 2009. In past
+years, we had similar endorsement agreements for Skechers with singers Ashlee Simpson, Carrie
+Underwood, Christina Aguilera and Britney Spears, professional basketball player and actor Rick
+Fox, and actors Robert Downey, Jr., Matt Dillon and Rob Lowe. From time to time, we may sign other
+celebrities to endorse our brand name and image in order to strategically market our products among
+specific consumer groups in the future.
+In addition to advertising our Skechers branded lines through men’s, women’s and children’s
+ads, we also support Mark Nason, 310 Premium Footwear, Marc Ecko, Zoo York, Punkrose and Bebe Sport
+lines through individual unique print and/or television advertisements – some of which may include
+celebrity endorsees. For Mark Nason, we have focused on key-selling styles in product-driven ads
+that captured the brand’s essence. For the Marc Ecko footwear brands, Marc Ecko’s design team has
+created relevant targeted print and television commercials for men and women. These include a
+multi-media men’s campaign featuring our graffiti painted shoe as well commercials for Unltd. by
+Marc Ecko for boys. During 2008, High School Musical stars Ashley Tisdale and Vanessa Hudgens were
+the faces of Red by Marc Ecko, appearing in print, outdoor and television advertisements. Vanessa
+Hudgens will continue through 2009. For Punkrose, the approach has been lifestyle advertisements
+that embrace the feeling of the footwear. During 2008, Bebe Sport was supported by actress Eva
+Longoria who appeared in the print advertisements.
+With a targeted approach, our print ads appear regularly in popular fashion and lifestyle
+consumer publications, such as GQ, Cosmopolitan, Elle, Lucky, In Style, Seventeen, Maxim, Men’s
+Fitness, and Complex, as well as in weekly publications such as People, 
+7 
+Table of Contents 
+Us Weekly, Star, Sports Illustrated and InTouch, among others. Our advertisements also appear
+in international magazines around the world.
+Our television commercials are produced both in-house and through producers that we have
+utilized in the past and who are familiar with our brands. In 2008, we developed commercials for
+men, women and children for our Skechers brands, including our animated spots for kids featuring
+our own action heroes. We have found these to be a cost-effective way to advertise during key
+national and cable programming in high selling seasons. In 2008, for the first time, we translated
+our commercials into multiple languages and aired the spots in Brazil, Canada, United Kingdom,
+France, the Benelux Region, Germany, Spain, Italy, Austria and Switzerland.
+Outdoor. In an effort to reach consumers where they shop and in high-traffic areas as they
+travel to and from work, we continued our multi-level outdoor campaign that included kiosks in key
+malls across the United States and billboards, transportation systems and telephone kiosks in North
+America and Europe. We believe these are effective and efficient ways to reach a broad range of
+consumers and leave a lasting impression for our brands.
+Trend-Influenced Marketing/Public Relations. Our public relations objectives are to secure
+product placement in key fashion magazines, place our footwear on the feet of trend-setting
+celebrities, and gain positive and accurate press on our company. Through our commitment to
+aggressively promote our upcoming styles, our products are often featured in leading fashion and
+pop culture magazines, as well as in select films and popular television shows. Our footwear and
+our company have been prominently displayed and referenced on news and magazine shows
+including Oprah , Extra, Laura Ingraham on Fox News and E! ; and on television programs,
+including Burn Notice, The Hills, The Bachelorette, and America’s Next Top Model , among others.
+We have also amassed an array of prominent product placements in magazines including Lucky,
+Seventeen, OK!, US Weekly, Mens Fitness, Slam, Dime and Footwear News . In addition, our brands have
+been associated with cutting edge events and select celebrities, and our product has been seen worn
+by trend-setters like Denis Leary, Vin Diesel, Forest Whitaker and Vanessa Hudgens.
+Promotions. By applying creative sales techniques via a broad spectrum of media, our marketing
+team seeks to build brand recognition and drive traffic to Skechers’ retail stores, websites and
+our retail partners’ locations. Skechers’ promotional strategies have encompassed in-store
+specials, charity events, product tie-ins and giveaways, and collaborations with national retailers
+and radio stations. Our imaginative promotions are consistent with Skechers’ imaging and lifestyle.
+Visual Merchandising. Our in-house visual merchandising department supports wholesale
+customers, distributors and our retail stores by developing displays that effectively leverage our
+products at the point of sale. Our point-of-purchase display items include signage, graphics,
+displays, counter cards, banners and other merchandising items for each of our brands. These
+materials mirror the look and feel of each brand and reinforce the image as well as draw consumers
+into stores.
+Our visual merchandising coordinators (“VMC’s”) work with our sales force and directly with
+our customers to ensure better sell-through at the retail level by generating greater consumer
+awareness through Skechers brand displays. Our VMC’s communicate with and visit our wholesale
+customers on a regular basis to aid in proper display of our merchandise. They also run in-store
+promotions to enhance the sale of Skechers footwear and create excitement surrounding the Skechers
+brand. We believe that these efforts help stimulate impulse sales and repeat purchases.
+Trade Shows. To better showcase our diverse products to footwear buyers in the United States
+and Europe and to distributors around the world, we regularly exhibit at leading trade shows. Along
+with specialty trade shows, we exhibit at WSA’s The Shoe Show, FFANY, ASR and MAGIC in the United
+States; GDS, MICAM, Bread & Butter, MODA, Mess Around and Who’s Next in Europe; and Couromoda in
+Brazil. Our dynamic, state-of-the-art trade show exhibits are developed by our in-house architect
+to showcase our latest product offerings in a lifestyle setting reflective of each of our brands.
+By investing in innovative displays and individual rooms showcasing each line, our sales force can
+present a sales plan for each line and buyers are able to truly understand the breadth and depth of
+our offerings, thereby optimizing commitments and sales at the retail level.
+Internet.
+We also promote our brands through our e-commerce websites
+www.skechers.com and
+www.soholab.com . We have also established a unique Internet website for Mark Nason
+( www.marknason.com ) designed to serve primarily as a marketing tool. These websites currently
+enable us to present information on our products, provide a brand experience and store locations to
+consumers, and allow consumers the ability to directly order products on the Internet. These sites
+also provide us a mechanism for customer feedback as well as allowing us to receive and respond
+directly to consumer feedback. Our websites are intended to enhance the Skechers and fashion
+brands, and to increase sales through all our retail channels. Our websites also allow us to
+leverage our brand awareness at a lower cost than traditional distribution channels.
+8 
+Table of Contents 
+PRODUCT DISTRIBUTION CHANNELS
+We have four reportable segments – domestic wholesale sales, international wholesale sales,
+retail sales and e-commerce sales. In the United States, our products are available through a
+network of wholesale customers comprised of department, athletic and specialty stores.
+Internationally, our products are available through wholesale customers in more than 100 countries
+and territories via our global network of distributors and our subsidiaries in Asia, Europe, Canada
+and Brazil. Skechers owns and operates retail stores both domestically and internationally through
+three integrated retail formats—concept, factory outlet and warehouse outlet stores. Each of these
+channels serves an integral function in the global distribution of our products. Fifteen
+distributors have opened 94 distributor-owned Skechers retail stores in 25 countries as of December
+31, 2008.
+Domestic Wholesale. We distribute our footwear through the following domestic wholesale
+distribution channels: department stores, specialty stores, athletic shoe stores and independent
+retailers, as well as catalog and Internet retailers. While department stores and specialty
+retailers are the largest distribution channels, we believe that we appeal to a variety of
+wholesale customers, many of whom may operate stores within the same retail location due to our
+distinct product lines, variety of styles and the price criteria of their specific customers.
+Management has a clearly defined growth strategy for each of our channels of distribution. An
+integral component of our strategy is to offer our accounts the highest level of customer service
+so that our products will be fully represented in existing retail locations and new locations of
+each customer.
+In an effort to provide knowledgeable and personalized service to our wholesale customers, the
+sales force is segregated by product line, each of which is headed by a vice president or national
+sales manager. Reporting to each sales manager are knowledgeable account executives and territory
+managers. Our vice presidents and national sales managers report to a senior vice president of
+sales. All of our vice presidents and national sales managers are compensated on a salary basis,
+while our account executives and territory managers are compensated on a commission basis. None of
+our domestic sales personnel sells competing products.
+We believe that we have developed a loyal customer base through exceptional customer service.
+We believe that our close relationships with these accounts help us to maximize their retail
+sell-throughs. Our visual merchandise coordinators work with our wholesale customers to ensure that
+our merchandise and point-of-purchase marketing materials are properly presented. Sales executives
+and merchandise personnel work closely with accounts to ensure that appropriate styles are
+purchased for specific accounts and for specific stores within those accounts as well as to ensure
+that appropriate inventory levels are carried at each store. Such information is then utilized to
+help develop sales projections and determine the product needs of our wholesale customers. The
+value-added services we provide our wholesale customers help us maintain strong relationships with
+our existing wholesale customers and attract potential new wholesale customers.
+International Wholesale. Our products are sold in more than 100 countries and territories
+throughout the world. We generate revenues from outside the United States from three principal
+sources: (i) direct sales to department stores and specialty retail stores through our subsidiaries
+in Canada, France, Germany, Spain, Portugal, Italy, Switzerland, Austria, Malaysia, Thailand, the
+Benelux Region, the United Kingdom and Brazil; (ii) sales to foreign distributors who distribute
+our footwear to department stores and specialty retail stores in countries and territories across
+Eastern Europe, Asia, Latin America, South America, Africa, the Middle East and Australia, among
+other regions; and (iii) to a lesser extent, royalties from licensees who manufacture and
+distribute our non-footwear products outside the United States.
+We believe that international distribution of our products represents a significant
+opportunity to increase sales and profits. We intend to further increase our share of the
+international footwear market by heightening our marketing in those countries in which we currently
+have a presence through our international advertising campaigns, which are designed to establish
+Skechers as a global brand synonymous with trend-right casual shoes.
+• 
+International Subsidiaries 
+Europe 
+We currently distribute product in most of Western Europe through the following
+subsidiaries: Skechers USA Ltd., with its offices and showrooms in London, England; Skechers
+S.a.r.l., with its offices and showrooms in Lausanne, Switzerland; Skechers USA France
+S.A.S., with its offices and showrooms in Paris, France; Skechers USA Deutschland GmbH, with
+its offices and showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L., with its
+offices and showrooms in Madrid,
+9 
+Table of Contents 
+Spain; Skechers USA Benelux B.V., with its offices and showrooms in Waalwijk, the
+Netherlands; and Skechers USA Italia S.r.l., with its offices and showroom in Verona, Italy.
+Skechers-owned retail stores in Europe include eight concept stores and two factory
+outlet stores located in six countries, including the key locations of Oxford Street in
+London, Alstadt District in Düsseldorf and Kalverstraat Street in Amsterdam.
+To accommodate our European subsidiaries’ operations, we operate an approximately
+240,000 square foot distribution center in Liege, Belgium. This distribution center is
+currently used to store and deliver product to our subsidiaries and retail stores throughout
+Europe. During 2008, we entered into a lease to add an additional 250,000 square foot
+distribution facility adjacent to our existing facility which we expect to occupy in 2009.
+Canada 
+Merchandising and marketing of our product in Canada is managed by our wholly-owned
+subsidiary, Skechers USA Canada, Inc. with its offices and showrooms outside Toronto in
+Mississauga, Ontario. Product sold in Canada is primarily sourced from our U.S. distribution
+center in Ontario, California. We have two concept stores, Toronto’s Eaton Centre and West
+Edmonton Mall, and one factory outlet store in Toronto.
+Malaysia, Singapore and Thailand 
+Merchandising and marketing of our product in Malaysia and Thailand is managed by two of
+our subsidiaries, Skechers Malaysia Sdn. Bhd. and Skechers (Thailand) Limited with their
+respective offices in Kuala Lumpur and Bangkok. Product sold in these countries is primarily
+sourced from a third party distribution center in Selangor, Malaysia. We have six concept
+stores in Malaysia and Thailand: three in Kuala Lumpur, two in Selangor, and one in Bangkok.
+We also established a subsidiary in Singapore, Skechers Singapore Pte. Ltd. We entered into
+an agreement in November 2008 to contribute certain assets and shares of stock of these
+subsidiaries to Skechers Southeast Asia Limited, a joint venture in which we have a 50%
+interest.
+Brazil 
+Merchandising and marketing of our product in Brazil is managed by our wholly-owned
+subsidiary, Skechers Do Brasil Calcados LTDA., with its offices located in Sao Paulo, Brazil.
+Product sold in Brazil is primarily shipped directly from our contract manufacturers’
+factories in China and occasionally from our U.S. distribution center in Ontario, California.
+China and Hong Kong 
+We have a 50% interest in a joint venture in China and a minority interest in a joint
+venture in Hong Kong that generate net sales in those countries. Under the joint venture
+agreements, the joint venture partners contribute capital in proportion to their respective
+ownership interests. The joint ventures operate 15 direct-owned stores and in excess of 90
+shops-in-shop in China and 6 direct-owned stores and 11 shops-in-shop in Hong Kong. The
+joint ventures are included in our 2008 consolidated financial statements.
+• 
+Distributors 
+Outside of Western Europe and Canada, our footwear is distributed through an extensive
+network of more than 30 distributors who sell our products to department, athletic and
+specialty stores in more than 100 countries around the world. Through agreements with 15 of
+these distributors, 94 distributor-owned Skechers retail stores are open in 25 countries,
+including 37 stores that were opened in 2008, while three distributor-owned stores were
+closed.
+10 
+Table of Contents 
+STORE 
+NUMBER OF 
+REGION 
+FORMAT 
+STORES 
+LOCATION (1) 
+Asia 
+Concept
+16 
+Japan (2); Korea (10); Philippines (2); Taiwan (2) 
+Warehouse
+4 
+Japan (4) 
+Australia 
+Concept
+2 
+Melbourne, Sydney 
+Warehouse
+5 
+Cairns, Canberra, Melbourne, Perth, Sydney 
+Central America/ South America 
+Concept
+38 
+Chile (10); Columbia (9); Ecuador (2); Guatemala (2); Panama (2); Peru (3); Venezuela (10) 
+Eastern Europe 
+Concept
+10 
+Czech Republic; Russia (7); Turkey; Ukraine 
+Northern Europe 
+Concept
+7 
+Denmark; Estonia (2); Finland; Lithuania (3) 
+Middle East 
+Concept
+10 
+Bahrain (2); Kuwait (2); Saudi Arabia; UAE (5) 
+Warehouse
+1 
+UAE 
+South Africa 
+Concept
+1 
+Sandton 
+(1) 
+One store per location except as otherwise noted. 
+The distributors are responsible for their respective stores’ operations, have ownership
+of their respective stores’ assets, and select the broad collection of our products to sell
+to consumers in their regions. In order to maintain a globally consistent image, we provide
+architectural, graphic and visual guidance and materials for the design of the stores, and we
+train the local staff on our products and corporate culture. We intend to expand our
+international presence and global recognition of the Skechers brand name by continuing to
+sell our footwear to foreign distributors and by opening flagship retail stores with
+distributors that have local market expertise.
+Retail Stores. We pursue our retail store strategy through our three integrated retail
+formats: the concept store, the factory outlet store and the warehouse outlet store. Our three
+store formats enable us to promote the full Skechers product offering in an attractive environment
+that appeals to a broad group of consumers. In addition, most of our retail stores are profitable
+and have a positive effect on our operating results. As of February 15, 2009, we owned and operated
+84 concept stores, 83 factory outlet stores and 37 warehouse outlet stores in the United States,
+and 16 concept stores and three factory outlet stores internationally. We closed two stores and
+opened 34 new stores in 2008. We plan to open an additional 15 to 18 domestic stores and two
+international stores by the end of 2009.
+• 
+Concept Stores. 
+Our concept stores are located at either marquee street locations or in major shopping
+malls in large metropolitan cities. Our concept stores have a threefold purpose in our
+operating strategy. First, concept stores serve as a showcase for a wide range of our product
+offering for the current season as we estimate that our average wholesale customer carries no
+more than 5% of the complete Skechers line in any one location. Our concept stores showcase
+our products in a cutting-edge, open-floor setting, providing the customer with the complete
+Skechers story. Second, retail locations are generally chosen to generate maximum marketing
+value for the Skechers brand name through signage, store front presentation and interior
+design. Domestic locations include concept stores at Times Square and 34th Street in New
+York, Powell Street in San Francisco, Hollywood and Highland in Hollywood, Santa Monica’s
+Third Street Promenade, Dallas’ Northpark Center, Las Vegas’ Fashion Show Mall, Seattle’s
+Bellevue Square Mall, and Woodfield Mall outside Chicago. International locations include
+Oxford Street in London, Alstadt District in Dusseldorf, Toronto’s Eaton Centre, and
+Kalverstraat Street in Amsterdam. The stores are typically designed to create a distinctive
+Skechers look and feel, and enhance customer association of the Skechers brand name with
+current youthful lifestyle trends and styles. Third, the concept stores serve as marketing
+and product testing venues. We believe that product sell-through information and rapid
+customer feedback derived from our concept stores enables our design, sales, merchandising
+and production staff to respond to market changes and new product introductions. Such
+responses serve to augment sales and limit our inventory markdowns and customer returns and
+allowances. We opened 19 domestic concept stores and three international concept stores, and
+we closed two domestic concept stores in 2008.
+The typical Skechers concept store is approximately 2,500 square feet, although in
+certain markets we have opened concept stores as large as 7,800 square feet or as small as
+1,500 square feet. When deciding where to open concept stores, we
+11 
+Table of Contents 
+identify top geographic
+markets in the larger metropolitan cities in the United States, Canada, Europe and Asia. When
+selecting a specific site, we evaluate the proposed sites’ traffic pattern, co-tenancies,
+sales volume of neighboring concept stores, lease economics and other factors considered
+important within the specific location. If we are considering opening a concept store in a
+shopping mall, our strategy is to obtain space as centrally located as possible in the mall
+where we expect foot traffic to be most concentrated. We believe that the strength of the
+Skechers brand name has enabled us to negotiate more favorable terms with shopping malls that
+want us to open up concept stores to attract customer traffic to their venues.
+• 
+Factory Outlet Stores. 
+Our factory outlet stores are generally located in manufacturers’ direct outlet centers
+throughout the United States. In addition, we have three international outlet stores – one
+in Canada, one in England, and one in Scotland. Our factory outlet stores provide
+opportunities for us to sell discontinued and excess merchandise, thereby reducing the need
+to sell such merchandise to discounters at excessively low prices and potentially compromise
+the Skechers brand image. Skechers’ factory outlet stores range in size from approximately
+1,900 to 9,000 square feet. Inventory in these stores is supplemented by certain first-line
+styles sold at full retail price points. We opened 10 domestic
+factory outlet stores and one international factory outlet store in 2008.
+• 
+Warehouse Outlet Stores. 
+Our free-standing warehouse outlet stores, which are located throughout the United
+States, enable us to liquidate excess merchandise, discontinued lines and odd-size inventory
+in a cost-efficient manner. Skechers’ warehouse outlet stores range in size from
+approximately 5,200 to 13,500 square feet. Our warehouse outlet stores enable us to sell
+discontinued and excess merchandise that would otherwise typically be sold to discounters at
+excessively low prices, which could otherwise compromise the Skechers brand image. We seek to
+open our warehouse outlet stores in areas that are in close proximity to our concept stores
+in order to facilitate the timely transfer of inventory that we want to liquidate as soon as
+practicable. We opened two new domestic warehouse outlet stores in 2008.
+Electronic
+Commerce. Our websites, www.skechers.com and
+www.soholab.com are virtual
+storefronts that promote the Skechers and Fashion and Street Division’s brands. Our websites are
+designed to provide a positive shopping and brand experience, showcasing our products in an
+easy-to-navigate format, allowing consumers to browse our selections and purchase our footwear.
+These virtual stores have provided a convenient alternative-shopping environment and brand
+experience. These websites are an efficient and effective additional retail distribution channel,
+and they have improved our customer service.
+LICENSING
+We believe that selective licensing of the Skechers brand name and our product line names to
+manufacturers may broaden and enhance the individual brands without requiring significant capital
+investments or additional incremental operating expenses. Our multiple product lines plus
+additional subcategories present many potential licensing opportunities on terms with licensees
+that we believe will provide more effective manufacturing, distribution or marketing of
+non-footwear products. We also believe that the reputation of Skechers and its history in launching
+brands has also enabled us to partner with reputable non-footwear brands in order to design and
+market their footwear.
+As of January 31, 2009, we had 12 active domestic and international licensing agreements in
+which we are the licensor. We have international licensing agreements for the design and
+distribution of men’s and women’s active apparel in Israel; men’s and women’s apparel in select
+European countries; bags in select Central and South American countries; watches in the
+Philippines; and apparel in Japan and Korea.
+Additionally, we have signed agreements to design, develop and market footwear for the street
+lifestyle apparel brands Ecko Unltd., Ecko Red, Red by Marc Ecko, and Zoo York under the Marc Ecko
+Enterprises umbrella as well as TapouT and Bebe Sport.
+DISTRIBUTION FACILITIES AND OPERATIONS
+We believe that strong distribution support is a critical factor in our operations. Once
+manufactured, our products are packaged in shoe boxes bearing bar codes that are shipped either (i)
+to our five distribution centers located in Ontario, California, which measure in aggregate
+approximately 1.7 million square-feet; (ii) to our approximately 240,000 square-foot distribution
+center located in Liege, Belgium or (iii) directly from third-party manufacturers to our other
+international customers and other international third party distribution centers. Upon receipt at
+either of the distribution centers, merchandise is inspected and recorded in our management
+12 
+Table of Contents 
+information system and packaged according to customers’ orders for delivery. Merchandise is shipped
+to customers by whatever means each customer requests, which is usually by common carrier. The
+distribution centers have multi-access docks, enabling us to receive and ship simultaneously, and
+to pack separate trailers for shipments to different customers at the same time. We have an
+electronic data interchange system, or EDI system, to which some of our larger customers are
+linked. This system allows these customers to automatically place orders with us, thereby
+eliminating the time involved in transmitting and inputting orders, and it includes direct billing
+and shipping information.
+During 2007, we entered into an eleven-year lease to build a new 1.8 million square foot
+distribution facility in Moreno Valley, California, which when completed we expect to occupy in
+2010. This single facility will replace the existing five facilities located in
+Ontario, California, of which four are on short-term leases. In addition during 2008, we
+entered into a twenty-year lease to add an additional 250,000 square foot distribution facility
+adjacent to our existing facility in Liege, Belgium, which we expect to occupy in 2009.
+BACKLOG
+As of December 31, 2008, our backlog was $325.3 million, compared to $416.5 million as of
+December 31, 2007. Backlog orders are subject to cancellation by customers, as evidenced by the
+cancellations that we have recently experienced due to the weakening U.S. economy. For a variety
+of reasons, including changes in the economy, customer demand for our products, the timing of
+shipments, product mix of customer orders, the amount of in-season orders and a shift towards
+tighter lead times within backlog levels, backlog may not be a reliable measure of future sales for
+any succeeding period.
+INTELLECTUAL PROPERTY RIGHTS
+We own and utilize a variety of trademarks, including the Skechers trademark. We have a
+significant number of both registrations and pending applications for our trademarks in the United
+States. In addition, we have trademark registrations and trademark applications in approximately 94
+foreign countries. We also have design patents and pending design and utility patent applications
+in both the United States and approximately 27 foreign countries. We continuously look to increase
+the number of our patents and trademarks both domestically and internationally where necessary to
+protect valuable intellectual property. We regard our trademarks and other intellectual property as
+valuable assets and believe that they have significant value in the marketing of our products. We
+vigorously protect our trademarks against infringement, including through the use of cease and
+desist letters, administrative proceedings and lawsuits.
+We rely on trademark, patent, copyright and trade secret protection, non-disclosure agreements
+and licensing arrangements to establish, protect and enforce intellectual property rights in our
+logos, tradenames and in the design of our products. In particular, we believe that our future
+success will largely depend on our ability to maintain and protect the Skechers trademark and other
+key trademarks. Despite our efforts to safeguard and maintain our intellectual property rights, we
+cannot be certain that we will be successful in this regard. Furthermore, we cannot be certain that
+our trademarks, products and promotional materials or other intellectual property rights do not or
+will not violate the intellectual property rights of others, that our intellectual property would
+be upheld if challenged, or that we would, in such an event, not be prevented from using our
+trademarks or other intellectual property rights. Such claims, if proven, could materially and
+adversely affect our business, financial condition and results of operations. In addition, although
+any such claims may ultimately prove to be without merit, the necessary management attention to and
+legal costs associated with litigation or other resolution of future claims concerning trademarks
+and other intellectual property rights could materially and adversely affect our business,
+financial condition and results of operations. We have sued and have been sued by third parties for
+infringement of intellectual property. It is our opinion that none of these claims has materially
+impaired our ability to utilize our intellectual property rights.
+The laws of certain foreign countries do not protect intellectual property rights to the same
+extent or in the same manner as do the laws of the United States. Although we continue to implement
+protective measures and intend to defend our intellectual property rights vigorously, these efforts
+may not be successful or the costs associated with protecting our rights in certain jurisdictions
+may be prohibitive. From time to time we discover products in the marketplace that are counterfeit
+reproductions of our products or that otherwise infringe upon intellectual property rights held by
+us. Actions taken by us to establish and protect our trademarks and other intellectual property
+rights may not be adequate to prevent imitation of our products by others or to prevent others from
+seeking to block sales of our products as violating trademarks and intellectual property rights. If
+we are unsuccessful in challenging a third party’s products on the basis of infringement of our
+intellectual property rights, continued sales of such products by that or any other third party
+could adversely impact the Skechers brand, result in the shift of consumer preferences away from
+our products and generally have a material adverse effect on our business, financial condition and
+results of operations.
+13 
+Table of Contents 
+COMPETITION
+Competition in the footwear industry is intense. Although we believe that we do not compete
+directly with any single company with respect to its entire range of products, our products compete
+with other branded products within their product category as well as with private label products
+sold by retailers, including some of our customers. Our utility footwear and casual shoes compete
+with footwear offered by companies such as The Timberland Company, Dr. Martens, Kenneth Cole
+Productions Inc., Steven Madden, Ltd., Wolverine World Wide, Inc., and V.F. Corporation. Our
+athletic lifestyle shoes compete with footwear offered by companies such as Nike, Inc., adidas AG,
+Puma AG, New Balance Athletic Shoe, Inc. and K-Swiss Inc. Our children’s shoes compete with
+footwear
+offered by companies such as Collective Brands Inc. In varying degrees, depending on the
+product category involved, we compete on the basis of style, price, quality, comfort and brand name
+prestige and recognition, among other considerations. These and other competitors pose challenges
+to our market share in our major domestic markets and may make it more difficult to establish our
+products in Europe, Asia and other international regions. We also compete with numerous
+manufacturers, importers and distributors of footwear for the limited shelf space available for the
+display of such products to the consumer. Moreover, the general availability of contract
+manufacturing capacity allows ease of access by new market entrants. Many of our competitors are
+larger, have been in existence for a longer period of time, have achieved greater recognition for
+their brand names, have captured greater market share and/or have substantially greater financial,
+distribution, marketing and other resources than we do. We cannot be certain that we will be able
+to compete successfully against present or future competitors, or that competitive pressures will
+not have a material adverse effect on our business, financial condition and results of operations.
+EMPLOYEES
+As of February 1, 2009, we employed 4,130 persons, 2,112 of whom were employed on a full-time
+basis and 2,018 of whom were employed on a part-time basis. None of our employees is subject to a
+collective bargaining agreement. We believe that our relations with our employees are satisfactory.
+ITEM 1A. RISK FACTORS 
+In addition to the other information in this annual report, the following factors should be
+considered in evaluating us and our business.
+The Effects Of The Recent Global Economic Slowdown May Continue To Have A Negative Impact On Our
+Business, Results Of Operations Or Financial Condition. 
+The recent global economic slowdown has caused disruptions and extreme volatility in global
+financial markets, increased rates of default and bankruptcy, and declining consumer and business
+confidence, which has led to decreased levels of consumer spending, particularly on discretionary
+items such as footwear. These macroeconomic developments have and could continue to negatively
+impact our business, which depends on the general economic environment and levels of consumer
+spending in the United States and other parts of the world that affect not only the ultimate
+consumer, but also retailers, who are our primary direct customers. As a result, we may not be
+able to maintain or increase our sales to existing customers, make sales to new customers, open and
+operate new retail stores, maintain sales levels at our existing stores, maintain or increase our
+international operations on a profitable basis, or maintain or improve our earnings from operations
+as a percentage of net sales. If the global economic slowdown continues for a significant period
+or continues to worsen, our results of operations, financial condition, and cash flows could be
+materially adversely affected.
+Our Business Could Be Harmed If We Fail To Maintain Proper Inventory Levels. 
+We place orders with our manufacturers for some of our products prior to the time we receive
+all of our customers’ orders. We do this to minimize purchasing costs, the time necessary to fill
+customer orders and the risk of non-delivery. We also maintain an inventory of certain products
+that we anticipate will be in greater demand. However, the current global economic slowdown makes
+it increasingly difficult of us and our customers to accurately forecast product demand trends, and
+we may be unable to sell the products we have ordered in advance from manufacturers or that we have
+in our inventory. Inventory levels in excess of customer demand may result in inventory
+write-downs, and the sale of excess inventory at discounted prices could significantly impair our
+brand image and have a material adverse effect on our operating results and financial condition.
+Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to
+supply the quality products that we require at the time we need them, we may experience
+14 
+Table of Contents 
+inventory
+shortages. Inventory shortages might delay shipments to customers, negatively impact retailer and
+distributor relationships, and diminish brand loyalty.
+Our Business Could Be Adversely Affected By Changes In The Business Or Financial Condition Of
+Significant Customers Due To The Current And Future Conditions In The Global Financial Markets. 
+The current global financial crisis affecting the banking system and financial markets and the
+possibility that financial institutions may consolidate or go out of business have resulted in a
+tightening in the credit markets, more stringent lending standards and terms, and higher volatility
+in fixed income, credit, currency and equity markets. There could be a number of follow-on effects
+from the
+credit crisis on our business, including insolvency of certain of our key distributors, which
+could impair our distribution channels, or our significant customers, including our distributors,
+may experience diminished liquidity or an inability to obtain credit to finance purchases of our
+product. Our customers may also experience weak demand for our products or other difficulties in
+their businesses. If conditions in the global financial markets become more severe or continue
+longer than we anticipate, our forecasted demand may not materialize to the levels that we require
+to achieve our anticipated financial results. Any of these events would likely harm our business,
+results of operations and financial condition.
+We May Have Difficulty Managing Our Costs As A Result Of The Recent Global Economic Slowdown. 
+Our future results of operations will depend on our overall ability to manage our costs.
+These challenges include (i) managing our infrastructure, including the anticipated addition of our
+new warehouse facility in Moreno Valley, California, (ii) retaining and hiring, as required, the
+appropriate number of qualified employees, (iii) managing inventory levels and (iv) controlling
+other expenses. If the global economic slowdown worsens and leads to an unexpected decline in our
+revenues without a corresponding and timely reduction in expenses or a failure to manage other
+aspects of our operations, that could have a material adverse effect on our business, results of
+operations or financial condition.
+We May Be Adversely Affected By The Failure Of Financial Institutions To Fulfill Their Commitments
+Under Our Secured Line Of Credit. 
+As discussed in Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition
+and Results of Operations – Liquidity and Capital Resources) of this report, we have a secured line
+of credit with financial institutions available for our use, for which we pay commitment fees. The
+line of credit is provided by a syndicate of three financial institutions, with each institution
+agreeing severally (and not jointly) to make revolving credit loans to us in accordance with the
+terms of the related loan agreement. If one or more of the financial institutions providing the
+line of credit were to default on its obligation to fund its commitment, the portion of the line of
+credit provided by such defaulting financial institution would not be available to us, which could
+have a material adverse effect on our liquidity and financial condition.
+Our Future Success Depends On Our Ability To Respond To Changing Consumer Demands, Identify And
+Interpret Fashion Trends And Successfully Market New Products. 
+The footwear industry is subject to rapidly changing consumer demands and fashion trends.
+Accordingly, we must identify and interpret fashion trends and respond in a timely manner. Demand
+for and market acceptance of new products are uncertain and achieving market acceptance for new
+products generally requires substantial product development and marketing efforts and expenditures.
+If we do not continue to meet changing consumer demands and develop successful styles in the
+future, our growth and profitability will be negatively impacted. We frequently make decisions
+about product designs and marketing expenditures several months in advance of the time when
+consumer acceptance can be determined. If we fail to anticipate, identify or react appropriately to
+changes in styles and trends or are not successful in marketing new products, we could experience
+excess inventories, higher than normal markdowns or an inability to profitably sell our products.
+Because of these risks, a number of companies in the footwear industry specifically, and others in
+the fashion and apparel industry in general, have experienced periods of rapid growth in revenues
+and earnings and thereafter periods of declining sales and losses, which in some cases have
+resulted in companies in these industries ceasing to do business. Similarly, these risks could have
+a material adverse effect on our results of operations or financial condition.
+Our Children’s Shoe Business May Be Negatively Impacted By The Consumer Product Safety Improvement
+Act Of 2008. 
+The Consumer Product Safety Commission has issued new standards, effective February 10, 2009,
+under the Consumer Product Safety Improvement Act of 2008 (“CPSIA”) regarding lead content in
+consumer products directed at children 12 years of age and under, including children’s shoes. The
+new standard applies retroactively to all products that exist on February 10, 2009 and it is not
+15 
+Table of Contents 
+limited to new manufacturing. We have been working to ensure that covered products are
+appropriately tested. There is still uncertainty regarding the meaning of the CPSIA and how it
+applies to products or product components and the level of detail that each of our retailers will
+require. Consequently, we are unable to predict whether the total financial impact of these new
+standards will have a material adverse impact on our business, results of operation or financial
+condition.
+Our Business And The Success Of Our Products Could Be Harmed If We Are Unable To Maintain Our Brand
+Image. 
+Our success to date has been due in large part to the strength of the Skechers brand, and to a
+lesser degree, the reputation of our fashion brands. If we are unable to timely and appropriately
+respond to changing consumer demand, our brand name and brand image
+may be impaired. Even if we react appropriately to changes in consumer preferences, consumers
+may consider our brand image to be outdated or associate our brand with styles of footwear that are
+no longer popular. In the past, several footwear companies including ours have experienced periods
+of rapid growth in revenues and earnings followed by periods of declining sales and losses. Our
+business may be similarly affected in the future.
+We Face Intense Competition, Including Competition From Companies With Significantly Greater
+Resources Than Ours, And If We Are Unable To Compete Effectively With These Companies, Our Market
+Share May Decline And Our Business Could Be Harmed. 
+We face intense competition in the footwear industry from other established companies. A
+number of our competitors have significantly greater financial, technological, engineering,
+manufacturing, marketing and distribution resources than we do. Their greater capabilities in these
+areas may enable them to better withstand periodic downturns in the footwear industry, compete more
+effectively on the basis of price and production and more quickly develop new products. In
+addition, new companies may enter the markets in which we compete, further increasing competition
+in the footwear industry.
+We believe that our ability to compete successfully depends on a number of factors, including
+the style and quality of our products and the strength of our brand name, as well as many factors
+beyond our control. We may not be able to compete successfully in the future, and increased
+competition may result in price reductions, reduced profit margins, loss of market share and an
+inability to generate cash flows that are sufficient to maintain or expand our development and
+marketing of new products, which would adversely impact the trading price of our Class A Common
+Stock.
+We Depend Upon A Relatively Small Group Of Customers For A Large Portion Of Our Sales. 
+During 2008, 2007 and 2006, our net sales to our five largest customers accounted for
+approximately 24.1%, 25.3%, and 24.9% of total net sales, respectively. No customer accounted for
+more than 10.0% of our net sales during 2008, 2007 and 2006. No customer accounted for over 10.0%
+of net trade receivables at December 31, 2008. One customer accounted for 10.0% of net trade
+receivables at December 31, 2007. Although we have long-term relationships with many of our
+customers, our customers do not have a contractual obligation to purchase our products and we
+cannot be certain that we will be able to retain our existing major customers. Furthermore, the
+retail industry regularly experiences consolidation, contractions and closings which may result in
+our loss of customers or our inability to collect accounts receivable of major customers. If we
+lose a major customer, experience a significant decrease in sales to a major customer or are unable
+to collect the accounts receivable of a major customer, our business could be harmed.
+We May Be Unable To Successfully Execute Our Growth Strategy Or Maintain Our Growth. 
+Although our company has generally exhibited steady growth since we began operations, we had a
+decrease in net sales in the past and our rate of growth has declined at times as well, and we may
+experience similar decreases in net sales or declines in rate of growth again in the future. Our
+ability to grow in the future depends upon, among other things, the continued success of our
+efforts to maintain our brand image and expand our footwear offerings and distribution channels.
+As our business grows, we may need to improve and enhance our overall financial and managerial
+controls, reporting systems and procedures to effectively manage our growth. We may be unable to
+successfully implement our current growth strategy or other growth strategies or effectively manage
+our growth, any of which would negatively impact our business, results of operations and financial
+condition. Furthermore, in anticipation of continued increases in net sales, we have significantly
+expanded our infrastructure and workforce to achieve economies of scale. Because these expenses are
+mostly fixed in the short term, our operating results and margins will be adversely impacted if we
+do not continue to grow as anticipated.
+16 
+Table of Contents 
+Many Of Our Retail Stores Depend Heavily On The Customer Traffic Generated By Shopping And Factory
+Outlet Malls Or By Tourism. 
+Many of our concept stores are located in shopping malls and some of our factory outlet stores
+are located in manufacturers’ outlet malls where we depend on obtaining prominent locations and the
+overall success of the malls to generate customer traffic. We cannot control the success of
+individual malls, and an increase in store closures by other retailers may lead to mall vacancies
+and reduced foot traffic. Some of our concept stores occupy street locations that are heavily
+dependent on customer traffic generated by tourism. Any substantial decrease in tourism resulting
+from the global economic slowdown, political, social or military events or otherwise, is likely to
+adversely affect sales in our existing stores, particularly those with street locations. The
+effects of these factors could reduce sales of particular existing stores or hinder our ability to
+open retail stores in new markets, which could negatively affect our operating results.
+Our International Sales And Manufacturing Operations Are Subject To The Risks Of Doing Business
+Abroad, Particularly In China, Which Could Affect Our Ability To Sell Or Manufacture Our Products
+In International Markets, Obtain Products From Foreign Suppliers Or Control The Costs Of Our
+Products. 
+Substantially all of our net sales during the year ended December 31, 2008 were derived from
+sales of footwear manufactured in foreign countries, with most manufactured in China and, to a
+lesser extent, in Italy, Vietnam and Brazil. We also sell our footwear in several foreign countries
+and plan to increase our international sales efforts as part of our growth strategy. Foreign
+manufacturing and sales are subject to a number of risks, including the following: political and
+social unrest, including the military presence in Iraq and terrorism; changing economic conditions,
+including higher labor costs; increased costs of raw materials; currency exchange rate
+fluctuations; labor shortages and work stoppages; electrical shortages; transportation delays; loss
+or damage to products in transit; expropriation; nationalization; the adjustment, elimination or
+imposition of domestic and international duties, tariffs, quotas, import and export controls and
+other non-tariff barriers; exposure to different legal standards (particularly with respect to
+intellectual property); compliance with foreign laws; and changes in domestic and foreign
+governmental policies. We have not, to date, been materially affected by any such risks, but we
+cannot predict the likelihood of such developments occurring or the resulting long-term adverse
+impact on our business, results of operations or financial condition.
+In particular, because most of our products are manufactured in China, the possibility of
+adverse changes in trade or political relations with China, political instability in China,
+increases in labor costs, the occurrence of prolonged adverse weather conditions or a natural
+disaster such as an earthquake or typhoon in China, or the outbreak of a pandemic disease such as
+the Avian Flu in China could severely interfere with the manufacture and/or shipment of our
+products and would have a material adverse effect on our operations. In addition, electrical
+shortages, labor shortages or work stoppages may extend the production time necessary to produce
+our orders, and there may be circumstances in the future where we may have to incur premium freight
+charges to expedite the delivery of product to our customers. If we incur a significant amount of
+premium charges to airfreight product for our customers, our gross profit will be negatively
+affected if we are unable to collect those charges.
+Currency Exchange Rate Fluctuations In China Could Result In Higher Costs And Decreased Margins. 
+Our manufacturers located in China may be subject to the effects of exchange rate fluctuations
+should the Chinese currency not remain stable with the U.S. dollar. The value of the Chinese
+currency depends to a large extent on the Chinese government’s policies and China’s domestic and
+international economic and political developments. Since 1994, the official exchange rate for the
+conversion of the Chinese currency was pegged to the U.S. dollar at a virtually fixed rate of
+approximately 8.28 Yuan per U.S. dollar. However, on July 21, 2005, the Chinese government revalued
+the Yuan by 2.1%, setting the exchange rate at 8.11 Yuan per U.S. dollar, and adopted a more
+flexible system based on a trade-weighted basket of foreign currencies of China’s main trading
+partners. Under the new “managed float” policy, the exchange rate of the Yuan may shift each day up
+to 0.3% in either direction from the previous day’s close, and as a result, the exchange rate
+measured 6.82 Yuan per U.S. dollar at December 31, 2008. The valuation of the Yuan may continue to
+increase incrementally over time should the China central bank allow it to do so, which could
+significantly increase labor and other costs incurred in the production of our footwear in China,
+resulting in an adverse effect on our results of operations and financial condition.
+The Potential Imposition Of Additional Duties, Quotas, Tariffs And Other Trade Restrictions Could
+Have An Adverse Impact On Our Sales And Profitability. 
+All of our products manufactured overseas and imported into the United States, the European
+Union (“EU”) and other countries are subject to customs duties collected by customs authorities.
+Customs information submitted by us is routinely subject to review by customs authorities. We are
+unable to predict whether additional customs duties, quotas, tariffs, anti-dumping duties,
+safeguard
+17 
+Table of Contents 
+measures, cargo restrictions to prevent terrorism or other trade restrictions may be imposed
+on the importation of our products in the future. Such actions could result in increases in the
+cost of our products generally and might adversely affect the sales and profitability of Skechers
+and the imported footwear industry as a whole.
+Our Quarterly Revenues And Operating Results Fluctuate As A Result Of A Variety Of Factors,
+Including Seasonal Fluctuations In Demand For Footwear, Delivery Date Delays And Potential
+Fluctuations In Our Annualized Tax Rate, Which May Result In Volatility Of Our Stock Price. 
+Our quarterly revenues and operating results have varied significantly in the past and can be
+expected to fluctuate in the future due to a number of factors, many of which are beyond our
+control. Our major customers generally have no obligation to purchase forecasted amounts and may
+cancel orders, change delivery schedules or change the mix of products ordered with minimal notice
+and without penalty. As a result, we may not be able to accurately predict our quarterly sales. In
+addition, sales of footwear products have historically been somewhat seasonal in nature with the
+strongest sales generally occurring in our second and third quarters for the back-to-school selling
+season. Back-to-school sales typically ship in June, July and August, and delays in the timing,
+cancellation, or rescheduling of these customer orders and shipments by our wholesale customers
+could negatively impact our net sales and results of operations for our second or third quarters.
+More specifically, the timing of when products are shipped is determined by the delivery schedules
+set by our wholesale customers, which could cause sales to shift between our second and third
+quarters. Because our expense levels are partially based on our expectations of future net sales,
+our expenses may be disproportionately large relative to our revenues, and we may be unable to
+adjust spending in a timely manner to compensate for any unexpected revenue shifts, which could
+have a material adverse effect on our operating results.
+Our annualized tax rate is based on projections of our domestic and international operating
+results for the year, which we review and revise as necessary at the end of each quarter, and it is
+highly sensitive to fluctuations in projected international earnings. Any quarterly fluctuations in
+our annualized tax rate that may occur could have a material impact on our quarterly operating
+results. As a result of these specific and other general factors, our operating results will likely
+vary from quarter to quarter and the results for any particular quarter may not be necessarily
+indicative of results for the full year. Any shortfall in revenues or net income from levels
+expected by securities analysts and investors could cause a decrease in the trading price of our
+Class A Common Stock.
+We Rely On Independent Contract Manufacturers And, As A Result, Are Exposed To Potential
+Disruptions In Product Supply. 
+Our footwear products are currently manufactured by independent contract manufacturers. During
+2008 and 2007, the top four manufacturers of our products produced approximately 58.2% and 58.4% of
+our total purchases, respectively. One manufacturer accounted for 30.6% and 29.7% of total
+purchases during 2008 and 2007, respectively. One other manufacturer accounted for over 10.0% of
+our total purchases during 2008. Two other manufacturers each accounted for over 10.0% of our
+total purchases during 2007. We do not have long-term contracts with our manufacturers, and we
+compete with other footwear companies for production facilities. We could experience difficulties
+with these manufacturers, including reductions in the availability of production capacity, failure
+to meet our quality control standards, failure to meet production deadlines or increased
+manufacturing costs. In particular, manufacturers in China are facing a labor shortage as migrant
+workers seek better wages and working conditions in farming and other vocations, and if this trend
+continues, our current manufacturers’ operations could be adversely affected.
+If our current manufacturers cease doing business with us, we could experience an interruption
+in the manufacture of our products. Although we believe that we could find alternative
+manufacturers, we may be unable to establish relationships with alternative manufacturers that will
+be as favorable as the relationships we have now. For example, new manufacturers may have higher
+prices, less favorable payment terms, lower manufacturing capacity, lower quality standards or
+higher lead times for delivery. If we are unable to provide products consistent with our standards
+or the manufacture of our footwear is delayed or becomes more expensive, this could result in our
+customers canceling orders, refusing to accept deliveries or demanding reductions in purchase
+prices, any of which could have a material adverse effect on our business and results of
+operations.
+Our Business Could Be Harmed If Our Contract Manufacturers, Suppliers Or Licensees Violate Labor,
+Trade Or Other Laws. 
+We require our independent contract manufacturers, suppliers and licensees to operate in
+compliance with applicable laws and regulations. Manufacturers are required to certify that neither
+convicted, forced or indentured labor (as defined under United States law) nor child labor (as
+defined by law in the manufacturer’s country) is used in the production process, that compensation
+is paid in accordance with local law and that their factories are in compliance with local safety
+regulations. Although we promote ethical
+18 
+Table of Contents 
+business practices and our sourcing personnel periodically visit and monitor the operations of
+our independent contract manufacturers, suppliers and licensees, we do not control them or their
+labor practices. If one of our independent contract manufacturers, suppliers or licensees violates
+labor or other laws or diverges from those labor practices generally accepted as ethical in the
+United States, it could result in adverse publicity for us, damage our reputation in the United
+States or render our conduct of business in a particular foreign country undesirable or
+impractical, any of which could harm our business.
+In addition, if we, or our foreign manufacturers, violate United States or foreign trade laws
+or regulations, we may be subject to extra duties, significant monetary penalties, the seizure and
+the forfeiture of the products we are attempting to import or the loss of our import privileges.
+Possible violations of United States or foreign laws or regulations could include inadequate record
+keeping of our imported products, misstatements or errors as to the origin, quota category,
+classification, marketing or valuation of our imported products, fraudulent visas or labor
+violations. The effects of these factors could render our conduct of business in a particular
+country undesirable or impractical and have a negative impact on our operating results.
+Our Operating Results Could Be Negatively Impacted If Our Sales Are Concentrated In Any One Style
+Or Group Of Styles. 
+If any one style or group of similar styles of our footwear were to represent a substantial
+portion of our net sales, we could be exposed to risk should consumer demand for such style or
+group of styles decrease in subsequent periods. We attempt to mitigate this risk by offering a
+broad range of products, and no style comprised over 5% of our gross wholesale sales during 2008 or
+2007. However, this may change in the future and fluctuations in sales of any given style that
+represents a significant portion of our future net sales could have a negative impact on our
+operating results.
+Our Strategies Involve A Number Of Risks That Could Prevent Or Delay Any Successful Opening Of New
+Stores As Well As Impact The Performance Of Our Existing Stores. 
+Our ability to open and operate new stores successfully depends on many factors, including,
+among others, our ability to identify suitable store locations, the availability of which is
+outside of our control; negotiate acceptable lease terms, including desired tenant improvement
+allowances; source sufficient levels of inventory to meet the needs of new stores; hire, train and
+retain store personnel; successfully integrate new stores into our existing operations; and satisfy
+the fashion preferences in new geographic areas.
+In addition, some or a substantial number of new stores could be opened in regions of the
+United States in which we currently have few or no stores. Any expansion into new markets may
+present competitive, merchandising and distribution challenges that are different from those
+currently encountered in our existing markets. Any of these challenges could adversely affect our
+business and results of operations. In addition, to the extent that any new store openings are in
+existing markets, we may experience reduced net sales volumes in existing stores in those markets.
+We Depend On Key Personnel To Manage Our Business Effectively In A Rapidly Changing Market, And If
+We Are Unable To Retain Existing Personnel, Our Business Could Be Harmed. 
+Our future success depends upon the continued services of Robert Greenberg, Chairman of the
+Board and Chief Executive Officer, Michael Greenberg, President, and David Weinberg, Executive Vice
+President and Chief Operating Officer. The loss of the services of any of these individuals or any
+other key employee could harm us. Our future success also depends on our ability to identify,
+attract and retain additional qualified personnel. Competition for employees in our industry is
+intense and we may not be successful in attracting and retaining such personnel.
+The Disruption, Expense And Potential Liability Associated With Existing And Unanticipated Future
+Litigation Against Us Could Have A Material Adverse Effect On Our Business, Results Of Operations
+And Financial Condition. 
+We are subject to various legal proceedings and threatened legal proceedings from time to time
+as part of our business. We are not currently a party to any legal proceedings or aware of any
+threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, we
+believe would have a material adverse effect on our business, results of operations or financial
+condition. However, any unanticipated litigation in the future, regardless of its merits, could
+significantly divert management’s attention from our operations and result in substantial legal
+fees to us. Further, there can be no assurance that any actions that have been or will be brought
+against us will be resolved in our favor or, if significant monetary judgments are rendered against
+us, that we will have the ability to pay such judgments. Such disruptions, legal fees and any
+losses resulting from these claims could have a material adverse effect on our business, results of
+operations and financial condition.
+19 
+Table of Contents 
+Our Ability To Compete Could Be Jeopardized If We Are Unable To Protect Our Intellectual Property
+Rights Or If We Are Sued For Intellectual Property Infringement. 
+We believe that our trademarks, design patents and other proprietary rights are important to
+our success and our competitive position. We use trademarks on nearly all of our products and
+believe that having distinctive marks that are readily identifiable is an important factor in
+creating a market for our goods, in identifying us and in distinguishing our goods from the goods
+of others. We consider our Skechers ® , S in Shield Design ® and Performance-S Shifted Design ® 
+trademarks to be among our most valuable assets, and we have registered these trademarks in many
+countries. In addition, we own many other trademarks that we utilize in marketing our products. We
+also have a number of design patents and a limited number of utility patents covering components
+and features used in various shoes. We believe that our patents and trademarks are generally
+sufficient to permit us to carry on our business as presently conducted. While we vigorously
+protect our trademarks against infringement, we cannot assure you that we will be able to secure
+patents or trademark protection for our intellectual property in the future or that protection will
+be adequate for future products. Further, we have been sued for patent and trademark infringement
+and cannot be sure that our activities do not and will not infringe on the intellectual property
+rights of others. If we are compelled to prosecute infringing parties, defend our intellectual
+property or defend ourselves from intellectual property claims made by others, we may face
+significant expenses and liability as well as the diversion of management’s attention from our
+business, each of which could negatively impact our business or financial condition.
+In addition, the laws of foreign countries where we source and distribute our products may not
+protect intellectual property rights to the same extent as do the laws of the United States. We
+cannot assure you that the actions we have taken to establish and protect our trademarks and other
+intellectual property rights outside the United States will be adequate to prevent imitation of our
+products by others or, if necessary, successfully challenge another party’s counterfeit products or
+products that otherwise infringe on our intellectual property rights on the basis of trademark or
+patent infringement. Continued sales of these products could adversely affect our sales and our
+brand and result in the shift of consumer preference away from our products. We may face
+significant expenses and liability in connection with the protection of our intellectual property
+rights outside the United States, and if we are unable to successfully protect our rights or
+resolve intellectual property conflicts with others, our business or financial condition could be
+adversely affected.
+Natural Disasters Or A Decline In Economic Conditions In California Could Increase Our Operating
+Expenses Or Adversely Affect Our Sales Revenue. 
+A substantial portion of our operations are located in California, including 47 of our retail
+stores, our headquarters in Manhattan Beach, our current domestic distribution center in Ontario
+and our future domestic distribution center in Moreno Valley. Because a significant portion of our
+net sales is derived from sales in California, a decline in the economic conditions in California,
+whether or not such decline spreads beyond California, could materially adversely affect our
+business. Furthermore, a natural disaster or other catastrophic event, such as an earthquake or
+wild fires affecting California, could significantly disrupt our business including the operation
+of our only domestic distribution center. We may be more susceptible to these issues than our
+competitors whose operations are not as concentrated in California.
+One Principal Stockholder Is Able To Control Substantially All Matters Requiring A Vote Of Our
+Stockholders And His Interests May Differ From The Interests Of Our Other Stockholders. 
+As of December 31, 2008, Robert Greenberg, Chairman of the Board and Chief Executive Officer,
+beneficially owned 78.3% of our outstanding Class B Common Stock and members of Mr. Greenberg’s
+immediate family beneficially owned the remainder of our outstanding Class B Common Stock. The
+holders of Class A Common Stock and Class B Common Stock have identical rights except that holders
+of Class A Common Stock are entitled to one vote per share while holders of Class B Common Stock
+are entitled to ten votes per share on all matters submitted to a vote of our stockholders. As a
+result, as of December 31, 2008, Mr. Greenberg beneficially owned approximately 62.0% of the
+aggregate number of votes eligible to be cast by our stockholders, and together with shares
+beneficially owned by other members of his immediate family, he beneficially owned approximately
+79.3% of the aggregate number of votes eligible to be cast by our stockholders. Mr. Greenberg may
+have different interests than our other stockholders, and because he is able to control
+substantially all matters requiring approval by our stockholders, he may direct the operations of
+our business in a manner contrary to the interests of our other stockholders. Matters that require
+the approval of our stockholders include the election of directors and the approval of mergers or
+other business combination transactions. Mr. Greenberg also has control over our management and
+affairs. As a result of such control, certain transactions are not possible without the approval
+of Mr. Greenberg, including proxy contests, tender offers, open market purchase programs or other
+transactions that can give our stockholders the opportunity to realize a premium over the
+then-prevailing market prices for their shares of our Class A Common Stock. The
+20 
+Table of Contents 
+differential in the voting rights may adversely affect the value of our Class A Common Stock
+to the extent that investors or any potential future purchaser view the superior voting rights of
+our Class B Common Stock to have value.
+Our Charter Documents And Delaware Law May Inhibit A Takeover, Which May Cause A Decline In The
+Value Of Our Stock. 
+Provisions of Delaware law, our certificate of incorporation or our bylaws could make it more
+difficult for a third party to acquire us, even if closing such a transaction would be beneficial
+to our stockholders. Mr. Greenberg’s substantial beneficial ownership position, together with the
+authorization of Preferred Stock, the disparate voting rights between our Class A Common Stock and
+Class B Common Stock, the classification of our Board of Directors and the lack of cumulative
+voting in our certificate of incorporation and bylaws, may have the effect of delaying, deferring
+or preventing a change in control, may discourage bids for our Class A Common Stock at a premium
+over the market price of the Class A Common Stock and may adversely affect the market price of our
+Class A Common Stock.
+ITEM 1B. UNRESOLVED STAFF COMMENTS 
+None.
+ITEM 2. PROPERTIES 
+Our corporate headquarters and additional administrative offices are located at five premises
+in Manhattan Beach, California, which consist of an aggregate of approximately 150,000 square feet.
+We own and lease portions of our corporate headquarters and administrative offices. The property
+leases expire between October 2010 and February 2012, with options to extend these leases in some
+cases, and the current aggregate annual rent for the leased property is approximately $0.5 million.
+Our U.S. distribution center consists of four leased facilities and one that we own, which are
+located in Ontario, California. The four leased facilities aggregate approximately 1,410,000 square
+feet, with an annual base rent of approximately $5.9 million. The owned distribution facility is
+approximately 264,000 square feet. The property leases expire between May 2009 and May 2011, and
+these leases contain rent escalation provisions. During 2007, we entered into a lease to build a
+new approximately 1.8 million square foot distribution facility in Moreno Valley, California which
+we expect to be substantially completed during 2009. Once completed, we will occupy the facility
+under an eleven-year lease with one option to extend the lease four years followed by two options
+to extend the lease by additional five-year terms, and we will move out of our existing
+distribution facilities in Ontario, California. Base rent for the new facility will be $679,540
+per month for month 1 through month 60 and $788,267 per month for month 61 through month 132.
+Our European distribution center consists of two leased facilities which aggregate
+approximately 490,000 square-feet in Liege, Belgium under a 20-year operating lease with base rent
+of approximately $2.9 million per year. The lease agreement also provides for early termination
+rights at five-year intervals beginning in April 2014, pending notification as prescribed in the
+lease, of which the first such right was not exercised.
+All of our domestic retail stores and showrooms are leased with terms expiring between July
+2009 and June 2023. The leases provide for rent escalations tied to either increases in the
+lessor’s operating expenses, fluctuations in the consumer price index in the relevant geographical
+area or a percentage of the store’s gross sales in excess of the base annual rent. Total base rent
+expense related to our domestic retail stores and showrooms was $29.3 million for the year ended
+December 31, 2008.
+We also lease all of our international administrative offices, retail stores and showrooms
+located in Brazil, Malaysia, Thailand, Canada, Switzerland, United Kingdom, Germany, France, Spain,
+Italy, and Netherlands. The property leases expire at various dates between February 2010 and April
+2018. Total rent for the leased properties aggregated approximately $11.8 million for the year
+ended December 31, 2008.
+ITEM 3. LEGAL PROCEEDINGS 
+See note 13 to the financial statements on page 57 of this annual report for a discussion of
+legal proceedings as required under applicable SEC disclosure rules and regulations.
+21 
+Table of Contents 
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
+No matters were submitted to our security holders to be voted on during the fourth quarter of
+2008.
+PART II 
+ITEM 5. 
+MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
+PURCHASES OF EQUITY SECURITIES 
+Our Class A Common Stock trades on the New York Stock Exchange under the symbol “SKX.” The
+following table sets forth, for the periods indicated, the high and low sales prices of our Class A
+Common Stock.
+HIGH 
+LOW 
+YEAR ENDED DECEMBER 31, 2008 
+First Quarter 
+$ 
+23.36 
+$ 
+16.05 
+Second Quarter 
+25.20 
+17.14 
+Third Quarter 
+24.00 
+15.56 
+Fourth Quarter 
+16.84 
+9.25 
+YEAR ENDED DECEMBER 31, 2007 
+First Quarter 
+$ 
+38.03 
+$ 
+31.95 
+Second Quarter 
+36.87 
+28.41 
+Third Quarter 
+30.44 
+17.36 
+Fourth Quarter 
+25.57 
+18.75 
+HOLDERS
+As of February 15, 2009, there were 109 holders of record of our Class A Common Stock
+(including holders who are nominees for an undetermined number of beneficial owners) and 18 holders
+of record of our Class B Common Stock. These figures do not include beneficial owners who hold
+shares in nominee name. The Class B Common Stock is not publicly traded but each share is
+convertible upon request of the holder into one share of Class A Common Stock.
+DIVIDEND POLICY
+Since our conversion from an S Corporation to a C Corporation prior to the initial public
+offering of our Class A Common Stock in 1999, earnings have been and will be retained for the
+foreseeable future in the operations of our business. We have not declared or paid any cash
+dividends on our Class A Common Stock and do not anticipate paying any cash dividends in the
+foreseeable future. Our current policy is to retain all of our earnings to finance the growth and
+development of our business.
+EQUITY COMPENSATION PLAN INFORMATION
+Our equity compensation plan information is provided as set forth in Part III, Item 12 of this
+annual report.
+22 
+Table of Contents 
+PERFORMANCE GRAPH
+The following graph demonstrates the total return to stockholders of our company’s Class A
+Common Stock from December 31, 2003 to December 31, 2008, relative to the performance of the
+Russell 2000 Index, which includes our Class A Common Stock, and our peer group index, which
+consists of seven companies believed to be engaged in similar businesses: Nike, Inc., adidas AG,
+K-Swiss Inc., Kenneth Cole Productions, Inc., Steven Madden, Ltd., The Timberland Company and
+Wolverine World Wide, Inc.
+The graph assumes an investment of $100 on December 31, 2003 in each of our company’s Class A
+Common Stock and the stocks comprising each of the Russell 2000 Index and the customized peer group
+index. Each of the indices assumes that all dividends were reinvested. The stock performance of
+our company’s Class A Common Stock shown on the graph is not necessarily indicative of future
+performance. We will not make nor endorse any predictions as to our future stock performance.
+Company/Index 
+12/31/03 
+12/31/04 
+12/31/05 
+12/31/06 
+12/31/07 
+12/31/08 
+Skechers U.S.A., Inc. 
+100.00 
+159.02 
+187.98 
+408.71 
+239.39 
+157.30 
+Russell 2000 
+100.00 
+118.33 
+123.72 
+146.44 
+144.15 
+95.44 
+Custom Peer Group 
+100.00 
+131.39 
+139.20 
+156.54 
+195.81 
+164.17 
+23 
+Table of Contents 
+ITEM 6. SELECTED FINANCIAL DATA 
+The following tables set forth our company’s selected consolidated financial data as of and
+for each of the years in the five-year period ended December 31, 2008 and should be read in
+conjunction with our audited consolidated financial statements and notes thereto included under
+Part II, Item 8 of this annual report.
+(In thousands, except net earnings per share)
+YEARS ENDED DECEMBER 31, 
+STATEMENT OF EARNINGS DATA: 
+2008 
+2007 
+2006 
+2005 
+2004 
+Net sales 
+$ 
+1,440,743 
+$ 
+1,394,181 
+$ 
+1,205,368 
+$ 
+1,006,477 
+$ 
+920,322 
+Gross profit 
+595,922 
+599,989 
+523,346 
+420,482 
+370,857 
+Earnings from operations 
+57,892 
+112,930 
+112,544 
+76,296 
+49,245 
+Earnings before income taxes 
+60,743 
+118,305 
+112,648 
+72,797 
+38,720 
+Net earnings 
+55,396 
+75,686 
+70,994 
+44,717 
+23,553 
+Net earnings per share:(1) 
+Basic 
+1.20 
+1.67 
+1.73 
+1.13 
+0.61 
+Diluted 
+1.19 
+1.63 
+1.59 
+1.06 
+0.59 
+Weighted average shares:(1) 
+Basic 
+46,031 
+45,262 
+41,079 
+39,686 
+38,638 
+Diluted 
+46,708 
+46,741 
+46,139 
+44,518 
+39,800 
+AS OF DECEMBER 31, 
+BALANCE SHEET DATA: 
+2008 
+2007 
+2006 
+2005 
+2004 
+Working capital 
+$ 
+413,771 
+$ 
+523,888 
+$ 
+450,787 
+$ 
+361,210 
+$ 
+313,883 
+Total assets 
+876,316 
+827,977 
+737,053 
+581,957 
+518,653 
+Long-term debt, excluding current portion 
+16,188 
+16,462 
+106,805 
+107,288 
+113,038 
+Stockholders’ equity 
+668,693 
+626,663 
+449,087 
+343,830 
+294,895 
+(1) 
+Basic earnings per share represents net earnings divided by the weighted-average number of
+common shares outstanding for the period. Diluted earnings per share, in addition to the
+weighted average determined for basic earnings per share, reflects the potential dilution that
+could occur if options to issue common stock were exercised or converted into common stock and
+assumes the conversion of our 4.50% convertible subordinated notes for the period outstanding
+since their issuance in April 2002 until their conversion in February 2007, unless their
+inclusion would be anti-dilutive. 
+24 
+Table of Contents 
+ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
+GENERAL
+We design, market and sell contemporary footwear for men, women and children under the
+Skechers brand as well as several other fashion and street brands. Our footwear is sold through a
+wide range of department stores and leading specialty retail stores, mid-tier retailers, boutiques,
+our own retail stores, distributor-owned international retail stores and our e-commerce website.
+Our objective is to continue to profitably grow our domestic operations while leveraging our brand
+name to expand internationally.
+Our operations are organized along our distribution channels, and we have the following four
+reportable sales segments – domestic wholesale sales, international wholesale sales, retail sales
+and e-commerce sales. We evaluate segment performance based primarily on net sales and gross
+margins. See detailed segment information in note 14 to our consolidated financial statements
+included under Part II, Item 8 of this annual report.
+FINANCIAL OVERVIEW
+Our net sales for 2008 were $1.441 billion, an increase of $46.6 million or 3.3% over net
+sales of $1.394 billion in 2007. Net earnings were $55.4 million, a decrease of $20.3 million or
+26.8% from net earnings of $75.7 million in 2007. Diluted earnings per share were $1.19, which
+reflected a 27% decrease from the $1.63 reported in the prior year. Working capital was $413.8
+million at December 31, 2008, a decrease of $110.1 million from working capital of $523.9 million
+at December 31, 2007. Cash and short-term investments decreased by $189.1 million to $114.9
+million in 2008 compared to $304.0 million at December 31, 2007, primarily due to our
+reclassification of $81.9 million of our investments in auction rate securities to long-term
+assets, increases in capital expenditures, increased inventory and accounts receivable balances.
+2008 INITIATIVES
+Our 2008 initiatives focused on product development, domestic and international growth, and
+development of infrastructure.
+New product design and delivery . Our success depends on our ability to design and deliver
+trend-right, affordable product in a diverse range. In 2008, we focused on continuously updating
+our core styles, adding fresh looks to our existing lines, and developing or acquiring new lines.
+This approach has broadened our product offering and ensured the relevance of our brands. During
+2008, we added Punkrose, Public Royalty and Bebe Sport to our fashion and street brands.
+Grow our domestic business with new opportunities. In 2008, our focus was on maintaining our
+core Skechers business in our domestic wholesale accounts while finding new opportunities to add
+shelf space with the addition of new categories within the Skechers brand and our new fashion
+brands.
+Further develop our international businesses. In 2008, we continued to focus on improving our
+international operations by (i) increasing our customer base within our existing subsidiary
+business; (ii) increasing the product offering within each account; (iii) delivering the right
+product into the right markets; (iv) building our offering of Marc Ecko and Zoo York product in
+select global markets, (v) growing our distributor business, and (vi) growing our presence in
+existing markets by developing joint ventures. We established three joint ventures: China, Hong
+Kong and Malaysia/Thailand/Singapore, which are intended to enable us to access these fast growing
+markets with partners knowledgeable in those regions in an efficient manner.
+Develop our infrastructure to support continued growth. During 2007, we entered into a lease
+agreement to build a new 1.8 million square foot distribution facility to consolidate all of our
+domestic distribution facilities into one location that we expect to be completed by the end of
+2009 and to occupy in 2010. Once this new facility is built, we plan to move out of our five
+existing distribution facilities in Ontario, California.
+OUTLOOK FOR 2009
+In 2009, we are focusing on maintaining our domestic and international market share in a
+difficult global retail environment by continuing to offer fresh and stylish products at affordable
+values. We will also introduce new categories and brands, such as TapouT, in the domestic market,
+and possibly introduce these brands internationally. These new products do not directly compete
+with our
+25 
+Table of Contents 
+existing brands and allow us the opportunity to broaden the targeted demographic profile of
+our consumer base, increase our shelf space and open new doors without detracting from existing
+business.
+We will continue to grow our international business with the goal of increasing that business
+to 25% to 30% of our total business. We are also seeking to increase our global presence through
+our joint ventures in Asia, and we will continue to develop our new Brazilian subsidiary’s business
+in that country. We are also looking to grow in new markets with new distributors as well as
+increase our presence in existing markets.
+We will also continue to expand our retail distribution channel by opening another 15 to 18
+domestic stores and two international company-owned stores in 2009.
+We are also focusing on our profitability in 2009 by reducing our inventory levels and
+expenses to be in line with our current expected sales. We will continue to manage our balance
+sheet and the cash position that we have carefully grown over the years. We are committed to
+continuing to develop Skechers as a relevant brand with compelling products and meeting the
+footwear needs of our wholesale customers and consumers.
+YEAR ENDED DECEMBER 31, 2008 COMPARED TO THE YEAR ENDED DECEMBER 31, 2007
+Net sales 
+Net sales for 2008 were $1.441 billion, an increase of $46.6 million, or 3.3%, over net sales
+of $1.394 billion in 2007. The increase in net sales was primarily due to increased international
+wholesale sales and growth within the domestic retail segment from an increased store base
+partially offset by lower domestic wholesale sales.
+Our domestic wholesale net sales decreased 2.9%, or $24.2 million, to $807.0 million in 2008
+compared to $831.2 million in 2007. The decrease in our domestic wholesale segment was broad-based
+and across key divisions primarily due to the weak U.S. retail environment. The average selling
+price per pair within the domestic wholesale segment decreased to $19.21 per pair for 2008 from
+$19.22 in 2007. The decrease in domestic wholesale segment sales came on a 2.8% unit sales volume
+decrease to 42.0 million pairs in 2008 from 43.2 million pairs in 2007.
+Our international wholesale segment net sales increased $64.9 million to $332.5 million in
+2008, a 24.2% increase over sales of $267.6 million in 2007. Our international wholesale sales
+consist of direct subsidiary sales – those we make to department stores and specialty retailers —
+and sales to our distributors who in turn sell to department stores and specialty retailers in
+various international regions where we do not sell direct. Direct subsidiary sales increased $61.0
+million, or 42.3%, to $205.0 million compared to sales of $144.0 million in 2007. The increase in
+direct subsidiary sales was primarily due to increased sales into Germany, UK, Switzerland, and
+Brazil. Our distributor net sales increased $3.9 million to $127.5 million in 2008, a 3.2%
+increase over sales of $123.6 million in 2007. This was primarily due to increased sales to our
+distributors in Dubai, Panama, and Chile.
+Our retail segment net sales increased $3.7 million to $283.1 million in 2008, a 1.4% increase
+over sales of $279.4 million in 2007. The increase in retail sales was due to a net increase of 32
+stores partially offset by negative comparable store sales ( i.e., sales by stores open for at least
+one year). For 2008, our domestic retail sales increased 1.0% while our international retail sales
+increased 4.7% compared to the prior year. During 2008, we realized negative comparable store
+sales of 9.3% in our domestic stores, while we realized negative comparable store sales of 3.3% in
+our international stores. During 2008, we opened 31 new domestic stores and three international
+stores, and we closed two domestic stores. These new stores contributed $13.8 million in net sales
+during 2008 as compared to new store sales of $16.9 million for 42 other stores opened in 2007.
+Of our new store additions, 22 were concept stores, 10 were outlet stores, and two were warehouse
+stores.
+We had 204 domestic stores and 19 international retail stores as of February 15, 2009, and we
+currently plan to open approximately 15 to 18 domestic and two international stores in 2009.
+During 2008, we closed two stores, and we also closed two stores in 2007. We periodically review
+all of our stores for impairment. During 2008, we recorded an impairment charge of $1.7 million
+related to eight of our domestic stores. During 2007, we did not record a similar impairment
+charge. Further, we carefully review our under-performing stores and may consider the non-renewal
+of leases upon completion of the current term of the applicable lease.
+Our e-commerce net sales increased $2.2 million to $18.1 million in 2008, a 13.4% increase
+over sales of $15.9 million in 2007. Our e-commerce sales made up 1% of our consolidated sales in
+both 2008 and 2007.
+26 
+Table of Contents 
+Gross profit 
+Gross profit for 2008 decreased $4.1 million to $595.9 million as compared to $600.0 million
+in 2007. Gross margin decreased to 41.4% in 2008 from 43.0% in 2007. The gross margin decrease
+was largely the result of reduced domestic wholesale margins that were partially offset by higher
+international wholesale margins caused by a higher proportion of our revenues coming from our
+international wholesale segment through foreign subsidiaries, which achieved higher gross margins
+than our domestic wholesale segment or sales through our foreign distributors. Gross profit for
+our domestic wholesale segment decreased $43.8 million, or 13.7%, to $276.6 million in 2008
+compared to $320.4 million in 2007. Domestic wholesale margins decreased to 34.3% in 2008 from
+38.5% for 2007. The decrease in domestic wholesale margins was due to higher closeouts, product
+mix changes and continued price pressure resulting from the weak U.S. retail environment.
+Gross profit for our international wholesale segment increased $38.0 million, or 38.2%, to
+$137.8 million for 2008 compared to $99.8 million in 2007. Gross margins were 41.5% for 2008
+compared to 37.3% in 2007. Gross margins for our direct subsidiary sales were 49.2% in 2008 as
+compared to 45.0% in 2007. Gross margins for our distributor sales were 29.0% in 2008 as compared
+to 28.2% in 2007. The increase in gross margins for the international wholesale segment was due to
+increased subsidiary sales, which achieved higher gross margins than our international wholesale
+sales through our foreign distributors.
+Gross profit for our retail segment increased $1.1 million, or 0.7%, to $172.9 million in 2008
+as compared to $171.8 million in 2007. Gross margins were 61.1% for 2008 compared to 61.5% in
+2007. Gross margins for our international stores were 66.2% in 2008 as compared to 62.3% in 2007.
+Gross margins for our domestic stores were 60.6% in 2008 as compared to 61.4% in 2007. The
+decrease in domestic retail margins was due to higher closeouts, product mix changes and continued
+price pressure resulting from the weak U.S. retail environment.
+Our cost of sales includes the cost of footwear purchased from our manufacturers, royalties,
+duties, quota costs, inbound freight (including ocean, air and freight from the dock to our
+distribution centers), broker fees and storage costs. Because we include expenses related to our
+distribution network in general and administrative expenses while some of our competitors may
+include expenses of this type in cost of sales, our gross margins may not be comparable, and we may
+report higher gross margins than some of our competitors in part for this reason.
+Selling expenses 
+Selling expenses increased by $0.4 million, or 0.3%, to $126.9 million for 2008 from $126.5
+million in 2007. As a percentage of net sales, selling expenses were 8.8% and 9.1% in 2008 and
+2007, respectively. The increase in selling expenses was primarily due to higher sample costs and
+selling commissions partially offset by lower promotional costs and reduced trade show expenses.
+Selling expenses consist primarily of the following: sales representative sample costs, sales
+commissions, trade shows, advertising and promotional costs, which may include television and ad
+production costs, and expenses associated with marketing materials.
+General and administrative expenses 
+General and administrative expenses increased by $48.9 million, or 13.4%, to $413.6 million
+for 2008 from $364.7 million in 2007. As a percentage of sales, general and administrative
+expenses were 28.7% and 26.2% in 2008 and 2007, respectively. The increase in general and
+administrative expenses was primarily due to increased salaries and wages along with payroll
+expenses and benefit costs of $11.7 million including stock compensation costs of $2.3 million,
+higher rent expense of $8.4 million due to an additional 32 stores from prior year and new
+international facilities, increased bad debt expense of $5.7 million, and increased warehouse and
+distribution costs of $5.6 million. In addition, the expenses related to our distribution network,
+including the functions of purchasing, receiving, inspecting, allocating, warehousing and packaging
+of our products totaled $112.6 million and $97.6 million for 2008 and 2007, respectively. The
+$15.0 million increase was due in part to the addition of our fifth domestic distribution facility
+in Ontario, California and its functional integration with the existing domestic distribution
+facility, as well as increased sales volume.
+General and administrative expenses consist primarily of the following: salaries, wages and
+related taxes, various overhead costs associated with our corporate staff, stock-based
+compensation, domestic and international retail operations, non-selling related costs of our
+international operations, costs associated with our domestic and European distribution centers,
+professional fees related to both legal and accounting, insurance, and depreciation and
+amortization, asset impairment, amongst other expenses. Our distribution network related costs are
+included in general and administrative expenses and are not allocated to specific segments.
+27 
+Table of Contents 
+We believe that we have established our presence in most major domestic and international
+retail markets. We opened 31 domestic retail stores and three international retail stores in 2008,
+while closing two domestic stores. We currently plan to open between 15 and 18 domestic stores and
+two international stores in 2009.
+We continue to review our cost structure to bring our expenses in line with our anticipated
+reduced sales levels in 2009.
+Interest income 
+Interest income for 2008 decreased $2.7 million to $7.3 million as compared to $10.0 million
+for the same period in 2007. The decrease in interest income resulted from lower interest rates
+during 2008 when compared to the same period in 2007. Interest income earned on our investment
+balances was primarily tax exempt.
+Interest expense 
+Interest expense for 2008 decreased $0.2 million to $4.6 million as compared to $4.8 million
+for the same period in 2007. Interest expense was incurred on mortgages on our distribution center
+and our corporate office located in Manhattan Beach, California, and amounts owed to our foreign
+manufacturers.
+Other income (expense) 
+Other income, net was $0.1 million for both 2008 and 2007.
+Income taxes 
+The effective tax rate for 2008 was 11.9% as compared to 36.0% in 2007. Income tax expense
+for 2008 was $7.3 million compared to $42.6 million for 2007. On August 1, 2008, we received a
+decision on our advance pricing agreement (“APA”) with the Internal Revenue Service (“IRS”). The
+APA provides us with greater certainty with respect to the transfer pricing of certain intercompany
+transactions. As a result of this agreement and other discrete items, we recorded an income tax
+benefit of $7.0 million, or $0.15 per diluted share, relating to the reversal of income tax expense
+recorded in prior years. Excluding the impact of these discrete items, our effective tax rate would
+have been 23.4% for the year ended December 31, 2008. We expect our ongoing effective annual tax
+rate in 2009 to be between 25 and 30 percent.
+Income taxes were computed using the effective tax rates applicable to each of our domestic
+and international taxable jurisdictions. The rate for the year ended December 31, 2008 is lower
+than the expected domestic rate of approximately 40% due to our non-U.S. subsidiary earnings in
+lower tax rate jurisdictions and our planned permanent reinvestment of undistributed earnings from
+our non-U.S. subsidiaries, thereby indefinitely postponing their repatriation to the United States.
+As such, we did not provide for deferred income taxes on accumulated undistributed earnings of our
+non-U.S. subsidiaries. As of December 31, 2008, withholding and U.S. taxes have not been recorded
+on approximately $64.1 million of cumulative undistributed earnings.
+The APA obtained in 2008 provided for transfer pricing adjustments which resulted in the
+reclassification of approximately $21.4 million of prior year earnings from the U.S. to non-U.S.
+subsidiaries. If these reclassified earnings had been accounted for as non-U.S. earnings as of
+December 31, 2007, the balance of accumulated undistributed earnings of our non-U.S. subsidiaries
+for which withholding and U.S. taxes had not been recorded would have increased from $15.5 million
+to $36.9 million.
+Minority interest in net loss of consolidated subsidiary 
+Minority interest of $1.9 million for 2008 represents the share of net loss that is
+attributable to the equity that we do not own of Skechers China, our joint venture that was formed
+in October 2007.
+YEAR ENDED DECEMBER 31, 2007 COMPARED TO THE YEAR ENDED DECEMBER 31, 2006
+Net sales 
+Net sales for 2007 were $1.394 billion, an increase of $188.8 million, or 15.7%, over net
+sales of $1.205 billion in 2006. The increase in net sales was due to increased international
+wholesale sales, domestic wholesale sales, and retail sales primarily due to acceptance of new
+designs and styles for our in-season product including sport fusion, casual fusion footwear and the
+introduction of
+28 
+Table of Contents 
+our Cali Gear footwear. The increase in net sales was also due to growth within the domestic
+retail segment from an increased store base as well as positive domestic and international
+comparative store sales increases.
+Our domestic wholesale segment increased 7.5%, or $58.3 million, to $831.2 million compared to
+$772.9 million in 2006. The increase in domestic wholesale segment net sales came on an 8.7% unit
+sales volume increase to 43.2 million pairs from 39.8 million pairs in 2006. The strongest
+increases in domestic wholesale came in our Women’s Active, Men’s USA, and Kids lines, along with
+the introduction of our Cali Gear line. Our average selling price per pair decreased 1.2% to
+$19.22 from $19.44 in 2006.
+Our international wholesale segment sales increased $83.9 million to $267.6 million in 2007, a
+45.7% increase over sales of $183.7 million in 2006. Direct subsidiary sales increased $49.9
+million, or 53.1%, to $144.0 million compared to net sales of $94.1 million in 2006. The increase
+in direct subsidiary sales was primarily due to increased sales into UK, Canada, Benelux, and
+Germany. Our distributor sales increased $34.0 million to $123.6 million in 2007, a 37.9% increase
+over sales of $89.6 million in 2006. This was primarily due to increased sales to our distributors
+in Russia, Panama, Serbia and Japan.
+Our retail segment sales increased $42.0 million to $279.4 million in 2007, a 17.7% increase
+over sales of $237.4 million in 2006. The increase in retail sales was due to a net increase of 36
+domestic stores, increased sales across all three store formats and positive comparable store
+sales. During 2007, we opened 42 new stores and closed three stores. These new stores contributed
+$16.9 million in net sales during 2007 as compared to new store sales of $10.0 million for 22 other
+stores opened in 2006. Of our new store additions, 28 were concept stores, 11 were outlet stores,
+and three were warehouse stores. In addition, during 2007, we realized positive comparable store
+sales increases in our domestic retail stores of 5.1% and 16.7% in our international retail stores.
+Our domestic retail sales increased 17.5% due to positive comparable sales and having 22 retail
+stores that were opened in 2006 being open the entire year in 2007. Our international retail sales
+increased 20.2% in 2007 compared to 2006, due to increased comparable sales, the opening of three
+additional stores, as well as favorable currency translation adjustments.
+Our e-commerce sales increased $4.5 million to $15.9 million in 2007, a 40.2% increase over
+sales of $11.4 million in 2006. Our
+e-commerce sales made up 1% of our consolidated net sales in both 2007 and 2006.
+Gross profit 
+Gross profit for 2007 increased $76.7 million to $600.0 million as compared to $523.3 million
+in 2006. Gross profit as a percentage of net sales, or gross margin, decreased to 43.0% in 2007
+from 43.4% in 2006. This gross margin decrease was the result of the decrease in domestic
+wholesale margins and a decrease in retail margins to 61.5% in 2007 from 63.8% in 2006. This was
+partially offset by the increase in international wholesale margins, which increased to 37.3% in
+2007 from 35.4% in 2006.
+Our domestic wholesale segment increased $19.2 million, or 6.4%, to $320.4 million in 2006
+compared to $301.2 million in 2006. Domestic wholesale margins decreased to 38.5% in 2007 from
+39.0% for 2006. The decrease in domestic wholesale margins was due to lower average selling prices
+related to the introduction of our Cali Gear line and lower margins from closing out our
+discontinued fashion brands.
+Gross profit for our international wholesale segment increased $34.8 million, or 53.4%, to
+$99.8 million for 2007 compared to $65.0 million in 2006. Gross margins were 37.3% for 2007
+compared to 35.4% in 2006. Gross margins for our direct subsidiary sales were 45.0% in 2007 as
+compared to 42.4% in 2006. Gross margins for our distributor sales were 28.2% in 2007 as compared
+to 28.1% in 2006. The increase in gross margins for the international wholesale segment was due to
+increased subsidiary sales, which achieve higher gross margins than our international wholesale
+sales through our foreign distributors.
+Gross profit for our retail segment increased $20.4 million, or 13.4%, to $171.8 million in
+2007 as compared to $151.4 million in 2006. This increase in gross profit was due to 22 stores
+that were opened in 2006 being open the entire year in 2007 and positive comparable store sales
+increases of 16.7% and 5.1% in our international and domestic stores, respectively. During 2007,
+we opened 38 new domestic stores, and closed two other domestic stores. Gross margins decreased to
+61.5% in 2007 as compared to 63.8% in 2006. Again, the decrease in margins was due to lower
+average selling prices related to the introduction of our Cali Gear line and lower margins from
+closing out our discontinued fashion brands.
+29 
+Table of Contents 
+Selling expenses 
+Selling expenses increased by $16.6 million, or 15.1%, to $126.5 million for 2007 from $109.9
+million in 2006. As a percentage of net sales, selling expenses were 9.1% in 2007 and 2006. The
+increase in selling expenses was primarily due to increased television and print advertising of
+$14.5 million and increased promotional costs of $2.4 million due to the launch of our Cali Gear
+line.
+General and administrative expenses 
+General and administrative expenses increased by $59.7 million, or 19.6%, to $364.7 million
+for 2007 from $305.0 million in 2006. As a percentage of sales, general and administrative
+expenses were 26.2% and 25.3% in 2007 and 2006, respectively. The increase in general and
+administrative expenses was primarily due to increased salaries and wages of $19.3 million, which
+includes stock compensation costs of $1.1 million, higher rent expense of $8.5 million due to the
+opening of 42 retail stores, and increased warehouse and distribution costs of $8.2 million and
+increased temporary help of $5.1 million due to increased sales and the addition of another
+domestic distribution facility. In addition, the expenses related to our distribution network,
+including the functions of purchasing, receiving, inspecting, allocating, warehousing and packaging
+of our products totaled $97.6 million and $77.6 million for 2007 and 2006, respectively. The $20.0
+million increase was due in part to the addition of our fifth domestic distribution facility in
+Ontario, California and its functional integration with the existing domestic distribution
+facility, as well as increased sales volume.
+Interest income 
+Interest income for 2007 increased $1.6 million to $10.0 million as compared to $8.4 million
+for the same period in 2006. The increase in interest income resulted from higher average cash and
+investment balances during 2007 when compared to the same period in 2006 and interest received on a
+legal settlement in 2007. Interest income earned on our short-term investment balances was
+primarily tax exempt.
+Interest expense 
+Interest expense for 2007 decreased $4.4 million to $4.8 million as compared to $9.2 million
+for the same period in 2006. The decrease in interest expense was primarily due to the conversion
+of our 4.5% convertible subordinated notes to shares of our Class A common stock on or prior to
+February 20, 2007. Interest expense was incurred on mortgages on our distribution center and our
+corporate office located in Manhattan Beach, California, and amounts owed to our foreign
+manufacturers.
+Other income (expense) 
+Other income, net for 2007 decreased $0.9 million to $0.1 million as compared to $1.0 million
+for the same period in 2006. The decrease in other income was mainly due to foreign currency
+losses.
+Income taxes 
+The effective tax rate for 2007 was 36.0% as compared to 37.0% in 2006. Income tax expense
+for 2007 was $42.6 million compared to $41.7 million for 2006. Income taxes were computed using
+the effective tax rates applicable to each of our domestic and international taxable jurisdictions.
+The rate for the year ended December 31, 2007 is lower than the expected domestic rate of
+approximately 40% due to our non-U.S. subsidiary earnings in lower tax rate jurisdictions and our
+planned permanent reinvestment of undistributed earnings from our non-U.S. subsidiaries, thereby
+indefinitely postponing their repatriation to the United States. As such, we did not provide for
+deferred income taxes on accumulated undistributed earnings of our non-U.S. subsidiaries. As of
+December 31, 2007, withholding and U.S. taxes have not been recorded on approximately $15.5 million
+of cumulative undistributed earnings.
+LIQUIDITY AND CAPITAL RESOURCES
+Our working capital at December 31, 2008 was $413.8 million, a decrease of $110.1 million from
+working capital of $523.9 million at December 31, 2007. Our cash and cash equivalents at December
+31, 2008 were $114.9 million compared to $199.5 million at December 31, 2007. The decrease in cash
+and cash equivalents of $84.6 million was primarily due to capital expenditures of $72.5 million
+and an increased inventory balance of $58.2 million that were partially offset by our net earnings
+of $55.4 million.
+As a result of the liquidity issues experienced in the global credit and capital markets,
+periodic auctions for our auction rate securities have failed since mid-February 2008. A failed
+auction is not necessarily an indication of an increased credit risk or a
+30 
+Table of Contents 
+reduction in the underlying collateral; however, we will not be able to liquidate the
+investments until a successful auction occurs, a buyer is found outside the auction process, the
+securities are called or refinanced by the issuer, or the securities mature. Accordingly, there is
+no assurance that future auctions will succeed or that other events will occur to provide
+liquidity. As a result, our ability to liquidate our investments in the near term may be limited
+or may not exist and thus our auction rate securities are classified as long-term investments as of
+December 31, 2008. In connection with this classification, we recorded a $13.7 million unrealized
+loss on these securities based on what we believe is a temporary decline in value. During the year
+ended December 31, 2008, issuers refinanced $14.0 million of our preferred stock investments at par
+value.
+We determined that there were no observable market transactions for which to determine the
+fair value of these securities, nor was there a consistent methodology employed by broker-dealers
+to provide values to their clients for these investments. Consequently, we estimated the fair
+value of our holdings of these securities based on a calculated discount using internal assumptions
+and limited market data as well as ongoing plans announced by certain issuers to partially redeem
+or attempt to restore liquidity to these securities and whether any of these efforts will be
+successful. We calculated a discount of $13.7 million, of which $3.8 million, or approximately 4.9%
+of the par value, related to our investment in auction rate preferred stocks, and $9.9 million, or
+approximately 52% of the par value, related to our investment in auction rate Dividend Received
+Deduction (“DRD”) preferred securities. Our valuation is highly subjective and could change
+significantly based on the various assumptions used.
+The auction rate securities that we hold were purchased from Wachovia Securities. During the
+year ended December 31, 2008, Wachovia Securities announced that it had agreed to a settlement with
+state and federal regulators whereby it would repurchase all of the auction rate securities it had
+sold to clients prior to the collapse of the auction rate market in February 2008. We believe that
+all of our auction rate securities are subject to this settlement and, as a result, expect to
+receive an offer to repurchase these securities between June 10, 2009 and June 30, 2009. Until
+such time as (a) the formal offer is received and Wachovia repurchases these securities, (b) they
+are redeemed by the issuer(s), or (c) they can be sold at par value, we intend to consider these
+securities as available for sale securities and classify them as long-term assets. In the
+meantime, the issuers of these securities continue to make interest payments at specified default
+rates. We believe our operating cash flows, existing cash balances and credit facilities will
+provide sufficient liquidity for our ongoing operations and growth initiatives.
+During 2008, net cash used in our operating activities was $21.8 million compared to cash
+provided by operating activities of $101.4 million for 2007. The significant decrease in our
+operating cash flows for 2008 when compared to 2007 was mainly the result of a large increase in
+our inventory in 2008 compared to 2007. This can be attributed to the weak retail environment
+toward the end of 2008, which led to a higher level of cancellations, returns, decreases in open to
+buy and “at-once” orders and reduced demand stemming from a number of retail bankruptcies and going
+out of business sales. Due to these events, we began to manage our inventory levels down at
+reduced prices in late 2008, which is continuing into 2009.
+Net cash used in investing activities was $68.2 million for 2008 as compared to $75.7 million
+in 2007. During 2008, we sold or had redeemed $20.6 million of long-term investments which was
+partially offset by purchases of $11.7 million. During 2008, we purchased selected assets of Nunez
+& Rothman Enterprises, Inc., dba Punkrose (“Punkrose”) a designer and developer of specialty
+footwear located in the City of Industry in California. The purchase included certain inventories
+and equipment for a cash payment of approximately $4.6 million. Capital expenditures for 2008 were
+approximately $72.5 million, which primarily consisted of 34 new store openings and several store
+remodels, corporate real property purchased, and warehouse equipment for our new distribution
+center in Moreno Valley, California. This was compared to capital expenditures of $31.2 million in
+the prior year, which primarily related to construction of our new corporate headquarters, new
+store openings and remodels and warehouse equipment upgrades. Excluding the construction of our
+new distribution center in Moreno Valley, California, we expect our capital expenditures for 2009
+to be approximately $25 million, which includes opening between 15 to 18 domestic retail stores and
+two international retail stores as well as investments in information technology. We are currently
+in the process of designing and purchasing the equipment and tenant improvements to be used in our
+new distribution center and estimate the cost of this equipment and tenant improvements to be
+approximately $85.0 million, of which $23.1 million was incurred as of December 31, 2008. We expect
+the remaining balance of approximately $62.0 million to be incurred during 2009. Our operating
+cash flows, current cash, and available lines of credit should be adequate to fund these capital
+expenditures, although we may seek additional funding for all of a portion of these expenditures.
+Net cash provided by financing activities was $8.6 million during 2008 compared to net cash
+provided by financing activities of $9.9 million during 2007. The decrease in cash provided by
+financing activities was due to lower proceeds from the issuance of Class A common stock upon the
+exercise of stock options during the year ended December 31, 2008 as compared to the prior year
+which was partially offset by a $5.0 million capital contribution by the minority partner to our
+joint venture.
+31 
+Table of Contents 
+In April 2002, we issued $90.0 million aggregate principal amount of 4.50% convertible
+subordinated notes due April 15, 2007. On January 19, 2007, we called these notes for redemption.
+The redemption date was February 20, 2007. The aggregate principal amount of notes outstanding was
+$90.0 million. Holders of $89.969 million principal amount of the notes converted their notes into
+shares of our Class A common stock prior to the redemption date, which included $2.5 million of
+principal amount of the notes held by us. As a result of these conversions, 3,464,594 shares of
+Class A common stock were issued to holders of the notes, which included 96,272 shares issued to us
+that were immediately retired. In connection with these conversions, we paid approximately $500 in
+cash to holders who elected to convert their notes, which represented cash paid in lieu of
+fractional shares. In addition, we paid approximately $32,000 to holders who redeemed their notes,
+which represented the redemption price of 100.9% of $31,000 principal amount of the notes plus
+accrued interest.
+We have outstanding debt of $16.8 million that primarily relates to notes payable for one of
+our distribution center warehouses and one of our administrative offices, which notes are secured
+by the respective properties.
+On May 31, 2006, we amended our secured line of credit, which permits our company and certain
+of our subsidiaries to borrow up to $150.0 million based upon eligible accounts receivable and
+inventory, which line of credit can be increased to $250.0 million at our request, if the lenders
+agree to such increase. Borrowings bear interest at the borrowers’ election based on either the
+prime rate or the London Interbank Offered Rate (“LIBOR”). Prime rate loans will bear interest at a
+rate equal to JPMorgan Chase Bank’s publicly announced prime rate less up to 0.50%. LIBOR loans
+will bear interest at a rate equal to the applicable LIBOR plus up to an additional 1.75%. We pay
+a monthly unused line of credit fee of 0.25% per annum. The loan agreement, which expires on May
+31, 2011, provides for the issuance of letters of credit up to a maximum of $30.0 million. The
+loan agreement contains customary affirmative and negative covenants for secured credit facilities
+of this type, including a financial covenant requiring a fixed charge coverage ratio of not less
+than 1.1 at the end of each quarter if excess availability of eligible account receivable and
+inventory is less than $50.0 million at any time during such quarter. Excess availability was not
+less than $50.0 million during the year-ended December 31, 2008; hence, the fixed charge ratio
+requirement was not applicable at such date. No amounts were outstanding and we were in compliance
+with all other covenants of the loan agreement at December 31, 2008. We had $2.9 million of
+outstanding letters of credit as December 31, 2008.
+We believe that anticipated cash flows from operations, available borrowings under our secured
+line of credit, cash on hand, investments and our financing arrangements will be sufficient to
+provide us with the liquidity necessary to fund our anticipated working capital and capital
+requirements through 2009. However, in connection with our current strategies, we will have
+significant working capital requirements and will incur significant capital expenditures. Our
+future capital requirements will depend on many factors, including, but not limited to, costs
+associated with moving to a new distribution facility, the levels at which we maintain inventory,
+the market acceptance of our footwear, the success of our international operations, the levels of
+promotion and advertising required to promote our footwear, the extent to which we invest in new
+product design and improvements to our existing product design, acquisition of other brands or
+companies, and the number and timing of new store openings. To the extent that available funds are
+insufficient to fund our future activities, we may need to raise additional funds through public or
+private financing of debt or equity. We cannot be assured that additional financing will be
+available or that, if available, it can be obtained on terms favorable to our stockholders and us.
+Failure to obtain such financing could delay or prevent our planned expansion, which could
+adversely affect our business, financial condition and results of operations. In addition, if
+additional capital is raised through the sale of additional equity or convertible securities,
+dilution to our stockholders could occur.
+32 
+Table of Contents 
+DISCLOSURE ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
+The following table aggregates all material contractual obligations and commercial commitments as
+of December 31, 2008:
+Payments Due by Period (In Thousands) 
+Less than 
+One to 
+Three to 
+More Than 
+One 
+Three 
+Five 
+Five 
+Total 
+Year 
+Years 
+Years 
+Years 
+Other long-term debt 
+$ 
+19,597 
+$ 
+1,961 
+$ 
+17,636 
+— 
+— 
+Operating lease obligations (1) 
+549,077 
+67,849 
+138,471 
+$ 
+102,352 
+$ 
+240,405 
+Purchase obligations (2) 
+166,896 
+166,896 
+— 
+— 
+— 
+Construction contract 
+638 
+638 
+— 
+— 
+— 
+Warehousing equipment (3) 
+61,884 
+61,884 
+— 
+— 
+— 
+Minimum payments related to our
+licensing arrangements 
+7,145 
+1,737 
+— 
+2,933 
+2,475 
+$ 
+805,237 
+$ 
+300,965 
+$ 
+156,107 
+$ 
+105,285 
+$ 
+242,880 
+(1) 
+Operating lease obligations consists primarily of real property leases for our retail
+stores, corporate offices and distribution centers. These leases frequently include options
+that permit us to extend beyond the terms of the initial fixed term. Payments for these
+lease terms are provided for by cash flows generated from operations or, if needed, by our
+$150.0 million secured line of credit, for which no amounts were outstanding at December
+31, 2008. 
+(2) 
+Purchase obligations include the following: (i) accounts payable balances for the
+purchase of footwear of $79.6 million, (ii) outstanding letters of credit of $2.9 million
+and (iii) open purchase commitments with our foreign manufacturers for $84.4 million. We
+currently expect to fund these commitments with cash flows from operations and cash on
+hand. 
+(3) 
+We plan to spend approximately $85.0 million for equipment relating to our new
+warehouse in Moreno Valley, of which $23.1 million was incurred as of December 31, 2008.
+We expect the remaining balance to be incurred in 2009, which we expect to fund with cash
+flows from operations, investment balances and existing cash balances. 
+OFF-BALANCE SHEET ARRANGEMENTS
+We do not have any relationships with unconsolidated entities or financial partnerships such
+as entities often referred to as structured finance or special purpose entities that would have
+been established for the purpose of facilitating off-balance-sheet arrangements or for other
+contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity,
+market or credit risk that could arise if we had engaged in such relationships.
+CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
+Management’s Discussion and Analysis of Financial Condition and Results of Operations is based
+upon our consolidated financial statements, which have been prepared in accordance with accounting
+principles generally accepted in the United States of America. The preparation of these financial
+statements requires us to make difficult, subjective and complex estimates and judgments that
+affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of
+contingent assets and liabilities.
+We base our estimates and judgments on historical experience, other available information, and
+on other assumptions that are believed to be reasonable under the circumstances, the results of
+which form the basis for making judgments about the carrying values of assets and liabilities. In
+determining whether an estimate is critical, we consider if the nature of the estimates or
+assumptions is material due to the levels of subjectivity and judgment or the susceptibility of
+such matters to change, and if the impact of the estimates and assumptions on financial condition
+or operating performance is material. Actual results may differ from these estimates under
+different assumptions or conditions.
+We believe the following critical accounting estimates are affected by significant judgments
+used in the preparation of our consolidated financial statements: revenue recognition, allowance
+for bad debts, returns, sales allowances and customer chargebacks, inventory write-downs, valuation
+of long-lived assets, litigation reserves, valuation of deferred income taxes, uncertain tax
+positions, foreign currency translation and stock-based compensation.
+33 
+Table of Contents 
+Revenue Recognition . We derive income from the sale of footwear and royalties earned from
+licensing the Skechers brand. Domestically, goods are shipped Free on Board (“FOB”) shipping point
+directly from our domestic distribution center in Ontario, California. For our international
+wholesale customers in the European community, product is shipped FOB shipping point direct from
+our distribution center in Liege, Belgium. For our distributor sales, the goods are generally
+delivered directly from the independent factories to our distributors’ freight forwarders on a Free
+Named Carrier (“FCA”) basis. We recognize revenue on wholesale sales when products are shipped and
+the customer takes title and assumes risk of loss, collection of relevant receivable is probable,
+persuasive evidence of an arrangement exists and the sales price is fixed or determinable. This
+generally occurs at time of shipment. While customers do not have the right to return goods, we
+periodically decide to accept returns or provide customers with credits.
+Allowances for estimated returns, discounts, doubtful accounts and chargebacks are provided
+for when related revenue is recorded. Related costs paid to third-party shipping companies are
+recorded as a cost of sales. We recognize revenue from retail sales at the point of sale.
+Royalty income is earned from our licensing arrangements. Upon signing a new licensing
+agreement, we receive up-front fees, which are generally characterized as prepaid royalties. These
+fees are initially deferred and recognized as revenue as earned (i.e., as licensed sales are
+reported to the company or on a straight line basis over the term of the agreement). The first
+calculated royalty payment is based on actual sales of the licensed product or, in some cases
+minimum royalty payments. Typically, at each quarter end we receive correspondence from our
+licensees indicating what the actual sales for the period were. This information is used to
+calculate and accrue the related royalties currently receivable based on the terms of the
+agreement.
+Allowance for bad debts, returns, sales allowances and customer chargebacks. We provide a
+reserve against our receivables for estimated losses that may result from our customers’ inability
+to pay. To minimize the likelihood of uncollectibility, customers’ credit-worthiness is reviewed
+periodically based on external credit reporting services, financial statements issued by the
+customer and our experience with the account, and it is adjusted accordingly. When a customer’s
+account becomes significantly past due, we generally place a hold on the account and discontinue
+further shipments to that customer, minimizing further risk of loss. We determine the amount of the
+reserve by analyzing known uncollectible accounts, aged receivables, economic conditions in the
+customers’ countries or industries, historical losses and our customers’ credit-worthiness. Amounts
+later determined and specifically identified to be uncollectible are charged or written off against
+this reserve.
+We also reserve for potential disputed amounts or chargebacks from our customers. Our
+chargeback reserve is based on a collectibility percentage based on factors such as historical
+trends, current economic conditions, and nature of the chargeback receivables. We also reserve for
+potential sales returns and allowances based on historical trends.
+The likelihood of a material loss on an uncollectible account would be mainly dependent on
+deterioration in the overall economic conditions in a particular country or environment. Reserves
+are fully provided for all probable losses of this nature. For receivables that are not
+specifically identified as high risk, we provide a reserve based upon our historical loss rate as a
+percentage of sales. Gross trade accounts receivable balance was $189.9 million and $177.7
+million and the allowance for bad debts, returns, sales allowances and customer chargebacks was
+$14.9 million and $10.3 million, at December 31, 2008 and 2007, respectively.
+Inventory write-downs . Inventories are stated at the lower of cost or market. We review our
+inventory on a regular basis for excess and slow moving inventory. Our review is based on inventory
+on hand, prior sales and our expected net realizable value. Our analysis includes a review of
+inventory quantities on hand at period end in relation to year-to-date sales, existing orders from
+customers and projections for sales in the near future. The net realizable value, or market value,
+is determined based on our estimate of sales prices of such inventory based upon historical sales
+experience on a style by style basis. A write-down of inventory is considered permanent and creates
+a new cost basis for those units. The likelihood of any material inventory write-down is dependent
+primarily on our expectation of future consumer demand for our product. A misinterpretation or
+misunderstanding of future consumer demand for our product or of the economy, or other failure to
+estimate correctly, could result in inventory valuation changes, either favorably or unfavorably,
+compared to the requirement determined to be appropriate as of the balance sheet date. Our gross
+inventory value was $274.4 million and $206.1 million and our inventory reserve was $13.2 million
+and $1.9 million, at December 31, 2008 and 2007, respectively.
+Valuation of long-lived assets . When circumstances warrant, we assess the impairment of
+long-lived assets that require us to make assumptions and judgments regarding the carrying value of
+these assets. The assets are considered to be impaired if we determine that the carrying value may
+not be recoverable based upon our assessment of the following events or changes in circumstances:
+34 
+Table of Contents 
+• 
+the asset’s ability to continue to generate income; 
+• 
+any loss of legal ownership or title to the asset(s); 
+• 
+any significant changes in our strategic business objectives and utilization of the
+asset(s); or 
+• 
+the impact of significant negative industry or economic trends. 
+If the assets are considered to be impaired, the impairment we recognize is the amount by
+which the carrying value of the assets exceeds the fair value of the assets. In addition, we base
+the useful lives and related amortization or depreciation expense on our estimate of the period
+that the assets will generate revenues or otherwise be used by us. If a change were to occur in any
+of the above-mentioned factors or estimates, the likelihood of a material change in our reported
+results would increase. In addition, we prepare a summary of store contribution from our domestic
+retail stores to assess potential impairment of the fixed assets and leasehold improvements. Stores
+with negative contribution opened in excess of twenty-four months are then reviewed in detail to
+determine if impairment exists. For the year ended December 31, 2008, we recorded a $1.7 million
+impairment charge for eight of our domestic stores. We did not record an impairment charge in 2007
+or 2006.
+Litigation reserves . Estimated amounts for claims that are probable and can be reasonably
+estimated are recorded as liabilities in our consolidated balance sheets. The likelihood of a
+material change in these estimated reserves would depend on new claims as they may arise and the
+favorable or unfavorable outcome of the particular litigation. Both the amount and range of loss on
+a large portion of the remaining pending litigation is uncertain. As such, we are unable to make a
+reasonable estimate of the liability that could result from unfavorable outcomes in litigation. As
+additional information becomes available, we will assess the potential liability related to our
+pending litigation and revise our estimates. Such revisions in our estimates of the potential
+liability could materially impact our results of operations and financial position.
+Valuation of deferred income taxes . We record a valuation allowance when necessary to reduce
+our deferred tax assets to the amount that is more likely than not to be realized. The likelihood
+of a material change in our expected realization of our deferred tax assets depends on future
+taxable income and the effectiveness of our tax planning strategies amongst the various domestic
+and international tax jurisdictions in which we operate. We evaluate our projections of taxable
+income to determine the recoverability of our deferred tax assets and the need for a valuation
+allowance. As of December 31, 2008, we had net deferred tax assets of $34.0 million reduced by a
+valuation allowance of $3.9 million against loss carry-forwards not expected to be utilized by
+certain foreign subsidiaries.
+Uncertain tax positions . Effective January 1, 2007, we adopted the provisions of Financial
+Accounting Standards Board Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income
+Taxes—an interpretation of FASB Statement No. 109 “Accounting for Income Taxes ” (“SFAS 109”), which
+contains a two-step process for recognizing and measuring uncertain tax positions accounted for in
+accordance with SFAS No. 109. The first step is to determine whether or not a tax benefit should
+be recognized. A tax benefit will be recognized if the weight of available evidence indicates that
+the tax position is more likely than not to be sustained upon examination by the relevant tax
+authorities, assuming the tax authorities have full knowledge of all the relevant information. The
+second step is to measure the tax benefit of those tax positions meeting the more-likely-than-not
+recognition threshold. The tax benefit is measured at the largest amount of benefit that is more
+than 50% likely of being realized upon ultimate settlement with the tax authorities. The
+recognition and measurement of benefits related to our tax positions requires significant judgment
+as uncertainties often exist with respect to new laws, new interpretations of existing laws, and
+rulings by taxing authorities. Upon adoption, we recognized approximately a $3.4 million increase
+in the liability for unrecognized tax benefits, which was accounted for as a reduction to the
+January 1, 2007 balance of retained earnings.
+Foreign currency translation . Our international operations generally use their respective
+local currencies as their functional currency. In accordance with Statement of Financial Accounting
+Standards No. 52, “ Foreign Currency Translation ” (“SFAS 52”), revenues and expenses from our
+international subsidiaries are translated using the monthly average exchange rates in effect for
+the period in which such revenues and expenses occur. International subsidiaries that use their
+local currency as their functional currency translate their assets and liabilities using current
+rates of exchange at the balance sheet date. The resulting translation gains and losses for such
+subsidiaries are included within accumulated other comprehensive income as a separate component of
+stockholders’ equity. One international subsidiary has a functional currency of the U.S. dollar.
+Resulting remeasurement gains and losses from this subsidiary are included in the determination of
+net earnings. A substantial portion of our intercompany loans are considered long-term investments
+and the gains or losses from currency fluctuations are included as a component of translation
+adjustment in other comprehensive income.
+35 
+Table of Contents 
+Stock-based compensation. Beginning on January 1, 2006, we implemented and adopted a new
+critical accounting policy, Financial Accounting Standards No. 123 (revised 2004), “ Share-Based
+Payment ” (“SFAS 123(R)”), which requires us to recognize compensation for stock options, nonvested
+shares and employee stock purchase plan (“ESPP”) shares at fair value. Under the fair value
+recognition provisions for SFAS 123(R), stock-based compensation cost is estimated at the grant
+date based on the fair value of the awards expected to vest and recognized as expense ratably over
+the requisite service period of the award. We have used the Black-Scholes valuation model to
+estimate the fair value of our stock option awards, which requires various judgmental assumptions
+including estimating stock price volatility, forfeiture rates, and expected life. Our computation
+of expected volatility is based on historical volatility. In addition, we consider many factors
+when estimating expected forfeitures and expected life, including types of awards, employee class,
+and historical experience. If any of the assumptions used in the Black-Scholes model change
+significantly, stock-based compensation expense may differ materially in the future from that
+recorded in the current period. We adopted SFAS 123(R) using the modified prospective method which
+requires the application of the accounting standard as of January 1, 2006. Stock compensation
+expense as a result of SFAS 123(R) was recorded to general and administrative expenses and was $2.3
+million, $1.1 million and $2.0 million for the years ended December 31, 2008, 2007 and 2006,
+respectively. In accordance with the modified prospective method, the consolidated financial
+statements for prior periods have not been restated to reflect, and do not include, the impact of
+SFAS 123(R).
+INFLATION
+We do not believe that the relatively moderate rates of inflation experienced in the United
+States over the last three years have had a significant effect on our sales or profitability.
+However, we cannot accurately predict the effect of inflation on future operating results. Although
+higher rates of inflation have been experienced in a number of foreign countries in which our
+products are manufactured, we do not believe that inflation has had a material effect on our sales
+or profitability. While we have been able to offset our foreign product cost increases by
+increasing prices or changing suppliers in the past, we cannot assure you that we will be able to
+continue to make such increases or changes in the future.
+EXCHANGE RATES
+We receive U.S. dollars for substantially all of our product sales and our royalty income.
+Inventory purchases from offshore contract manufacturers are primarily denominated in U.S. dollars;
+however, purchase prices for our products may be impacted by fluctuations in the exchange rate
+between the U.S. dollar and the local currencies of the contract manufacturers, which may have the
+effect of increasing our cost of goods in the future. During 2008 and 2007, exchange rate
+fluctuations did not have a material impact on our inventory costs. We do not engage in hedging
+activities with respect to such exchange rate risk.
+FUTURE ACCOUNTING CHANGES
+In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, The
+Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”) . SFAS 162 identifies the sources
+of accounting principles and the framework for selecting the principles used in the preparation of
+financial statements of nongovernmental entities that are presented in conformity with GAAP. This
+statement shall be effective 60 days following the Securities Exchange and Commission’s approval of
+the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present
+Fairly in Conformity With Generally Accepted Accounting Principles . We do not expect that the
+adoption of SFAS 162 will have a material impact on our financial condition or results of
+operations.
+In May 2008, the FASB issued FSP APB-14-1, Accounting for Convertible Debt Instruments That
+May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB-14-1”). FSP
+APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion
+(including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14,
+Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants . Additionally, this
+FSP specifies that issuers of such instruments should separately account for the liability and
+equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate
+when interest cost is recognized in subsequent periods. This FSP is effective for financial
+statements issued for fiscal years beginning after December 15, 2008, and interim periods within
+those fiscal years. Early adoption is not permitted. We are currently evaluating the impact of
+this standard on our Consolidated Financial Statements; however, we do not expect that the adoption
+of FSP APB-14-1 will have a material impact on our previously reported financial condition or
+results of operations.
+In
+March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
+Hedging Activities —an amendment of FASB Statement No. 133 (“SFAS 161”). This Statement requires
+enhanced disclosures about an entity’s derivative and hedging activities, including (a) how and why
+an entity uses derivative instruments, (b) how derivative instruments and related hedged items
+36 
+Table of Contents 
+are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging
+Activities (“SFAS 133”), and its related interpretations, and (c) how derivative instruments and
+related hedged items affect an entity’s financial position, financial performance, and cash flows.
+SFAS 161 is effective for financial statements issued for fiscal years and interim periods
+beginning after November 15, 2008. We are currently evaluating the impact of this standard on our
+Consolidated Financial Statements; however, we do not expect that the adoption of SFAS 161 will
+have a material impact on our financial condition or results of operations. 
+In December 2007, the FASB issued SFAS No. 160 Accounting for Noncontrolling Interests (“SFAS
+160”), which clarifies the classification of noncontrolling interests in consolidated statements of
+financial position and the accounting for and reporting of transactions between the reporting
+entity and holders of such noncontrolling interests. SFAS 160 will be effective for fiscal years
+beginning after December 15, 2008. We are currently evaluating the impact of this standard on our
+Consolidated Financial Statements; however, we expect that the adoption of SFAS 160 will have an
+impact on our financial condition and results of operations, however, we do not believe that impact
+to be material. 
+In December 2007, the FASB issued SFAS No. 141(R) Applying the Acquisition Method (“SFAS
+141(R)”), which clarifies the accounting for a business combination and requires an acquirer to
+recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the
+acquiree at the acquisition date, measured at their fair values as of that date. SFAS 141(R) will
+be effective for fiscal years beginning after December 15, 2008. We are currently evaluating the
+impact of this standard on our Consolidated Financial Statements; however, we do not expect that
+the adoption of SFAS 141(R) will have a material impact on our financial condition or results of
+operations. 
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+MARKET RISK 
+Market risk is the potential loss arising from the adverse changes in market rates and prices,
+such as interest rates, marketable debt security prices and foreign currency exchange rates.
+Changes in interest rates, marketable debt security prices and changes in foreign currency exchange
+rates have and will have an impact on our results of operations. We do not hold any derivative
+securities that require fair value presentation under FASB Statement No. 133. 
+Market risk and interest rate fluctuations. Our investments consist of corporate and
+municipal debt and preferred stock auction rate securities. Recently, several auctions for our
+investments in auction rate securities have failed as a result of illiquidity and imbalance in
+order flow. A failed auction is not an indication of an increased credit risk or a reduction in
+the underlying collateral; however, parties wishing to sell securities could not do so. Based on
+current market conditions, it is not known when or if the capital markets will come back into
+balance to achieve successful auctions for these securities. If these auctions continue to fail,
+it could result in our holding securities beyond their next scheduled auction reset dates and will
+limit the short-term liquidity of these investments. We currently believe these securities are not
+significantly impaired, primarily due to the collateral underlying these securities and/or the
+creditworthiness of the issuer; however, we have calculated a discount of $13.7 million, of which
+$3.8 million, or approximately 4.9% of the par value, related to our investments in auction rate
+preferred stocks, and $9.9 million, or approximately 52% of the par value, related to our
+investments in auction rate DRD preferred securities. Based on our expected operating cash flows,
+and our other sources and uses of cash, we do not anticipate that the potential lack of liquidity
+on these investments will affect our ability to execute our current business plan. 
+The interest rate charged on our line of credit facility is based on either the prime rate of
+interest or the LIBOR, and changes in the either of these rates of interest could have an effect on
+the interest charged on our outstanding balances. At December 31, 2008, no amounts were
+outstanding that were subject to changes in interest rates. 
+Foreign exchange rate fluctuations . We face market risk to the extent that changes in foreign
+currency exchange rates affect our non-U.S. dollar functional currency foreign subsidiary’s
+revenues, expenses, assets and liabilities. In addition, changes in foreign exchange rates may
+affect the value of our inventory commitments. Also, inventory purchases of our products may be
+impacted by fluctuations in the exchange rates between the U.S. dollar and the local currencies of
+the contract manufacturers, which could have the effect of increasing the cost of goods sold in the
+future. We manage these risks by primarily denominating these purchases and commitments in U.S.
+dollars. We do not currently engage in hedging activities with respect to such exchange rate risks. 
+37 
+Table of Contents 
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE 
+Page 
+REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+39 
+CONSOLIDATED BALANCE SHEETS 
+41 
+CONSOLIDATED STATEMENTS OF EARNINGS 
+42 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME 
+43 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+44 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+45 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+65 
+38 
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+The Board of Directors and Stockholders 
+Skechers U.S.A., Inc.:
+We have audited the accompanying consolidated balance sheets of Skechers U.S.A., Inc. and
+subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of earnings,
+stockholders’ equity and comprehensive income, and cash flows for each of the years in the
+three-year period ended December 31, 2008. In connection with our audits of the consolidated
+financial statements, we also have audited the related financial statement schedule. These
+consolidated financial statements and financial statement schedule are the responsibility of the
+Company’s management. Our responsibility is to express an opinion on these consolidated financial
+statements and financial statement schedule based on our audits.
+We conducted our audits in accordance with the standards of the Public Company Accounting
+Oversight Board (United States). Those standards require that we plan and perform the audit to
+obtain reasonable assurance about whether the financial statements are free of material
+misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
+disclosures in the financial statements. An audit also includes assessing the accounting principles
+used and significant estimates made by management, as well as evaluating the overall financial
+statement presentation. We believe that our audits provide a reasonable basis for our opinion.
+In our opinion, the consolidated financial statements referred to above present fairly, in all
+material respects, the financial position of Skechers U.S.A., Inc. and subsidiaries as of
+December 31, 2008 and 2007, and the results of their operations and their cash flows for each of
+the years in the three-year period ended December 31, 2008, in conformity with U.S. generally
+accepted accounting principles. Also in our opinion, the related financial statement schedule, when
+considered in relation to the basic consolidated financial statements taken as a whole, presents
+fairly, in all material respects, the information set forth therein.
+As discussed in note 10 to the consolidated financial statements, effective January 1, 2007
+the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48,
+Accounting for Uncertainty in Income Taxes.
+We also have audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), Skechers U.S.A. Inc.’s, internal control over financial reporting
+as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework
+issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
+report dated March 2, 2009 expressed an unqualified opinion on the effectiveness of the Company’s
+internal control over financial reporting.
+/s/ KPMG LLP
+Los Angeles, California 
+March 2, 2009
+39 
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+The Board of Directors and Stockholders 
+Skechers U.S.A., Inc.:
+We have audited Skechers U.S.A., Inc.’s internal control over financial reporting as of
+December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by
+the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Skechers U.S.A.,
+Inc.’s management is responsible for maintaining effective internal control over financial
+reporting and for its assessment of the effectiveness of internal control over financial reporting.
+Our responsibility is to express an opinion on the effectiveness of the Company’s internal control
+over financial reporting based on our audit.
+We conducted our audit in accordance with the standards of the Public Company Accounting
+Oversight Board (United States). Those standards require that we plan and perform the audit to
+obtain reasonable assurance about whether effective internal control over financial reporting was
+maintained in all material respects. Our audit included obtaining an understanding of internal
+control over financial reporting, assessing the risk that a material weakness exists, and testing
+and evaluating the design and operating effectiveness of internal control based on the assessed
+risk. Our audit also included performing such other procedures as we considered necessary in the
+circumstances. We believe that our audit provides a reasonable basis for our opinion.
+A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and
+procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
+and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
+reasonable assurance that transactions are recorded as necessary to permit preparation of financial
+statements in accordance with generally accepted accounting principles, and that receipts and
+expenditures of the company are being made only in accordance with authorizations of management and
+directors of the company; and (3) provide reasonable assurance regarding prevention or timely
+detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
+a material effect on the financial statements.
+Because of its inherent limitations, internal control over financial reporting may not prevent
+or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
+subject to the risk that controls may become inadequate because of changes in conditions, or that
+the degree of compliance with the policies or procedures may deteriorate.
+In our opinion, Skechers U.S.A., Inc. maintained in all material respects effective internal
+control over financial reporting as of December 31, 2008, based on criteria established in Internal
+Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
+Commission (COSO).
+We also have audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), the consolidated balance sheets of Skechers U.S.A., Inc. and
+subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of earnings,
+stockholders’ equity and comprehensive income, and cash flows for each of the years in the
+three-year period ended December 31, 2008, and the related financial statement schedule, and our
+report dated March 2, 2009 expressed an unqualified opinion on those consolidated financial
+statements and financial statement schedule.
+/s/ KPMG LLP
+Los Angeles, California 
+March 2, 2009
+40 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED BALANCE SHEETS 
+(In thousands) 
+December 31, 
+December 31, 
+2008 
+2007 
+ASSETS 
+Current Assets: 
+Cash and cash equivalents 
+$ 
+114,941 
+$ 
+199,516 
+Short-term investments 
+— 
+104,500 
+Trade accounts receivable, less allowances of $14,880 in 2008 and $10,284 in 2007 
+175,064 
+167,406 
+Other receivables 
+7,816 
+10,520 
+Total receivables 
+182,880 
+177,926 
+Inventories 
+261,209 
+204,211 
+Prepaid expenses and other current assets 
+31,022 
+13,993 
+Deferred tax assets 
+11,955 
+8,594 
+Total current assets 
+602,007 
+708,740 
+Property and equipment, at cost, less accumulated depreciation and amortization 
+157,757 
+98,400 
+Intangible assets, less accumulated amortization 
+5,407 
+78 
+Deferred tax assets 
+18,158 
+13,983 
+Long-term marketable securities 
+81,925 
+— 
+Other assets, at cost 
+11,062 
+6,776 
+TOTAL ASSETS 
+$ 
+876,316 
+$ 
+827,977 
+LIABILITIES AND STOCKHOLDERS’ EQUITY 
+Current Liabilities: 
+Current installments of long-term borrowings 
+572 
+437 
+Accounts payable 
+164,643 
+164,466 
+Accrued expenses 
+23,021 
+19,949 
+Total current liabilities 
+188,236 
+184,852 
+Long-term borrowings, excluding current installments 
+16,188 
+16,462 
+Total liabilities 
+204,424 
+201,314 
+Minority interest 
+3,199 
+— 
+Commitments and contingencies 
+Stockholders’ equity: 
+Preferred Stock, $.001 par value; 10,000 authorized; none issued and outstanding 
+— 
+— 
+Class A Common Stock, $.001 par value; 100,000 shares authorized; 33,410 and
+32,992 shares issued and outstanding at December 31, 2008 and 2007, respectively 
+33 
+33 
+Class B Common Stock, $.001 par value; 60,000 shares authorized; 12,782 and
+12,852 shares issued and outstanding at December 31, 2008 and 2007, respectively 
+13 
+13 
+Additional paid-in capital 
+264,200 
+258,084 
+Accumulated other comprehensive income 
+(4,719 
+) 
+14,763 
+Retained earnings 
+409,166 
+353,770 
+Total stockholders’ equity 
+668,693 
+626,663 
+TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 
+$ 
+876,316 
+$ 
+827,977 
+See accompanying notes to consolidated financial statements.
+41 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF EARNINGS 
+(In thousands, except per share data) 
+Years ended December 31, 
+2008 
+2007 
+2006 
+Net sales 
+$ 
+1,440,743 
+$ 
+1,394,181 
+$ 
+1,205,368 
+Cost of sales 
+844,821 
+794,192 
+682,022 
+Gross profit 
+595,922 
+599,989 
+523,346 
+Royalty income, net 
+2,461 
+4,179 
+4,114 
+598,383 
+604,168 
+527,460 
+Operating expenses: 
+Selling 
+126,890 
+126,527 
+109,886 
+General and administrative 
+413,601 
+364,711 
+305,030 
+540,491 
+491,238 
+414,916 
+Earnings from operations 
+57,892 
+112,930 
+112,544 
+Other income (expense): 
+Interest income 
+7,337 
+10,040 
+8,351 
+Interest expense 
+(4,606 
+) 
+(4,763 
+) 
+(9,227 
+) 
+Other, net 
+120 
+98 
+980 
+2,851 
+5,375 
+104 
+Earnings before taxes and minority interest 
+60,743 
+118,305 
+112,648 
+Income tax expense 
+7,258 
+42,619 
+41,654 
+Minority interest in loss of consolidated subsidiary 
+(1,911 
+) 
+— 
+— 
+Net earnings 
+$ 
+55,396 
+$ 
+75,686 
+$ 
+70,994 
+Net earnings per share: 
+Basic 
+$ 
+1.20 
+$ 
+1.67 
+$ 
+1.73 
+Diluted 
+$ 
+1.19 
+$ 
+1.63 
+$ 
+1.59 
+Weighted average shares: 
+Basic 
+46,031 
+45,262 
+41,079 
+Diluted 
+46,708 
+46,741 
+46,139 
+See accompanying notes to consolidated financial statements.
+42 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME 
+(In thousands) 
+SHARES 
+AMOUNT 
+ACCUMULATED 
+CLASS A 
+CLASS B 
+CLASS A 
+CLASS B 
+ADDITIONAL 
+OTHER 
+TOTAL 
+COMMON 
+COMMON 
+COMMON 
+COMMON 
+PAID-IN 
+COMPREHENSIVE 
+RETAINED 
+STOCKHOLDERS’ 
+STOCK 
+STOCK 
+STOCK 
+STOCK 
+CAPITAL 
+INCOME 
+EARNINGS 
+EQUITY 
+Balance at December 31, 2005 
+23,382 
+16,651 
+$ 
+23 
+$ 
+17 
+$ 
+126,274 
+$ 
+7,039 
+$ 
+210,477 
+$ 
+343,830 
+Comprehensive income: 
+Net earnings Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+70,994 
+70,994 
+Foreign currency translation
+adjustment 
+— 
+— 
+— 
+— 
+— 
+4,161 
+— 
+4,161 
+Total comprehensive income 
+75,155 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+2,029 
+— 
+— 
+2,029 
+Proceeds from issuance of common
+stock under the employee stock
+purchase plan 
+122 
+— 
+1 
+— 
+1,907 
+— 
+— 
+1,908 
+Proceeds from issuance of common
+stock under the employee stock option
+plan 
+1,716 
+— 
+1 
+— 
+17,054 
+— 
+— 
+17,055 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+9,110 
+— 
+— 
+9,110 
+Conversion of Class B Common Stock
+into Class A Common Stock 
+2,883 
+(2,883 
+) 
+3 
+(3 
+) 
+— 
+— 
+— 
+— 
+Balance at December 31, 2006 
+28,103 
+13,768 
+$ 
+28 
+$ 
+14 
+$ 
+156,374 
+$ 
+11,200 
+$ 
+281,471 
+$ 
+449,087 
+Comprehensive income: 
+Net earnings Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+75,686 
+75,686 
+Foreign currency translation
+adjustment 
+— 
+— 
+— 
+— 
+— 
+3,563 
+— 
+3,563 
+Total comprehensive income 
+79,249 
+Cumulative effect of accounting
+change — adjustment to retained
+earnings upon adoption of FIN 48 
+— 
+— 
+— 
+— 
+— 
+— 
+(3,387 
+) 
+(3,387 
+) 
+Redemption of convertible
+subordinated notes 
+3,368 
+— 
+3 
+— 
+88,743 
+— 
+— 
+88,746 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+1,081 
+— 
+— 
+1,081 
+Proceeds from issuance of common
+stock under the employee stock
+purchase plan 
+99 
+— 
+— 
+— 
+2,066 
+— 
+— 
+2,066 
+Proceeds from issuance of common
+stock under the employee stock option
+plan 
+506 
+— 
+1 
+— 
+6,126 
+— 
+— 
+6,127 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+3,694 
+— 
+— 
+3,694 
+Conversion of Class B Common Stock
+into Class A Common Stock 
+916 
+(916 
+) 
+1 
+(1 
+) 
+— 
+— 
+— 
+— 
+Balance at December 31, 2007 
+32,992 
+12,852 
+$ 
+33 
+$ 
+13 
+$ 
+258,084 
+$ 
+14,763 
+$ 
+353,770 
+$ 
+626,663 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+55,396 
+55,396 
+Net unrealized gain (loss) on
+investments 
+— 
+— 
+— 
+— 
+— 
+(8,151 
+) 
+— 
+(8,151 
+) 
+Foreign currency
+translation adjustment 
+— 
+— 
+— 
+— 
+— 
+(11,331 
+) 
+— 
+( 11,331 
+) 
+Total comprehensive income 
+35,914 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+2,337 
+— 
+— 
+2,337 
+Proceeds from issuance of common
+stock under the employee stock
+purchase plan 
+132 
+— 
+— 
+— 
+1,780 
+— 
+— 
+1,780 
+Proceeds from issuance of common
+stock under the employee stock option
+plan 
+216 
+— 
+— 
+— 
+1,876 
+— 
+— 
+1,876 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+123 
+— 
+— 
+123 
+Conversion of Class B Common Stock
+into Class A Common Stock 
+70 
+(70 
+) 
+— 
+— 
+— 
+— 
+— 
+— 
+Balance at December 31, 2008 
+33,410 
+12,782 
+$ 
+33 
+$ 
+13 
+$ 
+264,200 
+$ 
+(4,719 
+) 
+$ 
+409,166 
+$ 
+668,693 
+See accompanying notes to consolidated financial statements
+43 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+(In thousands) 
+Years ended December 31, 
+2008 
+2007 
+2006 
+Cash flows from operating activities: 
+Net earnings 
+$ 
+55,396 
+$ 
+75,686 
+$ 
+70,994 
+Adjustments to reconcile net earnings to net cash
+provided by (used in) operating activities: 
+Minority interest 
+(1,911 
+) 
+— 
+— 
+Depreciation and amortization of property and equipment 
+17,069 
+17,220 
+16,203 
+Amortization of deferred financing costs 
+— 
+95 
+765 
+Amortization of intangible assets 
+674 
+437 
+502 
+Provision for bad debts and returns 
+10,787 
+1,610 
+4,591 
+Tax benefits from stock-based compensation 
+123 
+1,456 
+4,144 
+Non cash stock compensation 
+2,337 
+1,081 
+2,030 
+Provision for deferred income taxes 
+(1,988 
+) 
+(1,102 
+) 
+(6,382 
+) 
+Loss on disposal of equipment 
+1,843 
+272 
+299 
+(Increase) decrease in assets: 
+Receivables 
+(27,462 
+) 
+7,948 
+(47,994 
+) 
+Inventories 
+(58,240 
+) 
+(3,045 
+) 
+(64,364 
+) 
+Prepaid expenses and other current assets 
+(17,609 
+) 
+1,417 
+(3,530 
+) 
+Other assets 
+(6,221 
+) 
+(1,671 
+) 
+1,340 
+Increase (decrease) in liabilities: 
+Accounts payable 
+385 
+2,956 
+49,563 
+Accrued expenses 
+2,988 
+(3,005 
+) 
+(2,122 
+) 
+Net cash provided (used in) by operating activities 
+(21,829 
+) 
+101,355 
+26,039 
+Cash flows used in investing activities: 
+Capital expenditures 
+(72,461 
+) 
+(31,175 
+) 
+(27,560 
+) 
+Purchases of investments 
+(11,725 
+) 
+(249,450 
+) 
+(113,100 
+) 
+Maturities of investments 
+20,600 
+204,950 
+53,100 
+Cash paid for acquisitions 
+(4,640 
+) 
+— 
+— 
+Net cash used in investing activities 
+(68,226 
+) 
+(75,675 
+) 
+(87,560 
+) 
+Cash flows from financing activities: 
+Net proceeds from the issuances of stock through employee
+stock purchase plan and the exercise of stock options 
+3,656 
+8,193 
+18,963 
+Contribution from minority interest holder of consolidated entity 
+5,000 
+— 
+— 
+Excess tax benefits from stock-based compensation 
+— 
+2,238 
+4,966 
+Payments on long-term debt 
+(99 
+) 
+(520 
+) 
+(1,008 
+) 
+Net cash provided by financing activities 
+8,557 
+9,911 
+22,921 
+Net increase (decrease) in cash and cash equivalents 
+(81,498 
+) 
+35,591 
+(38,600 
+) 
+Effect of exchange rates on cash and cash equivalents 
+(3,077 
+) 
+3,440 
+2,078 
+Cash and cash equivalents at beginning of year 
+199,516 
+160,485 
+197,007 
+Cash and cash equivalents at end of year 
+$ 
+114,941 
+$ 
+199,516 
+$ 
+160,485 
+Supplemental disclosures of cash flow information: 
+Cash paid during the year for: 
+Interest 
+$ 
+4,902 
+$ 
+4,714 
+$ 
+8,560 
+Income taxes 
+17,834 
+41,481 
+47,064 
+SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
+The Company issued approximately 3.5 million shares of Class A common stock to note holders
+upon conversion of our 4.50% convertible subordinated debt with a carrying value of $89,969 during
+the year ended December 31, 2007.
+See accompanying notes to consolidated financial statements.
+44 
+Table of Contents 
+SKECHERS U.S.A., INC .
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+DECEMBER 31, 2008, 2007 and 2006 
+(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
+(a) The Company
+Skechers U.S.A., Inc. (the “Company”) designs, develops, markets and distributes footwear. The
+Company also operates retail stores and an e-commerce business.
+The consolidated financial statements have been prepared in accordance with accounting
+principles generally accepted in the United States and include the accounts of the Company and its
+wholly-owned subsidiaries. All significant intercompany balances and transactions have been
+eliminated in consolidation.
+(b) Use of Estimates
+Management has made a number of estimates and assumptions relating to the reporting of assets,
+liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to
+prepare these consolidated financial statements in conformity with accounting principles generally
+accepted in the United States. Significant areas requiring the use of management estimates relate
+primarily to the revenue recognition, allowance for bad debts, returns, sales allowances and
+customer chargebacks, inventory write-downs, valuation of long-lived assets, litigation reserves,
+valuation of deferred income taxes, uncertain tax positions, foreign currency translation and
+stock-based compensation. Actual results could differ from those estimates.
+(c) Minority interest
+Minority interest in the Company’s consolidated financial statements results from the
+accounting for a noncontrolling interest in a consolidated subsidiary or affiliate. Minority
+interest represents a partially-owned subsidiary’s or consolidated affiliate’s income, losses, and
+components of other comprehensive income which is attributable to the noncontrolling parties’
+interests. The Company has a 50 percent interest in Skechers China Limited (“Skechers China”), a
+joint venture which was formed in October 2007, and made an initial cash capital contribution of
+$5.0 million and also contributed the net assets of its retail operation in China in the amount of
+$0.9 million during the year ended December 31, 2008. Our joint venture partner also made a
+corresponding cash capital contribution during the year ended December 31, 2008. The Company
+consolidates this joint venture into its financial statements because it has control of the board
+of directors. Minority interest of $1.9 million for the year ended December 31, 2008 represents
+the share of net loss that is attributable to the equity of Skechers China that we do not own.
+Transactions between Skechers China and Skechers have been eliminated in the consolidated financial
+statements.
+(d) Business Segment Information
+Skechers operations and segments are organized along its distribution channels and consists of
+the following: domestic wholesale, international wholesale, retail and e-commerce sales.
+Information regarding these segments is summarized in Note 14 to the Consolidated Financial
+Statements.
+(e) Revenue Recognition
+The Company recognizes revenue on wholesale sales when products are shipped and the customer
+takes ownership and assumes risk of loss, collection of the relevant receivable is probable,
+persuasive evidence of an arrangement exists and the sales price is fixed or determinable. This
+generally occurs at the time of shipment. Allowances for estimated returns, sales allowances,
+discounts, doubtful accounts and chargebacks are provided for when related revenue is recorded.
+Related costs paid to third-party shipping companies are recorded as a cost of sales. The Company
+recognizes revenue from retail sales at the point of sale.
+Net royalty income is earned from our licensing arrangements. Upon signing a new licensing
+agreement, we receive up-front fees, which are generally characterized as prepaid royalties. These
+fees are initially deferred and recognized as revenue as earned based on the terms of the contract
+(i.e. as licensed sales are reported to the company or on a straight line basis over the term of
+the agreement). The first calculated royalty payment is based on actual sales of the licensed
+product. Typically, at each quarter end we receive correspondence from our licensees indicating
+what the actual sales for the period were. This information is used to calculate and accrue the
+related royalties based on the terms of the agreement.
+45 
+Table of Contents 
+(f) Cash and Cash Equivalents
+Cash and cash equivalents consist primarily of certificates of deposit with an initial term of
+less than three months. For purposes of the consolidated statements of cash flows, the Company
+considers all highly liquid debt instruments with original maturities of three months or less to be
+cash equivalents.
+(g) Investments
+In general, investments with original maturities of greater than three months and remaining
+maturities of less than one year are classified as short-term investments. Highly liquid
+investments with maturities beyond one year may also be classified as short-term based on their
+liquidity, management’s intentions and because such marketable securities represent the investment
+of cash that is available for current operations. Long-term investments consist of auction rate
+securities, which are corporate and municipal debt securities and preferred stocks which have
+underlying long-term maturities or preferred equity.
+Since February 2008, as a result of the liquidity issues experienced in the global credit and
+capital markets, periodic auctions for the Company’s auction rate securities have failed. As a
+result of these failed auctions, the interest rates on the investments reset to specified default
+rates. A failed auction is not necessarily an indication of increased credit risk or a reduction
+in the underlying collateral; however, the Company will not be able to liquidate the investments
+until a successful auction occurs, a buyer is found outside the auction process, the securities are
+called or refinanced by the issuer, or the securities mature. Accordingly, there is no assurance
+that future auctions will succeed or that other events will occur to provide liquidity, and as a
+result, our ability to liquidate our investments in the near term may be limited or may not exist.
+(h) Foreign Currency Translation
+In accordance with SFAS 52, certain international operations use the respective local
+currencies as their functional currency, while other international operations use the U.S. Dollar
+as their functional currency. The Company considers the U.S. dollar as its functional currency.
+The Company operates internationally through several foreign subsidiaries. Translation adjustments
+for these subsidiaries are included in other comprehensive income. Additionally, one international
+subsidiary, Skechers S.a.r.l. located in Switzerland, operates with a functional currency of the
+U.S. dollar. Resulting remeasurement gains and losses from this subsidiary are included in the
+determination of net earnings (loss). Assets and liabilities of the foreign operations denominated
+in local currencies are translated at the rate of exchange at the balance sheet date. Revenues and
+expenses are translated at the weighted average rate of exchange during the period. Translation of
+intercompany loans of a long-term investment nature are included as a component of translation
+adjustment in other comprehensive income.
+(i) Inventories
+Inventories, principally finished goods, are stated at the lower of cost (based on the
+first-in, first-out method) or market. The Company provides for estimated losses from obsolete or
+slow-moving inventories and writes down the cost of inventory at the time such determinations are
+made. Reserves are estimated based upon inventory on hand, historical sales activity, and the
+expected net realizable value. The net realizable value is determined based upon estimated sales
+prices of such inventory through off-price or discount store channels.
+(j) Income Taxes
+The Company accounts for income taxes in accordance with SFAS 109, which requires that the
+Company recognize deferred tax liabilities for taxable temporary differences and deferred assets
+for deductible temporary differences and operating loss carry-forwards using enacted tax rates in
+effect in the years the differences are expected to reverse. Deferred income tax benefit or expense
+is recognized as a result of changes in net deferred tax assets or deferred tax liabilities. A
+valuation allowance is recorded when it is more likely than not that some or all of any deferred
+tax assets will not be realized.
+Effective January 1, 2007, we adopted the provisions of FIN 48, which contains a two-step
+process for recognizing and measuring uncertain tax positions accounted for in accordance with SFAS
+No. 109. The first step is to determine whether or not a tax benefit should be recognized. A tax
+benefit will be recognized if the weight of available evidence indicates that the tax position is
+more likely than not to be sustained upon examination by the relevant tax authorities. The
+recognition and measurement of benefits related to our tax positions requires significant judgment
+as uncertainties often exist with respect to new laws, new interpretations of existing laws,
+46 
+Table of Contents 
+and rulings by taxing authorities. Differences between actual results and our assumptions, or
+changes in our assumptions in future periods, are recorded in the period they become known.
+(k) Depreciation and Amortization
+Depreciation and amortization of property and equipment is computed using the straight-line
+method based on the following estimated useful lives:
+Buildings 
+20 years 
+Building improvements 
+10 years 
+Furniture, fixtures and equipment 
+5 years 
+Leasehold improvements 
+Useful life or remaining lease term, whichever is shorter 
+(l) Intangible Assets
+Goodwill and indefinite-lived intangible assets are measured for impairment at least annually
+and more often when events indicate that impairment exists. Intellectual property, which include
+intellectual property, artwork and design, trade name and trademark are amortized over their useful
+lives ranging from 1–10 years, generally on a straight-line basis. Intangible assets, as of
+December 31, 2008 and 2007 are as follows (in thousands):
+2008 
+2007 
+Intellectual property 
+$ 
+6,800 
+$ 
+3,300 
+Goodwill 
+1,575 
+— 
+Other intangibles 
+840 
+— 
+Less accumulated amortization 
+(3,808 
+) 
+(3,222 
+) 
+Total Intangible Assets 
+$ 
+5,407 
+$ 
+78 
+(m) Long-Lived Assets
+Long-lived assets such as property and equipment and purchased intangibles subject to
+amortization are reviewed for impairment whenever events or changes in circumstances indicate that
+the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
+used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted
+future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds
+its estimated future cash flows, an impairment charge is recognized in the amount by which the
+carrying amount of the asset exceeds the fair value of the asset. The Company recorded an
+impairment charge of $1.7 million in 2008. The Company did not record an impairment charge in 2007
+or 2006.
+(n) Advertising Costs
+Advertising costs are expensed in the period in which the advertisements are first run or over
+the life of the endorsement contract. Advertising expense for the years ended December 31, 2008,
+2007 and 2006 was approximately $97.3 million, $99.2 million, and $83.0 million, respectively.
+Prepaid advertising costs at December 31, 2008 and 2007 were both $0.8 million. Prepaid amounts
+outstanding at December 31, 2008 and 2007 represent the unamortized portion of endorsement
+contracts and advertising in trade publications which had not run as of December 31, 2008 and 2007,
+respectively.
+(o) Earnings Per Share
+Basic earnings per share represents net earnings divided by the weighted average number of
+common shares outstanding for the period. Diluted earnings per share, in addition to the weighted
+average determined for basic earnings per share, includes potential common shares which would arise
+from the exercise of stock options using the treasury stock method, and the conversion of the
+Company’s 4.50% convertible subordinated notes for the period outstanding since their issuance in
+April 2002 until their conversion in February 2007, if their effects are dilutive.
+47 
+Table of Contents 
+The following is a reconciliation of net earnings and weighted average common shares
+outstanding for purposes of calculating earnings per share (in thousands):
+Years Ended December 31, 
+Basic earnings per share 
+2008 
+2007 
+2006 
+Net earnings 
+$ 
+55,396 
+$ 
+75,686 
+$ 
+70,994 
+Weighted average common shares outstanding 
+46,031 
+45,262 
+41,079 
+Basic earnings per share 
+$ 
+1.20 
+$ 
+1.67 
+$ 
+1.73 
+Years Ended December 31, 
+Diluted earnings per share 
+2008 
+2007 
+2006 
+Net earnings 
+$ 
+55,396 
+$ 
+75,686 
+$ 
+70,994 
+After tax effect of interest expense on
+4.50% convertible subordinated notes 
+— 
+361 
+2,553 
+Earnings for purposes of
+computing diluted earnings per share 
+$ 
+55,396 
+$ 
+76,047 
+$ 
+73,547 
+Weighted average common shares outstanding 
+46,031 
+45,262 
+41,079 
+Dilutive stock options 
+677 
+1,121 
+1,594 
+Weighted average assumed conversion of
+4.50% convertible subordinated notes 
+— 
+358 
+3,466 
+Weighted average common shares outstanding 
+46,708 
+46,741 
+46,139 
+Diluted earnings per share 
+$ 
+1.19 
+$ 
+1.63 
+$ 
+1.59 
+Options to purchase 156,716 shares of Class A common stock were excluded from the computation
+of diluted earnings per share for the year ended December 31, 2008 because their inclusion would
+have been anti-dilutive. There were no options excluded from the computation of diluted earnings
+per share for the year ended December 31, 2007 or 2006.
+(p) Product Design and Development Costs
+The Company charges all product design and development costs to expense when incurred. Product
+design and development costs aggregated approximately $8.8 million, $9.2 million, and $8.3 million
+during the years ended December 31, 2008, 2007 and 2006, respectively.
+(q) Fair Value of Financial Instruments
+The carrying amount of the Company’s financial instruments, which principally include cash and
+cash equivalents, investments, accounts receivable, accounts payable and accrued expenses,
+approximates fair value due to the relatively short maturity of such instruments.
+The carrying amount of the Company’s long-term borrowings approximates the fair value based
+upon current rates and terms available to the Company for similar debt.
+(r) New Accounting Standards
+In May 2008, the FASB issued SFAS No. 162 The Hierarchy of Generally Accepted Accounting
+Principles. SFAS 162 identifies the sources of accounting principles and the framework for
+selecting the principles used in the preparation of financial statements of nongovernmental
+entities that are presented in conformity with GAAP. This statement shall be effective 60 days
+following the Securities Exchange and Commission’s approval of the Public Company Accounting
+Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With
+Generally Accepted Accounting Principles . We do not expect that the adoption of SFAS 162 will have
+a material impact on our financial condition or results of operations.
+In May 2008, the FASB issued FSP APB-14-1, Accounting for Convertible Debt Instruments That
+May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) ). FSP APB 14-1
+clarifies that convertible debt instruments that may be settled in cash upon conversion (including
+partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for 
+48 
+Table of Contents 
+Convertible Debt and Debt Issued with Stock Purchase Warrants. Additionally, this FSP
+specifies that issuers of such instruments should separately account for the liability and equity
+components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when
+interest cost is recognized in subsequent periods. This FSP is effective for financial statements
+issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal
+years. Early adoption is not permitted. We are currently evaluating the impact of this standard on
+our Consolidated Financial Statements; however, we do not expect that the adoption of FSP APB-14-1
+will have a material impact on our previously reported financial condition or results of
+operations.
+In
+March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
+Hedging Activities —an amendment of FASB Statement No. 133. This Statement requires enhanced
+disclosures about an entity’s derivative and hedging activities, including (a) how and why an
+entity uses derivative instruments, (b) how derivative instruments and related hedged items are
+accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ,
+and its related interpretations, and (c) how derivative instruments and related hedged items affect
+an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for
+financial statements issued for fiscal years and interim periods beginning after November 15, 2008.
+We are currently evaluating the impact of this standard on our Consolidated Financial Statements;
+however, we do not expect that the adoption of SFAS 161 will have a material impact on our
+financial condition or results of operations.
+In December 2007, the FASB issued SFAS No. 160 Accounting for Noncontrolling Interests , which
+clarifies the classification of noncontrolling interests in consolidated statements of financial
+position and the accounting for and reporting of transactions between the reporting entity and
+holders of such noncontrolling interests. SFAS 160 will be effective for fiscal years beginning
+after December 15, 2008. We are currently evaluating the impact of this standard on our
+Consolidated Financial Statements; however, we expect that the adoption of SFAS 160 will have an
+impact on our financial condition and results of operations, however, we do not believe that impact
+to be material.
+In December 2007, the FASB issued SFAS No. 141(R) Applying the Acquisition Method , which
+clarifies the accounting for a business combination and requires an acquirer to recognize the
+assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the
+acquisition date, measured at their fair values as of that date. SFAS 141(R) will be effective for
+fiscal years beginning after December 15, 2008. We are currently evaluating the impact of this
+standard on our Consolidated Financial Statements; however, we do not expect that the adoption of
+SFAS 141(R) will have a material impact on our financial condition or results of operations.
+(2) INVESTMENTS 
+Investments in marketable securities consist of certain auction rate preferred stocks and
+auction rate DRD preferred securities aggregating $81.9 million at December 31, 2008, net of
+unrealized losses of $13.7 million, and $104.5 million at December 31, 2007. These investments
+have been classified as noncurrent assets on the consolidated balance sheet as of December 31, 2008
+based on their illiquidity resulting from the failure of the auction rate market discussed below.
+During the twelve months ended December 31, 2008 issuers refinanced $14.0 million of our preferred
+stock investments at par. Our available-for-sale securities at December 31, 2008 included $76.4
+million of auction rate preferred stocks and $19.2 million of auction rate DRD preferred
+securities. The auction rate preferred stocks are collateralized by portfolios of municipal bonds
+issued by various state and local governments, collateral is required to be maintained at 200% of
+the amount of preferred stock, and interest rates are reset at weekly auctions every seven days.
+The auction rate DRD preferred securities are collateralized by corporate preferred stocks, and
+interest rates are reset at auctions every 90 days.
+Since February 2008, as a result of the liquidity issues experienced in the global credit and
+capital markets, periodic auctions for the Company’s auction rate securities have failed. As a
+result of these failed auctions, the interest rates on the investments reset to specified default
+rates. A failed auction is not necessarily an indication of increased credit risk or a reduction
+in the underlying collateral; however, the Company will not be able to liquidate the investments
+until a successful auction occurs, a buyer is found outside the auction process, the securities are
+called or refinanced by the issuer, or the securities mature. Accordingly, there is no assurance
+that future auctions will succeed or that other events will occur to provide liquidity, and as a
+result, our ability to liquidate our investments in the near term may be limited or may not exist.
+On a quarterly basis, the Company assesses its investments for impairment. If the investments
+are deemed to be impaired, the Company then determines whether the impairment is temporary or other
+than temporary. If the impairment is deemed to be temporary, the Company records an unrealized
+loss in other comprehensive income. If the impairment is deemed to be other than temporary, the
+Company records the impairment in the Company’s consolidated statements of earnings.
+49 
+Table of Contents 
+Because of the lack of liquidity noted above, the Company determined that there were no
+observable market transactions for which to determine the fair value of these auction rate
+securities, nor was there a consistent methodology employed by broker-dealers to provide values to
+their clients for these investments. As a result, the Company determined that these investments
+met the definition of the Level III fair value hierarchy under SFAS 157. The Company’s management
+estimated the fair value of the Company’s holdings of these securities based on a calculated
+discount based on internal assumptions and limited market data as well as ongoing plans announced
+by certain issuers to partially redeem or attempt to restore liquidity to these securities and
+whether any of these efforts will be successful. The Company calculated a discount of $13.7
+million, of which $3.8 million, or approximately 4.9% of the par value related to auction rate
+preferred stocks and $9.9 million, or approximately 52% of the par value related to the auction
+rate DRD preferred securities. The Company’s valuation is highly subjective and could change
+significantly based on the assumptions used. Our marketable securities are the only assets and
+liabilities that are measured and recognized at fair value using the SFAS 157 hierarchy.
+The auction rate securities held by the Company were purchased from Wachovia Securities.
+During 2008, Wachovia Securities announced that it had agreed to a settlement with state and
+federal regulators whereby it would repurchase all of the auction rate securities it had sold to
+clients prior to the collapse of the auction rate market in February 2008. The Company believes
+that all of its auction rate securities are subject to this settlement and, as a result, expects to
+receive an offer to repurchase these securities between June 10, 2009 and June 30, 2009. Until
+such time as (a) the formal offer is received and Wachovia repurchases these securities, (b) they
+are redeemed by the issuer(s), or (c) they can be sold at par value, the Company intends to
+consider these securities as available for sale securities and classify them as long-term assets.
+In the meantime, the issuers of these securities continue to make interest payments at specified
+default rates.
+(3) PROPERTY AND EQUIPMENT 
+Property and equipment at December 31, 2008 and 2007 is summarized as follows (in thousands):
+2008 
+2007 
+Land 
+$ 
+28,951 
+$ 
+14,358 
+Buildings and improvements 
+88,181 
+56,012 
+Furniture, fixtures and equipment 
+92,209 
+85,354 
+Leasehold improvements 
+98,140 
+79,377 
+Total property and equipment 
+307,481 
+235,101 
+Less accumulated depreciation and amortization 
+149,724 
+136,701 
+Property and equipment, net 
+$ 
+157,757 
+$ 
+98,400 
+The Company capitalized $1.0 million and $0.9 million of interest expense during 2008 and
+2007, respectively, relating to the construction of our corporate headquarters.
+(4) ACCRUED EXPENSES 
+Accrued expenses at December 31, 2008 and 2007 are summarized as follows (in thousands):
+2008 
+2007 
+Accrued inventory purchases 
+$ 
+5,913 
+$ 
+3,937 
+Accrued payroll and related taxes 
+17,108 
+14,919 
+Income taxes payable 
+— 
+1,058 
+Accrued interest 
+— 
+35 
+Accrued expenses 
+$ 
+23,021 
+$ 
+19,949 
+(5) SHORT-TERM BORROWINGS OR LINE OF CREDIT 
+On May 31, 2006, the Company amended its secured line of credit, which permits the Company and
+certain of its subsidiaries to borrow up to $150.0 million based upon eligible accounts receivable
+and inventory, which line can be increased to $250.0 million at our request, if the lenders agree
+to such increase. Borrowings bear interest at the borrowers’ election based on either the prime
+rate or LIBOR. Prime rate loans will bear interest at a rate equal to JPMorgan Chase Bank’s
+publicly announced prime rate less up to 0.50%. LIBOR loans will bear interest at a rate equal to
+the applicable LIBOR plus up to an additional 1.75%. The Company pays a monthly
+50 
+Table of Contents 
+unused line of credit fee of 0.25% per annum. The loan agreement, which expires on May 31,
+2011, provides for the issuance of letters of credit up to a maximum of $30.0 million. The loan
+agreement contains customary affirmative and negative covenants for secured credit facilities of
+this type, including a financial covenant requiring a fixed charge coverage ratio of not less than
+1.1 at the end of each quarter if excess availability of eligible account receivable and inventory
+is less than $50.0 million at any time during such quarter. Excess availability was not less than
+$50.0 million during the three months ended December 31, 2008; hence, the fixed charge ratio
+requirement was not applicable at such date. No amounts were outstanding and the Company was in
+compliance with all other covenants of the loan agreement at December 31, 2008. The Company had
+$2.9 million and $9.6 million of outstanding letters of credit as of December 31, 2008 and 2007,
+respectively.
+(6) LONG-TERM BORROWINGS 
+Long-term debt at December 31, 2007 and 2006 is as follows (in thousands):
+2008 
+2007 
+Note payable to bank, due in monthly
+installments of $82.2 (includes
+principal and interest), fixed rate
+interest at 7.79%, secured by property,
+balloon payment of $8,716 due January
+2011 
+$ 
+9,306 
+$ 
+9,557 
+Note payable to bank, due in monthly
+installments of $57.6 (includes
+principal and interest), fixed rate
+interest at 7.89%, secured by property,
+balloon payment of $6,776 due February
+2011 
+7,156 
+7,268 
+Capital lease obligations 
+298 
+74 
+Subtotal 
+16,760 
+16,899 
+Less current installments 
+572 
+437 
+Total long-term debt 
+$ 
+16,188 
+$ 
+16,462 
+The aggregate maturities of long-term borrowings at December 31, 2008 are as follows:
+2009 
+$ 
+572 
+2010 
+547 
+2011 
+15,641 
+$ 
+16,760 
+The Company’s long-term debt obligations contain both financial and non-financial covenants,
+including cross default provisions. The Company is in compliance with its non-financial covenants,
+including any cross default provisions, and financial covenants of our long-term debt as of
+December 31, 2008.
+(7) STOCK COMPENSATION 
+(a) Equity Incentive Plans
+In January 1998, the Company’s Board of Directors adopted the 1998 Stock Option, Deferred
+Stock and Restricted Stock Plan for the grant of qualified incentive stock options (“ISOs”), non
+qualified stock options and deferred and restricted stock (the “Equity Incentive Plan”). The
+exercise price for any option granted may not be less than fair value (110% of fair value for ISOs
+granted to certain employees). In June 2001, the stockholders approved an amendment to the plan to
+increase the number of shares of Class A Common Stock authorized for issuance under the plan to
+8,215,154. In May 2003, stockholders approved an amendment to the plan to increase the number of
+shares of Class A Common Stock authorized for issuance under the plan to 11,215,154. Option awards
+are generally granted with an exercise price equal to the market price of the Company’s stock at
+the date of grant. Stock option awards generally become exercisable over a graded vesting period
+and expire ten years from the date of grant.
+On April 16, 2007, the Company’s Board of Directors adopted the 2007 Incentive Award Plan (the
+“2007 Plan”), and the 2007 Plan became effective upon approval by the Company’s stockholders on May
+24, 2007. The Company’s Board of Directors terminated the Equity Incentive Plan as of May 24,
+2007, with no additional granting of awards being permitted thereafter, although any awards then
+outstanding under the Equity Incentive Plan remain in force according to the terms of the
+terminated plan and the applicable award agreements. A total of 7,500,000 shares of Class A Common
+Stock are reserved for issuance under the 2007 Plan, which provides for grants of stock options,
+restricted stock and various other types of awards as described in the plan to the
+51 
+Table of Contents 
+employees, consultants and directors of the Company and its subsidiaries. The 2007 Plan is
+administered by the Compensation Committee of the Company’s Board of Directors.
+(b) Valuation Assumptions
+For net earnings purposes, the fair value of each option is estimated on the date of grant
+using the Black-Scholes option pricing model that uses the assumptions noted in the following
+table. Expected volatility is based on historical share price data. The Company uses historical
+employee exercise and cancellation data to estimate expected term and forfeiture rates. The
+risk-free rate is based on U.S. Treasury yields in effect at the time of grant. Employees that
+have similar historical exercise behavior are considered separately for valuation purposes. Option
+valuation methods require the input of highly subjective assumptions including the expected stock
+price volatility, expected term and forfeiture rate. Because the Black-Scholes based option
+valuation models incorporate assumptions for inputs, those inputs are disclosed in the table as
+follows:
+2006 
+Dividend yield 
+— 
+Expected volatility 
+62 
+% 
+Risk-free interest rate 
+4.52 
+% 
+Expected life of option 
+7 
+There were no ISO’s granted during 2008 or 2007. Using the Black-Scholes option valuation
+model, the weighted-average fair value per share of options granted during 2006 was $12.70. The
+total intrinsic value of options exercised during 2008, 2007 and 2006 was $2.7 million, $9.9
+million, and $25.5 million, respectively.
+(c) Stock-Based Payment Awards
+A summary of the status and changes of our nonvested shares related to the Equity Incentive
+Plan and the 2007 Plan as of and during the period ended December 31, 2008 is presented below:
+WEIGHTED AVERAGE 
+SHARES 
+GRANT-DATE FAIR VALUE 
+Nonvested at December 31, 2007 
+15,167 
+$ 
+18.32 
+Granted 
+218,046 
+16.85 
+Vested 
+(10,001 
+) 
+16.26 
+Cancelled 
+(5,928 
+) 
+17.16 
+Nonvested at December 31, 2008 
+217,284 
+$ 
+16.97 
+Nonvested shares generally vest over a graded vesting schedule from one to four years and
+expire ten years from the date of grant.
+52 
+Table of Contents 
+Shares subject to option under the Equity Incentive Plan and the 2007 Plan were as follows:
+WEIGHTED 
+SHARES 
+OPTION EXERCISE PRICE 
+Outstanding at December 31, 2005 
+4,209,437 
+$ 
+10.98 
+Granted 
+15,000 
+19.49 
+Exercised 
+(1,711,945 
+) 
+9.96 
+Cancelled 
+(26,910 
+) 
+10.35 
+Outstanding at December 31, 2006 
+2,485,582 
+11.74 
+Granted 
+— 
+Exercised 
+(501,874 
+) 
+12.23 
+Cancelled 
+(21,952 
+) 
+16.86 
+Outstanding at December 31, 2007 
+1,961,756 
+11.56 
+Granted 
+— 
+Exercised 
+(206,844 
+) 
+9.06 
+Cancelled 
+(15,191 
+) 
+19.37 
+Outstanding at December 31, 2008 
+1,739,721 
+$ 
+11.79 
+Nonvested shares and options available for grant at
+December 31, 2008 
+7,287,882 
+There was approximately $2.2 million and $0.3 million of total unrecognized compensation cost
+related to unvested stock options and restricted stock granted under our Equity Incentive Plan or
+the 2007 Plan as of December 31, 2008 and 2007, respectively. That cost is expected to be
+recognized over a weighted average period of 1.2 years and 1 year, respectively. The total fair
+value of shares vested during the period ended December 31, 2008 and 2007 was $0.1 million and $1.1
+million, respectively. The following table summarizes information about stock options outstanding
+and exercisable at December 31, 2008:
+OPTIONS OUTSTANDING 
+OPTIONS EXERCISABLE 
+WEIGHTED 
+NUMBER 
+WEIGHTED 
+WEIGHTED 
+NUMBER 
+AVERAGE 
+RANGE OF 
+OUTSTANDING 
+AVERAGE REMAINING 
+AVERAGE 
+EXERCISABLE AT 
+EXERCISE 
+EXERCISE PRICE 
+DECEMBER 31, 2008 
+CONTRACTUAL LIFE 
+EXERCISE PRICE 
+DECEMBER 31, 2008 
+PRICE 
+$3.94 to $5.90 
+28,749 
+1.1 years 
+$ 
+3.94 
+28,749 
+$ 
+3.94 
+$6.95 to $9.28 
+606,774 
+4.3 years 
+7.47 
+606,774 
+7.47 
+$10.58 to $15.50 
+947,482 
+2.0 years 
+12.83 
+944,232 
+12.83 
+$19.18 to $24.00 
+156,716 
+2.3 years 
+23.69 
+156,716 
+23.69 
+1,739,721 
+2.8 years 
+$ 
+11.79 
+1,736,471 
+$ 
+11.79 
+(d) Stock Purchase Plans
+Effective July 1, 1998, the Company’s Board of Directors adopted the 1998 Employee Stock
+Purchase Plan (the “1998 ESPP”). The 1998 ESPP provides that a total of 2,781,415 shares of Class A
+Common Stock are reserved for issuance under the plan. The 1998 ESPP, which is intended to qualify
+as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as
+amended, is implemented utilizing six-month offerings with purchases occurring at six-month
+intervals. The 1998 ESPP administration is overseen by the Board of Directors. Employees are
+eligible to participate if they are employed by the Company for at least 20 hours per week and more
+than five months in any calendar year. The 1998 ESPP permits eligible employees to purchase Class
+A Common Stock through payroll deductions, which may not exceed 15% of an employee’s compensation.
+The price of Class A Common Stock purchased under the 1998 ESPP is 85% of the lower of the fair
+market value of the Class A Common Stock at the beginning of each six-month offering period or on
+the applicable purchase date. Employees may end their participation in an offering at any time
+during the offering period.
+53 
+Table of Contents 
+On April 16, 2007, the Company’s Board of Directors adopted the 2008 Employee Stock Purchase
+Plan (the “2008 ESPP”), and the Company’s stockholders approved the 2008 ESPP on May 24, 2007. The
+2008 ESPP became effective on January 1, 2008, and the Company’s Board of Directors terminated the
+1998 ESPP as of such date, with no additional granting of rights being permitted under the 1998
+ESPP. The 2008 ESPP provides that a total of 3,000,000 shares of Class A Common Stock are reserved
+for issuance under the plan. This number of shares that may be made available for sale is subject
+to automatic increases on the first day of each fiscal year during the term of the 2008 ESPP as
+provided in the plan. The 2008 ESPP is intended to qualify as an “employee stock purchase plan”
+under Section 423 of the Internal Revenue Code of 1986, as amended. The terms of the 2008 ESPP,
+which are substantially similar to those of the 1998 ESPP, permit eligible employees to purchase
+Class A Common Stock at six-month intervals through payroll deductions, which may not exceed 15% of
+an employee’s compensation. The price of Class A Common Stock purchased under the 2008 ESPP is 85%
+of the lower of the fair market value of the Class A Common Stock at the beginning of each
+six-month offering period or on the applicable purchase date. The 2008 ESPP is administered by the
+Company’s Board of Directors.
+During 2008, 132,300 shares were issued under the 2008 ESPP for which the Company received
+approximately $1.8 million, and during 2007 and 2006, 98,349 and 121,378 shares were issued,
+respectively, under the 1998 ESPP for which the Company received approximately $2.1 million, and
+$1.9 million, respectively.
+(8) STOCKHOLDERS’ EQUITY 
+Stock Issuances
+The authorized capital stock of the Company consists of 100,000,000 shares of Class A Common
+Stock, par value $.001 per share, 60,000,000 shares of Class B Common Stock, par value $.001 per
+share, and 10,000,000 shares of preferred stock, $.001 par value per share.
+The Class A Common Stock and Class B Common Stock have identical rights other than with
+respect to voting, conversion and transfer. The Class A Common Stock is entitled to one vote per
+share, while the Class B Common Stock is entitled to ten votes per share on all matters submitted
+to a vote of stockholders. The shares of Class B Common Stock are convertible at any time at the
+option of the holder into shares of Class A Common Stock on a share-for-share basis. In addition,
+shares of Class B Common Stock will be automatically converted into a like number of shares of
+Class A Common Stock upon any transfer to any person or entity which is not a permitted transferee.
+During 2008, 2007 and 2006 certain Class B stockholders converted 69,404, 916,400, and
+2,883,000 shares, respectively, of Class B Common Stock to Class A Common Stock.
+(9) TOTAL OTHER INCOME (EXPENSE), NET 
+Other income (expense), net at December 31, 2008, 2007 and 2006 is summarized as follows (in
+thousands):
+2008 
+2007 
+2006 
+Gain (loss) on foreign currency transactions 
+$ 
+307 
+$ 
+(295 
+) 
+$ 
+116 
+Legal settlements 
+(187 
+) 
+393 
+864 
+Total other income, net 
+$ 
+120 
+$ 
+98 
+$ 
+980 
+54 
+Table of Contents 
+(10) INCOME TAXES 
+The provisions for income tax expense were as follows (in thousands):
+2008 
+2007 
+2006 
+Federal: 
+Current 
+$ 
+9,026 
+$ 
+33,354 
+$ 
+38,252 
+Deferred 
+(6,714 
+) 
+(301 
+) 
+(4,451 
+) 
+Total federal 
+2,312 
+33,053 
+33,801 
+State: 
+Current 
+3,654 
+7,255 
+7,398 
+Deferred 
+(1,643 
+) 
+(66 
+) 
+(586 
+) 
+Total state 
+2,011 
+7,189 
+6,812 
+Foreign : 
+Current 
+2,448 
+2,686 
+2,192 
+Deferred 
+487 
+(309 
+) 
+(1,151 
+) 
+Total foreign 
+2,935 
+2,377 
+1,041 
+Total income taxes 
+$ 
+7,258 
+$ 
+42,619 
+$ 
+41,654 
+Income taxes differ from the statutory tax rates as applied to earnings before income taxes as
+follows (in thousands):
+2008 
+2007 
+2006 
+Expected income tax expense 
+$ 
+21,260 
+$ 
+41,407 
+$ 
+39,427 
+State income tax, net of federal benefit 
+1,710 
+3,963 
+4,031 
+Rate differential on foreign income 
+(10,697 
+) 
+(9,699 
+) 
+(4,820 
+) 
+Change in unrecognized tax benefits 
+(7,896 
+) 
+7,024 
+3,393 
+Exempt income 
+(1,241 
+) 
+(1,026 
+) 
+(260 
+) 
+Non-deductible expenses 
+188 
+464 
+871 
+Change in valuation allowance 
+3,252 
+194 
+(967 
+) 
+Other 
+682 
+292 
+(21 
+) 
+Total provision for income taxes 
+$ 
+7,258 
+$ 
+42,619 
+$ 
+41,654 
+The tax effects of temporary differences that give rise to significant portions of deferred
+tax assets and deferred tax liabilities at December 31, 2008 and 2007 are presented below (in
+thousands):
+DEFERRED TAX ASSETS: 
+2008 
+2007 
+Deferred tax assets — current: 
+Inventory adjustments 
+$ 
+5,337 
+$ 
+2,555 
+Accrued expenses 
+6,658 
+6,540 
+Allowances for bad debts and
+chargebacks 
+3,401 
+2,570 
+Total current assets 
+15,396 
+11,665 
+Deferred tax assets — long term: 
+Depreciation on property and equipment 
+10,735 
+11,441 
+Unrealized loss on securities 
+5,549 
+— 
+Loss carryforwards 
+5,273 
+3,133 
+Stock-based compensation 
+535 
+91 
+Valuation allowance 
+(3,934 
+) 
+(682 
+) 
+Total long term assets 
+18,158 
+13,983 
+Total deferred tax assets 
+33,554 
+25,648 
+Deferred tax liabilities — current: 
+Prepaid expenses 
+3,441 
+3,071 
+Total deferred tax liabilities 
+3,441 
+3,071 
+Net deferred tax assets 
+$ 
+30,113 
+$ 
+22,577 
+55 
+Table of Contents 
+Management believes it is more likely than not that the results of future operations will
+generate sufficient taxable income to realize the net deferred tax assets.
+Consolidated U.S. income before income taxes was $27.9 million, $87.3 million, and $98.2
+million for the years ended December 31, 2008, 2007 and 2006, respectively. The corresponding
+income before income taxes for non-U.S. based operations was $32.9 million, $31.0 million, and
+$14.4 million for the years ended December 31, 2008, 2007 and 2006, respectively. The amounts of
+2007 and 2006 U.S. and non-U.S. income before taxes reflected in this paragraph have been adjusted
+to reflect the reclassifications of income between U.S. and non-U.S. operations resulting from the
+advanced pricing agreement entered into with the IRS in 2008.
+As of December 31, 2008 and 2007, the Company had combined foreign operating loss
+carry-forwards available to reduce future taxable income of approximately $17.5 million and $8.7
+million, respectively. Some of these net operating losses expire beginning in 2011, however others
+can be carried forward indefinitely. As of December 31, 2008 and 2007, a valuation allowance
+against deferred tax assets of $3.9 million and $0.7 million, respectively, had been set up for
+those loss carry-forwards that are not more likely than not to be fully utilized in reducing future
+taxable income.
+As of December 31, 2008, withholding and U.S. taxes have not been provided on approximately
+$64.1 million of cumulative undistributed earnings of the Company’s non-U.S. subsidiaries because
+the Company intends to indefinitely reinvest these earnings in its non-U.S. subsidiaries.
+We adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of
+FIN 48, we recognized approximately a $3.4 million increase in the liability for unrecognized tax
+benefits, which was accounted for as a reduction to the January 1, 2007 balance of retained
+earnings.
+The balance of unrecognized tax benefits decreased by $9.0 million during the year. A
+reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in
+thousands):
+Balance as of January 1, 2008 
+$ 
+18,698 
+Additions for current year tax positions 
+317 
+Additions for prior year tax positions 
+— 
+Reductions for prior year tax positions 
+— 
+Settlement of uncertain tax positions 
+(6,537 
+) 
+Reductions related to lapse of statute of limitations 
+(2,815 
+) 
+Balance at December 31, 2008 
+$ 
+9,663 
+If recognized, the entire amount of unrecognized tax benefits would be recorded as a reduction
+in income tax expense.
+Estimated interest and penalties related to the underpayment of income taxes are classified as
+a component of income tax expense and totaled less than $0.1 million, $0.5 million, and $0.1
+million for the years ended December 31, 2008, 2007 and 2006, respectively. Accrued interest and
+penalties were $1.2 million and $1.3 million as of December 31, 2008 and December 31, 2007,
+respectively.
+The Company files income tax returns in the U.S. federal jurisdiction and various state, local
+and foreign jurisdictions. The Company has completed U.S. federal audits through 2003, and is not
+currently under examination by the United States Internal Revenue Service; however the company is
+under examination by a number of states. It is reasonably possible that most or all of these
+examinations could be settled within the next twelve months which would reduce the balance of 2008
+and prior year unrecognized tax benefits by $2.2 million.
+With few exceptions, the Company is no longer subject to state, local or non-U.S. income tax
+examinations by tax authorities for years before 2005. During the third quarter, the statute of
+limitations for the 2004 tax year lapsed for the U.S. federal and several state tax jurisdictions.
+The lapse in statute reduced the balance of prior year unrecognized tax benefits by $2.9 million.
+Tax years 2005 through 2007 remain open to examination by the U.S. federal, state, and foreign
+taxing jurisdictions under which we are subject. It is reasonably possible that the statute of
+limitations for the 2005 tax year will lapse for the U.S. federal and most state tax jurisdictions
+during 2009, which would reduce the balance of 2008 and prior year unrecognized tax benefits by
+$0.5 million.
+56 
+Table of Contents 
+We have applied for advanced pricing agreements with various tax authorities related to the
+pricing of certain intercompany transactions. During the third quarter, the Company entered into an
+APA with the IRS related to certain intercompany transactions. As a result of this agreement the
+prior year balance of unrecognized tax benefits was reduced by $6.5 million. It is reasonably
+possible that we will receive final decisions on the remaining application within the next twelve
+months which would reduce the balance of 2008 and prior year unrecognized tax benefits by $0.5
+million. If the advanced pricing agreements are not resolved in 2009, we will continue to add to
+the unrecognized tax benefits during the year, and that increase could be approximately $0.1
+million to $0.3 million.
+(11) BUSINESS AND CREDIT CONCENTRATIONS 
+The Company operates in the footwear industry and generates most of its sales in the United
+States, although its products are sold into various foreign countries. The footwear industry is
+impacted by the general economy. Changes in the marketplace may significantly affect management’s
+estimates and the Company’s performance. Management performs regular evaluations concerning the
+ability of its customers to satisfy their obligations and provides for estimated doubtful accounts.
+Domestic accounts receivable, which generally do not require collateral from customers, amounted
+to $111.9 million and $110.3 million before allowances for bad debts and sales returns, and
+chargebacks at December 31, 2008 and 2007, respectively. Foreign accounts receivable, which
+generally are collateralized by letters of credit, amounted to $78.1 million and $67.4 million
+before allowance for bad debts, sales returns, and chargebacks at December 31, 2008 and 2007,
+respectively. International net sales amounted to $357.2 million, $291.3 million, and $203.3
+million for the years ended December 31, 2008, 2007 and 2006, respectively. The Company’s credit
+losses due to write-off’s for the years ended December 31, 2008, 2007 and 2006 were $10.8 million,
+$1.6 million, and $4.6 million, respectively, and were primarily from domestic accounts.
+Net sales to customers in North America exceeded 75% of total net sales for each of the years
+in the three-year period ended December 31, 2008. Assets located outside the United States consist
+primarily of cash, accounts receivable, inventory, property and equipment, and other assets. Net
+assets held outside the United States were $120.5 million and $126.1 million at December 31, 2008
+and 2007, respectively.
+During 2008, 2007, and 2006, no customer accounted for 10.0% or more of net sales. No customer
+accounted for more than 10.0% of net trade receivables at December 31, 2008. One customer
+accounted for 10.0% and 12.0% of net trade receivables at December 31, 2007 and 2006, respectively.
+During 2008, 2007 and 2006, our net sales to our five largest customers were approximately 24.1%,
+25.3%, and 24.9%, respectively.
+During 2008, the Company had four manufacturers which accounted for between 6.6% and 30.6% of
+total purchases. During 2007, the Company had four manufacturers which accounted for between 7.9%
+and 29.7% of total purchases. During 2006, the Company had four manufacturers which accounted for
+between 8.9% and 30.8% of total purchases.
+Most of the Company’s products are produced in China. The Company’s operations are subject to
+the customary risks of doing business abroad, including, but not limited to, currency fluctuations,
+custom duties and related fees, various import controls and other monetary barriers, restrictions
+on the transfer of funds, labor unrest and strikes and, in certain parts of the world, political
+instability. The Company believes it has acted to reduce these risks by diversifying manufacturing
+among various factories. To date, these risk factors have not had a material adverse impact on the
+Company’s operations.
+(12) BENEFIT PLAN 
+The Company has adopted a 401(K) profit sharing plan covering all employees who are 21 years
+of age and have completed six months of service. Employees may contribute up to 15.0% of annual
+compensation. Company contributions to the plan are discretionary and vest over a six year period.
+The Company’s cash contributions to the plan amounted to $1.2 million and $1.1 million for the
+years ended December 31, 2007 and 2006, respectively. The Company did not make a contribution for
+the year ended December 31, 2008.
+(13) COMMITMENTS AND CONTINGENCIES 
+(a) Leases
+The Company leases facilities under operating lease agreements expiring through March 2029.
+The Company pays taxes, maintenance and insurance in addition to the lease obligation. The Company
+also leases certain equipment and automobiles under
+57 
+Table of Contents 
+operating lease agreements expiring at various dates through November 2013. Rent expense for
+the years ended December 31, 2008, 2007 and 2006 approximated $57.4 million, $48.9 million, and
+$40.4 million, respectively.
+The Company also leases certain property and equipment under capital lease agreements
+requiring monthly installment payments through June 2010.
+Minimum lease payments, which takes into account escalation clauses, are recognized on a
+straight-line basis over the minimum lease term. Subsequent adjustments to our lease payments due
+to changes in an existing index, usually the consumer price index, are typically included in our
+calculation of the minimum lease payments when the adjustment is known. Reimbursements for
+leasehold improvements are recorded as liabilities and are amortized over the lease term. Lease
+concessions, in our case usually a free rent period, are considered in the calculation of our
+minimum lease payments for the minimum lease term.
+Future minimum lease payments under noncancellable leases at December 31, 2008 are as follows (in
+thousands):
+CAPITAL 
+OPERATING 
+LEASES 
+LEASES 
+Year ending December 31: 
+2009 
+$ 
+178 
+$ 
+67,849 
+2010 
+120 
+73,305 
+2011 
+— 
+65,166 
+2012 
+— 
+55,515 
+2013 
+— 
+46,837 
+Thereafter 
+— 
+240,405 
+$ 
+298 
+$ 
+549,077 
+(b) Litigation
+The Company recognizes legal expense in connection with loss contingencies as incurred.
+On July 10, 2008, Crocs, Inc. filed a lawsuit against the Company in the U.S. District Court
+for the District of Colorado, CROCS, INC. v. SKECHERS U.S.A., INC. (Case No. 08cv01450-RPM). The
+complaint alleges patent infringement, trade dress infringement and dilution, unfair competition
+and deceptive trade practices arising out of the Company’s manufacture, distribution and sales of
+footwear that is allegedly similar to several Crocs’ products. The lawsuit seeks, among other
+things, actual damages, treble or punitive damages as applicable, profits, attorney’s fees and
+costs, and a preliminary and/or permanent injunction against the Company to prevent any future
+manufacturing, distribution or sales of footwear that infringes Crocs’ design patents or trade
+dress or that uses any mark that is confusingly similar to Crocs’ animated crocodile design mark.
+Subsequently, the parties reached a settlement in principle, and on December 2, 2008, they reduced
+it to writing and finalized a formal settlement agreement. The settlement did not have a material
+adverse effect on the Company’s financial condition or results of operations.
+The Company has no reason to believe that any liability with respect to pending legal actions,
+individually or in the aggregate, will have a material adverse effect on the Company’s consolidated
+financial statements or results of operations. The Company occasionally becomes involved in
+litigation arising from the normal course of business, and management is unable to determine the
+extent of any liability that may arise from unanticipated future litigation.
+(c) Product and Other Financing
+The Company finances production activities in part through the use of interest-bearing open
+purchase arrangements with certain of its international manufacturers. These arrangements currently
+bear interest at rates between 0% and 1.5% per 30 to 60 day term. The amounts outstanding under
+these arrangements at December 31, 2008 and 2007 were $79.6 million and $81.3 million,
+respectively, which are included in accounts payable in the accompanying consolidated balance
+sheets. Interest expense incurred by the Company under these arrangements amounted to $3.6 million
+in 2008, $3.3 million in 2007, and $2.9 million in 2006. The Company has contractual commitments
+relating to licensing arrangements of $7.1 million through 2014 and open purchase commitments with
+our foreign manufacturers of $84.4 million which are not included in the accompanying consolidated
+balance sheets. The company is currently in the process of designing and purchasing the equipment
+to be used in its new distribution center. The total cost of this equipment is expected to be
+approximately $85.0 million, of which $23.1 million was incurred as of December 31, 2008.
+58 
+Table of Contents 
+(14) SEGMENT INFORMATION 
+We have four reportable segments — domestic wholesale sales, international wholesale sales,
+retail sales, and e-commerce sales. Management evaluates segment performance based primarily on
+net sales and gross margins. All other costs and expenses of the Company are analyzed on an
+aggregate basis, and these costs are not allocated to the Company’s segments. Net sales, gross
+margins and identifiable assets for the domestic wholesale segment, international wholesale,
+retail, and the e-commerce segment on a combined basis were as follows (in thousands):
+2008 
+2007 
+2006 
+Net sales 
+Domestic wholesale 
+$ 
+807,047 
+$ 
+831,235 
+$ 
+772,920 
+International wholesale 
+332,503 
+267,648 
+183,687 
+Retail 
+283,128 
+279,361 
+237,390 
+E-commerce 
+18,065 
+15,937 
+11,371 
+Total 
+$ 
+1,440,743 
+$ 
+1,394,181 
+$ 
+1,205,368 
+2008 
+2007 
+2006 
+Gross profit 
+Domestic wholesale 
+$ 
+276,604 
+$ 
+320,364 
+$ 
+301,215 
+International wholesale 
+137,840 
+99,759 
+65,034 
+Retail 
+172,870 
+171,758 
+151,456 
+E-commerce 
+8,608 
+8,108 
+5,641 
+Total 
+$ 
+595,922 
+$ 
+599,989 
+$ 
+523,346 
+2008 
+2007 
+Identifiable assets 
+Domestic wholesale 
+$ 
+678,881 
+$ 
+629,377 
+International wholesale 
+110,930 
+118,195 
+Retail 
+86,236 
+80,250 
+E-commerce 
+269 
+155 
+Total 
+$ 
+876,316 
+$ 
+827,977 
+2008 
+2007 
+Additions to property, plant and equipment 
+Domestic wholesale 
+$ 
+45,709 
+$ 
+11,371 
+International wholesale 
+6,893 
+1,346 
+Retail 
+19,859 
+18,458 
+Total 
+$ 
+72,461 
+$ 
+31,175 
+59 
+Table of Contents 
+Geographic Information
+The following summarizes our operations in different geographic areas for the year indicated:
+2008 
+2007 
+2006 
+Net Sales (1) 
+United States 
+$ 
+1,083,498 
+$ 
+1,102,895 
+$ 
+1,002,022 
+Canada 
+43,088 
+38,060 
+25,276 
+Other International (2) 
+314,157 
+253,226 
+178,070 
+Total 
+$ 
+1,440,743 
+$ 
+1,394,181 
+$ 
+1,205,368 
+2008 
+2007 
+Long-lived Assets 
+United States 
+$ 
+148,228 
+$ 
+96,044 
+Canada 
+471 
+343 
+Other International (2) 
+9,058 
+2,013 
+Total 
+$ 
+157,757 
+$ 
+98,400 
+(1) 
+The Company has subsidiaries in Canada, United Kingdom, Germany, France, Spain, Italy,
+Netherlands, Brazil, Thailand and Malaysia that generate net sales within those respective
+countries and in some cases the neighboring regions. The Company has joint ventures in China
+and Hong Kong that generate net sales from those countries. The Company also has a subsidiary
+in Switzerland that generates net sales from that country in addition to net sales to our
+distributors located in numerous non-European countries. Net sales are attributable to
+geographic regions based on the location of the Company subsidiary. 
+(2) 
+Other international consists of Brazil, Malaysia, Thailand, China, Hong Kong, Switzerland,
+United Kingdom, Germany, France, Spain, Italy, and Netherlands. 
+(15) RELATED PARTY TRANSACTIONS 
+The Company paid approximately $183,000, $175,000 and $177,000 during 2008, 2007 and 2006,
+respectively, to the Manhattan Inn Operating Company, LLC (“MIOC”) for lodging, food and events
+including the Company’s holiday party at the Shade Hotel, which is owned and operated by MIOC.
+Michael Greenberg, President and a director of the Company, owns a 12% beneficial ownership
+interest in MIOC, and four other officers, directors and senior vice presidents of the Company own
+in aggregate an additional 5% beneficial ownership in MIOC. The Company had no outstanding
+accounts receivable or payable with MIOC or the Shade Hotel at December 31, 2008.
+The Company had receivables from officers and employees of $0.5 million and $0.3 million at
+December 31, 2008 and 2007, respectively. These amounts primarily relate to travel advances and
+incidental personal purchases on Company-issued credit cards that are not business-related
+expenses. These receivables are short-term and are expected to be repaid within a reasonable
+period of time. During 2008, the Company purchased an automobile at fair market value for $140,000
+from Michael Greenberg, President and a director of the Company.
+We had no other significant transactions with or payables to officers, directors or
+significant shareholders of the Company.
+60 
+Table of Contents 
+(16) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) 
+Summarized unaudited financial data are as follows (in thousands):
+2008 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+384,922 
+$ 
+354,574 
+$ 
+403,159 
+$ 
+298,088 
+Gross profit 
+172,172 
+157,193 
+171,531 
+95,026 
+Net earnings (loss) 
+32,844 
+14,641 
+28,289 
+(20,378 
+) 
+Net earnings (loss)
+per share: 
+Basic 
+$ 
+0.72 
+$ 
+0.32 
+$ 
+0.61 
+$ 
+(0.44 
+) 
+Diluted 
+0.70 
+0.31 
+0.60 
+(0.44 
+) 
+2007 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+344,896 
+$ 
+352,211 
+$ 
+395,033 
+$ 
+302,041 
+Gross profit 
+149,039 
+152,028 
+171,670 
+127,252 
+Net earnings 
+23,900 
+14,948 
+24,744 
+12,094 
+Net earnings per share: 
+Basic 
+$ 
+0.54 
+$ 
+0.33 
+$ 
+0.54 
+$ 
+0.26 
+Diluted 
+0.52 
+0.32 
+0.53 
+0.26 
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
+DISCLOSURE 
+None.
+ITEM 9A. CONTROLS AND PROCEDURES 
+Attached as exhibits to this annual report on Form 10-K are certifications of our Chief
+Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance
+with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This
+“Controls and Procedures” section includes information concerning the controls and controls
+evaluation referred to in the certifications.
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
+The term “disclosure controls and procedures” refers to the controls and other procedures of a
+company that are designed to provide reasonable assurance that information required to be disclosed
+by a company in the reports that it files or submits under the Exchange Act, is recorded,
+processed, summarized and reported within required time periods. We have established disclosure
+controls and procedures to ensure that material information relating to Skechers and its
+consolidated subsidiaries is made known to the officers who certify our financial reports, as well
+as other members of senior management and the Board of Directors, to allow timely decisions
+regarding required disclosures. As of the end of the period covered by this annual report on Form
+10-K, we carried out an evaluation under the supervision and with the participation of our
+management, including our CEO and CFO, of the effectiveness of the design and operation of our
+disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that
+evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective.
+61 
+Table of Contents 
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
+Our management is responsible for establishing and maintaining adequate internal control over
+financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal
+control over financial reporting includes those policies and procedures that (i) pertain to the
+maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
+and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in accordance with generally accepted
+accounting principles, and that our receipts and expenditures are being made only in accordance
+with authorizations of our management and directors; and (iii) provide reasonable assurance
+regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
+assets that could have a material effect on our financial statements.
+We conducted an evaluation of the effectiveness of our internal control over financial
+reporting based on the framework in Internal Control — Integrated Framework issued by the Committee
+of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the
+framework in Internal Control- Integrated Framework, our management has concluded that as of
+December 31, 2008, our internal control over financial reporting is effective.
+Our independent registered public accountants, KPMG LLP, audited the consolidated financial
+statements included in this annual report on Form 10-K and have issued an attestation report on the
+effectiveness of our internal control over financial reporting as of December 31, 2008, which is
+included in Part II, Item 8 of this annual report on Form 10-K.
+INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
+Our management, including our Chief Executive Officer and Chief Financial Officer, does not
+expect that our disclosure controls and procedures or our internal control over financial reporting
+will prevent or detect all error and all fraud. A control system, no matter how well designed and
+operated, can provide only reasonable, not absolute, assurance that the control system’s objectives
+will be met. The design of a control system must reflect the fact that there are resource
+constraints, and the benefits of controls must be considered relative to their costs. Further,
+because of the inherent limitations in all control systems, no evaluation of controls can provide
+absolute assurance that misstatements due to error or fraud will not occur or that all control
+issues and instances of fraud, if any, within the company have been detected. These inherent
+limitations include the realities that judgments in decision-making can be faulty and that
+breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the
+individual acts of some persons, by collusion of two or more people, or by management override of
+the controls. The design of any system of controls is based in part on certain assumptions about
+the likelihood of future events, and there can be no assurance that any design will succeed in
+achieving its stated goals under all potential future conditions. Projections of any evaluation of
+controls effectiveness to future periods are subject to risks. Over time, controls may become
+inadequate because of changes in conditions or deterioration in the degree of compliance with
+policies or procedures.
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
+There were no significant changes to our internal controls over financial reporting that have
+materially affected, or are reasonably likely to materially affect, our internal controls over
+financial reporting during the fourth quarter of 2008, and we have completed our efforts regarding
+compliance with Section 404 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2008.
+The results of our evaluation are discussed above in Management’s Report on Internal Control Over
+Financial Reporting.
+ITEM 9B. OTHER INFORMATION 
+On January 22, 2009, our Compensation Committee approved the 2009 annual incentive
+compensation formulae for our executive management, including the “Named Executive Officers” (as
+defined in Item 402 of Regulation S-K), which will allow for executive management to earn incentive
+compensation on a quarterly basis in the event that certain specified performance goals are
+achieved under our 2006 Annual Incentive Compensation Plan (the “2006 Plan”). The purpose is to
+provide our executive management with the opportunity to earn incentive compensation based on our
+financial performance by linking incentive award opportunities to the achievement of certain
+performance goals.
+The Compensation Committee approved the business criteria to be used in the formulae to
+calculate the incentive compensation to be paid to our executive management on a quarterly basis
+for 2009. The business criteria that will be used to calculate the incentive compensation of
+Robert Greenberg (Chairman and Chief Executive Officer), Michael Greenberg (President), David
+Weinberg (Chief Operating Officer) and Mark Nason (Executive Vice President of Product Development)
+are our net sales and EBITDA, while our net sales will be used for calculating the incentive
+compensation of Fred Schneider (Chief Financial Officer). The Compensation Committee believes that
+each of these criteria provides an accurate and comprehensive measure of our annual performance.
+62 
+Table of Contents 
+The potential payments of incentive compensation to our executive management, including the
+Named Executive Officers, are performance-driven and therefore completely at risk. The payment of
+any incentive compensation is conditioned on our company achieving at least certain threshold
+performance levels of the business criteria approved by the Compensation Committee, and no payments
+will be made to the Named Executive Officers if the threshold performance levels are not met. Any
+incentive compensation to be paid to the Named Executive Officers in excess of the threshold
+amounts is based on the Compensation Committee’s pre-approved business criteria and formulae for
+the respective Named Executive Officers. In approving the percentages that will be used in the
+formulae to calculate the Named Executive Officers’ potential payments of incentive compensation
+for 2009, the Compensation Committee considered each Named Executive Officer’s position,
+responsibilities and prospective contribution to the attainment of the Company’s specified
+performance goals. The threshold performance levels for 2009 are “attainable,” and additional
+incentive compensation may be earned based on our company’s financial performance exceeding
+increasingly challenging levels of performance goals, none of which is certain to be achieved.
+Consistent with the prior year, the Compensation Committee did not place a maximum limit on the
+incentive compensation that may be earned by the Named Executive Officers in 2009, although the
+maximum amount of incentive compensation that any Named Executive Officer may earn in a 12-month
+period under the 2006 Plan is $5,000,000.
+63 
+Table of Contents 
+PART III 
+ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 
+The information required by this Item 10 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2008 fiscal year.
+ITEM 11. EXECUTIVE COMPENSATION 
+The information required by this Item 11 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2008 fiscal year.
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
+STOCKHOLDER MATTERS 
+The information required by this Item 12 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2008 fiscal year.
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+The information required by this Item 13 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2008 fiscal year.
+ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 
+The information required by this Item 14 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2008 fiscal year.
+PART IV 
+ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 
+1. 
+Financial Statements: See “Index to Consolidated Financial Statements and Financial
+Statement Schedule” in Part II, Item 8 on page 38 of this annual report on Form 10-K. 
+2. 
+Financial Statement Schedule: See “Schedule II—Valuation and Qualifying Accounts” on page 65
+of this annual report on Form 10-K. 
+3. 
+Exhibits: The exhibits listed in the accompanying “Index to Exhibits” are filed or
+incorporated by reference as part of this Form 10-K. 
+64 
+Table of Contents 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+(in thousands) 
+Years Ended December 31, 2008, 2007 and 2006 
+BALANCE AT 
+CHARGED TO 
+DEDUCTIONS 
+BALANCE 
+BEGINNING OF 
+COSTS AND 
+AND 
+AT END 
+DESCRIPTION 
+PERIOD 
+EXPENSES 
+WRITE-OFFS 
+OF PERIOD 
+Year-ended December 31, 2006: 
+Allowance for chargebacks 
+$ 
+623 
+$ 
+1,237 
+$ 
+(359 
+) 
+$ 
+1,501 
+Allowance for doubtful accounts 
+1,965 
+1,307 
+(573 
+) 
+2,699 
+Reserve for sales returns and
+allowances 
+4,608 
+2,047 
+(297 
+) 
+6,358 
+Year-ended December 31, 2007: 
+Allowance for chargebacks 
+$ 
+1,501 
+$ 
+1,684 
+$ 
+(613 
+) 
+$ 
+2,572 
+Allowance for doubtful accounts 
+2,699 
+284 
+(635 
+) 
+2,348 
+Reserve for sales returns and
+allowances 
+6,358 
+(358 
+) 
+(636 
+) 
+5,364 
+Year-ended December 31, 2008: 
+Allowance for chargebacks 
+$ 
+2,572 
+$ 
+2,940 
+$ 
+(1,598 
+) 
+$ 
+3,914 
+Allowance for doubtful accounts 
+2,348 
+5,495 
+(3,421 
+) 
+4,422 
+Reserve for sales returns and
+allowances 
+5,364 
+2,352 
+(1,172 
+) 
+6,544 
+BALANCE AT 
+CHARGED TO 
+DEDUCTIONS 
+BALANCE 
+BEGINNING OF 
+COSTS AND 
+AND 
+AT END 
+DESCRIPTION 
+PERIOD 
+EXPENSES 
+WRITE-OFFS 
+OF PERIOD 
+Year-ended December 31, 2006: 
+Reserve for shrinkage 
+— 
+— 
+— 
+— 
+Reserve for obsolescence 
+$ 
+536 
+$ 
+97 
+— 
+$ 
+633 
+Year-ended December 31, 2007: 
+Reserve for shrinkage 
+— 
+$ 
+110 
+— 
+$ 
+110 
+Reserve for obsolescence 
+$ 
+633 
+1,198 
+— 
+1,831 
+Year-ended December 31, 2008: 
+Reserve for shrinkage 
+$ 
+110 
+$ 
+55 
+— 
+$ 
+165 
+Reserve for obsolescence 
+1,831 
+11,192 
+— 
+13,023 
+See accompanying report of independent registered public accounting firm
+65 
+Table of Contents 
+INDEX TO EXHIBITS 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+3.1
+Amended and Restated Certificate of Incorporation dated April 29,
+1999 (incorporated by reference to exhibit number 3.1 of the
+Registrant’s Registration Statement on Form S-1, as amended (File
+No. 333-60065), filed with the Securities and Exchange Commission
+on May 12, 1999). 
+3.2
+Bylaws dated May 28, 1998 (incorporated by reference to exhibit
+number 3.2 of the Registrant’s Registration Statement on Form S-1
+(File No. 333-60065) filed with the Securities and Exchange
+Commission on July 29, 1998). 
+3.2(a)
+Amendment to Bylaws dated as of April 8, 1999 (incorporated by
+reference to exhibit number 3.2(a) of the Registrant’s Form 10-K
+for the year ended December 31, 2005). 
+3.2(b)
+Second Amendment to Bylaws dated as of December 18, 2007
+(incorporated by reference to exhibit number 3.1 of the
+Registrant’s Form 8-K filed with the Securities and Exchange
+Commission on December 20, 2007). 
+4.1
+Form of Specimen Class A Common Stock Certificate (incorporated
+by reference to exhibit number 4.1 of the Registrant’s
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange Commission on
+May 12, 1999). 
+10.1**
+Amended and Restated 1998 Stock Option, Deferred Stock and
+Restricted Stock Plan (incorporated by reference to exhibit
+number 10.1 of the Registrant’s Registration Statement on Form
+S-1 (File No. 333-60065) filed with the Securities and Exchange
+Commission on July 29, 1998). 
+10.1(a)**
+Amendment No. 1 to Amended and Restated 1998 Stock Option,
+Deferred Stock and Restricted Stock Plan (incorporated by
+reference to exhibit number 4.4 of the Registrant’s Registration
+Statement on Form S-8 (File No. 333-71114), filed with the
+Securities and Exchange Commission on October 5, 2001). 
+10.1(b)**
+Amendment No. 2 to Amended and Restated 1998 Stock Option,
+Deferred Stock and Restricted Stock Plan (incorporated by
+reference to exhibit number 4.5 of the Registrant’s Registration
+Statement on Form S-8 (File No. 333-135049), filed with the
+Securities and Exchange Commission on June 15, 2006). 
+10.1(c)**
+Amendment No. 3 to Amended and Restated 1998 Stock Option,
+Deferred Stock and Restricted Stock Plan (incorporated by
+reference to exhibit number 10.1 of the Registrant’s Form 8-K
+filed with the Securities and Exchange Commission on February 23,
+2007). 
+10.2**
+2006 Annual Incentive Compensation Plan (incorporated by
+reference to Appendix A of the Registrant’s Definitive Proxy
+Statement filed with the Securities and Exchange Commission on
+May 1, 2006). 
+10.3**
+2007 Incentive Award Plan (incorporated by reference to exhibit
+number 10.1 of the Registrant’s Form 8-K filed with the
+Securities and Exchange Commission on May 24, 2007). 
+10.4**
+Form of Restricted Stock Agreement under 2007 Incentive Award
+Plan (incorporated by reference to exhibit number 10.3 of the
+Registrant’s Form 10-K for the year ended December 31, 2007). 
+10.5**
+2008 Employee Stock Purchase Plan (incorporated by reference to
+exhibit number 10.2 of the Registrant’s Form 8-K filed with the
+Securities and Exchange Commission on May 24, 2007). 
+10.6**
+Indemnification Agreement dated June 7, 1999 between the
+Registrant and its directors and executive officers (incorporated
+by reference to exhibit number 10.6 of the Registrant’s Form 10-K
+for the year ended December 31, 1999). 
+10.6(a)**
+List of Registrant’s directors and executive officers who entered
+into Indemnification Agreement referenced in Exhibit 10.6 with
+the Registrant (incorporated by reference to exhibit number
+10.6(a) of the Registrant’s Form 10-K for the year ended December
+31, 2005). 
+66 
+Table of Contents 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+10.7
+Registration Rights Agreement dated June 9, 1999, between the
+Registrant, the Greenberg Family Trust and Michael Greenberg
+(incorporated by reference to exhibit number 10.7 of the
+Registrant’s Form 10-Q for the quarter ended June 30, 1999). 
+10.8
+Tax Indemnification Agreement dated June 8, 1999, between the
+Registrant and certain shareholders (incorporated by reference
+to exhibit number 10.8 of the Registrant’s Form 10-Q for the
+quarter ended June 30, 1999). 
+10.9
+Second Amended and Restated Loan and Security Agreement, dated
+May 31, 2006, by and among the Registrant and certain of its
+subsidiaries that are also borrowers under the Agreement,
+certain of its subsidiaries who are guarantors under the
+Agreement, and certain lenders including The CIT
+Group/Commercial Services, Inc., which acts as agent for the
+lenders (incorporated by reference to exhibit number 10.1 of
+the Registrant’s Form 8-K filed with the Securities and
+Exchange Commission on June 6, 2006). 
+10.10
+Promissory Note, dated December 27, 2000, between the
+Registrant and Washington Mutual Bank, FA, for the purchase of
+property located at 225 South Sepulveda Boulevard, Manhattan
+Beach,
+California (incorporated by reference to exhibit number 10.23
+of the Registrant’s Form 10-K for the year ended December 31,
+2000). 
+10.11
+Loan Agreement, dated December 21, 2000, between Yale
+Investments, LLC, and MONY Life Insurance Company, for the
+purchase of property located at 1670 South Champagne Avenue,
+Ontario, California (incorporated by reference to exhibit
+number 10.25 of the Registrant’s Form 10-K for the year ended
+December 31, 2000). 
+10.12
+Promissory Note, dated December 21, 2000, between Yale
+Investments, LLC, and MONY Life Insurance Company, for the
+purchase of property located at 1670 Champagne Avenue, Ontario,
+California (incorporated by reference to exhibit number 10.26
+of the Registrant’s Form 10-K for the year ended December 31,
+2000). 
+10.13
+Agreement dated August 25, 2005 between Duncan Investments,
+LLC, a wholly owned subsidiary of the Registrant, and Morley
+Construction Company regarding 330 South Sepulveda Boulevard,
+Manhattan Beach, California (incorporated by reference to
+exhibit number 10.1 of the Registrant’s Form 8-K filed with the
+Securities and Exchange Commission on August 29, 2005). 
+10.14
+General Conditions of the Contract for Construction regarding
+330 South Sepulveda Boulevard, Manhattan Beach, California
+(incorporated by reference to exhibit number 10.2 of the
+Registrant’s Form 8-K filed with the Securities and Exchange
+Commission on August 29, 2005). 
+10.15
+Lease Agreement, dated November 21, 1997, between the
+Registrant and The Prudential Insurance Company of America,
+regarding 1661 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.14 of the
+Registrant’s Registration Statement on Form S-1 (File No.
+333-60065) filed with the Securities and Exchange Commission on
+July 29, 1998). 
+10.15(a)
+First Amendment to Lease Agreement, dated April 26, 2002,
+between the Registrant and ProLogis California I LLC, regarding
+1661 South Vintage Avenue, Ontario, California (incorporated by
+reference to exhibit number 10.14(a) of the Registrant’s Form
+10-K for the year ended December 21, 2002). 
+10.15(b)
+Second Amendment to Lease Agreement, dated December 10, 2007,
+between the Registrant and ProLogis California I LLC, regarding
+1661 South Vintage Avenue, Ontario, California (incorporated by
+reference to exhibit number 10.15(b) of the Registrant’s Form
+10-K for the year ended December 31, 2007). 
+10.16
+Lease Agreement, dated November 21, 1997, between the
+Registrant and The Prudential Insurance Company of America,
+regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.15 of the
+Registrant’s Registration Statement on Form S-1 (File No.
+333-60065) filed with the Securities and Exchange Commission on
+July 29, 1998). 
+67 
+Table of Contents 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+10.16(a)
+First Amendment to Lease Agreement, dated April 26, 2002, between the Registrant and Cabot
+Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.15(a) of the Registrant’s Form 10-K for the
+year ended December 21, 2002). 
+10.16(b)
+Second Amendment to Lease Agreement, dated May 14, 2002, between the Registrant and Cabot
+Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.16(b) of the Registrant’s Form 10-K for the
+year ended December 31, 2007). 
+10.16(c)
+Third Amendment to Lease Agreement, dated May 7, 2007, between the Registrant and Cabot
+Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.16(c) of the Registrant’s Form 10-K for the
+year ended December 31, 2007). 
+10.16(d)
+Fourth Amendment to Lease Agreement, dated November 10, 2007, between the Registrant and
+Cabot Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.16(d) of the Registrant’s Form 10-K for the
+year ended December 31, 2007). 
+10.17
+Lease Agreement, dated April 10, 2001, between the Registrant and ProLogis California I LLC,
+regarding 4100 East Mission Boulevard, Ontario, California (incorporated by reference to
+exhibit number 10.28 of the Registrant’s Form 10-K for the year ended December 31, 2001). 
+10.17(a)
+First Amendment to Lease Agreement, dated October 22, 2003, between the Registrant and
+ProLogis California I LLC, regarding 4100 East Mission Boulevard, Ontario, California
+(incorporated by reference to exhibit number 10.28(a) of the Registrant’s Form 10-K for the
+year ended December 31, 2003). 
+10.18
+Lease Agreement, dated February 8, 2002, between Skechers International, a subsidiary of the
+Registrant, and ProLogis Belgium II SPRL, regarding ProLogis Park Liege Distribution Center
+I in Liege, Belgium (incorporated by reference to exhibit number 10.29 of the Registrant’s
+Form 10-K for the year ended December 31, 2002). 
+10.19
+Lease Agreement dated September 25, 2007 between the Registrant and HF Logistics I, LLC,
+regarding distribution facility in Moreno Valley, California (incorporated by reference to
+exhibit number 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange
+Commission on September 27, 2007). 
+10.20
+Lease Agreement dated May 20, 2008 between Skechers EDC SPRL, a subsidiary of the
+Registrant, and ProLogis Belgium III SPRL, regarding ProLogis Park Liege Distribution Center
+II in Liege, Belgium (incorporated by reference to exhibit number 10.1 of the Registrant’s
+Form 8-K filed with the Securities and Exchange Commission on May 27, 2008). 
+10.21
+Addendum to Lease Agreement dated May 20, 2008 between Skechers EDC SPRL, a subsidiary of
+the Registrant, and ProLogis Belgium III SPRL, regarding ProLogis Park Liege Distribution
+Center I in Liege, Belgium (incorporated by reference to exhibit number 10.2 of the
+Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 27, 2008). 
+21.1
+Subsidiaries of the Registrant. 
+23.1
+Consent of Independent Registered Public Accounting Firm. 
+31.1
+Certification of the Chief Executive Officer pursuant Securities Exchange Act Rule 13a-14(a). 
+31.2
+Certification of the Chief Financial Officer pursuant Securities Exchange Act Rule 13a-14(a). 
+32.1
+Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
+Sarbanes-Oxley Act of 2002. 
+** 
+Management contract or compensatory plan or arrangement required to be filed as an exhibit. 
+68 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Manhattan Beach, State of California on the 2nd day of March 2009.
+SKECHERS U.S.A., INC. 
+By: 
+/S/ ROBERT GREENBERG
+Robert Greenberg 
+Chairman of the Board and 
+Chief Executive Officer 
+Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
+signed by the following persons on behalf of the Registrant and in the capacities and on the dates
+indicated.
+SIGNATURE 
+TITLE 
+DATE 
+/S/ ROBERT GREENBERG
+Chief Executive Officer
+March 2, 2009 
+Robert Greenberg
+(Principal
+Executive Officer) 
+/S/ MICHAEL GREENBERG
+President and Director
+March 2, 2009 
+Michael Greenberg
+/S/ DAVID WEINBERG
+Executive Vice President, Chief Operating Officer
+March 2, 2009 
+David Weinberg
+and
+Director 
+/S/ FREDERICK H. SCHNEIDER
+Chief Financial Officer
+March 2, 2009 
+Frederick H. Schneider
+(Principal
+Financial and Accounting Officer) 
+/S/ JEFFREY GREENBERG
+Director
+March 2, 2009 
+Jeffrey Greenberg
+/S/ J. GEYER KOSINSKI
+Director
+March 2, 2009 
+J. Geyer Kosinski
+/S/ MORTON D. ERLICH
+Director
+March 2, 2009 
+Morton D. Erlich
+/S/ RICHARD SISKIND
+Director
+March 2, 2009 
+Richard Siskind
+69
\ No newline at end of file
diff --git a/raw/filings/0001065837/2008/0000950134-09-004222/filing_metadata.csv b/raw/filings/0001065837/2008/0000950134-09-004222/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..95e29357e33560d0dc3be8fcc268a56b7ae19feb
--- /dev/null
+++ b/raw/filings/0001065837/2008/0000950134-09-004222/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0001065837,SKX,SKECHERS USA INC,10-K,2009-03-02,2008-12-31,2009-03-02T20:13:49.000Z,0000950134-09-004222,v51596e10vk.htm,FORM 10-K,741083,0,0,https://www.sec.gov/Archives/edgar/data/1065837/000095013409004222/v51596e10vk.htm,https://www.sec.gov/Archives/edgar/data/1065837/000095013409004222/,2008,2008,1
diff --git a/raw/filings/0001065837/2008/0000950134-09-004222/item1.txt b/raw/filings/0001065837/2008/0000950134-09-004222/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bff332e40e4eec921d49fd38f43e31932fe4ea4b
--- /dev/null
+++ b/raw/filings/0001065837/2008/0000950134-09-004222/item1.txt
@@ -0,0 +1,817 @@
+ITEM 1. BUSINESS 
+We were incorporated in California in 1992 and reincorporated in Delaware in 1999. Throughout
+this annual report, we refer to Skechers U.S.A., Inc., a Delaware corporation, and its consolidated
+subsidiaries as “we,” “us,” “our,” “our company” and “Skechers” unless otherwise indicated. Our
+Internet website address is www.skechers.com . Our annual report on Form 10-K, quarterly reports on
+Form 10-Q, current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of directors,
+officers and 10% stockholders, and any amendments to those reports filed or furnished pursuant to
+Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our
+website as soon as reasonably practicable after we electronically file such material with, or
+furnish it to, the SEC. You can learn more about us by reviewing such filings on our website or at
+the SEC’s website at www.sec.gov .
+GENERAL
+We design and market Skechers-branded contemporary footwear for men, women and children under
+several unique lines. Our footwear reflects a combination of style, quality and value that appeals
+to a broad range of consumers. In addition to Skechers-branded lines, we also offer several
+uniquely branded designer, fashion and street-focused footwear lines for men, women and children.
+These lines are branded and marketed separately from Skechers and appeal to specific audiences. Our
+brands are sold through department stores, specialty stores, athletic retailers, and boutiques as
+well as catalog and Internet retailers. Along with wholesale distribution, our footwear is
+available at our e-commerce website and our own retail stores. We operate 84 concept stores, 83
+factory outlet stores and 37 warehouse outlet stores in the United States, and 16 concept stores
+and three factory outlets internationally. Our objective is to profitably grow our operations
+worldwide while leveraging our recognizable Skechers brand through our strong product lines,
+innovative advertising and diversified distribution channels.
+We seek to offer consumers a vast array of fashionable footwear that satisfies their active,
+casual, dress casual and dress footwear needs. Our core consumers are style-conscious 12 to 24
+year-old men and women attracted to our youthful brand image and fashion forward designs. Many of
+our best-selling and core styles are also developed for children with colors and materials that
+reflect a playful image appropriate for this demographic.
+We believe that brand recognition is an important element for success in the footwear
+business. We have aggressively promoted our brands through comprehensive marketing campaigns for
+men, women and children. During 2008, our Skechers brand was supported by print, television and
+outdoor campaigns for men and women; animated kids’ television campaigns featuring our own action
+heroes and characters; print and outdoor campaigns featuring our endorsee and American Idol winner
+David Cook; and family-focused celebrity ads that included singer Brandy and reality stars Trista
+and Ryan Sutter. Our Marc Ecko and Zoo York footwear lines are also supported by print and
+television ads developed by Marc Ecko. The Red by Marc Ecko women’s line featured High School
+Musical stars Ashley Tisdale and Vanessa Hudgens in print and television campaigns through 2008,
+while the Zoo York campaign featured skateboarders Donny Barley and Kevin Shetler. Actress Eva
+Longoria appeared in the Bebe Sport footwear campaign in 2008.
+Since we introduced our first line, Skechers USA Sport Utility Footwear, in December 1992, we
+have expanded our product offering and grown our net sales while substantially increasing the
+breadth and penetration of our account base. Our men’s, women’s and children’s Skechers-branded
+product lines benefit from the Skechers reputation for contemporary and progressive styling,
+quality, comfort and affordability. Our lines that are not branded with the Skechers name benefit
+from our marketing support, quality management and expertise. To promote innovation and brand
+relevance, we manage our product lines separately by utilizing dedicated sales and design teams.
+Our product lines share back office services in order to limit our operating expenses and fully
+utilize our management’s vast experience in the footwear industry.
+SKECHERS LINES
+Skechers USA. Our Skechers USA category for men and women includes: (i) Casuals, (ii) Dress
+Casuals, (iii) Relaxed Fit (for men only), (iv) Seriously Lightweight (for men only) (v) Sandals
+and (vi) Casual Fusion. This category is generally sold through mid-tier retailers, department
+stores and some footwear specialty shops.
+• 
+The Casuals line for men and women is defined by lugged outsoles and utilizes
+value-oriented and leather materials in the uppers. For men, the Casuals category includes
+“black and brown” boots, shoes and sandals that generally have a rugged urban 
+2 
+Table of Contents 
+design — some with industrial-inspired fashion features. For women, the Casuals category
+includes basic “black and brown” oxfords and slip-ons, lug outsole boots, and casual sandals.
+We design and price both the men’s and women’s categories to appeal primarily to younger
+consumers with broad acceptance across age groups. 
+• 
+The Dress Casuals category for men is comprised of basic “black and brown” men’s shoes
+that feature shiny leathers and dress details, but may utilize traditional or lugged
+outsoles as well as value-oriented materials. The Dress Casual line for women is comprised
+of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or
+faux fur lining or trim. 
+• 
+Skechers Relaxed Fit is a line of trend-right casuals for men who want all-day comfort
+without compromising style. Characteristics of the line include comfortable outsoles,
+cushioned insoles and quality leather uppers. A category with unique features, we market and
+package the Skechers Relaxed Fit styles in a shoe box that is distinct from that of other
+categories in the Skechers USA line of footwear. 
+• 
+Our Seriously Lightweight styles for men primarily consist of designs similar to our
+casual looks, but feature ultra lightweight outsoles, making them ideal travel and work
+shoes. A category with unique features, we market and package the Skechers Seriously
+Lightweight styles in a shoe box that is distinct from that of other categories in the
+Skechers USA line of footwear. 
+• 
+Our Sandals collection for men and women is designed with many of our existing and proven
+outsoles for our Casuals, Dress Casuals and Casual Fusion lines, stylized with basic or core
+uppers as well as fresh looks. These styles are generally made with quality leather uppers,
+but may also be in canvas or fabric. 
+• 
+Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals
+targeted to trend-conscious young men and women. The outsoles are primarily rubber and
+adopted from our men’s Sport and women’s Active lines. This collection features leather or
+nubuck uppers, but may also include mesh. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes: (i) Joggers, Trail
+Runners, Sport Hikers, Terrainers, (ii) Performance (for men only), (iii) Skechers D’Lites (for
+women only), and (iv) Sport Sandals. Our Skechers Sport category is distinguished by its technical
+performance-inspired looks; however, we generally do not promote the technical performance features
+of these shoes. Skechers Sport is typically sold through specialty shoe stores, department stores
+and athletic footwear retailers.
+• 
+Our Jogger, Trail Runner, Sport Hiker and cross trainer-inspired Terrainer designs are
+lightweight constructions that include cushioned heels, polyurethane midsoles, phylon and
+other synthetic outsoles, as well as leather or synthetic uppers such as durabuck, cordura
+and nylon mesh. Careful attention is devoted to the design, pattern and construction of the
+outsoles, which vary greatly depending on the intended use. This category features earth
+tones and athletic-inspired hues with contrasting pop colors such as lime green, orange and
+red in addition to traditional athletic white. 
+• 
+The Performance category is comprised of multi-purpose running shoes that are marketed as
+men’s lifestyle athletic footwear. Some styles include 3M reflective accents, breathable
+upper construction, quality leathers, abrasion-resistant toe and heel cap, removable
+moisture wicking molded ethyl vinyl acetate (“EVA”) sock liner, outsole forefoot flex
+grooves for improved flexibility, non-marking rubber lugs with impact dispersment technology
+(“IDT”), aggressive all terrain traction lugs, external torsion stabilizer and tuned
+dual-density molded EVA midsole with pronation control. 
+• 
+Skechers D’Lites are ultra lightweight women’s sneakers that feature sturdy, sculpted
+midsoles for all-day comfort, durable rubber treads for improved traction and a sole design
+that provides superior flexibility and cushioning. The uppers are designed in leather,
+suede, nubuck and mesh. A category with unique features, we market and package Skechers
+D’Lites in a shoe box that is distinct from that of other categories in the Skechers Sport
+line of footwear. 
+• 
+Our Sport Sandals are primarily designed from existing Skechers Sport outsoles and may
+include many of the same sport features as our sneakers with the addition of new
+technologies geared toward making a comfortable sport sandal. Sport sandals are designed as
+seasonal footwear for the consumer who already wears our Skechers Sport sneakers. 
+Skechers Active. A natural companion to Skechers Sport, Skechers Active has grown from a
+casual everyday line into a complete line of fusion and sport fusion sneakers for females of all
+ages. Marked by low-profile outsoles, the Active line is available in a multitude of colors as well
+as solid white or black, in fabrics, leathers and meshes, and with various closures – traditional
+laces, zig-zag and cross straps, among others. The line also now includes Mary Janes, sandals and
+open back styles. Active sneakers are typically retailed through specialty casual shoe stores and
+department stores.
+3 
+Table of Contents 
+Skechers Cali . Our Skechers Cali is a line of sneakers, skimmers, wedges and sandals for young
+women designed to typify the California lifestyle. The uppers are primarily in canvas, fabrics and
+leather with unique prints, some with patch details. The sandals range from dress casual looks to
+casual to beach thongs. Skechers Cali is sold through specialty casual shoe stores and department
+stores.
+Skechers Work. Expanding on our heritage of cutting-edge utility footwear, Skechers Work
+offers a complete line of men’s and women’s casuals, field boots, hikers and athletic shoes. The
+Skechers Work line includes athletic-inspired, casual safety toe, and non-slip safety toe
+categories that may feature lightweight aluminum safety toe, electrical hazard, and slip-resistant
+technologies, as well as breathable, seam-sealed waterproof membranes. Designed for men and women
+with jobs that require certain safety requirements, these durable styles are constructed on
+high-abrasion, long wearing soles, and feature breathable lining, oil and abrasion resistant
+outsoles offering all-day comfort and prolonged durability. The uppers are comprised of
+high-quality leather, nubuck, trubuck and durabuck. Our safety toe athletic sneakers, boots,
+hikers, and casuals are ideal for environments requiring safety footwear and offer comfort and
+safety in dry or wet conditions. Our slip-resistant boots, hikers, athletics, casuals and clogs
+are ideal for the service industry. Our safety toe products have been independently tested and
+certified to meet ASTM standards, and our slip-resistant soles have been tested pursuant to the
+Mark II testing method for slip resistance. Skechers Work is typically sold through department
+stores, athletic footwear retailers and specialty shoe stores, as well as marketed directly to
+consumers through business-to-business channels.
+Skechers Kids. The Skechers Kids line includes: (i) Skechers Kids, which is a range of
+infants, toddlers, boys and girls boots, shoes and sneakers; (ii) S-Lights and Hot Lights by
+Skechers; (iii) Skechers Cali for Girls, which is trend-inspired boots, shoes, sandals and dress
+sneakers; (iv) Airators by Skechers; (v) Skechers Super Z-Strap; (vi) Skechers Bungees; (vii) HyDee
+HyTop from Skechers; and (viii) Babiez by Skechers. Skechers Kids and Skechers Cali for Girls are
+comprised primarily of shoes that are designed as “takedowns” of their adult counterparts, allowing
+the younger set the opportunity to wear the same popular styles as their older siblings and
+schoolmates. This “takedown” strategy maintains the product’s integrity by offering premium
+leathers, hardware and outsoles without the attendant costs involved in designing and developing
+new products. In addition, we adapt current fashions from our men’s and women’s lines by modifying
+designs and choosing colors and materials that are more suitable for the playful image that we have
+established in the children’s footwear market. Each Skechers Kids line is marketed and packaged
+separately with a distinct shoe box. Skechers Kids shoes are available at department stores and
+specialty and athletic retailers.
+• 
+The Skechers Kids line includes embellishments or adornments such as fresh colors and
+fabrics from our Skechers adult shoes. Some of these styles are also adapted for toddlers
+with softer, more pliable outsoles and for infants with soft, leather-sole crib shoes. 
+• 
+S-Lights and Hot Lights by Skechers are lighted sneakers and sandals for boys and girls.
+The S-Lights combine patterns of lights on the outsoles and sides of the shoes while Hot
+Lights feature lights on the front of the toe to simulate headlights as well as on other
+areas of the shoes. We market and package each of these lines in unique shoe boxes that are
+distinct from that of other categories in the Skechers Kids line of footwear. 
+• 
+Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young women
+designed to typify the California lifestyle. The sneakers are designed primarily with canvas
+uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and
+flats are designed with many of the same upper materials and outsoles as the sneakers. 
+• 
+Airators by Skechers is a line of boys sneakers with a foot-cooling system designed to
+pump air from the heel through to the toes. The line is marketed with the character Kewl
+Breeze. 
+• 
+Skechers Super Z-Strap is a line of athletic styled sneakers with a unique “z” shaped
+closure system for easy closure. The line is marketed with the character Z-Strap. 
+• 
+Skechers Bungees is a line of girls’ sneakers with bungee closures. The line is marketed
+with the character Elastika. 
+• 
+HyDee HyTop from Skechers is a line of colorful high-top sneakers for young girls. The
+line is marketed with the character HyDee HyTop. 
+4 
+Table of Contents 
+• 
+Babiez by Skechers is a line of crib shoes for infants. The uppers and outsoles are
+designed in leather and are extremely flexible for newborn feet. 
+FASHION AND STREET BRANDS
+The Fashion and Street Division and its brands are marketed and packaged separately from Skechers.
+Unltd. by Marc Ecko and Red by Marc Ecko. Unltd. by Marc Ecko is a line of men’s
+street-inspired traditional sneakers, fusion sneakers and urban-focused casuals. Red by Marc Ecko
+is a line of women’s classic and fashion-forward fusion sneakers, sandals and Mary Janes for young
+women. Targeted to the street-savvy 18 to 34 year-old consumer, the footwear reflects Ecko Unltd.’s
+men’s apparel and the Ecko Red women’s apparel, and effectively utilizes the globally recognized
+Rhino logo on the majority of sneakers and casuals. The men’s and women’s footwear collections are
+designed in leather, canvas, mesh, as well as other materials. Unltd. by Marc Ecko for boys and
+Rhino Red for girls sneaker lines primarily consist of takedowns from the adult Marc Ecko footwear
+lines with additional or different colorways geared toward children and that reflect the boys’ and
+girls’ Ecko Unltd. and Ecko Red clothing. The licensed brands are sold through select department
+stores and specialty retailers.
+Zoo York. Zoo York footwear is a line of action sports and lifestyle footwear for men, women
+and boys. The Zoo York footwear follows the color palette and trends of Zoo York apparel and
+targets skateboarders and those that embrace skate fashion. The licensed brand is available in
+skate and specialty shops as well as select athletic and department stores.
+310 Premium Footwear. The 310 Premium Footwear collection for men utilizes top-quality
+leathers, a fashion-forward approach to design and comfort, and materials that are derived from 310
+Motoring’s customized cars, including wood burl and carbon fiber. The line consists of high-design
+boots, shoes, and stylized athletics. 310 Premium Footwear is available in select department
+stores, specialty retailers and urban independents.
+Mark Nason and Siren by Mark Nason. Mark Nason is a sophisticated and fashion forward footwear
+collection, marketed to style-conscious men, designed to complement designer denim and dress casual
+wear. Primarily crafted and constructed in Italy, the Mark Nason collection is comprised of classic
+and modern boots, shoes and sandals with distinctive profiles and luxurious hand-distressed
+leathers. The Mark Nason line distinguishes itself with high quality individual styling and may
+utilize unique materials such as premium leathers, etched and tattooed leathers, hand-treated,
+hand-scraped and hand-cut leathers, hand-treated leather uppers and soles, snakeskin and eel skin.
+Siren by Mark Nason is the ultimate accompaniment to designer denim and casual couture for
+discerning women. The line’s boots are fueled with bold profiles, alluring details and distinct
+textures. Handcrafted in Italy, the boots utilize premium leathers, hand-treated details, leather
+outsoles, and some may include snakeskin and other exotic materials. The Mark Nason lines are
+available in better department stores and boutiques.
+Bebe Sport. Skechers acquired the footwear license for Bebe Sport footwear in 2008.
+Embracing the style and design of the Bebe Sport apparel, the sneaker and sandal line features such
+details as rhinestones, satin laces, and patent leather. The footwear is designed for women 18 to
+34. The licensed brand is available at department stores and specialty boutiques.
+Punkrose and Public Royalty. Skechers acquired the junior brands Punkrose and Public Royalty
+in 2008. Punkrose for women and Public Royalty for men are cutting-edge street ready footwear.
+Inspired by music, art, fashion, and action sports, the Public Royalty collection consists of
+high-top and low-top sneakers, slip-ons and boots. Punkrose styles include sneakers, high-tops,
+skimmers, boots and sandals. Vibrant color combos and get-noticed prints are a trademark of this
+brand. Both brands are available at department stores, sneaker shops and specialty boutiques.
+PRODUCT DESIGN AND DEVELOPMENT
+Our principal goal in product design is to generate new and exciting footwear in all of our
+product lines with contemporary and progressive styles and comfort-enhancing performance features.
+Targeted to the active, youthful and style-savvy, we design most new styles to be fashionable and
+marketable to the 12 to 24 year-old consumer, while substantially all of our lines appeal to the
+broader range of 5 to 40 year-old consumers, with an exclusive selection for infants and toddlers.
+While some of our shoes have performance features, we generally do not position our shoes in the
+marketplace as technical performance shoes.
+We believe that our products’ success is related to our ability to recognize trends in the
+footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving
+preferences. We are able to quickly translate the latest fashion trends into stylish, quality
+footwear at a reasonable price by analyzing and interpreting current and emerging lifestyle trends.
+Lifestyle trend
+5 
+Table of Contents 
+information is compiled and analyzed by our designers from various sources, including the
+review and analysis of modern music, television, cinema, clothing, alternative sports and other
+trend-setting media; traveling to domestic and international fashion markets to identify and
+confirm current trends; consulting with our retail and e-commerce customers for information on
+current retail selling trends; participating in major footwear trade shows to stay abreast of
+popular brands, fashions and styles; and subscribing to various fashion and color information
+services. In addition, a key component of our design philosophy is to continually reinterpret and
+develop our successful styles in our brands’ image.
+The footwear design process typically begins about nine months before the start of a season.
+Our products are designed and developed primarily by our in-house design staff. To promote
+innovation and brand relevance, we utilize dedicated design teams, who report to our senior design
+executives and focus on each of the men’s, women’s and children’s categories. In addition, we
+utilize outside design firms on an item-specific basis to supplement our internal design efforts.
+The design process is extremely collaborative, as members of the design staff frequently meet with
+the heads of retail, merchandising, sales, production and sourcing to further refine our products
+to meet the particular needs of the target market.
+After a design team arrives at a consensus regarding the fashion themes for the coming season,
+the designers then translate these themes into our products. These interpretations include
+variations in product color, material structure and embellishments, which are arrived at after
+close consultation with our production department. Prototype blueprints and specifications are
+created and forwarded to our manufacturers for a design prototype. The design prototypes are then
+sent back to our design teams. Our major retail customers may also review these new design
+concepts. Customer input not only allows us to measure consumer reaction to the latest designs, but
+also affords us an opportunity to foster deeper and more collaborative relationships with our
+customers. We also occasionally order limited production runs that may initially be tested in our
+concept stores. By working closely with store personnel, we obtain customer feedback that often
+influences product design and development. Our design teams can easily and quickly modify and
+refine a design based on customer input. Generally, the production process can take six months to
+nine months from design concept to commercialization.
+SOURCING
+Factories. Our products are produced by independent contract manufacturers located primarily
+in China and, to a lesser extent, in Italy, Vietnam, Brazil and various other countries. We do not
+own or operate any manufacturing facilities as we believe that the use of independent manufacturers
+substantially increases our production flexibility and capacity while reducing capital expenditures
+and avoiding the costs of managing a large production work force.
+When possible, we seek to use manufacturers that have previously produced our footwear, which
+we believe enhances continuity and quality while controlling production costs. We attempt to
+monitor our selection of independent factories to ensure that no one manufacturer is responsible
+for a disproportionate amount of our merchandise. We source product for styles that account for a
+significant percentage of our net sales from at least four different manufacturers. During 2008,
+four of our contract manufacturers accounted for approximately 58.2% of total purchases. One
+manufacturer accounted for 30.6%, and one other accounted for over 10.0% of our total purchases. To
+date, we have not experienced difficulty in obtaining manufacturing services.
+We finance our production activities in part through the use of interest-bearing open purchase
+arrangements with certain of our Asian manufacturers. These facilities currently bear interest at a
+rate between 0% and 1.5% for 30 to 60 days financing, depending on the factory. We believe that the
+use of these arrangements afford us additional liquidity and flexibility. We do not have any
+long-term contracts with any of our manufacturers; however, we have long-standing relationships
+with many of our manufacturers and believe our relationships to be good.
+We closely monitor sales activity after initial introduction of a product in our concept
+stores to determine whether there is substantial demand for a style, thereby aiding us in our
+sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming
+collections or offered as part of our periodic style offerings, while less popular styles can be
+discontinued after only a limited production run. We believe that sales in our concept stores can
+also help forecast sales in national retail stores, and we share this sales information with our
+wholesale customers. Sales, merchandising, production and allocations management analyze historical
+and current sales and market data from our wholesale account base and our own retail stores to
+develop an internal product quantity forecast that allows us to better manage our future production
+and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock
+position to minimize the time necessary to fill customer orders by placing orders with our
+manufacturers prior to the time we receive customers’ orders for such footwear.
+6 
+Table of Contents 
+Production Oversight . To safeguard product quality and consistency, we oversee the key aspects
+of production from initial prototype manufacture through initial production runs to final
+manufacture. Monitoring of all production is performed in the United States by our in-house
+production department and in Asia through an approximately 200-person staff working from our
+offices in China. We believe that our Asian presence allows us to negotiate supplier and
+manufacturer arrangements more effectively, decrease product turnaround time and ensure timely
+delivery of finished footwear. In addition, we require our manufacturers to certify that neither
+convicted, forced nor indentured labor (as defined under U.S. law) nor child labor (as defined by
+law in the manufacturer’s country) is used in the production process, and that compensation will be
+paid according to local law and that the factory is in compliance with local safety regulations.
+Quality Control. We believe that quality control is an important and effective means of
+maintaining the quality and reputation of our products. Our quality control program is designed to
+ensure that not only finished goods meet our established design specifications, but also that all
+goods bearing our trademarks meet our standards for quality. Our quality control personnel located
+in China perform an array of inspection procedures at various stages of the production process,
+including examination and testing of prototypes of key raw materials prior to manufacture, samples
+and materials at various stages of production and final products prior to shipment. Our employees
+are on-site at each of our major manufacturers to oversee production. For some of our lower volume
+manufacturers, our staff is on-site during significant production runs or we will perform
+unannounced visits to their manufacturing sites to further monitor compliance with our
+manufacturing specifications.
+ADVERTISING AND MARKETING
+With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted approach to
+marketing to drive traffic, build brand recognition and properly position our diverse lines within
+the marketplace. Senior management is directly involved in shaping our image and the conception,
+development and implementation of our advertising and marketing activities. The focus of our
+marketing plan is print and television advertising, which is supported by outdoor, trend-influenced
+marketing, public relations, promotions and in-store support. In addition, we utilize celebrity
+endorsers in our advertisements. We also believe our websites and trade shows are effective
+marketing tools to both consumers and corporate accounts. We have historically budgeted advertising
+as a percentage of projected net sales.
+The majority of our advertising is conceptualized by our in-house design team. We believe that
+our advertising strategies, methods and creative campaigns are directly related to our success.
+Through our lifestyle and image-driven advertising, we generally seek to build and increase brand
+awareness by linking the Skechers brand and our fashion and street brands to youthful, contemporary
+lifestyles and attitudes. We have built on this approach by featuring select styles in our
+lifestyle ads. In addition to our compelling Skechers lifestyle ads, we have also created product
+specific ads for our men’s lines to appeal to men as well as women who purchase footwear for men.
+Our ads are designed to provide merchandise flexibility and to facilitate the “brands and product
+designs” direction of evolving footwear fashions and consumer preferences.
+To further build brand awareness and influence consumer spending, we have selectively signed
+endorsement agreements with celebrities whom we believe would reach new markets. In 2008, we signed
+American Idol winner David Cook to appear in Skechers marketing campaigns through 2009. In past
+years, we had similar endorsement agreements for Skechers with singers Ashlee Simpson, Carrie
+Underwood, Christina Aguilera and Britney Spears, professional basketball player and actor Rick
+Fox, and actors Robert Downey, Jr., Matt Dillon and Rob Lowe. From time to time, we may sign other
+celebrities to endorse our brand name and image in order to strategically market our products among
+specific consumer groups in the future.
+In addition to advertising our Skechers branded lines through men’s, women’s and children’s
+ads, we also support Mark Nason, 310 Premium Footwear, Marc Ecko, Zoo York, Punkrose and Bebe Sport
+lines through individual unique print and/or television advertisements – some of which may include
+celebrity endorsees. For Mark Nason, we have focused on key-selling styles in product-driven ads
+that captured the brand’s essence. For the Marc Ecko footwear brands, Marc Ecko’s design team has
+created relevant targeted print and television commercials for men and women. These include a
+multi-media men’s campaign featuring our graffiti painted shoe as well commercials for Unltd. by
+Marc Ecko for boys. During 2008, High School Musical stars Ashley Tisdale and Vanessa Hudgens were
+the faces of Red by Marc Ecko, appearing in print, outdoor and television advertisements. Vanessa
+Hudgens will continue through 2009. For Punkrose, the approach has been lifestyle advertisements
+that embrace the feeling of the footwear. During 2008, Bebe Sport was supported by actress Eva
+Longoria who appeared in the print advertisements.
+With a targeted approach, our print ads appear regularly in popular fashion and lifestyle
+consumer publications, such as GQ, Cosmopolitan, Elle, Lucky, In Style, Seventeen, Maxim, Men’s
+Fitness, and Complex, as well as in weekly publications such as People, 
+7 
+Table of Contents 
+Us Weekly, Star, Sports Illustrated and InTouch, among others. Our advertisements also appear
+in international magazines around the world.
+Our television commercials are produced both in-house and through producers that we have
+utilized in the past and who are familiar with our brands. In 2008, we developed commercials for
+men, women and children for our Skechers brands, including our animated spots for kids featuring
+our own action heroes. We have found these to be a cost-effective way to advertise during key
+national and cable programming in high selling seasons. In 2008, for the first time, we translated
+our commercials into multiple languages and aired the spots in Brazil, Canada, United Kingdom,
+France, the Benelux Region, Germany, Spain, Italy, Austria and Switzerland.
+Outdoor. In an effort to reach consumers where they shop and in high-traffic areas as they
+travel to and from work, we continued our multi-level outdoor campaign that included kiosks in key
+malls across the United States and billboards, transportation systems and telephone kiosks in North
+America and Europe. We believe these are effective and efficient ways to reach a broad range of
+consumers and leave a lasting impression for our brands.
+Trend-Influenced Marketing/Public Relations. Our public relations objectives are to secure
+product placement in key fashion magazines, place our footwear on the feet of trend-setting
+celebrities, and gain positive and accurate press on our company. Through our commitment to
+aggressively promote our upcoming styles, our products are often featured in leading fashion and
+pop culture magazines, as well as in select films and popular television shows. Our footwear and
+our company have been prominently displayed and referenced on news and magazine shows
+including Oprah , Extra, Laura Ingraham on Fox News and E! ; and on television programs,
+including Burn Notice, The Hills, The Bachelorette, and America’s Next Top Model , among others.
+We have also amassed an array of prominent product placements in magazines including Lucky,
+Seventeen, OK!, US Weekly, Mens Fitness, Slam, Dime and Footwear News . In addition, our brands have
+been associated with cutting edge events and select celebrities, and our product has been seen worn
+by trend-setters like Denis Leary, Vin Diesel, Forest Whitaker and Vanessa Hudgens.
+Promotions. By applying creative sales techniques via a broad spectrum of media, our marketing
+team seeks to build brand recognition and drive traffic to Skechers’ retail stores, websites and
+our retail partners’ locations. Skechers’ promotional strategies have encompassed in-store
+specials, charity events, product tie-ins and giveaways, and collaborations with national retailers
+and radio stations. Our imaginative promotions are consistent with Skechers’ imaging and lifestyle.
+Visual Merchandising. Our in-house visual merchandising department supports wholesale
+customers, distributors and our retail stores by developing displays that effectively leverage our
+products at the point of sale. Our point-of-purchase display items include signage, graphics,
+displays, counter cards, banners and other merchandising items for each of our brands. These
+materials mirror the look and feel of each brand and reinforce the image as well as draw consumers
+into stores.
+Our visual merchandising coordinators (“VMC’s”) work with our sales force and directly with
+our customers to ensure better sell-through at the retail level by generating greater consumer
+awareness through Skechers brand displays. Our VMC’s communicate with and visit our wholesale
+customers on a regular basis to aid in proper display of our merchandise. They also run in-store
+promotions to enhance the sale of Skechers footwear and create excitement surrounding the Skechers
+brand. We believe that these efforts help stimulate impulse sales and repeat purchases.
+Trade Shows. To better showcase our diverse products to footwear buyers in the United States
+and Europe and to distributors around the world, we regularly exhibit at leading trade shows. Along
+with specialty trade shows, we exhibit at WSA’s The Shoe Show, FFANY, ASR and MAGIC in the United
+States; GDS, MICAM, Bread & Butter, MODA, Mess Around and Who’s Next in Europe; and Couromoda in
+Brazil. Our dynamic, state-of-the-art trade show exhibits are developed by our in-house architect
+to showcase our latest product offerings in a lifestyle setting reflective of each of our brands.
+By investing in innovative displays and individual rooms showcasing each line, our sales force can
+present a sales plan for each line and buyers are able to truly understand the breadth and depth of
+our offerings, thereby optimizing commitments and sales at the retail level.
+Internet.
+We also promote our brands through our e-commerce websites
+www.skechers.com and
+www.soholab.com . We have also established a unique Internet website for Mark Nason
+( www.marknason.com ) designed to serve primarily as a marketing tool. These websites currently
+enable us to present information on our products, provide a brand experience and store locations to
+consumers, and allow consumers the ability to directly order products on the Internet. These sites
+also provide us a mechanism for customer feedback as well as allowing us to receive and respond
+directly to consumer feedback. Our websites are intended to enhance the Skechers and fashion
+brands, and to increase sales through all our retail channels. Our websites also allow us to
+leverage our brand awareness at a lower cost than traditional distribution channels.
+8 
+Table of Contents 
+PRODUCT DISTRIBUTION CHANNELS
+We have four reportable segments – domestic wholesale sales, international wholesale sales,
+retail sales and e-commerce sales. In the United States, our products are available through a
+network of wholesale customers comprised of department, athletic and specialty stores.
+Internationally, our products are available through wholesale customers in more than 100 countries
+and territories via our global network of distributors and our subsidiaries in Asia, Europe, Canada
+and Brazil. Skechers owns and operates retail stores both domestically and internationally through
+three integrated retail formats—concept, factory outlet and warehouse outlet stores. Each of these
+channels serves an integral function in the global distribution of our products. Fifteen
+distributors have opened 94 distributor-owned Skechers retail stores in 25 countries as of December
+31, 2008.
+Domestic Wholesale. We distribute our footwear through the following domestic wholesale
+distribution channels: department stores, specialty stores, athletic shoe stores and independent
+retailers, as well as catalog and Internet retailers. While department stores and specialty
+retailers are the largest distribution channels, we believe that we appeal to a variety of
+wholesale customers, many of whom may operate stores within the same retail location due to our
+distinct product lines, variety of styles and the price criteria of their specific customers.
+Management has a clearly defined growth strategy for each of our channels of distribution. An
+integral component of our strategy is to offer our accounts the highest level of customer service
+so that our products will be fully represented in existing retail locations and new locations of
+each customer.
+In an effort to provide knowledgeable and personalized service to our wholesale customers, the
+sales force is segregated by product line, each of which is headed by a vice president or national
+sales manager. Reporting to each sales manager are knowledgeable account executives and territory
+managers. Our vice presidents and national sales managers report to a senior vice president of
+sales. All of our vice presidents and national sales managers are compensated on a salary basis,
+while our account executives and territory managers are compensated on a commission basis. None of
+our domestic sales personnel sells competing products.
+We believe that we have developed a loyal customer base through exceptional customer service.
+We believe that our close relationships with these accounts help us to maximize their retail
+sell-throughs. Our visual merchandise coordinators work with our wholesale customers to ensure that
+our merchandise and point-of-purchase marketing materials are properly presented. Sales executives
+and merchandise personnel work closely with accounts to ensure that appropriate styles are
+purchased for specific accounts and for specific stores within those accounts as well as to ensure
+that appropriate inventory levels are carried at each store. Such information is then utilized to
+help develop sales projections and determine the product needs of our wholesale customers. The
+value-added services we provide our wholesale customers help us maintain strong relationships with
+our existing wholesale customers and attract potential new wholesale customers.
+International Wholesale. Our products are sold in more than 100 countries and territories
+throughout the world. We generate revenues from outside the United States from three principal
+sources: (i) direct sales to department stores and specialty retail stores through our subsidiaries
+in Canada, France, Germany, Spain, Portugal, Italy, Switzerland, Austria, Malaysia, Thailand, the
+Benelux Region, the United Kingdom and Brazil; (ii) sales to foreign distributors who distribute
+our footwear to department stores and specialty retail stores in countries and territories across
+Eastern Europe, Asia, Latin America, South America, Africa, the Middle East and Australia, among
+other regions; and (iii) to a lesser extent, royalties from licensees who manufacture and
+distribute our non-footwear products outside the United States.
+We believe that international distribution of our products represents a significant
+opportunity to increase sales and profits. We intend to further increase our share of the
+international footwear market by heightening our marketing in those countries in which we currently
+have a presence through our international advertising campaigns, which are designed to establish
+Skechers as a global brand synonymous with trend-right casual shoes.
+• 
+International Subsidiaries 
+Europe 
+We currently distribute product in most of Western Europe through the following
+subsidiaries: Skechers USA Ltd., with its offices and showrooms in London, England; Skechers
+S.a.r.l., with its offices and showrooms in Lausanne, Switzerland; Skechers USA France
+S.A.S., with its offices and showrooms in Paris, France; Skechers USA Deutschland GmbH, with
+its offices and showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L., with its
+offices and showrooms in Madrid,
+9 
+Table of Contents 
+Spain; Skechers USA Benelux B.V., with its offices and showrooms in Waalwijk, the
+Netherlands; and Skechers USA Italia S.r.l., with its offices and showroom in Verona, Italy.
+Skechers-owned retail stores in Europe include eight concept stores and two factory
+outlet stores located in six countries, including the key locations of Oxford Street in
+London, Alstadt District in Düsseldorf and Kalverstraat Street in Amsterdam.
+To accommodate our European subsidiaries’ operations, we operate an approximately
+240,000 square foot distribution center in Liege, Belgium. This distribution center is
+currently used to store and deliver product to our subsidiaries and retail stores throughout
+Europe. During 2008, we entered into a lease to add an additional 250,000 square foot
+distribution facility adjacent to our existing facility which we expect to occupy in 2009.
+Canada 
+Merchandising and marketing of our product in Canada is managed by our wholly-owned
+subsidiary, Skechers USA Canada, Inc. with its offices and showrooms outside Toronto in
+Mississauga, Ontario. Product sold in Canada is primarily sourced from our U.S. distribution
+center in Ontario, California. We have two concept stores, Toronto’s Eaton Centre and West
+Edmonton Mall, and one factory outlet store in Toronto.
+Malaysia, Singapore and Thailand 
+Merchandising and marketing of our product in Malaysia and Thailand is managed by two of
+our subsidiaries, Skechers Malaysia Sdn. Bhd. and Skechers (Thailand) Limited with their
+respective offices in Kuala Lumpur and Bangkok. Product sold in these countries is primarily
+sourced from a third party distribution center in Selangor, Malaysia. We have six concept
+stores in Malaysia and Thailand: three in Kuala Lumpur, two in Selangor, and one in Bangkok.
+We also established a subsidiary in Singapore, Skechers Singapore Pte. Ltd. We entered into
+an agreement in November 2008 to contribute certain assets and shares of stock of these
+subsidiaries to Skechers Southeast Asia Limited, a joint venture in which we have a 50%
+interest.
+Brazil 
+Merchandising and marketing of our product in Brazil is managed by our wholly-owned
+subsidiary, Skechers Do Brasil Calcados LTDA., with its offices located in Sao Paulo, Brazil.
+Product sold in Brazil is primarily shipped directly from our contract manufacturers’
+factories in China and occasionally from our U.S. distribution center in Ontario, California.
+China and Hong Kong 
+We have a 50% interest in a joint venture in China and a minority interest in a joint
+venture in Hong Kong that generate net sales in those countries. Under the joint venture
+agreements, the joint venture partners contribute capital in proportion to their respective
+ownership interests. The joint ventures operate 15 direct-owned stores and in excess of 90
+shops-in-shop in China and 6 direct-owned stores and 11 shops-in-shop in Hong Kong. The
+joint ventures are included in our 2008 consolidated financial statements.
+• 
+Distributors 
+Outside of Western Europe and Canada, our footwear is distributed through an extensive
+network of more than 30 distributors who sell our products to department, athletic and
+specialty stores in more than 100 countries around the world. Through agreements with 15 of
+these distributors, 94 distributor-owned Skechers retail stores are open in 25 countries,
+including 37 stores that were opened in 2008, while three distributor-owned stores were
+closed.
+10 
+Table of Contents 
+STORE 
+NUMBER OF 
+REGION 
+FORMAT 
+STORES 
+LOCATION (1) 
+Asia 
+Concept
+16 
+Japan (2); Korea (10); Philippines (2); Taiwan (2) 
+Warehouse
+4 
+Japan (4) 
+Australia 
+Concept
+2 
+Melbourne, Sydney 
+Warehouse
+5 
+Cairns, Canberra, Melbourne, Perth, Sydney 
+Central America/ South America 
+Concept
+38 
+Chile (10); Columbia (9); Ecuador (2); Guatemala (2); Panama (2); Peru (3); Venezuela (10) 
+Eastern Europe 
+Concept
+10 
+Czech Republic; Russia (7); Turkey; Ukraine 
+Northern Europe 
+Concept
+7 
+Denmark; Estonia (2); Finland; Lithuania (3) 
+Middle East 
+Concept
+10 
+Bahrain (2); Kuwait (2); Saudi Arabia; UAE (5) 
+Warehouse
+1 
+UAE 
+South Africa 
+Concept
+1 
+Sandton 
+(1) 
+One store per location except as otherwise noted. 
+The distributors are responsible for their respective stores’ operations, have ownership
+of their respective stores’ assets, and select the broad collection of our products to sell
+to consumers in their regions. In order to maintain a globally consistent image, we provide
+architectural, graphic and visual guidance and materials for the design of the stores, and we
+train the local staff on our products and corporate culture. We intend to expand our
+international presence and global recognition of the Skechers brand name by continuing to
+sell our footwear to foreign distributors and by opening flagship retail stores with
+distributors that have local market expertise.
+Retail Stores. We pursue our retail store strategy through our three integrated retail
+formats: the concept store, the factory outlet store and the warehouse outlet store. Our three
+store formats enable us to promote the full Skechers product offering in an attractive environment
+that appeals to a broad group of consumers. In addition, most of our retail stores are profitable
+and have a positive effect on our operating results. As of February 15, 2009, we owned and operated
+84 concept stores, 83 factory outlet stores and 37 warehouse outlet stores in the United States,
+and 16 concept stores and three factory outlet stores internationally. We closed two stores and
+opened 34 new stores in 2008. We plan to open an additional 15 to 18 domestic stores and two
+international stores by the end of 2009.
+• 
+Concept Stores. 
+Our concept stores are located at either marquee street locations or in major shopping
+malls in large metropolitan cities. Our concept stores have a threefold purpose in our
+operating strategy. First, concept stores serve as a showcase for a wide range of our product
+offering for the current season as we estimate that our average wholesale customer carries no
+more than 5% of the complete Skechers line in any one location. Our concept stores showcase
+our products in a cutting-edge, open-floor setting, providing the customer with the complete
+Skechers story. Second, retail locations are generally chosen to generate maximum marketing
+value for the Skechers brand name through signage, store front presentation and interior
+design. Domestic locations include concept stores at Times Square and 34th Street in New
+York, Powell Street in San Francisco, Hollywood and Highland in Hollywood, Santa Monica’s
+Third Street Promenade, Dallas’ Northpark Center, Las Vegas’ Fashion Show Mall, Seattle’s
+Bellevue Square Mall, and Woodfield Mall outside Chicago. International locations include
+Oxford Street in London, Alstadt District in Dusseldorf, Toronto’s Eaton Centre, and
+Kalverstraat Street in Amsterdam. The stores are typically designed to create a distinctive
+Skechers look and feel, and enhance customer association of the Skechers brand name with
+current youthful lifestyle trends and styles. Third, the concept stores serve as marketing
+and product testing venues. We believe that product sell-through information and rapid
+customer feedback derived from our concept stores enables our design, sales, merchandising
+and production staff to respond to market changes and new product introductions. Such
+responses serve to augment sales and limit our inventory markdowns and customer returns and
+allowances. We opened 19 domestic concept stores and three international concept stores, and
+we closed two domestic concept stores in 2008.
+The typical Skechers concept store is approximately 2,500 square feet, although in
+certain markets we have opened concept stores as large as 7,800 square feet or as small as
+1,500 square feet. When deciding where to open concept stores, we
+11 
+Table of Contents 
+identify top geographic
+markets in the larger metropolitan cities in the United States, Canada, Europe and Asia. When
+selecting a specific site, we evaluate the proposed sites’ traffic pattern, co-tenancies,
+sales volume of neighboring concept stores, lease economics and other factors considered
+important within the specific location. If we are considering opening a concept store in a
+shopping mall, our strategy is to obtain space as centrally located as possible in the mall
+where we expect foot traffic to be most concentrated. We believe that the strength of the
+Skechers brand name has enabled us to negotiate more favorable terms with shopping malls that
+want us to open up concept stores to attract customer traffic to their venues.
+• 
+Factory Outlet Stores. 
+Our factory outlet stores are generally located in manufacturers’ direct outlet centers
+throughout the United States. In addition, we have three international outlet stores – one
+in Canada, one in England, and one in Scotland. Our factory outlet stores provide
+opportunities for us to sell discontinued and excess merchandise, thereby reducing the need
+to sell such merchandise to discounters at excessively low prices and potentially compromise
+the Skechers brand image. Skechers’ factory outlet stores range in size from approximately
+1,900 to 9,000 square feet. Inventory in these stores is supplemented by certain first-line
+styles sold at full retail price points. We opened 10 domestic
+factory outlet stores and one international factory outlet store in 2008.
+• 
+Warehouse Outlet Stores. 
+Our free-standing warehouse outlet stores, which are located throughout the United
+States, enable us to liquidate excess merchandise, discontinued lines and odd-size inventory
+in a cost-efficient manner. Skechers’ warehouse outlet stores range in size from
+approximately 5,200 to 13,500 square feet. Our warehouse outlet stores enable us to sell
+discontinued and excess merchandise that would otherwise typically be sold to discounters at
+excessively low prices, which could otherwise compromise the Skechers brand image. We seek to
+open our warehouse outlet stores in areas that are in close proximity to our concept stores
+in order to facilitate the timely transfer of inventory that we want to liquidate as soon as
+practicable. We opened two new domestic warehouse outlet stores in 2008.
+Electronic
+Commerce. Our websites, www.skechers.com and
+www.soholab.com are virtual
+storefronts that promote the Skechers and Fashion and Street Division’s brands. Our websites are
+designed to provide a positive shopping and brand experience, showcasing our products in an
+easy-to-navigate format, allowing consumers to browse our selections and purchase our footwear.
+These virtual stores have provided a convenient alternative-shopping environment and brand
+experience. These websites are an efficient and effective additional retail distribution channel,
+and they have improved our customer service.
+LICENSING
+We believe that selective licensing of the Skechers brand name and our product line names to
+manufacturers may broaden and enhance the individual brands without requiring significant capital
+investments or additional incremental operating expenses. Our multiple product lines plus
+additional subcategories present many potential licensing opportunities on terms with licensees
+that we believe will provide more effective manufacturing, distribution or marketing of
+non-footwear products. We also believe that the reputation of Skechers and its history in launching
+brands has also enabled us to partner with reputable non-footwear brands in order to design and
+market their footwear.
+As of January 31, 2009, we had 12 active domestic and international licensing agreements in
+which we are the licensor. We have international licensing agreements for the design and
+distribution of men’s and women’s active apparel in Israel; men’s and women’s apparel in select
+European countries; bags in select Central and South American countries; watches in the
+Philippines; and apparel in Japan and Korea.
+Additionally, we have signed agreements to design, develop and market footwear for the street
+lifestyle apparel brands Ecko Unltd., Ecko Red, Red by Marc Ecko, and Zoo York under the Marc Ecko
+Enterprises umbrella as well as TapouT and Bebe Sport.
+DISTRIBUTION FACILITIES AND OPERATIONS
+We believe that strong distribution support is a critical factor in our operations. Once
+manufactured, our products are packaged in shoe boxes bearing bar codes that are shipped either (i)
+to our five distribution centers located in Ontario, California, which measure in aggregate
+approximately 1.7 million square-feet; (ii) to our approximately 240,000 square-foot distribution
+center located in Liege, Belgium or (iii) directly from third-party manufacturers to our other
+international customers and other international third party distribution centers. Upon receipt at
+either of the distribution centers, merchandise is inspected and recorded in our management
+12 
+Table of Contents 
+information system and packaged according to customers’ orders for delivery. Merchandise is shipped
+to customers by whatever means each customer requests, which is usually by common carrier. The
+distribution centers have multi-access docks, enabling us to receive and ship simultaneously, and
+to pack separate trailers for shipments to different customers at the same time. We have an
+electronic data interchange system, or EDI system, to which some of our larger customers are
+linked. This system allows these customers to automatically place orders with us, thereby
+eliminating the time involved in transmitting and inputting orders, and it includes direct billing
+and shipping information.
+During 2007, we entered into an eleven-year lease to build a new 1.8 million square foot
+distribution facility in Moreno Valley, California, which when completed we expect to occupy in
+2010. This single facility will replace the existing five facilities located in
+Ontario, California, of which four are on short-term leases. In addition during 2008, we
+entered into a twenty-year lease to add an additional 250,000 square foot distribution facility
+adjacent to our existing facility in Liege, Belgium, which we expect to occupy in 2009.
+BACKLOG
+As of December 31, 2008, our backlog was $325.3 million, compared to $416.5 million as of
+December 31, 2007. Backlog orders are subject to cancellation by customers, as evidenced by the
+cancellations that we have recently experienced due to the weakening U.S. economy. For a variety
+of reasons, including changes in the economy, customer demand for our products, the timing of
+shipments, product mix of customer orders, the amount of in-season orders and a shift towards
+tighter lead times within backlog levels, backlog may not be a reliable measure of future sales for
+any succeeding period.
+INTELLECTUAL PROPERTY RIGHTS
+We own and utilize a variety of trademarks, including the Skechers trademark. We have a
+significant number of both registrations and pending applications for our trademarks in the United
+States. In addition, we have trademark registrations and trademark applications in approximately 94
+foreign countries. We also have design patents and pending design and utility patent applications
+in both the United States and approximately 27 foreign countries. We continuously look to increase
+the number of our patents and trademarks both domestically and internationally where necessary to
+protect valuable intellectual property. We regard our trademarks and other intellectual property as
+valuable assets and believe that they have significant value in the marketing of our products. We
+vigorously protect our trademarks against infringement, including through the use of cease and
+desist letters, administrative proceedings and lawsuits.
+We rely on trademark, patent, copyright and trade secret protection, non-disclosure agreements
+and licensing arrangements to establish, protect and enforce intellectual property rights in our
+logos, tradenames and in the design of our products. In particular, we believe that our future
+success will largely depend on our ability to maintain and protect the Skechers trademark and other
+key trademarks. Despite our efforts to safeguard and maintain our intellectual property rights, we
+cannot be certain that we will be successful in this regard. Furthermore, we cannot be certain that
+our trademarks, products and promotional materials or other intellectual property rights do not or
+will not violate the intellectual property rights of others, that our intellectual property would
+be upheld if challenged, or that we would, in such an event, not be prevented from using our
+trademarks or other intellectual property rights. Such claims, if proven, could materially and
+adversely affect our business, financial condition and results of operations. In addition, although
+any such claims may ultimately prove to be without merit, the necessary management attention to and
+legal costs associated with litigation or other resolution of future claims concerning trademarks
+and other intellectual property rights could materially and adversely affect our business,
+financial condition and results of operations. We have sued and have been sued by third parties for
+infringement of intellectual property. It is our opinion that none of these claims has materially
+impaired our ability to utilize our intellectual property rights.
+The laws of certain foreign countries do not protect intellectual property rights to the same
+extent or in the same manner as do the laws of the United States. Although we continue to implement
+protective measures and intend to defend our intellectual property rights vigorously, these efforts
+may not be successful or the costs associated with protecting our rights in certain jurisdictions
+may be prohibitive. From time to time we discover products in the marketplace that are counterfeit
+reproductions of our products or that otherwise infringe upon intellectual property rights held by
+us. Actions taken by us to establish and protect our trademarks and other intellectual property
+rights may not be adequate to prevent imitation of our products by others or to prevent others from
+seeking to block sales of our products as violating trademarks and intellectual property rights. If
+we are unsuccessful in challenging a third party’s products on the basis of infringement of our
+intellectual property rights, continued sales of such products by that or any other third party
+could adversely impact the Skechers brand, result in the shift of consumer preferences away from
+our products and generally have a material adverse effect on our business, financial condition and
+results of operations.
+13 
+Table of Contents 
+COMPETITION
+Competition in the footwear industry is intense. Although we believe that we do not compete
+directly with any single company with respect to its entire range of products, our products compete
+with other branded products within their product category as well as with private label products
+sold by retailers, including some of our customers. Our utility footwear and casual shoes compete
+with footwear offered by companies such as The Timberland Company, Dr. Martens, Kenneth Cole
+Productions Inc., Steven Madden, Ltd., Wolverine World Wide, Inc., and V.F. Corporation. Our
+athletic lifestyle shoes compete with footwear offered by companies such as Nike, Inc., adidas AG,
+Puma AG, New Balance Athletic Shoe, Inc. and K-Swiss Inc. Our children’s shoes compete with
+footwear
+offered by companies such as Collective Brands Inc. In varying degrees, depending on the
+product category involved, we compete on the basis of style, price, quality, comfort and brand name
+prestige and recognition, among other considerations. These and other competitors pose challenges
+to our market share in our major domestic markets and may make it more difficult to establish our
+products in Europe, Asia and other international regions. We also compete with numerous
+manufacturers, importers and distributors of footwear for the limited shelf space available for the
+display of such products to the consumer. Moreover, the general availability of contract
+manufacturing capacity allows ease of access by new market entrants. Many of our competitors are
+larger, have been in existence for a longer period of time, have achieved greater recognition for
+their brand names, have captured greater market share and/or have substantially greater financial,
+distribution, marketing and other resources than we do. We cannot be certain that we will be able
+to compete successfully against present or future competitors, or that competitive pressures will
+not have a material adverse effect on our business, financial condition and results of operations.
+EMPLOYEES
+As of February 1, 2009, we employed 4,130 persons, 2,112 of whom were employed on a full-time
+basis and 2,018 of whom were employed on a part-time basis. None of our employees is subject to a
+collective bargaining agreement. We believe that our relations with our employees are satisfactory.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2008/0000950134-09-004222/item13.txt b/raw/filings/0001065837/2008/0000950134-09-004222/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..34b44167e2b76e9c8c088607ba8d56fa29481444
--- /dev/null
+++ b/raw/filings/0001065837/2008/0000950134-09-004222/item13.txt
@@ -0,0 +1,4 @@
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+The information required by this Item 13 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2008 fiscal year.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2008/0000950134-09-004222/item9a.txt b/raw/filings/0001065837/2008/0000950134-09-004222/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5d4743fd0eef821b97ebdecf16ca02aa38be8454
--- /dev/null
+++ b/raw/filings/0001065837/2008/0000950134-09-004222/item9a.txt
@@ -0,0 +1,67 @@
+ITEM 9A. CONTROLS AND PROCEDURES 
+Attached as exhibits to this annual report on Form 10-K are certifications of our Chief
+Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance
+with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This
+“Controls and Procedures” section includes information concerning the controls and controls
+evaluation referred to in the certifications.
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
+The term “disclosure controls and procedures” refers to the controls and other procedures of a
+company that are designed to provide reasonable assurance that information required to be disclosed
+by a company in the reports that it files or submits under the Exchange Act, is recorded,
+processed, summarized and reported within required time periods. We have established disclosure
+controls and procedures to ensure that material information relating to Skechers and its
+consolidated subsidiaries is made known to the officers who certify our financial reports, as well
+as other members of senior management and the Board of Directors, to allow timely decisions
+regarding required disclosures. As of the end of the period covered by this annual report on Form
+10-K, we carried out an evaluation under the supervision and with the participation of our
+management, including our CEO and CFO, of the effectiveness of the design and operation of our
+disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that
+evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective.
+61 
+Table of Contents 
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
+Our management is responsible for establishing and maintaining adequate internal control over
+financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal
+control over financial reporting includes those policies and procedures that (i) pertain to the
+maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
+and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in accordance with generally accepted
+accounting principles, and that our receipts and expenditures are being made only in accordance
+with authorizations of our management and directors; and (iii) provide reasonable assurance
+regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
+assets that could have a material effect on our financial statements.
+We conducted an evaluation of the effectiveness of our internal control over financial
+reporting based on the framework in Internal Control — Integrated Framework issued by the Committee
+of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the
+framework in Internal Control- Integrated Framework, our management has concluded that as of
+December 31, 2008, our internal control over financial reporting is effective.
+Our independent registered public accountants, KPMG LLP, audited the consolidated financial
+statements included in this annual report on Form 10-K and have issued an attestation report on the
+effectiveness of our internal control over financial reporting as of December 31, 2008, which is
+included in Part II, Item 8 of this annual report on Form 10-K.
+INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
+Our management, including our Chief Executive Officer and Chief Financial Officer, does not
+expect that our disclosure controls and procedures or our internal control over financial reporting
+will prevent or detect all error and all fraud. A control system, no matter how well designed and
+operated, can provide only reasonable, not absolute, assurance that the control system’s objectives
+will be met. The design of a control system must reflect the fact that there are resource
+constraints, and the benefits of controls must be considered relative to their costs. Further,
+because of the inherent limitations in all control systems, no evaluation of controls can provide
+absolute assurance that misstatements due to error or fraud will not occur or that all control
+issues and instances of fraud, if any, within the company have been detected. These inherent
+limitations include the realities that judgments in decision-making can be faulty and that
+breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the
+individual acts of some persons, by collusion of two or more people, or by management override of
+the controls. The design of any system of controls is based in part on certain assumptions about
+the likelihood of future events, and there can be no assurance that any design will succeed in
+achieving its stated goals under all potential future conditions. Projections of any evaluation of
+controls effectiveness to future periods are subject to risks. Over time, controls may become
+inadequate because of changes in conditions or deterioration in the degree of compliance with
+policies or procedures.
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
+There were no significant changes to our internal controls over financial reporting that have
+materially affected, or are reasonably likely to materially affect, our internal controls over
+financial reporting during the fourth quarter of 2008, and we have completed our efforts regarding
+compliance with Section 404 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2008.
+The results of our evaluation are discussed above in Management’s Report on Internal Control Over
+Financial Reporting.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2008/0000950134-09-004222/rp_note.txt b/raw/filings/0001065837/2008/0000950134-09-004222/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001065837/2008/0000950134-09-004222/rpt_disclosure.txt b/raw/filings/0001065837/2008/0000950134-09-004222/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a6399a9e5859d5cc600244454e59228f6e168473
--- /dev/null
+++ b/raw/filings/0001065837/2008/0000950134-09-004222/rpt_disclosure.txt
@@ -0,0 +1,276 @@
+entitled “Transactions with Related Persons” in
+this proxy statement for a description of transactions between
+the Greenberg Family Trust, of which Robert Greenberg is a
+trustee, Michael Greenberg and our company. To our knowledge,
+unless otherwise indicated in the footnotes to this table and
+subject to applicable community property laws, each person named
+in the table has sole voting and investment power with respect
+to the shares of Class A and Class B Common Stock set
+forth opposite such person’s name. Unless otherwise
+indicated in the footnotes below, the address of each beneficial
+owner listed below is
+c/o Skechers 
+U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan
+Beach, California 90266.
+Number of 
+Percentage of 
+Number of 
+Percentage of 
+Class A Shares 
+Class A Shares 
+Class B Shares 
+Class B Shares 
+Name of Beneficial Owner 
+Beneficially Owned 
+Beneficially Owned 
+Beneficially Owned 
+Beneficially Owned 
+5% stockholders: 
+FMR LLC
+4,469,570
+(1) 
+13.3
+%
+—
+—
+Barclays Global Investors, NA
+2,118,739
+(2) 
+6.3
+Burgundy Asset Management Ltd. 
+1,732,550
+(3) 
+5.2
+—
+—
+Named Executive Officers and directors: 
+Robert Greenberg
+9,983,353
+(4) 
+22.9
+9,968,534
+(5) 
+78.0
+%
+Michael Greenberg
+864,006
+(6) 
+2.5
+749,991
+(7) 
+5.9
+Jeffrey Greenberg
+759,969
+(8) 
+2.2
+624,834
+(9) 
+4.9
+David Weinberg
+288,216
+(10) 
+*
+—
+—
+Mark Nason
+137,684
+(11) 
+*
+—
+—
+Frederick Schneider
+74,592
+(12) 
+*
+—
+—
+Philip Paccione
+20,130
+(13) 
+*
+——
+Morton D. Erlich
+12,500
+(14) 
+*
+—
+—
+Geyer Kosinski
+39,500
+(15) 
+*
+—
+—
+Richard Siskind
+93,833
+(16) 
+*
+—
+—
+All current directors and executive officers as a group
+(10 persons)
+12,273,783
+(17) 
+27.3
+%
+11,343,359
+88.7
+%
+*
+Less than 1.0%
+(1)
+Information is based on a
+Schedule 13G filed with the SEC on February 17, 2009
+and represents the number of shares beneficially owned as of
+December 31, 2008. The principal business office of FMR LLC
+(“FMR”) and its subsidiary and related funds as set
+forth below are located at 82 Devonshire Street, Boston,
+Massachusetts, 02109. FMR filed as a parent holding company.
+Fidelity Management & Research Company
+(“Fidelity”), a wholly-owned subsidiary of FMR and an
+investment adviser registered under the Investment Advisers Act
+of 1940, beneficially owns 4,129,625 shares of Class A
+Common Stock. Various persons are reported to have the right to
+receive or the power to direct the receipt of dividends from, or
+the proceeds from the sale of, the Class A Common Stock.
+The interest of one person, Fidelity Low Priced Stock Fund, an
+investment company registered under the Investment Company Act
+of 1940, amounted to 2,750,025 shares of Class A
+Common Stock. Edward C. Johnson 3d, Chairman of FMR, and FMR,
+through its control of Fidelity, and Fidelity’s funds each
+has sole power to dispose of the 4,129,625 shares owned by
+such funds. Neither FMR nor Mr. Johnson has the sole power
+to vote or direct the voting of the shares owned directly by
+Fidelity’s funds, which power resides with the funds’
+Boards of Trustees. Strategic Advisers, Inc., a wholly-owned
+subsidiary of FMR, is the beneficial owner of 2,575 shares
+of Class A Common Stock. Pyramis Global Advisors, LLC
+(“PGALLC”), an indirect wholly-owned subsidiary of
+FMR, is the beneficial owner of 78,700 shares of
+Class A Common Stock. Mr. Johnson and FMR, through its
+control of PGALLC, each has sole dispositive power over the
+78,700 shares and sole power to vote or to
+21
+Table of Contents 
+direct the voting of the
+78,700 shares. Pyramis Global Advisors Trust Company
+(“PGATC”), an indirect wholly-owned subsidiary of FMR,
+is the beneficial owner of 256,770 shares of Class A
+Common Stock. Mr. Johnson and FMR, through its control of
+PGATC, each has sole dispositive power over the
+256,770 shares and sole power to vote or to direct the
+voting of the 256,770 shares. Fidelity International
+Limited (“FIL”) is the beneficial owner of
+1,900 shares of Class A Common Stock. Partnerships
+controlled predominantly by members of the family of
+Mr. Johnson, or trusts for their benefit, own shares of FIL
+voting stock with the right to cast approximately 47% of the
+total votes that may be cast by all holders of FIL voting stock.
+FMR and FIL are separate and independent corporate entities with
+Boards of Directors generally composed of different individuals.
+FMR and FIL are of the view that the shares held by the other
+corporation need not be aggregated for purposes of
+Section 13(d). However, FMR filed the Schedule 13G on
+a voluntary basis as if all of the shares are beneficially owned
+by FMR and FIL on a joint basis.
+(2)
+Information is based on a
+Schedule 13G filed with the SEC on February 5, 2009
+and represents the number of shares beneficially owned as of
+December 31, 2008. Barclays Global Investors, NA. has sole
+voting power with respect to 534,203 shares and sole
+dispositive power with respect to 652,826 shares. Barclays
+Global Fund Advisors has sole voting power with respect to
+1,065,784 shares and sole dispositive power with respect to
+1,443,786 shares. Barclays Global Investors, Ltd has sole
+voting power with respect to 885 shares and sole
+dispositive power with respect to 22,127 shares. The
+principal business offices of Barclays Global Investors, NA. and
+Barclays Global Fund Advisors are located at 400 Howard
+Street, San Francisco, California 94105, and the principal
+business office of Barclays Global Investors, Ltd is located at
+Murray House, 1 Royal Mint Court, London EC3N 4HH, England.
+(3)
+Information is based on a
+Schedule 13G filed with the SEC on February 12, 2009
+and represents the number of shares beneficially owned as of
+December 31, 2008. Burgundy Asset Management Ltd.
+(“Burgundy”) has sole voting power and sole
+dispositive power with respect to 1,732,550 shares. The
+principal business office of Burgundy is located at 181 Bay
+Street, Suite 4510, Toronto, Ontario M5J 2T3, Canada.
+(4)
+Includes 9,968,534 shares of
+Class B Common Stock that are convertible at any time into
+shares of Class A Common Stock on a one-for-one basis.
+Beneficial ownership of these shares is described in greater
+detail in note 5 below.
+(5)
+Represents 9,968,534 shares of
+Class B Common Stock held by the Greenberg Family Trust
+(the “Trust”) that Robert Greenberg, our Chief
+Executive Officer and Chairman of the Board, is deemed to
+beneficially own as a trustee of the Trust. His wife, Susan
+Greenberg, is also a trustee of the Trust and is also deemed to
+beneficially own all shares held by the Trust.
+(6)
+Includes 749,991 shares of
+Class B Common Stock that are convertible at any time into
+shares of Class A Common Stock on a one-for-one basis,
+37,500 shares of Class A Common Stock underlying
+options that are exercisable currently or within 60 days of
+March 31, 2009 and 43,752 shares of Class A
+Common Stock beneficially owned by Michael Greenberg, our
+President and a member of our Board of Directors, indirectly
+through his wife, Wendy Greenberg, and their children.
+Mr. Greenberg disclaims beneficial ownership of these
+43,752 shares except to the extent of his pecuniary
+interest therein. Beneficial ownership of the
+749,991 shares of Class B Common Stock is described in
+greater detail in note 7 below.
+(7)
+Represents 698,691 shares of
+Class B Common Stock held by the Michael and Wendy
+Greenberg Family Trust that Michael Greenberg is deemed to
+beneficially own as trustee of such trust, and
+51,300 shares of Class B Common Stock held in various
+trust accounts for Mr. Greenberg’s minor children and
+of which a third party acts as trustee. Mr. Greenberg
+disclaims beneficial ownership of these 51,300 shares
+except to the extent of his pecuniary interest therein.
+(8)
+Includes 624,834 shares of
+Class B Common Stock that are convertible at any time into
+shares of Class A Common Stock on a one-for-one basis and
+47,260 shares of Class A Common Stock underlying
+options that are exercisable currently or within 60 days of
+March 31, 2009. Also includes 7,034 shares of
+Class A Common Stock held by the Chloe July Greenberg 2004
+Trust and 7,034 shares of Class A Common Stock held by
+the Catherine Elle Greenberg 2006 Trust that Mr. Greenberg
+is deemed to beneficially own as trustee of such trusts.
+Beneficial ownership of the 624,834 shares of Class B
+Common Stock is described in greater detail in note 9 below.
+(9)
+Represents 540,074 shares of
+Class B Common Stock held by the Jeffrey and Lori Greenberg
+Family Trust that Jeffrey Greenberg, a member of our Board of
+Directors, is deemed to beneficially own as trustee of such
+trust. Also represents 36,476 shares of Class B Common
+Stock held by the Chloe July Greenberg 2004 Trust and
+30,000 shares of Class B Common Stock held by the
+Catherine Elle Greenberg 2006 Trust that Mr. Greenberg is
+deemed to beneficially own as trustee of such trusts, and
+10,792 shares of Class B Common Stock held by the
+Chloe July Greenberg custodial account and 7,492 shares of
+Class B Common Stock held by the Catherine Elle Greenberg
+custodial account, for which one of his siblings acts as
+custodian. These trust accounts and custodial accounts are for
+Mr. Greenberg’s two daughters who are minors, and he
+disclaims beneficial ownership of the 18,284 shares held in
+the two custodial accounts except to the extent of his pecuniary
+interest therein.
+(10)
+Includes 98,900 shares of
+Class A Common Stock that David Weinberg, our Chief
+Operating Officer, Executive Vice President and a member of our
\ No newline at end of file
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new file mode 100644
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@@ -0,0 +1,5582 @@
+10-K
+1
+v54794e10vk.htm
+FORM 10-K
+e10vk 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+WASHINGTON, D.C. 20549 
+FORM 10-K 
+(Mark One) 
+þ 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31, 2009 
+OR 
+o 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
+AND EXCHANGE ACT OF 1934 
+For the transition period from to 
+Commission File Number 001-14429 
+SKECHERS U.S.A., INC. 
+(Exact Name of Registrant as Specified in Its Charter) 
+Delaware 
+95-4376145 
+(State or Other Jurisdiction of Incorporation or Organization) 
+(I.R.S. Employer Identification No.) 
+228 Manhattan Beach Blvd., Manhattan Beach, California 
+90266 
+(Address of Principal Executive Offices) 
+(Zip Code) 
+Registrant’s telephone number, including area code: (310) 318-3100 
+Securities registered pursuant to Section 12(b) of the Act: 
+Name of Each Exchange on 
+Title of Each Class 
+Which Registered 
+Class A Common Stock, $0.001 par value
+New York Stock Exchange 
+Securities registered pursuant to Section 12(g) of the Act: 
+None 
+(Title of Class) 
+Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of
+the Securities Act. Yes þ No o 
+Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or
+Section 15(d) of the Act. Yes o No þ 
+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 þ No o 
+Indicate by check mark whether the registrant has submitted electronically and posted on its
+corporate Website, 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 o No o 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
+S-K(§229.405) is not contained herein, and will not be contained, to the best of registrant’s
+knowledge, in definitive proxy or information statements incorporated by reference in Part III of
+this Form 10-K or any amendment to this Form 10-K. þ 
+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 the definitions of “large accelerated
+filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
+Exchange Act. (Check one): 
+Large accelerated filer o 
+Accelerated filer þ 
+Non-accelerated filer o 
+(Do not check if a smaller reporting
+company)
+Smaller reporting company
+o 
+Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
+Exchange Act). Yes o No þ 
+As of June 30, 2009, the aggregate market value of the voting and non-voting Class A and Class B
+Common Stock held by non-affiliates of the Registrant was approximately $329 million based upon the
+closing price of $9.77 of the Class A Common Stock on the New York Stock Exchange on such date.
+The number of shares of Class A Common Stock outstanding as of February 15, 2010: 34,245,088.
+The number of shares of Class B Common Stock outstanding as of February 15, 2010: 12,359,615.
+DOCUMENTS INCORPORATED BY REFERENCE 
+Portions of the Registrant’s Definitive Proxy Statement issued in connection with the 2010 Annual
+Meeting of the Stockholders of the Registrant are incorporated by reference into Part III.
+SKECHERS U.S.A., INC. 
+TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K 
+FOR THE YEAR ENDED DECEMBER 31, 2009 
+PART I 
+ITEM 1. BUSINESS 
+2 
+ITEM 1A. RISK FACTORS 
+14 
+ITEM 1B. UNRESOLVED STAFF COMMENTS 
+22 
+ITEM 2. PROPERTIES 
+22 
+ITEM 3. LEGAL PROCEEDINGS 
+22 
+ITEM 4. RESERVED 
+23 
+PART II 
+ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
+ISSUER PURCHASES OF EQUITY SECURITIES 
+23 
+ITEM 6. SELECTED FINANCIAL DATA 
+25 
+ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
+OF OPERATIONS 
+26 
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+37 
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+38 
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
+DISCLOSURE 
+60 
+ITEM 9A. CONTROLS AND PROCEDURES 
+60 
+ITEM 9B. OTHER INFORMATION 
+61 
+PART III 
+ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 
+62 
+ITEM 11. EXECUTIVE COMPENSATION 
+62 
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
+RELATED STOCKHOLDER MATTERS 
+62 
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+62 
+ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 
+62 
+PART IV 
+ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 
+62 
+EX-10.15.C 
+EX-10.15.D 
+EX-10.16.E 
+EX-10.16.F 
+EX-10.17.B 
+EX-21.1 
+EX-23.1 
+EX-31.1 
+EX-31.2 
+EX-32.1 
+i 
+Table of Contents 
+SPECIAL NOTE ON FORWARD LOOKING STATEMENTS 
+This annual report on Form 10-K contains forward-looking statements that are made pursuant to
+the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including
+statements with regards to future revenue, projected 2010 results, earnings, spending, margins,
+cash flow, orders, expected timing of shipment of products, inventory levels, future growth or
+success in specific countries, categories or market sectors, continued or expected distribution to
+specific retailers, liquidity, capital resources and market risk, strategies and objectives.
+Forward-looking statements include, without limitation, any statement that may predict, forecast,
+indicate or simply state future results, performance or achievements, and can be identified by the
+use of forward looking language such as “believe,” “anticipate,” “expect,” “estimate,” “intend,”
+“plan,” “project,” “will be,” “will continue,” “will result,” “could,” “may,” “might,” or any
+variations of such words with similar meanings. These forward-looking statements involve risks and
+uncertainties that could cause actual results to differ materially from those projected in
+forward-looking statements, and reported results shall not be considered an indication of our
+company’s future performance. Factors that might cause or contribute to such differences include:
+• 
+international, national and local general economic, political and market conditions
+including the ongoing global economic slowdown and financial crisis; 
+• 
+entry into the highly competitive performance footwear market; 
+• 
+sustaining, managing and forecasting our costs and proper inventory levels; 
+• 
+losing any significant customers, decreased demand by industry retailers and
+cancellation of order commitments due to the lack of popularity of particular designs
+and/or categories of our products; 
+• 
+maintaining our brand image and intense competition among sellers of footwear for
+consumers; 
+• 
+anticipating, identifying, interpreting or forecasting changes in fashion trends,
+consumer demand for the products and the various market factors described above; and 
+• 
+sales levels during the spring, back-to-school and holiday selling seasons. 
+The risks included here are not exhaustive. Other sections of this report may include
+additional factors that could adversely impact our business and financial performance. We operate
+in a very competitive and rapidly changing environment. New risks emerge from time to time and we
+cannot predict all such risk factors, nor can we assess the impact of all such risk factors on the
+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, you should not place undue reliance on forward-looking statements as a prediction of
+actual results. Moreover, reported results should not be considered an indication of future
+performance. Investors should also be aware that while we do, from time to time, communicate with
+securities analysts, we do not disclose any material non-public information or other confidential
+commercial information to them. Accordingly, individuals should not assume that we agree with any
+statement or report issued by any analyst, regardless of the content of the report. Thus, to the
+extent that reports issued by securities analysts contain any projections, forecasts or opinions,
+such reports are not our responsibility.
+1 
+Table of Contents 
+PART I 
+ITEM 1. BUSINESS 
+We were incorporated in California in 1992 and reincorporated in Delaware in 1999. Throughout
+this annual report, we refer to Skechers U.S.A., Inc., a Delaware corporation, and its consolidated
+subsidiaries as “we,” “us,” “our,” “our company” and “Skechers” unless otherwise indicated. Our
+Internet website address is www.skechers.com . Our annual report on Form 10-K, quarterly reports on
+Form 10-Q, current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of directors,
+officers and 10% stockholders, and any amendments to those reports filed or furnished pursuant to
+Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our
+website as soon as reasonably practicable after we electronically file such material with, or
+furnish it to, the SEC. You can learn more about us by reviewing such filings on our website or at
+the SEC’s website at www.sec.gov .
+GENERAL
+We design and market Skechers-branded contemporary footwear for men, women and children under
+several unique lines. Our footwear reflects a combination of style, quality and value that appeals
+to a broad range of consumers. In addition to Skechers-branded lines, we also offer several
+uniquely branded designer, fashion and street-focused footwear lines for men, women and children.
+These lines are branded and marketed separately from Skechers and appeal to specific audiences. Our
+brands are sold through department stores, specialty stores, athletic retailers, and boutiques as
+well as catalog and Internet retailers. Along with wholesale distribution, our footwear is
+available at our e-commerce website and our own retail stores. We operate 90 concept stores, 92
+factory outlet stores and 37 warehouse outlet stores in the United States, and 22 concept stores
+and five factory outlets internationally. Our objective is to profitably grow our operations
+worldwide while leveraging our recognizable Skechers brand through our strong product lines,
+innovative advertising and diversified distribution channels.
+We seek to offer consumers a vast array of fashionable footwear that satisfies their active,
+casual, dress casual and dress footwear needs. Our core consumers are style-conscious 12 to 24
+year-old men and women attracted to our youthful brand image and fashion- forward designs. Many of
+our best-selling and core styles are also developed for children with colors and materials that
+reflect a playful image appropriate for this demographic.
+We believe that brand recognition is an important element for success in the footwear
+business. We have aggressively promoted our brands through comprehensive marketing campaigns for
+men, women and children. During 2009, our Skechers brand was supported by: print, television and
+outdoor campaigns for men and women; animated kids’ television campaigns featuring our own action
+heroes and characters; print and outdoor campaigns featuring our endorsee and American Idol winner
+David Cook; and family-focused celebrity ads that included television personality Cesar Millan, and
+actors Brooke Burke and David Charvet. Our Punkrose, Marc Ecko and Zoo York footwear lines are
+also supported by print and television ads developed by Marc Ecko. The Red by Marc Ecko women’s
+line featured High School Musical star Vanessa Hudgens in print and television campaigns through
+2009, while the Zoo York campaign featured skateboarders Donny Barley and Kevin Shetler.
+Since we introduced our first line, Skechers USA Sport Utility Footwear, in December 1992, we
+have expanded our product offering and grown our net sales while substantially increasing the
+breadth and penetration of our account base. Our men’s, women’s and children’s Skechers-branded
+product lines benefit from the Skechers reputation for contemporary and progressive styling,
+quality, comfort and affordability. Our lines that are not branded with the Skechers name benefit
+from our marketing support, quality management and expertise. To promote innovation and brand
+relevance, we manage our product lines separately by utilizing dedicated sales and design teams.
+Our product lines share back office services in order to limit our operating expenses and fully
+utilize our management’s vast experience in the footwear industry.
+SKECHERS LINES
+Skechers offers multiple branded product lines for men, women and children as well as other
+products sold under established names not associated with Skechers. Within these various product
+lines, we also have numerous categories, some of which have developed into well-known names. Most
+of these categories are marketed and packaged with unique shoe boxes, hangtags and in-store
+support.
+2 
+Table of Contents 
+Skechers USA. Our Skechers USA category for men and women includes: (i) Casuals, (ii) Dress
+Casuals, (iii) Relaxed Fit (for men only), (iv) Seriously Lightweight (for men only) (v) Sandals
+and (vi) Casual Fusion. This category is generally sold through mid-tier retailers, department
+stores and some footwear specialty shops.
+• 
+The Casuals line for men and women is defined by lugged outsoles and utilizes
+value-oriented and leather materials in the uppers. For men, the Casuals category includes
+“black and brown” boots, shoes and sandals that generally have a rugged urban design — some
+with industrial-inspired fashion features. For women, the Casuals category includes basic
+“black and brown” oxfords and slip-ons, lug outsole and fashion boots, and casual sandals.
+We design and price both the men’s and women’s categories to appeal primarily to younger
+consumers with broad acceptance across age groups. 
+• 
+The Dress Casuals category for men is comprised of basic “black and brown” men’s shoes
+that feature shiny leathers and dress details, but may utilize traditional or lugged
+outsoles as well as value-oriented materials. The Dress Casual line for women is comprised
+of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or
+faux fur lining or trim. 
+• 
+Skechers Relaxed Fit is a line of trend-right casuals for men who want all-day comfort
+without compromising style. Characteristics of the line include comfortable outsoles,
+cushioned insoles and quality leather uppers. A category with unique features, we market and
+package Skechers Relaxed Fit styles in a shoe box that is distinct from that of other
+categories in the Skechers USA line of footwear. 
+• 
+Our Seriously Lightweight styles for men primarily consist of designs similar to our
+casual looks, but feature ultra lightweight outsoles, making them ideal travel and work
+shoes. A category with unique features, we market and package the Skechers Seriously
+Lightweight styles in a shoe box that is distinct from that of other categories in the
+Skechers USA line of footwear. 
+• 
+Our Sandals collection for men and women is designed with many of our existing and
+proven outsoles for our Casuals, Dress Casuals and Casual Fusion lines, stylized with basic
+or core uppers as well as fresh looks. These styles are generally made with quality leather
+uppers, but may also be in canvas or fabric. 
+• 
+Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals
+targeted to trend-conscious young men and women. The outsoles are primarily rubber and
+adopted from our men’s Sport and women’s Active lines. This collection features leather or
+nubuck uppers, but may also include mesh. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes: (i) Joggers, Trail
+Runners, Sport Hikers, Terrainers, (ii) Performance (for men only), (iii) Skechers D’Lites (for
+women only) and (iv) Sport Sandals. Our Skechers Sport category is distinguished by its technical
+performance-inspired looks; however, we generally do not promote the technical performance features
+of these shoes. Skechers Sport is typically sold through specialty shoe stores, department stores
+and athletic footwear retailers.
+• 
+Our Jogger, Trail Runner, Sport Hiker and cross trainer-inspired Terrainer designs are
+lightweight constructions that include cushioned heels, polyurethane midsoles, phylon and
+other synthetic outsoles, as well as leather or synthetic uppers such as durabuck, cordura
+and nylon mesh. Careful attention is devoted to the design, pattern and construction of the
+outsoles, which vary greatly depending on the intended use. This category features earth
+tones and athletic-inspired hues with contrasting pop colors such as lime green, orange and
+red in addition to traditional athletic white. 
+• 
+The Performance category is comprised of multi-purpose running shoes that are marketed
+as men’s lifestyle athletic footwear. Some styles include 3M reflective accents, breathable
+upper construction, quality leathers, abrasion-resistant toe and heel cap, removable
+moisture wicking molded ethyl vinyl acetate (“EVA”) sock liner, outsole forefoot flex
+grooves for improved flexibility, non-marking rubber lugs with impact dispersment technology
+(“IDT”), aggressive all terrain traction lugs, external torsion stabilizer and tuned
+dual-density molded EVA midsole with pronation control. 
+• 
+Skechers D’Lites are ultra lightweight women’s sneakers that feature sturdy, sculpted
+midsoles for all-day comfort, durable rubber treads for improved traction and a sole design
+that provides superior flexibility and cushioning. The uppers are designed in leather,
+suede, nubuck and mesh. 
+• 
+Our Sport Sandals are primarily designed from existing Skechers Sport outsoles and may
+include many of the same sport features as our sneakers with the addition of new
+technologies geared toward making a comfortable sport sandal. Sport sandals are designed as
+seasonal footwear for the consumer who already wears our Skechers Sport sneakers. 
+3 
+Table of Contents 
+Skechers Active. A natural companion to Skechers Sport, Skechers Active has grown from a
+casual everyday line into a complete line of fusion and sport fusion sneakers for females of all
+ages. The Active line now includes low-profile, wedge and sporty styles. The line, with lace-up,
+Mary Janes, sandals and open back styles, is available in a multitude of colors as well as solid
+white or black, in fabrics, leathers and meshes, and with various closures – traditional laces,
+zig-zag and cross straps, among others. Active sneakers are typically retailed through specialty
+casual shoe stores and department stores.
+Skechers Kids. The Skechers Kids line includes: (i) Skechers Kids, which is a range of
+infants’, toddlers’, boys’ and girls’ boots, shoes and sneakers, (ii) S-Lights, Hot Lights by
+Skechers and Luminators by Skechers, (iii) Skechers Cali for Girls, which is trend-inspired boots,
+shoes, sandals and dress sneakers, (iv) Airators by Skechers, (v) Skechers Super Z-Strap, (vi)
+Skechers Bungees, (vii) HyDee HyTop from Skechers, (viii) Twinkle Toes by Skechers, (ix) Pretty
+Tall by Skechers, (x) Sporty Shorty by Skechers and (xi) Babiez by Skechers. Skechers Kids and
+Skechers Cali for Girls are comprised primarily of shoes that are designed as “takedowns” of their
+adult counterparts, allowing the younger set the opportunity to wear the same popular styles as
+their older siblings and schoolmates. This “takedown” strategy maintains the product’s integrity by
+offering premium leathers, hardware and outsoles without the attendant costs involved in designing
+and developing new products. In addition, we adapt current fashions from our men’s and women’s
+lines by modifying designs and choosing colors and materials that are more suitable for the playful
+image that we have established in the children’s footwear market. Each Skechers Kids line is
+marketed and packaged separately with a distinct shoe box. Skechers Kids shoes are available at
+department stores and specialty and athletic retailers.
+• 
+The Skechers Kids line includes embellishments or adornments such as fresh colors and
+fabrics from our Skechers adult shoes. Some of these styles are also adapted for toddlers
+with softer, more pliable outsoles and for infants with soft, leather-sole crib shoes. 
+• 
+S-Lights and Hot Lights by Skechers are lighted sneakers and sandals for boys and girls.
+The S-Lights combine patterns of lights on the outsoles and sides of the shoes while Hot
+Lights feature lights on the front of the toe to simulate headlights as well as on other
+areas of the shoes. New to the offering with lights, Luminators from Skechers feature
+glowing green lights and a marketing campaign with the Luminator character. 
+• 
+Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young women
+designed to typify the California lifestyle. The sneakers are designed primarily with canvas
+uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and
+flats are designed with many of the same upper materials and outsoles as the sneakers. 
+• 
+Airators by Skechers is a line of boys sneakers with a foot-cooling system designed to
+pump air from the heel through to the toes. The line is marketed with the character Kewl
+Breeze. 
+• 
+Skechers Super Z-Strap is a line of athletic styled sneakers with a unique “z” shaped
+closure system for easy closure. The line is marketed with the character Z-Strap. 
+• 
+Skechers Bungees is a line of girls’ sneakers with bungee closures. The line is marketed
+with the character Elastika. 
+• 
+HyDee HyTop from Skechers is a line of colorful high-top sneakers for young girls. The
+line is marketed with the character HyDee HyTop. 
+• 
+Twinkle Toes by Skechers is a new line of girls’ sneakers and boots that feature
+bejeweled toe caps and brightly designed uppers. The line is marketed with the character
+Twinkle Toes. 
+• 
+Pretty Tall by Skechers is a new line of girls’ sneakers with a hidden wedge. The line is
+marketed with the character Pretty Tall. 
+• 
+Sporty Shorty by Skechers is a new line of athletic-inspired sneakers for girls who like
+to wear sport-style footwear off the field. The line is marketed with the character Sporty
+Shorty. 
+• 
+Babiez by Skechers is a line of crib shoes for infants. The uppers and outsoles are
+designed in leather and are extremely flexible for newborn feet. 
+Shape-ups by Skechers Fitness Group. Shape-ups are stylish fitness footwear for men and women
+who want to incorporate more fitness into their daily lives. Ideal for walking around town, work or
+home, Shape-ups’ unique kinetic wedge and rocker bottom are
+4 
+Table of Contents 
+designed to give the sensation and benefits of walking on soft sand – a construction that
+studies show may help promote weight loss, tone muscles, improve posture, and reduce joint stress.
+The Shape-ups offering includes sneakers, Mary Janes, sandals and boots for women, and sneakers for
+men. Also available, Shape-ups Slip-Resistant footwear for men and women in the service and
+occupational industries. Shape-ups are available at athletic footwear retailers, department stores
+and specialty shoe stores.
+Tone-ups by Skechers. Targeting 18- to 34-year-old fitness- and trend-conscious women,
+Tone-ups by Skechers are casual and athletic-inspired sandals that feature a gradual density
+midsole designed to stimulate underused calf, thigh and gluteus muscles, burn calories and reduce
+stress. Tone-ups uppers range from leather to microfiber suede, mitobuck and nylon webbing. The
+offering is available in department stores and casual shoe retailers.
+Skechers Work. Expanding on our heritage of cutting-edge utility footwear, Skechers Work
+offers a complete line of men’s and women’s casuals, field boots, hikers and athletic shoes. The
+Skechers Work line includes athletic-inspired, casual safety toe, and non-slip safety toe
+categories that may feature lightweight aluminum safety toe, electrical hazard, and slip-resistant
+technologies, as well as breathable, seam-sealed waterproof membranes. Designed for men and women
+with jobs that require certain safety requirements, these durable styles are constructed on
+high-abrasion, long wearing soles, and feature breathable lining, oil and abrasion resistant
+outsoles offering all-day comfort and prolonged durability. The Skechers Work line incorporates
+design elements from the other Skechers mens and womens line. The uppers are comprised of
+high-quality leather, nubuck, trubuck and durabuck. Our safety toe athletic sneakers, boots,
+hikers, and casuals are ideal for environments requiring safety footwear and offer comfort and
+safety in dry or wet conditions. Our slip-resistant boots, hikers, athletics, casuals and clogs
+are ideal for the service industry. Our safety toe products have been independently tested and
+certified to meet ASTM standards, and our slip-resistant soles have been tested pursuant to the
+Mark II testing method for slip resistance. Skechers Work is typically sold through department
+stores, athletic footwear retailers and specialty shoe stores, as well as marketed directly to
+consumers through business-to-business channels.
+FASHION AND STREET BRANDS
+The Fashion and Street Division and its brands are marketed and packaged separately from Skechers.
+Unltd. by Marc Ecko and Red by Marc Ecko. Unltd. by Marc Ecko is a line of men’s
+street-inspired traditional sneakers, fusion sneakers and urban-focused casuals. Red by Marc Ecko
+is a line of women’s classic and fashion-forward fusion sneakers, sandals and Mary Janes for young
+women. Targeted to the street-savvy 18- to 34-year-old consumer, the footwear reflects Ecko
+Unltd.’s men’s apparel and the Ecko Red women’s apparel, and effectively utilizes the globally
+recognized Rhino logo on the majority of sneakers and casuals. The men’s and women’s footwear
+collections are designed in leather, canvas, mesh, as well as other materials. Unltd. by Marc Ecko
+for boys and Rhino Red for girls sneaker lines primarily consist of takedowns from the adult Marc
+Ecko footwear lines with additional or different colorways geared toward children and that reflect
+the boys’ and girls’ Ecko Unltd. and Ecko Red clothing. The licensed brands are sold through
+select department stores and specialty retailers.
+Zoo York. Zoo York footwear is a line of action sports and lifestyle footwear for men, women
+and boys. The Zoo York footwear follows the color palette and trends of Zoo York apparel and
+targets skateboarders and those that embrace skate fashion. The licensed brand is available in
+skate and specialty shops as well as select athletic and department stores.
+Mark Nason, Siren by Mark Nason, and Lounge by Mark Nason. Mark Nason is a sophisticated and
+fashion forward footwear collection, marketed to style-conscious men, designed to complement
+designer denim and dress casual wear. Primarily crafted and constructed in Italy, the Mark Nason
+collection is comprised of classic and modern boots, shoes and sandals with distinctive profiles
+and luxurious hand-distressed leathers. The Mark Nason line distinguishes itself with high quality
+individual styling and may utilize unique materials such as premium leathers, etched and tattooed
+leathers, hand-treated, hand-scraped and hand-cut leathers, hand-treated leather uppers and soles,
+snakeskin and eel skin. Siren by Mark Nason is the ultimate accompaniment to designer denim and
+casual couture for discerning women. The line’s boots are fueled with bold profiles, alluring
+details and distinct textures. Handcrafted in Italy, the boots utilize premium leathers,
+hand-treated details, leather outsoles, and some may include snakeskin and other exotic materials.
+The Mark Nason lines are available in better department stores and boutiques. Lounge by Mark Nason
+is a collection of boots and casual loafers that have many similar design elements as the Mark
+Nason line, but are constructed in Asia, giving consumers a more price-conscious option. The Lounge
+by Mark Nason line is available in many of the same stores as Skechers USA line.
+Punkrose. Skechers acquired the junior brand Punkrose in 2008. Punkrose for women is
+cutting-edge street ready footwear, inspired by music, art, fashion, and action sports. Punkrose
+styles include sneakers, high-tops, skimmers, boots and sandals. Vibrant color combos and
+get-noticed prints are a trademark of this brand. Punkrose is available at department stores,
+sneaker shops and specialty boutiques.
+5 
+Table of Contents 
+PRODUCT DESIGN AND DEVELOPMENT
+Our principal goal in product design is to generate new and exciting footwear in all of our
+product lines with contemporary and progressive styles and comfort-enhancing performance features.
+Targeted to the active, youthful and style-savvy, we design most new styles to be fashionable and
+marketable to the 12 to 24 year-old consumer, while substantially all of our lines appeal to the
+broader range of 5 to 40 year-old consumers, with an exclusive selection for infants and
+toddlers. While some of our shoes have performance features, we generally do not position our shoes
+in the marketplace as technical performance shoes.
+We believe that our products’ success is related to our ability to recognize trends in the
+footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving
+preferences. We are able to quickly translate the latest fashion trends into stylish, quality
+footwear at a reasonable price by analyzing and interpreting current and emerging lifestyle trends.
+Lifestyle trend information is compiled and analyzed by our designers from various sources,
+including: the review and analysis of modern music, television, cinema, clothing, alternative
+sports and other trend-setting media; traveling to domestic and international fashion markets to
+identify and confirm current trends; consulting with our retail and e-commerce customers for
+information on current retail selling trends; participating in major footwear trade shows to stay
+abreast of popular brands, fashions and styles; and subscribing to various fashion and color
+information services. In addition, a key component of our design philosophy is to continually
+reinterpret and develop our successful styles in our brands’ image.
+The footwear design process typically begins about nine months before the start of a season.
+Our products are designed and developed primarily by our in-house design staff. To promote
+innovation and brand relevance, we utilize dedicated design teams, who report to our senior design
+executives and focus on each of the men’s, women’s and children’s categories. In addition, we
+utilize outside design firms on an item-specific basis to supplement our internal design efforts.
+The design process is extremely collaborative, as members of the design staff frequently meet with
+the heads of retail, merchandising, sales, production and sourcing to further refine our products
+to meet the particular needs of the target market.
+After a design team arrives at a consensus regarding the fashion themes for the coming season,
+the designers then translate these themes into our products. These interpretations include
+variations in product color, material structure and embellishments, which are arrived at after
+close consultation with our production department. Prototype blueprints and specifications are
+created and forwarded to our manufacturers for a design prototype. The design prototypes are then
+sent back to our design teams. Our major retail customers may also review these new design
+concepts. Customer input not only allows us to measure consumer reaction to the latest designs, but
+also affords us an opportunity to foster deeper and more collaborative relationships with our
+customers. We also occasionally order limited production runs that may initially be tested in our
+concept stores. By working closely with store personnel, we obtain customer feedback that often
+influences product design and development. Our design teams can easily and quickly modify and
+refine a design based on customer input. Generally, the production process can take six months to
+nine months from design concept to commercialization.
+SOURCING
+Factories. Our products are produced by independent contract manufacturers located primarily
+in China and, to a lesser extent, in Italy, Vietnam, Brazil and various other countries. We do not
+own or operate any manufacturing facilities. We believe that the use of independent manufacturers
+substantially increases our production flexibility and capacity while reducing capital expenditures
+and avoiding the costs of managing a large production work force.
+When possible, we seek to use manufacturers that have previously produced our footwear, which
+we believe enhances continuity and quality while controlling production costs. We attempt to
+monitor our selection of independent factories to ensure that no one manufacturer is responsible
+for a disproportionate amount of our merchandise. We source product for styles that account for a
+significant percentage of our net sales from at least five different manufacturers. During 2009,
+five of our contract manufacturers accounted for approximately 69.1% of total purchases. One
+manufacturer accounted for 29.7%, and three others each accounted for over 10.0% of our total
+purchases. To date, we have not experienced difficulty in obtaining manufacturing services.
+We finance our production activities in part through the use of interest-bearing open purchase
+arrangements with certain of our Asian manufacturers. These facilities currently bear interest at a
+rate between 0% and 1.5% for 30- to 60- day financing, depending on the factory. We believe that
+the use of these arrangements affords us additional liquidity and flexibility. We do not have any
+long-term contracts with any of our manufacturers; however, we have long-standing relationships
+with many of our manufacturers and believe our relationships to be good.
+6 
+Table of Contents 
+We closely monitor sales activity after initial introduction of a product in our concept
+stores to determine whether there is substantial demand for a style, thereby aiding us in our
+sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming
+collections or offered as part of our periodic style offerings, while less popular styles can be
+discontinued after a limited production run. We believe that sales in our concept stores can also
+help forecast sales in national retail stores, and we share this sales information with our
+wholesale customers. Sales, merchandising, production and allocations management analyze historical
+and current sales and market data from our wholesale account base and our own retail stores to
+develop an internal product quantity forecast that allows us to better manage our future production
+and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock
+position to minimize the time necessary to fill customer orders by placing orders with our
+manufacturers prior to the time we receive customers’ orders for such footwear.
+Production Oversight . To safeguard product quality and consistency, we oversee the key aspects
+of production from initial prototype manufacture through initial production runs to final
+manufacture. Monitoring of all production is performed in the United States by our in-house
+production department and in Asia through an approximately 230-person staff working from our
+offices in China. We believe that our Asian presence allows us to negotiate supplier and
+manufacturer arrangements more effectively, decrease product turnaround time and ensure timely
+delivery of finished footwear. In addition, we require our manufacturers to certify that neither
+convicted, forced nor indentured labor (as defined under U.S. law) nor child labor (as defined by
+law in the manufacturer’s country) is used in the production process, and that compensation will be
+paid according to local law and that the factory is in compliance with local safety regulations.
+Quality Control. We believe that quality control is an important and effective means of
+maintaining the quality and reputation of our products. Our quality control program is designed to
+ensure that not only finished goods meet our established design specifications, but also that all
+goods bearing our trademarks meet our standards for quality. Our quality control personnel located
+in China perform an array of inspection procedures at various stages of the production process,
+including examination and testing of prototypes of key raw materials prior to manufacture, samples
+and materials at various stages of production and final products prior to shipment. Our employees
+are on site at each of our major manufacturers to oversee production. For some of our lower volume
+manufacturers, our staff is on site during significant production runs or we will perform
+unannounced visits to their manufacturing sites to further monitor compliance with our
+manufacturing specifications.
+ADVERTISING AND MARKETING
+With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted approach to
+marketing to drive traffic, build brand recognition and properly position our diverse lines within
+the marketplace. Senior management is directly involved in shaping our image and the conception,
+development and implementation of our advertising and marketing activities. The focus of our
+marketing plan is print and television advertising, which is supported by outdoor, trend-influenced
+marketing, public relations, promotions and in-store support. In addition, we utilize celebrity
+endorsers in our advertisements. We also believe our websites and trade shows are effective
+marketing tools to both consumers and wholesale accounts. We have historically budgeted advertising
+as a percentage of projected net sales.
+The majority of our advertising is conceptualized by our in-house design team. We believe that
+our advertising strategies, methods and creative campaigns are directly related to our success.
+Through our lifestyle and image-driven advertising, we generally seek to build and increase brand
+awareness by linking the Skechers brand and our fashion and street brands to youthful, contemporary
+lifestyles and attitudes. We have built on this approach by featuring select styles in our
+lifestyle ads for men and women. Our ads are designed to provide merchandise flexibility and to
+facilitate the “brand’s” direction.
+To further build brand awareness and influence consumer spending, we have selectively signed
+endorsement agreements with celebrities whom we believe would reach new markets. American Idol
+winner David Cook appeared in Skechers marketing campaigns through 2009. To develop family ads that
+would appeal to a broad range of consumers, we also developed the “Nothing Compares to Family”
+campaign with celebrities and their families. In 2009, these campaigns included actors Brooke Burke
+and David Charvet with their children, and television personality and author Cesar Millan with his
+family and dogs. From time to time, we may sign other celebrities to endorse our brand name and
+image in order to strategically market our products among specific consumer groups in the future.
+In addition to advertising our Skechers branded lines through men’s, women’s and children’s
+ads, we also support Mark Nason, Marc Ecko, Zoo York, and Punkrose lines through individual unique
+print and/or television advertisements – some of which may include celebrity endorsees. For Mark
+Nason, we have focused on key-selling styles in product-driven ads that captured the brand’s
+7 
+Table of Contents 
+essence. For the Marc Ecko footwear brands, Marc Ecko’s design team has created relevant
+targeted print and television commercials for men and women. These include a multi-media men’s
+campaign featuring our graffiti painted shoe as well as commercials for Unltd. by Marc Ecko for
+boys. During 2009, High School Musical star Vanessa Hudgens was the face of Red by Marc Ecko,
+appearing in print, outdoor and television advertisements. For Punkrose, the approach has been
+lifestyle advertisements that embrace the feeling of the footwear.
+With a targeted approach, our print ads appear regularly in popular fashion and lifestyle
+consumer publications, including GQ, Cosmopolitan, Shape, Lucky, In Style, Seventeen, Maxim, Men’s
+Fitness, and Women’s Health, as well as in weekly publications such as People, Us Weekly, Sports
+Illustrated and InTouch, among others. Our advertisements also appear in international magazines
+around the world.
+Our television commercials are produced both in-house and through producers that we have
+utilized in the past and who are familiar with our brands. In 2009, we developed commercials for
+men, women and children for our Skechers brands, including our animated spots for kids featuring
+our own action heroes. We have found these to be a cost-effective way to advertise on key national
+and cable programming during high selling seasons. In 2009, many of our television commercials were
+translated into multiple languages and aired in Brazil, Canada, United Kingdom, France, the Benelux
+Region, Germany, Spain, Italy, Chile, Austria and Switzerland.
+Outdoor. In an effort to reach consumers where they shop and in high-traffic areas as they
+travel to and from work, we continued our multi-level outdoor campaign that included kiosks in key
+malls across the United States and billboards, transportation systems and telephone kiosks in North
+America and Europe. In addition, we advertised on football perimeter boards in the United Kingdom
+and Germany. We believe these are effective and efficient ways to reach a broad range of consumers
+and leave a lasting impression for our brands.
+Trend-Influenced Marketing/Public Relations. Our public relations objectives are to secure
+product placement in key fashion magazines, place our footwear on the feet of trend-setting
+celebrities, and gain positive and accurate press on our company. Through our commitment to
+aggressively promote our upcoming styles, our products are often featured in leading fashion and
+pop culture magazines, as well as in select films and popular television shows. Our footwear and
+our company have been prominently displayed and referenced on news and magazine shows. We have also
+amassed an array of prominent product placements in magazines including Lucky, Seventeen, OK!, US
+Weekly, Health and Nylon . In addition, our brands have been associated with cutting edge events and
+select celebrities, and our product has been seen worn by celebrities including Britney Spears,
+Denis Leary, Vin Diesel, Forest Whitaker and Vanessa Hudgens.
+Promotions. By applying creative sales techniques via a broad spectrum of media, our marketing
+team seeks to build brand recognition and drive traffic to Skechers’ retail stores, websites and
+our retail partners’ locations. Skechers’ promotional strategies have encompassed in-store
+specials, charity events, product tie-ins and giveaways, and collaborations with national retailers
+and radio stations. Our imaginative promotions are consistent with Skechers’ imaging and lifestyle.
+Visual Merchandising. Our in-house visual merchandising department supports wholesale
+customers, distributors and our retail stores by developing displays that effectively leverage our
+products at the point of sale. Our point-of-purchase display items include signage, graphics,
+displays, counter cards, banners and other merchandising items for each of our brands. These
+materials mirror the look and feel of each brand and reinforce the image as well as draw consumers
+into stores.
+Our visual merchandising coordinators (“VMC’s”) work with our sales force and directly with
+our customers to ensure better sell-through at the retail level by generating greater consumer
+awareness through Skechers brand displays. Our VMC’s communicate with and visit our wholesale
+customers on a regular basis to aid in proper display of our merchandise. They also run in-store
+promotions to enhance the sale of Skechers footwear and create excitement surrounding the Skechers
+brand. We believe that these efforts help stimulate impulse sales and repeat purchases.
+Trade Shows. To better showcase our diverse products to footwear buyers in the United States
+and Europe and to distributors around the world, we regularly exhibit at leading trade shows. Along
+with specialty trade shows, we exhibit at WSA’s The Shoe Show, FFANY, ASR and MAGIC in the United
+States; GDS, MICAM, Bread & Butter, Mess Around and Who’s Next in Europe; and Couromoda and Francal
+in Brazil. Our dynamic, state-of-the-art trade show exhibits are developed by our in-house
+architect to showcase our latest product offerings in a lifestyle setting reflective of each of our
+brands. By investing in innovative displays and individual rooms showcasing each line, our sales
+force can present a sales plan for each line and buyers are able to truly understand the breadth
+and depth of our offerings, thereby optimizing commitments and sales at the retail level.
+8 
+Table of Contents 
+Internet. We promote and sell our brands through our e-commerce websites www.skechers.com ,
+www.soholab.com and www.myshapeups.com . These websites enable fans and customers to shop, browse,
+find store locations, socially interact, post a shoe review, photo, video, or question and immerse
+themselves in our brands. These websites are a venue for dialog and feedback from customers about
+our products which enhances the Skechers and fashion brands experience while driving sales through
+all our retail channels. In addition, we established a unique website for Mark Nason
+( www.marknason.com ) designed to serve primarily as a marketing tool.
+PRODUCT DISTRIBUTION CHANNELS
+We have four reportable segments – domestic wholesale sales, international wholesale sales,
+retail sales and e-commerce sales. In the United States, our products are available through a
+network of wholesale customers comprised of department, athletic and specialty stores.
+Internationally, our products are available through wholesale customers in more than 100 countries
+and territories via our global network of distributors in addition to our subsidiaries in Asia,
+Europe, Canada and South America. Skechers owns and operates retail stores both domestically and
+internationally through three integrated retail formats—concept, factory outlet and warehouse
+outlet stores. Each of these channels serves an integral function in the global distribution of our
+products. Thirteen distributors have opened 112 distributor-owned Skechers retail stores in 24
+countries as of December 31, 2009.
+Domestic Wholesale. We distribute our footwear through the following domestic wholesale
+distribution channels: department stores, specialty stores, athletic specialty shoe stores and
+independent retailers, as well as catalog and Internet retailers. While department stores and
+specialty retailers are the largest distribution channels, we believe that we appeal to a variety
+of wholesale customers, many of whom may operate stores within the same retail location due to our
+distinct product lines, variety of styles and the price criteria of their specific customers.
+Management has a clearly defined growth strategy for each of our channels of distribution. An
+integral component of our strategy is to offer our accounts the highest level of customer service
+so that our products will be fully represented in existing retail locations and new locations of
+each customer.
+In an effort to provide knowledgeable and personalized service to our wholesale customers, the
+sales force is segregated by product line, each of which is headed by a vice president or national
+sales manager. Reporting to each sales manager are knowledgeable account executives and territory
+managers. Our vice presidents and national sales managers report to a senior vice president of
+sales. All of our vice presidents and national sales managers are compensated on a salary basis,
+while our account executives and territory managers are compensated on a commission basis. None of
+our domestic sales personnel sells competing products.
+We believe that we have developed a loyal customer base through exceptional customer service.
+We believe that our close relationships with these accounts help us to maximize their retail
+sell-throughs. Our visual merchandise coordinators work with our wholesale customers to ensure that
+our merchandise and point-of-purchase marketing materials are properly presented. Sales executives
+and merchandise personnel work closely with accounts to ensure that appropriate styles are
+purchased for specific accounts and for specific stores within those accounts as well as to ensure
+that appropriate inventory levels are carried at each store. Such information is then utilized to
+help develop sales projections and determine the product needs of our wholesale customers. The
+value-added services we provide our wholesale customers help us maintain strong relationships with
+our existing wholesale customers and attract potential new wholesale customers.
+International Wholesale. Our products are sold in more than 100 countries and territories
+throughout the world. We generate revenues from outside the United States from three principal
+sources: (i) direct sales to department stores and specialty retail stores through our subsidiaries
+and joint ventures in Canada, France, Germany, Spain, Portugal, Italy, Switzerland, Austria,
+Malaysia, Thailand, Singapore, Hong Kong, China, the Benelux Region, the United Kingdom, Brazil and
+Chile; (ii) sales to foreign distributors who distribute our footwear to department stores and
+specialty retail stores in countries and territories across Eastern Europe, Asia, Latin America,
+South America, Africa, the Middle East and Australia, among other regions; and (iii) to a lesser
+extent, royalties from licensees who manufacture and distribute our non-footwear products outside
+the United States.
+We believe that international distribution of our products represents a significant
+opportunity to increase sales and profits. We intend to further increase our share of the
+international footwear market by heightening our marketing in those countries in which we currently
+have a presence through our international advertising campaigns, which are designed to establish
+Skechers as a global brand synonymous with trend-right casual shoes.
+9 
+Table of Contents 
+• 
+International Subsidiaries 
+Europe 
+We currently distribute product in most of Western Europe through the following
+subsidiaries: Skechers USA Ltd., with its offices and showrooms in London, England; Skechers
+S.a.r.l., with its offices and showrooms in Lausanne, Switzerland; Skechers USA France
+S.A.S., with its offices and showrooms in Paris, France; Skechers USA Deutschland GmbH, with
+its offices and showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L., with its
+offices and showrooms in Madrid, Spain; Skechers USA Benelux B.V., with its offices and
+showrooms in Waalwijk, the Netherlands; and Skechers USA Italia S.r.l., with its offices and
+showroom in Verona, Italy.
+Skechers-owned retail stores in Europe include nine concept stores and three factory
+outlet stores located in seven countries, including the key locations of Covent Garden and
+Oxford Street in London, Alstadt District in Düsseldorf and Kalverstraat Street in Amsterdam.
+To accommodate our European subsidiaries’ operations, we operate an approximately
+490,000 square foot distribution center in Liege, Belgium. This distribution center is
+currently used to store and deliver product to our subsidiaries and retail stores throughout
+Europe.
+Canada 
+Merchandising and marketing of our product in Canada is managed by our wholly-owned
+subsidiary, Skechers USA Canada, Inc. with its offices and showrooms outside Toronto in
+Mississauga, Ontario. Product sold in Canada is primarily sourced from our U.S. distribution
+center in Ontario, California. We have three concept stores; Toronto Eaton Centre, West
+Edmonton Mall, and Richmond Centre; and two factory outlet stores in Toronto and Alberta.
+Malaysia, Singapore and Thailand 
+We have a 50% interest in a joint venture in Malaysia and Singapore, and a 51% interest
+in a joint venture in Thailand that generate net sales in those countries. The joint
+ventures operate four concept stores and six shops-in-shop in Malaysia, four concept stores
+in Singapore, and one concept store and 15 shops-in-shop in Thailand. These joint ventures
+are included in our 2009 consolidated financial statements.
+China and Hong Kong 
+We have a 50% interest in a joint venture in China and a minority interest in a joint
+venture in Hong Kong that generate net sales in those countries. Under the joint venture
+agreements, the joint venture partners contribute capital in proportion to their respective
+ownership interests. The joint ventures operate 15 direct-owned stores and in excess of 70
+shops-in-shop in China and nine direct-owned stores and 10 shops-in-shop in Hong Kong. The
+joint ventures are included in our 2008 and 2009 consolidated financial statements.
+Brazil 
+Merchandising and marketing of our product in Brazil is managed by our wholly-owned
+subsidiary, Skechers Do Brasil Calcados LTDA., with its offices located in Sao Paulo, Brazil.
+Product sold in Brazil is primarily shipped directly from our contract manufacturers’
+factories in China and occasionally from our U.S. distribution center in Ontario, California.
+Chile 
+We have established a subsidiary in Chile, Comercializadora Skechers Chile Limitada, to support
+the 10 retail stores which we acquired from a former distributor in 2009 as well as wholesale
+accounts in that country. Product sold in Chile is primarily shipped directly from our
+contract manufacturers’ factories in China and occasionally from our U.S. distribution center
+in Ontario, California.
+10 
+Table of Contents 
+• 
+Distributors 
+Where we do not sell direct through our international subsidiaries and joint ventures,
+our footwear is distributed through an extensive network of more than 30 distributors who
+sell our products to department, athletic and specialty stores in more than 100 countries
+around the world. Through agreements with 13 of these distributors, 112 distributor-owned
+Skechers retail stores are open in 24 countries, including 28 stores that were opened in 2009
+less 10 stores that were acquired in 2009 from our distributor in Chile and are now
+company-owned stores. Our distributors own and operate the following retail stores:
+STORE 
+NUMBER OF 
+REGION 
+FORMAT 
+STORES 
+LOCATION (1) 
+Asia 
+Concept 
+29 
+Japan (4); Korea (17); Philippines (6); Taiwan (2) 
+Warehouse 
+4 
+Japan (4) 
+Australia 
+Concept 
+3 
+Chadstone, Melbourne, Sydney 
+Warehouse 
+6 
+Cairns, Canberra, Jindalee, Melbourne, Southwharf, Sydney 
+Central America/ 
+South America 
+Concept 
+37 
+Aruba; Columbia (9); Costa Rica;
+Ecuador (2); Guatemala (3); Panama (3); Peru (4); Venezuela (14) 
+Warehouse 
+1 
+Columbia 
+Eastern Europe 
+Concept 
+15 
+Czech Republic; Russia (11); Turkey; Ukraine (2) 
+Northern Europe 
+Concept 
+3 
+Estonia (2); Lithuania 
+Middle East 
+Concept 
+12 
+Bahrain (2); Kuwait (2); Saudi Arabia (2); UAE (6) 
+Warehouse 
+1 
+UAE 
+South Africa 
+Concept 
+1 
+Sandton 
+(1) 
+One store per location except as otherwise noted. 
+The distributors are responsible for their respective stores’ operations, have ownership
+of their respective stores’ assets, and select the broad collection of our products to sell
+to consumers in their regions. In order to maintain a globally consistent image, we provide
+architectural, graphic and visual guidance and materials for the design of the stores, and we
+train the local staff on our products and corporate culture. We intend to expand our
+international presence and global recognition of the Skechers brand name by continuing to
+sell our footwear to foreign distributors and by opening flagship retail stores with
+distributors that have local market expertise.
+Retail Stores. We pursue our retail store strategy through our three integrated retail
+formats: the concept store, the factory outlet store and the warehouse outlet store. Our three
+store formats enable us to promote the full Skechers product offering in an attractive environment
+that appeals to a broad group of consumers. In addition, most of our retail stores are profitable
+and have a positive effect on our operating results. As of February 15, 2010, we owned and operated
+90 concept stores, 92 factory outlet stores and 37 warehouse outlet stores in the United States,
+and 22 concept stores and five factory outlet stores internationally. During 2009, we opened 16
+domestic stores and four international stores, purchased ten stores from our distributor in Chile,
+contributed six stores to our joint ventures with operations in Malaysia and Thailand, and closed
+two domestic stores. We plan to open an additional 25 to 30 stores, including approximately seven
+international stores by the end of 2010.
+• 
+Concept Stores. 
+Our concept stores are located at either marquee street locations or in major shopping
+malls in large metropolitan cities. Our concept stores have a threefold purpose in our
+operating strategy. First, concept stores serve as a showcase for a wide range of our product
+offering for the current season, as we estimate that our average wholesale customer carries
+no more than 5% of the complete Skechers line in any one location. Our concept stores
+showcase our products in a cutting-edge, open-floor setting, providing the customer with the
+complete Skechers story. Second, retail locations are generally chosen to generate maximum
+marketing value for the Skechers brand name through signage, store front presentation and
+interior design. Domestic locations include concept stores at Times Square, Union Square and
+34th Street in New York, Powell Street in San Francisco, Hollywood and Highland in Hollywood,
+Santa Monica’s Third Street Promenade, Dallas’ Northpark Center, Las Vegas’ Fashion Show
+Mall, Seattle’s Bellevue Square Mall, and Woodfield Mall outside Chicago. International
+locations include Covent Garden and Oxford Street in London, Alstadt District in Dusseldorf,
+Toronto’s Eaton Centre,
+11 
+Table of Contents 
+Vancouver’s Richmond Centre, and Kalverstraat Street in Amsterdam.
+The stores are typically designed to create a
+distinctive Skechers look and feel, and enhance customer association of the Skechers
+brand name with current youthful lifestyle trends and styles. Third, the concept stores serve
+as marketing and product testing venues. We believe that product sell-through information and
+rapid customer feedback derived from our concept stores enables our design, sales,
+merchandising and production staff to respond to market changes and new product
+introductions. Such responses serve to augment sales and limit our inventory markdowns and
+customer returns and allowances. In 2009, we opened six domestic concept stores and two
+international concept stores, and we closed two domestic concept stores. We also purchased
+ten international concept stores from our distributor in Chile, including six in Santiago,
+Chile, and contributed six international concept stores to our joint ventures with operations
+in Malaysia and Thailand. 
+The typical Skechers concept store is approximately 2,500 square feet, although in
+certain markets we have opened concept stores as large as 7,800 square feet or as small as
+1,500 square feet. When deciding where to open concept stores, we identify top geographic
+markets in the larger metropolitan cities in the United States, Canada, Europe and Asia. When
+selecting a specific site, we evaluate the proposed sites’ traffic pattern, co-tenancies,
+sales volume of neighboring concept stores, lease economics and other factors considered
+important within the specific location. If we are considering opening a concept store in a
+shopping mall, our strategy is to obtain space as centrally located as possible in the mall
+where we expect foot traffic to be most concentrated. We believe that the strength of the
+Skechers brand name has enabled us to negotiate more favorable terms with shopping malls that
+want us to open up concept stores to attract customer traffic to their venues. 
+• 
+Factory Outlet Stores. 
+Our factory outlet stores are generally located in manufacturers’ direct outlet centers
+throughout the United States. In addition, we have five international outlet stores – two in
+Canada, two in England, and one in Scotland. Our factory outlet stores provide opportunities
+for us to sell discontinued and excess merchandise, thereby reducing the need to sell such
+merchandise to discounters at excessively low prices and potentially compromise the Skechers
+brand image. Skechers’ factory outlet stores range in size from approximately 1,900 to 9,000
+square feet. Inventory in these stores is supplemented by certain first-line styles sold at
+full retail price points. We opened ten domestic factory outlet stores and two international
+factory outlet stores in 2009.
+• 
+Warehouse Outlet Stores. 
+Our free-standing warehouse outlet stores, which are located throughout the United
+States, enable us to liquidate excess merchandise, discontinued lines and odd-size inventory
+in a cost-efficient manner. Skechers’ warehouse outlet stores range in size from
+approximately 5,200 to 13,500 square feet. Our warehouse outlet stores enable us to sell
+discontinued and excess merchandise that would otherwise typically be sold to discounters at
+excessively low prices, which could otherwise compromise the Skechers brand image. We seek to
+open our warehouse outlet stores in areas that are in close proximity to our concept stores
+to facilitate the timely transfer of inventory that we want to liquidate as soon as
+practicable. We did not open any new warehouse outlet stores in 2009.
+Electronic Commerce. Our websites, www.skechers.com , www.myshapeups.com and www.soholab.com 
+are virtual storefronts that promote the Skechers and Fashion and Street Division’s brands. Our
+websites are designed to provide a positive shopping and brand experience, showcasing our products
+in an easy-to-navigate format, allowing consumers to browse our selections and purchase our
+footwear. These virtual stores have provided a convenient alternative-shopping environment and
+brand experience. These websites are an efficient and effective additional retail distribution
+channel, and they have improved our customer service.
+LICENSING
+We believe that selective licensing of the Skechers brand name and our product line names to
+manufacturers may broaden and enhance the individual brands without requiring significant capital
+investments or additional incremental operating expenses. Our multiple product lines plus
+additional subcategories present many potential licensing opportunities on terms with licensees
+that we believe will provide more effective manufacturing, distribution or marketing of
+non-footwear products. We also believe that the reputation of Skechers and its history in launching
+brands has also enabled us to partner with reputable non-footwear brands to design and market their
+footwear.
+As of January 31, 2010, we had 15 active domestic and international licensing agreements in
+which we are the licensor. These include agreements for the recently launched Skechers Kids
+apparel, and soon to be launched Skechers Scrubs for health care
+12 
+Table of Contents 
+professionals and Skechers Eyewear. We have international licensing agreements for the design
+and distribution of men’s and women’s apparel in Germany, India, Israel, South Africa, and Korea;
+bags in Panama; and watches in the Philippines.
+Additionally, we have signed agreements to design, develop and market footwear for the street
+lifestyle apparel brands Ecko Unltd., Ecko Red, Red by Marc Ecko, and Zoo York under the Marc Ecko
+Enterprises umbrella.
+DISTRIBUTION FACILITIES AND OPERATIONS
+We believe that strong distribution support is a critical factor in our operations. Once
+manufactured, our products are packaged in shoe boxes bearing bar codes that are shipped either:
+(i) to our five distribution centers located in Ontario, California, which measure in aggregate
+approximately 1.7 million square-feet, (ii) to our approximately 490,000 square-foot distribution
+center located in Liege, Belgium or (iii) directly from third-party manufacturers to our other
+international customers and other international third-party distribution centers. Upon receipt at
+either of the distribution centers, merchandise is inspected and recorded in our management
+information system and packaged according to customers’ orders for delivery. Merchandise is shipped
+to customers by whatever means each customer requests, which is usually by common carrier. The
+distribution centers have multi-access docks, enabling us to receive and ship simultaneously, and
+to pack separate trailers for shipments to different customers at the same time. We have an
+electronic data interchange system, or EDI system, to which some of our larger customers are
+linked. This system allows these customers to automatically place orders with us, thereby
+eliminating the time involved in transmitting and inputting orders, and it includes direct billing
+and shipping information.
+In January 2010, we entered into a joint venture agreement to build a new 1.8 million square
+foot distribution facility in Moreno Valley, California, which we expect to occupy when completed
+in 2011. This single facility will replace the existing five facilities located in Ontario,
+California, of which four are on short-term leases and the fifth we own. We will lease the new
+distribution center from the joint venture for a base rent of $933,894 per month for 20 years.
+BACKLOG
+As of December 31, 2009, our backlog was $454.7 million, compared to $325.3 million as of
+December 31, 2008. Backlog orders are subject to cancellation by customers, as evidenced by the
+cancellations that we have experienced over the past two years due to the weakened U.S. economy.
+For a variety of reasons, including changes in the economy, customer demand for our products, the
+timing of shipments, product mix of customer orders, the amount of in-season orders and a shift
+towards tighter lead times within backlog levels, backlog may not be a reliable measure of future
+sales for any succeeding period.
+INTELLECTUAL PROPERTY RIGHTS
+We own and utilize a variety of trademarks, including the Skechers trademark. We have a
+significant number of both registrations and pending applications for our trademarks in the United
+States. In addition, we have trademark registrations and trademark applications in approximately 95
+foreign countries. We also have design patents and pending design and utility patent applications
+in both the United States and approximately 27 foreign countries. We continuously look to increase
+the number of our patents and trademarks both domestically and internationally where necessary to
+protect valuable intellectual property. We regard our trademarks and other intellectual property as
+valuable assets and believe that they have significant value in the marketing of our products. We
+vigorously protect our trademarks against infringement, including through the use of cease and
+desist letters, administrative proceedings and lawsuits.
+We rely on trademark, patent, copyright and trade secret protection, non-disclosure agreements
+and licensing arrangements to establish, protect and enforce intellectual property rights in our
+logos, tradenames and in the design of our products. In particular, we believe that our future
+success will largely depend on our ability to maintain and protect the Skechers trademark and other
+key trademarks. Despite our efforts to safeguard and maintain our intellectual property rights, we
+cannot be certain that we will be successful in this regard. Furthermore, we cannot be certain that
+our trademarks, products and promotional materials or other intellectual property rights do not or
+will not violate the intellectual property rights of others, that our intellectual property would
+be upheld if challenged, or that we would, in such an event, not be prevented from using our
+trademarks or other intellectual property rights. Such claims, if proven, could materially and
+adversely affect our business, financial condition and results of operations. In addition, although
+any such claims may ultimately prove to be without merit, the necessary management attention to and
+legal costs associated with litigation or other resolution of future claims concerning trademarks
+and other intellectual property rights could materially and adversely affect our business,
+financial condition and results of operations. We have sued and have been sued by third
+13 
+Table of Contents 
+parties for infringement of intellectual property. It is our opinion that none of these claims
+has materially impaired our ability to utilize our intellectual property rights.
+The laws of certain foreign countries do not protect intellectual property rights to the same
+extent or in the same manner as do the laws of the United States. Although we continue to implement
+protective measures and intend to defend our intellectual property rights vigorously, these efforts
+may not be successful or the costs associated with protecting our rights in certain jurisdictions
+may be prohibitive. From time to time we discover products in the marketplace that are counterfeit
+reproductions of our products or that otherwise infringe upon intellectual property rights held by
+us. Actions taken by us to establish and protect our trademarks and other intellectual property
+rights may not be adequate to prevent imitation of our products by others or to prevent others from
+seeking to block sales of our products as violating trademarks and intellectual property rights. If
+we are unsuccessful in challenging a third party’s products on the basis of infringement of our
+intellectual property rights, continued sales of such products by that or any other third party
+could adversely impact the Skechers brand, result in the shift of consumer preferences away from
+our products and generally have a material adverse effect on our business, financial condition and
+results of operations.
+COMPETITION
+Competition in the footwear industry is intense. Although we believe that we do not compete
+directly with any single company with respect to its entire range of products, our products compete
+with other branded products within their product category as well as with private label products
+sold by retailers, including some of our customers. Our utility footwear and casual shoes compete
+with footwear offered by companies such as The Timberland Company, Dr. Martens, Kenneth Cole
+Productions Inc., Steven Madden, Ltd., Wolverine World Wide, Inc., and V.F. Corporation. Our
+athletic lifestyle and performance shoes compete with footwear offered by companies such as Nike,
+Inc., adidas AG, Puma AG, New Balance Athletic Shoe, Inc. and K-Swiss Inc. The intense competition
+among these companies and the rapid changes in technology and consumer preferences in the markets
+for performance footwear, including the walking fitness category, constitute significant risk
+factors in our operations. Our children’s shoes compete with footwear offered by companies such as
+Collective Brands Inc. In varying degrees, depending on the product category involved, we compete
+on the basis of style, price, quality, comfort and brand name prestige and recognition, among other
+considerations. These and other competitors pose challenges to our market share in our major
+domestic markets and may make it more difficult to establish our products in Europe, Asia and other
+international regions. We also compete with numerous manufacturers, importers and distributors of
+footwear for the limited shelf space available for the display of such products to the consumer.
+Moreover, the general availability of contract manufacturing capacity allows ease of access by new
+market entrants. Many of our competitors are larger, have been in existence for a longer period of
+time, have achieved greater recognition for their brand names, have captured greater market share
+and/or have substantially greater financial, distribution, marketing and other resources than we
+do. We cannot be certain that we will be able to compete successfully against present or future
+competitors, or that competitive pressures will not have a material adverse effect on our business,
+financial condition and results of operations.
+EMPLOYEES
+As of January 31, 2010, we employed 4,698 persons, 2,160 of whom were employed on a full-time
+basis and 2,538 of whom were employed on a part-time basis. None of our employees is subject to a
+collective bargaining agreement. We believe that our relations with our employees are satisfactory.
+ITEM 1A. RISK FACTORS 
+In addition to the other information in this annual report, the following factors should be
+considered in evaluating us and our business.
+The Effects Of The Ongoing Global Economic Slowdown May Continue To Have A Negative Impact On Our
+Business, Results Of Operations Or Financial Condition. 
+The ongoing global economic slowdown has caused disruptions and extreme volatility in global
+financial markets, increased rates of default and bankruptcy, and declining consumer and business
+confidence, which has led to decreased levels of consumer spending, particularly on discretionary
+items such as footwear. These macroeconomic developments have and could continue to negatively
+impact our business, which depends on the general economic environment and levels of consumer
+spending in the United States and other parts of the world that affect not only the ultimate
+consumer, but also retailers, who are our primary direct customers. As a result, we may not be
+able to maintain or increase our sales to existing customers, make sales to new customers, open and operate new
+14 
+Table of Contents 
+retail stores, maintain sales levels at our existing stores, maintain or increase our
+international operations on a profitable basis, or maintain or improve our earnings from operations
+as a percentage of net sales. If the global economic slowdown continues for a significant period
+or continues to worsen, our results of operations, financial condition, and cash flows could be
+materially adversely affected.
+We Have Recently Entered The Highly Competitive Performance Footwear Market. 
+Although the design and aesthetics of our products have traditionally been the most important
+factor in consumer acceptance of our footwear, we recently incorporated technical innovation into
+our product offerings to capitalize on recent trends in the performance footwear market by
+introducing walking fitness footwear in late 2008. The performance footwear market is keenly
+competitive in the United States and worldwide, and new entrants into that market face many
+challenges. Our historical reputation as a fashion and lifestyle footwear company, consumer
+perceptions of our performance features, competitive product offerings and technologies, rapid
+changes in footwear technology and consumer preferences, any negative professional and expert
+opinions on our technical features and performance claims that may arise, and any negative
+publicity and media attention associated with this product category that may arise may constitute
+significant risk factors in our operations and may negatively impact our business.
+Our Operating Results Could Be Negatively Impacted If Our Sales Are Concentrated In Any One Style
+Or Group Of Styles. 
+If any one style or group of similar styles of our footwear were to represent a substantial
+portion of our net sales, we could be exposed to risk should consumer demand for such style or
+group of styles decrease in subsequent periods. We attempt to mitigate this risk by offering a
+broad range of products, and no style comprised over 5% of our gross wholesale sales during 2009 or
+2008. However, this may change in the future and fluctuations in sales of any given style that
+represents a significant portion of our future net sales could have a negative impact on our
+operating results.
+Our Business And The Success Of Our Products Could Be Harmed If We Are Unable To Maintain Our Brand
+Image. 
+Our success to date has been due in large part to the strength of the Skechers brand, and to a
+lesser degree, the reputation of our fashion brands. If we are unable to timely and appropriately
+respond to changing consumer demand, our brand name and brand image may be impaired. Even if we
+react appropriately to changes in consumer preferences, consumers may consider our brand image to
+be outdated or associate our brand with styles of footwear that are no longer popular. In the past,
+several footwear companies including ours have experienced periods of rapid growth in revenues and
+earnings followed by periods of declining sales and losses. Our business may be similarly affected
+in the future.
+It Is Difficult To Predict The Effect Of Regulatory Inquiries About Advertising And Promotional
+Claims Related To Our Products In The Walking Footwear Fitness Market. 
+The walking fitness footwear market is a relatively new product category dominated by a
+handful of competitors who design, market and advertise their products to promote benefits
+associated with wearing the footwear. Advertising and promoting benefits associated with these
+products routinely comes under regulatory review. As noted under “Legal Proceedings” in Part I,
+Item 3 of this annual report, we have received requests for information relating to our advertising
+claims for Shape-ups. It is difficult to predict the outcome of these inquiries and what, if any,
+material adverse effect, they may have on our business.
+We Face Intense Competition, Including Competition From Companies With Significantly Greater
+Resources Than Ours, And If We Are Unable To Compete Effectively With These Companies, Our Market
+Share May Decline And Our Business Could Be Harmed. 
+We face intense competition in the footwear industry from other established companies. A
+number of our competitors have significantly greater financial, technological, engineering,
+manufacturing, marketing and distribution resources than we do. Their greater capabilities in these
+areas may enable them to better withstand periodic downturns in the footwear industry, compete more
+effectively on the basis of price and production and more quickly develop new products. In
+addition, new companies may enter the markets in which we compete, further increasing competition
+in the footwear industry.
+We believe that our ability to compete successfully depends on a number of factors, including
+the style and quality of our products and the strength of our brand name, as well as many factors
+beyond our control. We may not be able to compete successfully in the future, and increased
+competition may result in price reductions, reduced profit margins, loss of market share and an
+inability to
+15 
+Table of Contents 
+generate cash flows that are sufficient to maintain or expand our development and marketing of
+new products, which would adversely impact the trading price of our
+Class A Common Stock. 
+Our Business Could Be Harmed If We Fail To Maintain Proper Inventory Levels. 
+We place orders with our manufacturers for some of our products prior to the time we receive
+all of our customers’ orders. We do this to minimize purchasing costs, the time necessary to fill
+customer orders and the risk of non-delivery. We also maintain an inventory of certain products
+that we anticipate will be in greater demand. However, the ongoing global economic slowdown makes
+it increasingly difficult for us and our customers to accurately forecast product demand trends,
+and we may be unable to sell the products we have ordered in advance from manufacturers or that we
+have in our inventory. Inventory levels in excess of customer demand may result in inventory
+write-downs, and the sale of excess inventory at discounted prices could significantly impair our
+brand image and have a material adverse effect on our operating results and financial condition.
+Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to
+supply the quality products that we require at the time we need them, we may experience inventory
+shortages. Inventory shortages might delay shipments to customers, negatively impact retailer and
+distributor relationships, and diminish brand loyalty.
+Our Future Success Depends On Our Ability To Respond To Changing Consumer Demands, Identify And
+Interpret Fashion Trends And Successfully Market New Products. 
+The footwear industry is subject to rapidly changing consumer demands and fashion trends.
+Accordingly, we must identify and interpret fashion trends and respond in a timely manner. Demand
+for and market acceptance of new products are uncertain and achieving market acceptance for new
+products generally requires substantial product development and marketing efforts and expenditures.
+If we do not continue to meet changing consumer demands and develop successful styles in the
+future, our growth and profitability will be negatively impacted. We frequently make decisions
+about product designs and marketing expenditures several months in advance of the time when
+consumer acceptance can be determined. If we fail to anticipate, identify or react appropriately to
+changes in styles and trends or are not successful in marketing new products, we could experience
+excess inventories, higher than normal markdowns or an inability to profitably sell our products.
+Because of these risks, a number of companies in the footwear industry specifically, and others in
+the fashion and apparel industry in general, have experienced periods of rapid growth in revenues
+and earnings and thereafter periods of declining sales and losses, which in some cases have
+resulted in companies in these industries ceasing to do business. Similarly, these risks could have
+a material adverse effect on our results of operations or financial condition.
+Our Business Could Be Adversely Affected By Changes In The Business Or Financial Condition Of
+Significant Customers Due To The Ongoing Conditions In The Global Financial Markets. 
+The recent global financial crisis affecting the banking system and financial markets and the
+possibility that financial institutions may consolidate or go out of business have resulted in a
+tightening in the credit markets, more stringent lending standards and terms, and higher volatility
+in fixed income, credit, currency and equity markets. There could be a number of follow-on effects
+from the credit crisis on our business, including insolvency of certain of our key distributors,
+which could impair our distribution channels, or our significant customers, including our
+distributors, may experience diminished liquidity or an inability to obtain credit to finance
+purchases of our product. Our customers may also experience weak demand for our products or other
+difficulties in their businesses. If conditions in the global financial markets become more severe
+or continue longer than we anticipate, our forecasted demand may not materialize to the levels that
+we require to achieve our anticipated financial results. Any of these events would likely harm our
+business, results of operations and financial condition.
+We May Have Difficulty Managing Our Costs As A Result Of The Ongoing Global Economic Slowdown. 
+Our future results of operations will depend on our overall ability to manage our costs.
+These challenges include (i) managing our infrastructure, including the anticipated addition of our
+new distribution center in Moreno Valley, California, (ii) retaining and hiring, as required, the
+appropriate number of qualified employees, (iii) managing inventory levels and (iv) controlling
+other expenses. If the global economic slowdown worsens and leads to an unexpected decline in our
+revenues without a corresponding and timely reduction in expenses or a failure to manage other
+aspects of our operations, that could have a material adverse effect on our business, results of
+operations or financial condition.
+We May Be Unable To Successfully Execute Our Growth Strategy Or Maintain Our Growth. 
+Although our company has generally exhibited steady growth since we began operations, we had a
+decrease in net sales in the past
+16 
+Table of Contents 
+and our rate of growth has declined at times as well, and we may experience similar decreases
+in net sales or declines in rate of growth again in the future. Our ability to grow in the future
+depends upon, among other things, the continued success of our efforts to maintain our brand image
+and expand our footwear offerings and distribution channels. As our business grows, we may need to
+improve and enhance our overall financial and managerial controls, reporting systems and procedures
+to effectively manage our growth. We may be unable to successfully implement our current growth
+strategy or other growth strategies or effectively manage our growth, any of which would negatively
+impact our business, results of operations and financial condition. Furthermore, we have
+significantly expanded our infrastructure and workforce to achieve economies of scale. Because
+these expenses are mostly fixed in the short term, our operating results and margins will be
+adversely impacted if we do not continue to grow as anticipated.
+Our Business And Operating Results Could Be Negatively Impacted If Our New Domestic Distribution
+Center Is Not Completed As Expected In 2011. 
+Our domestic distribution center currently consists of five warehouse facilities located in
+Ontario, California, and we occupy four of these facilities under short-term leases. We recently
+entered into an agreement with a real estate developer to form a joint venture to build a new 1.8
+million square foot distribution facility in Moreno Valley, California that is intended to replace
+the five existing warehouse facilities. We plan on moving our domestic distribution operations out
+of the existing facilities and into the new distribution facility when it is expected to be
+completed in 2011. However, because of the potential for construction delays or changes in
+construction scope and schedule, we cannot predict with certainty when or if the new distribution
+facility will be completed. Even if the construction proceeds as scheduled, it is possible that
+contracted parties may not fulfill their contractual obligations or that unsatisfactory performance
+could increase the cost associated with the construction. Any delays, cancellations, scope changes
+or unsatisfactory performance by others could materially increase the construction expenses and
+other costs of our new distribution facility.
+Additionally, the leases of the four facilities that we currently occupy expire between March
+2010 and June 2011. If the new distribution facility is not completed as expected in 2011, which
+would prevent us from moving our domestic distribution operations as planned, we cannot be assured
+that the landlords of the leased facilities will continue to provide short-term leases that address
+our needs on terms favorable to us or that, if not available, we will be able to find alternate
+facilities available for short-term lease on terms that are at least as comparable to us as the
+terms of the existing leases. These risks could have a material adverse effect on our business and
+results of operations.
+Our Children’s Shoe Business May Be Negatively Impacted By The Consumer Product Safety Improvement
+Act Of 2008. 
+The Consumer Product Safety Commission has issued new standards, effective February 10, 2009
+and August 14, 2009, under the Consumer Product Safety Improvement Act of 2008 (“CPSIA”) regarding
+lead content in consumer products directed at children 12 years of age and under, including
+children’s shoes. The lead limits on the outer or accessible part of a children’s shoe was
+decreased to 600 parts per million beginning February 10, 2009, and subsequently reduced on August
+14, 2009 to 300 parts per million. The new standard applies retroactively to all products that
+exist on February 10, 2009 and August 14, 2009, respectively, and it is not limited to new
+manufacturing. We have been working to ensure that covered products are appropriately tested, and
+we are regularly monitoring the evolution and interpretation of the regulation to ensure
+compliance. There is still uncertainty regarding the meaning of the CPSIA and how it applies to
+products or product components and the level of detail that each of our retailers will require.
+Consequently, we are unable to predict whether the total financial impact of these new standards
+will have a material adverse impact on our business, results of operation or financial condition.
+We Depend Upon A Relatively Small Group Of Customers For A Large Portion Of Our Sales. 
+During 2009, 2008 and 2007, our net sales to our five largest customers accounted for
+approximately 25.1%, 24.1%, and 25.3% of total net sales, respectively. No customer accounted for
+more than 10.0% of our net sales during 2009, 2008 and 2007. One customer accounted for 11.3% of
+net trade receivables at December 31, 2009. No customer accounted for over 10.0% of net trade
+receivables at December 31, 2008. Although we have long-term relationships with many of our
+customers, our customers do not have a contractual obligation to purchase our products and we
+cannot be certain that we will be able to retain our existing major customers. Furthermore, the
+retail industry regularly experiences consolidation, contractions and closings which may result in
+our loss of customers or our inability to collect accounts receivable of major customers. If we
+lose a major customer, experience a significant decrease in sales to a major customer or are unable
+to collect the accounts receivable of a major customer, our business could be harmed.
+17 
+Table of Contents 
+Many Of Our Retail Stores Depend Heavily On The Customer Traffic Generated By Shopping And Factory
+Outlet Malls Or By Tourism. 
+Many of our concept stores are located in shopping malls and some of our factory outlet stores
+are located in manufacturers’ outlet malls where we depend on obtaining prominent locations and the
+overall success of the malls to generate customer traffic. We cannot control the success of
+individual malls, and an increase in store closures by other retailers may lead to mall vacancies
+and reduced foot traffic. Some of our concept stores occupy street locations that are heavily
+dependent on customer traffic generated by tourism. Any substantial decrease in tourism resulting
+from the global economic slowdown, political, social or military events or otherwise, is likely to
+adversely affect sales in our existing stores, particularly those with street locations. The
+effects of these factors could reduce sales of particular existing stores or hinder our ability to
+open retail stores in new markets, which could negatively affect our operating results.
+Our International Sales And Manufacturing Operations Are Subject To The Risks Of Doing Business
+Abroad, Particularly In China, Which Could Affect Our Ability To Sell Or Manufacture Our Products
+In International Markets, Obtain Products From Foreign Suppliers Or Control The Costs Of Our
+Products. 
+Substantially all of our net sales during the year ended December 31, 2009 were derived from
+sales of footwear manufactured in foreign countries, with most manufactured in China and, to a
+lesser extent, in Italy and Vietnam. We also sell our footwear in several foreign countries and
+plan to increase our international sales efforts as part of our growth strategy. Foreign
+manufacturing and sales are subject to a number of risks, including the following: political and
+social unrest, including the military presence in Iraq and terrorism; changing economic conditions,
+including higher labor costs; increased costs of raw materials; currency exchange rate
+fluctuations; labor shortages and work stoppages; electrical shortages; transportation delays; loss
+or damage to products in transit; expropriation; nationalization; the adjustment, elimination or
+imposition of domestic and international duties, tariffs, quotas, import and export controls and
+other non-tariff barriers; exposure to different legal standards (particularly with respect to
+intellectual property); compliance with foreign laws; and changes in domestic and foreign
+governmental policies. We have not, to date, been materially affected by any such risks, but we
+cannot predict the likelihood of such developments occurring or the resulting long-term adverse
+impact on our business, results of operations or financial condition.
+In particular, because most of our products are manufactured in China, the possibility of
+adverse changes in trade or political relations with China, political instability in China,
+increases in labor costs, the occurrence of prolonged adverse weather conditions or a natural
+disaster such as an earthquake or typhoon in China, or the outbreak of a pandemic disease such as
+the H1N1 (Swine) Flu in China could severely interfere with the manufacture and/or shipment of our
+products and would have a material adverse effect on our operations. In addition, electrical
+shortages, labor shortages or work stoppages may extend the production time necessary to produce
+our orders, and there may be circumstances in the future where we may have to incur premium freight
+charges to expedite the delivery of product to our customers. If we incur a significant amount of
+premium charges to airfreight product for our customers, our gross profit will be negatively
+affected if we are unable to collect those charges.
+Currency Exchange Rate Fluctuations In China Could Result In Higher Costs And Decreased Margins. 
+Our manufacturers located in China may be subject to the effects of exchange rate fluctuations
+should the Chinese currency not remain stable with the U.S. dollar. The value of the Chinese
+currency depends to a large extent on the Chinese government’s policies and China’s domestic and
+international economic and political developments. Since 1994, the official exchange rate for the
+conversion of the Chinese currency was pegged to the U.S. dollar at a virtually fixed rate of
+approximately 8.28 Yuan per U.S. dollar. However, on July 21, 2005, the Chinese government revalued
+the Yuan by 2.1%, setting the exchange rate at 8.11 Yuan per U.S. dollar, and adopted a more
+flexible system based on a trade-weighted basket of foreign currencies of China’s main trading
+partners. Under the new “managed float” policy, the exchange rate of the Yuan may shift each day up
+to 0.3% in either direction from the previous day’s close, and as a result, the exchange rate
+measured 6.86 Yuan per U.S. dollar at December 31, 2009. The valuation of the Yuan may continue to
+increase incrementally over time should the China central bank allow it to do so, which could
+significantly increase labor and other costs incurred in the production of our footwear in China,
+resulting in a potentially material adverse effect on our results of operations and financial
+condition.
+The Potential Imposition Of Additional Duties, Quotas, Tariffs And Other Trade Restrictions Could
+Have An Adverse Impact On Our Sales And Profitability. 
+All of our products manufactured overseas and imported into the United States, the European
+Union (“EU”) and other countries are subject to customs duties collected by customs authorities.
+Customs information submitted by us is routinely subject to review by customs authorities. We are unable to predict whether additional customs duties, quotas, tariffs, anti-dumping duties,
+safeguard
+18 
+Table of Contents 
+measures, cargo restrictions to prevent terrorism or other trade restrictions may be imposed
+on the importation of our products in the future. Such actions could result in increases in the
+cost of our products generally and might adversely affect the sales and profitability of Skechers
+and the imported footwear industry as a whole.
+Our Quarterly Revenues And Operating Results Fluctuate As A Result Of A Variety Of Factors,
+Including Seasonal Fluctuations In Demand For Footwear, Delivery Date Delays And Potential
+Fluctuations In Our Annualized Tax Rate, Which May Result In Volatility Of Our Stock Price. 
+Our quarterly revenues and operating results have varied significantly in the past and can be
+expected to fluctuate in the future due to a number of factors, many of which are beyond our
+control. Our major customers generally have no obligation to purchase forecasted amounts and may
+cancel orders, change delivery schedules or change the mix of products ordered with minimal notice
+and without penalty. As a result, we may not be able to accurately predict our quarterly sales. In
+addition, sales of footwear products have historically been somewhat seasonal in nature with the
+strongest sales generally occurring in our second and third quarters for the back-to-school selling
+season. Back-to-school sales typically ship in June, July and August, and delays in the timing,
+cancellation, or rescheduling of these customer orders and shipments by our wholesale customers
+could negatively impact our net sales and results of operations for our second or third quarters.
+More specifically, the timing of when products are shipped is determined by the delivery schedules
+set by our wholesale customers, which could cause sales to shift between our second and third
+quarters. Because our expense levels are partially based on our expectations of future net sales,
+our expenses may be disproportionately large relative to our revenues, and we may be unable to
+adjust spending in a timely manner to compensate for any unexpected revenue shifts, which could
+have a material adverse effect on our operating results.
+Our annualized tax rate is based on projections of our domestic and international operating
+results for the year, which we review and revise as necessary at the end of each quarter, and it is
+highly sensitive to fluctuations in projected international earnings. Any quarterly fluctuations in
+our annualized tax rate that may occur could have a material impact on our quarterly operating
+results. As a result of these specific and other general factors, our operating results will likely
+vary from quarter to quarter and the results for any particular quarter may not be necessarily
+indicative of results for the full year. Any shortfall in revenues or net income from levels
+expected by securities analysts and investors could cause a decrease in the trading price of our
+Class A Common Stock.
+We Rely On Independent Contract Manufacturers And, As A Result, Are Exposed To Potential
+Disruptions In Product Supply. 
+Our footwear products are currently manufactured by independent contract manufacturers. During
+2009 and 2008, the top five manufacturers of our products produced approximately 69.1% and 64.6% of
+our total purchases, respectively. One manufacturer accounted for 29.7% and 30.6% of total
+purchases during 2009 and 2008, respectively. Three other manufacturers accounted for over 10.0%
+of our total purchases during 2009. One other manufacturer accounted for over 10.0% of our total
+purchases during 2008. We do not have long-term contracts with our manufacturers, and we compete
+with other footwear companies for production facilities. We could experience difficulties with
+these manufacturers, including reductions in the availability of production capacity, failure to
+meet our quality control standards, failure to meet production deadlines or increased manufacturing
+costs. In particular, manufacturers in China are facing a labor shortage as migrant workers seek
+better wages and working conditions in farming and other vocations, and if this trend continues,
+our current manufacturers’ operations could be adversely affected.
+If our current manufacturers cease doing business with us, we could experience an interruption
+in the manufacture of our products. Although we believe that we could find alternative
+manufacturers, we may be unable to establish relationships with alternative manufacturers that will
+be as favorable as the relationships we have now. For example, new manufacturers may have higher
+prices, less favorable payment terms, lower manufacturing capacity, lower quality standards or
+higher lead times for delivery. If we are unable to provide products consistent with our standards
+or the manufacture of our footwear is delayed or becomes more expensive, this could result in our
+customers canceling orders, refusing to accept deliveries or demanding reductions in purchase
+prices, any of which could have a material adverse effect on our business and results of
+operations.
+Our Business Could Be Harmed If Our Contract Manufacturers, Suppliers Or Licensees Violate Labor,
+Trade Or Other Laws. 
+We require our independent contract manufacturers, suppliers and licensees to operate in
+compliance with applicable laws and regulations. Manufacturers are required to certify that neither
+convicted, forced or indentured labor (as defined under United States law) nor child labor (as
+defined by law in the manufacturer’s country) is used in the production process, that compensation
+is paid in accordance with local law and that their factories are in compliance with local safety
+regulations. Although we promote ethical
+19 
+Table of Contents 
+business practices and our sourcing personnel periodically visit and monitor the operations of
+our independent contract manufacturers, suppliers and licensees, we do not control them or their
+labor practices. If one of our independent contract manufacturers, suppliers or licensees violates
+labor or other laws or diverges from those labor practices generally accepted as ethical in the
+United States, it could result in adverse publicity for us, damage our reputation in the United
+States or render our conduct of business in a particular foreign country undesirable or
+impractical, any of which could harm our business.
+In addition, if we, or our foreign manufacturers, violate United States or foreign trade laws
+or regulations, we may be subject to extra duties, significant monetary penalties, the seizure and
+the forfeiture of the products we are attempting to import or the loss of our import privileges.
+Possible violations of United States or foreign laws or regulations could include inadequate record
+keeping of our imported products, misstatements or errors as to the origin, quota category,
+classification, marketing or valuation of our imported products, fraudulent visas or labor
+violations. The effects of these factors could render our conduct of business in a particular
+country undesirable or impractical and have a negative impact on our operating results.
+Our Strategies Involve A Number Of Risks That Could Prevent Or Delay Any Successful Opening Of New
+Stores As Well As Impact The Performance Of Our Existing Stores. 
+Our ability to open and operate new stores successfully depends on many factors, including,
+among others: our ability to identify suitable store locations, the availability of which is
+outside of our control; negotiate acceptable lease terms, including desired tenant improvement
+allowances; source sufficient levels of inventory to meet the needs of new stores; hire, train and
+retain store personnel; successfully integrate new stores into our existing operations; and satisfy
+the fashion preferences in new geographic areas.
+In addition, some or a substantial number of new stores could be opened in regions of the
+United States in which we currently have few or no stores. Any expansion into new markets may
+present competitive, merchandising and distribution challenges that are different from those
+currently encountered in our existing markets. Any of these challenges could adversely affect our
+business and results of operations. In addition, to the extent that any new store openings are in
+existing markets, we may experience reduced net sales volumes in existing stores in those markets.
+We Depend On Key Personnel To Manage Our Business Effectively In A Rapidly Changing Market, And If
+We Are Unable To Retain Existing Personnel, Our Business Could Be Harmed. 
+Our future success depends upon the continued services of Robert Greenberg, Chairman of the
+Board and Chief Executive Officer, Michael Greenberg, President, and David Weinberg, Executive Vice
+President, Chief Operating Officer and Chief Financial Officer. The loss of the services of any of
+these individuals or any other key employee could harm us. Our future success also depends on our
+ability to identify, attract and retain additional qualified personnel. Competition for employees
+in our industry is intense and we may not be successful in attracting and retaining such personnel.
+The Disruption, Expense And Potential Liability Associated With Existing And Unanticipated Future
+Litigation Against Us Could Have A Material Adverse Effect On Our Business, Results Of Operations
+And Financial Condition. 
+We are subject to various legal proceedings and threatened legal proceedings from time to time
+as part of our business. We are not currently a party to any legal proceedings or aware of any
+threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, we
+believe would have a material adverse effect on our business, results of operations or financial
+condition. However, any unanticipated litigation in the future, regardless of its merits, could
+significantly divert management’s attention from our operations and result in substantial legal
+fees to us. Further, there can be no assurance that any actions that have been or will be brought
+against us will be resolved in our favor or, if significant monetary judgments are rendered against
+us, that we will have the ability to pay such judgments. Such disruptions, legal fees and any
+losses resulting from these claims could have a material adverse effect on our business, results of
+operations and financial condition.
+Our Ability To Compete Could Be Jeopardized If We Are Unable To Protect Our Intellectual Property
+Rights Or If We Are Sued For Intellectual Property Infringement. 
+We believe that our trademarks, design patents and other proprietary rights are important to
+our success and our competitive position. We use trademarks on nearly all of our products and
+believe that having distinctive marks that are readily identifiable is an important factor in
+creating a market for our goods, in identifying us and in distinguishing our goods from the goods
+of others. We consider our Skechers®, S in Shield Design®, Performance-S Shifted Design® and
+Shape-ups® trademarks to be among our most valuable assets, and we have registered these trademarks
+in many countries. In addition, we own many other trademarks that we utilize
+20 
+Table of Contents 
+in marketing our products. We also have a number of design patents and a limited number of
+utility patents covering components and features used in various shoes. We believe that our patents
+and trademarks are generally sufficient to permit us to carry on our business as presently
+conducted. While we vigorously protect our trademarks against infringement, we cannot assure you
+that we will be able to secure patents or trademark protection for our intellectual property in the
+future or that protection will be adequate for future products. Further, we have been sued for
+patent and trademark infringement and cannot be sure that our activities do not and will not
+infringe on the intellectual property rights of others. If we are compelled to prosecute infringing
+parties, defend our intellectual property or defend ourselves from intellectual property claims
+made by others, we may face significant expenses and liability as well as the diversion of
+management’s attention from our business, each of which could negatively impact our business or
+financial condition.
+In addition, the laws of foreign countries where we source and distribute our products may not
+protect intellectual property rights to the same extent as do the laws of the United States. We
+cannot assure you that the actions we have taken to establish and protect our trademarks and other
+intellectual property rights outside the United States will be adequate to prevent imitation of our
+products by others or, if necessary, successfully challenge another party’s counterfeit products or
+products that otherwise infringe on our intellectual property rights on the basis of trademark or
+patent infringement. Continued sales of these products could adversely affect our sales and our
+brand and result in the shift of consumer preference away from our products. We may face
+significant expenses and liability in connection with the protection of our intellectual property
+rights outside the United States, and if we are unable to successfully protect our rights or
+resolve intellectual property conflicts with others, our business or financial condition could be
+adversely affected.
+Natural Disasters Or A Decline In Economic Conditions In California Could Increase Our Operating
+Expenses Or Adversely Affect Our Sales Revenue. 
+A substantial portion of our operations are located in California, including 56 of our retail
+stores, our headquarters in Manhattan Beach, our current domestic distribution center in Ontario
+and our future domestic distribution center in Moreno Valley. Because a significant portion of our
+net sales is derived from sales in California, a decline in the economic conditions in California,
+whether or not such decline spreads beyond California, could materially adversely affect our
+business. Furthermore, a natural disaster or other catastrophic event, such as an earthquake or
+wild fires affecting California, could significantly disrupt our business including the operation
+of our only domestic distribution center. We may be more susceptible to these issues than our
+competitors whose operations are not as concentrated in California.
+One Principal Stockholder Is Able To Exert Significant Influence Over All Matters Requiring A Vote
+Of Our Stockholders And His Interests May Differ From The Interests Of Our Other Stockholders. 
+As of December 31, 2009, Robert Greenberg, Chairman of the Board and Chief Executive Officer,
+beneficially owned 36.3% of our outstanding Class B common shares and members of Mr. Greenberg’s
+immediate family beneficially owned an additional 22.7% of our outstanding Class B common shares.
+The remainder of our outstanding Class B common shares is held in two irrevocable trusts for the
+benefit of Mr. Greenberg and his immediate family members, and voting control of such shares
+resides with the independent trustee. The holders of Class A common shares and Class B common
+shares have identical rights except that holders of Class A common shares are entitled to one vote
+per share while holders of Class B common shares are entitled to ten votes per share on all matters
+submitted to a vote of our stockholders. As a result, as of December 31, 2009, Mr. Greenberg
+beneficially owned approximately 28.1% of the aggregate number of votes eligible to be cast by our
+stockholders, and together with shares beneficially owned by other members of his immediate family,
+they beneficially owned approximately 46.7% of the aggregate number of votes eligible to be cast by
+our stockholders. Therefore, Mr. Greenberg is able to exert significant influence over all matters
+requiring approval by our stockholders. Matters that require the approval of our stockholders
+include the election of directors and the approval of mergers or other business combination
+transactions. Mr. Greenberg also has significant influence over our management and operations. As a
+result of such influence, certain transactions are not likely without the approval of Mr.
+Greenberg, including proxy contests, tender offers, open market purchase programs or other
+transactions that can give our stockholders the opportunity to realize a premium over the
+then-prevailing market prices for their shares of our Class A common shares. Because Mr.
+Greenberg’s interests may differ from the interests of the other stockholders, Mr. Greenberg’s
+significant influence on actions requiring stockholder approval may result in our company taking
+action that is not in the interests of all stockholders. The differential in the voting rights may
+also adversely affect the value of our Class A common shares to the extent that investors or any
+potential future purchaser view the superior voting rights of our Class B common shares to have
+value.
+21 
+Table of Contents 
+Our Charter Documents And Delaware Law May Inhibit A Takeover, Which May Adversely Affect The Value
+Of Our Stock. 
+Provisions of Delaware law, our certificate of incorporation or our bylaws could make it more
+difficult for a third party to acquire us, even if closing such a transaction would be beneficial
+to our stockholders. Mr. Greenberg’s substantial beneficial ownership position, together with the
+authorization of Preferred Stock, the disparate voting rights between our Class A Common Stock and
+Class B Common Stock, the classification of our Board of Directors and the lack of cumulative
+voting in our certificate of incorporation and bylaws, may have the effect of delaying, deferring
+or preventing a change in control, may discourage bids for our Class A Common Stock at a premium
+over the market price of the Class A Common Stock and may adversely affect the market price of our
+Class A Common Stock.
+ITEM 1B. UNRESOLVED STAFF COMMENTS 
+None.
+ITEM 2. PROPERTIES 
+Our corporate headquarters and additional administrative offices are located at five premises
+in Manhattan Beach, California, which consist of an aggregate of approximately 150,000 square feet.
+We own and lease portions of our corporate headquarters and administrative offices. The property
+leases expire between October 2010 and February 2012, with options to extend these leases in some
+cases, and the current aggregate annual base rent for the leased property is approximately $0.5
+million.
+Our U.S. distribution center consists of four leased facilities and one that we own, which are
+located in Ontario, California. The four leased facilities aggregate approximately 1,410,000 square
+feet, with an annual base rent of approximately $5.2 million. The owned distribution facility is
+approximately 264,000 square feet. The property leases expire between March 2010 and June 2011, and
+these leases contain rent escalation provisions. In January 2010, we entered into an agreement
+with HF Logistics I, LLC (“HF”) to form a joint venture (“JV”) to build a new 1.8 million square
+foot distribution facility in Moreno Valley, California that we expect to occupy when completed in
+2011. This single facility will replace the existing five facilities located in Ontario,
+California, of which four are on short-term leases. We will lease the new distribution center from
+the JV for a base rent of $933,894 per month for 20 years. The JV’s objective is to operate the
+facility for the production of income and profit. The term of the JV is fifty years. The parties
+are equal fifty percent partners. Skechers, through Skechers RB, LLC, will make an initial cash
+capital contribution of $30 million and HF will make an initial capital contribution of land.
+Additional capital contributions, if necessary, would be made on an equal basis by Skechers RB, LLC
+and HF. The JV is in the process of obtaining $55 million in construction financing, the closing of
+which is subject to certain conditions. In the event that either the construction loan is not
+finalized or construction does not begin by June 1, 2010, the JV is null and void and the parties
+are entitled to receive return of their initial capital contributions in the form contributed.
+Our European distribution center consists of a 490,000 square-foot facility in Liege, Belgium
+under a 20-year operating lease with base rent of approximately $2.6 million per year. The lease
+agreement also provides for early termination rights at five-year intervals beginning in April
+2014, pending notification as prescribed in the lease, of which the first such right was not
+exercised.
+All of our domestic retail stores and showrooms are leased with terms expiring between April
+2010 and June 2023. The leases provide for rent escalations tied to either increases in the
+lessor’s operating expenses, fluctuations in the consumer price index in the relevant geographical
+area or a percentage of the store’s gross sales in excess of the base annual rent. Total base rent
+expense related to our domestic retail stores and showrooms was $32.7 million for the year ended
+December 31, 2009.
+We also lease all of our international administrative offices, retail stores and showrooms
+located in Brazil, Malaysia, Thailand, Canada, Switzerland, United Kingdom, Germany, France, Spain,
+Italy, Netherlands, and Chile. The property leases expire at various dates between May 2010 and
+November 2019. Total base rent for the leased properties aggregated approximately $13.6 million
+for the year ended December 31, 2009.
+ITEM 3. LEGAL PROCEEDINGS 
+See note 13 to the financial statements on page 56 of this annual report for a discussion of
+legal proceedings as required under applicable SEC disclosure rules and regulations.
+22 
+Table of Contents 
+ITEM 4. RESERVED 
+PART II 
+ITEM 5. 
+MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
+PURCHASES OF EQUITY SECURITIES 
+Our Class A Common Stock trades on the New York Stock Exchange under the symbol “SKX.” The
+following table sets forth, for the periods indicated, the high and low sales prices of our Class A
+Common Stock.
+HIGH 
+LOW 
+YEAR ENDED DECEMBER 31, 2009 
+First Quarter 
+$ 
+13.13 
+$ 
+5.20 
+Second Quarter 
+12.56 
+6.50 
+Third Quarter 
+19.26 
+8.95 
+Fourth Quarter 
+30.00 
+16.39 
+YEAR ENDED DECEMBER 31, 2008 
+First Quarter 
+$ 
+23.36 
+$ 
+16.05 
+Second Quarter 
+25.20 
+17.14 
+Third Quarter 
+24.00 
+15.56 
+Fourth Quarter 
+16.84 
+9.25 
+HOLDERS
+As of February 15, 2010, there were 96 holders of record of our Class A Common Stock
+(including holders who are nominees for an undetermined number of beneficial owners) and 21 holders
+of record of our Class B Common Stock. These figures do not include beneficial owners who hold
+shares in nominee name. The Class B Common Stock is not publicly traded but each share is
+convertible upon request of the holder into one share of Class A Common Stock.
+DIVIDEND POLICY
+Earnings have been and will be retained for the foreseeable future in the operations of our
+business. We have not declared or paid any cash dividends on our Class A Common Stock and do not
+anticipate paying any cash dividends in the foreseeable future. Our current policy is to retain all
+of our earnings to finance the growth and development of our business.
+EQUITY COMPENSATION PLAN INFORMATION
+Our equity compensation plan information is provided as set forth in Part III, Item 12 of this
+annual report.
+23 
+Table of Contents 
+PERFORMANCE GRAPH
+The following graph demonstrates the total return to stockholders of our company’s Class A
+Common Stock from December 31, 2004 to December 31, 2009, relative to the performance of the
+Russell 2000 Index, which includes our Class A Common Stock, and our peer group index, which
+consists of seven companies believed to be engaged in similar businesses: Nike, Inc., adidas AG,
+K-Swiss Inc., Kenneth Cole Productions, Inc., Steven Madden, Ltd., The Timberland Company and
+Wolverine World Wide, Inc.
+The graph assumes an investment of $100 on December 31, 2004 in each of our company’s Class A
+Common Stock and the stocks comprising each of the Russell 2000 Index and the customized peer group
+index. Each of the indices assumes that all dividends were reinvested. The stock performance of
+our company’s Class A Common Stock shown on the graph is not necessarily indicative of future
+performance. We will not make nor endorse any predictions as to our future stock performance.
+COMPARISON
+OF 5 YEAR CUMULATIVE TOTAL RETURN 
+12/31/2004 
+12/31/2005 
+12/31/2006 
+12/31/2007 
+12/31/2008 
+12/31/2009 
+Skechers U.S.A., Inc. 
+100.00 
+118.21 
+257.02 
+150.54 
+98.92 
+226.93 
+Russell 2000 
+100.00 
+104.55 
+123.76 
+121.82 
+80.66 
+102.58 
+Peer Group 
+100.00 
+105.95 
+119.14 
+149.03 
+124.95 
+144.58 
+24 
+Table of Contents 
+ITEM 6. SELECTED FINANCIAL DATA 
+The following tables set forth our company’s selected consolidated financial data as of and
+for each of the years in the five-year period ended December 31, 2009 and should be read in
+conjunction with our audited consolidated financial statements and notes thereto included under
+Part II, Item 8 of this annual report.
+(In thousands, except net earnings per share)
+YEARS ENDED DECEMBER 31, 
+STATEMENT OF EARNINGS DATA: 
+2009 
+2008 
+2007 
+2006 
+2005 
+Net sales 
+$ 
+1,436,440 
+$ 
+1,440,743 
+$ 
+1,394,181 
+$ 
+1,205,368 
+$ 
+1,006,477 
+Gross profit 
+621,010 
+595,922 
+599,989 
+523,346 
+420,482 
+Earnings from operations 
+72,582 
+57,892 
+112,930 
+112,544 
+76,296 
+Earnings before income taxes 
+71,110 
+60,743 
+118,305 
+112,648 
+72,797 
+Net earnings attributable to Skechers U.S.A., Inc 
+54,699 
+55,396 
+75,686 
+70,994 
+44,717 
+Net earnings per share:(1) 
+Basic 
+1.18 
+1.20 
+1.67 
+1.73 
+1.13 
+Diluted 
+1.16 
+1.19 
+1.63 
+1.59 
+1.06 
+Weighted average shares:(1) 
+Basic 
+46,341 
+46,031 
+45,262 
+41,079 
+39,686 
+Diluted 
+47,105 
+46,708 
+46,741 
+46,139 
+44,518 
+AS OF DECEMBER 31, 
+BALANCE SHEET DATA: 
+2009 
+2008 
+2007 
+2006 
+2005 
+Working capital 
+$ 
+558,468 
+$ 
+413,771 
+$ 
+523,888 
+$ 
+450,787 
+$ 
+361,210 
+Total assets 
+995,552 
+876,316 
+827,977 
+737,053 
+581,957 
+Long-term debt, excluding current portion 
+15,641 
+16,188 
+16,462 
+106,805 
+107,288 
+Skechers U.S.A., Inc. equity 
+745,922 
+668,693 
+626,663 
+449,087 
+343,830 
+(1) 
+Basic earnings per share represents net earnings divided by the weighted-average number of
+common shares outstanding for the period. Diluted earnings per share, in addition to the
+weighted average determined for basic earnings per share, reflects the potential dilution that
+could occur if options to issue common stock were exercised or converted into common stock and
+assumes the conversion of our 4.50% convertible subordinated notes for the period outstanding
+since their issuance in April 2002 until their conversion in February 2007, unless their
+inclusion would be anti-dilutive. 
+25 
+Table of Contents 
+ITEM 7. 
+MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
+OPERATIONS 
+GENERAL
+We design, market and sell contemporary footwear for men, women and children under the
+Skechers brand as well as several other fashion and street brands. Our footwear is sold through a
+wide range of department stores and leading specialty retail stores, mid-tier retailers, boutiques,
+our own retail stores, distributor-owned international retail stores and our e-commerce website.
+Our objective is to continue to profitably grow our domestic operations while leveraging our brand
+name to expand internationally.
+Our operations are organized along our distribution channels, and we have the following four
+reportable sales segments: domestic wholesale sales, international wholesale sales, retail sales
+and e-commerce sales. We evaluate segment performance based primarily on net sales and gross
+margins. See detailed segment information in note 14 to our consolidated financial statements
+included under Part II, Item 8 of this annual report.
+FINANCIAL OVERVIEW
+While the first half of 2009 was negatively impacted by the continuing weak global economy,
+results for the second half of the year saw improved year-over-year results. Despite continued
+poor economic news and reduced consumer spending, we finished 2009 with record sales in the third
+and fourth quarters.
+Our net sales for 2009 were $1.436 billion, a decrease of $4.3 million, or 0.3%, compared to
+net sales of $1.441 billion in 2008. Net earnings were $54.7 million, a decrease of $0.7 million
+or 1.3% from net earnings of $55.4 million in 2008. Diluted earnings per share were $1.16, which
+reflected a 2.5% decrease from the $1.19 reported in the prior year. Working capital was $558.5
+million at December 31, 2009, an increase of $144.7 million from working capital of $413.8 million
+at December 31, 2008. Cash and short-term investments increased by $180.8 million to $295.7
+million in 2009 compared to $114.9 million at December 31, 2008, due to the redemption of our
+investments in auction rate securities of $95.3 million, reduced inventories of $39.4 million and
+our net earnings of $54.7 million.
+2009 OVERVIEW
+In 2009, we focused on product development, domestic and international growth, and inventory
+and expense management.
+New product design and delivery . Our success depends on our ability to design and deliver
+trend-right, affordable product in a diverse range. In 2009, we focused on continuously updating
+our core styles, adding fresh looks to our existing lines, and developing new lines. This approach
+has broadened our product offering and ensured the relevance of our brands.
+Grow our domestic business. In 2009, our focus was on maintaining our core Skechers business
+in our domestic wholesale accounts while finding new opportunities to add shelf space and expand
+into new locations with new Skechers categories. We also focused on expanding our domestic retail
+distribution channel by opening 16 additional stores while closing two underperforming locations.
+Further develop our international businesses. In 2009, we continued to focus on improving our
+international operations by (i) growing our subsidiary business by increasing our customer base
+within our existing subsidiary business, including our newest subsidiary in Brazil, and by the
+acquisition of our distributor in Chile; (ii) increasing the product offering within each account;
+(iii) delivering the right product into the right markets; and (iv) by building the business of our
+joint ventures in Asia through additional retail stores and wholesale channels.
+Balance sheet and expense management. During the second quarter of 2009, we secured a new
+$250 million credit facility to provide us liquidity to fund our future initiatives. We also
+focused on returning to profitability in the second half of 2009 by managing our inventory and
+expenses to be in line with expected sales.
+26 
+Table of Contents 
+OUTLOOK FOR 2010
+In 2010, we are focusing on maintaining our domestic and international market share by
+continuing to offer fresh and stylish products at affordable prices while continuing to manage our
+inventory and expenses. We are continuing to develop new product, much of which will be launching
+in Spring and Fall of this year, and believe these new styles and lines will allow us the
+opportunity to broaden the targeted demographic profile of our consumer base, increase our shelf
+space, and open new locations without detracting from existing business.
+We are focused on growing our international business to 25% to 30% of our total sales. We are
+seeking to increase our global presence through our joint ventures in Asia and to continue to
+develop our South American subsidiaries’ businesses in Brazil and Chile. We are also looking to
+grow in new markets with new distributors in India and Mexico as well as to increase our presence
+in other existing markets.
+We will also continue to expand our retail distribution channel by opening another 25 to 30
+stores, including approximately seven international company-owned stores, in 2010.
+We will continue to develop our infrastructure to support ongoing growth. In January 2010, we
+entered into a joint venture agreement with HF Logistics I, LLC to construct approximately
+1,820,000 square feet of buildings and other improvements that we will use as our domestic
+distribution facility. We expect the building to be completed and ready for operation in 2011.
+Once this new facility is available, we plan to move out of our five existing distribution
+facilities in Ontario, California, creating a more efficient distribution center.
+YEAR ENDED DECEMBER 31, 2009 COMPARED TO THE YEAR ENDED DECEMBER 31, 2008
+Net sales 
+Net sales for 2009 were $1.436 billion, a decrease of $4.3 million, or 0.3%, compared to net
+sales of $1.441 billion in 2008. The decrease in net sales was primarily due to lower domestic
+wholesale sales in the first half of the year partially offset by growth within our retail segment
+and increased sales during the fourth quarter.
+Our domestic wholesale net sales decreased $43.5 million, or 5.4%, to $763.5 million in 2009
+compared to $807.0 million in 2008. The decrease in our domestic wholesale segment was broad-based
+and across several divisions during the first half of the year primarily due to the weak U.S.
+retail environment. The average selling price per pair within the domestic wholesale segment
+increased to $20.49 per pair for 2009 from $19.21 in 2008, which was primarily the result of the
+demand for new styles introduced in the second half of the year partially offset by a large amount
+of closeouts in the first half of the year. The decrease in domestic wholesale segment sales came
+on an 11.2% unit sales volume decrease to 37.3 million pairs in 2009 from 42.0 million pairs in
+2008.
+Our international wholesale segment net sales decreased $4.0 million, or 1.2% to $328.5
+million in 2009, compared to sales of $332.5 million in 2008. Our international wholesale sales
+consist of direct subsidiary sales – those we make to department stores and specialty retailers —
+and sales to our distributors who in turn sell to department stores and specialty retailers in
+various international regions where we do not sell direct. Direct subsidiary sales increased $21.3
+million, or 10.4%, to $226.3 million compared to sales of $205.0 million in 2008. The increase in
+direct subsidiary sales was primarily due to increased sales into China, Chile, and Switzerland.
+Our distributor net sales decreased $25.4 million, or 20.0%, to $102.1 million in 2009, compared to
+sales of $127.5 million in 2008. This was primarily due to decreased sales to our distributors in
+Russia and Dubai as well as the acquisition of our distributor in Chile on June 1, 2009.
+Our retail segment net sales increased $38.7 million, or 13.7% to $321.8 million in 2009,
+compared to sales of $283.1 million in 2008. The increase in retail sales was due to a net increase
+of 22 stores and positive comparable domestic store sales (i.e. those open at least one year).
+During 2009, we realized positive comparable store sales of 3.7% in our domestic retail stores,
+while we realized negative comparable store sales of 10.0% in our international retail stores due
+to unfavorable currency translations. During 2009, we opened 16 new domestic stores and four
+international stores, and we closed two domestic stores. We also acquired ten international stores
+from our distributor in Chile and contributed six international stores to our joint ventures with
+operations in Malaysia and Thailand. These new stores contributed $13.2 million in net sales
+during 2009 as compared to new store sales of $13.8 million for 32 other stores opened in 2008.
+Of our new store additions, 18 were concept stores and 12 were outlet stores. Our domestic retail
+sales increased 13.1% in 2009 compared to 2008 due to a net increase of 14 stores and positive
+comparable store sales. Our international retail sales increased 19.8% in 2009 compared to 2008,
+attributable to the purchase of ten stores from our distributor in Chile.
+27 
+Table of Contents 
+We had 219 domestic stores and 27 international retail stores as of February 15, 2010, and we
+currently plan to open approximately 25 to 30 stores, including approximately seven international
+stores, in 2010. In both 2009 and 2008, we closed two domestic stores. We periodically review all
+of our stores for impairment. During 2009, we recorded an impairment charge of $0.8 million
+related to three of our domestic stores. During 2008, we recorded an impairment charge of $1.7
+million related to eight of our domestic stores. Further, we carefully review our under-performing
+stores and may consider the non-renewal of leases upon completion of the current term of the
+applicable lease.
+Our e-commerce net sales increased $4.5 million to $22.6 million in 2009, a 25.3% increase
+over sales of $18.1 million in 2008. The increase in sales was primarily due to increased sales of
+in-line and in-demand inventory. Our e-commerce sales made up approximately 2% of our consolidated
+net sales in 2009 compared to approximately 1% in 2008.
+Gross profit 
+Gross profit for 2009 increased $25.1 million to $621.0 million from $595.9 million in 2008.
+Gross profit as a percentage of net sales, or gross margin, increased to 43.2% in 2009 from 41.4%
+in 2008. The gross margin increase was largely the result of higher domestic wholesale and retail
+margins that were partially offset by lower international wholesale margins. Gross profit for our
+domestic wholesale segment increased $15.7 million, or 5.7%, to $292.3 million in 2009 from $276.6
+million in 2008. Domestic wholesale margins increased to 38.3% in 2009 from 34.3% for 2008. The
+increase in domestic wholesale margins was primarily due to less closeouts and increased sales of
+in-line, in-demand inventory during the fourth quarter which offset price pressure during the first
+half of 2009 resulting from the weak U.S. retail environment.
+Gross profit for our international wholesale segment decreased $19.4 million, or 14.1%, to
+$118.4 million for 2009 compared to $137.8 million in 2008. Gross margins were 36.1% for 2009
+compared to 41.5% in 2008. The decrease in gross margins for the international wholesale segment
+was due to weaker retail environments abroad and unfavorable currency translations, since our
+products are predominately purchased in U.S. dollars. International wholesale sales through our
+foreign subsidiaries achieved higher gross margins than our international wholesales sales through
+our distributors. Gross margins for our direct subsidiary sales were 40.0% in 2009 as compared to
+49.2% in 2008. Gross margins for our distributor sales were 27.3% in 2009 as compared to 29.0% in
+2008.
+Gross profit for our retail segment increased $25.3 million, or 14.7%, to $198.2 million in
+2009 as compared to $172.9 million in 2008. Gross margins for all stores were 61.6% for 2009
+compared to 61.1% in 2008. Gross margins for our domestic stores were 60.7% in 2009 as compared to
+60.6% in 2008. Gross margins for our international stores were 70.5% in 2009 as compared to 66.2%
+in 2008. The increase in domestic and international retail margins was due to less closeouts and
+increased sales of in-line, in-demand inventory.
+Our cost of sales includes the cost of footwear purchased from our manufacturers, royalties,
+duties, quota costs, inbound freight (including ocean, air and freight from the dock to our
+distribution centers), broker fees and storage costs. Because we include expenses related to our
+distribution network in general and administrative expenses while some of our competitors may
+include expenses of this type in cost of sales, our gross margins may not be comparable, and we may
+report higher gross margins than some of our competitors in part for this reason.
+Selling expenses 
+Selling expenses increased by $2.1 million, or 1.7%, to $129.0 million for 2009 from $126.9
+million in 2008. As a percentage of net sales, selling expenses were 9.0% and 8.8% in 2009 and
+2008, respectively. The increase in selling expenses was primarily due to higher promotional costs
+and selling commissions partially offset by reduced trade show expenses. Selling expenses consist
+primarily of the following: sales representative sample costs, sales commissions, trade shows,
+advertising and promotional costs, which may include television and ad production costs, and
+expenses associated with marketing materials.
+General and administrative expenses 
+General and administrative expenses increased by $7.5 million, or 1.8%, to $421.1 million for
+2009 from $413.6 million in 2008. As a percentage of sales, general and administrative expenses
+were 29.3% and 28.7% in 2009 and 2008, respectively. The increase in general and administrative
+expenses was primarily due to increased salaries and wages of $9.9 million, which included stock
+compensation costs of $5.7 million, primarily due to a return to historical employee incentive and
+benefit programs, as well as higher
+28 
+Table of Contents 
+rent expense of $8.5 million due to an additional 22 stores, which was partially offset by
+decreased bad debt expense of $6.6 million. In addition, the expenses related to our distribution
+network, including the functions of purchasing, receiving, inspecting, allocating, warehousing and
+packaging of our products totaled $109.2 million and $112.6 million for 2009 and 2008,
+respectively. The $3.4 million decrease was due to sales of higher priced products with fewer
+units sold as well as efficiency gains.
+General and administrative expenses consist primarily of the following: salaries, wages and
+related taxes, various overhead costs associated with our corporate staff, stock-based
+compensation, domestic and international retail operations, non-selling related costs of our
+international operations, costs associated with our domestic and European distribution centers,
+professional fees related to both legal and accounting, insurance, and depreciation and
+amortization, asset impairment, amongst other expenses. Our distribution network related costs are
+included in general and administrative expenses and are not allocated to specific segments.
+We believe that we have established our presence in most major domestic retail markets. We
+opened 16 domestic retail stores and four international retail stores in 2009, while closing two
+domestic stores. We also purchased 10 international stores from our distributor in Chile and
+contributed six international stores to a new joint venture. We currently plan to open between 25
+and 30 stores, including approximately seven international stores, in 2010.
+We continue to review our cost structure to bring our expenses in line with our anticipated
+sales levels in 2010.
+Interest income 
+Interest income for 2009 decreased $5.2 million to $2.1 million as compared to $7.3 million
+for the same period in 2008. The decrease in interest income resulted from the repurchase of our
+auction rate securities by our investment advisor and the subsequent reinvestment of the proceeds
+in U.S. Treasuries that have a lower yield than the auction rate securities.
+Interest expense 
+Interest expense for 2009 decreased $1.6 million to $3.0 million as compared to $4.6 million
+for the same period in 2008. The decrease was due to interest on our new corporate headquarters
+and warehouse equipment for our new distribution center being capitalized. Interest expense was
+incurred on our mortgages for our domestic distribution center and our corporate office located in
+Manhattan Beach, California, and on amounts owed to our foreign manufacturers.
+Income taxes 
+The effective tax rate for 2009 was 28.4% as compared to 11.9% in 2008. Income tax expense
+for 2009 was $20.2 million compared to $7.3 million for 2008. We expect our ongoing effective
+annual tax rate in 2010 to be between 30 and 35 percent.
+Income taxes were computed using the effective tax rates applicable to each of our domestic
+and international taxable jurisdictions. The rate for the year ended December 31, 2009 is lower
+than the expected domestic rate of approximately 40% due to our non-U.S. subsidiary earnings in
+lower tax rate jurisdictions and our planned permanent reinvestment of undistributed earnings from
+our non-U.S. subsidiaries, thereby indefinitely postponing their repatriation to the United States.
+As such, we did not provide for deferred income taxes on accumulated undistributed earnings of our
+non-U.S. subsidiaries. As of December 31, 2009, withholding and U.S. taxes have not been recorded
+on approximately $82.0 million of cumulative undistributed earnings.
+Noncontrolling interests in net loss of consolidated subsidiaries 
+Noncontrolling interest for 2009 increased $1.9 million to $3.8 million as compared to $1.9
+million for the same period in 2009. Noncontrolling interest represents the share of net loss that
+is attributable to our joint venture partners based on their investments in Skechers China,
+Skechers Southeast Asia and Skechers Thailand.
+YEAR ENDED DECEMBER 31, 2008 COMPARED TO THE YEAR ENDED DECEMBER 31, 2007
+Net sales 
+Net sales for 2008 were $1.441 billion, an increase of $46.6 million, or 3.3%, over net sales
+of $1.394 billion in 2007. The increase in net sales was primarily due to increased international
+wholesale sales and growth within the domestic retail segment from an increased store base
+partially offset by lower domestic wholesale sales.
+29 
+Table of Contents 
+Our domestic wholesale net sales decreased 2.9%, or $24.2 million, to $807.0 million in 2008
+compared to $831.2 million in 2007. The decrease in our domestic wholesale segment was broad-based
+and across key divisions primarily due to the weak U.S. retail environment. The average selling
+price per pair within the domestic wholesale segment decreased to $19.21 per pair for 2008 from
+$19.22 in 2007. The decrease in domestic wholesale segment sales came on a 2.8% unit sales volume
+decrease to 42.0 million pairs in 2008 from 43.2 million pairs in 2007.
+Our international wholesale segment net sales increased $64.9 million to $332.5 million in
+2008, a 24.2% increase over sales of $267.6 million in 2007. Direct subsidiary sales increased
+$61.0 million, or 42.3%, to $205.0 million compared to sales of $144.0 million in 2007. The
+increase in direct subsidiary sales was primarily due to increased sales into Germany, UK,
+Switzerland, and Brazil. Our distributor net sales increased $3.9 million to $127.5 million in
+2008, a 3.2% increase over sales of $123.6 million in 2007. This was primarily due to increased
+sales to our distributors in Dubai, Panama, and Chile.
+Our retail segment net sales increased $3.7 million to $283.1 million in 2008, a 1.4% increase
+over sales of $279.4 million in 2007. The increase in retail sales was due to a net increase of 32
+stores partially offset by negative comparable store sales ( i.e., sales by stores open for at least
+one year). For 2008, our domestic retail sales increased 1.0% while our international retail sales
+increased 4.7% compared to the prior year. During 2008, we realized negative comparable store
+sales of 9.3% in our domestic stores, while we realized negative comparable store sales of 3.3% in
+our international stores. During 2008, we opened 31 new domestic stores and three international
+stores, and we closed two domestic stores. These new stores contributed $13.8 million in net sales
+during 2008 as compared to new store sales of $16.9 million for 42 other stores opened in 2007.
+Of our new store additions, 22 were concept stores, 10 were outlet stores, and two were warehouse
+stores.
+We had 204 domestic stores and 19 international retail stores as of February 15, 2009. During
+2008, we closed two stores, and we also closed two stores in 2007. We periodically review all of
+our stores for impairment. During 2008, we recorded an impairment charge of $1.7 million related
+to eight of our domestic stores. During 2007, we did not record a similar impairment charge.
+Further, we carefully review our under-performing stores and may consider the non-renewal of leases
+upon completion of the current term of the applicable lease.
+Our e-commerce net sales increased $2.2 million to $18.1 million in 2008, a 13.4% increase
+over sales of $15.9 million in 2007. Our e-commerce sales made up 1% of our consolidated sales in
+both 2008 and 2007.
+Gross profit 
+Gross profit for 2008 decreased $4.1 million to $595.9 million as compared to $600.0 million
+in 2007. Gross margin decreased to 41.4% in 2008 from 43.0% in 2007. The gross margin decrease
+was largely the result of reduced domestic wholesale margins that were partially offset by higher
+international wholesale margins caused by a higher proportion of our revenues coming from our
+international wholesale segment through foreign subsidiaries, which achieved higher gross margins
+than our domestic wholesale segment or sales through our foreign distributors. Gross profit for
+our domestic wholesale segment decreased $43.8 million, or 13.7%, to $276.6 million in 2008
+compared to $320.4 million in 2007. Domestic wholesale margins decreased to 34.3% in 2008 from
+38.5% for 2007. The decrease in domestic wholesale margins was due to higher closeouts, product
+mix changes and continued price pressure resulting from the weak U.S. retail environment.
+Gross profit for our international wholesale segment increased $38.0 million, or 38.2%, to
+$137.8 million for 2008 compared to $99.8 million in 2007. Gross margins were 41.5% for 2008
+compared to 37.3% in 2007. Gross margins for our direct subsidiary sales were 49.2% in 2008 as
+compared to 45.0% in 2007. Gross margins for our distributor sales were 29.0% in 2008 as compared
+to 28.2% in 2007. The increase in gross margins for the international wholesale segment was due to
+increased subsidiary sales, which achieved higher gross margins than our international wholesale
+sales through our foreign distributors.
+Gross profit for our retail segment increased $1.1 million, or 0.7%, to $172.9 million in 2008
+as compared to $171.8 million in 2007. Gross margins were 61.1% for 2008 compared to 61.5% in
+2007. Gross margins for our international stores were 66.2% in 2008 as compared to 62.3% in 2007.
+Gross margins for our domestic stores were 60.6% in 2008 as compared to 61.4% in 2007. The
+decrease in domestic retail margins was due to higher closeouts, product mix changes and continued
+price pressure resulting from the weak U.S. retail environment.
+30 
+Table of Contents 
+Selling expenses 
+Selling expenses increased by $0.4 million, or 0.3%, to $126.9 million for 2008 from $126.5
+million in 2007. As a percentage of net sales, selling expenses were 8.8% and 9.1% in 2008 and
+2007, respectively. The increase in selling expenses was primarily due to higher sample costs and
+selling commissions partially offset by lower promotional costs and reduced trade show expenses.
+Selling expenses consist primarily of the following: sales representative sample costs, sales
+commissions, trade shows, advertising and promotional costs, which may include television and ad
+production costs, and expenses associated with marketing materials.
+General and administrative expenses 
+General and administrative expenses increased by $48.9 million, or 13.4%, to $413.6 million
+for 2008 from $364.7 million in 2007. As a percentage of sales, general and administrative
+expenses were 28.7% and 26.2% in 2008 and 2007, respectively. The increase in general and
+administrative expenses was primarily due to increased salaries and wages along with payroll
+expenses and benefit costs of $11.7 million including stock compensation costs of $2.3 million,
+higher rent expense of $8.4 million due to an additional 32 stores from prior year and new
+international facilities, increased bad debt expense of $5.7 million, and increased warehouse and
+distribution costs of $5.6 million. In addition, the expenses related to our distribution network,
+including the functions of purchasing, receiving, inspecting, allocating, warehousing and packaging
+of our products totaled $112.6 million and $97.6 million for 2008 and 2007, respectively. The
+$15.0 million increase was due in part to the addition of our fifth domestic distribution facility
+in Ontario, California and its functional integration with the existing domestic distribution
+facility, as well as increased sales volume.
+Interest income 
+Interest income for 2008 decreased $2.7 million to $7.3 million as compared to $10.0 million
+for the same period in 2007. The decrease in interest income resulted from lower interest rates
+during 2008 when compared to the same period in 2007. Interest income earned on our investment
+balances was primarily tax exempt.
+Interest expense 
+Interest expense for 2008 decreased $0.2 million to $4.6 million as compared to $4.8 million
+for the same period in 2007. Interest expense was incurred on mortgages on our distribution center
+and our corporate office located in Manhattan Beach, California, and amounts owed to our foreign
+manufacturers.
+Income taxes 
+The effective tax rate for 2008 was 11.9% as compared to 36.0% in 2007. Income tax expense
+for 2008 was $7.3 million compared to $42.6 million for 2007. On August 1, 2008, we received a
+decision on our advance pricing agreement (“APA”) with the Internal Revenue Service (“IRS”). The
+APA provides us with greater certainty with respect to the transfer pricing of certain intercompany
+transactions. As a result of this agreement and other discrete items, we recorded an income tax
+benefit of $7.0 million, or $0.15 per diluted share, relating to the reversal of income tax expense
+recorded in prior years. Excluding the impact of these discrete items, our effective tax rate would
+have been 23.4% for the year ended December 31, 2008.
+Income taxes were computed using the effective tax rates applicable to each of our domestic
+and international taxable jurisdictions. The rate for the year ended December 31, 2008 is lower
+than the expected domestic rate of approximately 40% due to our non-U.S. subsidiary earnings in
+lower tax rate jurisdictions and our planned permanent reinvestment of undistributed earnings from
+our non-U.S. subsidiaries, thereby indefinitely postponing their repatriation to the United States.
+As such, we did not provide for deferred income taxes on accumulated undistributed earnings of our
+non-U.S. subsidiaries. As of December 31, 2008, withholding and U.S. taxes have not been recorded
+on approximately $64.1 million of cumulative undistributed earnings.
+The APA obtained in 2008 provided for transfer pricing adjustments which resulted in the
+reclassification of approximately $21.4 million of prior year earnings from the U.S. to non-U.S.
+subsidiaries. If these reclassified earnings had been accounted for as non-U.S. earnings as of
+December 31, 2007, the balance of accumulated undistributed earnings of our non-U.S. subsidiaries
+for which withholding and U.S. taxes had not been recorded would have increased from $15.5 million
+to $36.9 million.
+31 
+Table of Contents 
+Noncontrolling interest in net loss of consolidated subsidiaries 
+Noncontrolling interest of $1.9 million for 2008 represents the share of net loss that is
+attributable to the equity that we do not own of Skechers China, our joint venture that was formed
+in October 2007.
+LIQUIDITY AND CAPITAL RESOURCES
+Our working capital at December 31, 2009 was $558.5 million, an increase of $144.7 million
+from working capital of $413.8 million at December 31, 2008. Our cash and cash equivalents at
+December 31, 2009 were $265.7 million compared to $114.9 million at December 31, 2008. Cash and
+short-term investments increased by $180.8 million to $295.7 million in 2009 compared to $114.9
+million at December 31, 2008, primarily due to the redemption of our investments in auction rate
+securities of $95.3 million, reduced inventories of $39.4 million and our net earnings of $54.7
+million.
+During 2009, net cash provided by our operating activities was $115.1 million compared to cash
+used in operating activities of $21.8 million for 2008. The significant increase in our operating
+cash flows for 2009 when compared to 2008 was primarily the result of reduced inventory levels as
+we significantly managed our inventory levels down in the first half of 2009 offset by increased
+accounts receivable balances of $46.6 million.
+Net cash provided by investing activities was $25.8 million for 2009 as compared to net cash
+used of $68.2 million in 2008. During 2009, we had $95.6 million of long-term investments in
+auction rate securities that were redeemed or matured and purchased $30.0 million in short-term
+U.S. Treasuries. Capital expenditures for 2009 were approximately $35.3 million, which primarily
+consisted of 22 new store openings and several store remodels, and warehouse equipment purchased
+for our new distribution center in Moreno Valley, California. This was compared to capital
+expenditures of $72.5 million in the prior year, which primarily consisted of 34 new store openings
+and several store remodels, corporate real property purchased, and warehouse equipment for our new
+distribution center in Moreno Valley, California. Excluding the construction of our new
+distribution center in Moreno Valley, California, we expect our capital expenditures for 2010 to be
+between $15 million and $20 million, which includes opening between 25 to 30 retail stores
+including approximately seven international retail stores as well as investments in information
+technology. We are currently in the process of designing and purchasing the equipment and tenant
+improvements to be used in our new distribution center and estimate the cost of this equipment and
+tenant improvements to be approximately $85.0 million, of which $38.6 million was incurred as of
+December 31, 2009. We expect the remaining balance of approximately $46.4 million to be incurred
+during 2010. In January 2010, we entered into a joint venture agreement to build our new 1.8
+million square foot distribution facility in Moreno Valley, California, which we expect to occupy
+when completed in 2011. The Company will make an initial cash capital contribution of $30 million
+and the joint venture is in the process of obtaining $55 million in construction financing. In the
+event that either the construction loan is not finalized or construction does not begin by June 1,
+2010, the JV is null and void and the parties are entitled to receive a return of their initial
+capital contributions in the form contributed. Our operating cash flows, current cash, and
+available lines of credit should be adequate to fund these capital expenditures, although we may
+seek additional funding for all or a portion of these expenditures.
+Net cash provided by financing activities was $8.4 million during 2009 compared to $8.6
+million during 2008. The decrease in cash provided by financing activities was due to lower
+proceeds from the issuance of Class A common stock upon the exercise of stock options and a lower
+capital contribution by the minority partner to our joint venture during the year ended December
+31, 2009.
+We have outstanding debt of $16.2 million that primarily relates to notes payable for one of
+our distribution center warehouses and one of our administrative offices, which notes are secured
+by the respective properties.
+On June 30, 2009, we entered into a $250.0 million credit agreement (the “Credit Agreement”) that replaced the
+existing $150.0 million credit agreement. The new credit facility matures in June 2013. The
+Credit Agreement permits us to borrow up to $250.0 million based upon a borrowing base of eligible
+accounts receivable and inventory, which amount can be increased to $300.0 million at our request
+and upon satisfaction of certain conditions including obtaining the commitment of existing or
+prospective lenders willing to provide the incremental amount. Borrowings bear interest at the
+borrowers’ election based on LIBOR or a Base Rate (defined as the greatest of the base LIBOR plus
+1.00%, the Federal Funds Rate plus 0.5% or one of the lenders’ prime rate), in each case, plus an
+applicable margin based on the average daily principal balance of revolving loans under the Credit
+Agreement (2.75% to 3.25% for Base Rate Loans and 3.75% to 4.25% for Libor Rate Loans). We pay a
+monthly unused line of credit fee between 0.5% and 1.0% per annum, which varies based on the
+average daily principal balance of outstanding revolving loans and undrawn amounts of letters of
+credit outstanding during such month. The Credit Agreement further provides for a limit on the
+issuance of letters of credit to a maximum outstanding amount of $50.0 million. The Credit
+Agreement contains customary affirmative and negative covenants for secured credit
+32 
+Table of Contents 
+facilities of this type, including a fixed charges coverage ratio that applies when excess
+availability is less than $50.0 million. In addition, the Credit Agreement places limits on
+additional indebtedness that we are permitted to incur as well as other restrictions on certain
+transactions. We were in compliance with all of the financial covenants of the Credit Agreement at
+December 31, 2009. We had $2.1 million of outstanding letters of credit and short-term borrowings
+of $2.0 million as of December 31, 2009. We paid syndication and commitment fees of $5.9 million
+on this facility which are being amortized over the four-year life of the facility.
+On January 30, 2010, we entered into a joint venture agreement with HF Logistics I, LLC
+through Skechers RB, LLC, a newly formed wholly-owned subsidiary, regarding the ownership and
+management of HF Logistics-SKX, LLC, a Delaware limited liability company (the “JV”). The purpose
+of the JV is to acquire and to develop real property consisting of approximately 110 acres situated
+in Moreno Valley, California, and to construct approximately 1,820,000 square feet of buildings and
+other improvements (the “Project”) to lease to us as a distribution facility. The JV’s objective
+is to operate the Project for the production of income and profit. The term of the JV is fifty
+years. The parties are equal fifty percent partners. Skechers, through Skechers RB, LLC, will make
+an initial cash capital contribution of $30 million and HF will make an initial capital
+contribution of land. Additional capital contributions, if necessary, would be made on an equal
+basis by Skechers RB, LLC and HF. The JV is in the process of obtaining $55 million in construction
+financing, the closing of which is subject to certain conditions. In the event that either the
+construction loan is not finalized or construction does not begin by June 1, 2010, the JV is null
+and void and the parties are entitled to receive return of their initial capital contributions in
+the form contributed.
+We believe that anticipated cash flows from operations, available borrowings under our secured
+line of credit, cash on hand, investments and our financing arrangements will be sufficient to
+provide us with the liquidity necessary to fund our anticipated working capital and capital
+requirements through 2010. However, in connection with our current strategies, we will have
+significant working capital requirements and will incur significant capital expenditures. Our
+future capital requirements will depend on many factors, including, but not limited to, costs
+associated with moving to a new distribution facility, the levels at which we maintain inventory,
+the market acceptance of our footwear, the success of our international operations, the levels of
+promotion and advertising required to promote our footwear, the extent to which we invest in new
+product design and improvements to our existing product design, acquisition of other brands or
+companies, and the number and timing of new store openings. To the extent that available funds are
+insufficient to fund our future activities, we may need to raise additional funds through public or
+private financing of debt or equity. We cannot be assured that additional financing will be
+available or that, if available, it can be obtained on terms favorable to our stockholders and us.
+Failure to obtain such financing could delay or prevent our planned expansion, which could
+adversely affect our business, financial condition and results of operations. In addition, if
+additional capital is raised through the sale of additional equity or convertible securities,
+dilution to our stockholders could occur.
+DISCLOSURE ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
+The following table aggregates all material contractual obligations and commercial commitments as
+of December 31, 2009:
+Payments Due by Period (In Thousands) 
+Less than 
+One to 
+Three to 
+More Than 
+One 
+Three 
+Five 
+Five 
+Total 
+Year 
+Years 
+Years 
+Years 
+Other long-term debt 
+$ 
+17,619 
+$ 
+1,781 
+$ 
+15,838 
+— 
+— 
+Operating lease obligations (1) 
+680,969 
+78,016 
+140,810 
+$ 
+109,046 
+$ 
+353,097 
+Purchase obligations (2) 
+244,160 
+244,160 
+— 
+— 
+— 
+Warehousing equipment (3) 
+46,357 
+46,357 
+— 
+— 
+— 
+Minimum payments related to our
+licensing arrangements 
+1,888 
+1,888 
+— 
+— 
+— 
+$ 
+990,993 
+$ 
+372,202 
+$ 
+156,648 
+$ 
+109,046 
+$ 
+353,097 
+(1) 
+Operating lease obligations consists primarily of real property leases for our retail
+stores, corporate offices and distribution centers. These leases frequently include options
+that permit us to extend beyond the terms of the initial fixed term. Payments for these
+lease terms are provided for by cash flows generated from operations, investment balances
+and existing cash balances. 
+(2) 
+Purchase obligations include the following: (i) accounts payable balances for the
+purchase of footwear of $93.5 million, (ii) outstanding letters of credit of $2.1 million
+and (iii) open purchase commitments with our foreign manufacturers for $148.6 million. We
+currently expect to fund these commitments with cash flows from operations, investment
+balances and existing 
+33 
+Table of Contents 
+cash balances. 
+(3) 
+We plan to spend approximately $85.0 million for equipment relating to our new
+distribution center in Moreno Valley, of which $38.6 million was incurred as of December
+31, 2009. We expect the remaining balance to be incurred in 2010, which we expect to fund
+with cash flows from operations, investment balances and existing cash balances. 
+OFF-BALANCE SHEET ARRANGEMENTS
+We do not have any relationships with unconsolidated entities or financial partnerships such
+as entities often referred to as structured finance or special purpose entities that would have
+been established for the purpose of facilitating off-balance-sheet arrangements or for other
+contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity,
+market or credit risk that could arise if we had engaged in such relationships.
+CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
+Management’s Discussion and Analysis of Financial Condition and Results of Operations is based
+upon our consolidated financial statements, which have been prepared in accordance with accounting
+principles generally accepted in the United States of America. The preparation of these financial
+statements requires us to make difficult, subjective and complex estimates and judgments that
+affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of
+contingent assets and liabilities.
+We base our estimates and judgments on historical experience, other available information, and
+on other assumptions that are believed to be reasonable under the circumstances, the results of
+which form the basis for making judgments about the carrying values of assets and liabilities. In
+determining whether an estimate is critical, we consider if the nature of the estimates or
+assumptions is material due to the levels of subjectivity and judgment or the susceptibility of
+such matters to change, and if the impact of the estimates and assumptions on financial condition
+or operating performance is material. Actual results may differ from these estimates under
+different assumptions or conditions.
+We believe the following critical accounting estimates are affected by significant judgments
+used in the preparation of our consolidated financial statements: revenue recognition, allowance
+for bad debts, returns, sales allowances and customer chargebacks, inventory write-downs, valuation
+of long-lived assets, litigation reserves, valuation of deferred income taxes, uncertain tax
+positions, foreign currency translation.
+Revenue Recognition . We derive income from the sale of footwear and royalties earned from
+licensing the Skechers brand. Domestically, goods are shipped Free on Board (“FOB”) shipping point
+directly from our domestic distribution center in Ontario, California. For our international
+wholesale customers in the European community, product is shipped FOB shipping point direct from
+our distribution center in Liege, Belgium. For our distributor sales, the goods are generally
+delivered directly from the independent factories to our distributors’ freight forwarders on a Free
+Named Carrier (“FCA”) basis. We recognize revenue on wholesale sales when products are shipped and
+the customer takes title and assumes risk of loss, collection of the relevant receivable is
+probable, persuasive evidence of an arrangement exists and the sales price is fixed or
+determinable. This generally occurs at time of shipment. While customers do not have the right to
+return goods, we periodically decide to accept returns or provide customers with credits.
+Allowances for estimated returns, discounts, doubtful accounts and chargebacks are provided
+for when related revenue is recorded. Related costs paid to third-party shipping companies are
+recorded as a cost of sales. We recognize revenue from retail sales at the point of sale.
+Royalty income is earned from our licensing arrangements. Upon signing a new licensing
+agreement, we receive up-front fees, which are generally characterized as prepaid royalties. These
+fees are initially deferred and recognized as revenue as earned (i.e., as licensed sales are
+reported to the company or on a straight-line basis over the term of the agreement). The first
+calculated royalty payment is based on actual sales of the licensed product or, in some cases
+minimum royalty payments. Typically, at each quarter-end we receive correspondence from our
+licensees indicating what the actual sales for the period were. This information is used to
+calculate and accrue the related royalties currently receivable based on the terms of the
+agreement.
+Allowance for bad debts, returns, sales allowances and customer chargebacks. We provide a
+reserve against our receivables for estimated losses that may result from our customers’ inability
+to pay. To minimize the likelihood of uncollectibility, customers’ credit-worthiness is reviewed
+periodically based on external credit reporting services, financial statements issued by the
+customer and our experience with the account, and it is adjusted accordingly. When a customer’s
+account becomes significantly past due, we generally
+34 
+Table of Contents 
+place a hold on the account and discontinue further shipments to that customer, minimizing
+further risk of loss. We determine the amount of the reserve by analyzing known uncollectible
+accounts, aged receivables, economic conditions in the customers’ countries or industries,
+historical losses and our customers’ credit-worthiness. Amounts later determined and specifically
+identified to be uncollectible are charged or written off against this reserve.
+We also reserve for potential disputed amounts or chargebacks from our customers. Our
+chargeback reserve is based on a collectibility percentage based on factors such as historical
+trends, current economic conditions, and nature of the chargeback receivables. We also reserve for
+potential sales returns and allowances based on historical trends.
+The likelihood of a material loss on an uncollectible account would be mainly dependent on
+deterioration in the overall economic conditions in a particular country or environment. Reserves
+are fully provided for all probable losses of this nature. For receivables that are not
+specifically identified as high risk, we provide a reserve based upon our historical loss rate as a
+percentage of sales. Gross trade accounts receivable balance was $234.3 million and $189.9
+million and the allowance for bad debts, returns, sales allowances and customer chargebacks was
+$14.4 million and $14.9 million, at December 31, 2009 and 2008, respectively.
+Inventory write-downs . Inventories are stated at the lower of cost or market. We review our
+inventory on a regular basis for excess and slow moving inventory. Our review is based on inventory
+on hand, prior sales and our expected net realizable value. Our analysis includes a review of
+inventory quantities on hand at period end in relation to year-to-date sales, existing orders from
+customers and projections for sales in the near future. The net realizable value, or market value,
+is determined based on our estimate of sales prices of such inventory based upon historical sales
+experience on a style by style basis. A write-down of inventory is considered permanent and creates
+a new cost basis for those units. The likelihood of any material inventory write-down is dependent
+primarily on our expectation of future consumer demand for our product. A misinterpretation or
+misunderstanding of future consumer demand for our product or of the economy, or other failure to
+estimate correctly, could result in inventory valuation changes, either favorably or unfavorably,
+compared to the requirement determined to be appropriate as of the balance sheet date. Our gross
+inventory value was $227.7 million and $274.4 million and our inventory reserve was $3.7 million
+and $13.2 million, at December 31, 2009 and 2008, respectively.
+Valuation of long-lived assets . When circumstances warrant, we assess the impairment of
+long-lived assets that require us to make assumptions and judgments regarding the carrying value of
+these assets. The assets are considered to be impaired if we determine that the carrying value may
+not be recoverable based upon our assessment of the following events or changes in circumstances:
+• 
+the asset’s ability to continue to generate income; 
+• 
+any loss of legal ownership or title to the asset(s); 
+• 
+any significant changes in our strategic business objectives and utilization of the
+asset(s); or 
+• 
+the impact of significant negative industry or economic trends. 
+If the assets are considered to be impaired, the impairment we recognize is the amount by
+which the carrying value of the assets exceeds the fair value of the assets. In addition, we base
+the useful lives and related amortization or depreciation expense on our estimate of the period
+that the assets will generate revenues or otherwise be used by us. If a change were to occur in any
+of the above-mentioned factors or estimates, the likelihood of a material change in our reported
+results would increase. In addition, we prepare a summary of store contribution from our domestic
+retail stores to assess potential impairment of the fixed assets and leasehold improvements. Stores
+with negative contribution opened in excess of twenty-four months are then reviewed in detail to
+determine if impairment exists. For the year ended December 31, 2009, we recorded a $0.8 million
+impairment charge for three of our domestic stores. For the year ended December 31, 2008, we
+recorded a $1.7 million impairment charge for eight of our domestic stores. We did not record an
+impairment charge in 2007.
+Litigation reserves . Estimated amounts for claims that are probable and can be reasonably
+estimated are recorded as liabilities in our consolidated balance sheets. The likelihood of a
+material change in these estimated reserves would depend on new claims as they may arise and the
+favorable or unfavorable outcome of the particular litigation. Both the amount and range of loss on
+a large portion of the remaining pending litigation is uncertain. As such, we are unable to make a
+reasonable estimate of the liability that could result from unfavorable outcomes in litigation. As
+additional information becomes available, we will assess the potential liability related to our
+pending litigation and revise our estimates. Such revisions in our estimates of the potential
+liability could materially impact our
+35 
+Table of Contents 
+results of operations and financial position. For the year ended December 31, 2009, we
+recorded $2.5 million related to a legal settlement.
+Valuation of deferred income taxes . We record a valuation allowance when necessary to reduce
+our deferred tax assets to the amount that is more likely than not to be realized. The likelihood
+of a material change in our expected realization of our deferred tax assets depends on future
+taxable income and the effectiveness of our tax planning strategies amongst the various domestic
+and international tax jurisdictions in which we operate. We evaluate our projections of taxable
+income to determine the recoverability of our deferred tax assets and the need for a valuation
+allowance. As of December 31, 2009, we had net deferred tax assets of $27.3 million reduced by a
+valuation allowance of $5.7 million against loss carry-forwards not expected to be utilized by
+certain foreign subsidiaries.
+INFLATION
+We do not believe that the relatively moderate rates of inflation experienced in the United
+States over the last three years have had a significant effect on our sales or profitability.
+However, we cannot accurately predict the effect of inflation on future operating results. Although
+higher rates of inflation have been experienced in a number of foreign countries in which our
+products are manufactured, we do not believe that inflation has had a material effect on our sales
+or profitability. While we have been able to offset our foreign product cost increases by
+increasing prices or changing suppliers in the past, we cannot assure you that we will be able to
+continue to make such increases or changes in the future.
+EXCHANGE RATES
+We receive U.S. dollars for substantially all of our domestic and a portion of our
+international product sales as well as our royalty income. Inventory purchases from offshore
+contract manufacturers are primarily denominated in U.S. dollars; however, purchase prices for our
+products may be impacted by fluctuations in the exchange rate between the U.S. dollar and the local
+currencies of the contract manufacturers, which may have the effect of increasing our cost of goods
+in the future. During 2009 and 2008, exchange rate fluctuations did not have a material impact on
+our inventory costs. We do not engage in hedging activities with respect to such exchange rate
+risk.
+RECENT ACCOUNTING CHANGES
+Effective January 1, 2009, the Company adopted ASC 805-20 (formerly SFAS 141(R)), “ Applying
+the Acquisition Method” , which clarifies the accounting for a business combination and requires an
+acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest
+in the acquiree at the acquisition date, measured at their fair values as of that date. Our
+adoption of ASC 805-20 did not have a material impact on our consolidated financial statements.
+In June 2009, the Financial Accounting Standards Board (“FASB”) issued ASC 105-10 (formerly
+Statement of Financial Accounting Standard (“SFAS 168”), “ The FASB Accounting Standards
+Codification and the Hierarchy of Generally Accepted Accounting Principles. ” ASC 105-10 became the
+source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernment entities.
+It also modifies the GAAP hierarchy to include only two levels of GAAP; authoritative and
+non-authoritative. ASC 105-10 is effective for financial statements issued for interim and annual
+periods ending after September 15, 2009. We adopted ASC 105-10 during the third quarter of 2009.
+Our adoption of ASC 105-10 did not have a material impact on our consolidated financial statements.
+In December 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-17, which codifies
+SFAS No. 167, Amendments to FASB Interpretation No. 46(R) issued in June 2009. ASU 2009-17
+requires a qualitative approach to identifying a controlling financial interest in a variable
+interest entity (“VIE”), and requires ongoing assessment of whether an entity is a VIE and whether
+an interest in a VIE makes the holder the primary beneficiary of the VIE. ASU 2009-17 is effective
+for interim and annual reporting periods beginning after November 15, 2009. We do not expect the
+adoption of ASU 2009-17 to have a material impact on our consolidated financial statements.
+36 
+Table of Contents 
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+MARKET RISK
+Market risk is the potential loss arising from the adverse changes in market rates and prices,
+such as interest rates, marketable debt security prices and foreign currency exchange rates.
+Changes in interest rates, marketable debt security prices and changes in foreign currency exchange
+rates have and will have an impact on our results of operations. We do not hold any derivative
+securities that require fair value presentation under ASC 815-10 (formerly SFAS 133).
+Interest rate fluctuations. Interest rate charged on our line of credit facility is based on
+either the prime rate of interest or the LIBOR, and changes in the either of these rates of
+interest could have an effect on the interest charged on our outstanding balances. At December 31,
+2009 we had $2.0 million of outstanding short-term borrowings subject to changes in interest rates;
+however, we do not expect that any changes will have a material impact on our financial condition
+or results of operations.
+Foreign exchange rate fluctuations . We face market risk to the extent that changes in foreign
+currency exchange rates affect our non-U.S. dollar functional currency foreign subsidiary’s
+revenues, expenses, assets and liabilities. In addition, changes in foreign exchange rates may
+affect the value of our inventory commitments. Also, inventory purchases of our products may be
+impacted by fluctuations in the exchange rates between the U.S. dollar and the local currencies of
+the contract manufacturers, which could have the effect of increasing the cost of goods sold in the
+future. We manage these risks by primarily denominating these purchases and commitments in U.S.
+dollars. We do not currently engage in hedging activities with respect to such exchange rate risks.
+37 
+Table of Contents 
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE 
+Page 
+REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+39 
+CONSOLIDATED BALANCE SHEETS 
+41 
+CONSOLIDATED STATEMENTS OF EARNINGS 
+42 
+CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME 
+43 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+44 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+45 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+63 
+38 
+Table of Contents 
+Report of Independent Registered Public Accounting Firm 
+The Board of Directors and Stockholders 
+Skechers U.S.A., Inc.:
+We have audited the accompanying consolidated balance sheets of Skechers U.S.A., Inc. and
+subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated
+statements of earnings, equity and comprehensive income, and cash flows for each of the years in
+the three-year period ended December 31, 2009. In connection with our audits of the consolidated
+financial statements, we also have audited the related financial statement schedule. These
+consolidated financial statements and financial statement schedule are the responsibility of the
+Company’s management. Our responsibility is to express an opinion on these consolidated financial
+statements and financial statement schedule based on our audits.
+We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
+Board (United States). Those standards require that we plan and perform the audit to obtain
+reasonable assurance about whether the financial statements are free of material misstatement. An
+audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
+financial statements. An audit also includes assessing the accounting principles used and
+significant estimates made by management, as well as evaluating the overall financial statement
+presentation. We believe that our audits provide a reasonable basis for our opinion.
+In our opinion, the consolidated financial statements referred to above present fairly, in all
+material respects, the financial position of Skechers U.S.A., Inc. and subsidiaries as of December
+31, 2009 and 2008, and the results of their operations and their cash flows for each of the years
+in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted
+accounting principles. Also in our opinion, the related financial statement schedule, when
+considered in relation to the basic consolidated financial statements taken as a whole, presents
+fairly, in all material respects, the information set forth therein.
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight
+Board (United States), Skechers U.S.A., Inc.’s internal control over financial reporting as of
+December 31, 2009, based on criteria established in Internal Control – Integrated Framework issued
+by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report
+dated March 5, 2010 expressed an unqualified opinion on the effectiveness of the Company’s internal
+control over financial reporting.
+/s/ KPMG LLP
+Los Angeles, California 
+March 5, 2010
+39 
+Table of Contents 
+Report of Independent Registered Public Accounting Firm 
+The Board of Directors and Stockholders 
+Skechers U.S.A., Inc.:
+We have audited Skechers U.S.A., Inc.’s internal control over financial reporting as of December
+31, 2009, based on criteria established in Internal Control – Integrated Framework issued by the
+Committee of Sponsoring Organizations of the Treadway Commission (COSO). Skechers U.S.A., Inc.’s
+management is responsible for maintaining effective internal control over financial reporting and
+for its assessment of the effectiveness of internal control over financial reporting. Our
+responsibility is to express an opinion on the Company’s internal control over financial reporting
+based on our audit.
+We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
+Board (United States). Those standards require that we plan and perform the audit to obtain
+reasonable assurance about whether effective internal control over financial reporting was
+maintained in all material respects. Our audit included obtaining an understanding of internal
+control over financial reporting, assessing the risk that a material weakness exists, and testing
+and evaluating the design and operating effectiveness of internal control based on the assessed
+risk. Our audit also included performing such other procedures as we considered necessary in the
+circumstances. We believe that our audit provides a reasonable basis for our opinion.
+A company’s internal control over financial reporting is a process designed 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. A
+company’s internal control over financial reporting includes those policies and procedures that (1)
+pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
+transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
+transactions are recorded as necessary to permit preparation of financial statements in accordance
+with generally accepted accounting principles, and that receipts and expenditures of the company
+are being made only in accordance with authorizations of management and directors of the company;
+and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
+acquisition, use, or disposition of the company’s assets that could have a material effect on the
+financial statements.
+Because of its inherent limitations, internal control over financial reporting may not prevent or
+detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
+subject to the risk that controls may become inadequate because of changes in conditions, or that
+the degree of compliance with the policies or procedures may deteriorate.
+In our opinion, Skechers U.S.A., Inc. maintained, in all material respects, effective internal
+control over financial reporting as of December 31, 2009, based on criteria established in Internal
+Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
+Commission (COSO).
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight
+Board (United States), the consolidated balance sheets of Skechers U.S.A., Inc. and subsidiaries as
+of December 31, 2009 and 2008, and the related consolidated statements of earnings, equity and
+comprehensive income, and cash flows for each of the years in the three-year period ended December
+31, 2009, and the related financial statement schedule, and our report dated March 5, 2010
+expressed an unqualified opinion on those consolidated financial statements and financial statement
+schedule.
+/s/ KPMG LLP
+Los Angeles, California 
+March 5, 2010
+40 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED BALANCE SHEETS 
+(In thousands) 
+December 31, 
+December 31, 
+2009 
+2008 
+ASSETS 
+Current Assets: 
+Cash and cash equivalents 
+$ 
+265,675 
+$ 
+114,941 
+Short-term investments 
+30,000 
+— 
+Trade accounts receivable, less allowances of $14,361 in 2009 and $14,880 in 2008 
+219,924 
+175,064 
+Other receivables 
+12,177 
+7,816 
+Total receivables 
+232,101 
+182,880 
+Inventories 
+224,050 
+261,209 
+Prepaid expenses and other current assets 
+28,233 
+31,022 
+Deferred tax assets 
+8,950 
+11,955 
+Total current assets 
+789,009 
+602,007 
+Property and equipment, at cost, less accumulated depreciation and amortization 
+171,667 
+157,757 
+Intangible assets, less accumulated amortization 
+9,011 
+5,407 
+Deferred tax assets 
+13,660 
+18,158 
+Long-term marketable securities 
+— 
+81,925 
+Other assets, at cost 
+12,205 
+11,062 
+TOTAL ASSETS 
+$ 
+995,552 
+$ 
+876,316 
+LIABILITIES AND EQUITY 
+Current Liabilities: 
+Current installments of long-term borrowings 
+$ 
+529 
+$ 
+572 
+Short-term borrowings 
+2,006 
+— 
+Accounts payable 
+196,163 
+164,643 
+Accrued expenses 
+31,843 
+23,021 
+Total current liabilities 
+230,541 
+188,236 
+Long-term borrowings, excluding current installments 
+15,641 
+16,188 
+Total liabilities 
+246,182 
+204,424 
+Commitments and contingencies 
+Stockholders’ equity: 
+Preferred Stock, $.001 par value; 10,000 authorized; none issued and outstanding 
+— 
+— 
+Class A Common Stock, $.001 par value; 100,000 shares authorized; 34,229 and
+33,410 shares issued and outstanding at December 31, 2009 and 2008, respectively 
+34 
+33 
+Class B Common Stock, $.001 par value; 60,000 shares authorized; 12,360 and
+12,782 shares issued and outstanding at December 31, 2009 and 2008, respectively 
+13 
+13 
+Additional paid-in capital 
+272,662 
+264,200 
+Accumulated other comprehensive income (loss) 
+9,348 
+(4,719 
+) 
+Retained earnings 
+463,865 
+409,166 
+Skechers U.S.A., Inc. equity 
+745,922 
+668,693 
+Noncontrolling interests 
+3,448 
+3,199 
+Total equity 
+749,370 
+671,892 
+TOTAL LIABILITIES AND EQUITY 
+$ 
+995,552 
+$ 
+876,316 
+See accompanying notes to consolidated financial statements.
+41 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF EARNINGS 
+(In thousands, except per share data) 
+Years ended December 31, 
+2009 
+2008 
+2007 
+Net sales 
+$ 
+1,436,440 
+$ 
+1,440,743 
+$ 
+1,394,181 
+Cost of sales 
+815,430 
+844,821 
+794,192 
+Gross profit 
+621,010 
+595,922 
+599,989 
+Royalty income, net 
+1,655 
+2,461 
+4,179 
+622,665 
+598,383 
+604,168 
+Operating expenses: 
+Selling 
+128,989 
+126,890 
+126,527 
+General and administrative 
+421,094 
+413,601 
+364,711 
+550,083 
+540,491 
+491,238 
+Earnings from operations 
+72,582 
+57,892 
+112,930 
+Other income (expense): 
+Interest income 
+2,070 
+7,337 
+10,040 
+Interest expense 
+(3,045 
+) 
+(4,606 
+) 
+(4,763 
+) 
+Other, net 
+(497 
+) 
+120 
+98 
+(1,472 
+) 
+2,851 
+5,375 
+Earnings before taxes 
+71,110 
+60,743 
+118,305 
+Income tax expense 
+20,228 
+7,258 
+42,619 
+Net earnings 
+50,882 
+53,485 
+75,686 
+Less: Net loss attributable to noncontrolling interests 
+(3,817 
+) 
+(1,911 
+) 
+— 
+Net earnings attributable to Skechers U.S.A., Inc. 
+$ 
+54,699 
+$ 
+55,396 
+$ 
+75,686 
+Net earnings per share attributable to Skechers U.S.A., Inc.: 
+Basic 
+$ 
+1.18 
+$ 
+1.20 
+$ 
+1.67 
+Diluted 
+$ 
+1.16 
+$ 
+1.19 
+$ 
+1.63 
+Weighted average shares used in calculating earnings per share
+attributable to Skechers U.S.A., Inc.: 
+Basic 
+46,341 
+46,031 
+45,262 
+Diluted 
+47,105 
+46,708 
+46,741 
+See accompanying notes to consolidated financial statements.
+42 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME 
+(In thousands) 
+SHARES 
+AMOUNT 
+ACCUMULATED 
+CLASS A 
+CLASS B 
+CLASS A 
+CLASS B 
+ADDITIONAL 
+OTHER 
+SKECHERS 
+NON 
+TOTAL 
+COMMON 
+COMMON 
+COMMON 
+COMMON 
+PAID-IN 
+COMPREHENSIVE 
+RETAINED 
+U.S.A., INC. 
+CONTROLLING 
+STOCKHOLDERS’ 
+STOCK 
+STOCK 
+STOCK 
+STOCK 
+CAPITAL 
+INCOME 
+EARNINGS 
+EQUITY 
+INTERESTS 
+EQUITY 
+Balance at December 31, 2006 
+28,103 
+13,768 
+$ 
+28 
+$ 
+14 
+$ 
+156,374 
+$ 
+11,200 
+$ 
+281,471 
+$ 
+449,087 
+— 
+$ 
+449,087 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+75,686 
+75,686 
+— 
+75,686 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+3,563 
+— 
+3,563 
+— 
+3,563 
+Total comprehensive income 
+79,249 
+79,249 
+Cumulative
+effect of accounting change -
+adjustment to retained earnings upon
+adoption of ASC 740-10 
+— 
+— 
+— 
+— 
+— 
+— 
+(3,387 
+) 
+(3,387 
+) 
+— 
+(3,387 
+) 
+Redemption of convertible subordinated
+notes 
+3,368 
+— 
+3 
+— 
+88,743 
+— 
+— 
+88,746 
+— 
+88,746 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+1,081 
+— 
+— 
+1,081 
+— 
+1,081 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+99 
+— 
+— 
+— 
+2,066 
+— 
+— 
+2,066 
+— 
+2,066 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+506 
+— 
+1 
+— 
+6,126 
+— 
+— 
+6,127 
+— 
+6,127 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+3,694 
+— 
+— 
+3,694 
+— 
+3,694 
+Conversion of Class B Common Stock into
+Class A Common Stock 
+916 
+(916 
+) 
+1 
+(1 
+) 
+— 
+— 
+— 
+— 
+— 
+— 
+Balance at December 31, 2007 
+32,992 
+12,852 
+$ 
+33 
+$ 
+13 
+$ 
+258,084 
+$ 
+14,763 
+$ 
+353,770 
+$ 
+626,663 
+— 
+$ 
+626,663 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+55,396 
+55,396 
+$ 
+(1,911 
+) 
+53,485 
+Net unrealized gain (loss) on investments 
+— 
+— 
+— 
+— 
+— 
+(8,151 
+) 
+— 
+(8,151 
+) 
+— 
+(8,151 
+) 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+(11,331 
+) 
+— 
+(11,331 
+) 
+110 
+(11,221 
+) 
+Total comprehensive income 
+35,914 
+(1,801 
+) 
+34,113 
+Capital contribution 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+5,000 
+5,000 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+2,337 
+— 
+— 
+2,337 
+— 
+2,337 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+132 
+— 
+— 
+— 
+1,780 
+— 
+— 
+1,780 
+— 
+1,780 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+216 
+— 
+— 
+— 
+1,876 
+— 
+— 
+1,876 
+— 
+1,876 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+123 
+— 
+— 
+123 
+— 
+123 
+Conversion of Class B Common Stock into
+Class A Common Stock 
+70 
+(70 
+) 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+Balance at December 31, 2008 
+33,410 
+12,782 
+$ 
+33 
+$ 
+13 
+$ 
+264,200 
+$ 
+(4,719 
+) 
+$ 
+409,166 
+$ 
+668,693 
+$ 
+3,199 
+$ 
+671,892 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+54,699 
+54,699 
+(3,817 
+) 
+50,882 
+Net unrealized gain on investments 
+— 
+— 
+— 
+— 
+— 
+8,151 
+— 
+8,151 
+— 
+8,151 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+5,916 
+— 
+5,916 
+66 
+5,982 
+Total comprehensive income 
+68,766 
+(3,751 
+) 
+65,015 
+Capital contribution 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+4,000 
+4,000 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+5,736 
+— 
+— 
+5,736 
+— 
+5,736 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+190 
+— 
+— 
+— 
+1,590 
+— 
+— 
+1,590 
+— 
+1,590 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+207 
+— 
+— 
+— 
+1,217 
+— 
+— 
+1,217 
+— 
+1,217 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+(81 
+) 
+— 
+— 
+(81 
+) 
+— 
+(81 
+) 
+Conversion of Class B Common Stock into
+Class A Common Stock 
+422 
+(422 
+) 
+1 
+— 
+— 
+— 
+— 
+1 
+— 
+1 
+Balance at December 31, 2009 
+34,229 
+12,360 
+$ 
+34 
+$ 
+13 
+$ 
+272,662 
+$ 
+9,348 
+$ 
+463,865 
+$ 
+745,922 
+$ 
+3,448 
+$ 
+749,370 
+See accompanying notes to consolidated financial statements
+43 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+(In thousands) 
+Years ended December 31, 
+2009 
+2008 
+2007 
+Cash flows from operating activities: 
+Net earnings 
+$ 
+54,699 
+$ 
+55,396 
+$ 
+75,686 
+Adjustments to reconcile net earnings to net cash
+provided by (used in) operating activities: 
+Noncontrolling interests in subsidiaries 
+(3,817 
+) 
+(1,911 
+) 
+— 
+Depreciation and amortization of property and equipment 
+19,694 
+17,069 
+17,220 
+Amortization of deferred financing costs 
+741 
+— 
+95 
+Amortization of intangible assets 
+935 
+674 
+437 
+Provision for bad debts and returns 
+3,249 
+10,787 
+1,610 
+Tax benefits from stock-based compensation 
+(81 
+) 
+123 
+1,456 
+Non-cash stock compensation 
+5,736 
+2,337 
+1,081 
+Provision for deferred income taxes 
+1,954 
+(1,988 
+) 
+(1,102 
+) 
+Loss (Gain) on disposal of equipment 
+(18 
+) 
+167 
+272 
+Impairment of property and equipment 
+761 
+1,676 
+— 
+(Increase) decrease in assets: 
+Receivables 
+(46,562 
+) 
+(27,462 
+) 
+7,948 
+Inventories 
+39,362 
+(58,240 
+) 
+(3,045 
+) 
+Prepaid expenses and other current assets 
+2,812 
+(17,609 
+) 
+1,417 
+Other assets 
+(1,023 
+) 
+(6,221 
+) 
+(1,671 
+) 
+Increase (decrease) in liabilities: 
+Accounts payable 
+28,136 
+385 
+2,956 
+Accrued expenses 
+8,531 
+2,988 
+(3,005 
+) 
+Net cash provided by (used in) operating activities 
+115,109 
+(21,829 
+) 
+101,355 
+Cash flows from investing activities: 
+Capital expenditures 
+(35,341 
+) 
+(72,461 
+) 
+(31,175 
+) 
+Purchases of investments 
+(30,000 
+) 
+(11,725 
+) 
+(249,450 
+) 
+Maturities of investments 
+375 
+20,600 
+204,950 
+Redemption of auction rate securities 
+95,250 
+— 
+— 
+Intangible additions 
+(4,500 
+) 
+— 
+— 
+Cash paid for acquisitions 
+— 
+(4,640 
+) 
+— 
+Net cash provided by (used in) investing activities 
+25,784 
+(68,226 
+) 
+(75,675 
+) 
+Cash flows from financing activities: 
+Net proceeds from the issuances of stock through employee
+stock purchase plan and the exercise of stock options 
+2,807 
+3,656 
+8,193 
+Contribution from noncontrolling interest of consolidated entity 
+4,000 
+5,000 
+— 
+Excess tax benefits from stock-based compensation 
+— 
+— 
+2,238 
+Increase in short-term borrowings 
+2,006 
+— 
+— 
+Payments on long-term debt 
+(413 
+) 
+(99 
+) 
+(520 
+) 
+Net cash provided by financing activities 
+8,400 
+8,557 
+9,911 
+Net increase (decrease) in cash and cash equivalents 
+149,293 
+(81,498 
+) 
+35,591 
+Effect of exchange rates on cash and cash equivalents 
+1,441 
+(3,077 
+) 
+3,440 
+Cash and cash equivalents at beginning of year 
+114,941 
+199,516 
+160,485 
+Cash and cash equivalents at end of year 
+$ 
+265,675 
+$ 
+114,941 
+$ 
+199,516 
+Supplemental disclosures of cash flow information: 
+Cash paid during the year for: 
+Interest, net of amounts capitalized 
+$ 
+4,445 
+$ 
+4,902 
+$ 
+4,714 
+Income taxes 
+17,492 
+17,834 
+41,481 
+Non-cash investing and financing activities: 
+Acquisition of Chilean distributor 
+4,382 
+— 
+— 
+The Company issued approximately 3.5 million shares of Class A common stock to note holders
+upon conversion of our 4.50% convertible subordinated debt with a carrying value of $89,969 during
+the year ended December 31, 2007.
+See accompanying notes to consolidated financial statements.
+44 
+Table of Contents 
+SKECHERS U.S.A., INC . 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+DECEMBER 31, 2009, 2008 and 2007 
+(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
+(a) The Company
+Skechers U.S.A., Inc. (the “Company”) designs, develops, markets and distributes footwear. The
+Company also operates retail stores and an e-commerce business.
+The consolidated financial statements have been prepared in accordance with accounting
+principles generally accepted in the United States and include the accounts of the Company and its
+subsidiaries. All significant intercompany balances and transactions have been eliminated in
+consolidation.
+(b) Use of Estimates
+Management has made a number of estimates and assumptions relating to the reporting of assets,
+liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to
+prepare these consolidated financial statements in conformity with accounting principles generally
+accepted in the United States. Significant areas requiring the use of management estimates relate
+primarily to revenue recognition, allowance for bad debts, returns, sales allowances and customer
+chargebacks, inventory write-downs, valuation of long-lived assets, litigation reserves and
+valuation of deferred income taxes. Actual results could differ from those estimates.
+(c) Noncontrolling interests
+Noncontrolling interest in the Company’s consolidated financial statements results from the
+accounting for a noncontrolling interest in a consolidated subsidiary or affiliate. Noncontrolling
+interest represents a partially-owned subsidiary’s or consolidated affiliate’s income, losses, and
+components of other comprehensive income which is attributable to the noncontrolling parties’
+interests. The Company has a 50 percent interest in Skechers China Limited (“Skechers China”), a
+joint venture which was formed in October 2007, and made a capital contribution of cash and
+inventory of $4.0 million and $5.0 million during the years ended December 31, 2009 and 2008. Our
+joint venture partner also made a corresponding cash capital contribution during the years ended
+December 31, 2009 and 2008. The Company also has a 50 percent interest in Skechers Southeast Asia
+Limited (“Skechers Southeast Asia”) and a 51 percent interest in Skechers (Thailand) Ltd.
+(“Skechers Thailand”). The Company consolidates these joint ventures into its financial statements
+because it holds a majority of seats on the board of directors and, thus, controls the joint
+ventures. Net loss attributable to noncontrolling interests of $3.8 million and $1.9 million for
+the years ended December 31, 2009 and 2008, respectively, represents the share of net loss that is
+attributable to the equity of these joint ventures that is owned by our joint venture partners.
+Transactions between these joint ventures and Skechers have been eliminated in the consolidated
+financial statements.
+(d) Business Segment Information
+Skechers operations and segments are organized along its distribution channels and consist of
+the following: domestic wholesale, international wholesale, retail and e-commerce sales.
+Information regarding these segments is summarized in Note 14 to the Consolidated Financial
+Statements.
+(e) Revenue Recognition
+The Company recognizes revenue on wholesale sales when products are shipped and the customer
+takes ownership and assumes risk of loss, collection of the relevant receivable is probable,
+persuasive evidence of an arrangement exists and the sales price is fixed or determinable. This
+generally occurs at the time of shipment. Allowances for estimated returns, sales allowances,
+discounts, doubtful accounts and chargebacks are provided for when related revenue is recorded.
+Related costs paid to third-party shipping companies are recorded as a cost of sales. The Company
+recognizes revenue from retail sales at the point of sale.
+Net royalty income is earned from our licensing arrangements. Upon signing a new licensing
+agreement, we receive up-front fees, which are generally characterized as prepaid royalties. These
+fees are initially deferred and recognized as revenue as earned based on the terms of the contract
+as licensed sales are reported to the company or on a straight-line basis over the term of the
+agreement. The first calculated royalty payment is based on actual sales of the licensed product.
+Typically, at each quarter-end we receive correspondence from our licensees indicating actual sales
+for the period. This information is used to calculate and accrue the related royalties based on the
+terms of the agreement.
+45 
+Table of Contents 
+(f) Cash and Cash Equivalents
+Cash and cash equivalents consist primarily of certificates of deposit with an initial term of
+less than three months. For purposes of the consolidated statements of cash flows, the Company
+considers all highly liquid debt instruments with original maturities of three months or less to be
+cash equivalents.
+(g) Investments
+In general, investments with original maturities of greater than three months and remaining
+maturities of less than one year are classified as short-term investments. Highly liquid
+investments with maturities beyond one year may also be classified as short-term based on their
+liquidity, management’s intentions and because such marketable securities represent the investment
+of cash that is available for current operations. Long-term investments consist of auction rate
+securities, which are corporate and municipal debt securities and preferred stocks which have
+underlying long-term maturities or preferred equity.
+(h) Foreign Currency Translation
+In accordance with ASC 830-30 (formerly SFAS 52), certain international operations use the
+respective local currencies as their functional currency, while other international operations use
+the U.S. Dollar as their functional currency. The Company considers the U.S. dollar as its
+functional currency. The Company operates internationally through several foreign subsidiaries.
+Translation adjustments for these subsidiaries are included in other comprehensive income.
+Additionally, one international subsidiary, Skechers S.a.r.l. located in Switzerland, operates with
+a functional currency of the U.S. dollar. Resulting re-measurement gains and losses from this
+subsidiary are included in the determination of net earnings (loss). Assets and liabilities of the
+foreign operations denominated in local currencies are translated at the rate of exchange at the
+balance sheet date. Revenues and expenses are translated at the weighted average rate of exchange
+during the period. Translations of intercompany loans of a long-term investment nature are included
+as a component of translation adjustment in other comprehensive income.
+(i) Inventories
+Inventories, principally finished goods, are stated at the lower of cost (based on the
+first-in, first-out method) or market. The Company provides for estimated losses from obsolete or
+slow-moving inventories and writes down the cost of inventory at the time such determinations are
+made. Reserves are estimated based upon inventory on hand, historical sales activity, and the
+expected net realizable value. The net realizable value is determined based upon estimated sales
+prices of such inventory through off-price or discount store channels.
+(j) Income Taxes
+The Company accounts for income taxes in accordance with ASC 740-10 (formerly SFAS 109), which
+requires that the Company recognize deferred tax liabilities for taxable temporary differences and
+deferred tax assets for deductible temporary differences and operating loss carry-forwards using
+enacted tax rates in effect in the years the differences are expected to reverse. Deferred income
+tax benefit or expense is recognized as a result of changes in net deferred tax assets or deferred
+tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all
+of any deferred tax assets will not be realized.
+Effective January 1, 2007, we adopted the provisions of ASC 740-10 (formerly FIN 48), which
+contains a two-step process for recognizing and measuring uncertain tax positions. The first step
+is to determine whether or not a tax benefit should be recognized. A tax benefit will be
+recognized if the weight of available evidence indicates that the tax position is more likely than
+not to be sustained upon examination by the relevant tax authorities. The recognition and
+measurement of benefits related to our tax positions requires significant judgment, as
+uncertainties often exist with respect to new laws, new interpretations of existing laws, and
+rulings by taxing authorities. Differences between actual results and our assumptions or changes in
+our assumptions in future periods are recorded in the period they become known.
+46 
+Table of Contents 
+(k) Depreciation and Amortization
+Depreciation and amortization of property and equipment is computed using the straight-line
+method based on the following estimated useful lives:
+Buildings
+20 years 
+Building improvements
+10 years 
+Furniture, fixtures and equipment
+5 years 
+Leasehold improvements
+Useful life or remaining lease term, whichever is shorter 
+(l) Intangible Assets
+Goodwill and indefinite-lived intangible assets are measured for impairment at least annually
+and more often when events indicate that impairment exists. Intellectual property, which include
+purchased intellectual property, artwork and design, trade name and trademark are amortized over
+their useful lives ranging from 1–10 years, generally on a straight-line basis. Intangible assets
+as of December 31, 2009 and 2008 are as follows (in thousands):
+2009 
+2008 
+Intellectual property 
+$ 
+11,300 
+$ 
+6,800 
+Goodwill 
+1,575 
+1,575 
+Other intangibles 
+840 
+840 
+Less accumulated amortization 
+(4,704 
+) 
+(3,808 
+) 
+Total Intangible Assets 
+$ 
+9,011 
+$ 
+5,407 
+We recorded amortization expense of $1.7 million, $0.7 million and $0.4 million for the years
+ended December 31, 2009, 2008 and 2007, respectively.
+(m) Long-Lived Assets
+Long-lived assets such as property and equipment and purchased intangibles subject to
+amortization are reviewed for impairment whenever events or changes in circumstances indicate that
+the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
+used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted
+future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds
+its estimated future cash flows, an impairment charge is recognized in the amount by which the
+carrying amount of the asset exceeds the fair value of the asset. The Company recorded impairment
+charges for the years ended December 31, 2009 and 2008 of $0.8 million and $1.7 million,
+respectively. The Company did not record an impairment charge in 2007.
+(n) Advertising Costs
+Advertising costs are expensed in the period in which the advertisements are first run or over
+the life of the endorsement contract. Advertising expense for the years ended December 31, 2009,
+2008 and 2007 was approximately $98.3 million, $97.3 million, and $99.2 million, respectively.
+Prepaid advertising costs were $3.9 million and $0.8 million at December 31, 2009 and 2008,
+respectively. Prepaid amounts outstanding at December 31, 2009 and 2008 represent the unamortized
+portion of endorsement contracts, advertising in trade publications and media productions created
+which had not run as of December 31, 2009 and 2008, respectively.
+(o) Earnings Per Share
+Basic earnings per share represents net earnings divided by the weighted average number of
+common shares outstanding for the period. Diluted earnings per share, in addition to the weighted
+average determined for basic earnings per share, includes potential common shares which would arise
+from the exercise of stock options using the treasury stock method, and the conversion of the
+Company’s 4.50% convertible subordinated notes for the period outstanding since their issuance in
+April 2002 until their conversion in February 2007, if their effects are dilutive.
+47 
+Table of Contents 
+The following is a reconciliation of net earnings and weighted average common shares
+outstanding for purposes of calculating earnings per share (in thousands):
+Years Ended December 31, 
+Basic earnings per share 
+2009 
+2008 
+2007 
+Net earnings 
+$ 
+54,699 
+$ 
+55,396 
+$ 
+75,686 
+Weighted average common shares outstanding 
+46,341 
+46,031 
+45,262 
+Basic earnings per share 
+$ 
+1.18 
+$ 
+1.20 
+$ 
+1.67 
+Years Ended December 31, 
+Diluted earnings per share 
+2009 
+2008 
+2007 
+Net earnings 
+$ 
+54,699 
+$ 
+55,396 
+$ 
+75,686 
+After tax effect of interest expense on
+4.50% convertible subordinated notes 
+— 
+— 
+361 
+Earnings for purposes of
+computing diluted earnings per share 
+$ 
+54,699 
+$ 
+55,396 
+$ 
+76,047 
+Weighted average common shares outstanding 
+46,341 
+46,031 
+45,262 
+Dilutive stock options 
+764 
+677 
+1,121 
+Weighted average assumed conversion of
+4.50% convertible subordinated notes 
+— 
+— 
+358 
+Weighted average common shares outstanding 
+47,105 
+46,708 
+46,741 
+Diluted earnings per share 
+$ 
+1.16 
+$ 
+1.19 
+$ 
+1.63 
+Options to purchase 362,653 and 156,716, shares of Class A common stock were excluded from the
+computation of diluted earnings per share for the years ended December 31, 2009 and 2008,
+respectively because their inclusion would have been anti-dilutive. There were no options excluded
+from the computation of diluted earnings per share for the year ended December 31, 2007.
+(p) Product Design and Development Costs
+The Company charges all product design and development costs to expense when incurred. Product
+design and development costs aggregated approximately $9.3 million, $8.8 million, and $9.2 million
+during the years ended December 31, 2009, 2008 and 2007, respectively.
+(q) Fair Value of Financial Instruments
+The carrying amount of the Company’s financial instruments, which principally include cash and
+cash equivalents, investments, accounts receivable, accounts payable and accrued expenses,
+approximates fair value due to the relatively short maturity of such instruments.
+The carrying amount of the Company’s long-term borrowings approximates the fair value based
+upon current rates and terms available to the Company for similar debt.
+(r) New Accounting Standards
+Effective January 1, 2009, the Company adopted ASC 805-20 (formerly SFAS 141(R)), “ Applying
+the Acquisition Method” , which clarifies the accounting for a business combination and requires an
+acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest
+in the acquiree at the acquisition date, measured at their fair values as of that date. Our
+adoption of ASC 805-20 did not have a material impact on our consolidated financial statements.
+In June 2009, the FASB issued ASC 105-10 (formerly SFAS 168), “ The FASB Accounting Standards
+Codification and the Hierarchy of Generally Accepted Accounting Principles. ” ASC 105-10 became the
+source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernment entities.
+It also modifies the GAAP hierarchy to include only two levels of GAAP; authoritative and
+non-authoritative. ASC 105-10 is effective for financial statements issued for interim and annual
+periods ending
+48 
+Table of Contents 
+after September 15, 2009. We adopted ASC 105-10 during the 2009 third quarter. Our adoption
+of ASC 105-10 did not have a material impact on our consolidated financial statements.
+In December 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-17, which codifies
+SFAS No. 167, Amendments to FASB Interpretation No. 46(R) issued in June 2009. ASU 2009-17
+requires a qualitative approach to identifying a controlling financial interest in a variable
+interest entity (“VIE”), and requires ongoing assessment of whether an entity is a VIE and whether
+an interest in a VIE makes the holder the primary beneficiary of the VIE. ASU 2009-17 is effective
+for interim and annual reporting periods beginning after November 15, 2009. We do not expect the
+adoption of ASU 2009-17 to have a material impact on our consolidated financial statements.
+(2) INVESTMENTS 
+At December 31, 2009, short-term investments were $30.0 million, which consisted of U.S.
+Treasuries with maturities greater than 90 days. At December 31, 2008, investments in marketable
+securities consist of certain auction rate preferred stocks and auction rate Dividend Received
+Deduction preferred securities aggregating $81.9 million, net of unrealized losses of $13.7
+million. During the year ended December 31, 2009, Wells Fargo (formerly Wachovia Securities)
+purchased $95.3 million of the Company’s investments in auction rate preferred stocks and auction
+rate Dividend Received Deduction (“DRD”) preferred securities at par for cash.
+(3) PROPERTY AND EQUIPMENT 
+Property and equipment at December 31, 2009 and 2008 is summarized as follows (in thousands):
+2009 
+2008 
+Land 
+$ 
+28,951 
+$ 
+28,951 
+Buildings and improvements 
+108,367 
+88,181 
+Furniture, fixtures and equipment 
+94,293 
+92,209 
+Leasehold improvements 
+104,939 
+98,140 
+Total property and equipment 
+336,550 
+307,481 
+Less accumulated depreciation and amortization 
+164,883 
+149,724 
+Property and equipment, net 
+$ 
+171,667 
+$ 
+157,757 
+The Company capitalized $2.2 million, $1.0 million and $0.9 million of interest expense during
+2009, 2008 and 2007, respectively, relating to the construction of our corporate headquarters and
+equipment for the new distribution facility.
+(4) ACCRUED EXPENSES 
+Accrued expenses at December 31, 2009 and 2008 are summarized as follows (in thousands):
+2009 
+2008 
+Accrued inventory purchases 
+$ 
+2,678 
+$ 
+5,913 
+Accrued payroll and related taxes 
+18,016 
+17,108 
+Income taxes payable 
+11,149 
+— 
+Accrued expenses 
+$ 
+31,843 
+$ 
+23,021 
+(5) LINE OF CREDIT AND SHORT-TERM BORROWINGS 
+On June 30, 2009, the Company entered into a $250.0 million secured credit agreement with a
+group of eight banks (the “Credit Agreement”) that replaced the existing $150.0 million credit
+agreement. The new credit facility matures in June 2013. The Credit Agreement permits the Company
+and certain of its subsidiaries to borrow up to $250.0 million based upon a borrowing base of
+eligible accounts receivable and inventory, which amount can be increased to $300.0 million at the
+Company’s request and upon satisfaction of certain conditions including obtaining the commitment of
+existing or prospective lenders willing to provide the incremental amount. Borrowings bear
+interest at the borrowers’ election based on LIBOR or a Base Rate (defined as the greatest of the
+base LIBOR plus 1.00%, the Federal Funds Rate plus 0.5% or one of the lenders’ prime rate), in each
+case, plus an applicable margin based on the average daily principal balance of revolving loans
+under the Credit Agreement (2.75% to 3.25% for Base Rate
+49 
+Table of Contents 
+Loans and 3.75% to 4.25% for Libor Rate Loans). The Company pays a monthly unused line of
+credit fee between 0.5% and 1.0% per annum, which varies based on the average daily principal
+balance of outstanding revolving loans and undrawn amounts of letters of credit outstanding during
+such month. The Credit Agreement further provides for a limit on the issuance of letters of credit
+to a maximum of $50.0 million. The Credit Agreement contains customary affirmative and negative
+covenants for secured credit facilities of this type, including a fixed charges coverage ratio that
+applies when excess availability is less than $50.0 million. In addition, the Credit Agreement
+places limits on additional indebtedness that the Company is permitted to incur as well as other
+restrictions on certain transactions. As of December 31, 2009, the Company was in compliance with
+all financial covenants of the Credit Agreement. On November 5, 2009, the Credit Agreement was
+amended to permit the Company’s principal stockholder to contribute stock into certain trusts. On
+March 4, 2010, the Credit Agreement was further amended to the permit the Company to enter into a
+joint venture agreement to construct a new distribution facility. The Company had $2.1 million of
+outstanding letters of credit and short-term borrowings of $2.0 million as of December 31, 2009.
+During the year ended December 31, 2009, the Company paid syndication and commitment fees of $5.9
+million on this facility which are being amortized over the four-year life of the facility.
+Amortization expense related to this facility was $0.7 million for the year ended December 31,
+2009.
+(6) LONG-TERM BORROWINGS 
+Long-term debt at December 31, 2009 and 2008 is as follows (in thousands):
+2009 
+2008 
+Note payable to bank, due in monthly
+installments of $82.2 (includes principal and
+interest), fixed rate interest at 7.79%, secured by
+property, balloon payment of $8,716 due January 2011 
+$ 
+9,034 
+$ 
+9,306 
+Note payable to bank, due in monthly installments of
+$57.6 (includes principal and interest), fixed rate
+interest at 7.89%, secured by property, balloon
+payment of $6,889 due January 2011 
+7,033 
+7,156 
+Capital lease obligations 
+103 
+298 
+Subtotal 
+16,170 
+16,760 
+Less current installments 
+529 
+572 
+Total long-term debt 
+$ 
+15,641 
+$ 
+16,188 
+The aggregate maturities of long-term borrowings at December 31, 2009 are as follows:
+2010 
+$ 
+529 
+2011 
+15,641 
+$ 
+16,170 
+The Company’s long-term debt obligations contain both financial and non-financial covenants,
+including cross-default provisions. The Company is in compliance with its non-financial covenants,
+including any cross default provisions, and financial covenants of our long-term debt as of
+December 31, 2009.
+(7) STOCK COMPENSATION 
+(a) Equity Incentive Plans
+In January 1998, the Company’s Board of Directors adopted the Amended and Restated 1998 Stock
+Option, Deferred Stock and Restricted Stock Plan for the grant of incentive stock options (“ISOs”),
+non-qualified stock options and deferred and restricted stock (the “Equity Incentive Plan”). In
+June 2001, the stockholders approved an amendment to the plan to increase the number of shares of
+Class A Common Stock authorized for issuance under the plan to 8,215,154. In May 2003,
+stockholders approved an amendment to the plan to increase the number of shares of Class A Common
+Stock authorized for issuance under the plan to 11,215,154. Stock option awards are generally
+granted with an exercise price per share equal to the market price of a share of Class A Common
+Stock on the date of grant. Stock option awards generally become exercisable over a three-year
+graded vesting period and expire ten years from the date of grant.
+On April 16, 2007, the Company’s Board of Directors adopted the 2007 Incentive Award Plan (the
+“2007 Plan”), and the 2007 Plan became effective upon approval by the Company’s stockholders on May
+24, 2007. The Company’s Board of Directors terminated the Equity Incentive Plan as of May 24,
+2007, with no granting of awards being permitted thereafter, although any awards
+50 
+Table of Contents 
+then outstanding under the Equity Incentive Plan remain in force according to the terms of
+such terminated plan and the applicable award agreements. A total of 7,500,000 shares of Class A
+Common Stock are reserved for issuance under the 2007 Plan, which provides for grants of ISOs,
+non-qualified stock options, restricted stock and various other types of equity awards as described
+in the plan to the employees, consultants and directors of the Company and its subsidiaries. The
+2007 Plan is administered by the Compensation Committee of the Company’s Board of Directors.
+(b) Valuation Assumptions
+There were no stock options granted under the Equity Incentive Plan or the 2007 Plan during
+2009, 2008 or 2007. The total intrinsic value of options exercised during 2009, 2008 and 2007 was
+$1.3 million, $2.7 million, and $9.9 million, respectively.
+(c) Stock-Based Payment Awards
+A summary of the status and changes of our restricted stock awards under the Equity Incentive
+Plan and the 2007 Plan as of and during the period ended December 31, 2009 is presented below:
+WEIGHTED 
+AVERAGE 
+GRANT-DATE FAIR 
+SHARES 
+VALUE 
+Nonvested at December 31, 2006 
+17,333 
+$ 
+16.38 
+Granted 
+2,500 
+29.26 
+Vested 
+(4,666 
+) 
+17.00 
+Cancelled 
+— 
+— 
+Nonvested at December 31, 2007 
+15,167 
+18.32 
+Granted 
+218,046 
+16.85 
+Vested 
+(10,001 
+) 
+16.26 
+Cancelled 
+(5,928 
+) 
+17.16 
+Nonvested at December 31, 2008 
+217,284 
+16.97 
+Granted 
+2,051,500 
+17.90 
+Vested 
+(108,140 
+) 
+16.99 
+Cancelled 
+(2,000 
+) 
+13.13 
+Nonvested at December 31, 2009 
+2,158,644 
+$ 
+17.86 
+Restricted stock awards generally vest over a graded vesting schedule from one to four years.
+A summary of the status and changes of our stock options granted under the Equity Incentive
+Plan and the 2007 Plan were as follows:
+WEIGHTED AVERAGE 
+SHARES 
+OPTION EXERCISE PRICE 
+Outstanding at December 31, 2006 
+2,485,582 
+$ 
+11.74 
+Granted 
+— 
+Exercised 
+(501,874 
+) 
+12.23 
+Cancelled 
+(21,952 
+) 
+16.86 
+Outstanding at December 31, 2007 
+1,961,756 
+11.56 
+Granted 
+— 
+Exercised 
+(206,844 
+) 
+9.06 
+Cancelled 
+(15,191 
+) 
+19.37 
+Outstanding at December 31, 2008 
+1,739,721 
+11.79 
+Granted 
+— 
+Exercised 
+(125,715 
+) 
+9.68 
+Cancelled 
+(108,312 
+) 
+11.20 
+Outstanding at December 31, 2009 
+1,505,694 
+$ 
+12.01 
+As of December 31, 2009, a total of 5,238,382 shares remain available for grant as equity
+awards under the 2007 Plan.
+51 
+Table of Contents 
+There was approximately $33.7 million and $2.2 million of total unrecognized compensation cost
+related to unvested stock options and restricted stock granted under the Equity Incentive Plan or
+the 2007 Plan as of December 31, 2009 and 2008, respectively. That cost is expected to be
+recognized over a weighted average period of 2.8 years and 1.2 years, respectively. The total fair
+value of shares vested during the period ended December 31, 2009 and 2008 was $1.8 million and $0.2
+million, respectively.
+The following table summarizes information about stock options outstanding and exercisable at
+December 31, 2009:
+OPTIONS OUTSTANDING 
+OPTIONS EXERCISABLE 
+NUMBER 
+WEIGHTED 
+WEIGHTED 
+NUMBER 
+WEIGHTED AVERAGE 
+RANGE OF 
+OUTSTANDING 
+AVERAGE REMAINING 
+AVERAGE 
+EXERCISABLE AT 
+EXERCISE 
+EXERCISE PRICE 
+DECEMBER 31, 2009 
+CONTRACTUAL LIFE 
+EXERCISE PRICE 
+DECEMBER 31, 2009 
+PRICE 
+$3.94 to $5.90 
+25,481 
+0.1 years 
+$ 
+3.94 
+25,481 
+$ 
+3.94 
+$6.95 to $9.28 
+538,033 
+3.3 years 
+7.47 
+538,033 
+7.47 
+$10.58 to $15.50 
+785,464 
+1.1 years 
+13.05 
+785,464 
+13.05 
+$19.18 to $24.00 
+156,716 
+1.3 years 
+23.69 
+156,716 
+23.69 
+1,505,694 
+1.9 years 
+$ 
+12.01 
+1,505,694 
+$ 
+12.01 
+(d) Stock Purchase Plans
+Effective July 1, 1998, the Company’s Board of Directors adopted the 1998 Employee Stock
+Purchase Plan (the “1998 ESPP”). The 1998 ESPP provides that a total of 2,781,415 shares of Class A
+Common Stock are reserved for issuance under the plan. The 1998 ESPP, which is intended to qualify
+as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as
+amended, is implemented utilizing six-month offerings with purchases occurring at six-month
+intervals. The 1998 ESPP administration is overseen by the Board of Directors. Employees are
+eligible to participate if they are employed by the Company for at least 20 hours per week and more
+than five months in any calendar year. The 1998 ESPP permits eligible employees to purchase Class
+A Common Stock through payroll deductions, which may not exceed 15% of an employee’s compensation.
+The price of Class A Common Stock purchased under the 1998 ESPP is 85% of the lower of the fair
+market value of the Class A Common Stock at the beginning of each six-month offering period or on
+the applicable purchase date. Employees may end their participation in an offering at any time
+during the offering period.
+On April 16, 2007, the Company’s Board of Directors adopted the 2008 Employee Stock Purchase
+Plan (the “2008 ESPP”), and the Company’s stockholders approved the 2008 ESPP on May 24, 2007. The
+2008 ESPP became effective on January 1, 2008, and the Company’s Board of Directors terminated the
+1998 ESPP as of such date, with no additional granting of rights being permitted under the 1998
+ESPP. The 2008 ESPP provides that a total of 3,000,000 shares of Class A Common Stock are reserved
+for issuance under the plan. This number of shares that may be made available for sale is subject
+to automatic increases on the first day of each fiscal year during the term of the 2008 ESPP as
+provided in the plan. The 2008 ESPP is intended to qualify as an “employee stock purchase plan”
+under Section 423 of the Internal Revenue Code of 1986, as amended. The terms of the 2008 ESPP,
+which are substantially similar to those of the 1998 ESPP, permit eligible employees to purchase
+Class A Common Stock at six-month intervals through payroll deductions, which may not exceed 15% of
+an employee’s compensation. The price of Class A Common Stock purchased under the 2008 ESPP is 85%
+of the lower of the fair market value of the Class A Common Stock at the beginning of each
+six-month offering period or on the applicable purchase date. The 2008 ESPP is administered by the
+Company’s Board of Directors.
+During 2009 and 2008, 189,428 shares and 132,300 shares were issued under the 2008 ESPP for
+which the Company received approximately $1.6 million and $1.8 million, respectively. During 2007,
+98,349 shares were issued under the 1998 ESPP for which the Company received approximately $2.1
+million.
+(8) STOCKHOLDERS’ EQUITY 
+The authorized capital stock of the Company consists of 100,000,000 shares of Class A Common
+Stock, par value $.001 per share, 60,000,000 shares of Class B Common Stock, par value $.001 per
+share, and 10,000,000 shares of preferred stock, $.001 par value per share.
+The Class A Common Stock and Class B Common Stock have identical rights other than with
+respect to voting, conversion and transfer. The Class A Common Stock is entitled to one vote per
+share, while the Class B Common Stock is entitled to ten votes per 
+52 
+Table of Contents 
+share on all matters submitted to a vote of stockholders. The shares of Class B Common Stock
+are convertible at any time at the option of the holder into shares of Class A Common Stock on a
+share-for-share basis. In addition, shares of Class B Common Stock will be automatically converted
+into a like number of shares of Class A Common Stock upon any transfer to any person or entity
+which is not a permitted transferee.
+During 2009, 2008 and 2007 certain Class B stockholders converted 422,770; 69,404; and 916,400
+shares, respectively, of Class B Common Stock to Class A Common Stock.
+(9) TOTAL OTHER INCOME (EXPENSE), NET 
+Other income (expense), net at December 31, 2009, 2008 and 2007 is summarized as follows (in
+thousands):
+2009 
+2008 
+2007 
+Gain (loss) on foreign currency transactions 
+$ 
+1,830 
+$ 
+307 
+$ 
+(295 
+) 
+Legal settlements 
+(2,327 
+) 
+(187 
+) 
+393 
+Total other income (expense), net 
+$ 
+(497 
+) 
+$ 
+120 
+$ 
+98 
+(10) INCOME TAXES 
+The provisions for income tax expense were as follows (in thousands):
+2009 
+2008 
+2007 
+Federal: 
+Current 
+$ 
+9,227 
+$ 
+9,026 
+$ 
+33,354 
+Deferred 
+5,902 
+(6,714 
+) 
+(301 
+) 
+Total federal 
+15,129 
+2,312 
+33,053 
+State: 
+Current 
+1,498 
+3,654 
+7,255 
+Deferred 
+1,268 
+(1,643 
+) 
+(66 
+) 
+Total state 
+2,766 
+2,011 
+7,189 
+Foreign: 
+Current 
+3,088 
+2,448 
+2,686 
+Deferred 
+(755 
+) 
+487 
+(309 
+) 
+Total foreign 
+2,333 
+2,935 
+2,377 
+Total income taxes 
+$ 
+20,228 
+$ 
+7,258 
+$ 
+42,619 
+Income taxes differ from the statutory tax rates as applied to earnings before income taxes as
+follows (in thousands):
+2009 
+2008 
+2007 
+Expected income tax expense 
+$ 
+24,888 
+$ 
+21,260 
+$ 
+41,407 
+State income tax, net of federal benefit 
+2,051 
+1,710 
+3,963 
+Rate differential on foreign income 
+(6,162 
+) 
+(10,697 
+) 
+(9,699 
+) 
+Change in unrecognized tax benefits 
+455 
+(7,896 
+) 
+7,024 
+Exempt income 
+(207 
+) 
+(1,241 
+) 
+(1,026 
+) 
+Non-deductible expenses 
+441 
+188 
+464 
+Adjustment to tax benefit - 2008 APA 
+(1,952 
+) 
+— 
+— 
+Other 
+(1,049 
+) 
+682 
+292 
+Change in valuation allowance 
+1,763 
+3,252 
+194 
+Total provision for income taxes 
+$ 
+20,228 
+$ 
+7,258 
+$ 
+42,619 
+53 
+Table of Contents 
+The tax effects of temporary differences that give rise to significant portions of deferred
+tax assets and deferred tax liabilities at December 31, 2009 and 2008 are presented below (in
+thousands):
+DEFERRED TAX ASSETS: 
+2009 
+2008 
+Deferred tax assets — current: 
+Inventory adjustments 
+$ 
+2,340 
+$ 
+5,337 
+Accrued expenses 
+7,789 
+6,658 
+Allowances for bad debts and chargebacks 
+3,486 
+3,401 
+Total current assets 
+13,615 
+15,396 
+Deferred tax assets — long term: 
+Depreciation on property and equipment 
+10,500 
+10,735 
+Unrealized loss on securities 
+— 
+5,549 
+Loss carryforwards 
+6,880 
+5,273 
+Stock-based compensation 
+1,977 
+535 
+Valuation allowance 
+(5,697 
+) 
+(3,934 
+) 
+Total long term assets 
+13,660 
+18,158 
+Total deferred tax assets 
+27,275 
+33,554 
+Deferred tax liabilities — current: 
+Prepaid expenses 
+4,665 
+3,441 
+Net deferred tax assets 
+$ 
+22,610 
+$ 
+30,113 
+Management believes it is more likely than not that the results of future operations will
+generate sufficient taxable income to realize the net deferred tax assets.
+Consolidated U.S. income before income taxes was $51.2 million, $27.9 million, and $87.3
+million for the years ended December 31, 2009, 2008 and 2007, respectively. The corresponding
+income before income taxes for non-U.S. based operations was $19.9 million, $32.9 million, and
+$31.0 million for the years ended December 31, 2009, 2008 and 2007, respectively.
+As of December 31, 2009 and 2008, the Company had combined foreign operating loss
+carry-forwards available to reduce future taxable income of approximately $23.7 million and $17.5
+million, respectively. Some of these net operating losses expire beginning in 2011; however others
+can be carried forward indefinitely. As of December 31, 2009 and 2008, a valuation allowance
+against deferred tax assets of $5.7 million and $3.9 million, respectively, had been set up for
+those loss carry-forwards that are not more likely than not to be fully utilized in reducing future
+taxable income.
+As of December 31, 2009, withholding and U.S. taxes have not been provided on approximately
+$82.0 million of cumulative undistributed earnings of the Company’s non-U.S. subsidiaries because
+the Company intends to indefinitely reinvest these earnings in its non-U.S. subsidiaries.
+The balance of unrecognized tax benefits increased by $0.1 million during the year. A
+reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in
+thousands):
+Balance as of January 1, 2009 
+$ 
+9,663 
+Additions for current year tax positions 
+263 
+Additions for prior year tax positions 
+536 
+Reductions for prior year tax positions 
+— 
+Settlement of uncertain tax positions 
+(493 
+) 
+Reductions related to lapse of statute of limitations 
+(200 
+) 
+Balance at December 31, 2009 
+$ 
+9,769 
+If recognized, the entire amount of unrecognized tax benefits would be recorded as a reduction
+in income tax expense.
+Estimated interest and penalties related to the underpayment of income taxes are classified as
+a component of income tax expense and totaled less than $0.1 million, $0.1 million, and $0.5
+million for the years ended December 31, 2009, 2008 and 2007, respectively. Accrued interest and
+penalties were $1.3 million and $1.2 million as of December 31, 2009 and December 31, 2008,
+respectively.
+54 
+Table of Contents 
+The Company files income tax returns in the U.S. federal jurisdiction and various state, local
+and foreign jurisdictions. During 2009, the Company settled certain state examinations which
+reduced the balance of prior year unrecognized tax benefits by $0.5 million. The Company has
+completed U.S. federal audits through 2003, and is not currently under examination by the United
+States
+Internal Revenue Service; however the Company is under examination by a number of states. It
+is reasonably possible that certain state examinations could be settled within the next twelve
+months which would reduce the balance of 2009 and prior year unrecognized tax benefits by $0.3
+million.
+With few exceptions, the Company is no longer subject to state, local or non-U.S. income tax
+examinations by tax authorities for years before 2006. During 2009, the statute of limitations for
+the 2005 tax year lapsed for the U.S. federal and several state tax jurisdictions. The lapse in
+statute reduced the balance of prior year unrecognized tax benefits by $0.2 million. Tax years 2006
+through 2008 remain open to examination by the U.S. federal, state, and foreign taxing
+jurisdictions under which we are subject. It is reasonably possible that the statute of
+limitations for the 2006 tax year will lapse for the U.S. federal and most state tax jurisdictions
+during 2010, which would reduce the balance of 2009 and prior year unrecognized tax benefits by
+$0.6 million.
+(11) BUSINESS AND CREDIT CONCENTRATIONS 
+The Company generates the majority of its sales in the United States; however, several of its
+products are sold into various foreign countries, which subjects the Company to the risks of doing
+business abroad. In addition, the Company operates in the footwear industry, which is impacted by
+the general economy, and its business depends on the general economic environment and levels of
+consumer spending. Changes in the marketplace may significantly affect management’s estimates and
+the Company’s performance. Management performs regular evaluations concerning the ability of
+customers to satisfy their obligations and provides for estimated doubtful accounts. Domestic
+accounts receivable, which generally do not require collateral from customers, amounted to $148.3
+million and $111.9 million before allowances for bad debts and sales returns, and chargebacks at
+December 31, 2009 and 2008, respectively. Foreign accounts receivable, which generally are
+collateralized by letters of credit, amounted to $86.0 million and $78.1 million before allowance
+for bad debts, sales returns, and chargebacks at December 31, 2009 and 2008, respectively.
+International net sales amounted to $358.1 million, $357.2 million, and $291.3 million for the
+years ended December 31, 2009, 2008 and 2007, respectively. The Company’s credit losses due to
+write-off’s for the years ended December 31, 2009, 2008 and 2007 were $1.2 million, $8.4 million,
+and $2.0 million, respectively, and were primarily from domestic accounts.
+Net sales to customers in North America exceeded 75% of total net sales for each of the years
+in the three-year period ended December 31, 2009. Assets located outside the United States consist
+primarily of cash, accounts receivable, inventory, property and equipment, and other assets. Net
+assets held outside the United States were $125.5 million and $120.5 million at December 31, 2009
+and 2008, respectively.
+During 2009, 2008, and 2007, no customer accounted for 10.0% or more of net sales. One
+customer accounted for 11.3% of net trade receivables at December 31, 2009. No customer accounted
+for more than 10.0% of net trade receivables at December 31, 2008. One customer accounted for
+10.0% of net trade receivables at December 31, 2007. During 2009, 2008 and 2007, our net sales to
+our five largest customers were approximately 25.1%, 24.1%, and 25.3%, respectively.
+The Company’s top five manufacturers produced the following for the years ended December 31,
+2009, 2008, and 2007, respectively:
+Years Ended December 31, 
+2009 
+2008 
+2007 
+Manufacturer #1 
+29.7 
+% 
+30.6 
+% 
+29.7 
+% 
+Manufacturer #2 
+12.2 
+% 
+11.7 
+% 
+11.4 
+% 
+Manufacturer #3 
+11.2 
+% 
+9.3 
+% 
+9.5 
+% 
+Manufacturer #4 
+10.5 
+% 
+6.6 
+% 
+7.9 
+% 
+Manufacturer #5 
+5.5 
+% 
+6.4 
+% 
+7.1 
+% 
+69.1 
+% 
+64.6 
+% 
+65.6 
+% 
+The majority of the Company’s products are produced in China. The Company’s operations are
+subject to the customary risks of doing business abroad, including but not limited to currency
+fluctuations and revaluations, custom duties and related fees, various import controls and other
+monetary barriers, restrictions on the transfer of funds, labor unrest and strikes and, in certain
+parts of the
+55 
+Table of Contents 
+world, political instability. The Company believes it has acted to reduce these risks
+by diversifying manufacturing among various factories. To date, these business risks have not had a
+material adverse impact on the Company’s operations.
+(12) BENEFIT PLAN 
+The Company has adopted a 401(k) profit sharing plan covering all employees who are 21 years
+of age and have completed six months of service. Employees may contribute up to 15.0% of annual
+compensation. Company contributions to the plan are discretionary and vest over a six year period.
+The Company’s cash contributions to the plan amounted to $1.6 million for the year ended
+December 31, 2009. The Company did not make a contribution for the year ended December 31, 2008.
+The Company’s cash contributions to the plan amounted to $1.2 million for the year ended December
+31, 2007.
+(13) COMMITMENTS AND CONTINGENCIES 
+(a) Leases
+The Company leases facilities under operating lease agreements expiring through March 2029.
+The Company pays taxes, maintenance and insurance in addition to the lease obligation. The Company
+also leases certain equipment and automobiles under operating lease agreements expiring at various
+dates through September 2014. Rent expense for the years ended December 31, 2009, 2008 and 2007
+approximated $65.9 million, $57.4 million, and $48.9 million, respectively.
+The Company also leases certain property and equipment under capital lease agreements
+requiring monthly installment payments through June 2010.
+In January 2010, the Company entered into a joint venture agreement to build a new 1.8 million
+square foot distribution facility in Moreno Valley, California, which when completed the Company
+expects to occupy in 2011. This single facility will replace the existing five facilities located
+in Ontario, California, of which four are on short-term leases. The Company will lease the new
+distribution center from the JV for a base rent of $933,894 per month for 20 years.
+Minimum lease payments, which takes into account escalation clauses, are recognized on a
+straight-line basis over the minimum lease term. Subsequent adjustments to our lease payments due
+to changes in an existing index, usually the consumer price index, are typically included in our
+calculation of the minimum lease payments when the adjustment is known. Reimbursements for
+leasehold improvements are recorded as liabilities and are amortized over the lease term. Lease
+concessions, in our case usually a free rent period, are considered in the calculation of our
+minimum lease payments for the minimum lease term.
+Future minimum lease payments under noncancellable leases at December 31, 2009 are as follows
+(in thousands):
+CAPITAL 
+OPERATING 
+LEASES 
+LEASES 
+Year ending December 31: 
+2010 
+$ 
+103 
+$ 
+78,016 
+2011 
+— 
+73,394 
+2012 
+— 
+67,416 
+2013 
+— 
+56,820 
+2014 
+— 
+52,226 
+Thereafter 
+— 
+353,097 
+$ 
+103 
+$ 
+680,969 
+(b) Litigation
+The Company recognizes legal expense in connection with loss contingencies as incurred.
+On May 22, 2009, Louis Miranda filed a lawsuit against the Company in the Superior Court for
+the State of California, County of Los Angeles, MIRANDA V. SKECHERS U.S.A., INC. (Case. No.
+BC414344). The complaint alleges harassment, discrimination based on sexual orientation, failure
+to prevent discrimination, retaliation and wrongful termination. The lawsuit seeks, among other
+things, general and compensatory damages, special damages according to proof, punitive damages,
+prejudgment interest, and
+56 
+Table of Contents 
+attorneys’ fees and costs. On March 4, 2010,
+the parties reached a settlement in principle and as of this filing are reducing the settlement agreement to writing.
+The terms of the settlement are confidential. The settlement did not have a material adverse effect on the Company’s
+financial condition or results of operations.
+Our claims and advertising for our products including our Shape-ups are subject to the
+requirements of various regulatory and quasi-government agencies around the world and we receive
+periodic requests for information. The Company believes that its claims and advertising are
+supported by tests, medical opinion and other relevant data and fully cooperates with periodic
+requests for information from regulatory and quasi-regulatory agencies.
+The Company has no reason to believe that any liability with respect to pending legal actions
+or regulatory requests, individually or in the aggregate, will have a material adverse effect on
+the Company’s consolidated financial statements or results of operations. The Company occasionally
+becomes involved in litigation arising from the normal course of business, and management is unable
+to determine the extent of any liability that may arise from unanticipated future litigation.
+(c) Product and Other Financing
+The Company finances production activities in part through the use of interest-bearing open
+purchase arrangements with certain of its international manufacturers. These arrangements currently
+bear interest at rates between 0% and 1.5% for 30- to 60- day financing. The amounts outstanding
+under these arrangements at December 31, 2009 and 2008 were $93.5 million and $79.6 million,
+respectively, which are included in accounts payable in the accompanying consolidated balance
+sheets. Interest expense incurred by the Company under these arrangements amounted to $3.3 million
+in 2009, $3.6 million in 2008, and $3.3 million in 2007. The Company has contractual commitments
+relating to licensing arrangements of $1.9 million and open purchase commitments with our foreign
+manufacturers of $148.6 million, which are not included in the accompanying consolidated balance
+sheets. The company is currently in the process of designing and purchasing the equipment to be
+used in its new distribution center. The total cost of this equipment is expected to be
+approximately $85.0 million, of which $38.6 million was incurred as of December 31, 2009.
+(14) SEGMENT INFORMATION 
+We have four reportable segments – domestic wholesale sales, international wholesale sales,
+retail sales, and e-commerce sales. Management evaluates segment performance based primarily on
+net sales and gross margins. All other costs and expenses of the Company are analyzed on an
+aggregate basis, and these costs are not allocated to the Company’s segments. Net sales, gross
+margins and identifiable assets for the domestic wholesale segment, international wholesale,
+retail, and the e-commerce segment on a combined basis were as follows (in thousands):
+2009 
+2008 
+2007 
+Net sales 
+Domestic wholesale 
+$ 
+763,514 
+$ 
+807,047 
+$ 
+831,235 
+International wholesale 
+328,466 
+332,503 
+267,648 
+Retail 
+321,829 
+283,128 
+279,361 
+E-commerce 
+22,631 
+18,065 
+15,937 
+Total 
+$ 
+1,436,440 
+$ 
+1,440,743 
+$ 
+1,394,181 
+2009 
+2008 
+2007 
+Gross profit 
+Domestic wholesale 
+$ 
+292,303 
+$ 
+276,604 
+$ 
+320,364 
+International wholesale 
+118,440 
+137,840 
+99,759 
+Retail 
+198,243 
+172,870 
+171,758 
+E-commerce 
+12,024 
+8,608 
+8,108 
+Total 
+$ 
+621,010 
+$ 
+595,922 
+$ 
+599,989 
+57 
+Table of Contents 
+2009 
+2008 
+Identifiable assets 
+Domestic wholesale 
+$ 
+792,856 
+$ 
+678,881 
+International wholesale 
+111,941 
+110,930 
+Retail 
+90,049 
+86,236 
+E-commerce 
+706 
+269 
+Total 
+$ 
+995,552 
+$ 
+876,316 
+2009 
+2008 
+2007 
+Additions to property, plant and equipment 
+Domestic wholesale 
+$ 
+21,112 
+$ 
+45,709 
+$ 
+11,371 
+International wholesale 
+5,568 
+6,893 
+1,346 
+Retail 
+8,661 
+19,859 
+18,458 
+Total 
+$ 
+35,341 
+$ 
+72,461 
+$ 
+31,175 
+Geographic Information
+The following summarizes our operations in different geographic areas for the year indicated:
+2009 
+2008 
+2007 
+Net Sales (1) 
+United States 
+$ 
+1,078,335 
+$ 
+1,083,498 
+$ 
+1,102,895 
+Canada 
+39,498 
+43,088 
+38,060 
+Other International (2) 
+318,607 
+314,157 
+253,226 
+Total 
+$ 
+1,436,440 
+$ 
+1,440,743 
+$ 
+1,394,181 
+2009 
+2008 
+Long-lived Assets 
+United States 
+$ 
+160,444 
+$ 
+148,228 
+Canada 
+866 
+471 
+Other International (2) 
+10,357 
+9,058 
+Total 
+$ 
+171,667 
+$ 
+157,757 
+(1) 
+The Company has subsidiaries in Canada, United Kingdom, Germany, France, Spain, Italy,
+Netherlands, Brazil, and Chile that generate net sales within those respective countries and
+in some cases the neighboring regions. The Company has joint ventures in China, Hong Kong,
+Malaysia, Singapore, and Thailand that generate net sales from those countries. The Company
+also has a subsidiary in Switzerland that generates net sales from that country in addition to
+net sales to our distributors located in numerous non-European countries. Net sales are
+attributable to geographic regions based on the location of the Company subsidiary. 
+(2) 
+Other international consists of Switzerland, United Kingdom, Germany, France, Spain, Italy,
+Netherlands, China, Hong Kong, Malaysia, Singapore, Thailand, Brazil and Chile. 
+(15) RELATED PARTY TRANSACTIONS 
+The Company paid approximately $183,000, $183,000 and $175,000 during 2009, 2008 and 2007,
+respectively, to the Manhattan Inn Operating Company, LLC (“MIOC”) for lodging, food and events
+including the Company’s holiday party at the Shade Hotel, which is owned and operated by MIOC.
+Michael Greenberg, President and a director of the Company, owns a 12% beneficial ownership
+interest in MIOC, and four other officers, directors and senior vice presidents of the Company own
+in aggregate an additional 5% beneficial ownership in MIOC. The Company had no outstanding
+accounts receivable or payable with MIOC or the Shade Hotel at December 31, 2009.
+58 
+Table of Contents 
+The Company had receivables from officers and employees of $0.3 million and $0.5 million at
+December 31, 2009 and 2008, respectively. These amounts primarily relate to travel advances and
+incidental personal purchases on Company-issued credit cards. These receivables are short-term and
+are expected to be repaid within a reasonable period of time. We had no other significant
+transactions with or payables to officers, directors or significant shareholders of the Company.
+(16) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) 
+Summarized unaudited financial data are as follows (in thousands):
+2009 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+343,470 
+$ 
+298,976 
+$ 
+405,374 
+$ 
+388,620 
+Gross profit 
+125,429 
+122,603 
+183,726 
+189,252 
+Net earnings (loss) 
+8,220 
+(5,927 
+) 
+24,460 
+27,946 
+Net earnings (loss)
+per share: 
+Basic 
+$ 
+0.18 
+$ 
+(0.13 
+) 
+$ 
+0.53 
+$ 
+0.60 
+Diluted 
+0.18 
+(0.13 
+) 
+0.52 
+0.58 
+2008 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+384,922 
+$ 
+354,574 
+$ 
+403,159 
+$ 
+298,088 
+Gross profit 
+172,172 
+157,193 
+171,531 
+95,026 
+Net earnings (loss) 
+32,844 
+14,641 
+28,289 
+(20,378 
+) 
+Net earnings (loss)
+per share: 
+Basic 
+$ 
+0.72 
+$ 
+0.32 
+$ 
+0.61 
+$ 
+(0.44 
+) 
+Diluted 
+0.70 
+0.31 
+0.60 
+(0.44 
+) 
+(17) SUBSEQUENT EVENTS 
+On January 30, 2010, the Company entered into a joint venture agreement with HF Logistics I,
+LLC through Skechers R.B., LLC, a newly formed wholly-owned subsidiary of the Company, regarding
+the ownership and management of HF Logistics-SKX, LLC, a Delaware limited liability company (the
+“JV”). The purpose of the JV is to acquire and to develop real property consisting of approximately
+110 acres situated in Moreno Valley, California, and to construct approximately 1,820,000 square
+feet of buildings and other improvements (the “Project”) to lease to the Company as a distribution
+facility. The JV’s objective is to operate the Project for the production of income and profit.
+The term of the JV is fifty years. The parties are equal fifty percent partners. The Company,
+through Skechers R.B., LLC, will make an initial cash capital contribution of $30 million and HF
+will make an initial capital contribution of land. Additional capital contributions, if necessary,
+would be made on an equal basis by Skechers R.B., LLC and HF. HF will be deemed to have extended a
+loan to the JV as consideration for assigning the JV all of its interest in the entitlements (e.g.,
+specifications, surveys, drawings) relating to the ownership and development of the property. The
+JV is in the process of obtaining $55 million in construction financing, the closing of which is
+subject to certain conditions. In the event that either the construction loan is not finalized or
+construction does not begin by June 1, 2010, the JV is null and void and the parties are entitled
+to receive a return of their initial capital contributions in the form contributed. In general,
+Skechers R.B., LLC shall have exclusive management over the Project’s buildings and operations
+after completion of construction, and HF shall have exclusive management over landlord decisions
+under the lease, financing the Project or encumbering JV assets, and matters pertaining to
+entitling the property and developing the Project.
+On February 27, 2010, a major earthquake occurred in Chile. We are still trying to quantify
+the impact of the earthquake, if any, on our operations; however; we do not expect it to have a
+material impact on our financial condition or results of operations.
+59 
+Table of Contents 
+ITEM 9. 
+CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
+DISCLOSURE 
+None.
+ITEM 9A. CONTROLS AND PROCEDURES 
+Attached as exhibits to this annual report on Form 10-K are certifications of our Chief
+Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance
+with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This
+“Controls and Procedures” section includes information concerning the controls and controls
+evaluation referred to in the certifications.
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
+The term “disclosure controls and procedures” refers to the controls and other procedures of a
+company that are designed to provide reasonable assurance that information required to be disclosed
+by a company in the reports that it files or submits under the Exchange Act, is recorded,
+processed, summarized and reported within required time periods. We have established disclosure
+controls and procedures to ensure that material information relating to Skechers and its
+consolidated subsidiaries is made known to the officers who certify our financial reports, as well
+as other members of senior management and the Board of Directors, to allow timely decisions
+regarding required disclosures. As of the end of the period covered by this annual report on Form
+10-K, we carried out an evaluation under the supervision and with the participation of our
+management, including our CEO and CFO, of the effectiveness of the design and operation of our
+disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that
+evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective.
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
+Our management is responsible for establishing and maintaining adequate internal control over
+financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal
+control over financial reporting includes those policies and procedures that (i) pertain to the
+maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
+and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in accordance with generally accepted
+accounting principles, and that our receipts and expenditures are being made only in accordance
+with authorizations of our management and directors; and (iii) provide reasonable assurance
+regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
+assets that could have a material effect on our financial statements.
+We conducted an evaluation of the effectiveness of our internal control over financial
+reporting based on the framework in Internal Control – Integrated Framework issued by the Committee
+of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the
+framework in Internal Control- Integrated Framework, our management has concluded that as of
+December 31, 2009, our internal control over financial reporting is effective.
+Our independent registered public accountants, KPMG LLP, audited the consolidated financial
+statements included in this annual report on Form 10-K and have issued an attestation report on the
+effectiveness of our internal control over financial reporting as of December 31, 2009, which is
+included in Part II, Item 8 of this annual report on Form 10-K.
+INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
+Our management, including our Chief Executive Officer and Chief Financial Officer, does not
+expect that our disclosure controls and procedures or our internal control over financial reporting
+will prevent or detect all error and all fraud. A control system, no matter how well designed and
+operated, can provide only reasonable, not absolute, assurance that the control system’s objectives
+will be met. The design of a control system must reflect the fact that there are resource
+constraints, and the benefits of controls must be considered relative to their costs. Further,
+because of the inherent limitations in all control systems, no evaluation of controls can provide
+absolute assurance that misstatements due to error or fraud will not occur or that all control
+issues and instances of fraud, if any, within the company have been detected. These inherent
+limitations include the realities that judgments in decision-making can be faulty and that
+breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the
+individual acts of some persons,
+by collusion of two or more people, or by management override of the controls. The design of
+any system of controls is based in part on certain assumptions about the likelihood of future
+events, and there can be no assurance that any design will succeed in achieving
+60 
+Table of Contents 
+its stated goals
+under all potential future conditions. Projections of any evaluation of controls effectiveness to
+future periods are subject to risks. Over time, controls may become inadequate because of changes
+in conditions or deterioration in the degree of compliance with policies or procedures.
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
+There were no significant changes to our internal controls over financial reporting that have
+materially affected, or are reasonably likely to materially affect, our internal controls over
+financial reporting during the fourth quarter of 2009, and we have completed our efforts regarding
+compliance with Section 404 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2009.
+The results of our evaluation are discussed above in Management’s Report on Internal Control Over
+Financial Reporting.
+ITEM 9B. OTHER INFORMATION 
+On January 19, 2010, our Compensation Committee approved the 2010 annual incentive
+compensation formulae for our executive management, including the “Named Executive Officers” (as
+defined in Item 402 of Regulation S-K), which will allow for executive management to earn incentive
+compensation on a quarterly basis in the event that certain specified performance goals are
+achieved under our 2006 Annual Incentive Compensation Plan (the “2006 Plan”). The purpose is to
+provide our executive management with the opportunity to earn incentive compensation based on our
+financial performance by linking incentive award opportunities to the achievement of certain
+performance goals.
+The Compensation Committee approved the business criteria to be used in the formulae to
+calculate the incentive compensation to be paid to our executive management on a quarterly basis
+for 2010. The business criteria that will be used to calculate the incentive compensation of
+Robert Greenberg (Chairman and Chief Executive Officer), Michael Greenberg (President), David
+Weinberg (Chief Operating Officer and Chief Financial Officer) and Mark Nason (Executive Vice
+President of Product Development) are our net sales and EBITDA, while our net sales will be used
+for calculating the incentive compensation of Philip Paccione (Corporate Secretary and General
+Counsel). The Compensation Committee believes that each of these criteria provides an accurate and
+comprehensive measure of our annual performance.
+The potential payments of incentive compensation to our executive management, including the
+Named Executive Officers, are performance-driven and therefore completely at risk. The payment of
+any incentive compensation is conditioned on our company achieving at least certain threshold
+performance levels of the business criteria approved by the Compensation Committee, and no payments
+will be made to the Named Executive Officers if the threshold performance levels are not met. Any
+incentive compensation to be paid to the Named Executive Officers in excess of the threshold
+amounts is based on the Compensation Committee’s pre-approved business criteria and formulae for
+the respective Named Executive Officers. In approving the percentages that will be used in the
+formulae to calculate the Named Executive Officers’ potential payments of incentive compensation
+for 2010, the Compensation Committee considered each Named Executive Officer’s position,
+responsibilities and prospective contribution to the attainment of the Company’s specified
+performance goals. The threshold performance levels for 2010 are “attainable,” and additional
+incentive compensation may be earned based on our company’s financial performance exceeding
+increasingly challenging levels of performance goals, none of which is certain to be achieved.
+Consistent with the prior year, the Compensation Committee did not place a maximum limit on the
+incentive compensation that may be earned by the Named Executive Officers in 2010, although the
+maximum amount of incentive compensation that any Named Executive Officer may earn in a 12-month
+period under the 2006 Plan is $5,000,000.
+61 
+Table of Contents 
+PART III 
+ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 
+The information required by this Item 10 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2009 fiscal year.
+ITEM 11. EXECUTIVE COMPENSATION 
+The information required by this Item 11 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2009 fiscal year.
+ITEM 12. 
+SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
+STOCKHOLDER MATTERS 
+The information required by this Item 12 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2009 fiscal year.
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+The information required by this Item 13 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2009 fiscal year.
+ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 
+The information required by this Item 14 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2009 fiscal year.
+PART IV 
+ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 
+1. 
+Financial Statements: See “Index to Consolidated Financial Statements and Financial
+Statement Schedule” in Part II, Item 8 on page 38 of this annual report on Form 10-K. 
+2. 
+Financial Statement Schedule: See “Schedule II—Valuation and Qualifying Accounts” on page 63
+of this annual report on Form 10-K. 
+3. 
+Exhibits: The exhibits listed in the accompanying “Index to Exhibits” are filed or
+incorporated by reference as part of this Form 10-K. 
+62 
+Table of Contents 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+(in thousands) 
+Years Ended December 31, 2009, 2008 and 2007 
+BALANCE AT 
+CHARGED TO 
+DEDUCTIONS 
+BALANCE 
+BEGINNING OF 
+COSTS AND 
+AND 
+AT END 
+DESCRIPTION 
+PERIOD 
+EXPENSES 
+WRITE-OFFS 
+OF PERIOD 
+Year-ended December 31, 2007: 
+Allowance for chargebacks 
+$ 
+1,501 
+$ 
+1,684 
+$ 
+(613 
+) 
+$ 
+2,572 
+Allowance for doubtful accounts 
+2,699 
+284 
+(635 
+) 
+2,348 
+Reserve for sales returns
+and allowances 
+6,358 
+(358 
+) 
+(636 
+) 
+5,364 
+Year-ended December 31, 2008: 
+Allowance for chargebacks 
+$ 
+2,572 
+$ 
+2,940 
+$ 
+(1,598 
+) 
+$ 
+3,914 
+Allowance for doubtful accounts 
+2,348 
+5,495 
+(3,421 
+) 
+4,422 
+Reserve for sales returns and
+allowances 
+5,364 
+2,352 
+(1,172 
+) 
+6,544 
+Year-ended December 31, 2009: 
+Allowance for chargebacks 
+$ 
+3,914 
+$ 
+(672 
+) 
+$ 
+(1,299 
+) 
+$ 
+1,943 
+Allowance for doubtful accounts 
+4,422 
+1,863 
+(1,957 
+) 
+4,328 
+Reserve for sales returns and
+allowances 
+6,544 
+2,058 
+(512 
+) 
+8,090 
+BALANCE AT 
+CHARGED TO 
+DEDUCTIONS 
+BALANCE 
+BEGINNING OF 
+COSTS AND 
+AND 
+AT END 
+DESCRIPTION 
+PERIOD 
+EXPENSES 
+WRITE-OFFS 
+OF PERIOD 
+Year-ended December 31, 2007: 
+Reserve for shrinkage 
+$ 
+— 
+$ 
+605 
+$ 
+(495 
+) 
+$ 
+110 
+Reserve for obsolescence 
+633 
+1,198 
+— 
+1,831 
+Year-ended December 31, 2008: 
+Reserve for shrinkage 
+$ 
+110 
+$ 
+690 
+$ 
+(635 
+) 
+$ 
+165 
+Reserve for obsolescence 
+1,831 
+11,192 
+— 
+13,023 
+Year-ended December 31, 2009: 
+Reserve for shrinkage 
+$ 
+165 
+$ 
+950 
+$ 
+(915 
+) 
+$ 
+200 
+Reserve for obsolescence 
+13,023 
+— 
+(9,568 
+) 
+3,455 
+See accompanying report of independent registered public accounting firm
+63 
+Table of Contents 
+INDEX TO EXHIBITS 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+3.1
+Amended and Restated Certificate of Incorporation dated April 29,
+1999 (incorporated by reference to exhibit number 3.1 of the
+Registrant’s Registration Statement on Form S-1, as amended (File
+No. 333-60065), filed with the Securities and Exchange Commission
+on May 12, 1999). 
+3.2
+Bylaws dated May 28, 1998 (incorporated by reference to exhibit
+number 3.2 of the Registrant’s Registration Statement on Form S-1
+(File No. 333-60065) filed with the Securities and Exchange
+Commission on July 29, 1998). 
+3.2(a)
+Amendment to Bylaws dated as of April 8, 1999 (incorporated by
+reference to exhibit number 3.2(a) of the Registrant’s Form 10-K
+for the year ended December 31, 2005). 
+3.2(b)
+Second Amendment to Bylaws dated as of December 18, 2007
+(incorporated by reference to exhibit number 3.1 of the
+Registrant’s Form 8-K filed with the Securities and Exchange
+Commission on December 20, 2007). 
+4.1
+Form of Specimen Class A Common Stock Certificate (incorporated
+by reference to exhibit number 4.1 of the Registrant’s
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange Commission on
+May 12, 1999). 
+10.1**
+Amended and Restated 1998 Stock Option, Deferred Stock and
+Restricted Stock Plan (incorporated by reference to exhibit
+number 10.1 of the Registrant’s Registration Statement on Form
+S-1 (File No. 333-60065) filed with the Securities and Exchange
+Commission on July 29, 1998). 
+10.1(a)**
+Amendment No. 1 to Amended and Restated 1998 Stock Option,
+Deferred Stock and Restricted Stock Plan (incorporated by
+reference to exhibit number 4.4 of the Registrant’s Registration
+Statement on Form S-8 (File No. 333-71114), filed with the
+Securities and Exchange Commission on October 5, 2001). 
+10.1(b)**
+Amendment No. 2 to Amended and Restated 1998 Stock Option,
+Deferred Stock and Restricted Stock Plan (incorporated by
+reference to exhibit number 4.5 of the Registrant’s Registration
+Statement on Form S-8 (File No. 333-135049), filed with the
+Securities and Exchange Commission on June 15, 2006). 
+10.1(c)**
+Amendment No. 3 to Amended and Restated 1998 Stock Option,
+Deferred Stock and Restricted Stock Plan (incorporated by
+reference to exhibit number 10.1 of the Registrant’s Form 8-K
+filed with the Securities and Exchange Commission on February 23,
+2007). 
+10.2**
+2006 Annual Incentive Compensation Plan (incorporated by
+reference to Appendix A of the Registrant’s Definitive Proxy
+Statement filed with the Securities and Exchange Commission on
+May 1, 2006). 
+10.3**
+2007 Incentive Award Plan (incorporated by reference to exhibit
+number 10.1 of the Registrant’s Form 8-K filed with the
+Securities and Exchange Commission on May 24, 2007). 
+10.4**
+Form of Restricted Stock Agreement under 2007 Incentive Award
+Plan (incorporated by reference to exhibit number 10.3 of the
+Registrant’s Form 10-K for the year ended December 31, 2007). 
+10.5**
+2008 Employee Stock Purchase Plan (incorporated by reference to
+exhibit number 10.2 of the Registrant’s Form 8-K filed with the
+Securities and Exchange Commission on May 24, 2007). 
+10.6**
+Indemnification Agreement dated June 7, 1999 between the
+Registrant and its directors and executive officers (incorporated
+by reference to exhibit number 10.6 of the Registrant’s Form 10-K
+for the year ended December 31, 1999). 
+10.6(a)**
+List of Registrant’s directors and executive officers who entered
+into Indemnification Agreement referenced in Exhibit 10.6 with
+the Registrant (incorporated by reference to exhibit number
+10.6(a) of the Registrant’s Form 10-K for the year ended December
+31, 2005). 
+64 
+Table of Contents 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+10.7
+Registration Rights Agreement dated June 9, 1999, between the
+Registrant, the Greenberg Family Trust and Michael Greenberg
+(incorporated by reference to exhibit number 10.7 of the
+Registrant’s Form 10-Q for the quarter ended June 30, 1999). 
+10.8
+Tax Indemnification Agreement dated June 8, 1999, between the
+Registrant and certain shareholders (incorporated by reference
+to exhibit number 10.8 of the Registrant’s Form 10-Q for the
+quarter ended June 30, 1999). 
+10.9
+Credit Agreement dated June 30, 2009, by and among the
+Registrant, certain of its subsidiaries that are also borrowers
+under the Agreement, and certain lenders including Wells Fargo
+Foothill, LLC, as co-lead arranger and administrative agent,
+Bank of America, N.A., as syndication agent, and Banc of
+America Securities LLC, as the other co-lead arranger
+(incorporated by reference to exhibit number 10.1 of the
+Registrant’s Form 8-K filed with the Securities and Exchange
+Commission on July 7, 2009). 
+10.10
+Schedule 1.1 of Defined Terms to the Credit Agreement dated
+June 30, 2009, by and among the Registrant, certain of its
+subsidiaries that are also borrowers under the Agreement, and
+certain lenders including Wells Fargo Foothill, LLC, Bank of
+America, N.A., and Banc of America Securities LLC (incorporated
+by reference to exhibit number 10.2 of the Registrant’s Form
+8-K filed with the Securities and Exchange Commission on July
+7, 2009). 
+10.11
+Amendment Number One to Credit Agreement dated November 5,
+2009, by and among the Registrant, certain of its subsidiaries
+that are also borrowers under the Agreement, and certain
+lenders including Wells Fargo Foothill, LLC, as co-lead
+arranger and administrative agent, Bank of America, N.A., as
+syndication agent, and Banc of America Securities LLC, as the
+other co-lead arranger (incorporated by reference to exhibit
+number 10.3 of the Registrant’s Form 10-Q for the quarter ended
+September 30, 2009). 
+10.12
+Promissory Note, dated December 27, 2000, between the
+Registrant and Washington Mutual Bank, FA, for the purchase of
+property located at 225 South Sepulveda Boulevard, Manhattan
+Beach,
+California (incorporated by reference to exhibit number 10.23
+of the Registrant’s Form 10-K for the year ended December 31,
+2000). 
+10.13
+Loan Agreement, dated December 21, 2000, between Yale
+Investments, LLC, and MONY Life Insurance Company, for the
+purchase of property located at 1670 South Champagne Avenue,
+Ontario, California (incorporated by reference to exhibit
+number 10.25 of the Registrant’s Form 10-K for the year ended
+December 31, 2000). 
+10.14
+Promissory Note, dated December 21, 2000, between Yale
+Investments, LLC, and MONY Life Insurance Company, for the
+purchase of property located at 1670 South Champagne Avenue,
+Ontario, California (incorporated by reference to exhibit
+number 10.26 of the Registrant’s Form 10-K for the year ended
+December 31, 2000). 
+10.15
+Lease Agreement, dated November 21, 1997, between the
+Registrant and The Prudential Insurance Company of America,
+regarding 1661 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.14 of the
+Registrant’s Registration Statement on Form S-1 (File No.
+333-60065) filed with the Securities and Exchange Commission on
+July 29, 1998). 
+10.15(a)
+First Amendment to Lease Agreement, dated April 26, 2002,
+between the Registrant and ProLogis California I LLC, regarding
+1661 South Vintage Avenue, Ontario, California (incorporated by
+reference to exhibit number 10.14(a) of the Registrant’s Form
+10-K for the year ended December 21, 2002). 
+10.15(b)
+Second Amendment to Lease Agreement, dated December 10, 2007,
+between the Registrant and ProLogis California I LLC, regarding
+1661 South Vintage Avenue, Ontario, California (incorporated by
+reference to exhibit number 10.15(b) of the Registrant’s Form
+10-K for the year ended December 31, 2007). 
+10.15(c)
+Third Amendment to Lease Agreement, dated January 29, 2009,
+between the Registrant and ProLogis California I LLC,
+regarding 1661 South Vintage Avenue, Ontario, California. 
+65 
+Table of Contents 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+10.15(d)
+Fourth Amendment to Lease Agreement, dated September 23,
+2009, between the Registrant and ProLogis California I LLC,
+regarding 1661 South Vintage Avenue, Ontario, California. 
+10.16
+Lease Agreement, dated November 21, 1997, between the
+Registrant and The Prudential Insurance Company of America,
+regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.15 of the
+Registrant’s Registration Statement on Form S-1 (File No.
+333-60065) filed with the Securities and Exchange Commission
+on July 29, 1998). 
+10.16(a)
+First Amendment to Lease Agreement, dated April 26, 2002,
+between the Registrant and Cabot Industrial Properties, L.P.,
+regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.15(a) of the
+Registrant’s Form 10-K for the year ended December 21, 2002). 
+10.16(b)
+Second Amendment to Lease Agreement, dated May 14, 2002,
+between the Registrant and Cabot Industrial Properties, L.P.,
+regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.16(b) of the
+Registrant’s Form 10-K for the year ended December 31, 2007). 
+10.16(c)
+Third Amendment to Lease Agreement, dated May 7, 2007, between
+the Registrant and CLP Industrial Properties, LLC, which is
+successor to Cabot Industrial Properties, L.P., regarding 1777
+South Vintage Avenue, Ontario, California (incorporated by
+reference to exhibit number 10.16(c) of the Registrant’s Form
+10-K for the year ended December 31, 2007). 
+10.16(d)
+Fourth Amendment to Lease Agreement, dated November 10, 2007,
+between the Registrant and CLP Industrial Properties, LLC,
+regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.16(d) of the
+Registrant’s Form 10-K for the year ended December 31, 2007). 
+10.16(e)
+Fifth Amendment to Lease Agreement, dated January 29, 2009,
+between the Registrant and CLP Industrial Properties, LLC,
+regarding 1777 South Vintage Avenue, Ontario, California. 
+10.16(f)
+Sixth Amendment to Lease Agreement, dated October 26, 2009,
+between the Registrant and CLP Industrial Properties, LLC,
+regarding 1777 South Vintage Avenue, Ontario, California. 
+10.17
+Lease Agreement, dated April 10, 2001, between the Registrant
+and ProLogis California I LLC, regarding 4100 East Mission
+Boulevard, Ontario, California (incorporated by reference to
+exhibit number 10.28 of the Registrant’s Form 10-K for the year
+ended December 31, 2001). 
+10.17(a)
+First Amendment to Lease Agreement, dated October 22, 2003,
+between the Registrant and ProLogis California I LLC, regarding
+4100 East Mission Boulevard, Ontario, California (incorporated
+by reference to exhibit number 10.28(a) of the Registrant’s
+Form 10-K for the year ended December 31, 2003). 
+10.17(b)
+Second Amendment to Lease Agreement, dated April 21, 2006,
+between the Registrant and ProLogis California I LLC, regarding
+4100 East Mission Boulevard, Ontario, California. 
+10.18
+Lease Agreement, dated February 8, 2002, between Skechers
+International, a subsidiary of the Registrant, and ProLogis
+Belgium II SPRL, regarding ProLogis Park Liege Distribution
+Center I in Liege, Belgium (incorporated by reference to
+exhibit number 10.29 of the Registrant’s Form 10-K for the year
+ended December 31, 2002). 
+10.19
+Lease Agreement dated September 25, 2007 between the Registrant
+and HF Logistics I, LLC, regarding distribution facility in
+Moreno Valley, California (incorporated by reference to exhibit
+number 10.1 of the Registrant’s Form 8-K filed with the
+Securities and Exchange Commission on September 27, 2007). 
+66 
+Table of Contents 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+10.20
+Lease Agreement dated May 20, 2008 between Skechers EDC SPRL, a subsidiary of the
+Registrant, and ProLogis Belgium III SPRL, regarding ProLogis Park Liege Distribution Center
+II in Liege, Belgium (incorporated by reference to exhibit number 10.1 of the Registrant’s
+Form 8-K filed with the Securities and Exchange Commission on May 27, 2008). 
+10.21
+Addendum to Lease Agreement dated May 20, 2008 between Skechers EDC SPRL, a subsidiary of
+the Registrant, and ProLogis Belgium III SPRL, regarding ProLogis Park Liege Distribution
+Center I in Liege, Belgium (incorporated by reference to exhibit number 10.2 of the
+Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 27, 2008). 
+21.1
+Subsidiaries of the Registrant. 
+23.1
+Consent of Independent Registered Public Accounting Firm. 
+31.1
+Certification of the Chief Executive Officer pursuant Securities Exchange Act Rule 13a-14(a). 
+31.2
+Certification of the Chief Financial Officer pursuant Securities Exchange Act Rule 13a-14(a). 
+32.1
+Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
+Sarbanes-Oxley Act of 2002. 
+** 
+Management contract or compensatory plan or arrangement required to be filed as an exhibit. 
+67 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Manhattan Beach, State of California on the 5th day of March 2010.
+SKECHERS U.S.A., INC. 
+By: 
+/s/ Robert Greenberg
+Robert Greenberg 
+Chairman of the Board and
+Chief Executive Officer 
+Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
+signed by the following persons on behalf of the Registrant and in the capacities and on the dates
+indicated.
+SIGNATURE 
+TITLE 
+DATE 
+/s/ Robert Greenberg
+Robert Greenberg
+Chief Executive Officer 
+(Principal
+Executive Officer)
+March 5, 2010 
+/s/ Michael Greenberg
+Michael Greenberg
+President and Director 
+March 5, 2010 
+/s/ David Weinberg
+David Weinberg
+Executive Vice President, Chief Operating Officer, 
+Chief
+Financial Officer and Director 
+(Principal Financial and Accounting Officer)
+March 5, 2010 
+/s/ Jeffrey Greenberg
+Jeffrey Greenberg
+Director 
+March 5, 2010 
+/s/ J. Geyer Kosinski
+J. Geyer Kosinski
+Director 
+March 5, 2010 
+/s/ Morton D. Erlich
+Morton D. Erlich
+Director 
+March 5, 2010 
+/s/ Richard Siskind
+Richard Siskind
+Director 
+March 5, 2010 
+68
\ No newline at end of file
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new file mode 100644
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+0001065837,SKX,SKECHERS USA INC,10-K,2010-03-05,2009-12-31,2010-03-05T22:17:58.000Z,0000950123-10-021687,v54794e10vk.htm,FORM 10-K,818377,0,0,https://www.sec.gov/Archives/edgar/data/1065837/000095012310021687/v54794e10vk.htm,https://www.sec.gov/Archives/edgar/data/1065837/000095012310021687/,2009,2009,1
diff --git a/raw/filings/0001065837/2009/0000950123-10-021687/item1.txt b/raw/filings/0001065837/2009/0000950123-10-021687/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2cfba98a6146f310b4683e1b4673256ee6cb8ca3
--- /dev/null
+++ b/raw/filings/0001065837/2009/0000950123-10-021687/item1.txt
@@ -0,0 +1,838 @@
+ITEM 1. BUSINESS 
+We were incorporated in California in 1992 and reincorporated in Delaware in 1999. Throughout
+this annual report, we refer to Skechers U.S.A., Inc., a Delaware corporation, and its consolidated
+subsidiaries as “we,” “us,” “our,” “our company” and “Skechers” unless otherwise indicated. Our
+Internet website address is www.skechers.com . Our annual report on Form 10-K, quarterly reports on
+Form 10-Q, current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of directors,
+officers and 10% stockholders, and any amendments to those reports filed or furnished pursuant to
+Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our
+website as soon as reasonably practicable after we electronically file such material with, or
+furnish it to, the SEC. You can learn more about us by reviewing such filings on our website or at
+the SEC’s website at www.sec.gov .
+GENERAL
+We design and market Skechers-branded contemporary footwear for men, women and children under
+several unique lines. Our footwear reflects a combination of style, quality and value that appeals
+to a broad range of consumers. In addition to Skechers-branded lines, we also offer several
+uniquely branded designer, fashion and street-focused footwear lines for men, women and children.
+These lines are branded and marketed separately from Skechers and appeal to specific audiences. Our
+brands are sold through department stores, specialty stores, athletic retailers, and boutiques as
+well as catalog and Internet retailers. Along with wholesale distribution, our footwear is
+available at our e-commerce website and our own retail stores. We operate 90 concept stores, 92
+factory outlet stores and 37 warehouse outlet stores in the United States, and 22 concept stores
+and five factory outlets internationally. Our objective is to profitably grow our operations
+worldwide while leveraging our recognizable Skechers brand through our strong product lines,
+innovative advertising and diversified distribution channels.
+We seek to offer consumers a vast array of fashionable footwear that satisfies their active,
+casual, dress casual and dress footwear needs. Our core consumers are style-conscious 12 to 24
+year-old men and women attracted to our youthful brand image and fashion- forward designs. Many of
+our best-selling and core styles are also developed for children with colors and materials that
+reflect a playful image appropriate for this demographic.
+We believe that brand recognition is an important element for success in the footwear
+business. We have aggressively promoted our brands through comprehensive marketing campaigns for
+men, women and children. During 2009, our Skechers brand was supported by: print, television and
+outdoor campaigns for men and women; animated kids’ television campaigns featuring our own action
+heroes and characters; print and outdoor campaigns featuring our endorsee and American Idol winner
+David Cook; and family-focused celebrity ads that included television personality Cesar Millan, and
+actors Brooke Burke and David Charvet. Our Punkrose, Marc Ecko and Zoo York footwear lines are
+also supported by print and television ads developed by Marc Ecko. The Red by Marc Ecko women’s
+line featured High School Musical star Vanessa Hudgens in print and television campaigns through
+2009, while the Zoo York campaign featured skateboarders Donny Barley and Kevin Shetler.
+Since we introduced our first line, Skechers USA Sport Utility Footwear, in December 1992, we
+have expanded our product offering and grown our net sales while substantially increasing the
+breadth and penetration of our account base. Our men’s, women’s and children’s Skechers-branded
+product lines benefit from the Skechers reputation for contemporary and progressive styling,
+quality, comfort and affordability. Our lines that are not branded with the Skechers name benefit
+from our marketing support, quality management and expertise. To promote innovation and brand
+relevance, we manage our product lines separately by utilizing dedicated sales and design teams.
+Our product lines share back office services in order to limit our operating expenses and fully
+utilize our management’s vast experience in the footwear industry.
+SKECHERS LINES
+Skechers offers multiple branded product lines for men, women and children as well as other
+products sold under established names not associated with Skechers. Within these various product
+lines, we also have numerous categories, some of which have developed into well-known names. Most
+of these categories are marketed and packaged with unique shoe boxes, hangtags and in-store
+support.
+2 
+Table of Contents 
+Skechers USA. Our Skechers USA category for men and women includes: (i) Casuals, (ii) Dress
+Casuals, (iii) Relaxed Fit (for men only), (iv) Seriously Lightweight (for men only) (v) Sandals
+and (vi) Casual Fusion. This category is generally sold through mid-tier retailers, department
+stores and some footwear specialty shops.
+• 
+The Casuals line for men and women is defined by lugged outsoles and utilizes
+value-oriented and leather materials in the uppers. For men, the Casuals category includes
+“black and brown” boots, shoes and sandals that generally have a rugged urban design — some
+with industrial-inspired fashion features. For women, the Casuals category includes basic
+“black and brown” oxfords and slip-ons, lug outsole and fashion boots, and casual sandals.
+We design and price both the men’s and women’s categories to appeal primarily to younger
+consumers with broad acceptance across age groups. 
+• 
+The Dress Casuals category for men is comprised of basic “black and brown” men’s shoes
+that feature shiny leathers and dress details, but may utilize traditional or lugged
+outsoles as well as value-oriented materials. The Dress Casual line for women is comprised
+of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or
+faux fur lining or trim. 
+• 
+Skechers Relaxed Fit is a line of trend-right casuals for men who want all-day comfort
+without compromising style. Characteristics of the line include comfortable outsoles,
+cushioned insoles and quality leather uppers. A category with unique features, we market and
+package Skechers Relaxed Fit styles in a shoe box that is distinct from that of other
+categories in the Skechers USA line of footwear. 
+• 
+Our Seriously Lightweight styles for men primarily consist of designs similar to our
+casual looks, but feature ultra lightweight outsoles, making them ideal travel and work
+shoes. A category with unique features, we market and package the Skechers Seriously
+Lightweight styles in a shoe box that is distinct from that of other categories in the
+Skechers USA line of footwear. 
+• 
+Our Sandals collection for men and women is designed with many of our existing and
+proven outsoles for our Casuals, Dress Casuals and Casual Fusion lines, stylized with basic
+or core uppers as well as fresh looks. These styles are generally made with quality leather
+uppers, but may also be in canvas or fabric. 
+• 
+Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals
+targeted to trend-conscious young men and women. The outsoles are primarily rubber and
+adopted from our men’s Sport and women’s Active lines. This collection features leather or
+nubuck uppers, but may also include mesh. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes: (i) Joggers, Trail
+Runners, Sport Hikers, Terrainers, (ii) Performance (for men only), (iii) Skechers D’Lites (for
+women only) and (iv) Sport Sandals. Our Skechers Sport category is distinguished by its technical
+performance-inspired looks; however, we generally do not promote the technical performance features
+of these shoes. Skechers Sport is typically sold through specialty shoe stores, department stores
+and athletic footwear retailers.
+• 
+Our Jogger, Trail Runner, Sport Hiker and cross trainer-inspired Terrainer designs are
+lightweight constructions that include cushioned heels, polyurethane midsoles, phylon and
+other synthetic outsoles, as well as leather or synthetic uppers such as durabuck, cordura
+and nylon mesh. Careful attention is devoted to the design, pattern and construction of the
+outsoles, which vary greatly depending on the intended use. This category features earth
+tones and athletic-inspired hues with contrasting pop colors such as lime green, orange and
+red in addition to traditional athletic white. 
+• 
+The Performance category is comprised of multi-purpose running shoes that are marketed
+as men’s lifestyle athletic footwear. Some styles include 3M reflective accents, breathable
+upper construction, quality leathers, abrasion-resistant toe and heel cap, removable
+moisture wicking molded ethyl vinyl acetate (“EVA”) sock liner, outsole forefoot flex
+grooves for improved flexibility, non-marking rubber lugs with impact dispersment technology
+(“IDT”), aggressive all terrain traction lugs, external torsion stabilizer and tuned
+dual-density molded EVA midsole with pronation control. 
+• 
+Skechers D’Lites are ultra lightweight women’s sneakers that feature sturdy, sculpted
+midsoles for all-day comfort, durable rubber treads for improved traction and a sole design
+that provides superior flexibility and cushioning. The uppers are designed in leather,
+suede, nubuck and mesh. 
+• 
+Our Sport Sandals are primarily designed from existing Skechers Sport outsoles and may
+include many of the same sport features as our sneakers with the addition of new
+technologies geared toward making a comfortable sport sandal. Sport sandals are designed as
+seasonal footwear for the consumer who already wears our Skechers Sport sneakers. 
+3 
+Table of Contents 
+Skechers Active. A natural companion to Skechers Sport, Skechers Active has grown from a
+casual everyday line into a complete line of fusion and sport fusion sneakers for females of all
+ages. The Active line now includes low-profile, wedge and sporty styles. The line, with lace-up,
+Mary Janes, sandals and open back styles, is available in a multitude of colors as well as solid
+white or black, in fabrics, leathers and meshes, and with various closures – traditional laces,
+zig-zag and cross straps, among others. Active sneakers are typically retailed through specialty
+casual shoe stores and department stores.
+Skechers Kids. The Skechers Kids line includes: (i) Skechers Kids, which is a range of
+infants’, toddlers’, boys’ and girls’ boots, shoes and sneakers, (ii) S-Lights, Hot Lights by
+Skechers and Luminators by Skechers, (iii) Skechers Cali for Girls, which is trend-inspired boots,
+shoes, sandals and dress sneakers, (iv) Airators by Skechers, (v) Skechers Super Z-Strap, (vi)
+Skechers Bungees, (vii) HyDee HyTop from Skechers, (viii) Twinkle Toes by Skechers, (ix) Pretty
+Tall by Skechers, (x) Sporty Shorty by Skechers and (xi) Babiez by Skechers. Skechers Kids and
+Skechers Cali for Girls are comprised primarily of shoes that are designed as “takedowns” of their
+adult counterparts, allowing the younger set the opportunity to wear the same popular styles as
+their older siblings and schoolmates. This “takedown” strategy maintains the product’s integrity by
+offering premium leathers, hardware and outsoles without the attendant costs involved in designing
+and developing new products. In addition, we adapt current fashions from our men’s and women’s
+lines by modifying designs and choosing colors and materials that are more suitable for the playful
+image that we have established in the children’s footwear market. Each Skechers Kids line is
+marketed and packaged separately with a distinct shoe box. Skechers Kids shoes are available at
+department stores and specialty and athletic retailers.
+• 
+The Skechers Kids line includes embellishments or adornments such as fresh colors and
+fabrics from our Skechers adult shoes. Some of these styles are also adapted for toddlers
+with softer, more pliable outsoles and for infants with soft, leather-sole crib shoes. 
+• 
+S-Lights and Hot Lights by Skechers are lighted sneakers and sandals for boys and girls.
+The S-Lights combine patterns of lights on the outsoles and sides of the shoes while Hot
+Lights feature lights on the front of the toe to simulate headlights as well as on other
+areas of the shoes. New to the offering with lights, Luminators from Skechers feature
+glowing green lights and a marketing campaign with the Luminator character. 
+• 
+Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young women
+designed to typify the California lifestyle. The sneakers are designed primarily with canvas
+uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and
+flats are designed with many of the same upper materials and outsoles as the sneakers. 
+• 
+Airators by Skechers is a line of boys sneakers with a foot-cooling system designed to
+pump air from the heel through to the toes. The line is marketed with the character Kewl
+Breeze. 
+• 
+Skechers Super Z-Strap is a line of athletic styled sneakers with a unique “z” shaped
+closure system for easy closure. The line is marketed with the character Z-Strap. 
+• 
+Skechers Bungees is a line of girls’ sneakers with bungee closures. The line is marketed
+with the character Elastika. 
+• 
+HyDee HyTop from Skechers is a line of colorful high-top sneakers for young girls. The
+line is marketed with the character HyDee HyTop. 
+• 
+Twinkle Toes by Skechers is a new line of girls’ sneakers and boots that feature
+bejeweled toe caps and brightly designed uppers. The line is marketed with the character
+Twinkle Toes. 
+• 
+Pretty Tall by Skechers is a new line of girls’ sneakers with a hidden wedge. The line is
+marketed with the character Pretty Tall. 
+• 
+Sporty Shorty by Skechers is a new line of athletic-inspired sneakers for girls who like
+to wear sport-style footwear off the field. The line is marketed with the character Sporty
+Shorty. 
+• 
+Babiez by Skechers is a line of crib shoes for infants. The uppers and outsoles are
+designed in leather and are extremely flexible for newborn feet. 
+Shape-ups by Skechers Fitness Group. Shape-ups are stylish fitness footwear for men and women
+who want to incorporate more fitness into their daily lives. Ideal for walking around town, work or
+home, Shape-ups’ unique kinetic wedge and rocker bottom are
+4 
+Table of Contents 
+designed to give the sensation and benefits of walking on soft sand – a construction that
+studies show may help promote weight loss, tone muscles, improve posture, and reduce joint stress.
+The Shape-ups offering includes sneakers, Mary Janes, sandals and boots for women, and sneakers for
+men. Also available, Shape-ups Slip-Resistant footwear for men and women in the service and
+occupational industries. Shape-ups are available at athletic footwear retailers, department stores
+and specialty shoe stores.
+Tone-ups by Skechers. Targeting 18- to 34-year-old fitness- and trend-conscious women,
+Tone-ups by Skechers are casual and athletic-inspired sandals that feature a gradual density
+midsole designed to stimulate underused calf, thigh and gluteus muscles, burn calories and reduce
+stress. Tone-ups uppers range from leather to microfiber suede, mitobuck and nylon webbing. The
+offering is available in department stores and casual shoe retailers.
+Skechers Work. Expanding on our heritage of cutting-edge utility footwear, Skechers Work
+offers a complete line of men’s and women’s casuals, field boots, hikers and athletic shoes. The
+Skechers Work line includes athletic-inspired, casual safety toe, and non-slip safety toe
+categories that may feature lightweight aluminum safety toe, electrical hazard, and slip-resistant
+technologies, as well as breathable, seam-sealed waterproof membranes. Designed for men and women
+with jobs that require certain safety requirements, these durable styles are constructed on
+high-abrasion, long wearing soles, and feature breathable lining, oil and abrasion resistant
+outsoles offering all-day comfort and prolonged durability. The Skechers Work line incorporates
+design elements from the other Skechers mens and womens line. The uppers are comprised of
+high-quality leather, nubuck, trubuck and durabuck. Our safety toe athletic sneakers, boots,
+hikers, and casuals are ideal for environments requiring safety footwear and offer comfort and
+safety in dry or wet conditions. Our slip-resistant boots, hikers, athletics, casuals and clogs
+are ideal for the service industry. Our safety toe products have been independently tested and
+certified to meet ASTM standards, and our slip-resistant soles have been tested pursuant to the
+Mark II testing method for slip resistance. Skechers Work is typically sold through department
+stores, athletic footwear retailers and specialty shoe stores, as well as marketed directly to
+consumers through business-to-business channels.
+FASHION AND STREET BRANDS
+The Fashion and Street Division and its brands are marketed and packaged separately from Skechers.
+Unltd. by Marc Ecko and Red by Marc Ecko. Unltd. by Marc Ecko is a line of men’s
+street-inspired traditional sneakers, fusion sneakers and urban-focused casuals. Red by Marc Ecko
+is a line of women’s classic and fashion-forward fusion sneakers, sandals and Mary Janes for young
+women. Targeted to the street-savvy 18- to 34-year-old consumer, the footwear reflects Ecko
+Unltd.’s men’s apparel and the Ecko Red women’s apparel, and effectively utilizes the globally
+recognized Rhino logo on the majority of sneakers and casuals. The men’s and women’s footwear
+collections are designed in leather, canvas, mesh, as well as other materials. Unltd. by Marc Ecko
+for boys and Rhino Red for girls sneaker lines primarily consist of takedowns from the adult Marc
+Ecko footwear lines with additional or different colorways geared toward children and that reflect
+the boys’ and girls’ Ecko Unltd. and Ecko Red clothing. The licensed brands are sold through
+select department stores and specialty retailers.
+Zoo York. Zoo York footwear is a line of action sports and lifestyle footwear for men, women
+and boys. The Zoo York footwear follows the color palette and trends of Zoo York apparel and
+targets skateboarders and those that embrace skate fashion. The licensed brand is available in
+skate and specialty shops as well as select athletic and department stores.
+Mark Nason, Siren by Mark Nason, and Lounge by Mark Nason. Mark Nason is a sophisticated and
+fashion forward footwear collection, marketed to style-conscious men, designed to complement
+designer denim and dress casual wear. Primarily crafted and constructed in Italy, the Mark Nason
+collection is comprised of classic and modern boots, shoes and sandals with distinctive profiles
+and luxurious hand-distressed leathers. The Mark Nason line distinguishes itself with high quality
+individual styling and may utilize unique materials such as premium leathers, etched and tattooed
+leathers, hand-treated, hand-scraped and hand-cut leathers, hand-treated leather uppers and soles,
+snakeskin and eel skin. Siren by Mark Nason is the ultimate accompaniment to designer denim and
+casual couture for discerning women. The line’s boots are fueled with bold profiles, alluring
+details and distinct textures. Handcrafted in Italy, the boots utilize premium leathers,
+hand-treated details, leather outsoles, and some may include snakeskin and other exotic materials.
+The Mark Nason lines are available in better department stores and boutiques. Lounge by Mark Nason
+is a collection of boots and casual loafers that have many similar design elements as the Mark
+Nason line, but are constructed in Asia, giving consumers a more price-conscious option. The Lounge
+by Mark Nason line is available in many of the same stores as Skechers USA line.
+Punkrose. Skechers acquired the junior brand Punkrose in 2008. Punkrose for women is
+cutting-edge street ready footwear, inspired by music, art, fashion, and action sports. Punkrose
+styles include sneakers, high-tops, skimmers, boots and sandals. Vibrant color combos and
+get-noticed prints are a trademark of this brand. Punkrose is available at department stores,
+sneaker shops and specialty boutiques.
+5 
+Table of Contents 
+PRODUCT DESIGN AND DEVELOPMENT
+Our principal goal in product design is to generate new and exciting footwear in all of our
+product lines with contemporary and progressive styles and comfort-enhancing performance features.
+Targeted to the active, youthful and style-savvy, we design most new styles to be fashionable and
+marketable to the 12 to 24 year-old consumer, while substantially all of our lines appeal to the
+broader range of 5 to 40 year-old consumers, with an exclusive selection for infants and
+toddlers. While some of our shoes have performance features, we generally do not position our shoes
+in the marketplace as technical performance shoes.
+We believe that our products’ success is related to our ability to recognize trends in the
+footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving
+preferences. We are able to quickly translate the latest fashion trends into stylish, quality
+footwear at a reasonable price by analyzing and interpreting current and emerging lifestyle trends.
+Lifestyle trend information is compiled and analyzed by our designers from various sources,
+including: the review and analysis of modern music, television, cinema, clothing, alternative
+sports and other trend-setting media; traveling to domestic and international fashion markets to
+identify and confirm current trends; consulting with our retail and e-commerce customers for
+information on current retail selling trends; participating in major footwear trade shows to stay
+abreast of popular brands, fashions and styles; and subscribing to various fashion and color
+information services. In addition, a key component of our design philosophy is to continually
+reinterpret and develop our successful styles in our brands’ image.
+The footwear design process typically begins about nine months before the start of a season.
+Our products are designed and developed primarily by our in-house design staff. To promote
+innovation and brand relevance, we utilize dedicated design teams, who report to our senior design
+executives and focus on each of the men’s, women’s and children’s categories. In addition, we
+utilize outside design firms on an item-specific basis to supplement our internal design efforts.
+The design process is extremely collaborative, as members of the design staff frequently meet with
+the heads of retail, merchandising, sales, production and sourcing to further refine our products
+to meet the particular needs of the target market.
+After a design team arrives at a consensus regarding the fashion themes for the coming season,
+the designers then translate these themes into our products. These interpretations include
+variations in product color, material structure and embellishments, which are arrived at after
+close consultation with our production department. Prototype blueprints and specifications are
+created and forwarded to our manufacturers for a design prototype. The design prototypes are then
+sent back to our design teams. Our major retail customers may also review these new design
+concepts. Customer input not only allows us to measure consumer reaction to the latest designs, but
+also affords us an opportunity to foster deeper and more collaborative relationships with our
+customers. We also occasionally order limited production runs that may initially be tested in our
+concept stores. By working closely with store personnel, we obtain customer feedback that often
+influences product design and development. Our design teams can easily and quickly modify and
+refine a design based on customer input. Generally, the production process can take six months to
+nine months from design concept to commercialization.
+SOURCING
+Factories. Our products are produced by independent contract manufacturers located primarily
+in China and, to a lesser extent, in Italy, Vietnam, Brazil and various other countries. We do not
+own or operate any manufacturing facilities. We believe that the use of independent manufacturers
+substantially increases our production flexibility and capacity while reducing capital expenditures
+and avoiding the costs of managing a large production work force.
+When possible, we seek to use manufacturers that have previously produced our footwear, which
+we believe enhances continuity and quality while controlling production costs. We attempt to
+monitor our selection of independent factories to ensure that no one manufacturer is responsible
+for a disproportionate amount of our merchandise. We source product for styles that account for a
+significant percentage of our net sales from at least five different manufacturers. During 2009,
+five of our contract manufacturers accounted for approximately 69.1% of total purchases. One
+manufacturer accounted for 29.7%, and three others each accounted for over 10.0% of our total
+purchases. To date, we have not experienced difficulty in obtaining manufacturing services.
+We finance our production activities in part through the use of interest-bearing open purchase
+arrangements with certain of our Asian manufacturers. These facilities currently bear interest at a
+rate between 0% and 1.5% for 30- to 60- day financing, depending on the factory. We believe that
+the use of these arrangements affords us additional liquidity and flexibility. We do not have any
+long-term contracts with any of our manufacturers; however, we have long-standing relationships
+with many of our manufacturers and believe our relationships to be good.
+6 
+Table of Contents 
+We closely monitor sales activity after initial introduction of a product in our concept
+stores to determine whether there is substantial demand for a style, thereby aiding us in our
+sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming
+collections or offered as part of our periodic style offerings, while less popular styles can be
+discontinued after a limited production run. We believe that sales in our concept stores can also
+help forecast sales in national retail stores, and we share this sales information with our
+wholesale customers. Sales, merchandising, production and allocations management analyze historical
+and current sales and market data from our wholesale account base and our own retail stores to
+develop an internal product quantity forecast that allows us to better manage our future production
+and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock
+position to minimize the time necessary to fill customer orders by placing orders with our
+manufacturers prior to the time we receive customers’ orders for such footwear.
+Production Oversight . To safeguard product quality and consistency, we oversee the key aspects
+of production from initial prototype manufacture through initial production runs to final
+manufacture. Monitoring of all production is performed in the United States by our in-house
+production department and in Asia through an approximately 230-person staff working from our
+offices in China. We believe that our Asian presence allows us to negotiate supplier and
+manufacturer arrangements more effectively, decrease product turnaround time and ensure timely
+delivery of finished footwear. In addition, we require our manufacturers to certify that neither
+convicted, forced nor indentured labor (as defined under U.S. law) nor child labor (as defined by
+law in the manufacturer’s country) is used in the production process, and that compensation will be
+paid according to local law and that the factory is in compliance with local safety regulations.
+Quality Control. We believe that quality control is an important and effective means of
+maintaining the quality and reputation of our products. Our quality control program is designed to
+ensure that not only finished goods meet our established design specifications, but also that all
+goods bearing our trademarks meet our standards for quality. Our quality control personnel located
+in China perform an array of inspection procedures at various stages of the production process,
+including examination and testing of prototypes of key raw materials prior to manufacture, samples
+and materials at various stages of production and final products prior to shipment. Our employees
+are on site at each of our major manufacturers to oversee production. For some of our lower volume
+manufacturers, our staff is on site during significant production runs or we will perform
+unannounced visits to their manufacturing sites to further monitor compliance with our
+manufacturing specifications.
+ADVERTISING AND MARKETING
+With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted approach to
+marketing to drive traffic, build brand recognition and properly position our diverse lines within
+the marketplace. Senior management is directly involved in shaping our image and the conception,
+development and implementation of our advertising and marketing activities. The focus of our
+marketing plan is print and television advertising, which is supported by outdoor, trend-influenced
+marketing, public relations, promotions and in-store support. In addition, we utilize celebrity
+endorsers in our advertisements. We also believe our websites and trade shows are effective
+marketing tools to both consumers and wholesale accounts. We have historically budgeted advertising
+as a percentage of projected net sales.
+The majority of our advertising is conceptualized by our in-house design team. We believe that
+our advertising strategies, methods and creative campaigns are directly related to our success.
+Through our lifestyle and image-driven advertising, we generally seek to build and increase brand
+awareness by linking the Skechers brand and our fashion and street brands to youthful, contemporary
+lifestyles and attitudes. We have built on this approach by featuring select styles in our
+lifestyle ads for men and women. Our ads are designed to provide merchandise flexibility and to
+facilitate the “brand’s” direction.
+To further build brand awareness and influence consumer spending, we have selectively signed
+endorsement agreements with celebrities whom we believe would reach new markets. American Idol
+winner David Cook appeared in Skechers marketing campaigns through 2009. To develop family ads that
+would appeal to a broad range of consumers, we also developed the “Nothing Compares to Family”
+campaign with celebrities and their families. In 2009, these campaigns included actors Brooke Burke
+and David Charvet with their children, and television personality and author Cesar Millan with his
+family and dogs. From time to time, we may sign other celebrities to endorse our brand name and
+image in order to strategically market our products among specific consumer groups in the future.
+In addition to advertising our Skechers branded lines through men’s, women’s and children’s
+ads, we also support Mark Nason, Marc Ecko, Zoo York, and Punkrose lines through individual unique
+print and/or television advertisements – some of which may include celebrity endorsees. For Mark
+Nason, we have focused on key-selling styles in product-driven ads that captured the brand’s
+7 
+Table of Contents 
+essence. For the Marc Ecko footwear brands, Marc Ecko’s design team has created relevant
+targeted print and television commercials for men and women. These include a multi-media men’s
+campaign featuring our graffiti painted shoe as well as commercials for Unltd. by Marc Ecko for
+boys. During 2009, High School Musical star Vanessa Hudgens was the face of Red by Marc Ecko,
+appearing in print, outdoor and television advertisements. For Punkrose, the approach has been
+lifestyle advertisements that embrace the feeling of the footwear.
+With a targeted approach, our print ads appear regularly in popular fashion and lifestyle
+consumer publications, including GQ, Cosmopolitan, Shape, Lucky, In Style, Seventeen, Maxim, Men’s
+Fitness, and Women’s Health, as well as in weekly publications such as People, Us Weekly, Sports
+Illustrated and InTouch, among others. Our advertisements also appear in international magazines
+around the world.
+Our television commercials are produced both in-house and through producers that we have
+utilized in the past and who are familiar with our brands. In 2009, we developed commercials for
+men, women and children for our Skechers brands, including our animated spots for kids featuring
+our own action heroes. We have found these to be a cost-effective way to advertise on key national
+and cable programming during high selling seasons. In 2009, many of our television commercials were
+translated into multiple languages and aired in Brazil, Canada, United Kingdom, France, the Benelux
+Region, Germany, Spain, Italy, Chile, Austria and Switzerland.
+Outdoor. In an effort to reach consumers where they shop and in high-traffic areas as they
+travel to and from work, we continued our multi-level outdoor campaign that included kiosks in key
+malls across the United States and billboards, transportation systems and telephone kiosks in North
+America and Europe. In addition, we advertised on football perimeter boards in the United Kingdom
+and Germany. We believe these are effective and efficient ways to reach a broad range of consumers
+and leave a lasting impression for our brands.
+Trend-Influenced Marketing/Public Relations. Our public relations objectives are to secure
+product placement in key fashion magazines, place our footwear on the feet of trend-setting
+celebrities, and gain positive and accurate press on our company. Through our commitment to
+aggressively promote our upcoming styles, our products are often featured in leading fashion and
+pop culture magazines, as well as in select films and popular television shows. Our footwear and
+our company have been prominently displayed and referenced on news and magazine shows. We have also
+amassed an array of prominent product placements in magazines including Lucky, Seventeen, OK!, US
+Weekly, Health and Nylon . In addition, our brands have been associated with cutting edge events and
+select celebrities, and our product has been seen worn by celebrities including Britney Spears,
+Denis Leary, Vin Diesel, Forest Whitaker and Vanessa Hudgens.
+Promotions. By applying creative sales techniques via a broad spectrum of media, our marketing
+team seeks to build brand recognition and drive traffic to Skechers’ retail stores, websites and
+our retail partners’ locations. Skechers’ promotional strategies have encompassed in-store
+specials, charity events, product tie-ins and giveaways, and collaborations with national retailers
+and radio stations. Our imaginative promotions are consistent with Skechers’ imaging and lifestyle.
+Visual Merchandising. Our in-house visual merchandising department supports wholesale
+customers, distributors and our retail stores by developing displays that effectively leverage our
+products at the point of sale. Our point-of-purchase display items include signage, graphics,
+displays, counter cards, banners and other merchandising items for each of our brands. These
+materials mirror the look and feel of each brand and reinforce the image as well as draw consumers
+into stores.
+Our visual merchandising coordinators (“VMC’s”) work with our sales force and directly with
+our customers to ensure better sell-through at the retail level by generating greater consumer
+awareness through Skechers brand displays. Our VMC’s communicate with and visit our wholesale
+customers on a regular basis to aid in proper display of our merchandise. They also run in-store
+promotions to enhance the sale of Skechers footwear and create excitement surrounding the Skechers
+brand. We believe that these efforts help stimulate impulse sales and repeat purchases.
+Trade Shows. To better showcase our diverse products to footwear buyers in the United States
+and Europe and to distributors around the world, we regularly exhibit at leading trade shows. Along
+with specialty trade shows, we exhibit at WSA’s The Shoe Show, FFANY, ASR and MAGIC in the United
+States; GDS, MICAM, Bread & Butter, Mess Around and Who’s Next in Europe; and Couromoda and Francal
+in Brazil. Our dynamic, state-of-the-art trade show exhibits are developed by our in-house
+architect to showcase our latest product offerings in a lifestyle setting reflective of each of our
+brands. By investing in innovative displays and individual rooms showcasing each line, our sales
+force can present a sales plan for each line and buyers are able to truly understand the breadth
+and depth of our offerings, thereby optimizing commitments and sales at the retail level.
+8 
+Table of Contents 
+Internet. We promote and sell our brands through our e-commerce websites www.skechers.com ,
+www.soholab.com and www.myshapeups.com . These websites enable fans and customers to shop, browse,
+find store locations, socially interact, post a shoe review, photo, video, or question and immerse
+themselves in our brands. These websites are a venue for dialog and feedback from customers about
+our products which enhances the Skechers and fashion brands experience while driving sales through
+all our retail channels. In addition, we established a unique website for Mark Nason
+( www.marknason.com ) designed to serve primarily as a marketing tool.
+PRODUCT DISTRIBUTION CHANNELS
+We have four reportable segments – domestic wholesale sales, international wholesale sales,
+retail sales and e-commerce sales. In the United States, our products are available through a
+network of wholesale customers comprised of department, athletic and specialty stores.
+Internationally, our products are available through wholesale customers in more than 100 countries
+and territories via our global network of distributors in addition to our subsidiaries in Asia,
+Europe, Canada and South America. Skechers owns and operates retail stores both domestically and
+internationally through three integrated retail formats—concept, factory outlet and warehouse
+outlet stores. Each of these channels serves an integral function in the global distribution of our
+products. Thirteen distributors have opened 112 distributor-owned Skechers retail stores in 24
+countries as of December 31, 2009.
+Domestic Wholesale. We distribute our footwear through the following domestic wholesale
+distribution channels: department stores, specialty stores, athletic specialty shoe stores and
+independent retailers, as well as catalog and Internet retailers. While department stores and
+specialty retailers are the largest distribution channels, we believe that we appeal to a variety
+of wholesale customers, many of whom may operate stores within the same retail location due to our
+distinct product lines, variety of styles and the price criteria of their specific customers.
+Management has a clearly defined growth strategy for each of our channels of distribution. An
+integral component of our strategy is to offer our accounts the highest level of customer service
+so that our products will be fully represented in existing retail locations and new locations of
+each customer.
+In an effort to provide knowledgeable and personalized service to our wholesale customers, the
+sales force is segregated by product line, each of which is headed by a vice president or national
+sales manager. Reporting to each sales manager are knowledgeable account executives and territory
+managers. Our vice presidents and national sales managers report to a senior vice president of
+sales. All of our vice presidents and national sales managers are compensated on a salary basis,
+while our account executives and territory managers are compensated on a commission basis. None of
+our domestic sales personnel sells competing products.
+We believe that we have developed a loyal customer base through exceptional customer service.
+We believe that our close relationships with these accounts help us to maximize their retail
+sell-throughs. Our visual merchandise coordinators work with our wholesale customers to ensure that
+our merchandise and point-of-purchase marketing materials are properly presented. Sales executives
+and merchandise personnel work closely with accounts to ensure that appropriate styles are
+purchased for specific accounts and for specific stores within those accounts as well as to ensure
+that appropriate inventory levels are carried at each store. Such information is then utilized to
+help develop sales projections and determine the product needs of our wholesale customers. The
+value-added services we provide our wholesale customers help us maintain strong relationships with
+our existing wholesale customers and attract potential new wholesale customers.
+International Wholesale. Our products are sold in more than 100 countries and territories
+throughout the world. We generate revenues from outside the United States from three principal
+sources: (i) direct sales to department stores and specialty retail stores through our subsidiaries
+and joint ventures in Canada, France, Germany, Spain, Portugal, Italy, Switzerland, Austria,
+Malaysia, Thailand, Singapore, Hong Kong, China, the Benelux Region, the United Kingdom, Brazil and
+Chile; (ii) sales to foreign distributors who distribute our footwear to department stores and
+specialty retail stores in countries and territories across Eastern Europe, Asia, Latin America,
+South America, Africa, the Middle East and Australia, among other regions; and (iii) to a lesser
+extent, royalties from licensees who manufacture and distribute our non-footwear products outside
+the United States.
+We believe that international distribution of our products represents a significant
+opportunity to increase sales and profits. We intend to further increase our share of the
+international footwear market by heightening our marketing in those countries in which we currently
+have a presence through our international advertising campaigns, which are designed to establish
+Skechers as a global brand synonymous with trend-right casual shoes.
+9 
+Table of Contents 
+• 
+International Subsidiaries 
+Europe 
+We currently distribute product in most of Western Europe through the following
+subsidiaries: Skechers USA Ltd., with its offices and showrooms in London, England; Skechers
+S.a.r.l., with its offices and showrooms in Lausanne, Switzerland; Skechers USA France
+S.A.S., with its offices and showrooms in Paris, France; Skechers USA Deutschland GmbH, with
+its offices and showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L., with its
+offices and showrooms in Madrid, Spain; Skechers USA Benelux B.V., with its offices and
+showrooms in Waalwijk, the Netherlands; and Skechers USA Italia S.r.l., with its offices and
+showroom in Verona, Italy.
+Skechers-owned retail stores in Europe include nine concept stores and three factory
+outlet stores located in seven countries, including the key locations of Covent Garden and
+Oxford Street in London, Alstadt District in Düsseldorf and Kalverstraat Street in Amsterdam.
+To accommodate our European subsidiaries’ operations, we operate an approximately
+490,000 square foot distribution center in Liege, Belgium. This distribution center is
+currently used to store and deliver product to our subsidiaries and retail stores throughout
+Europe.
+Canada 
+Merchandising and marketing of our product in Canada is managed by our wholly-owned
+subsidiary, Skechers USA Canada, Inc. with its offices and showrooms outside Toronto in
+Mississauga, Ontario. Product sold in Canada is primarily sourced from our U.S. distribution
+center in Ontario, California. We have three concept stores; Toronto Eaton Centre, West
+Edmonton Mall, and Richmond Centre; and two factory outlet stores in Toronto and Alberta.
+Malaysia, Singapore and Thailand 
+We have a 50% interest in a joint venture in Malaysia and Singapore, and a 51% interest
+in a joint venture in Thailand that generate net sales in those countries. The joint
+ventures operate four concept stores and six shops-in-shop in Malaysia, four concept stores
+in Singapore, and one concept store and 15 shops-in-shop in Thailand. These joint ventures
+are included in our 2009 consolidated financial statements.
+China and Hong Kong 
+We have a 50% interest in a joint venture in China and a minority interest in a joint
+venture in Hong Kong that generate net sales in those countries. Under the joint venture
+agreements, the joint venture partners contribute capital in proportion to their respective
+ownership interests. The joint ventures operate 15 direct-owned stores and in excess of 70
+shops-in-shop in China and nine direct-owned stores and 10 shops-in-shop in Hong Kong. The
+joint ventures are included in our 2008 and 2009 consolidated financial statements.
+Brazil 
+Merchandising and marketing of our product in Brazil is managed by our wholly-owned
+subsidiary, Skechers Do Brasil Calcados LTDA., with its offices located in Sao Paulo, Brazil.
+Product sold in Brazil is primarily shipped directly from our contract manufacturers’
+factories in China and occasionally from our U.S. distribution center in Ontario, California.
+Chile 
+We have established a subsidiary in Chile, Comercializadora Skechers Chile Limitada, to support
+the 10 retail stores which we acquired from a former distributor in 2009 as well as wholesale
+accounts in that country. Product sold in Chile is primarily shipped directly from our
+contract manufacturers’ factories in China and occasionally from our U.S. distribution center
+in Ontario, California.
+10 
+Table of Contents 
+• 
+Distributors 
+Where we do not sell direct through our international subsidiaries and joint ventures,
+our footwear is distributed through an extensive network of more than 30 distributors who
+sell our products to department, athletic and specialty stores in more than 100 countries
+around the world. Through agreements with 13 of these distributors, 112 distributor-owned
+Skechers retail stores are open in 24 countries, including 28 stores that were opened in 2009
+less 10 stores that were acquired in 2009 from our distributor in Chile and are now
+company-owned stores. Our distributors own and operate the following retail stores:
+STORE 
+NUMBER OF 
+REGION 
+FORMAT 
+STORES 
+LOCATION (1) 
+Asia 
+Concept 
+29 
+Japan (4); Korea (17); Philippines (6); Taiwan (2) 
+Warehouse 
+4 
+Japan (4) 
+Australia 
+Concept 
+3 
+Chadstone, Melbourne, Sydney 
+Warehouse 
+6 
+Cairns, Canberra, Jindalee, Melbourne, Southwharf, Sydney 
+Central America/ 
+South America 
+Concept 
+37 
+Aruba; Columbia (9); Costa Rica;
+Ecuador (2); Guatemala (3); Panama (3); Peru (4); Venezuela (14) 
+Warehouse 
+1 
+Columbia 
+Eastern Europe 
+Concept 
+15 
+Czech Republic; Russia (11); Turkey; Ukraine (2) 
+Northern Europe 
+Concept 
+3 
+Estonia (2); Lithuania 
+Middle East 
+Concept 
+12 
+Bahrain (2); Kuwait (2); Saudi Arabia (2); UAE (6) 
+Warehouse 
+1 
+UAE 
+South Africa 
+Concept 
+1 
+Sandton 
+(1) 
+One store per location except as otherwise noted. 
+The distributors are responsible for their respective stores’ operations, have ownership
+of their respective stores’ assets, and select the broad collection of our products to sell
+to consumers in their regions. In order to maintain a globally consistent image, we provide
+architectural, graphic and visual guidance and materials for the design of the stores, and we
+train the local staff on our products and corporate culture. We intend to expand our
+international presence and global recognition of the Skechers brand name by continuing to
+sell our footwear to foreign distributors and by opening flagship retail stores with
+distributors that have local market expertise.
+Retail Stores. We pursue our retail store strategy through our three integrated retail
+formats: the concept store, the factory outlet store and the warehouse outlet store. Our three
+store formats enable us to promote the full Skechers product offering in an attractive environment
+that appeals to a broad group of consumers. In addition, most of our retail stores are profitable
+and have a positive effect on our operating results. As of February 15, 2010, we owned and operated
+90 concept stores, 92 factory outlet stores and 37 warehouse outlet stores in the United States,
+and 22 concept stores and five factory outlet stores internationally. During 2009, we opened 16
+domestic stores and four international stores, purchased ten stores from our distributor in Chile,
+contributed six stores to our joint ventures with operations in Malaysia and Thailand, and closed
+two domestic stores. We plan to open an additional 25 to 30 stores, including approximately seven
+international stores by the end of 2010.
+• 
+Concept Stores. 
+Our concept stores are located at either marquee street locations or in major shopping
+malls in large metropolitan cities. Our concept stores have a threefold purpose in our
+operating strategy. First, concept stores serve as a showcase for a wide range of our product
+offering for the current season, as we estimate that our average wholesale customer carries
+no more than 5% of the complete Skechers line in any one location. Our concept stores
+showcase our products in a cutting-edge, open-floor setting, providing the customer with the
+complete Skechers story. Second, retail locations are generally chosen to generate maximum
+marketing value for the Skechers brand name through signage, store front presentation and
+interior design. Domestic locations include concept stores at Times Square, Union Square and
+34th Street in New York, Powell Street in San Francisco, Hollywood and Highland in Hollywood,
+Santa Monica’s Third Street Promenade, Dallas’ Northpark Center, Las Vegas’ Fashion Show
+Mall, Seattle’s Bellevue Square Mall, and Woodfield Mall outside Chicago. International
+locations include Covent Garden and Oxford Street in London, Alstadt District in Dusseldorf,
+Toronto’s Eaton Centre,
+11 
+Table of Contents 
+Vancouver’s Richmond Centre, and Kalverstraat Street in Amsterdam.
+The stores are typically designed to create a
+distinctive Skechers look and feel, and enhance customer association of the Skechers
+brand name with current youthful lifestyle trends and styles. Third, the concept stores serve
+as marketing and product testing venues. We believe that product sell-through information and
+rapid customer feedback derived from our concept stores enables our design, sales,
+merchandising and production staff to respond to market changes and new product
+introductions. Such responses serve to augment sales and limit our inventory markdowns and
+customer returns and allowances. In 2009, we opened six domestic concept stores and two
+international concept stores, and we closed two domestic concept stores. We also purchased
+ten international concept stores from our distributor in Chile, including six in Santiago,
+Chile, and contributed six international concept stores to our joint ventures with operations
+in Malaysia and Thailand. 
+The typical Skechers concept store is approximately 2,500 square feet, although in
+certain markets we have opened concept stores as large as 7,800 square feet or as small as
+1,500 square feet. When deciding where to open concept stores, we identify top geographic
+markets in the larger metropolitan cities in the United States, Canada, Europe and Asia. When
+selecting a specific site, we evaluate the proposed sites’ traffic pattern, co-tenancies,
+sales volume of neighboring concept stores, lease economics and other factors considered
+important within the specific location. If we are considering opening a concept store in a
+shopping mall, our strategy is to obtain space as centrally located as possible in the mall
+where we expect foot traffic to be most concentrated. We believe that the strength of the
+Skechers brand name has enabled us to negotiate more favorable terms with shopping malls that
+want us to open up concept stores to attract customer traffic to their venues. 
+• 
+Factory Outlet Stores. 
+Our factory outlet stores are generally located in manufacturers’ direct outlet centers
+throughout the United States. In addition, we have five international outlet stores – two in
+Canada, two in England, and one in Scotland. Our factory outlet stores provide opportunities
+for us to sell discontinued and excess merchandise, thereby reducing the need to sell such
+merchandise to discounters at excessively low prices and potentially compromise the Skechers
+brand image. Skechers’ factory outlet stores range in size from approximately 1,900 to 9,000
+square feet. Inventory in these stores is supplemented by certain first-line styles sold at
+full retail price points. We opened ten domestic factory outlet stores and two international
+factory outlet stores in 2009.
+• 
+Warehouse Outlet Stores. 
+Our free-standing warehouse outlet stores, which are located throughout the United
+States, enable us to liquidate excess merchandise, discontinued lines and odd-size inventory
+in a cost-efficient manner. Skechers’ warehouse outlet stores range in size from
+approximately 5,200 to 13,500 square feet. Our warehouse outlet stores enable us to sell
+discontinued and excess merchandise that would otherwise typically be sold to discounters at
+excessively low prices, which could otherwise compromise the Skechers brand image. We seek to
+open our warehouse outlet stores in areas that are in close proximity to our concept stores
+to facilitate the timely transfer of inventory that we want to liquidate as soon as
+practicable. We did not open any new warehouse outlet stores in 2009.
+Electronic Commerce. Our websites, www.skechers.com , www.myshapeups.com and www.soholab.com 
+are virtual storefronts that promote the Skechers and Fashion and Street Division’s brands. Our
+websites are designed to provide a positive shopping and brand experience, showcasing our products
+in an easy-to-navigate format, allowing consumers to browse our selections and purchase our
+footwear. These virtual stores have provided a convenient alternative-shopping environment and
+brand experience. These websites are an efficient and effective additional retail distribution
+channel, and they have improved our customer service.
+LICENSING
+We believe that selective licensing of the Skechers brand name and our product line names to
+manufacturers may broaden and enhance the individual brands without requiring significant capital
+investments or additional incremental operating expenses. Our multiple product lines plus
+additional subcategories present many potential licensing opportunities on terms with licensees
+that we believe will provide more effective manufacturing, distribution or marketing of
+non-footwear products. We also believe that the reputation of Skechers and its history in launching
+brands has also enabled us to partner with reputable non-footwear brands to design and market their
+footwear.
+As of January 31, 2010, we had 15 active domestic and international licensing agreements in
+which we are the licensor. These include agreements for the recently launched Skechers Kids
+apparel, and soon to be launched Skechers Scrubs for health care
+12 
+Table of Contents 
+professionals and Skechers Eyewear. We have international licensing agreements for the design
+and distribution of men’s and women’s apparel in Germany, India, Israel, South Africa, and Korea;
+bags in Panama; and watches in the Philippines.
+Additionally, we have signed agreements to design, develop and market footwear for the street
+lifestyle apparel brands Ecko Unltd., Ecko Red, Red by Marc Ecko, and Zoo York under the Marc Ecko
+Enterprises umbrella.
+DISTRIBUTION FACILITIES AND OPERATIONS
+We believe that strong distribution support is a critical factor in our operations. Once
+manufactured, our products are packaged in shoe boxes bearing bar codes that are shipped either:
+(i) to our five distribution centers located in Ontario, California, which measure in aggregate
+approximately 1.7 million square-feet, (ii) to our approximately 490,000 square-foot distribution
+center located in Liege, Belgium or (iii) directly from third-party manufacturers to our other
+international customers and other international third-party distribution centers. Upon receipt at
+either of the distribution centers, merchandise is inspected and recorded in our management
+information system and packaged according to customers’ orders for delivery. Merchandise is shipped
+to customers by whatever means each customer requests, which is usually by common carrier. The
+distribution centers have multi-access docks, enabling us to receive and ship simultaneously, and
+to pack separate trailers for shipments to different customers at the same time. We have an
+electronic data interchange system, or EDI system, to which some of our larger customers are
+linked. This system allows these customers to automatically place orders with us, thereby
+eliminating the time involved in transmitting and inputting orders, and it includes direct billing
+and shipping information.
+In January 2010, we entered into a joint venture agreement to build a new 1.8 million square
+foot distribution facility in Moreno Valley, California, which we expect to occupy when completed
+in 2011. This single facility will replace the existing five facilities located in Ontario,
+California, of which four are on short-term leases and the fifth we own. We will lease the new
+distribution center from the joint venture for a base rent of $933,894 per month for 20 years.
+BACKLOG
+As of December 31, 2009, our backlog was $454.7 million, compared to $325.3 million as of
+December 31, 2008. Backlog orders are subject to cancellation by customers, as evidenced by the
+cancellations that we have experienced over the past two years due to the weakened U.S. economy.
+For a variety of reasons, including changes in the economy, customer demand for our products, the
+timing of shipments, product mix of customer orders, the amount of in-season orders and a shift
+towards tighter lead times within backlog levels, backlog may not be a reliable measure of future
+sales for any succeeding period.
+INTELLECTUAL PROPERTY RIGHTS
+We own and utilize a variety of trademarks, including the Skechers trademark. We have a
+significant number of both registrations and pending applications for our trademarks in the United
+States. In addition, we have trademark registrations and trademark applications in approximately 95
+foreign countries. We also have design patents and pending design and utility patent applications
+in both the United States and approximately 27 foreign countries. We continuously look to increase
+the number of our patents and trademarks both domestically and internationally where necessary to
+protect valuable intellectual property. We regard our trademarks and other intellectual property as
+valuable assets and believe that they have significant value in the marketing of our products. We
+vigorously protect our trademarks against infringement, including through the use of cease and
+desist letters, administrative proceedings and lawsuits.
+We rely on trademark, patent, copyright and trade secret protection, non-disclosure agreements
+and licensing arrangements to establish, protect and enforce intellectual property rights in our
+logos, tradenames and in the design of our products. In particular, we believe that our future
+success will largely depend on our ability to maintain and protect the Skechers trademark and other
+key trademarks. Despite our efforts to safeguard and maintain our intellectual property rights, we
+cannot be certain that we will be successful in this regard. Furthermore, we cannot be certain that
+our trademarks, products and promotional materials or other intellectual property rights do not or
+will not violate the intellectual property rights of others, that our intellectual property would
+be upheld if challenged, or that we would, in such an event, not be prevented from using our
+trademarks or other intellectual property rights. Such claims, if proven, could materially and
+adversely affect our business, financial condition and results of operations. In addition, although
+any such claims may ultimately prove to be without merit, the necessary management attention to and
+legal costs associated with litigation or other resolution of future claims concerning trademarks
+and other intellectual property rights could materially and adversely affect our business,
+financial condition and results of operations. We have sued and have been sued by third
+13 
+Table of Contents 
+parties for infringement of intellectual property. It is our opinion that none of these claims
+has materially impaired our ability to utilize our intellectual property rights.
+The laws of certain foreign countries do not protect intellectual property rights to the same
+extent or in the same manner as do the laws of the United States. Although we continue to implement
+protective measures and intend to defend our intellectual property rights vigorously, these efforts
+may not be successful or the costs associated with protecting our rights in certain jurisdictions
+may be prohibitive. From time to time we discover products in the marketplace that are counterfeit
+reproductions of our products or that otherwise infringe upon intellectual property rights held by
+us. Actions taken by us to establish and protect our trademarks and other intellectual property
+rights may not be adequate to prevent imitation of our products by others or to prevent others from
+seeking to block sales of our products as violating trademarks and intellectual property rights. If
+we are unsuccessful in challenging a third party’s products on the basis of infringement of our
+intellectual property rights, continued sales of such products by that or any other third party
+could adversely impact the Skechers brand, result in the shift of consumer preferences away from
+our products and generally have a material adverse effect on our business, financial condition and
+results of operations.
+COMPETITION
+Competition in the footwear industry is intense. Although we believe that we do not compete
+directly with any single company with respect to its entire range of products, our products compete
+with other branded products within their product category as well as with private label products
+sold by retailers, including some of our customers. Our utility footwear and casual shoes compete
+with footwear offered by companies such as The Timberland Company, Dr. Martens, Kenneth Cole
+Productions Inc., Steven Madden, Ltd., Wolverine World Wide, Inc., and V.F. Corporation. Our
+athletic lifestyle and performance shoes compete with footwear offered by companies such as Nike,
+Inc., adidas AG, Puma AG, New Balance Athletic Shoe, Inc. and K-Swiss Inc. The intense competition
+among these companies and the rapid changes in technology and consumer preferences in the markets
+for performance footwear, including the walking fitness category, constitute significant risk
+factors in our operations. Our children’s shoes compete with footwear offered by companies such as
+Collective Brands Inc. In varying degrees, depending on the product category involved, we compete
+on the basis of style, price, quality, comfort and brand name prestige and recognition, among other
+considerations. These and other competitors pose challenges to our market share in our major
+domestic markets and may make it more difficult to establish our products in Europe, Asia and other
+international regions. We also compete with numerous manufacturers, importers and distributors of
+footwear for the limited shelf space available for the display of such products to the consumer.
+Moreover, the general availability of contract manufacturing capacity allows ease of access by new
+market entrants. Many of our competitors are larger, have been in existence for a longer period of
+time, have achieved greater recognition for their brand names, have captured greater market share
+and/or have substantially greater financial, distribution, marketing and other resources than we
+do. We cannot be certain that we will be able to compete successfully against present or future
+competitors, or that competitive pressures will not have a material adverse effect on our business,
+financial condition and results of operations.
+EMPLOYEES
+As of January 31, 2010, we employed 4,698 persons, 2,160 of whom were employed on a full-time
+basis and 2,538 of whom were employed on a part-time basis. None of our employees is subject to a
+collective bargaining agreement. We believe that our relations with our employees are satisfactory.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2009/0000950123-10-021687/item13.txt b/raw/filings/0001065837/2009/0000950123-10-021687/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a459218f5c5d62c8b108ea129a93a51941ef3eb2
--- /dev/null
+++ b/raw/filings/0001065837/2009/0000950123-10-021687/item13.txt
@@ -0,0 +1,4 @@
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+The information required by this Item 13 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2009 fiscal year.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2009/0000950123-10-021687/item9a.txt b/raw/filings/0001065837/2009/0000950123-10-021687/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..73066c9b589b1fa171b524a393a798f738f4bfed
--- /dev/null
+++ b/raw/filings/0001065837/2009/0000950123-10-021687/item9a.txt
@@ -0,0 +1,68 @@
+ITEM 9A. CONTROLS AND PROCEDURES 
+Attached as exhibits to this annual report on Form 10-K are certifications of our Chief
+Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance
+with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This
+“Controls and Procedures” section includes information concerning the controls and controls
+evaluation referred to in the certifications.
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
+The term “disclosure controls and procedures” refers to the controls and other procedures of a
+company that are designed to provide reasonable assurance that information required to be disclosed
+by a company in the reports that it files or submits under the Exchange Act, is recorded,
+processed, summarized and reported within required time periods. We have established disclosure
+controls and procedures to ensure that material information relating to Skechers and its
+consolidated subsidiaries is made known to the officers who certify our financial reports, as well
+as other members of senior management and the Board of Directors, to allow timely decisions
+regarding required disclosures. As of the end of the period covered by this annual report on Form
+10-K, we carried out an evaluation under the supervision and with the participation of our
+management, including our CEO and CFO, of the effectiveness of the design and operation of our
+disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that
+evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective.
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
+Our management is responsible for establishing and maintaining adequate internal control over
+financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal
+control over financial reporting includes those policies and procedures that (i) pertain to the
+maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
+and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in accordance with generally accepted
+accounting principles, and that our receipts and expenditures are being made only in accordance
+with authorizations of our management and directors; and (iii) provide reasonable assurance
+regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
+assets that could have a material effect on our financial statements.
+We conducted an evaluation of the effectiveness of our internal control over financial
+reporting based on the framework in Internal Control – Integrated Framework issued by the Committee
+of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the
+framework in Internal Control- Integrated Framework, our management has concluded that as of
+December 31, 2009, our internal control over financial reporting is effective.
+Our independent registered public accountants, KPMG LLP, audited the consolidated financial
+statements included in this annual report on Form 10-K and have issued an attestation report on the
+effectiveness of our internal control over financial reporting as of December 31, 2009, which is
+included in Part II, Item 8 of this annual report on Form 10-K.
+INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
+Our management, including our Chief Executive Officer and Chief Financial Officer, does not
+expect that our disclosure controls and procedures or our internal control over financial reporting
+will prevent or detect all error and all fraud. A control system, no matter how well designed and
+operated, can provide only reasonable, not absolute, assurance that the control system’s objectives
+will be met. The design of a control system must reflect the fact that there are resource
+constraints, and the benefits of controls must be considered relative to their costs. Further,
+because of the inherent limitations in all control systems, no evaluation of controls can provide
+absolute assurance that misstatements due to error or fraud will not occur or that all control
+issues and instances of fraud, if any, within the company have been detected. These inherent
+limitations include the realities that judgments in decision-making can be faulty and that
+breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the
+individual acts of some persons,
+by collusion of two or more people, or by management override of the controls. The design of
+any system of controls is based in part on certain assumptions about the likelihood of future
+events, and there can be no assurance that any design will succeed in achieving
+60 
+Table of Contents 
+its stated goals
+under all potential future conditions. Projections of any evaluation of controls effectiveness to
+future periods are subject to risks. Over time, controls may become inadequate because of changes
+in conditions or deterioration in the degree of compliance with policies or procedures.
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
+There were no significant changes to our internal controls over financial reporting that have
+materially affected, or are reasonably likely to materially affect, our internal controls over
+financial reporting during the fourth quarter of 2009, and we have completed our efforts regarding
+compliance with Section 404 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2009.
+The results of our evaluation are discussed above in Management’s Report on Internal Control Over
+Financial Reporting.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2009/0000950123-10-021687/rp_note.txt b/raw/filings/0001065837/2009/0000950123-10-021687/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001065837/2009/0000950123-10-021687/rpt_disclosure.txt b/raw/filings/0001065837/2009/0000950123-10-021687/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..088e84c439a559503b8d7529240780dea2b87c52
--- /dev/null
+++ b/raw/filings/0001065837/2009/0000950123-10-021687/rpt_disclosure.txt
@@ -0,0 +1,313 @@
+entitled “ Transactions with Related Persons ” in
+this proxy statement for a description of transactions between
+the Greenberg Family Trust, of which Robert Greenberg is a
+trustee, Michael Greenberg and our company. To our knowledge,
+unless otherwise indicated in the footnotes to this table and
+subject to applicable community property laws, each person named
+in the table has sole voting and investment power with respect
+to the shares of Class A and Class B Common Stock set
+forth opposite such person’s name. Unless otherwise
+indicated in the footnotes below, the address of each beneficial
+owner listed below is
+c/o Skechers 
+U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach,
+California 90266.
+Number of 
+Percentage of 
+Number of 
+Percentage of 
+Class A Shares 
+Class A Shares 
+Class B Shares 
+Class B Shares 
+Name of Beneficial Owner 
+Beneficially Owned 
+Beneficially Owned 
+Beneficially Owned 
+Beneficially Owned 
+5%
+stockholders: (1) 
+FMR LLC
+6,262,400
+(2) 
+16.7
+%
+—
+—
+BlackRock, Inc. 
+2,412,216
+(3) 
+6.4
+Gil Schwartzberg
+5,000,000
+(4) 
+11.8
+5,000,000
+(5) 
+41.1
+%
+Named Executive Officers and directors: 
+Robert Greenberg
+4,488,667
+(6) 
+10.7
+4,479,436
+(7) 
+36.9
+Michael Greenberg
+1,019,303
+(8) 
+2.7
+640,341
+(9) 
+5.3
+Jeffrey Greenberg
+960,198
+(10) 
+2.4
+624,834
+(11) 
+5.1
+David Weinberg
+330,994
+(12) 
+*
+—
+—
+Mark Nason
+129,099
+(13) 
+*
+—
+—
+Frederick Schneider
+86,526
+(14) 
+*
+—
+—
+Philip Paccione
+75,475
+*
+—
+—
+Morton Erlich
+21,000
+(15) 
+*
+—
+—
+Geyer Kosinski
+12,000
+*
+—
+—
+Richard Siskind
+61,333
+(16) 
+*
+—
+—
+All current directors and executive officers as a group
+(10 persons)
+7,173,069
+(17) 
+16.5
+%
+5,744,611
+47.3
+%
+* 
+Less than 1.0%
+(1)
+S.A.C. Capital Advisors, L.P.,
+S.A.C. Capital Advisors, Inc. and Steven A. Cohen jointly filed
+a Schedule 13G with the SEC on February 12, 2010,
+which disclosed the number of shares beneficially owned as of
+February 11, 2010 when these stockholders beneficially
+owned greater than 5% of our Class A Common Stock. However,
+based on the number of outstanding shares of our Class A
+Common Stock on April 7, 2010, each of these stockholders
+then beneficially owned less than 5% of our Class A Common
+Stock and therefore was excluded from this table.
+(2)
+Information is based on a
+Schedule 13G filed with the SEC on January 11, 2010
+and represents the number of shares beneficially owned as of
+December 31, 2009. The principal business office of FMR LLC
+(“FMR”) and its subsidiary and related funds as set
+forth below are located at 82 Devonshire Street, Boston,
+Massachusetts 02109. FMR filed as a parent holding company.
+Fidelity Management & Research Company
+(“Fidelity”), a wholly-owned subsidiary of FMR and an
+investment adviser registered under the Investment Advisers Act
+of 1940, beneficially owns 6,262,400 shares of Class A
+Common Stock. Various persons are reported to have the right to
+receive or the power to direct the receipt of dividends from, or
+the proceeds from the sale of, the Class A Common Stock.
+The interest of one person, Fidelity Growth Company Fund, an
+investment company registered under the Investment Company Act
+of 1940, amounted to 2,005,000 shares of Class A
+Common Stock. The interest of one person, Fidelity Low Priced
+Stock Fund, an investment company registered under the
+23
+Table of Contents 
+Investment Company Act of 1940,
+amounted to 3,250,000 shares of Class A Common Stock.
+Edward C. Johnson 3d, Chairman of FMR, and FMR, through its
+control of Fidelity, and Fidelity’s funds each has sole
+power to dispose of the 6,262,400 shares owned by such
+funds. Neither FMR nor Mr. Johnson has the sole power to
+vote or direct the voting of the shares owned directly by
+Fidelity’s funds, which power resides with the funds’
+Boards of Trustees. Fidelity carries out the voting of the
+shares under written guidelines established by the
+funds’ Boards of Trustees.
+(3)
+Information is based on a
+Schedule 13G filed with the SEC on January 29, 2010
+and represents the number of shares beneficially owned as of
+December 31, 2009. BlackRock, Inc. has sole voting power
+and sole dispositive power with respect to
+2,412,216 shares. The principal business office of
+BlackRock, Inc. is located at 40 East 52nd Street, New York,
+New York 10022.
+(4)
+Represents 5,000,000 shares of
+Class B Common Stock that are convertible at any time into
+shares of Class A Common Stock on a
+one-for-one 
+basis. Beneficial ownership of these shares is described in
+greater detail in note 5 below.
+(5)
+Represents 2,500,000 shares of
+Class B Common Stock held by the Robert Y. Greenberg 2009
+Annuity Trust and 2,500,000 shares of Class B Common
+Stock held by the M. Susan Greenberg 2009 Annuity Trust. Gil
+Schwartzberg may be deemed to beneficially own these shares as
+sole trustee of the trusts, and Mr. Schwartzberg has sole
+voting power and sole dispositive power with respect to the
+shares held by these trusts. Mr. Schwartzberg disclaims
+beneficial ownership of any of these shares except to the extent
+of his pecuniary interest therein. The principal business office
+of Mr. Schwartzberg is located at 269 S. Beverly
+Drive, Suite 1315, Beverly Hills, California 90212.
+(6)
+Includes 4,479,436 shares of
+Class B Common Stock that are convertible at any time into
+shares of Class A Common Stock on a
+one-for-one 
+basis. Beneficial ownership of these shares is described in
+greater detail in note 7 below.
+(7)
+Represents 4,479,436 shares of
+Class B Common Stock held by the Greenberg Family Trust
+(the “Trust”) that Robert Greenberg, our Chief
+Executive Officer and Chairman of the Board, is deemed to
+beneficially own as a trustee of the Trust. His wife, Susan
+Greenberg, is also a trustee of the Trust and is also deemed to
+beneficially own all shares held by the Trust.
+(8)
+Includes 640,341 shares of
+Class B Common Stock that are convertible at any time into
+shares of Class A Common Stock on a
+one-for-one 
+basis, 16,695 shares of Class A Common Stock
+underlying options that are exercisable currently or within
+60 days of April 7, 2010 and 46,542 shares of
+Class A Common Stock beneficially owned by Michael
+Greenberg, our President and a member of our Board of Directors,
+indirectly through his wife, Wendy Greenberg, and their
+children. Mr. Greenberg disclaims beneficial ownership of
+these 46,542 shares except to the extent of his pecuniary
+interest therein. Beneficial ownership of the
+640,341 shares of Class B Common Stock is described in
+greater detail in note 9 below.
+(9)
+Represents 589,041 shares of
+Class B Common Stock held by the Michael and Wendy
+Greenberg Family Trust that Michael Greenberg is deemed to
+beneficially own as trustee of such trust, and
+51,300 shares of Class B Common Stock held in various
+trust accounts for Mr. Greenberg’s minor children and
+of which a third party acts as trustee. Mr. Greenberg
+disclaims beneficial ownership of these 51,300 shares
+except to the extent of his pecuniary interest therein.
+(10)
+Includes 624,834 shares of
+Class B Common Stock that are convertible at any time into
+shares of Class A Common Stock on a
+one-for-one 
+basis, and 7,964 shares of Class A Common Stock held
+by the Chloe July Greenberg 2004 Trust and 7,964 shares of
+Class A Common Stock held by the Catherine Elle Greenberg 2006
+Trust that Mr. Greenberg is deemed to beneficially own as
+trustee of such trusts. Beneficial ownership of the
+624,834 shares of Class B Common Stock is described in
+greater detail in note 11 below.
+(11)
+Represents 538,214 shares of
+Class B Common Stock held by the Jeffrey and Lori Greenberg
+Family Trust that Jeffrey Greenberg, a member of our Board of
+Directors, is deemed to beneficially own as trustee of such
+trust. Also represents 68,336 shares of Class B Common
+Stock held in various trust accounts for
+Mr. Greenberg’s two daughters who are minors and of
+which Mr. Greenberg is deemed to beneficially own as
+trustee of such trusts, and 10,792 shares of Class B
+Common Stock held by the Chloe July Greenberg custodial account
+and 7,492 shares of Class B Common Stock held by the
+Catherine Elle Greenberg custodial account, for which one of his
+siblings acts as custodian. These custodial accounts are for the
+benefit of Mr. Greenberg’s two daughters who are
+minors, and he disclaims beneficial ownership of the
+18,284 shares held in the two custodial accounts except to
+the extent of his pecuniary interest therein.
+(12)
+Includes 109,541 shares of
+Class A Common Stock that David Weinberg, our Chief
+Operating Officer, Chief Financial Officer, Executive Vice
+President and a member of our Board of Directors, is deemed to
+beneficially own as sole trustee of The David Weinberg Trust
+dated September 7, 2000, and 96,453 shares of
+Class A Common Stock underlying options that are
+exercisable currently or within 60 days of April 7,
+2010.
+(13)
+Includes 53,248 shares of
+Class A Common Stock underlying options that are
+exercisable currently or within 60 days of April 7,
+2010.
+(14)
+Includes 50,000 shares of
+Class A Common Stock underlying options that are
+exercisable currently or within 60 days of April 7,
+2010, 15,000 shares held by the Schneider Limited
+Partnership that Frederick Schneider, our former Chief Financial
+Officer, is deemed to beneficially own as its general partner
+and 16,562 shares held by The Schneider CA Partnership that
+Mr. Schneider is deemed to beneficially own as its general
+partner.
+(15)
+Includes 9,000 shares of
+Class A Common Stock held by The Erlich Family Trust that
+Morton D. Erlich, a member of our Board of Directors, is deemed
+to beneficially own as a trustee of such trust.
+(16)
+Includes 35,000 shares of
+Class A Common Stock underlying options that are
+exercisable currently or within 60 days of April 7,
+2010.
+(17)
+Includes 201,396 shares of
+Class A Common Stock underlying options that are
+exercisable currently or within 60 days of April 7,
+2010 by our executive officers and Board of Directors. The group
+of 10 current directors and executive officers excludes
+Frederick Schneider, who resigned as our Chief Financial Officer
+in September 2009, and includes Leonard Armato, who was hired as
+our Chief Marketing Officer and President, Fitness Group in
+March 2010.
+24
+Table of Contents 
+COMPLIANCE
\ No newline at end of file
diff --git a/raw/filings/0001065837/2010/0000950123-11-020586/filing.txt b/raw/filings/0001065837/2010/0000950123-11-020586/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9db6be0b0566c45e77de938432ed0df5b31adaba
--- /dev/null
+++ b/raw/filings/0001065837/2010/0000950123-11-020586/filing.txt
@@ -0,0 +1,5830 @@
+10-K
+1
+v58766e10vk.htm
+FORM 10-K
+e10vk 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+WASHINGTON, D.C. 20549 
+FORM 10-K 
+(Mark One)
+þ 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31, 2010 
+OR 
+o 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 
+For the transition period from to 
+Commission File Number 001-14429 
+SKECHERS U.S.A., INC. 
+(Exact Name of Registrant as Specified in Its Charter) 
+Delaware 
+95-4376145 
+(State or Other Jurisdiction of Incorporation or Organization) 
+(I.R.S. Employer Identification No.) 
+228 Manhattan Beach Blvd., Manhattan Beach, California 
+90266 
+(Address of Principal Executive Offices) 
+(Zip Code) 
+Registrant’s telephone number, including area code: (310) 318-3100 
+Securities registered pursuant to Section 12(b) of the Act: 
+Title of Each Class 
+Name of Each Exchange on 
+Which Registered 
+Class A Common Stock, $0.001 par value
+New York Stock Exchange 
+Securities registered pursuant to Section 12(g) of the Act: 
+None
+(Title of Class) 
+Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of
+the Securities Act. Yes þ No o 
+Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or
+Section 15(d) of the Act. Yes o No þ 
+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 þ No o 
+Indicate by check mark whether the registrant has submitted electronically and posted on its
+corporate Website, 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 o No o 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
+S-K(§229.405) is not contained herein, and will not be contained, to the best of registrant’s
+knowledge, in definitive proxy or information statements incorporated by reference in Part III of
+this Form 10-K or any amendment to this Form 10-K. o 
+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.
+Large accelerated filer þ 
+Accelerated filer o 
+Non-accelerated filer o 
+Smaller reporting company o 
+(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 o No þ 
+As of June 30, 2010, the aggregate market value of the voting and non-voting Class A and Class B
+Common Stock held by non-affiliates of the Registrant was approximately $1.322 billion based upon
+the closing price of $36.52 of the Class A Common Stock on the New York Stock Exchange on such
+date.
+The number of shares of Class A Common Stock outstanding as of February 15, 2011: 36,904,543. 
+The number of shares of Class B Common Stock outstanding as of February 15, 2011: 11,310,610.
+DOCUMENTS INCORPORATED BY REFERENCE 
+Portions of the Registrant’s Definitive Proxy Statement issued in connection with the 2011 Annual
+Meeting of the Stockholders of the Registrant are incorporated by reference into Part III.
+SKECHERS U.S.A., INC. 
+TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K 
+FOR THE YEAR ENDED DECEMBER 31, 2010 
+PART I 
+ITEM 1. BUSINESS 
+2 
+ITEM 1A. RISK FACTORS 
+16 
+ITEM 1B. UNRESOLVED STAFF COMMENTS 
+24 
+ITEM 2. PROPERTIES 
+24 
+ITEM 3. LEGAL PROCEEDINGS 
+24 
+ITEM 4. RESERVED 
+26 
+PART II 
+ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
+PURCHASES OF EQUITY SECURITIES 
+26 
+ITEM 6. SELECTED FINANCIAL DATA 
+29 
+ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
+30 
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+40 
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+41 
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
+62 
+ITEM 9A. CONTROLS AND PROCEDURES 
+62 
+ITEM 9B. OTHER INFORMATION 
+64 
+PART III 
+ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 
+65 
+ITEM 11. EXECUTIVE COMPENSATION 
+65 
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 
+65 
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+65 
+ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 
+65 
+PART IV 
+ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 
+65 
+EX-10.15.E 
+EX-10.17(c) 
+EX-21.1 
+EX-23.1 
+EX-31.1 
+EX-31.2 
+EX-32.1 
+i 
+Table of Contents 
+SPECIAL NOTE ON FORWARD LOOKING STATEMENTS 
+This annual report on Form 10-K contains forward-looking statements that are made pursuant to
+the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including
+statements with regards to future revenue, projected 2011 results, earnings, spending, margins,
+cash flow, orders, expected timing of shipment of products, inventory levels, future growth or
+success in specific countries, categories or market sectors, continued or expected distribution to
+specific retailers, liquidity, capital resources and market risk, strategies and objectives.
+Forward-looking statements include, without limitation, any statement that may predict, forecast,
+indicate or simply state future results, performance or achievements, and can be identified by the
+use of forward looking language such as “believe,” “anticipate,” “expect,” “estimate,” “intend,”
+“plan,” “project,” “will be,” “will continue,” “will result,” “could,” “may,” “might,” or any
+variations of such words with similar meanings. These forward-looking statements involve risks and
+uncertainties that could cause actual results to differ materially from those projected in
+forward-looking statements, and reported results shall not be considered an indication of our
+company’s future performance. Factors that might cause or contribute to such differences include:
+• 
+international, national and local general economic, political and market conditions
+including the ongoing global economic slowdown and market instability; 
+• 
+entry into the highly competitive performance footwear market; 
+• 
+sustaining, managing and forecasting our costs and proper inventory levels; 
+• 
+losing any significant customers, decreased demand by industry retailers and
+cancellation of order commitments due to the lack of popularity of particular designs
+and/or categories of our products; 
+• 
+maintaining our brand image and intense competition among sellers of footwear for
+consumers; 
+• 
+anticipating, identifying, interpreting or forecasting changes in fashion trends,
+consumer demand for the products and the various market factors described above; and 
+• 
+sales levels during the spring, back-to-school and holiday selling seasons. 
+The risks included here are not exhaustive. Other sections of this report may include
+additional factors that could adversely impact our business, financial condition and results of
+operations. Moreover, we operate in a very competitive and rapidly changing environment. New
+risks emerge from time to time and we cannot predict all such risk factors, nor can we assess the
+impact of all such risk factors on the 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, you should not place undue
+reliance on forward-looking statements as a prediction of actual results. Investors should also be
+aware that while we do, from time to time, communicate with securities analysts, we do not disclose
+any material non-public information or other confidential commercial information to them.
+Accordingly, individuals should not assume that we agree with any statement or report issued by any
+analyst, regardless of the content of the report. Thus, to the extent that reports issued by
+securities analysts contain any projections, forecasts or opinions, such reports are not our
+responsibility.
+1 
+Table of Contents 
+PART I 
+ITEM 1. 
+BUSINESS 
+We were incorporated in California in 1992 and reincorporated in Delaware in 1999. Throughout
+this annual report, we refer to Skechers U.S.A., Inc., a Delaware corporation, and its consolidated
+subsidiaries as “we,” “us,” “our,” “our company” and “Skechers” unless otherwise indicated. Our
+Internet website address is www.skechers.com . Our annual report on Form 10-K, quarterly reports on
+Form 10-Q, current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of directors,
+officers and 10% stockholders, and any amendments to those reports filed or furnished pursuant to
+Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our
+website as soon as reasonably practicable after we electronically file such material with, or
+furnish it to, the U.S. Securities and Exchange Commission (“SEC”). You can learn more about us by
+reviewing such filings on our website or at the SEC’s website at www.sec.gov .
+GENERAL
+We design and market Skechers-branded lifestyle and athletic footwear for men, women and
+children under several unique lines. Our footwear reflects a combination of style, quality and
+value that appeals to a broad range of consumers. In addition to Skechers-branded lines, we also
+offer several uniquely branded fashion and street-focused footwear lines for men, women and
+children. These lines are branded and marketed separately from Skechers and appeal to specific
+audiences. Our brands are sold through department and specialty stores, athletic and independent
+retailers, and boutiques as well as catalog and Internet retailers. Along with wholesale
+distribution, our footwear is available at our e-commerce websites and our own retail stores. As of
+February 15 th , 2011 we operated 105 concept stores, 99 factory outlet stores and 40
+warehouse outlet stores in the United States, and 28 concept stores and 16 factory outlets
+internationally. Our objective is to profitably grow our operations worldwide while leveraging our
+recognizable Skechers brand through our strong product lines, innovative advertising and
+diversified distribution channels.
+We seek to offer consumers a vast array of fashionable footwear that satisfies their active,
+casual, dress casual and athletic; footwear needs. Our core consumers are style-conscious men and
+women attracted to our youthful brand image and fashion-forward designs. Many of our best-selling
+and core styles are also developed for children with colors and materials that reflect a playful
+image appropriate for this demographic.
+We believe that brand recognition is an important element for success in the footwear
+business. We have aggressively promoted our brands through comprehensive marketing campaigns for
+men, women and children. During 2010, our Skechers brand was supported by print, television and
+outdoor campaigns for men and women; animated kids’ television campaigns featuring our own action
+heroes and characters; and print, television and outdoor campaigns featuring our Shape-ups
+endorsees. These endorsees included celebrities and reality stars Kim Kardashian and Kris Jenner,
+Hall of Fame quarterback Joe Montana, television personality Brooke Burke, fitness expert Denise
+Austin, and Hall of Fame basketball player Karl Malone. Our Marc Ecko and Zoo York footwear lines
+are also supported by advertising campaigns developed by Marc Ecko.
+Since we introduced our first line, Skechers USA Sport Utility Footwear, in December 1992, we
+have expanded our product offering and grown our net sales while substantially increasing the
+breadth and penetration of our account base. Our men’s, women’s and children’s Skechers-branded
+product lines benefit from the Skechers reputation for contemporary and progressive styling,
+quality, comfort and affordability. Our lines that are not branded with the Skechers name benefit
+from our marketing support, quality management and expertise. To promote innovation and brand
+relevance, we manage our product lines separately by utilizing dedicated sales and design teams.
+Our product lines share back office services in order to limit our operating expenses and fully
+utilize our management’s vast experience in the footwear industry.
+SKECHERS LINES
+Skechers offers multiple branded product lines for men, women and children as well as other
+products sold under established names not associated with Skechers. Within these various product
+lines, we also have numerous categories, some of which have developed into well-known names. Most
+of these categories are marketed and packaged with unique shoe boxes, hangtags and in-store
+support. Management evaluates segment performance based primarily on net sales and gross margins;
+however, sales and costs are not allocated to specific product lines.
+2 
+Table of Contents 
+Skechers USA. Our Skechers USA category for men and women includes: (i) Casuals, (ii) Dress
+Casuals, (iii) Relaxed Fit (for men only), (iv) Sandals, (v) Casual Fusion and (vi) Benefitting
+Others By Shoes (“BOBS”). This category is generally sold through mid-tier retailers, department
+stores and some footwear specialty shops.
+• 
+The Casuals line for men and women is defined by lugged outsoles and utilizes
+value-oriented and leather materials in the uppers. For men, the Casuals category includes
+“black and brown” boots, shoes and sandals that generally have a rugged urban design — some
+with industrial-inspired fashion features. For women, the Casuals category includes basic
+“black and brown” oxfords and slip-ons, lug outsole and fashion boots, and casual sandals.
+We design and price both the men’s and women’s categories to appeal primarily to younger
+consumers with broad acceptance across age groups. 
+• 
+The Dress Casuals category for men is comprised of basic “black and brown” men’s
+shoes that feature shiny leathers and dress details, but may utilize traditional or lugged
+outsoles as well as value-oriented materials. The Dress Casual line for women is comprised
+of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or
+faux fur lining or trim, and water-resistant materials. 
+• 
+Skechers Relaxed Fit is a line of trend-right casuals for men who want all-day
+comfort without compromising style. Characteristics of the line include comfortable
+outsoles, cushioned insoles and quality leather uppers. A category with unique features, we
+market and package Skechers Relaxed Fit styles in a shoe box that is distinct from that of
+other categories in the Skechers USA line of footwear. 
+• 
+Our Sandals collection for men and women is designed with many of our existing and
+proven outsoles for our Casuals, Dress Casuals and Casual Fusion lines, stylized with basic
+or core uppers as well as fresh looks. These styles are generally made with quality leather
+uppers, but may also be in canvas or fabric. 
+• 
+Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals
+targeted to trend-conscious young men and women. The outsoles are primarily rubber and
+adopted from our men’s Sport and women’s Active lines. This collection features leather or
+nubuck uppers, but may also include mesh. 
+• 
+Our BOBS footwear is an alpagarta-inspired footwear line created to help millions of
+children worldwide. For every pair of BOBS shoes sold, Skechers donates two pairs of BOBS
+shoes to boys and girls in need through the Soles4Souls organization, which is an
+international shoe charity that distributes footwear to children and families around the
+world. Made with a canvas upper, BOBS’ versatile, classic designs are available at
+department, specialty shoe stores and online retailers. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes: (i) Joggers, Trail
+Runners, Sport Hikers, Terrainers, (ii) Performance, (iii) Skechers D’Lites (for women only), (iv)
+Revv Air, and (v) Sport Sandals. Our Skechers Sport category is distinguished by its technical
+performance-inspired looks; however, we generally do not promote the technical performance features
+of these shoes. Skechers Sport is typically sold through specialty shoe stores, department stores
+and athletic footwear retailers.
+• 
+Our Jogger, Trail Runner, Sport Hiker and cross trainer-inspired Terrainer designs
+are lightweight constructions that include cushioned heels, polyurethane midsoles, phylon
+and other synthetic outsoles, as well as leather or synthetic uppers such as durabuck,
+cordura and nylon mesh. Careful attention is devoted to the design, pattern and construction
+of the outsoles, which vary greatly depending on the intended use. This category features
+earth tones and athletic-inspired hues with contrasting pop colors such as lime green,
+orange and red in addition to traditional athletic white. 
+• 
+The Performance category is comprised of multi-purpose running shoes that are
+marketed as men’s lifestyle athletic footwear. Some styles include 3M reflective accents,
+breathable upper construction, quality leathers, abrasion-resistant toe and heel cap,
+removable moisture wicking molded ethyl vinyl acetate (“EVA”) sock liner, outsole forefoot
+flex grooves for improved flexibility, non-marking rubber lugs with impact dispersment
+technology (“IDT”), aggressive all terrain traction lugs, external torsion stabilizer and
+tuned dual-density molded EVA midsole with pronation control. 
+• 
+Skechers D’Lites are ultra lightweight women’s sneakers that feature sturdy, sculpted
+midsoles for all-day comfort, durable rubber treads for improved traction and a sole design
+that provides superior flexibility and cushioning. The uppers are designed in leather,
+suede, nubuck and mesh. 
+3 
+Table of Contents 
+• 
+Revv Air is an ultra-lightweight sport trainer for women featuring a ventilated
+upper, air-injected midsole and flex-groove, high-grip outsole for optimum ventilation,
+flexibility and comfort. Designed as a versatile, trend-right athletic suitable for all-day
+wear, the line features leather and trubuck uppers and distinct color accents. 
+• 
+Our Sport Sandals are primarily designed from existing Skechers Sport outsoles and
+may include many of the same sport features as our sneakers with the addition of new
+technologies geared toward making a comfortable sport sandal. Sport sandals are designed as
+seasonal footwear for the consumer who already wears our Skechers Sport sneakers. 
+Skechers Active. A natural companion to Skechers Sport, Skechers Active has grown from a
+casual everyday line into a complete line of fusion and sport fusion sneakers for females of all
+ages. The Active line now includes low-profile, wedge and sporty styles. The line, with lace-up,
+Mary Janes, sandals and open back styles, is available in a multitude of colors as well as solid
+white or black, in fabrics, leathers and meshes, and with various closures — traditional laces,
+zig-zag and cross straps, among others. Active sneakers are typically retailed through specialty
+casual shoe stores and department stores.
+Skechers Kids. The Skechers Kids line includes: (i) Skechers Kids, which is a range of
+infants’, toddlers’, boys’ and girls’ boots, shoes and sneakers, (ii) S-Lights, Hot Lights by
+Skechers and Luminators by Skechers, (iii) Skechers Cali for Girls, which is trend-inspired boots,
+shoes, sandals and dress sneakers, (iv) Airators by Skechers, (v) Skechers Super Z-Strap, (vi)
+Skechers Bungees, (vii) HyDee HyTop from Skechers, (viii) Twinkle Toes by Skechers, (ix) Pretty
+Tall by Skechers, (x) Sporty Shorty by Skechers, (xi) Shape-ups for Kids (girls only), and (xii)
+Babiez by Skechers. Skechers Kids and Skechers Cali for Girls are comprised primarily of shoes that
+are designed as “takedowns” of their adult counterparts, allowing the younger set the opportunity
+to wear the same popular styles as their older siblings and schoolmates. This “takedown” strategy
+maintains the product’s integrity by offering premium leathers, hardware and outsoles without the
+attendant costs involved in designing and developing new products. In addition, we adapt current
+fashions from our men’s and women’s lines by modifying designs and choosing colors and materials
+that are more suitable for the playful image that we have established in the children’s footwear
+market. Each Skechers Kids line is marketed and packaged separately with a distinct shoe box.
+Skechers Kids shoes are available at department stores and specialty and athletic retailers.
+• 
+The Skechers Kids line includes embellishments or adornments such as fresh colors and
+fabrics from our Skechers adult shoes. Some of these styles are also adapted for toddlers
+with softer, more pliable outsoles and for infants with soft, leather-sole crib shoes. 
+• 
+S-Lights and Hot Lights by Skechers are lighted sneakers and sandals for boys and girls.
+The S-Lights combine patterns of lights on the outsoles and sides of the shoes while Hot
+Lights feature lights on the front of the toe to simulate headlights as well as on other
+areas of the shoes. New to the offering with lights, Luminators by Skechers feature glowing
+green lights and a marketing campaign with the Luminator character. 
+• 
+Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young women
+designed to typify the California lifestyle. The sneakers are designed primarily with canvas
+uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and
+flats are designed with many of the same upper materials and outsoles as the sneakers. 
+• 
+Airators by Skechers is a line of boys sneakers with a foot-cooling system designed to
+pump air from the heel through to the toes. The line is marketed with the character Kewl
+Breeze. 
+• 
+Skechers Super Z-Strap is a line of athletic styled sneakers with a unique “z” shaped
+closure system for easy closure. The line is marketed with the character Z-Strap. 
+• 
+Skechers Bungees is a line of girls’ sneakers with bungee closures. The line is marketed
+with the character Elastika. 
+• 
+HyDee HyTop from Skechers is a line of colorful high-top sneakers for young girls. The
+line is marketed with the character HyDee HyTop. 
+• 
+Twinkle Toes by Skechers is a new line of girls’ sneakers and boots that feature
+bejeweled toe caps and brightly designed uppers. The line is marketed with the character
+Twinkle Toes. 
+• 
+Pretty Tall by Skechers is a line of girls’ sneakers with a hidden wedge. The line is
+marketed with the character Pretty Tall. 
+4 
+Table of Contents 
+• 
+Sporty Shorty by Skechers is a new line of athletic-inspired sneakers for girls who like
+to wear sport-style footwear off the field. The line is marketed with the character Sporty
+Shorty. 
+• 
+Shape-ups for Kids is a new line of footwear that uses our patented Shape-ups technology
+in styles and sizes for girls. The footwear is being marketed as a fun way to stay fit, and
+does not focus on the benefits of Shape-ups. 
+• 
+Babiez by Skechers is a line of crib shoes for infants. The uppers and outsoles are
+designed in leather and are extremely flexible for newborn feet. 
+Shape-ups by Skechers. Shape-ups are stylish and comfortable toning footwear for men and women
+who want to incorporate more fitness into their daily lives. Ideal for walking around town, work or
+home, Shape-ups feature a unique Resamax™ kinetic wedge and rocker bottom designed to give the
+sensation and benefits of walking on soft sand. When worn regularly for walking and exercising, we
+believe that Shape-ups may help tone muscles, improve posture, and reduce joint stress. The
+Shape-ups lines include: (i) Original for women, (ii) XF for women and XT for men, (iii) SRT for
+men and women, (iv) AT for men and women, (v) Healthy Living for women, (vi) XW, (vii) S2-Lite for
+women, (viii) Shape-ups Toners for women, and (ix) Shape-ups for Work for men and women. Shape-ups
+are available at athletic footwear retailers, department stores and specialty shoe stores.
+• 
+Shape-ups Originals offer the most benefits with a higher kinetic wedge. 
+• 
+Shape-ups XF (Extended Fitness) for women and XT (Extended Training) for men feature the
+same Shape-ups technology in a lower profile for all-day wear. 
+• 
+SRT (Shape-ups Radius Trainer) is designed to be worn in the gym or while exercising to
+maximize the wearer’s workout. The shoe features an Advanced Stabilization Insole and Roll
+Bridge™ for improved stability and support during high-intensity activities. 
+• 
+Shape-ups AT (All-Terrain) features the Shape-ups technology with an Advanced
+Stabilization Insole and Motion Control Cage™ for enhanced stabilization and protection on
+rugged surfaces. The line is marketed to those wanting the benefits of Shape-ups while
+hiking on trails. 
+• 
+Healthy Living offers women Shape-ups technology in a dress casual profile ideal for the
+office and all-day wear — and is crafted with high-quality leather uppers and soft linings
+and insoles. 
+• 
+Like XT and XF, Shape-ups XW (Extended Wear) features a lower profile kinetic wedge
+outsole, but with casual uppers. The style is marketed as a comfortable alternative to
+traditional black and brown shoes. 
+• 
+S2 Lite offers Shape-ups technology in an ultra-lightweight design, and features a unique
+support system for improved medial and lateral stability. 
+• 
+Shape-ups Toners is inspired by core-strengthening activities like yoga balls, balance
+disks and foam rolls, and features convex-shaped Resamax™ Kinetic Toning Pods™ that create a
+bi-axial instability that may activate muscles. 
+• 
+Shape-ups for Work is a collection of primarily slip-resistant footwear with Shape-ups
+patented technology. These shoes are marketed for their comfort as well as relief of joint
+stress and postural benefits for service and occupational industry professionals. 
+Tone-ups by Skechers and Tone-ups Fitness. Targeting 18- to 34-year old fitness and trend
+conscious women, Tone-ups by Skechers are casual and athletic-inspired sandals that feature a
+gradual density midsole designed for comfort and support. Tone-ups uppers range from leather to
+microfiber suede, mitobuck and nylon webbing. The offering is available in department stores and
+casual shoe retailers.
+New in the Tone-ups collection is Tone-ups Fitness footwear. Primarily targeting the same
+consumer as Tone-ups, Tone-ups Fitness is a collection of stylish sneakers primarily with a padded
+bottom featuring Resalyte technology. While the packaging highlights the benefits of this toning
+footwear, the marketing positions the brand as stylish toning footwear.
+5 
+Table of Contents 
+Skechers Resistance Runner. Marketed as an “intelligent” technical shoe for serious runners,
+The Skechers Resistance Runner (or “SRR”) is designed with Shape-ups’ innovative Resamax™ kinetic
+wedge technology to absorb more energy and achieve higher levels of fitness in shorter periods,
+while its intuitive profile helps return athletes’ strides to a more natural state — reducing
+injuries and enhancing comfort and performance. Designed with patent and man-made leather uppers
+for men and women, SRR shoes are available at athletic footwear retailers, department stores and
+specialty shoe stores.
+Skechers Work. Expanding on our heritage of cutting-edge utility footwear, Skechers Work
+offers a complete line of men’s and women’s casuals, field boots, hikers and athletic shoes. The
+Skechers Work line includes athletic-inspired, casual safety toe, and non-slip safety toe
+categories that may feature lightweight aluminum safety toe, electrical hazard, and slip-resistant
+technologies, as well as breathable, seam-sealed waterproof membranes. Designed for men and women
+with jobs that require certain safety requirements, these durable styles are constructed on
+high-abrasion, long wearing soles, and feature breathable lining, oil and abrasion resistant
+outsoles offering all-day comfort and prolonged durability. The Skechers Work line incorporates
+design elements from the other Skechers mens and womens line. The uppers are comprised of
+high-quality leather, nubuck, trubuck and durabuck. Our safety toe athletic sneakers, boots,
+hikers, and casuals are ideal for environments requiring safety footwear and offer comfort and
+safety in dry or wet conditions. Our slip-resistant boots, hikers, athletics, casuals and clogs
+are ideal for the service industry. Our safety toe products have been independently tested and
+certified to meet ASTM standards, and our slip-resistant soles have been tested pursuant to the
+Mark II testing method for slip resistance. Skechers Work is typically sold through department
+stores, athletic footwear retailers and specialty shoe stores, as well as marketed directly to
+consumers through business-to-business channels.
+FASHION AND STREET BRANDS
+The Fashion and Street Division and its brands are marketed and packaged separately from Skechers.
+Unltd. by Marc Ecko. Unltd. by Marc Ecko is a line of men’s street-inspired traditional
+sneakers, fusion sneakers and urban-focused casuals. The men’s and women’s footwear collections
+are designed in leather, canvas, mesh, as well as other materials. Unltd. by Marc Ecko for boys and
+Rhino Red for girls sneaker lines primarily consist of takedowns from the adult Marc Ecko footwear
+lines with additional or different colorways geared toward children. The licensed brands are sold
+through select department stores and specialty retailers.
+Zoo York. Zoo York footwear is a line of action sports and lifestyle footwear for men, women
+and boys. The Zoo York footwear follows the color palette and trends of Zoo York apparel and
+targets skateboarders and those that embrace skate fashion. The licensed brand is available in
+skate and specialty shops as well as select athletic and department stores.
+Mark Nason. Mark Nason is a sophisticated and fashion forward footwear collection, marketed
+to style-conscious men and designed to complement designer denim and dress casual wear.
+Hand-crafted and constructed in Italy, the Mark Nason collection is comprised of classic and modern
+boots, shoes and sandals with distinctive profiles, signature embellishments and luxurious hand
+treated and distressed leathers. Also part of Mark Nason, Lounge is a collection of boots and
+casual loafers that have many similar design elements as the heritage Mark Nason collection, but
+are constructed in Asia, giving consumers a more price-conscious option.
+PRODUCT DESIGN AND DEVELOPMENT
+Our principal goal in product design is to generate new and exciting footwear in all of our
+product lines with contemporary and progressive styles and comfort-enhancing performance features.
+Targeted to the active, youthful and style-savvy, we design most new styles to be fashionable and
+marketable to the 12- to 24-year old consumer, while substantially all of our lines appeal to the
+broader range of 5- to 40-year old consumers, with an exclusive selection for infants and toddlers.
+With the exception of our fitness and toning products which have performance features, we generally
+do not position our shoes in the marketplace as technical performance shoes.
+We believe that our products’ success is related to our ability to recognize trends in the
+footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving
+preferences. We are able to quickly translate the latest fashion trends into stylish, quality
+footwear at a reasonable price by analyzing and interpreting current and emerging lifestyle trends.
+Lifestyle trend information is compiled and analyzed by our designers from various sources,
+including: the review and analysis of modern music, television, cinema, clothing, alternative
+sports and other trend-setting media; traveling to domestic and international fashion markets to
+identify and confirm current trends; consulting with our retail and e-commerce customers for
+information on current retail selling trends; participating in major footwear trade shows to stay
+abreast of popular brands, fashions and styles; and subscribing to various fashion and color
+information services. In addition, a key component of our design philosophy is to continually
+reinterpret and develop our successful styles in our brands’ image.
+6 
+Table of Contents 
+The footwear design process typically begins about nine months before the start of a season.
+Our products are designed and developed primarily by our in-house design staff. To promote
+innovation and brand relevance, we utilize dedicated design teams, who report to our senior design
+executives and focus on each of the men’s, women’s and children’s categories. In addition, we
+utilize outside design firms on an item-specific basis to supplement our internal design efforts.
+The design process is extremely collaborative, as members of the design staff frequently meet with
+the heads of retail, merchandising, sales, production and sourcing to further refine our products
+to meet the particular needs of the target market.
+After a design team arrives at a consensus regarding the fashion themes for the coming season,
+the designers then translate these themes into our products. These interpretations include
+variations in product color, material structure and embellishments, which are arrived at after
+close consultation with our production department. Prototype blueprints and specifications are
+created and forwarded to our manufacturers for a design prototype. The design prototypes are then
+sent back to our design teams. Our major retail customers may also review these new design
+concepts. Customer input not only allows us to measure consumer reaction to the latest designs, but
+also affords us an opportunity to foster deeper and more collaborative relationships with our
+customers. We also occasionally order limited production runs that may initially be tested in our
+concept stores. By working closely with store personnel, we obtain customer feedback that often
+influences product design and development. Our design teams can easily and quickly modify and
+refine a design based on customer input. Generally, the production process can take six months to
+nine months from design concept to commercialization.
+SOURCING
+Factories. Our products are produced by independent contract manufacturers located primarily
+in China and, to a lesser extent, in Italy, Vietnam, Brazil and various other countries. We do not
+own or operate any manufacturing facilities. We believe that the use of independent manufacturers
+substantially increases our production flexibility and capacity while reducing capital expenditures
+and avoiding the costs of managing a large production work force.
+When possible, we seek to use manufacturers that have previously produced our footwear, which
+we believe enhances continuity and quality while controlling production costs. We attempt to
+monitor our selection of independent factories to ensure that no one manufacturer is responsible
+for a disproportionate amount of our merchandise. We source product for styles that account for a
+significant percentage of our net sales from at least five different manufacturers. During 2010,
+five of our contract manufacturers accounted for approximately 70.6% of total purchases. One
+manufacturer accounted for 34.7%, and one other accounted for 13.0% of our total purchases. To
+date, we have not experienced difficulty in obtaining manufacturing services.
+We finance our production activities in part through the use of interest-bearing open purchase
+arrangements with certain of our Asian manufacturers. These facilities currently bear interest at a
+rate between 0% and 1.5% for 30- to 60-day financing, depending on the factory. We believe that the
+use of these arrangements affords us additional liquidity and flexibility. We do not have any
+long-term contracts with any of our manufacturers; however, we have long-standing relationships
+with many of our manufacturers and believe our relationships to be good.
+We closely monitor sales activity after initial introduction of a product in our concept
+stores to determine whether there is substantial demand for a style, thereby aiding us in our
+sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming
+collections or offered as part of our periodic style offerings, while less popular styles can be
+discontinued after a limited production run. We believe that sales in our concept stores can also
+help forecast sales in national retail stores, and we share this sales information with our
+wholesale customers. Sales, merchandising, production and allocations management analyze historical
+and current sales and market data from our wholesale account base and our own retail stores to
+develop an internal product quantity forecast that allows us to better manage our future production
+and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock
+position to minimize the time necessary to fill customer orders by placing orders with our
+manufacturers prior to the time we receive customers’ orders for such footwear.
+Production Oversight . To safeguard product quality and consistency, we oversee the key aspects
+of production from initial prototype manufacture through initial production runs to final
+manufacture. Monitoring of all production is performed in the United States by our in-house
+production department and in Asia through an approximately 300-person staff working from our
+offices in China. We believe that our Asian presence allows us to negotiate supplier and
+manufacturer arrangements more effectively, decrease product turnaround time and ensure timely
+delivery of finished footwear. In addition, we require our manufacturers to certify that neither
+convicted, forced nor indentured labor (as defined under U.S. law) nor child labor (as defined by
+law in the manufacturer’s
+7 
+Table of Contents 
+country) is used in the production process, and that compensation will be paid according to
+local law and that the factory is in compliance with local safety regulations.
+Quality Control. We believe that quality control is an important and effective means of
+maintaining the quality and reputation of our products. Our quality control program is designed to
+ensure that not only finished goods meet our established design specifications, but also that all
+goods bearing our trademarks meet our standards for quality. Our quality control personnel located
+in China perform an array of inspection procedures at various stages of the production process,
+including examination and testing of prototypes of key raw materials prior to manufacture, samples
+and materials at various stages of production and final products prior to shipment. Our employees
+are on site at each of our major manufacturers to oversee production. For some of our lower volume
+manufacturers, our staff is on site during significant production runs or we will perform
+unannounced visits to their manufacturing sites to further monitor compliance with our
+manufacturing specifications.
+ADVERTISING AND MARKETING
+With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted approach to
+marketing to drive traffic, build brand recognition and properly position our diverse lines within
+the marketplace. Senior management is directly involved in shaping our image and the conception,
+development and implementation of our advertising and marketing activities. The focus of our
+marketing plan is print and television advertising, which is supported by outdoor, trend-influenced
+marketing, public relations, promotions and in-store support. In addition, we utilize celebrity
+endorsers in our advertisements. We also believe our websites and trade shows are effective
+marketing tools to both consumers and wholesale accounts. We have historically budgeted advertising
+as a percentage of projected net sales.
+The majority of our advertising is conceptualized by our in-house design team. We believe that
+our advertising strategies, methods and creative campaigns are directly related to our success.
+Through our lifestyle and image-driven advertising, we generally seek to build and increase brand
+awareness by linking the Skechers brand and our fashion and street brands to youthful, contemporary
+lifestyles and attitudes. We have built on this approach by featuring select styles in our
+lifestyle ads for men and women. Our ads are designed to provide merchandise flexibility and to
+facilitate the Skechers brand’s direction.
+To further build brand awareness and influence consumer spending, we have selectively signed
+endorsement agreements with celebrities whom we believe would reach new markets. Hall of Fame
+quarterback Joe Montana and Hall of Fame basketball player Karl Malone appeared in “Comeback”
+Shape-ups print and television campaigns in 2010. Fitness expert Denise Austin appeared in a
+television campaign and at promotional events through 2010. Television hostess Brooke Burke
+appeared in print and television campaigns for Shape-ups in 2010. In 2010, we also signed celebrity
+icons and reality stars Kim Kardashian and Kris Jenner for Shape-ups. The Kardashian and Jenner
+print and television advertisements will appear through 2011. From time to time, we may sign other
+celebrities to endorse our brand name and image in order to strategically market our products among
+specific consumer groups in the future.
+In addition to advertising our Skechers branded lines through men’s, women’s and children’s
+ads, we also support product-driven ads for Mark Nason footwear that capture the brand’s essence.
+For the Marc Ecko footwear brands, Marc Ecko’s design team has created relevant targeted print and
+television commercials for men, women and kids.
+With a targeted approach, our print ads appear regularly in popular fashion and lifestyle
+consumer publications, including GQ, Cosmopolitan, Shape, Lucky, In Style, Seventeen, Maxim, Men’s
+Fitness, and Women’s Health, as well as in weekly publications such as People, Us Weekly, OK!,
+Sports Illustrated and InTouch, among others. Our advertisements also appear in international
+magazines around the world.
+Our television commercials are produced both in-house and through producers that we have
+utilized in the past who are familiar with our brands. In 2010, we developed commercials for men,
+women and children for our Skechers brands, including our animated spots for kids featuring our own
+action heroes and our Shape-ups and SRR collections. We have found these to be a cost-effective
+way to advertise on key national and cable programming during high selling seasons. In 2010, many
+of our television commercials were translated into multiple languages and aired in Brazil, Canada,
+the United Kingdom, France, the Benelux Region, Germany, Spain, Italy, Chile, Austria and
+Switzerland.
+Outdoor. In an effort to reach consumers where they shop and in high-traffic areas as they
+travel to and from work, we continued our multi-level outdoor campaign that included kiosks in key
+malls across the United States and billboards, transportation systems and telephone kiosks in North
+America and Europe. In addition, we advertised on football perimeter boards in the United Kingdom,
+Spain
+8 
+Table of Contents 
+and Germany. We believe these are effective and efficient ways to reach a broad range of
+consumers and leave a lasting impression for our brands.
+Trend-Influenced Marketing/Public Relations. Our public relations objectives are to secure
+product placement in key fashion magazines, place our footwear on the feet of trend-setting
+celebrities and their children, and gain positive and accurate press about us and our products.
+Through our commitment to aggressively promote our upcoming styles, our products are often featured
+in leading fashion and pop culture magazines, as well as in select films and popular television
+shows. Our footwear and our company have been prominently displayed and referenced on news and
+magazine shows. We have also amassed an array of prominent product placements in magazines
+including Seventeen, OK!, US Weekly, Health and Nylon . In addition, our brands have been associated
+with cutting edge events and various celebrities.
+Promotions. By applying creative sales techniques via a broad spectrum of media, our marketing
+team seeks to build brand recognition and drive traffic to Skechers’ retail stores, websites and
+our retail partners’ locations. Skechers’ promotional strategies have encompassed in-store
+specials, charity events, product tie-ins and giveaways, and collaborations with national retailers
+and radio stations. During 2010, we launched a national bus tour for our Skechers Fitness product
+with stops at popular events such as county fairs, marathons, and specialized conferences that
+focus on fitness or targeted industries which was designed to build the brand and create
+excitement. Our products were made available to consumers at many of these events either direct or
+through key accounts.
+Visual Merchandising. Our in-house visual merchandising department supports wholesale
+customers, distributors and our retail stores by developing displays that effectively leverage our
+products at the point of sale. Our point-of-purchase display items include signage, graphics,
+displays, counter cards, banners and other merchandising items for each of our brands. These
+materials mirror the look and feel of each brand and reinforce the image as well as draw consumers
+into stores.
+Our visual merchandising coordinators (“VMC’s”) work with our sales force and directly with
+our customers to ensure better sell-through at the retail level by generating greater consumer
+awareness through Skechers brand displays. Our VMC’s communicate with and visit our wholesale
+customers on a regular basis to aid in proper display of our merchandise. They also run in-store
+promotions to enhance the sale of Skechers footwear and create excitement surrounding the Skechers
+brand. We believe that these efforts help stimulate impulse sales and repeat purchases.
+Trade Shows. To better showcase our diverse products to footwear buyers in the United States
+and Europe and to distributors around the world, we regularly exhibit at leading trade shows. Along
+with specialty trade shows, we exhibit at WSA’s The Shoe Show, FFANY, ASR, MAGIC and Outdoor
+Retailer in the United States; GDS, MICAM, Bread & Butter, Mess Around and Who’s Next in Europe;
+and Couromoda and Francal in Brazil. Our dynamic, state-of-the-art trade show exhibits are
+developed by our in-house architect to showcase our latest product offerings in a lifestyle setting
+reflective of each of our brands. By investing in innovative displays and individual rooms
+showcasing each line, our sales force can present a sales plan for each line and buyers are able to
+truly understand the breadth and depth of our offerings, thereby optimizing commitments and sales
+at the retail level.
+Internet. We promote and sell our brands through our e-commerce websites www.skechers.com and
+www.soholab.com . These websites enable fans and customers to shop, browse, find store locations,
+socially interact, post a shoe review, photo, video, or question and immerse themselves in our
+brands. These websites are a venue for dialog and feedback from customers about our products which
+enhances the Skechers and fashion brands experience while driving sales through all our retail
+channels. In addition, we established a unique website for Mark Nason ( www.marknason.com ) designed
+to serve primarily as a marketing tool.
+PRODUCT DISTRIBUTION CHANNELS
+We have four reportable segments — domestic wholesale sales, international wholesale sales,
+retail sales and e-commerce sales. In the United States, our products are available through a
+network of wholesale customers comprised of department, athletic and specialty stores.
+Internationally, our products are available through wholesale customers in more than 100 countries
+and territories via our global network of distributors in addition to our subsidiaries in Asia,
+Europe, Canada and South America. Skechers owns and operates retail stores both domestically and
+internationally through three integrated retail formats—concept, factory outlet and warehouse
+outlet stores. Each of these channels serves an integral function in the global distribution of our
+products. Nineteen distributors have opened 143 distributor-owned Skechers retail stores in 30
+countries as of December 31, 2010.
+Domestic Wholesale. We distribute our footwear through the following domestic wholesale
+distribution channels: department stores, specialty stores, athletic specialty shoe stores and
+independent retailers, as well as catalog and Internet retailers. While department stores and
+specialty retailers are the largest distribution channels, we believe that we appeal to a variety
+of wholesale
+9 
+Table of Contents 
+customers, many of whom may operate stores within the same retail location due to our distinct
+product lines, variety of styles and the price criteria of their specific customers. Management has
+a clearly defined growth strategy for each of our channels of distribution. An integral component
+of our strategy is to offer our accounts the highest level of customer service so that our products
+will be fully represented in existing retail locations and new locations of each customer.
+In an effort to provide knowledgeable and personalized service to our wholesale customers, the
+sales force is segregated by product line, each of which is headed by a vice president or national
+sales manager. Reporting to each sales manager are knowledgeable account executives and territory
+managers. Our vice presidents and national sales managers report to a senior vice president of
+sales. All of our vice presidents and national sales managers are compensated on a salary basis,
+while our account executives and territory managers are compensated on a commission basis. None of
+our domestic sales personnel sells competing products.
+We believe that we have developed a loyal customer base through exceptional customer service.
+We believe that our close relationships with these accounts help us to maximize their retail
+sell-throughs. Our visual merchandise coordinators work with our wholesale customers to ensure that
+our merchandise and point-of-purchase marketing materials are properly presented. Sales executives
+and merchandise personnel work closely with accounts to ensure that appropriate styles are
+purchased for specific accounts and for specific stores within those accounts as well as to ensure
+that appropriate inventory levels are carried at each store. Such information is then utilized to
+help develop sales projections and determine the product needs of our wholesale customers. The
+value-added services we provide our wholesale customers help us maintain strong relationships with
+our existing wholesale customers and attract potential new wholesale customers.
+International Wholesale. Our products are sold in more than 100 countries and territories
+throughout the world. We generate revenues from outside the United States from three principal
+sources: (i) direct sales to department stores and specialty retail stores through our subsidiaries
+and joint ventures in Canada, France, Germany, Spain, Portugal, Italy, Switzerland, Austria,
+Malaysia, Thailand, Singapore, Hong Kong, China, the Benelux Region, the United Kingdom, Brazil and
+Chile; (ii) sales to foreign distributors who distribute our footwear to department stores and
+specialty retail stores in countries and territories across Eastern Europe, Asia, Central America,
+South America, Africa, the Middle East and Australia, among other regions; and (iii) to a lesser
+extent, royalties from licensees who manufacture and distribute our non-footwear products outside
+the United States.
+We believe that international distribution of our products represents a significant
+opportunity to increase sales and profits. We intend to further increase our share of the
+international footwear market by heightening our marketing in those countries in which we currently
+have a presence through our international advertising campaigns, which are designed to establish
+Skechers as a global brand synonymous with trend-right casual shoes.
+• 
+International Subsidiaries 
+Europe 
+We currently distribute product in most of Western Europe through the following
+subsidiaries: Skechers USA Ltd., with its offices and showrooms in London, England; Skechers
+S.a.r.l., with its offices in Lausanne, Switzerland; Skechers USA France S.A.S., with its
+offices and showrooms in Paris, France; Skechers USA Deutschland GmbH, with its offices and
+showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L., with its offices and showrooms
+in Madrid, Spain; Skechers USA Benelux B.V., with its offices and showrooms in Waalwijk, the
+Netherlands; and Skechers USA Italia S.r.l., with its offices and showroom in Verona, Italy.
+Skechers-owned retail stores in Europe include nine concept stores and thirteen factory
+outlet stores located in nine countries, including the key locations of Covent Garden and
+Oxford Street in London, Alstadt District in Düsseldorf and Kalverstraat Street in Amsterdam.
+To accommodate our European subsidiaries’ operations, we operate an approximately
+490,000 square foot distribution center in Liege, Belgium. This distribution center is
+currently used to store and deliver product to our subsidiaries and retail stores throughout
+Europe.
+10 
+Table of Contents 
+Canada 
+Merchandising and marketing of our product in Canada is managed by our wholly-owned
+subsidiary, Skechers USA Canada, Inc. with its offices and showrooms outside Toronto in
+Mississauga, Ontario. Product sold in Canada is primarily sourced from our U.S. distribution
+center in Ontario, California. We have five concept stores; Toronto Eaton Centre, West
+Edmonton Mall, Chinook Centre, Richmond Centre, and Pacific Centre; and two factory outlet
+stores in Toronto and Alberta.
+Malaysia, Singapore and Thailand 
+We have a 50% interest in a joint venture in Malaysia and Singapore, and a 51% interest
+in a joint venture in Thailand that generate net sales in those countries. The joint
+ventures operate three concept stores and six shops-in-shop in Malaysia, eight concept stores
+and one shop-in-shop in Singapore, and three concept stores and two shops-in-shop in
+Thailand. These joint ventures are included in our consolidated financial statements.
+China and Hong Kong 
+We have a 50% interest in a joint venture in China and a minority interest in a joint
+venture in Hong Kong that generate net sales in those countries. Under the joint venture
+agreements, the joint venture partners contribute capital in proportion to their respective
+ownership interests. The joint ventures operate 18 direct-owned stores and in excess of 90
+shops-in-shop in China and 11 direct-owned stores and 12 shops-in-shop in Hong Kong. The
+joint ventures are included in our consolidated financial statements.
+Brazil 
+Merchandising and marketing of our product in Brazil is managed by our wholly-owned
+subsidiary, Skechers Do Brasil Calcados LTDA., with its offices located in Sao Paulo, Brazil.
+Product sold in Brazil is primarily shipped directly from our contract manufacturers’
+factories in China and occasionally from our U.S. distribution center in Ontario, California.
+Chile 
+We have established a subsidiary in Chile, Comercializadora Skechers Chile Limitada, to
+support our 15 retail stores as well as wholesale accounts in that country. Product sold in
+Chile is primarily shipped directly from our contract manufacturers’ factories in China and
+occasionally from our U.S. distribution center in Ontario, California.
+11 
+Table of Contents 
+• 
+Distributors 
+Where we do not sell direct through our international subsidiaries and joint ventures,
+our footwear is distributed through an extensive network of more than 30 distributors who
+sell our products to department, athletic and specialty stores in more than 100 countries
+around the world. As of December 31, 2010, we had agreements with 19 of these distributors
+regarding 143 distributor-owned Skechers retail stores that are open in 30 countries,
+including 42 stores that were opened in 2010, while 11 distributor-owned stores were closed
+during the year. Our distributors own and operate the following retail stores:
+REGION 
+STORE FORMAT 
+NUMBER OF STORES 
+LOCATION (1) 
+Americas 
+Concept
+41 
+Aruba; Columbia (6); Costa Rica (2); Ecuador (2); Guatemala (3);
+Mexico (3); Panama (3); Peru (4); Venezuela (17)
+Warehouse
+3 
+Columbia; Mexico (2)
+Asia 
+Concept
+43 
+Japan (3); Korea (26); Indonesia (3); Mongolia;
+Philippines (7); Taiwan (3) 
+Warehouse
+8 
+Japan (4); Korea (4) 
+Australia 
+Concept
+3 
+Castle Hill; Chadstone; Sydney 
+Warehouse
+6 
+Cairns; Canberra; Jindalee; Melbourne (2); Sydney 
+Europe 
+Concept
+20 
+Croatia (2); Estonia; Israel; Lithuania (2);
+Malta (2); Russia (10); Ukraine (2) 
+Middle East 
+Concept
+12 
+Bahrain; Kuwait (2); Saudi Arabia (2); UAE (7) 
+Warehouse
+1 
+UAE 
+Africa 
+Concept
+6 
+Egypt; Morocco; South Africa (4) 
+(1) 
+One store per location except as otherwise noted. 
+The distributors are responsible for their respective stores’ operations, have ownership
+of their respective stores’ assets, and select the broad collection of our products to sell
+to consumers in their regions. In order to maintain a globally consistent image, we provide
+architectural, graphic and visual guidance and materials for the design of the stores, and we
+train the local staff on our products and corporate culture. We intend to expand our
+international presence and global recognition of the Skechers brand name by continuing to
+sell our footwear to foreign distributors and by opening flagship retail stores with
+distributors that have local market expertise.
+Retail Stores. We pursue our retail store strategy through our three integrated retail
+formats: the concept store, the factory outlet store and the warehouse outlet store. Our three
+store formats enable us to promote the full Skechers product offering in an attractive environment
+that appeals to a broad group of consumers. In addition, most of our retail stores are profitable
+and have a positive effect on our operating results. We periodically review all of our stores for
+impairment. We prepare a summary of cash flows for each of our retail stores to assess potential
+impairment of the fixed assets and leasehold improvements. If the assets are considered to be
+impaired, the impairment we recognize is the amount by which the carrying value of the assets
+exceeds the fair value of the assets. In addition, we base the useful lives and related
+amortization or depreciation expense on our estimate of the period that the assets will generate
+revenues or otherwise be used by us. As of February 15, 2011, we owned and operated 105 concept
+stores, 99 factory outlet stores and 40 warehouse outlet stores in the United States, and 28
+concept stores and 16 factory outlet stores internationally. During 2010, we opened 25 domestic
+stores and 17 international stores, and closed one domestic store. During 2011, we plan to open 30
+to 35 new stores, including 3 to 5 international locations.
+• 
+Concept Stores. 
+Our concept stores are located at either marquee street locations or in major shopping
+malls in large metropolitan cities. Our concept stores have a threefold purpose in our
+operating strategy. First, concept stores serve as a showcase for a wide
+12 
+Table of Contents 
+range of our product offering for the current season, as we estimate that our average
+wholesale customer carries no more than 5% of the complete Skechers line in any one location.
+Our concept stores showcase our products in an attractive, easy-to-shop open-floor setting,
+providing the customer with the complete Skechers story. Second, retail locations are
+generally chosen to generate maximum marketing value for the Skechers brand name through
+signage, store front presentation and interior design. Domestic locations include concept
+stores at Times Square, Union Square and 34th Street in New York, Powell Street in San
+Francisco, Hollywood and Highland in Hollywood, Santa Monica’s Third Street Promenade, and
+Las Vegas’ Fashion Show Mall. International locations include Covent Garden and Oxford
+Street in London, Alstadt District in Dusseldorf, Toronto’s Eaton Centre, Vancouver’s Pacific
+Centre, and Kalverstraat Street in Amsterdam. The stores are typically designed to create a
+distinctive Skechers look and feel, and enhance customer association of the Skechers brand
+name with current youthful lifestyle trends and styles. Third, the concept stores serve as
+marketing and product testing venues. We believe that product sell-through information and
+rapid customer feedback derived from our concept stores enables our design, sales,
+merchandising and production staff to respond to market changes and new product
+introductions. Such responses serve to augment sales and limit our inventory markdowns and
+customer returns and allowances. In 2010, we opened 15 domestic concept stores and six
+international concept stores.
+During 2010, we opened our first two Shape-ups concept stores in California at the Santa
+Monica Place Mall and on Hollywood Boulevard next to Grauman’s Chinese Theatre. Similar to
+the Skechers stores, the Shape-ups concept stores are designed to showcase the growing
+collection of Skechers Fitness products with knowledgeable sales associates who can discuss
+the benefits of the lines. We also view the stores as brand-building marketing vehicles and,
+as we continue to open Shape-ups concept stores, we will seek locations that either have
+heavy tourist traffic or are in areas focused on walking or fitness.
+The typical Skechers concept store is approximately 2,500 square feet, although in
+certain markets we have opened concept stores as large as 7,800 square feet or as small as
+1,100 square feet. When deciding where to open concept stores, we identify top geographic
+markets in the larger metropolitan cities in the United States, Canada, Europe and Asia. When
+selecting a specific site, we evaluate the proposed sites’ traffic pattern, co-tenancies,
+sales volume of neighboring concept stores, lease economics and other factors considered
+important within the specific location. If we are considering opening a concept store in a
+shopping mall, our strategy is to obtain space as centrally located as possible in the mall
+where we expect foot traffic to be most concentrated. We believe that the strength of the
+Skechers brand name has enabled us to negotiate more favorable terms with shopping malls that
+want us to open up concept stores to attract customer traffic to their venues.
+• 
+Factory Outlet Stores. 
+Our factory outlet stores are generally located in manufacturers’ direct outlet centers
+throughout the United States. In addition, we have 16 international outlet stores — five in
+England, two each in Canada, Italy and Germany, and one each in Scotland, Austria, the
+Netherlands, Portugal, and Chile. Our factory outlet stores provide opportunities for us to
+sell discontinued and excess merchandise, thereby reducing the need to sell such merchandise
+to discounters at excessively low prices and potentially compromise the Skechers brand image.
+Skechers’ factory outlet stores range in size from approximately 1,900 to 9,000 square feet.
+Unlike our warehouse outlet stores, inventory in these stores is supplemented by certain
+first-line styles sold at full retail price points. We opened seven domestic factory outlet
+stores and 11 international factory outlet stores in 2010.
+• 
+Warehouse Outlet Stores. 
+Our free-standing warehouse outlet stores, which are located throughout the United
+States, enable us to liquidate excess merchandise, discontinued lines and odd-size inventory
+in a cost-efficient manner. Skechers’ warehouse outlet stores are typically larger than our
+factory outlet stores and range in size from approximately 5,200 to 15,000 square feet. Our
+warehouse outlet stores enable us to sell discontinued and excess merchandise that would
+otherwise typically be sold to discounters at excessively low prices, which could otherwise
+compromise the Skechers brand image. We seek to open our warehouse outlet stores in areas
+that are in close proximity to our concept stores to facilitate the timely transfer of
+inventory that we want to liquidate as soon as practicable. We opened three domestic
+warehouse outlet stores in 2010.
+Electronic Commerce. Our websites, www.skechers.com and www.soholab.com are virtual
+storefronts that promote the Skechers and Fashion and Street Division’s brands. Our websites are
+designed to provide a positive shopping and brand experience, showcasing our products in an
+easy-to-navigate format, allowing consumers to browse our selections and purchase our footwear.
+These virtual
+13 
+Table of Contents 
+stores have provided a convenient alternative-shopping environment and brand experience.
+These websites are an efficient and effective additional retail distribution channel, and they have
+improved our customer service.
+For disclosure of segment information for our four reportable segments — domestic wholesale
+sales, international wholesale sales, retail sales and e-commerce sales—see note 14 to the
+financial statements on page 60 of this annual report.
+LICENSING
+We believe that selective licensing of the Skechers brand name and our product line names to
+manufacturers may broaden and enhance the individual brands without requiring significant capital
+investments or additional incremental operating expenses. Our multiple product lines plus
+additional subcategories present many potential licensing opportunities on terms with licensees
+that we believe will provide more effective manufacturing, distribution or marketing of
+non-footwear products. We also believe that the reputation of Skechers and its history in launching
+brands has also enabled us to partner with reputable non-footwear brands to design and market their
+footwear.
+As of January 31, 2011, we had 18 active domestic and international licensing agreements in
+which we are the licensor. These include agreements for the recently launched Skechers branded
+leather goods and backpacks. We also have licensed Skechers Kids apparel, Skechers Scrubs for
+health care professionals and Skechers Eyewear. We have international licensing agreements for the
+design and distribution of men’s and women’s apparel in Germany, India, Israel, South Africa, and
+Korea; bags in Panama; and watches in the Philippines.
+DISTRIBUTION FACILITIES AND OPERATIONS
+We believe that strong distribution support is a critical factor in our operations. Once
+manufactured, our products are packaged in shoe boxes bearing bar codes that are shipped either:
+(i) to our six distribution centers located in or near Ontario, California, which measure in
+aggregate approximately 2.0 million square-feet, (ii) to our approximately 490,000 square-foot
+distribution center located in Liege, Belgium or (iii) directly from third-party manufacturers to
+our other international customers and other international third-party distribution centers. Upon
+receipt at either of the distribution centers, merchandise is inspected and recorded in our
+management information system and packaged according to customers’ orders for delivery. Merchandise
+is shipped to customers by whatever means each customer requests, which is usually by common
+carrier. The distribution centers have multi-access docks, enabling us to receive and ship
+simultaneously, and to pack separate trailers for shipments to different customers at the same
+time. We have an electronic data interchange system, or EDI system, to which some of our larger
+customers are linked. This system allows these customers to automatically place orders with us,
+thereby eliminating the time involved in transmitting and inputting orders, and it includes direct
+billing and shipping information.
+In January 2010, we entered into a joint venture agreement to build a new 1.8 million square
+foot distribution facility in Rancho Belago, California, which we expect to occupy when completed
+in 2011. This single facility will replace the existing six facilities located in or near Ontario,
+California, of which five are on short-term leases and the sixth we own. We will lease the new
+distribution center from the joint venture for a base rent of $940,695 per month for 20 years. The
+joint venture is included in the consolidated financial statements.
+BACKLOG
+As of December 31, 2010, our backlog was $588.9 million, compared to $454.7 million as of
+December 31, 2009. Backlog orders are subject to cancellation by customers, as evidenced by order
+cancellations that we have experienced over the past few years due to the weakened U.S. economy and
+the toning market becoming saturated with lower priced products. For a variety of reasons,
+including changes in the economy, customer demand for our products, the timing of shipments,
+product mix of customer orders, the amount of in-season orders and a shift towards tighter lead
+times within backlog levels, backlog may not be a reliable measure of future sales for any
+succeeding period.
+INTELLECTUAL PROPERTY RIGHTS
+We own and utilize a variety of trademarks, including the Skechers trademark. We have a
+significant number of both registrations and pending applications for our trademarks in the United
+States. In addition, we have trademark registrations and trademark applications in approximately
+102 foreign countries. We also have design patents and pending design and utility patent
+applications in both the United States and approximately 27 foreign countries. We continuously look
+to increase the number of our patents and
+14 
+Table of Contents 
+trademarks both domestically and internationally where necessary to protect valuable
+intellectual property. We regard our trademarks and other intellectual property as valuable assets
+and believe that they have significant value in the marketing of our products. We vigorously
+protect our trademarks against infringement, including through the use of cease and desist letters,
+administrative proceedings and lawsuits.
+We rely on trademark, patent, copyright and trade secret protection, non-disclosure agreements
+and licensing arrangements to establish, protect and enforce intellectual property rights in our
+logos, tradenames and in the design of our products. In particular, we believe that our future
+success will largely depend on our ability to maintain and protect the Skechers trademark and other
+key trademarks. Despite our efforts to safeguard and maintain our intellectual property rights, we
+cannot be certain that we will be successful in this regard. Furthermore, we cannot be certain that
+our trademarks, products and promotional materials or other intellectual property rights do not or
+will not violate the intellectual property rights of others, that our intellectual property would
+be upheld if challenged, or that we would, in such an event, not be prevented from using our
+trademarks or other intellectual property rights. Such claims, if proven, could materially and
+adversely affect our business, financial condition and results of operations. In addition, although
+any such claims may ultimately prove to be without merit, the necessary management attention to and
+legal costs associated with litigation or other resolution of future claims concerning trademarks
+and other intellectual property rights could materially and adversely affect our business,
+financial condition and results of operations. We have sued and have been sued by third parties for
+infringement of intellectual property. It is our opinion that none of these claims has materially
+impaired our ability to utilize our intellectual property rights.
+The laws of certain foreign countries do not protect intellectual property rights to the same
+extent or in the same manner as do the laws of the United States. Although we continue to implement
+protective measures and intend to defend our intellectual property rights vigorously, these efforts
+may not be successful or the costs associated with protecting our rights in certain jurisdictions
+may be prohibitive. From time to time we discover products in the marketplace that are counterfeit
+reproductions of our products or that otherwise infringe upon intellectual property rights held by
+us. Actions taken by us to establish and protect our trademarks and other intellectual property
+rights may not be adequate to prevent imitation of our products by others or to prevent others from
+seeking to block sales of our products as violating trademarks and intellectual property rights. If
+we are unsuccessful in challenging a third party’s products on the basis of infringement of our
+intellectual property rights, continued sales of such products by that or any other third party
+could adversely impact the Skechers brand, result in the shift of consumer preferences away from
+our products and generally have a material adverse effect on our business, financial condition and
+results of operations.
+COMPETITION
+Competition in the footwear industry is intense. Although we believe that we do not compete
+directly with any single company with respect to its entire range of products, our products compete
+with other branded products within their product category as well as with private label products
+sold by retailers, including some of our customers. Our utility footwear and casual shoes compete
+with footwear offered by companies such as The Timberland Company, Clarks, Kenneth Cole Productions
+Inc., Steven Madden, Ltd., Wolverine World Wide, Inc., and V.F. Corporation. Our athletic
+lifestyle and performance shoes compete with footwear offered by companies such as Nike, Inc.,
+adidas AG, Puma AG, and New Balance Athletic Shoe, Inc. The intense competition among these
+companies and the rapid changes in technology and consumer preferences in the markets for
+performance footwear, including the walking fitness category, constitute significant risk factors
+in our operations. Our children’s shoes compete with footwear offered by companies such as
+Collective Brands Inc. and Geox. In varying degrees, depending on the product category involved,
+we compete on the basis of style, price, quality, comfort and brand name prestige and recognition,
+among other considerations. These and other competitors pose challenges to our market share in our
+major domestic markets and may make it more difficult to establish our products in Europe, Asia and
+other international regions. We also compete with numerous manufacturers, importers and
+distributors of footwear for the limited shelf space available for the display of such products to
+the consumer. Moreover, the general availability of contract manufacturing capacity allows ease of
+access by new market entrants. Many of our competitors are larger, have been in existence for a
+longer period of time, have achieved greater recognition for their brand names, have captured
+greater market share and/or have substantially greater financial, distribution, marketing and other
+resources than we do. We cannot be certain that we will be able to compete successfully against
+present or future competitors, or that competitive pressures will not have a material adverse
+effect on our business, financial condition and results of operations.
+15 
+Table of Contents 
+EMPLOYEES
+As of January 31, 2011, we employed 5,440 persons, 2,517 of whom were employed on a full-time
+basis and 2,923 of whom were employed on a part-time basis. None of our employees is subject to a
+collective bargaining agreement. We believe that our relations with our employees are satisfactory.
+ITEM 1A. 
+RISK FACTORS 
+In addition to the other information in this annual report, the following factors should be
+considered in evaluating us and our business.
+The Effects Of The Ongoing Global Economic Slowdown May Continue To Have A Negative Impact On Our
+Business, Results Of Operations Or Financial Condition. 
+The ongoing global economic slowdown has caused disruptions and extreme volatility in global
+financial markets, increased rates of default and bankruptcy, and declining consumer and business
+confidence, which has led to decreased levels of consumer spending, particularly on discretionary
+items such as footwear. These macroeconomic developments have and could continue to negatively
+impact our business, which depends on the general economic environment and levels of consumer
+spending in the United States and other parts of the world that affect not only the ultimate
+consumer, but also retailers, who are our primary direct customers. As a result, we may not be
+able to maintain or increase our sales to existing customers, make sales to new customers, open and
+operate new retail stores, maintain sales levels at our existing stores, maintain or increase our
+international operations on a profitable basis, or maintain or improve our earnings from operations
+as a percentage of net sales. If the global economic slowdown continues for a significant period
+or continues to worsen, our results of operations, financial condition, and cash flows could be
+materially adversely affected.
+We Face Many New Challenges After Entering The Highly Competitive Performance Footwear Market In
+2008. 
+Although the design and aesthetics of our products have traditionally been the most important
+factor in consumer acceptance of our footwear, we more recently began incorporating technical
+innovations into certain of our product offerings, capitalizing on recent trends in the performance
+footwear market with the introduction of toning footwear in late 2008 and resistance running
+footwear in 2010. The performance footwear market is keenly competitive in the United States and
+worldwide, and new entrants into that market face many challenges. Negative consumer perceptions
+of our performance features due to our historical reputation as a fashion and lifestyle footwear
+company, product offerings and technologies from our competitors, and failure to keep up with rapid
+changes in footwear technology and consumer preferences may constitute significant risk factors in
+our operations and may negatively impact our business.
+Our Operating Results Could Be Negatively Impacted If Our Sales Are Concentrated In Any One Style
+Or Group Of Styles. 
+If any single style or group of similar styles of our footwear were to represent a substantial
+portion of our net sales, we could be exposed to risk should consumer demand for such style or
+group of styles decrease in subsequent periods. We attempt to mitigate this risk by offering a
+broad range of products, and no style comprised over 5% of our gross wholesale sales during 2010 or
+2009. However, this may change in the future and fluctuations in sales of any given style that
+represents a significant portion of our future net sales could have a negative impact on our
+operating results.
+Our Business And The Success Of Our Products Could Be Harmed If We Are Unable To Maintain Our Brand
+Image. 
+Our success to date has been due in large part to the strength of the Skechers brand, and to a
+lesser degree, the reputation of our fashion brands. If we are unable to timely and appropriately
+respond to changing consumer demand, our brand name and brand image may be impaired. Even if we
+react appropriately to changes in consumer preferences, consumers may consider our brand image to
+be outdated or associate our brand with styles of footwear that are no longer popular. In the past,
+several footwear companies including ours have experienced periods of rapid growth in revenues and
+earnings followed by periods of declining sales and losses. Our business may be similarly affected
+in the future.
+16 
+Table of Contents 
+The Toning Footwear Category Has Come Under Increasingly Intense Public Scrutiny That May Have A
+Negative Impact On Our Business And Results Of Operations. 
+The relatively new toning footwear category, including our own Shape-ups products, has come
+under intense scrutiny in the past year, including highly publicized negative professional
+opinions, negative publicity and media attention, and attorneys publicly marketing their services
+to consumers who were allegedly aggrieved by our marketing or injured by our products. The
+negative publicity and media attention has ranged from questioning the validity of our advertising
+and promotional claims to the overall safety of these products. It is difficult to predict what
+effect this negative publicity will have on sales of toning footwear generally and our Shape-ups
+products in particular, whether such publicity will continue and, if it does continue, what the
+overall effect will be on our business and our results of operations. The existing negative
+publicity and any future negative publicity may present significant risks to our operations and may
+negatively impact our business and sales.
+It Is Difficult To Predict The Effect Of Regulatory Inquiries About Advertising And Promotional
+Claims Related To Our Products In The Fitness Footwear Market. 
+The toning footwear market is a relatively new product category dominated by a handful of
+competitors who design, market and advertise their products to promote benefits associated with
+wearing the footwear. Advertising and promoting benefits associated with these products routinely
+comes under regulatory review from regulators including the U.S. Federal Trade Commission, states’
+Attorney Generals and government and quasi-government regulators in foreign countries. As noted
+under “Legal Proceedings” in Part I, Item 3 of this annual report, we have received requests for
+information relating to our advertising claims for Shape-ups and other toning products. It is
+difficult to predict the outcome of these inquiries and what, if any, effect, they may have on our
+advertising, promotional claims, business, or results of operations.
+We Face Intense Competition, Including Competition From Companies With Significantly Greater
+Resources Than Ours, And If We Are Unable To Compete Effectively With These Companies, Our Market
+Share May Decline And Our Business Could Be Harmed. 
+We face intense competition in the footwear industry from other established companies. A
+number of our competitors have significantly greater financial, technological, engineering,
+manufacturing, marketing and distribution resources than we do. Their greater capabilities in these
+areas may enable them to better withstand periodic downturns in the footwear industry, compete more
+effectively on the basis of price and production and more quickly develop new products. In
+addition, new companies may enter the markets in which we compete, further increasing competition
+in the footwear industry.
+We believe that our ability to compete successfully depends on a number of factors, including
+the style and quality of our products and the strength of our brand name, as well as many factors
+beyond our control. We may not be able to compete successfully in the future, and increased
+competition may result in price reductions, reduced profit margins, loss of market share and an
+inability to generate cash flows that are sufficient to maintain or expand our development and
+marketing of new products, which would adversely impact the trading price of our Class A Common
+Stock.
+Our Business Could Be Harmed If We Fail To Maintain Proper Inventory Levels. 
+We place orders with our manufacturers for some of our products prior to the time we receive
+all of our customers’ orders. We do this to minimize purchasing costs, the time necessary to fill
+customer orders and the risk of non-delivery. We also maintain an inventory of certain products
+that we anticipate will be in greater demand. However, the global economic slowdown and changes in
+the marketplace for toning footwear can make it difficult for us and our customers to accurately
+forecast product demand trends, and we may be unable to sell the products we have ordered in
+advance from manufacturers or that we have in our inventory. Inventory levels in excess of customer
+demand may result in inventory write-downs, and the sale of excess inventory at discounted prices
+could significantly impair our brand image and have a material adverse effect on our operating
+results and financial condition. Conversely, if we underestimate consumer demand for our products
+or if our manufacturers fail to supply the quality products that we require at the time we need
+them, we may experience inventory shortages. Inventory shortages might delay shipments to
+customers, negatively impact retailer and distributor relationships, and diminish brand loyalty.
+Our Future Success Depends On Our Ability To Respond To Changing Consumer Demands, Identify And
+Interpret Fashion Trends And Successfully Market New Products. 
+The footwear industry is subject to rapidly changing consumer demands and fashion trends.
+Accordingly, we must identify and
+17 
+Table of Contents 
+interpret fashion trends and respond in a timely manner. Demand for and market acceptance of
+new products are uncertain and achieving market acceptance for new products generally requires
+substantial product development and marketing efforts and expenditures. If we do not continue to
+meet changing consumer demands and develop successful styles in the future, our growth and
+profitability will be negatively impacted. We frequently make decisions about product designs and
+marketing expenditures several months in advance of the time when consumer acceptance can be
+determined. If we fail to anticipate, identify or react appropriately to changes in styles and
+trends or are not successful in marketing new products, we could experience excess inventories,
+higher than normal markdowns or an inability to profitably sell our products. Because of these
+risks, a number of companies in the footwear industry specifically, and others in the fashion and
+apparel industry in general, have experienced periods of rapid growth in revenues and earnings and
+thereafter periods of declining sales and losses, which in some cases have resulted in companies in
+these industries ceasing to do business. Similarly, these risks could have a material adverse
+effect on our results of operations or financial condition.
+Our Business Could Be Adversely Affected By Changes In The Business Or Financial Condition Of
+Significant Customers Due To Global Economic Conditions. 
+The global financial crisis affected the banking system and financial markets and resulted in
+a tightening in the credit markets, more stringent lending standards and terms, and higher
+volatility in fixed income, credit, currency and equity markets. There could be a number of
+follow-on effects from the credit crisis on our business, including insolvency of certain of our
+key distributors, which could impair our distribution channels, or our significant customers,
+including our distributors, may experience diminished liquidity or an inability to obtain credit to
+finance purchases of our product. Our customers may also experience weak demand for our products
+or other difficulties in their businesses. If conditions in the global financial markets
+deteriorate in the future, demand may be lower than forecasted and insufficient to achieve our
+anticipated financial results. Any of these events would likely harm our business, results of
+operations and financial condition.
+We May Have Difficulty Managing Our Costs If Global Economic Conditions Worsen. 
+Our future results of operations will depend on our overall ability to manage our costs.
+These challenges include (i) managing our infrastructure, including the anticipated addition of our
+new distribution center in Rancho Belago, California, (ii) retaining and hiring, as required, the
+appropriate number of qualified employees, (iii) managing inventory levels and (iv) controlling
+other expenses. If global economic conditions worsen and lead to an unexpected decline in our
+revenues without a corresponding and timely reduction in expenses or a failure to manage other
+aspects of our operations, that could have a material adverse effect on our business, results of
+operations or financial condition.
+We May Be Unable To Successfully Execute Our Growth Strategy Or Maintain Our Growth. 
+Although our company has generally exhibited steady growth since we began operations, we have
+suffered decreases in net sales in the past and our rate of growth has declined at times as well,
+and we may experience similar decreases in net sales or declines in rate of growth again in the
+future. Our ability to grow in the future depends upon, among other things, the continued success
+of our efforts to maintain our brand image and expand our footwear offerings and distribution
+channels. As our business grows, we may need to improve and enhance our overall financial and
+managerial controls, reporting systems and procedures to effectively manage our growth. We may be
+unable to successfully implement our current growth strategy or other growth strategies or
+effectively manage our growth, any of which would negatively impact our business, results of
+operations and financial condition. Furthermore, we have significantly expanded our infrastructure
+and workforce to achieve economies of scale. Because these expenses are mostly fixed in the short
+term, our operating results and margins will be adversely impacted if we do not continue to grow as
+anticipated.
+Our Business And Operating Results Could Be Negatively Impacted If Our New Domestic Distribution
+Center Is Not Completed As Expected In 2011. 
+Our domestic distribution center currently consists of six warehouse facilities located in or
+near Ontario, California, and we occupy five of these facilities under short-term leases. During
+January 2010, we entered into an agreement with a real estate developer to form a joint venture to
+build a new 1.8 million square foot distribution facility in Rancho Belago, California that is
+intended to replace the six existing warehouse facilities. We plan on moving our domestic
+distribution operations out of the existing facilities and into the new distribution facility when
+it is completed in 2011. However, because of the potential for construction delays or changes in
+construction scope and schedule, we cannot predict with certainty when or if the new distribution
+facility will be completed. Even if the construction proceeds as scheduled, it is possible that
+contracted parties may not fulfill their contractual obligations or that unsatisfactory performance
+could increase the cost associated with the construction. Any delays, cancellations, scope changes
+or
+18 
+Table of Contents 
+unsatisfactory performance by others could materially increase the construction expenses and
+other costs of our new distribution facility.
+Additionally, the leases of the five facilities that we currently occupy expire throughout the
+second half of 2011. If the new distribution facility is not completed as expected in 2011, which
+would prevent us from moving our domestic distribution operations as planned, we cannot be assured
+that the landlords of the leased facilities will continue to provide short-term leases that address
+our needs on terms favorable to us or that, if not available, we will be able to find alternate
+facilities available for short-term lease on terms that are at least as comparable to us as the
+terms of the existing leases. These risks could have a material adverse effect on our business and
+results of operations.
+Our Children’s Shoe Business May Be Negatively Impacted By The Consumer Product Safety Improvement
+Act Of 2008. 
+The Consumer Product Safety Commission (the “Commission”) issued new standards, effective
+February 10, 2009, August 14, 2009 and August 11, 2011, under the Consumer Product Safety
+Improvement Act of 2008 (“CPSIA”) regarding lead content in consumer products directed at children
+12 years of age and under, including children’s shoes. The lead limits on the outer or accessible
+part of a children’s shoe was decreased to 600 parts per million beginning February 10, 2009, and
+subsequently reduced on August 14, 2009 to 300 parts per million. The current standard applies
+retroactively to all products that exist on February 10, 2009 and August 14, 2009, respectively,
+and it is not limited to new manufacturing. The lead limits are expected to be reduced again on
+August 11, 2011 to 100 parts per million unless the Commission determines before then that such a
+limit is not technologically feasible. We have been working to ensure that covered products are
+appropriately tested, and we are regularly monitoring the evolution and interpretation of the
+regulation to ensure compliance. There is still uncertainty regarding the meaning of the CPSIA,
+how it applies to products or product components and the level of detail that each of our retailers
+will require, and the Commission recently announced an extension to the stay of enforcement of
+testing and certification requirements until December 31, 2011. Consequently, we are unable to
+predict whether the total financial impact of these new standards will have a material adverse
+impact on our business, results of operation or financial condition.
+We Depend Upon A Relatively Small Group Of Customers For A Large Portion Of Our Sales. 
+During 2010, 2009 and 2008, our net sales to our five largest customers accounted for
+approximately 24.9%, 25.1% and 24.1% of total net sales, respectively. No customer accounted for
+more than 10.0% of our net sales during 2010, 2009 and 2008. No customer accounted for more than
+10% of net trade receivables at December 31, 2010. One customer accounted for 11.3% of net trade
+receivables at December 31, 2009. Although we have long-term relationships with many of our
+customers, our customers do not have a contractual obligation to purchase our products and we
+cannot be certain that we will be able to retain our existing major customers. Furthermore, the
+retail industry regularly experiences consolidation, contractions and closings which may result in
+our loss of customers or our inability to collect accounts receivable of major customers. If we
+lose a major customer, experience a significant decrease in sales to a major customer or are unable
+to collect the accounts receivable of a major customer, our business could be harmed.
+Many Of Our Retail Stores Depend Heavily On The Customer Traffic Generated By Shopping And Factory
+Outlet Malls Or By Tourism. 
+Many of our concept stores are located in shopping malls and some of our factory outlet stores
+are located in manufacturers’ outlet malls where we depend on obtaining prominent locations and the
+overall success of the malls to generate customer traffic. We cannot control the success of
+individual malls, and an increase in store closures by other retailers may lead to mall vacancies
+and reduced foot traffic. Some of our concept stores occupy street locations that are heavily
+dependent on customer traffic generated by tourism. Any substantial decrease in tourism resulting
+from the global economic slowdown, political, social or military events or otherwise, is likely to
+adversely affect sales in our existing stores, particularly those with street locations. The
+effects of these factors could reduce sales of particular existing stores or hinder our ability to
+open retail stores in new markets, which could negatively affect our operating results.
+Our International Sales And Manufacturing Operations Are Subject To The Risks Of Doing Business
+Abroad, Particularly In China, Which Could Affect Our Ability To Sell Or Manufacture Our Products
+In International Markets, Obtain Products From Foreign Suppliers Or Control The Costs Of Our
+Products. 
+Substantially all of our net sales during the year ended December 31, 2010 were derived from
+sales of footwear manufactured in foreign countries, with most manufactured in China and, to a
+lesser extent, in Italy, Brazil and Vietnam. We also sell our footwear in several foreign countries
+and plan to increase our international sales efforts as part of our growth strategy. Foreign
+manufacturing and
+19 
+Table of Contents 
+sales are subject to a number of risks, including the following: political and social unrest,
+including the military presence in Iraq and terrorism; changing economic conditions, including
+higher labor costs; increased costs of raw materials; currency exchange rate fluctuations; labor
+shortages and work stoppages; electrical shortages; transportation delays; loss or damage to
+products in transit; expropriation; nationalization; the adjustment, elimination or imposition of
+domestic and international duties, tariffs, quotas, import and export controls and other non-tariff
+barriers; exposure to different legal standards (particularly with respect to intellectual
+property); compliance with foreign laws; and changes in domestic and foreign governmental policies.
+We have not, to date, been materially affected by any such risks, but we cannot predict the
+likelihood of such developments occurring or the resulting long-term adverse impact on our
+business, results of operations or financial condition.
+In particular, because most of our products are manufactured in China, the possibility of
+adverse changes in trade or political relations with China, political instability in China,
+increases in labor costs, the occurrence of prolonged adverse weather conditions or a natural
+disaster such as an earthquake or typhoon in China, or the outbreak of a pandemic disease such as
+the H1N1 (Swine) Flu in China could severely interfere with the manufacture and/or shipment of our
+products and would have a material adverse effect on our operations. In addition, electrical
+shortages, labor shortages or work stoppages may extend the production time necessary to produce
+our orders, and there may be circumstances in the future where we may have to incur premium freight
+charges to expedite the delivery of product to our customers. If we incur a significant amount of
+premium charges to airfreight product for our customers, our gross profit will be negatively
+affected if we are unable to collect those charges.
+Currency Exchange Rate Fluctuations In China Could Result In Higher Costs And Decreased Margins. 
+Our manufacturers located in China may be subject to the effects of exchange rate fluctuations
+should the Chinese currency not remain stable with the U.S. dollar. The value of the Chinese
+currency depends to a large extent on the Chinese government’s policies and China’s domestic and
+international economic and political developments. Since 1994, the official exchange rate for the
+conversion of the Chinese currency was pegged to the U.S. dollar at a virtually fixed rate of
+approximately 8.28 Yuan per U.S. dollar. However, on July 21, 2005, the Chinese government revalued
+the Yuan by 2.1%, setting the exchange rate at 8.11 Yuan per U.S. dollar, and adopted a more
+flexible system based on a trade-weighted basket of foreign currencies of China’s main trading
+partners. Since then, the value of the Yuan has gradually appreciated against the U.S. dollar to
+6.59 Yuan per U.S. dollar on December 31, 2010. The valuation of the Yuan may continue to increase
+incrementally over time should the China central bank allow it to do so, which could significantly
+increase labor and other costs incurred in the production of our footwear in China, resulting in a
+potentially material adverse effect on our results of operations and financial condition.
+The Potential Imposition Of Additional Duties, Quotas, Tariffs And Other Trade Restrictions Could
+Have An Adverse Impact On Our Sales And Profitability. 
+All of our products manufactured overseas and imported into the United States, the European
+Union (“EU”) and other countries are subject to customs duties collected by customs authorities.
+Customs information submitted by us is routinely subject to review by customs authorities. We are
+unable to predict whether additional customs duties, quotas, tariffs, anti-dumping duties,
+safeguard measures, cargo restrictions to prevent terrorism or other trade restrictions may be
+imposed on the importation of our products in the future. Such actions could result in increases
+in the cost of our products generally and might adversely affect the sales and profitability of
+Skechers and the imported footwear industry as a whole.
+Our Quarterly Revenues And Operating Results Fluctuate As A Result Of A Variety Of Factors,
+Including Seasonal Fluctuations In Demand For Footwear, Delivery Date Delays And Potential
+Fluctuations In Our Estimated Annualized Tax Rate, Which May Result In Volatility Of Our Stock
+Price. 
+Our quarterly revenues and operating results have varied significantly in the past and can be
+expected to fluctuate in the future due to a number of factors, many of which are beyond our
+control. Our major customers generally have no obligation to purchase forecasted amounts, may and
+have canceled orders, and may change delivery schedules or change the mix of products ordered with
+minimal notice and without penalty. As a result, we may not be able to accurately predict our
+quarterly sales. In addition, sales of footwear products have historically been somewhat seasonal
+in nature with the strongest sales generally occurring in our second and third quarters for the
+back-to-school selling season. Back-to-school sales typically ship in June, July and August, and
+delays in the timing, cancellation, or rescheduling of these customer orders and shipments by our
+wholesale customers could negatively impact our net sales and results of operations for our second
+or third quarters. More specifically, the timing of when products are shipped is determined by the
+delivery schedules set by our wholesale customers, which could cause sales to shift between our
+second and third quarters. Because our expense levels are partially based on our expectations of
+future net sales, our expenses may be
+20 
+Table of Contents 
+disproportionately large relative to our revenues, and we may be unable to adjust spending in
+a timely manner to compensate for any unexpected revenue shifts, which could have a material
+adverse effect on our operating results.
+Our annualized tax rate is based on projections of our domestic and international operating
+results for the year, which we review and revise as necessary at the end of each quarter, and it is
+highly sensitive to fluctuations in projected international earnings. Any quarterly fluctuations in
+our annualized tax rate that may occur could have a material impact on our quarterly operating
+results. As a result of these specific and other general factors, our operating results will likely
+vary from quarter to quarter and the results for any particular quarter may not be necessarily
+indicative of results for the full year. Any shortfall in revenues or net earnings from levels
+expected by securities analysts and investors could cause a decrease in the trading price of our
+Class A Common Stock.
+We Rely On Independent Contract Manufacturers And, As A Result, Are Exposed To Potential
+Disruptions In Product Supply. 
+Our footwear products are currently manufactured by independent contract manufacturers. During
+2010 and 2009, the top five manufacturers of our products produced approximately 70.6% and 69.1% of
+our total purchases, respectively. One manufacturer accounted for 34.7% and 29.7% of total
+purchases during 2010 and 2009, respectively. One other manufacturer accounted for 13.0% of our
+total purchases during 2010. Three other manufacturers accounted for over 10.0% of our total
+purchases during 2009. We do not have long-term contracts with our manufacturers, and we compete
+with other footwear companies for production facilities. We could experience difficulties with
+these manufacturers, including reductions in the availability of production capacity, failure to
+meet our quality control standards, failure to meet production deadlines or increased manufacturing
+costs. In particular, manufacturers in China are facing a labor shortage as migrant workers seek
+better wages and working conditions in farming and other vocations, and if this trend continues,
+our current manufacturers’ operations could be adversely affected.
+If our current manufacturers cease doing business with us, we could experience an interruption
+in the manufacture of our products. Although we believe that we could find alternative
+manufacturers, we may be unable to establish relationships with alternative manufacturers that will
+be as favorable as the relationships we have now. For example, new manufacturers may have higher
+prices, less favorable payment terms, lower manufacturing capacity, lower quality standards or
+higher lead times for delivery. If we are unable to provide products consistent with our standards
+or the manufacture of our footwear is delayed or becomes more expensive, this could result in our
+customers canceling orders, refusing to accept deliveries or demanding reductions in purchase
+prices, any of which could have a material adverse effect on our business and results of
+operations.
+Our Business Could Be Harmed If Our Contract Manufacturers, Suppliers Or Licensees Violate Labor,
+Trade Or Other Laws. 
+We require our independent contract manufacturers, suppliers and licensees to operate in
+compliance with applicable laws and regulations. Manufacturers are required to certify that neither
+convicted, forced or indentured labor (as defined under United States law) nor child labor (as
+defined by law in the manufacturer’s country) is used in the production process, that compensation
+is paid in accordance with local law and that their factories are in compliance with local safety
+regulations. Although we promote ethical business practices and our sourcing personnel periodically
+visit and monitor the operations of our independent contract manufacturers, suppliers and
+licensees, we do not control them or their labor practices. If one of our independent contract
+manufacturers, suppliers or licensees violates labor or other laws or diverges from those labor
+practices generally accepted as ethical in the United States, it could result in adverse publicity
+for us, damage our reputation in the United States or render our conduct of business in a
+particular foreign country undesirable or impractical, any of which could harm our business.
+In addition, if we, or our foreign manufacturers, violate United States or foreign trade laws
+or regulations, we may be subject to extra duties, significant monetary penalties, the seizure and
+the forfeiture of the products we are attempting to import or the loss of our import privileges.
+Possible violations of United States or foreign laws or regulations could include inadequate record
+keeping of our imported products, misstatements or errors as to the origin, quota category,
+classification, marketing or valuation of our imported products, fraudulent visas or labor
+violations. The effects of these factors could render our conduct of business in a particular
+country undesirable or impractical and have a negative impact on our operating results.
+Our Strategies Involve A Number Of Risks That Could Prevent Or Delay Any Successful Opening Of New
+Stores As Well As Impact The Performance Of Our Existing Stores. 
+Our ability to open and operate new stores successfully depends on many factors, including,
+among others: our ability to identify suitable store locations, the availability of which is
+outside of our control; negotiate acceptable lease terms, including desired tenant
+21 
+Table of Contents 
+improvement allowances; source sufficient levels of inventory to meet the needs of new stores;
+hire, train and retain store personnel; successfully integrate new stores into our existing
+operations; and satisfy the fashion preferences in new geographic areas.
+In addition, some or a substantial number of new stores could be opened in regions of the
+United States in which we currently have few or no stores. Any expansion into new markets may
+present competitive, merchandising and distribution challenges that are different from those
+currently encountered in our existing markets. Any of these challenges could adversely affect our
+business and results of operations. In addition, to the extent that any new store openings are in
+existing markets, we may experience reduced net sales volumes in existing stores in those markets.
+We Depend On Key Personnel To Manage Our Business Effectively In A Rapidly Changing Market, And If
+We Are Unable To Retain Existing Personnel, Our Business Could Be Harmed. 
+Our future success depends upon the continued services of Robert Greenberg, Chairman of the
+Board and Chief Executive Officer; Michael Greenberg, President and a member of our Board of
+Directors; and David Weinberg, Executive Vice President, Chief Operating Officer, Chief Financial
+Officer and a member of our Board of Directors. The loss of the services of any of these
+individuals or any other key employee could harm us. Our future success also depends on our ability
+to identify, attract and retain additional qualified personnel. Competition for employees in our
+industry is intense and we may not be successful in attracting and retaining such personnel.
+The Disruption, Expense And Potential Liability Associated With Existing And Unanticipated Future
+Litigation Against Us Could Have A Material Adverse Effect On Our Business, Results Of Operations
+And Financial Condition. 
+We are subject to various legal proceedings and threatened legal proceedings from time to time
+as part of our business. We are not currently a party to any legal proceedings or aware of any
+threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, we
+believe would have a material adverse effect on our business, results of operations or financial
+condition. However, any unanticipated litigation in the future, regardless of its merits, could
+significantly divert management’s attention from our operations and result in substantial legal
+fees to us. Further, there can be no assurance that any actions that have been or will be brought
+against us will be resolved in our favor or, if significant monetary judgments are rendered against
+us, that we will have the ability to pay such judgments. Such disruptions, legal fees and any
+losses resulting from these claims could have a material adverse effect on our business, results of
+operations and financial condition.
+For a discussion of risks related to regulatory inquiries, see the risks discussed on page 17
+under “It Is Difficult To Predict The Effect Of Regulatory Inquiries About Advertising And
+Promotional Claims Related To Our Products In The Fitness Footwear Market.”
+Our Ability To Compete Could Be Jeopardized If We Are Unable To Protect Our Intellectual Property
+Rights Or If We Are Sued For Intellectual Property Infringement. 
+We believe that our trademarks, design patents and other proprietary rights are important to
+our success and our competitive position. We use trademarks on nearly all of our products and
+believe that having distinctive marks that are readily identifiable is an important factor in
+creating a market for our goods, in identifying us and in distinguishing our goods from the goods
+of others. We consider our Skechers ® , S in Shield Design ® , Performance-S Shifted Design ® and
+Shape-ups ® trademarks to be among our most valuable assets, and we have registered these trademarks
+in many countries. In addition, we own many other trademarks that we utilize in marketing our
+products. We also have a number of design patents and a limited number of utility patents covering
+components and features used in various shoes. We believe that our patents and trademarks are
+generally sufficient to permit us to carry on our business as presently conducted. While we
+vigorously protect our trademarks against infringement, we cannot guarantee that we will be able to
+secure patents or trademark protection for our intellectual property in the future or that
+protection will be adequate for future products. Further, we have been sued for patent and
+trademark infringement and cannot be sure that our activities do not and will not infringe on the
+intellectual property rights of others. If we are compelled to prosecute infringing parties, defend
+our intellectual property or defend ourselves from intellectual property claims made by others, we
+may face significant expenses and liability as well as the diversion of management’s attention from
+our business, each of which could negatively impact our business or financial condition.
+In addition, the laws of foreign countries where we source and distribute our products may not
+protect intellectual property rights to the same extent as do the laws of the United States. We
+cannot assure you that the actions we have taken to establish and protect our
+22 
+Table of Contents 
+trademarks and other intellectual property rights outside the United States will be adequate
+to prevent imitation of our products by others or, if necessary, successfully challenge another
+party’s counterfeit products or products that otherwise infringe on our intellectual property
+rights on the basis of trademark or patent infringement. Continued sales of these products could
+adversely affect our sales and our brand and result in the shift of consumer preference away from
+our products. We may face significant expenses and liability in connection with the protection of
+our intellectual property rights outside the United States, and if we are unable to successfully
+protect our rights or resolve intellectual property conflicts with others, our business or
+financial condition could be adversely affected.
+Natural Disasters Or A Decline In Economic Conditions In California Could Increase Our Operating
+Expenses Or Adversely Affect Our Sales Revenue. 
+As of December 31, 2010, a substantial portion of our operations are located in California,
+including 63 of our retail stores, our headquarters in Manhattan Beach, our current domestic
+distribution center in Ontario and our future domestic distribution center in Rancho Belago.
+Because a significant portion of our net sales is derived from sales in California, a decline in
+the economic conditions in California, whether or not such decline spreads beyond California, could
+materially adversely affect our business. Furthermore, a natural disaster or other catastrophic
+event, such as an earthquake or wild fires affecting California, could significantly disrupt our
+business including the operation of our only domestic distribution center. We may be more
+susceptible to these issues than our competitors whose operations are not as concentrated in
+California.
+One Principal Stockholder Is Able To Exert Significant Influence Over All Matters Requiring A Vote
+Of Our Stockholders And His Interests May Differ From The Interests Of Our Other Stockholders. 
+As of December 31, 2010, Robert Greenberg, Chairman of the Board and Chief Executive Officer,
+beneficially owned 29.9% of our outstanding Class B common shares and members of Mr. Greenberg’s
+immediate family beneficially owned an additional 15.5% of our outstanding Class B common shares.
+The remainder of our outstanding Class B common shares is held in two irrevocable trusts for the
+benefit of Mr. Greenberg and his immediate family members, and voting control of such shares
+resides with the independent trustee. The holders of Class A common shares and Class B common
+shares have identical rights except that holders of Class A common shares are entitled to one vote
+per share while holders of Class B common shares are entitled to ten votes per share on all matters
+submitted to a vote of our stockholders. As a result, as of December 31, 2010, Mr. Greenberg
+beneficially owned approximately 22.3% of the aggregate number of votes eligible to be cast by our
+stockholders, and together with shares beneficially owned by other members of his immediate family,
+they beneficially owned approximately 34.9% of the aggregate number of votes eligible to be cast by
+our stockholders. Therefore, Mr. Greenberg is able to exert significant influence over all matters
+requiring approval by our stockholders. Matters that require the approval of our stockholders
+include the election of directors and the approval of mergers or other business combination
+transactions. Mr. Greenberg also has significant influence over our management and operations. As a
+result of such influence, certain transactions are not likely without the approval of Mr.
+Greenberg, including proxy contests, tender offers, open market purchase programs or other
+transactions that can give our stockholders the opportunity to realize a premium over the
+then-prevailing market prices for their shares of our Class A common shares. Because Mr.
+Greenberg’s interests may differ from the interests of the other stockholders, Mr. Greenberg’s
+significant influence on actions requiring stockholder approval may result in our company taking
+action that is not in the interests of all stockholders. The differential in the voting rights may
+also adversely affect the value of our Class A common shares to the extent that investors or any
+potential future purchaser view the superior voting rights of our Class B common shares to have
+value.
+Our Charter Documents And Delaware Law May Inhibit A Takeover, Which May Adversely Affect The Value
+Of Our Stock. 
+Provisions of Delaware law, our certificate of incorporation or our bylaws could make it more
+difficult for a third party to acquire us, even if closing such a transaction would be beneficial
+to our stockholders. Mr. Greenberg’s substantial beneficial ownership position, together with the
+authorization of Preferred Stock, the disparate voting rights between our Class A Common Stock and
+Class B Common Stock, the classification of our Board of Directors and the lack of cumulative
+voting in our certificate of incorporation and bylaws, may have the effect of delaying, deferring
+or preventing a change in control, may discourage bids for our Class A Common Stock at a premium
+over the market price of the Class A Common Stock and may adversely affect the market price of our
+Class A Common Stock.
+23 
+Table of Contents 
+ITEM 1B. UNRESOLVED STAFF COMMENTS 
+None.
+ITEM 2. PROPERTIES 
+Our corporate headquarters and additional administrative offices are located at nine
+properties in Manhattan Beach, California, which consist of an aggregate of approximately 150,000
+square feet. We own and lease portions of our corporate headquarters and administrative offices.
+The property leases expire in February 2012, with options to extend these leases in some cases, and
+the current aggregate annual base rent for the leased property is approximately $0.7 million.
+Our U.S. distribution center consists of five leased facilities and one that we own, which are
+located in or near Ontario, California. The five leased facilities aggregate approximately
+1,740,000 square feet, with an annual base rent of approximately $5.1 million. The owned
+distribution facility is approximately 264,000 square feet. The property leases expire between June
+2011 and December 2011, and these leases contain rent escalation provisions. In January 2010, we
+entered into an agreement with HF Logistics I, LLC (“HF”) to form a joint venture (“JV”) to build a
+new 1.8 million square foot distribution facility in Rancho Belago, California that we expect to
+occupy when completed in 2011. This single facility will replace the existing six facilities
+located in or near Ontario, California, which are short-term leases. We will lease the new
+distribution center for 20 years from the JV for a base rent of $940,695 per month, or
+approximately $11.3 million per year. The JV’s objective is to operate the facility for the
+production of income and profit. The term of the JV is fifty years. The parties are equal fifty
+percent partners. In April 2010, Skechers, through Skechers RB, LLC, made an initial cash capital
+contribution of $30 million and HF made an initial capital contribution of land. Additional capital
+contributions, if necessary, would be made on an equal basis by Skechers RB, LLC and HF.
+Our European distribution center consists of a 490,000 square-foot facility in Liege, Belgium
+under a 20-year operating lease with base rent of approximately $2.8 million per year. The lease
+agreement also provides for early termination rights at five-year intervals beginning in April
+2014, pending notification as prescribed in the lease, of which the first such right was not
+exercised.
+All of our domestic retail stores and showrooms are leased with terms expiring between March
+2011 and June 2023. The leases provide for rent escalations tied to either increases in the
+lessor’s operating expenses, fluctuations in the consumer price index in the relevant geographical
+area or a percentage of the store’s gross sales in excess of the base annual rent. Total base rent
+expense related to our domestic retail stores and showrooms was $36.2 million for the year ended
+December 31, 2010.
+We also lease all of our international administrative offices, retail stores and showrooms
+located in Brazil, Malaysia, Thailand, Canada, Switzerland, United Kingdom, Germany, France, Spain,
+Italy, Netherlands, and Chile. The property leases expire at various dates between May 2011 and
+April 2025. Total base rent for the leased properties aggregated approximately $17.9 million for
+the year ended December 31, 2010.
+ITEM 3. LEGAL PROCEEDINGS 
+Our claims and advertising for our toning products including for our Shape-ups are subject to
+the requirements of, and routinely come under regulatory review from, regulators including the U.S.
+Federal Trade Commission, states’ Attorney Generals and government and quasi-government regulators
+in foreign countries. We are currently responding to requests for information regarding our claims
+and advertising from regulatory and quasi-regulatory agencies in several countries throughout the
+world and are cooperating with such requests. While we believe that our claims and advertising are
+supported by tests, medical opinions and other relevant data and we have been successful in
+defending our claims and advertising in several different countries, in light of these regulatory
+requests, we frequently review and update our claims and advertising. It is too early to predict
+the outcome of the ongoing inquiries and whether such an outcome will have a material effect on our
+advertising, promotional claims, business, results of operations or financial position.
+Asics Corporation and Asics America Corporation v. Skechers U.S.A., Inc. — On May 11, 2010,
+Asics Corporation and Asics America Corporation (collectively, “Asics”) filed an action against our
+company in the United States District Court for the Central District of California, SACV 10-00636
+CJC/MLG, alleging trademark infringement, unfair competition, and trademark dilution under both
+federal and California law and false advertising under California law arising out of our alleged
+use of stripe designs similar Asics trademarks. The complaint seeks, among other things, permanent
+and preliminary injunctive relief, compensatory damages, profits, treble and punitive damages, and
+attorneys fees. The matter is in the early discovery phase. While it is too early to predict the
+24 
+Table of Contents 
+outcome of the litigation and whether an adverse result would have a material adverse impact
+on our operations or financial position, we believe we have meritorious defenses and counterclaims,
+vehemently deny the allegations and intend to defend the case vigorously.
+Tamara Grabowski v. Skechers U.S.A., Inc. — On June 18, 2010, Tamara Grabowski filed an
+action against our company in the United States District Court for the Southern District of
+California, Case No. 10 CV 1300 JM (WVG), on her behalf and on behalf of all others similarly
+situated. The complaint, as subsequently amended, alleges that our advertising for Shape-ups
+violates California’s Unfair Competition Law and the California Consumer Legal Remedies Act, and
+constitutes a breach of express warranty (the “ Grabowski action”). The complaint seeks
+certification of a nationwide class, damages, restitution and disgorgement of profits, declaratory
+and injunctive relief, corrective advertising, and attorneys’ fees and costs. On December 23,
+2010, we moved to stay the action on the ground that the outcomes in pending appeals in two
+unrelated actions will significantly affect whether a class should be certified. The matter is
+still in the early stages. While it is too early to predict the outcome of the litigation or a
+reasonable range of potential losses and whether an adverse result would have a material adverse
+impact on our results of operations or financial position, we believe we have meritorious defenses,
+vehemently deny the allegations, believe that class certification is not warranted and intend to
+defend the case vigorously.
+Sonia Stalker v. Skechers U.S.A., Inc. — On July 2, 2010, Sonia Stalker filed an action
+against our company in the Superior Court of the State of California for the County of Los Angeles,
+on her behalf and on behalf of all others similarly situated, alleging that our advertising for
+Shape-ups violates California’s Unfair Competition Law and the California Consumer Legal Remedies
+Act. The complaint, as subsequently amended, seeks certification of a nationwide class, actual and
+punitive damages, restitution, declaratory and injunctive relief, corrective advertising, and
+attorneys’ fees and costs. On July 23, 2010, we removed the case to the United States District
+Court for the Central District of California, and it is now pending as Sonia Stalker v. Skechers
+USA, Inc. , CV 10-5460 SJO (JEM). On August 23, 2010, we filed a motion to dismiss the action or
+transfer it to the United States District Court for the Southern District of California, in view of
+the prior pending Grabowski action. On August 27, 2010, plaintiff moved to certify the class, which
+motion we have opposed. On January 21, 2011, the Court stayed the action for the separate reasons
+that Tamara Grabowski v. Skechers U.S.A., Inc was filed first and takes priority under the
+first-to-file doctrine and that the outcomes in pending appeals in two unrelated actions will
+significantly affect the outcome of plaintiff’s motion for class certification and the resolution
+of this action. The matter is still in its early stages. While it is too early to predict the
+outcome of the litigation or a reasonable range of potential losses and whether an adverse result
+would have a material adverse impact on our results of operations or financial position, we believe
+we have meritorious defenses, vehemently deny the allegations, believe that class certification is
+not warranted and intend to defend the case vigorously.
+Venus Morga v. Skechers U.S.A., Inc. — On August 25, 2010, Venus Morga filed an action
+against our company in the United States District Court for the Southern District of California,
+Case No. 10 CV 1780 JM (WVG), on her behalf and on behalf of all others similarly situated. The
+complaint, as subsequently amended, alleges that our advertising for Shape-ups violates
+California’s Unfair Competition Law and the California Consumer Legal Remedies Act, and constitutes
+a breach of express warranty. The complaint seeks certification of a nationwide class, damages,
+restitution and disgorgement of profits, declaratory and injunctive relief, corrective advertising,
+and attorneys’ fees and costs. On December 23, 2010, we moved to stay the action on the ground
+that the outcomes in pending appeals in two unrelated actions will significantly affect whether a
+class should be certified. The matter is still in the early stages. While it is too early to
+predict the outcome of the litigation or a reasonable range of potential losses and whether an
+adverse result would have a material adverse impact on our results of operations or financial
+position, we believe we have meritorious defenses, vehemently deny the allegations, believe that
+class certification is not warranted and intend to defend the case vigorously.
+Tamia Richmond v. Skechers U.S.A., Inc. and HKM Productions, Inc. — On August 31, 2010, Tamia
+Richmond filed a lawsuit against our company and HKM Productions in California Superior Court,
+County of Los Angeles, Case No. BC444730. The complaint alleges that we fraudulently induced Ms.
+Richmond into allowing her image and likeness to be recorded, we misappropriated her image and
+likeness without her authorization, we are using Ms. Richmond’s image and likeness in certain
+unauthorized forms of media, and a personal release signed by Ms. Richmond should be limited to the
+use of her image and likeness in a DVD insert only. The complaint seeks, among other things,
+actual damages, statutory damages, punitive damages, disgorgement of certain profits, injunctive
+relief, and attorneys’ fees and costs. The matter is still in the early stages. While it is too
+early to predict the outcome of the litigation or a reasonable range of potential losses and
+whether an adverse result would have a material adverse impact on our results of operations or
+financial position, we believe we have meritorious defenses, vehemently deny the allegations, and
+intend to defend the case vigorously.
+Patty Tomlinson v. Skechers U.S.A., Inc. — On January 13, 2011, Patty Tomlinson filed a
+lawsuit against our company in Circuit Court in Washington County, Arkansas, Case No. CV11-121-7.
+The complaint alleges, on her behalf and on behalf of all others
+25 
+Table of Contents 
+similarly situated, that our advertising for Shape-ups violates Arkansas’ Deceptive Trade
+Practices Act, constitutes a breach of certain express and implied warranties, and is resulting in
+unjust enrichment. The complaint seeks certification of a statewide class, compensatory damages,
+prejudgment interest, and attorneys’ fees and costs. On February 18, 2011, we removed the case to
+the United States District Court for the Western District of Arkansas, and it is now pending as
+Patty Tomlinson v. Skechers U.S.A., Inc. , CV 11-05042 JLH. The matter is still in the early
+stages. While it is too early to predict the outcome of the litigation or a reasonable range of
+potential losses and whether an adverse result would have a material adverse impact on our results
+of operations or financial position, we believe we have meritorious defenses, vehemently deny the
+allegations, believe that class certification is not warranted and intend to defend the case
+vigorously.
+We have no reason to believe that any liability with respect to pending legal actions or
+regulatory requests, individually or in the aggregate, will have a material adverse effect on our
+consolidated financial statements or results of operations. We occasionally become involved in
+litigation arising from the normal course of business, we are unable to determine the extent of any
+liability that may arise from unanticipated future litigation.
+ITEM 4. RESERVED 
+PART II 
+ITEM 5. 
+MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
+PURCHASES OF EQUITY SECURITIES 
+Our Class A Common Stock trades on the New York Stock Exchange under the symbol “SKX.” The
+following table sets forth, for the periods indicated, the high and low sales prices of our Class A
+Common Stock.
+HIGH 
+LOW 
+YEAR ENDED DECEMBER 31, 2010 
+First Quarter 
+$ 
+37.74 
+$ 
+26.76 
+Second Quarter 
+44.90 
+32.61 
+Third Quarter 
+40.20 
+21.22 
+Fourth Quarter 
+26.25 
+19.00 
+YEAR ENDED DECEMBER 31, 2009 
+First Quarter 
+$ 
+13.13 
+$ 
+5.20 
+Second Quarter 
+12.56 
+6.50 
+Third Quarter 
+19.26 
+8.95 
+Fourth Quarter 
+30.00 
+16.39 
+HOLDERS
+As of February 15, 2011, there were 95 holders of record of our Class A Common Stock
+(including holders who are nominees for an undetermined number of beneficial owners) and 28 holders
+of record of our Class B Common Stock. These figures do not include beneficial owners who hold
+shares in nominee name. The Class B Common Stock is not publicly traded but each share is
+convertible upon request of the holder into one share of Class A Common Stock.
+DIVIDEND POLICY
+Earnings have been and will be retained for the foreseeable future in the operations of our
+business. We have not declared or paid any cash dividends on our Class A Common Stock and do not
+anticipate paying any cash dividends in the foreseeable future. Our current policy is to retain all
+of our earnings to finance the growth and development of our business.
+EQUITY COMPENSATION PLAN INFORMATION
+Our equity compensation plan information is provided as set forth in Part III, Item 12 of this
+annual report.
+26 
+Table of Contents 
+PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
+Our 2007 Incentive Award Plan (the “2007 Plan”) permits the netting of our Class A Common
+Stock upon vesting of restricted stock awards to satisfy individual tax withholding requirements.
+During the quarter ended December 31, 2010, we redeemed 291,213 shares of our Class A Common Stock
+with a weighted-average fair market value of $19.24 as a result of such tax withholdings as
+presented in the table below.
+Total Number of 
+Total Number of 
+Maximum Number of 
+Shares Redeemed to 
+Shares Purchased as 
+Shares that May Yet 
+Satisfy Employee Tax 
+Weighted-Average 
+Part of Publicly 
+Be Purchased Under 
+Withholding 
+Fair Market Value 
+Announced Plans or 
+the Plans or 
+Period 
+Requirements 
+Per Share Redeemed 
+Programs 
+Programs 
+October 1, 2010 - 
+October 31, 2010 
+0 
+$ 
+0 
+N/A 
+N/A 
+November 1, 2010 - 
+November 30, 2010 
+290,846 
+$ 
+19.24 
+N/A 
+N/A 
+December 1, 2010 - 
+December 31, 2010 
+367 
+$ 
+21.34 
+N/A 
+N/A 
+Total 
+291,213 
+$ 
+19.24 
+N/A 
+N/A 
+27 
+Table of Contents 
+PERFORMANCE GRAPH
+The following graph demonstrates the total return to stockholders of our company’s Class A
+Common Stock from December 31, 2005 to December 31, 2010, relative to the performance of the
+Russell 2000 Index, which includes our Class A Common Stock, and our peer group index, which
+consists of seven companies believed to be engaged in similar businesses: Nike, Inc., adidas AG,
+Kenneth Cole Productions, Inc., Steven Madden, Ltd., The Timberland Company and Wolverine World
+Wide, Inc.
+The graph assumes an investment of $100 on December 31, 2005 in each of our company’s Class A
+Common Stock and the stocks comprising each of the Russell 2000 Index and the customized peer group
+index. Each of the indices assumes that all dividends were reinvested. The stock performance of
+our company’s Class A Common Stock shown on the graph is not necessarily indicative of future
+performance. We will not make nor endorse any predictions as to our future stock performance.
+COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN 
+12/31/05 
+12/31/06 
+12/31/07 
+12/31/08 
+12/31/09 
+12/31/10 
+Skechers U.S.A., Inc. 
+100.00 
+217.43 
+127.35 
+83.68 
+191.97 
+130.55 
+Russell 2000 
+100.00 
+118.37 
+116.51 
+77.15 
+98.11 
+124.46 
+Peer Group 
+100.00 
+111.15 
+143.20 
+100.52 
+137.36 
+175.79 
+28 
+Table of Contents 
+ITEM 6. SELECTED FINANCIAL DATA 
+The following tables set forth our company’s selected consolidated financial data as of and
+for each of the years in the five-year period ended December 31, 2010 and should be read in
+conjunction with our audited consolidated financial statements and notes thereto included under
+Part II, Item 8 of this annual report.
+(In thousands, except net earnings per share)
+YEARS ENDED DECEMBER 31, 
+STATEMENT OF EARNINGS DATA: 
+2010 
+2009 
+2008 
+2007 
+2006 
+Net sales 
+$ 
+2,006,868 
+$ 
+1,436,440 
+$ 
+1,440,743 
+$ 
+1,394,181 
+$ 
+1,205,368 
+Gross profit 
+911,906 
+621,010 
+595,922 
+599,989 
+523,346 
+Earnings from operations 
+196,740 
+72,582 
+57,892 
+112,930 
+112,544 
+Earnings before income taxes 
+196,603 
+71,110 
+60,743 
+118,305 
+112,648 
+Net earnings attributable to Skechers U.S.A., Inc. 
+136,148 
+54,699 
+55,396 
+75,686 
+70,994 
+Net earnings per share:(1) 
+Basic 
+2.87 
+1.18 
+1.20 
+1.67 
+1.73 
+Diluted 
+2.78 
+1.16 
+1.19 
+1.63 
+1.59 
+Weighted average shares:(1) 
+Basic 
+47,433 
+46,341 
+46,031 
+45,262 
+41,079 
+Diluted 
+49,050 
+47,105 
+46,708 
+46,741 
+46,139 
+AS OF DECEMBER 31, 
+BALANCE SHEET DATA: 
+2010 
+2009 
+2008 
+2007 
+2006 
+Working capital 
+$ 
+666,054 
+$ 
+558,468 
+$ 
+413,771 
+$ 
+523,888 
+$ 
+450,787 
+Total assets 
+1,304,794 
+995,552 
+876,316 
+827,977 
+737,053 
+Long-term debt, excluding current portion 
+51,650 
+15,641 
+16,188 
+16,462 
+106,805 
+Skechers U.S.A., Inc. equity 
+908,203 
+745,922 
+668,693 
+626,663 
+449,087 
+(1) 
+Basic earnings per share represents net earnings divided by the weighted-average number of
+common shares outstanding for the period. Diluted earnings per share, in addition to the
+weighted average determined for basic earnings per share, reflects the potential dilution that
+could occur if options to issue common stock were exercised or converted into common stock and
+assumes the conversion of our 4.50% convertible subordinated notes for the period outstanding
+since their issuance in April 2002 until their conversion in February 2007, unless their
+inclusion would be anti-dilutive. 
+29 
+Table of Contents 
+ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
+GENERAL
+We design, market and sell contemporary footwear for men, women and children under the
+Skechers brand as well as several other fashion and street brands. Our footwear is sold through a
+wide range of department stores and leading specialty retail stores, mid-tier retailers, boutiques,
+our own retail stores, distributor-owned international retail stores and our e-commerce website.
+Our objective is to continue to profitably grow our domestic operations while leveraging our brand
+name to expand internationally.
+Our operations are organized along our distribution channels, and we have the following four
+reportable sales segments: domestic wholesale sales, international wholesale sales, retail sales
+and e-commerce sales. We evaluate segment performance based primarily on net sales and gross
+margins. See detailed segment information in note 14 to our consolidated financial statements
+included under Part II, Item 8 of this annual report.
+FINANCIAL OVERVIEW
+Our net sales for 2010 were $2.007 billion, an increase of $570.4 million, or 39.7%, compared
+to net sales of $1.436 billion in 2009. Net earnings were $136.1 million, an increase of $81.4
+million or 148.9% from net earnings of $54.7 million in 2009. Diluted earnings per share were
+$2.78, which reflected a 139.0% increase from the $1.16 reported in the prior year. Working
+capital was $666.1 million at December 31, 2010, an increase of $107.6 million from working capital
+of $558.5 million at December 31, 2009. Cash and short-term investments decreased by $62.1
+million to $233.6 million at December 31, 2010 compared to $295.7 million at December 31, 2009.
+The decrease was due to increased inventory of $172.4 million primarily due to customer order
+cancellations and increases in our international and retail expansion, capital expenditures of
+$82.3 million, and increased receivables of $50.0 million which was partially offset by our net
+earnings of $136.1 million, increased payables of $32.8 million, proceeds of $39.3 million related
+to financing of equipment for our new distribution center, and the maturity of $30.0 million in
+short-term investments.
+2010 OVERVIEW
+In 2010, we focused on product development, and domestic and international growth.
+New product design and delivery . Our success depends on our ability to design and deliver
+trend-right, affordable product in a diverse range. In 2010, we focused on continuously updating
+our core styles, adding fresh looks to our existing lines, and developing new lines. This approach
+has broadened our product offering and ensured the relevance of our brands.
+Grow our domestic business. In 2010, our focus was on maintaining our core Skechers business
+in our domestic wholesale accounts, while finding new opportunities to add shelf space and expand
+into new locations with new Skechers categories. We also focused on expanding our domestic retail
+distribution channel by opening 25 additional stores while closing one underperforming location.
+Further develop our international businesses. In 2010, we continued to focus on improving our
+international operations by (i) growing our subsidiary business by increasing our customer base
+within our existing subsidiary business, including developing our subsidiaries in Brazil and Chile;
+(ii) increasing the product offering within each account; (iii) delivering the right product into
+the right markets; and (iv) by building the business of our joint ventures in Asia through
+additional retail stores and wholesale channels.
+OUTLOOK FOR 2011
+Our earnings and margins in the fourth quarter of 2010 were negatively impacted by several
+factors, including the sell-through of excess toning inventory that resulted from the market being
+saturated with competitors’ lower priced toning product. Sales of lower margin product through all
+of our distribution channels and lower retail margins due to increased promotional activity also
+contributed to lower earnings and margins in the fourth quarter. As a result, our inventory
+increased year-over-year by $172.4 million as of December 31, 2010, of which approximately $110
+million related to our domestic wholesale business, which primarily resulted from customer order
+cancelations during the second half of 2010. We anticipate our domestic wholesale revenues and
+margins will be lower in the first half of 2011 compared to the same period in the prior year, as
+we continue to aggressively work through our inventory. We will continue to develop new product at
+affordable prices throughout 2011, much of which will be launching in the spring and fall seasons,
+and we believe that these new styles and lines will enable us to broaden the targeted demographic
+profile of
+30 
+Table of Contents 
+our consumer base, increase our shelf space, and open new locations without detracting from
+existing business. As we transition into our new product offerings, we expect margins will return
+to historical levels, which we believe will contribute to improved profitability in the second half
+of 2011.
+We are focused on growing our international business to 25% to 30% of our total sales. We are
+seeking to increase our global presence through our joint ventures in Asia and to continue to
+develop our South American subsidiaries’ businesses in Brazil and Chile. We are also looking to
+grow in new markets with new distributors in India and Mexico as well as to increase our presence
+in other existing markets.
+During 2011, we plan to continue expanding our retail distribution channel by opening another
+30 to 35 stores, including approximately 3 to 5 international locations.
+We will continue to develop our infrastructure to support ongoing growth. In January 2010, we
+entered into a joint venture agreement with HF Logistics I, LLC to construct approximately
+1,820,000 square feet of buildings and other improvements that we will use as our domestic
+distribution facility. We expect the building to be completed and ready for operation in 2011.
+Once this new facility is available, we plan to move out of our six existing distribution
+facilities in or near Ontario, California, creating a more efficient distribution center.
+YEAR ENDED DECEMBER 31, 2010 COMPARED TO THE YEAR ENDED DECEMBER 31, 2009
+Net sales 
+Net sales for 2010 were $2.007 billion, an increase of $570.4 million, or 39.7%, compared to
+net sales of $1.436 billion in 2009. The increase in net sales was broad-based across all
+segments.
+Our domestic wholesale net sales increased $368.4 million, or 48.3%, to $1.132 billion in 2010
+compared to $763.5 million in 2009. The largest increases in our domestic wholesale segment came in
+our Women’s and Men’s divisions. The average selling price per pair within the domestic wholesale
+segment increased to $24.33 per pair for 2010 from $20.49 in 2009, primarily due to acceptance of
+new designs and styles for our in-demand products and reduced close-outs. The increase in domestic
+wholesale segment sales were based on a 24.9% unit sales volume increase to 46.5 million pairs in
+2010 from 37.3 million pairs in 2009.
+Our international wholesale segment net sales increased $108.2 million, or 32.9%, to $436.6
+million in 2010 compared to sales of $328.5 million in 2009. Our international wholesale sales
+consist of direct subsidiary sales — those we make to department stores and specialty retailers —
+and sales to our distributors who in turn sell to department stores and specialty retailers in
+various international regions where we do not sell direct. Direct subsidiary sales increased $88.5
+million, or 39.1%, to $314.8 million compared to sales of $226.3 million in 2009. The largest sales
+increases came from our subsidiaries in Chile, Canada, and Germany. Our distributor sales
+increased $19.8 million, or 19.3%, to $121.9 million in 2010, compared to sales of $102.1 million
+in 2009. This was primarily due to increased sales to our distributors in Korea, UAE, and Russia.
+Our retail segment net sales increased $88.9 million, or 27.6% to $410.7 million in 2010,
+compared to sales of $321.8 million in 2009. The increase in retail sales was due to positive
+comparable store sales of 15.2% (i.e. those open at least one year) and a net increase of 41
+stores. For the year ended December 31, 2010, we realized positive comparable store sales of 15.9%
+in our domestic retail stores and 8.7% in our international retail stores. During the year ended
+December 31, 2010, we opened 15 new domestic concept stores, seven domestic outlet stores, three
+domestic warehouse stores, six international concept stores and 11 international outlet stores.
+Our domestic retail sales increased 24.1% for the year ended December 31, 2010 compared to the same
+period in 2009 due to positive comparable store sales and a net increase of 24 domestic stores.
+Our international retail sales increased 62.1% for the year ended December 31, 2010 compared to the
+same period in 2009 attributable to positive comparable store sales and a net increase of 17
+international stores.
+We had 244 domestic stores and 44 international retail stores as of February 15, 2011, and
+during 2011 we currently plan to open approximately 30 to 35 stores, including approximately 3 to 5
+international locations. We closed one domestic store in 2010 and two domestic stores in 2009. We
+periodically review all of our stores for impairment. During 2010, we did not record an impairment
+charge. During 2009, we recorded an impairment charge of $0.8 million related to three of our
+domestic stores. Further, we carefully review our under-performing stores and may consider the
+non-renewal of leases upon completion of the current term of the applicable lease.
+31 
+Table of Contents 
+Our e-commerce net sales increased $5.0 million to $27.6 million in 2010, a 22.0% increase
+over sales of $22.6 million in 2009. Our e-commerce sales made up approximately 1% of our
+consolidated net sales in 2010 and 2009.
+Gross profit 
+Gross profit for 2010 increased $290.9 million to $911.9 million from $621.0 million in 2009.
+Gross profit as a percentage of net sales, or gross margin, increased to 45.4% in 2010 from 43.2%
+in 2009. Gross profit for our domestic wholesale segment increased $168.1 million, or 57.5%, to
+$460.4 million in 2010 from $292.3 million in 2009. Domestic wholesale margins increased to 40.7%
+in 2010 from 38.3% for 2009. The increase in domestic wholesale margins was due to increased
+average selling prices, less closeouts and more in-demand inventory.
+Gross profit for our international wholesale segment increased $63.1 million, or 53.3%, to
+$181.5 million for 2010 compared to $118.4 million in 2009. Gross margins were 41.6% for 2010
+compared to 36.1% in 2009. The increase in gross margins for our international wholesale segment
+was due to less closeouts and more in-demand inventory. International wholesale sales through our
+foreign subsidiaries historically have achieved higher gross margins than our international
+wholesale sales through our foreign distributors. Gross margins for our direct subsidiary sales
+were 47.3% in 2010 as compared to 40.0% in 2009. Gross margins for our distributor sales were
+26.8% in 2010 as compared to 27.3% in 2009.
+Gross profit for our retail segment increased $57.7 million, or 29.1%, to $255.9 million in
+2010 as compared to $198.2 million in 2009. Gross margins for all stores were 62.3% for 2010
+compared to 61.6% in 2009. Gross margins for our domestic stores were 62.3% in 2010 as compared to
+60.7% in 2009. Gross margins for our international stores were 62.3% in 2010 as compared to 70.5%
+in 2009. The increase in retail margins was due to less closeouts and more in-demand inventory.
+Our cost of sales includes the cost of footwear purchased from our manufacturers, royalties,
+duties, quota costs, inbound freight (including ocean, air and freight from the dock to our
+distribution centers), broker fees and storage costs. Because we include expenses related to our
+distribution network in general and administrative expenses while some of our competitors may
+include expenses of this type in cost of sales, our gross margins may not be comparable, and we may
+report higher gross margins than some of our competitors in part for this reason.
+Selling expenses 
+Selling expenses increased by $57.7 million, or 44.8%, to $186.7 million for 2010 from $129.0
+million in 2009. As a percentage of net sales, selling expenses were 9.3% and 9.0% in 2010 and
+2009, respectively. The increase in selling expenses was primarily due to advertising expenses
+that increased by $52.1 million for the year ended December 31, 2010. Selling expenses consist
+primarily of the following: sales representative sample costs, sales commissions, trade shows,
+advertising and promotional costs, which may include television and ad production costs, and
+expenses associated with marketing materials.
+General and administrative expenses 
+General and administrative expenses increased by $111.9 million, or 26.6%, to $533.0 million
+for 2010 from $421.1 million in 2009. As a percentage of sales, general and administrative
+expenses were 26.6% and 29.3% in 2010 and 2009, respectively. The increase in general and
+administrative expenses was primarily due to increased salaries and wages of $44.0 million that
+included $13.7 million in stock compensation costs, increased professional fees of $9.7 million,
+higher rent expense of $8.7 million due to an additional 41 stores, increased temporary help costs
+of $6.1 million, and higher outside service fees of $5.6 million. In addition, the expenses
+related to our distribution network, including the functions of purchasing, receiving, inspecting,
+allocating, warehousing and packaging of our products totaled $119.1 million and $109.2 million for
+2010 and 2009, respectively. The $9.9 million increase was primarily due to significantly higher
+sales volumes.
+General and administrative expenses consist primarily of the following: salaries, wages and
+related taxes, various overhead costs associated with our corporate staff, stock-based
+compensation, domestic and international retail operations, non-selling related costs of our
+international operations, costs associated with our domestic and European distribution centers,
+professional fees related to both legal and accounting, insurance, and depreciation and
+amortization, asset impairment, amongst other expenses. Our distribution network related costs are
+included in general and administrative expenses and are not allocated to specific segments.
+32 
+Table of Contents 
+We believe that we have established our presence in most major domestic retail markets. We
+opened 25 domestic retail stores and 17 international retail stores in 2010, while closing one
+domestic store. During 2011, we currently plan to open between 30 and 35 stores, including
+approximately 3 to 5 international locations.
+Interest income 
+Interest income for 2010 increased $0.7 million to $2.8 million as compared to $2.1 million
+for the same period in 2009. The increase in interest income was primarily due to interest
+received on refunds of customs and duties payments for the year ended December 31, 2010.
+Interest expense 
+Interest expense was $3.0 million for both 2010 and 2009. Interest expense was incurred on
+our mortgages for our domestic distribution center and our corporate office located in Manhattan
+Beach, California, and on amounts owed to our foreign manufacturers. In 2011, we expect our
+interest expense to be higher, primarily due to our increased borrowings and reduced amounts of
+capitalized interest, offset by the payoff of our mortgages.
+Income taxes 
+The effective tax rate for 2010 was 30.6% as compared to 28.4% in 2009. Income tax expense
+for 2010 was $60.2 million compared to $20.2 million for 2009. The increase in income taxes was
+primarily due to increased earnings before taxes. We expect our effective annual tax rate in 2011
+to be consistent with 2010.
+Income taxes were computed using the effective tax rates applicable to each of our domestic
+and international taxable jurisdictions. The rate for the year ended December 31, 2010 was lower
+than the expected domestic federal and state rate of approximately 40% due to our non-U.S.
+subsidiary earnings in lower tax rate jurisdictions and our planned permanent reinvestment of
+undistributed earnings from our non-U.S. subsidiaries, thereby indefinitely postponing their
+repatriation to the United States. As such, we did not provide for deferred income taxes on
+accumulated undistributed earnings of our non-U.S. subsidiaries. As of December 31, 2010,
+withholding and U.S. taxes have not been recorded on approximately $131.7 million of cumulative
+undistributed earnings.
+Noncontrolling interest in net income and loss of consolidated subsidiaries 
+Noncontrolling interest for 2010 increased $4.1 million to income of $0.3 million as compared
+to a loss of $3.8 million for the same period in 2009. Noncontrolling interest represents the
+share of net earnings or loss that is attributable to our joint venture partners.
+YEAR ENDED DECEMBER 31, 2009 COMPARED TO THE YEAR ENDED DECEMBER 31, 2008
+Net sales 
+Net sales for 2009 were $1.436 billion, a decrease of $4.3 million, or 0.3%, compared to net
+sales of $1.441 billion in 2008. The decrease in net sales was primarily due to lower domestic
+wholesale sales in the first half of the year partially offset by growth within our retail segment
+and increased sales during the fourth quarter.
+Our domestic wholesale net sales decreased $43.5 million, or 5.4%, to $763.5 million in 2009
+compared to $807.0 million in 2008. The decrease in our domestic wholesale segment was broad-based
+and across several divisions during the first half of the year primarily due to the weak U.S.
+retail environment. The average selling price per pair within the domestic wholesale segment
+increased to $20.49 per pair for 2009 from $19.21 in 2008, which was primarily the result of the
+demand for new styles introduced in the second half of the year partially offset by a large amount
+of closeouts in the first half of the year. The decrease in domestic wholesale segment sales came
+on an 11.2% unit sales volume decrease to 37.3 million pairs in 2009 from 42.0 million pairs in
+2008.
+Our international wholesale segment net sales decreased $4.0 million, or 1.2% to $328.5
+million in 2009, compared to sales of $332.5 million in 2008. Direct subsidiary sales increased
+$21.3 million, or 10.4%, to $226.3 million compared to sales of $205.0 million in 2008. The
+increase in direct subsidiary sales was primarily due to increased sales into China, Chile, and
+Switzerland. Our distributor net sales decreased $25.4 million, or 20.0%, to $102.1 million in
+2009, compared to sales of $127.5 million in 2008. This
+33 
+Table of Contents 
+was primarily due to decreased sales to our distributors in Russia and Dubai as well as the
+acquisition of our distributor in Chile on June 1, 2009.
+Our retail segment net sales increased $38.7 million, or 13.7% to $321.8 million in 2009,
+compared to sales of $283.1 million in 2008. The increase in retail sales was due to a net increase
+of 22 stores and positive comparable domestic store sales (i.e. those open at least one year).
+During 2009, we realized positive comparable store sales of 3.7% in our domestic retail stores,
+while we realized negative comparable store sales of 10.0% in our international retail stores due
+to unfavorable currency translations. During 2009, we opened 16 new domestic stores and four
+international stores, and we closed two domestic stores. We also acquired ten international stores
+from our distributor in Chile and contributed six international stores to our joint ventures with
+operations in Malaysia and Thailand. These new stores contributed $13.2 million in net sales
+during 2009 as compared to new store sales of $13.8 million for 32 other stores opened in 2008.
+Of our new store additions, 18 were concept stores and 12 were outlet stores. Our domestic retail
+sales increased 13.1% in 2009 compared to 2008 due to a net increase of 14 stores and positive
+comparable store sales. Our international retail sales increased 19.8% in 2009 compared to 2008,
+attributable to the purchase of ten stores from our distributor in Chile.
+In both 2009 and 2008, we closed two domestic stores. We periodically review all of our
+stores for impairment. During 2009, we recorded an impairment charge of $0.8 million related to
+three of our domestic stores. During 2008, we recorded an impairment charge of $1.7 million
+related to eight of our domestic stores.
+Our e-commerce net sales increased $4.5 million to $22.6 million in 2009, a 25.3% increase
+over sales of $18.1 million in 2008. The increase in sales was primarily due to increased sales of
+in-line and in-demand inventory. Our e-commerce sales made up approximately 2% of our consolidated
+net sales in 2009 compared to approximately 1% in 2008.
+Gross profit 
+Gross profit for 2009 increased $25.1 million to $621.0 million from $595.9 million in 2008.
+Gross profit as a percentage of net sales, or gross margin, increased to 43.2% in 2009 from 41.4%
+in 2008. The gross margin increase was largely the result of higher domestic wholesale and retail
+margins that were partially offset by lower international wholesale margins. Gross profit for our
+domestic wholesale segment increased $15.7 million, or 5.7%, to $292.3 million in 2009 from $276.6
+million in 2008. Domestic wholesale margins increased to 38.3% in 2009 from 34.3% for 2008. The
+increase in domestic wholesale margins was primarily due to less closeouts and increased sales of
+in-line, in-demand inventory during the fourth quarter which offset price pressure during the first
+half of 2009 resulting from the weak U.S. retail environment.
+Gross profit for our international wholesale segment decreased $19.4 million, or 14.1%, to
+$118.4 million for 2009 compared to $137.8 million in 2008. Gross margins were 36.1% for 2009
+compared to 41.5% in 2008. The decrease in gross margins for the international wholesale segment
+was due to weaker retail environments abroad and unfavorable currency translations, since our
+products are predominately purchased in U.S. dollars. Gross margins for our direct subsidiary
+sales were 40.0% in 2009 as compared to 49.2% in 2008. Gross margins for our distributor sales
+were 27.3% in 2009 as compared to 29.0% in 2008.
+Gross profit for our retail segment increased $25.3 million, or 14.7%, to $198.2 million in
+2009 as compared to $172.9 million in 2008. Gross margins for all stores were 61.6% for 2009
+compared to 61.1% in 2008. Gross margins for our domestic stores were 60.7% in 2009 as compared to
+60.6% in 2008. Gross margins for our international stores were 70.5% in 2009 as compared to 66.2%
+in 2008. The increase in domestic and international retail margins was due to less closeouts and
+increased sales of in-line, in-demand inventory.
+Selling expenses 
+Selling expenses increased by $2.1 million, or 1.7%, to $129.0 million for 2009 from $126.9
+million in 2008. As a percentage of net sales, selling expenses were 9.0% and 8.8% in 2009 and
+2008, respectively. The increase in selling expenses was primarily due to higher promotional costs
+and selling commissions partially offset by reduced trade show expenses.
+General and administrative expenses 
+General and administrative expenses increased by $7.5 million, or 1.8%, to $421.1 million for
+2009 from $413.6 million in 2008. As a percentage of sales, general and administrative expenses
+were 29.3% and 28.7% in 2009 and 2008, respectively. The increase in general and administrative
+expenses was primarily due to increased salaries and wages of $9.9 million, which included stock
+compensation costs of $5.7 million, primarily due to a return to historical employee incentive and
+benefit programs, as well as higher
+34 
+Table of Contents 
+rent expense of $8.5 million due to an additional 22 stores, which was partially offset by
+decreased bad debt expense of $6.6 million. In addition, the expenses related to our distribution
+network, including the functions of purchasing, receiving, inspecting, allocating, warehousing and
+packaging of our products totaled $109.2 million and $112.6 million for 2009 and 2008,
+respectively. The $3.4 million decrease was due to sales of higher priced products with fewer
+units sold as well as efficiency gains.
+Interest income 
+Interest income for 2009 decreased $5.2 million to $2.1 million as compared to $7.3 million
+for the same period in 2008. The decrease in interest income resulted from the repurchase of our
+auction rate securities by our investment advisor and the subsequent reinvestment of the proceeds
+in U.S. Treasuries that have a lower yield than the auction rate securities.
+Interest expense 
+Interest expense for 2009 decreased $1.6 million to $3.0 million as compared to $4.6 million
+for the same period in 2008. The decrease was due to interest on our new corporate headquarters
+and warehouse equipment for our new distribution center being capitalized. Interest expense was
+incurred on our mortgages for our domestic distribution center and our corporate office located in
+Manhattan Beach, California, and on amounts owed to our foreign manufacturers.
+Income taxes 
+The effective tax rate for 2009 was 28.4% as compared to 11.9% in 2008. Income tax expense
+for 2009 was $20.2 million compared to $7.3 million for 2008.
+Income taxes were computed using the effective tax rates applicable to each of our domestic
+and international taxable jurisdictions. The rate for the year ended December 31, 2009 is lower
+than the expected domestic rate of approximately 40% due to our non-U.S. subsidiary earnings in
+lower tax rate jurisdictions and our planned permanent reinvestment of undistributed earnings from
+our non-U.S. subsidiaries, thereby indefinitely postponing their repatriation to the United States.
+As such, we did not provide for deferred income taxes on accumulated undistributed earnings of our
+non-U.S. subsidiaries. As of December 31, 2009, withholding and U.S. taxes have not been recorded
+on approximately $82.0 million of cumulative undistributed earnings.
+Noncontrolling interest in net loss of consolidated subsidiaries 
+Noncontrolling interest for 2009 increased $1.9 million to $3.8 million as compared to $1.9
+million for the same period in 2009.
+LIQUIDITY AND CAPITAL RESOURCES
+Our working capital at December 31, 2010 was $666.1 million, an increase of $107.6 million
+from working capital of $558.5 million at December 31, 2009. Our cash and cash equivalents at
+December 31, 2010 were $233.6 million compared to $265.7 million at December 31, 2009. The
+decrease in cash and cash equivalents of $32.1 million was the result of increased inventory of
+$172.4 million, capital expenditures of $82.3 million, and increased receivables of $50.0 million,
+which was partially offset by our net earnings of $136.1 million, the maturity of $30.0 million in
+short-term investments, increased payables of $32.8 million, and proceeds of $39.3 million related
+to financing of equipment for our new distribution center. The increase of approximately $175
+million in inventory consisted of approximately $65 million to support the increases in our
+international and retail expansion and approximately $110 million related to our domestic wholesale
+business, which was primarily due to customer order cancelations during the second half of 2010.
+During 2010, net cash used in operating activities was $47.4 million compared to cash provided
+by operating activities of $115.1 million for 2009. The decrease in our operating cash flows for
+2010 when compared to 2009 was primarily the result of increased inventory levels due to customer
+order cancellations partially offset by higher net earnings.
+Net cash used in investing activities was $52.3 million for 2010 as compared to cash provided
+of $25.8 million in 2009. The decrease in cash provided by investing activities in 2010 as
+compared to 2009 was primarily the result of relatively higher cash balance as of December 31, 2009
+provided by investing activities due to the redemption of auction rate securities that were
+classified as long-term investments in 2009. Capital expenditures for 2010 were approximately
+$82.3 million, which consisted of $42.7 million of development costs for our new distribution
+center, $22.1 million for new store openings and remodels, $5.2 million for information technology
+upgrades and $3.6 million for corporate real property purchases. This was compared to capital
+expenditures of $35.3
+35 
+Table of Contents 
+million in the prior year, which primarily consisted of warehouse equipment upgrades and new
+store openings and remodels. In January 2010, we entered into a joint venture agreement to build
+our new 1.8 million square foot distribution facility in Rancho Belago, California. Excluding the
+costs of our new distribution center and distribution equipment, we expect our ongoing capital
+expenditures for the remainder of 2011 to be between $25 million and $30 million, which includes
+opening between 30 to 35 retail stores, including approximately 3 to 5 international locations, as
+well as investments in information technology. We are currently in the process of designing and
+purchasing the equipment and tenant improvements to be used in our new distribution center and
+estimate the cost of this equipment and tenant improvements to be approximately $85 million, of
+which $39.3 million had been incurred as of December 31, 2010. We expect to incur the remaining
+balance in 2011 and expect to fund it through existing cash balances and additional borrowings
+under the facility described below. Our operating cash flows, existing cash balances and
+additional borrowings under our existing line of credit and facility should be adequate to fund
+these capital expenditures.
+Net cash provided by financing activities was $67.4 million during 2010 compared to $8.4
+million during 2009. The increase in cash provided by financing activities was primarily due to
+proceeds of $39.3 million related to financing of equipment for our new distribution center along
+with proceeds of $14.0 million from the issuance of Class A common stock upon the exercise of stock
+options during the year ended December 31, 2010.
+On December 29, 2010, we entered into a master loan and security agreement (the “Master
+Agreement”), by and between us and Banc of America Leasing & Capital, LLC, and an Equipment
+Security Note (together with the Master Agreement, the “Loan Documents”), by and among us, Banc of
+America Leasing & Capital, LLC, and Bank of Utah, as agent (“Agent”). We used the proceeds to
+refinance certain equipment already purchased and to purchase new equipment for use in our Rancho
+Belago distribution facility. Borrowings made pursuant to the Master Agreement may be in the form
+of one or more equipment security notes (each a “Note,” and, collectively, the “Notes”) up to a
+maximum limit of $80.0 million and each for a term of 60 months. The Note entered into on the same
+date as the Master Agreement represents a borrowing of approximately $39.3 million. Interest will
+accrue at a fixed rate of 3.54% per annum. We paid commitment fees of $825,000 on this loan, which
+are being amortized over the five year life of the facility.
+On April 30, 2010, we entered into a construction loan agreement (the “Loan Agreement”), by
+and between HF Logistics-SKX, LLC and Bank of America, N.A. as administrative agent and as lender
+(“Bank of America” or the “Administrative Agent”) and Raymond James Bank, FSB. The proceeds from
+the Loan Agreement will be used to construct our domestic distribution facility in Rancho Belago,
+California. Borrowings made pursuant to the Loan Agreement may be made up to a maximum limit of
+$55.0 million and the loan matures on April 30, 2012, which may be extended for six months if
+certain conditions are met. Borrowings bear interest based on LIBOR. We had $16.0 million
+outstanding under this facility, which is included in short-term borrowings on December 31, 2010.
+We paid commitment fees of $737,500 on this loan are being amortized over the life of the facility.
+On January 30, 2010, we entered into a joint venture agreement with HF Logistics I, LLC
+through Skechers R.B., LLC, a wholly-owned subsidiary, regarding the ownership and management of HF
+Logistics-SKX, LLC, a Delaware limited liability company. The purpose of the JV is to acquire and
+to develop real property consisting of approximately 110 acres situated in Rancho Belago,
+California, and to construct approximately 1.8 million square feet of buildings and other
+improvements to lease to us as a distribution facility. The term of the JV is fifty years. The
+parties are equal fifty percent partners. In April 2010, we made an initial cash capital
+contribution of $30 million and HF made an initial capital contribution of land to the JV.
+Additional capital contributions, if necessary, would be made on an equal basis by Skechers R.B.,
+LLC and HF. We have completed our assessment of the joint venture and have determined it to be a
+variable interest entity (“VIE”) and that Skechers is the primary beneficiary, and therefore
+consolidate the operations of the joint venture into our financial statements.
+We had outstanding debt of $63.6 million as of December 31, 2010, of which $46.2 million
+relates to notes payable for warehouse equipment for our new distribution center and one of our
+administrative offices, which notes are secured by the respective equipment and property, and $17.4
+million relates to a note for development costs paid by HF for our new distribution center.
+On June 30, 2009, we entered into a $250.0 million secured credit agreement, as amended (the
+“Credit Agreement”) with a group of eight banks that replaced the previous $150 million credit
+agreement. The new credit facility matures in June 2013. The credit agreement permits us and
+certain of our subsidiaries to borrow up to $250.0 million based upon a borrowing base of eligible
+accounts receivable and inventory, which amount can be increased to $300.0 million at our request
+and upon satisfaction of certain conditions including obtaining the commitment of existing or
+prospective lenders willing to provide the incremental amount. Borrowings bear interest at the
+borrowers’ election based on LIBOR or a Base Rate (defined as the greatest of the base LIBOR plus
+1.00%, the Federal Funds Rate plus 0.5% or one of the lenders’ prime rate), in each case, plus an
+applicable margin based on the average daily principal balance of revolving loans under the credit
+agreement (2.75% to 3.25% for Base Rate loans and 3.75% to 4.25% for LIBOR loans).
+36 
+Table of Contents 
+We pay a monthly unused line of credit fee between 0.5% and 1.0% per annum, which varies based
+on the average daily principal balance of outstanding revolving loans and undrawn amounts of
+letters of credit outstanding during such month. The credit agreement further provides for a limit
+on the issuance of letters of credit to a maximum of $50.0 million. The credit agreement contains
+customary affirmative and negative covenants for secured credit facilities of this type, including
+a fixed charges coverage ratio that applies when excess availability is less than $50.0 million.
+In addition, the credit agreement places limits on additional indebtedness that we are permitted to
+incur as well as other restrictions on certain transactions. We and our subsidiaries had $3.4
+million of outstanding letters of credit and short-term borrowings of $18.3 million under this
+credit agreement as of December 31, 2010. We paid syndication and commitment fees of $5.9 million
+on this facility, which are being amortized over the four-year life of the facility.
+We believe that anticipated cash flows from operations, available borrowings under our secured
+line of credit, existing cash balances and current financing arrangements will be sufficient to
+provide us with the liquidity necessary to fund our anticipated working capital and capital
+requirements through December 31, 2011. However, in connection with our current strategies, we
+will incur significant working capital requirements and capital expenditures. Our future capital
+requirements will depend on many factors, including, but not limited to, the global economic
+slowdown, costs associated with moving to a new distribution facility, the levels at which we
+maintain inventory, the market acceptance of our footwear, the success of our international
+operations, the levels of advertising and marketing required to promote our footwear, the extent to
+which we invest in new product design and improvements to our existing product design, any
+potential acquisitions of other brands or companies, and the number and timing of new store
+openings. To the extent that available funds are insufficient to fund our future activities, we
+may need to raise additional funds through public or private financing of debt or equity.
+Recently, we have been successful in raising additional funds through financing activities however,
+we cannot be assured that additional financing will be available to us or that, if available, it
+can be obtained on past terms which have been favorable to our stockholders and us. Failure to
+obtain such financing could delay or prevent our current business plans, which could adversely
+affect our business, financial condition and results of operations. In addition, if additional
+capital is raised through the sale of additional equity or convertible securities, dilution to our
+stockholders could occur.
+DISCLOSURE ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
+The following table aggregates all material contractual obligations and commercial commitments as
+of December 31, 2010:
+Less than 
+One to 
+Three to 
+More Than 
+One 
+Three 
+Five 
+Five 
+Total 
+Year 
+Years 
+Years 
+Years 
+Short-term borrowings (1) 
+$ 
+18,826 
+$ 
+18,826 
+0 
+0 
+0 
+Long-term borrowings (1) 
+68,285 
+13,283 
+$ 
+12,778 
+$ 
+42,224 
+0 
+Operating lease obligations (2) 
+720,724 
+95,935 
+160,226 
+127,863 
+$ 
+336,700 
+Purchase obligations (3) 
+335,665 
+335,665 
+0 
+0 
+0 
+Warehousing equipment (4) 
+45,675 
+45,675 
+0 
+0 
+0 
+Minimum payments related to
+other arrangements 
+1,500 
+1,500 
+0 
+0 
+0 
+$ 
+1,190,675 
+$ 
+510,884 
+$ 
+173,004 
+$ 
+170,087 
+$ 
+336,700 
+(1) 
+Amounts include anticipated interest payments. 
+(2) 
+Operating lease obligations consists primarily of real property leases for our retail
+stores, corporate offices and distribution centers, including our Rancho Belago lease
+payments of $225.8 million. These leases frequently include options that permit us to
+extend beyond the terms of the initial fixed term. Payments for these lease terms are
+provided for by cash flows generated from operations and existing cash balances. 
+(3) 
+Purchase obligations include the following: (i) accounts payable balances for the
+purchase of footwear of $111.1 million, (ii) outstanding letters of credit of $3.4 million
+and (iii) open purchase commitments with our foreign manufacturers for $221.2 million. We
+currently expect to fund these commitments with cash flows from operations and existing
+cash balances. 
+(4) 
+We plan to spend approximately $85.0 million for equipment relating to our new
+distribution center in Rancho Belago, of which $39.3 million was incurred as of December
+31, 2010. We expect the remaining balance to be incurred in 2011, and we expect to fund it
+through existing cash balances and additional borrowings under the facility with Banc of
+America Leasing & Capital, LLC, and Bank of Utah. 
+OFF-BALANCE SHEET ARRANGEMENTS
+We do not have any relationships with unconsolidated entities or financial partnerships such
+as entities often referred to as structured finance or special purpose entities that would have
+been established for the purpose of facilitating off-balance-sheet
+37 
+Table of Contents 
+arrangements or for other contractually narrow or limited purposes. As such, we are not
+exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in
+such relationships.
+CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
+Management’s Discussion and Analysis of Financial Condition and Results of Operations is based
+upon our consolidated financial statements, which have been prepared in accordance with accounting
+principles generally accepted in the United States of America. The preparation of these financial
+statements requires us to make difficult, subjective and complex estimates and judgments that
+affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of
+contingent assets and liabilities.
+We base our estimates and judgments on historical experience, other available information, and
+on other assumptions that are believed to be reasonable under the circumstances, the results of
+which form the basis for making judgments about the carrying values of assets and liabilities. In
+determining whether an estimate is critical, we consider if the nature of the estimates or
+assumptions is material due to the levels of subjectivity and judgment or the susceptibility of
+such matters to change, and if the impact of the estimates and assumptions on financial condition
+or operating performance is material. Actual results may differ from these estimates under
+different assumptions or conditions.
+We believe the following critical accounting estimates are affected by significant judgments
+used in the preparation of our consolidated financial statements: revenue recognition, allowance
+for bad debts, returns, sales allowances and customer chargebacks, inventory write-downs, valuation
+of long-lived assets, litigation reserves, valuation of deferred income taxes.
+Revenue Recognition . We derive income from the sale of footwear and royalties earned from
+licensing the Skechers brand. Domestically, goods are shipped Free on Board (“FOB”) shipping point
+directly from our domestic distribution center in Ontario, California. For our international
+wholesale customers in the European community, product is shipped FOB shipping point direct from
+our distribution center in Liege, Belgium. For our distributor sales, the goods are generally
+delivered directly from the independent factories to our distributors’ freight forwarders on a Free
+Named Carrier (“FCA”) basis. We recognize revenue on wholesale sales when products are shipped and
+the customer takes title and assumes risk of loss, collection of the relevant receivable is
+reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or
+determinable. This generally occurs at time of shipment. While customers do not have the right to
+return goods, we periodically decide to accept returns or provide customers with credits.
+Allowances for estimated returns, discounts, doubtful accounts and chargebacks are provided
+for when related revenue is recorded. Related costs paid to third-party shipping companies are
+recorded as a cost of sales. We recognize revenue from retail sales at the point of sale.
+Royalty income is earned from our licensing arrangements. Upon signing a new licensing
+agreement, we receive up-front fees, which are generally characterized as prepaid royalties. These
+fees are initially deferred and recognized as revenue as earned (i.e., as licensed sales are
+reported to the company or on a straight-line basis over the term of the agreement). The first
+calculated royalty payment is based on actual sales of the licensed product or, in some cases
+minimum royalty payments. Typically, at each quarter-end we receive correspondence from our
+licensees indicating what the actual sales for the period were. This information is used to
+calculate and accrue the related royalties currently receivable based on the terms of the
+agreement.
+Allowance for bad debts, returns, sales allowances and customer chargebacks. We provide a
+reserve against our receivables for estimated losses that may result from our customers’ inability
+to pay. To minimize the likelihood of uncollectibility, customers’ credit-worthiness is reviewed
+periodically based on external credit reporting services, financial statements issued by the
+customer and our experience with the account, and it is adjusted accordingly. When a customer’s
+account becomes significantly past due, we generally place a hold on the account and discontinue
+further shipments to that customer, minimizing further risk of loss. We determine the amount of the
+reserve by analyzing known uncollectible accounts, aged receivables, economic conditions in the
+customers’ countries or industries, historical losses and our customers’ credit-worthiness. Amounts
+later determined and specifically identified to be uncollectible are charged or written off against
+this reserve.
+We also reserve for potential disputed amounts or chargebacks from our customers. Our
+chargeback reserve is based on a collectibility percentage based on factors such as historical
+trends, current economic conditions, and nature of the chargeback receivables. We also reserve for
+potential sales returns and allowances based on historical trends.
+38 
+Table of Contents 
+The likelihood of a material loss on an uncollectible account would be mainly dependent on
+deterioration in the overall economic conditions in a particular country or environment. Reserves
+are fully provided for all probable losses of this nature. For receivables that are not
+specifically identified as high risk, we provide a reserve based upon our historical loss rate as a
+percentage of sales. Gross trade accounts receivable balance was $285.8 million and $234.3
+million and the allowance for bad debts, returns, sales allowances and customer chargebacks was
+$19.7 million and $14.4 million, at December 31, 2010 and 2009, respectively.
+Inventory write-downs . Inventories are stated at the lower of cost or market. We review our
+inventory on a regular basis for excess and slow moving inventory. Our review is based on inventory
+on hand, prior sales and our expected net realizable value. Our analysis includes a review of
+inventory quantities on hand at period end in relation to year-to-date sales, existing orders from
+customers and projections for sales in the near future. The net realizable value, or market value,
+is determined based on our estimate of sales prices of such inventory based upon historical sales
+experience on a style by style basis. A write-down of inventory is considered permanent and creates
+a new cost basis for those units. The likelihood of any material inventory write-down is dependent
+primarily on our expectation of future consumer demand for our product. A misinterpretation or
+misunderstanding of future consumer demand for our product or of the economy, or other failure to
+estimate correctly, could result in inventory valuation changes, either favorably or unfavorably,
+compared to the requirement determined to be appropriate as of the balance sheet date. Our gross
+inventory value was $402.2 million and $227.7 million and our inventory reserve was $3.6 million
+and $3.7 million, at December 31, 2010 and 2009, respectively.
+Valuation of long-lived assets . When circumstances warrant, we assess the impairment of
+long-lived assets that require us to make assumptions and judgments regarding the carrying value of
+these assets. The assets are considered to be impaired if we determine that the carrying value may
+not be recoverable based upon our assessment of the following events or changes in circumstances:
+• 
+the asset’s ability to continue to generate income; 
+• 
+any loss of legal ownership or title to the asset(s); 
+• 
+any significant changes in our strategic business objectives and utilization of the
+asset(s); or 
+• 
+the impact of significant negative industry or economic trends. 
+If the assets are considered to be impaired, the impairment we recognize is the amount by
+which the carrying value of the assets exceeds the fair value of the assets. In addition, we base
+the useful lives and related amortization or depreciation expense on our estimate of the period
+that the assets will generate revenues or otherwise be used by us. If a change were to occur in any
+of the above-mentioned factors or estimates, the likelihood of a material change in our reported
+results would increase. In addition, we prepare a summary of store cash flows from our retail
+stores to assess potential impairment of the fixed assets and leasehold improvements. Stores with
+negative cash flows opened in excess of twenty-four months are then reviewed in detail to determine
+if impairment exists. Management reviews both quantitative and qualitative factors to asses if a
+triggering event occurred. For the year ended December 31, 2010, we did not record an impairment
+charge for our stores. For the year ended December 31, 2009, we recorded a $0.8 million impairment
+charge for three of our domestic stores. For the year ended December 31, 2008, we recorded a $1.7
+million impairment charge for eight of our domestic stores.
+Litigation reserves . Estimated amounts for claims that are probable and can be reasonably
+estimated are recorded as liabilities in our consolidated balance sheets. The likelihood of a
+material change in these estimated reserves would depend on new claims as they may arise and the
+favorable or unfavorable outcome of the particular litigation. Both the amount and range of loss on
+a large portion of the remaining pending litigation is uncertain. As such, we are unable to make a
+reasonable estimate of the liability that could result from unfavorable outcomes in litigation. As
+additional information becomes available, we will assess the potential liability related to our
+pending litigation and revise our estimates. Such revisions in our estimates of the potential
+liability could materially impact our results of operations and financial position. For the year
+ended December 31, 2010, we recorded $1.2 million related to a legal settlement.
+Valuation of deferred income taxes . We record a valuation allowance when necessary to reduce
+our deferred tax assets to the amount that is more likely than not to be realized. The likelihood
+of a material change in our expected realization of our deferred tax assets depends on future
+taxable income and the effectiveness of our tax planning strategies amongst the various domestic
+and international tax jurisdictions in which we operate. We evaluate our projections of taxable
+income to determine the recoverability of our deferred tax assets and the need for a valuation
+allowance. As of December 31, 2010, we had net deferred tax assets of $31.4 million reduced by a
+valuation allowance of $6.7 million against loss carry-forwards not expected to be utilized by
+certain foreign subsidiaries.
+39 
+Table of Contents 
+INFLATION
+We do not believe that the relatively moderate rates of inflation experienced in the United
+States over the last three years have had a significant effect on our sales or profitability.
+However, we cannot accurately predict the effect of inflation on future operating results. Although
+higher rates of inflation have been experienced in a number of foreign countries in which our
+products are manufactured, we do not believe that inflation has had a material effect on our sales
+or profitability. While we have been able to offset our foreign product cost increases by
+increasing prices or changing suppliers in the past, we cannot assure you that we will be able to
+continue to make such increases or changes in the future.
+EXCHANGE RATES
+We receive U.S. dollars for substantially all of our domestic and a portion of our
+international product sales as well as our royalty income. Inventory purchases from offshore
+contract manufacturers are primarily denominated in U.S. dollars; however, purchase prices for our
+products may be impacted by fluctuations in the exchange rate between the U.S. dollar and the local
+currencies of the contract manufacturers, which may have the effect of increasing our cost of goods
+in the future. During 2010 and 2009, exchange rate fluctuations did not have a material impact on
+our inventory costs. We do not engage in hedging activities with respect to such exchange rate
+risk.
+RECENT ACCOUNTING CHANGES
+Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2010-20,
+Receivables (Topic 310) — Disclosure about the Credit Quality of Financing Receivables and the
+Allowance for Credit Losses (“ASU 2010-20”) was issued in July 2010. This ASU amends existing
+disclosure requirements and requires additional disclosure regarding financing receivables, other
+than short-term trade receivables or receivables measured at fair value or lower of cost or fair
+value, including: (i) credit quality indicators of financing receivables at the end of the
+reporting period by class of financing receivables, (ii) the aging of past due financing
+receivables at the end of the reporting period by class of financing receivables, and (iii) the
+nature and extent of troubled debt restructurings that occurred during the period by class of
+financing receivables and their effect on the allowance for credit losses. For public entities, the
+requirement for disclosures as of the end of a reporting period is effective for interim and annual
+reporting periods ending on or after December 15, 2010. The requirement for disclosures about
+activities that occur during a reporting period is effective for interim and annual reporting
+periods beginning on or after December 15, 2010. We adopted on December 31, 2010 the applicable
+provisions of ASU 2010-20, which did not have a material impact on the disclosures in our
+consolidated financial statements. We do not expect the adoption of the provisions of ASU 2010-20
+relating to increased disclosure activities relating to financing receivables to have a material
+impact on the disclosures in our consolidated financial statements.
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+MARKET RISK
+Market risk is the potential loss arising from the adverse changes in market rates and prices,
+such as interest rates, marketable debt security prices and foreign currency exchange rates.
+Changes in interest rates, marketable debt security prices and changes in foreign currency exchange
+rates have and will have an impact on our results of operations. We do not hold any derivative
+securities that require fair value presentation under ASC 815-10.
+Interest rate fluctuations. Interest rate charged on our line of credit facility is based on
+either the prime rate of interest or the LIBOR, and changes in the either of these rates of
+interest could have an effect on the interest charged on our outstanding balances. At December 31,
+2010 we had $18.3 million of outstanding short-term borrowings subject to changes in interest
+rates; however, we do not expect that any changes will have a material impact on our financial
+condition or results of operations.
+Foreign exchange rate fluctuations . We face market risk to the extent that changes in foreign
+currency exchange rates affect our non-U.S. dollar functional currency foreign subsidiary’s
+revenues, expenses, assets and liabilities. In addition, changes in foreign exchange rates may
+affect the value of our inventory commitments. Also, inventory purchases of our products may be
+impacted by fluctuations in the exchange rates between the U.S. dollar and the local currencies of
+the contract manufacturers, which could have the effect of increasing the cost of goods sold in the
+future. We manage these risks by primarily denominating these purchases and commitments in U.S.
+dollars. We do not currently engage in hedging activities with respect to such exchange rate risks.
+A 200 basis point reduction in the exchange rates used to calculate foreign currency translations
+at December 31, 2010 would have reduced the values of our net investments by approximately $6.4
+million.
+40 
+Table of Contents 
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE 
+Page 
+REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+42 
+CONSOLIDATED BALANCE SHEETS 
+44 
+CONSOLIDATED STATEMENTS OF EARNINGS 
+45 
+CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME 
+46 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+47 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+48 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+66 
+41 
+Table of Contents 
+Report of Independent Registered Public Accounting Firm 
+The Board of Directors and Stockholders 
+Skechers U.S.A., Inc.:
+We have audited the accompanying consolidated balance sheets of Skechers U.S.A., Inc. and
+subsidiaries (the Company) as of December 31, 2010 and 2009, and the related consolidated
+statements of earnings, equity and comprehensive income, and cash flows for each of the years in
+the three-year period ended December 31, 2010. In connection with our audits of the consolidated
+financial statements, we also have audited the related financial statement schedule. These
+consolidated financial statements and financial statement schedule are the responsibility of the
+Company’s management. Our responsibility is to express an opinion on these consolidated financial
+statements and financial statement schedule based on our audits.
+We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
+Board (United States). Those standards require that we plan and perform the audit to obtain
+reasonable assurance about whether the financial statements are free of material misstatement. An
+audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
+financial statements. An audit also includes assessing the accounting principles used and
+significant estimates made by management, as well as evaluating the overall financial statement
+presentation. We believe that our audits provide a reasonable basis for our opinion.
+In our opinion, the consolidated financial statements referred to above present fairly, in all
+material respects, the financial position of Skechers U.S.A., Inc. and subsidiaries as of December
+31, 2010 and 2009, and the results of their operations and their cash flows for each of the years
+in the three-year period ended December 31, 2010, in conformity with U.S. generally accepted
+accounting principles. Also in our opinion, the related financial statement schedule, when
+considered in relation to the basic consolidated financial statements taken as a whole, presents
+fairly, in all material respects, the information set forth therein.
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight
+Board (United States), Skechers U.S.A., Inc.’s internal control over financial reporting as of
+December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued
+by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report
+dated March 1, 2011 expressed an unqualified opinion on the effectiveness of the Company’s internal
+control over financial reporting . 
+/s/ KPMG LLP
+Los Angeles, California 
+March 1, 2011
+42 
+Table of Contents 
+Report of Independent Registered Public Accounting Firm 
+The Board of Directors and Stockholders 
+Skechers U.S.A., Inc.:
+We have audited Skechers U.S.A., Inc.’s internal control over financial reporting as of December
+31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the
+Committee of Sponsoring Organizations of the Treadway Commission (COSO). The management of Skechers
+U.S.A., Inc. (the Company) is responsible for maintaining effective internal control over financial
+reporting and for its assessment of the effectiveness of internal control over financial reporting,
+included in the accompanying Management’s Report on Internal Control over Financial Reporting
+included in Item 9A. Our responsibility is to express an opinion on the Company’s internal control
+over financial reporting based on our audit.
+We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
+Board (United States). Those standards require that we plan and perform the audit to obtain
+reasonable assurance about whether effective internal control over financial reporting was
+maintained in all material respects. Our audit included obtaining an understanding of internal
+control over financial reporting, assessing the risk that a material weakness exists, and testing
+and evaluating the design and operating effectiveness of internal control based on the assessed
+risk. Our audit also included performing such other procedures as we considered necessary in the
+circumstances. We believe that our audit provides a reasonable basis for our opinion.
+A company’s internal control over financial reporting is a process designed 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. A
+company’s internal control over financial reporting includes those policies and procedures that (1)
+pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
+transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
+transactions are recorded as necessary to permit preparation of financial statements in accordance
+with generally accepted accounting principles, and that receipts and expenditures of the company
+are being made only in accordance with authorizations of management and directors of the company;
+and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
+acquisition, use, or disposition of the company’s assets that could have a material effect on the
+financial statements.
+Because of its inherent limitations, internal control over financial reporting may not prevent or
+detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
+subject to the risk that controls may become inadequate because of changes in conditions, or that
+the degree of compliance with the policies or procedures may deteriorate.
+In our opinion, Skechers U.S.A., Inc. maintained, in all material respects, effective internal
+control over financial reporting as of December 31, 2010, based on criteria established in Internal
+Control — Integrated Framework issued by the COSO.
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight
+Board (United States), the consolidated balance sheets of Skechers U.S.A., Inc. and subsidiaries as
+of December 31, 2010 and 2009, and the related consolidated statements of earnings, equity and
+comprehensive income, and cash flows for each of the years in the three-year period ended December
+31, 2010, and the related financial statement schedule, and our report dated March 1, 2011
+expressed an unqualified opinion on those consolidated financial statements and financial statement
+schedule.
+/s/ KPMG LLP
+Los Angeles, California 
+March 1, 2011
+43 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED BALANCE SHEETS 
+(In thousands) 
+December 31, 
+December 31, 
+2010 
+2009 
+ASSETS 
+Current Assets: 
+Cash and cash equivalents 
+$ 
+233,558 
+$ 
+265,675 
+Short-term investments 
+0 
+30,000 
+Trade accounts receivable, less allowances of $19,697 in 2010 and $14,361 in 2009 
+266,057 
+219,924 
+Other receivables 
+9,650 
+12,177 
+Total receivables 
+275,707 
+232,101 
+Inventories 
+398,588 
+224,050 
+Prepaid expenses and other current assets 
+53,791 
+28,233 
+Deferred tax assets 
+11,720 
+8,950 
+Total current assets 
+973,364 
+789,009 
+Property and equipment, at cost, less accumulated depreciation and amortization 
+293,802 
+171,667 
+Intangible assets, less accumulated amortization 
+7,367 
+9,011 
+Deferred tax assets 
+12,323 
+13,660 
+Other assets, at cost 
+17,938 
+12,205 
+TOTAL ASSETS 
+$ 
+1,304,794 
+$ 
+995,552 
+LIABILITIES AND EQUITY 
+Current Liabilities: 
+Current installments of long-term borrowings 
+$ 
+11,984 
+$ 
+529 
+Short-term borrowings 
+18,346 
+2,006 
+Accounts payable 
+246,595 
+196,163 
+Accrued expenses 
+30,385 
+31,843 
+Total current liabilities 
+307,310 
+230,541 
+Long-term borrowings, excluding current installments 
+51,650 
+15,641 
+Total liabilities 
+358,960 
+246,182 
+Commitments and contingencies 
+Stockholders’ equity: 
+Preferred Stock, $.001 par value; 10,000 authorized; none issued and outstanding 
+0 
+0 
+Class A Common Stock, $.001 par value; 100,000 shares authorized; 36,894 and 34,229 shares issued and outstanding at December 31, 2010 and 2009, respectively 
+37 
+34 
+Class B Common Stock, $.001 par value; 60,000 shares authorized; 11,311 and 12,360 shares issued and outstanding at December 31, 2010 and 2009, respectively 
+11 
+13 
+Additional paid-in capital 
+303,877 
+272,662 
+Accumulated other comprehensive income 
+4,265 
+9,348 
+Retained earnings 
+600,013 
+463,865 
+Skechers U.S.A., Inc. equity 
+908,203 
+745,922 
+Noncontrolling interests 
+37,631 
+3,448 
+Total equity 
+945,834 
+749,370 
+TOTAL LIABILITIES AND EQUITY 
+$ 
+1,304,794 
+$ 
+995,552 
+See accompanying notes to consolidated financial statements.
+44 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF EARNINGS 
+(In thousands, except per share data) 
+Years ended December 31, 
+2010 
+2009 
+2008 
+Net sales 
+$ 
+2,006,868 
+$ 
+1,436,440 
+$ 
+1,440,743 
+Cost of sales 
+1,094,962 
+815,430 
+844,821 
+Gross profit 
+911,906 
+621,010 
+595,922 
+Royalty income, net 
+4,568 
+1,655 
+2,461 
+916,474 
+622,665 
+598,383 
+Operating expenses: 
+Selling 
+186,738 
+128,989 
+126,890 
+General and administrative 
+532,996 
+421,094 
+413,601 
+719,734 
+550,083 
+540,491 
+Earnings from operations 
+196,740 
+72,582 
+57,892 
+Other income (expense): 
+Interest income 
+2,802 
+2,070 
+7,337 
+Interest expense 
+(3,022 
+) 
+(3,045 
+) 
+(4,606 
+) 
+Other, net 
+83 
+(497 
+) 
+120 
+(137 
+) 
+(1,472 
+) 
+2,851 
+Earnings before taxes 
+196,603 
+71,110 
+60,743 
+Income tax expense 
+60,198 
+20,228 
+7,258 
+Net earnings 
+136,405 
+50,882 
+53,485 
+Less: Net earnings (loss) attributable to noncontrolling interests 
+257 
+(3,817 
+) 
+(1,911 
+) 
+Net earnings attributable to Skechers U.S.A., Inc. 
+$ 
+136,148 
+$ 
+54,699 
+$ 
+55,396 
+Net earnings per share attributable to Skechers U.S.A., Inc.: 
+Basic 
+$ 
+2.87 
+$ 
+1.18 
+$ 
+1.20 
+Diluted 
+$ 
+2.78 
+$ 
+1.16 
+$ 
+1.19 
+Weighted average shares used in calculating earnings per share
+attributable to Skechers U.S.A., Inc.: 
+Basic 
+47,433 
+46,341 
+46,031 
+Diluted 
+49,050 
+47,105 
+46,708 
+See accompanying notes to consolidated financial statements.
+45 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME 
+(In thousands) 
+SHARES 
+AMOUNT 
+ACCUMULATED 
+CLASS A 
+CLASS B 
+CLASS A 
+CLASS B 
+ADDITIONAL 
+OTHER 
+SKECHERS 
+NON 
+TOTAL 
+COMMON 
+COMMON 
+COMMON 
+COMMON 
+PAID-IN 
+COMPREHENSIVE 
+RETAINED 
+U.S . A ., IN C. 
+CONTROLLING 
+STOCKHOLDERS’ 
+STOCK 
+STOCK 
+STOCK 
+STOCK 
+CAPITAL 
+INCOME 
+EARNINGS 
+EQUITY 
+INTERESTS 
+EQUITY 
+Balance at December 31, 2007 
+32,992 
+12,852 
+$ 
+33 
+$ 
+13 
+$ 
+258,084 
+$ 
+14,763 
+$ 
+353,770 
+$ 
+626,663 
+— 
+$ 
+626,663 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+55,396 
+55,396 
+$ 
+(1,911 
+) 
+53,485 
+Net unrealized gain (loss) on investments 
+— 
+— 
+— 
+— 
+— 
+(8,151 
+) 
+— 
+(8,151 
+) 
+— 
+(8,151 
+) 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+(11,331 
+) 
+— 
+(11,331 
+) 
+110 
+(11,221 
+) 
+Total comprehensive income 
+35,914 
+(1,801 
+) 
+34,113 
+Capital contribution 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+5,000 
+5,000 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+2,337 
+— 
+— 
+2,337 
+— 
+2,337 
+Proceeds from issuance of common stock under the employee stock purchase plan 
+132 
+— 
+— 
+— 
+1,780 
+— 
+— 
+1,780 
+— 
+1,780 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+216 
+— 
+— 
+— 
+1,876 
+— 
+— 
+1,876 
+— 
+1,876 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+123 
+— 
+— 
+123 
+— 
+123 
+Conversion of Class B Common Stock into Class A Common Stock 
+70 
+(70 
+) 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+Balance at December 31, 2008 
+33,410 
+12,782 
+$ 
+33 
+$ 
+13 
+$ 
+264,200 
+$ 
+(4,719 
+) 
+$ 
+409,166 
+$ 
+668,693 
+$ 
+3,199 
+$ 
+671,892 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+54,699 
+54,699 
+(3,817 
+) 
+50,882 
+Net unrealized gain on investments 
+— 
+— 
+— 
+— 
+— 
+8,151 
+— 
+8,151 
+— 
+8,151 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+5,916 
+— 
+5,916 
+66 
+5,982 
+Total comprehensive income 
+68,766 
+(3,751 
+) 
+65,015 
+Capital contribution 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+4,000 
+4,000 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+5,736 
+— 
+— 
+5,736 
+— 
+5,736 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+190 
+— 
+— 
+— 
+1,590 
+— 
+— 
+1,590 
+— 
+1,590 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+207 
+— 
+— 
+— 
+1,217 
+— 
+— 
+1,217 
+— 
+1,217 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+(81 
+) 
+— 
+— 
+(81 
+) 
+— 
+(81 
+) 
+Conversion of Class B Common Stock into Class A Common Stock 
+422 
+(422 
+) 
+1 
+— 
+— 
+— 
+— 
+1 
+— 
+1 
+Balance at December 31, 2009 
+34,229 
+12,360 
+$ 
+34 
+$ 
+13 
+$ 
+272,662 
+$ 
+9,348 
+$ 
+463,865 
+$ 
+745,922 
+$ 
+3,448 
+$ 
+749,370 
+Comprehensive income: 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+136,148 
+136,148 
+257 
+136,405 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+(5,083 
+) 
+— 
+(5,083 
+) 
+426 
+(4,657 
+) 
+Total comprehensive income 
+131,065 
+683 
+131,748 
+Capital contribution 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+33,500 
+33,500 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+13,739 
+— 
+— 
+13,739 
+— 
+13,739 
+Proceeds from issuance of common stock
+under the employee stock purchase plan 
+103 
+— 
+— 
+— 
+2,143 
+— 
+— 
+2,143 
+— 
+2,143 
+Proceeds from issuance of common stock
+under the employee stock option plan 
+1,513 
+— 
+2 
+— 
+11,895 
+— 
+— 
+11,897 
+— 
+11,897 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+9,042 
+— 
+— 
+9,042 
+— 
+9,042 
+Shares redeemed for employee tax withholdings 
+— 
+— 
+— 
+— 
+(5,604) 
+— 
+— 
+(5,604) 
+— 
+(5,604 
+) 
+Conversion of Class B Common Stock into Class A Common Stock 
+1,049 
+(1,049 
+) 
+1 
+(2 
+) 
+— 
+— 
+— 
+(1 
+) 
+— 
+(1 
+) 
+Balance at December 31, 2010 
+36,894 
+11,311 
+$ 
+37 
+$ 
+11 
+$ 
+303,877 
+$ 
+4,265 
+$ 
+600,013 
+$ 
+908,203 
+$ 
+37,631 
+$ 
+945,834 
+See accompanying notes to consolidated financial statements
+46 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+(In thousands) 
+Years ended December 31, 
+2010 
+2009 
+2008 
+Cash flows from operating activities: 
+Net earnings 
+$ 
+136,148 
+$ 
+54,699 
+$ 
+55,396 
+Adjustments to reconcile net earnings to net cash
+provided by (used in) operating activities: 
+Noncontrolling interests in subsidiaries 
+258 
+(3,817 
+) 
+(1,911 
+) 
+Depreciation of property and equipment 
+24,707 
+19,694 
+17,069 
+Amortization of deferred financing costs 
+1,482 
+741 
+0 
+Amortization of intangible assets 
+1,683 
+935 
+674 
+Provision for bad debts and returns 
+6,212 
+3,249 
+10,787 
+Tax benefits from stock-based compensation 
+0 
+(81 
+) 
+123 
+Non-cash stock compensation 
+13,739 
+5,736 
+2,337 
+Provision benefit for deferred income taxes 
+(5,170 
+) 
+1,954 
+(1,988 
+) 
+(Gain) loss on disposal of equipment 
+36 
+(18 
+) 
+167 
+Impairment of property and equipment 
+0 
+761 
+1,676 
+(Increase) decrease in assets: 
+Receivables 
+(50,040 
+) 
+(46,562 
+) 
+(27,462 
+) 
+Inventories 
+(172,417 
+) 
+39,362 
+(58,240 
+) 
+Prepaid expenses and other current assets 
+(21,402 
+) 
+2,812 
+(17,609 
+) 
+Other assets 
+(7,571 
+) 
+(1,023 
+) 
+(6,221 
+) 
+Increase (decrease) in liabilities: 
+Accounts payable 
+32,828 
+28,136 
+385 
+Accrued expenses 
+(7,872 
+) 
+8,531 
+2,988 
+Net cash provided by (used in) operating activities 
+(47,379 
+) 
+115,109 
+(21,829 
+) 
+Cash flows from investing activities: 
+Capital expenditures 
+(82,269 
+) 
+(35,341 
+) 
+(72,461 
+) 
+Purchases of investments 
+0 
+(30,000 
+) 
+(11,725 
+) 
+Maturities of investments 
+30,000 
+375 
+20,600 
+Redemption of auction rate securities 
+0 
+95,250 
+0 
+Intangible additions 
+(41 
+) 
+(4,500 
+) 
+0 
+Cash paid for acquisitions 
+0 
+0 
+(4,640 
+) 
+Net cash provided by (used in) investing activities 
+(52,310 
+) 
+25,784 
+(68,226 
+) 
+Cash flows from financing activities: 
+Net proceeds from the issuances of stock through employee
+stock purchase plan and the exercise of stock options 
+14,040 
+2,807 
+3,656 
+Shares redeemed for employee tax withholdings 
+(5,604 
+) 
+0 
+0 
+Contribution from noncontrolling interest of consolidated entity 
+3,500 
+4,000 
+5,000 
+Excess tax benefits from stock-based compensation 
+9,042 
+0 
+0 
+Increase in short-term borrowings 
+16,271 
+2,006 
+0 
+Proceeds from long-term debt 
+39,293 
+0 
+0 
+Payments on long-term debt 
+(9,121 
+) 
+(413 
+) 
+(99 
+) 
+Net cash provided by financing activities 
+67,421 
+8,400 
+8,557 
+Net increase (decrease) in cash and cash equivalents 
+(32,268 
+) 
+149,293 
+(81,498 
+) 
+Effect of exchange rates on cash and cash equivalents 
+151 
+1,441 
+(3,077 
+) 
+Cash and cash equivalents at beginning of year 
+265,675 
+114,941 
+199,516 
+Cash and cash equivalents at end of year 
+$ 
+233,558 
+$ 
+265,675 
+$ 
+114,941 
+Supplemental disclosures of cash flow information: 
+Cash paid during the year for: 
+Interest 
+$ 
+3,438 
+$ 
+4,445 
+$ 
+4,902 
+Income taxes 
+87,063 
+17,492 
+17,834 
+Non-cash transactions: 
+Land contribution from noncontrolling interest 
+30,000 
+0 
+0 
+Note payable contribution from noncontrolling interest 
+17,358 
+0 
+0 
+Acquisition of Chilean distributor 
+0 
+4,382 
+0 
+See accompanying notes to consolidated financial statements.
+47 
+Table of Contents 
+SKECHERS U.S.A., INC . 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+DECEMBER 31, 2010, 2009 and 2008 
+(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
+(a) The Company
+Skechers U.S.A., Inc. (the “Company”) designs, develops, markets and distributes footwear. The
+Company also operates retail stores and an e-commerce business.
+The consolidated financial statements have been prepared in accordance with accounting
+principles generally accepted in the United States and include the accounts of the Company and its
+subsidiaries. All significant intercompany balances and transactions have been eliminated in
+consolidation.
+(b) Use of Estimates
+Management has made a number of estimates and assumptions relating to the reporting of assets,
+liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to
+prepare these consolidated financial statements in conformity with accounting principles generally
+accepted in the United States. Significant areas requiring the use of management estimates relate
+primarily to revenue recognition, allowance for bad debts, returns, sales allowances and customer
+chargebacks, inventory write-downs, valuation of long-lived assets, litigation reserves and
+valuation of deferred income taxes. Actual results could differ from those estimates.
+(c) Noncontrolling interests
+The Company has interests in certain joint ventures which are consolidated into its financial
+statements. Noncontrolling interest income was of $0.3 million and loss of $3.8 million for the
+year ended December 31, 2010 and 2009, respectively, which represents the share of net earnings or
+loss that is attributable to our joint venture partners. Our joint venture partners made a $30.0
+million capital contribution in land and a cash capital contribution of $3.5 million during the
+year ended December 31, 2010.
+On January 30, 2010, we entered into a joint venture agreement with HF Logistics I, LLC
+through Skechers R.B., LLC, a wholly-owned subsidiary, regarding the ownership and management of HF
+Logistics-SKX, LLC, a Delaware limited liability company. The purpose of the JV is to acquire and
+to develop real property consisting of approximately 110 acres situated in Rancho Belago,
+California, and to construct approximately 1.8 million square feet of buildings and other
+improvements to lease to us as a distribution facility. The term of the JV is fifty years. The
+parties are equal fifty percent partners. In April 2010, we made an initial cash capital
+contribution of $30 million and HF made an initial capital contribution of land to the JV.
+Additional capital contributions, if necessary, would be made on an equal basis by Skechers R.B.,
+LLC and HF. We have completed our assessment of the joint venture and have determined it to be a
+VIE and that Skechers is the primary beneficiary, and therefore consolidate the operations of the
+joint venture into our financial statements.
+The VIE is consolidated into the consolidated financial statements and the carrying amounts
+and classification of assets and liabilities was as follows (in thousands):
+December 31, 2010 
+December 31, 2009 
+Current assets 
+$ 
+6,058 
+$ 
+0 
+Noncurrent assets 
+107,723 
+0 
+Total assets 
+$ 
+113,781 
+$ 
+0 
+Current liabilities 
+$ 
+36,364 
+$ 
+0 
+Noncurrent liabilities 
+17,359 
+0 
+Total liabilities 
+$ 
+53,723 
+$ 
+0 
+The assets of these joint ventures are restricted in that they are not available for our
+general business use outside the context of the joint venture. The holders of the liabilities of
+each joint venture have no recourse to Skechers U.S.A., Inc. The Company does not have a
+significant variable interest in any unconsolidated VIE’s.
+48 
+Table of Contents 
+(d) Business Segment Information
+Skechers operations and segments are organized along its distribution channels and consist of
+the following: domestic wholesale, international wholesale, retail and e-commerce sales.
+Information regarding these segments is summarized in Note 14 to the Consolidated Financial
+Statements.
+(e) Revenue Recognition
+The Company recognizes revenue on wholesale sales when products are shipped and the customer
+takes ownership and assumes risk of loss, collection of the relevant receivable is reasonably
+assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable.
+This generally occurs at the time of shipment. Allowances for estimated returns, sales
+allowances, discounts, doubtful accounts and chargebacks are provided for when related revenue is
+recorded. Related costs paid to third-party shipping companies are recorded as a cost of sales.
+The Company recognizes revenue from retail sales at the point of sale.
+Net royalty income is earned from our licensing arrangements. Upon signing a new licensing
+agreement, we receive up-front fees, which are generally characterized as prepaid royalties. These
+fees are initially deferred and recognized as revenue as earned based on the terms of the contract
+as licensed sales are reported to the company or on a straight-line basis over the term of the
+agreement. The first calculated royalty payment is based on actual sales of the licensed product.
+Typically, at each quarter-end we receive correspondence from our licensees indicating actual sales
+for the period. This information is used to calculate and accrue the related royalties based on the
+terms of the agreement.
+(f) Allowance for Bad Debts, Returns, Sales Allowances and Customer Chargebacks
+The Company provides a reserve against its receivables for estimated losses that may
+result from its customers’ inability to pay. To minimize the likelihood of uncollectibility,
+customers’ credit-worthiness is reviewed periodically based on external credit reporting services,
+financial statements issued by the customer and the Company’s experience with the account, and it
+is adjusted accordingly. When a customer’s account becomes significantly past due, the Company
+generally places a hold on the account and discontinues further shipments to that customer,
+minimizing further risk of loss. The Company determines the amount of the reserve by analyzing
+known uncollectible accounts, aged receivables, economic conditions in the customers’ countries or
+industries, historical losses and its customers’ credit-worthiness. Amounts later determined and
+specifically identified to be uncollectible are charged or written off against this reserve.
+The Company also reserves for potential disputed amounts or chargebacks from its customers.
+The Company’s chargeback reserve is based on a collectibility percentage based on factors such as
+historical trends, current economic conditions, and nature of the chargeback receivables. The
+Company also reserves for potential sales returns and allowances based on historical trends.
+The likelihood of a material loss on an uncollectible account would be mainly dependent
+on deterioration in the overall economic conditions in a particular country or environment.
+Reserves are fully provided for all probable losses of this nature. For receivables that are not
+specifically identified as high risk, the Company provides a reserve based upon our historical loss
+rate as a percentage of sales.
+(g) Cash and Cash Equivalents
+Cash and cash equivalents consist primarily of certificates of deposit with an initial term of
+less than three months. For purposes of the consolidated statements of cash flows, the Company
+considers all highly liquid debt instruments with original maturities of three months or less to be
+cash equivalents.
+(h) Investments
+In general, investments with original maturities of greater than three months and remaining
+maturities of less than one year are classified as short-term investments. Highly liquid
+investments with maturities beyond one year may also be classified as short-term based on their
+liquidity, management’s intentions and because such marketable securities represent the investment
+of cash that is available for current operations.
+(i) Foreign Currency Translation
+In accordance with ASC 830-30, certain international operations use the respective local
+currencies as their functional currency, while other international operations use the U.S. Dollar
+as their functional currency. The Company considers the U.S. dollar as its
+49 
+Table of Contents 
+functional currency. The Company operates internationally through several foreign
+subsidiaries. Translation adjustments for these subsidiaries are included in other comprehensive
+income. Additionally, one international subsidiary, Skechers S.a.r.l. located in Switzerland,
+operates with a functional currency of the U.S. dollar. Resulting re-measurement gains and losses
+from this subsidiary are included in the determination of net earnings. Assets and liabilities of
+the foreign operations denominated in local currencies are translated at the rate of exchange at
+the balance sheet date. Revenues and expenses are translated at the weighted average rate of
+exchange during the period. Translations of intercompany loans of a long-term investment nature are
+included as a component of translation adjustment in other comprehensive income.
+(j) Inventories
+Inventories, principally finished goods, are stated at the lower of cost (based on the
+first-in, first-out method) or market. The Company provides for estimated losses from obsolete or
+slow-moving inventories and writes down the cost of inventory at the time such determinations are
+made. Reserves are estimated based upon inventory on hand, historical sales activity, and the
+expected net realizable value. The net realizable value is determined based upon estimated sales
+prices of such inventory through off-price or discount store channels.
+(k) Income Taxes
+The Company accounts for income taxes in accordance with ASC 740-10, which requires that the
+Company recognize deferred tax liabilities for taxable temporary differences and deferred tax
+assets for deductible temporary differences and operating loss carry-forwards using enacted tax
+rates in effect in the years the differences are expected to reverse. Deferred income tax benefit
+or expense is recognized as a result of changes in net deferred tax assets or deferred tax
+liabilities. A valuation allowance is recorded when it is more likely than not that some or all of
+any deferred tax assets will not be realized.
+(l) Depreciation and Amortization
+Depreciation and amortization of property and equipment is computed using the straight-line
+method based on the following estimated useful lives:
+Buildings
+20 years 
+Building improvements
+10 years 
+Furniture, fixtures and equipment
+5 years 
+Leasehold improvements
+Useful life or remaining lease term, whichever is shorter 
+(m) Intangible Assets
+Goodwill and indefinite-lived intangible assets are measured for impairment at least annually
+and more often when events indicate that impairment exists. Intellectual property, which include
+purchased intellectual property, artwork and design, trade name and trademark are amortized over
+their useful lives ranging from 1—10 years, generally on a straight-line basis. Intangible assets
+as of December 31, 2010 and 2009 are as follows (in thousands):
+2010 
+2009 
+Intellectual property 
+$ 
+11,331 
+$ 
+11,300 
+Goodwill 
+1,575 
+1,575 
+Other intangibles 
+840 
+840 
+Less accumulated amortization 
+(6,379 
+) 
+(4,704 
+) 
+Total Intangible Assets 
+$ 
+7,367 
+$ 
+9,011 
+We recorded amortization expense in general and administrative expense of $3.2 million, $1.7
+million and $0.7 million for the years ended December 31, 2010, 2009 and 2008, respectively.
+(n) Long-Lived Assets
+Long-lived assets such as property and equipment and purchased intangibles subject to
+amortization are reviewed for impairment whenever events or changes in circumstances indicate that
+the carrying amount of an asset may not be recoverable. We prepare a summary of store cash flows
+from our retail stores to assess potential impairment of the fixed assets and leasehold
+improvements.
+50 
+Table of Contents 
+Stores with negative cash flows opened in excess of twenty-four months are then reviewed in
+detail to determine if impairment exists. Recoverability of assets to be held and used is measured
+by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows
+expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated
+future cash flows, an impairment charge is recognized in the amount by which the carrying amount of
+the asset exceeds the fair value of the asset. Management reviews both quantitative and qualitative
+factors to asses if a triggering event occurred. The Company did not record impairment charges
+for the year ended December 31, 2010. The Company recorded impairment charges for the years ended
+December 31, 2009 and 2008 of $0.8 million and $1.7 million, respectively.
+(o) Advertising Costs
+Advertising costs are expensed in the period in which the advertisements are first run or over
+the life of the endorsement contract. Advertising expense for the years ended December 31, 2010,
+2009 and 2008 was approximately $154.6 million, $98.3 million and $97.3 million, respectively.
+Prepaid advertising costs were $11.5 million and $3.9 million at December 31, 2010 and 2009,
+respectively. Prepaid amounts outstanding at December 31, 2010 and 2009 represent the unamortized
+portion of endorsement contracts, advertising in trade publications and media productions created
+which had not run as of December 31, 2010 and 2009, respectively.
+(p) Earnings Per Share
+Basic earnings per share represents net earnings divided by the weighted average number of
+common shares outstanding for the period. Diluted earnings per share, in addition to the weighted
+average determined for basic earnings per share, includes potential common shares which would arise
+from the exercise of stock options using the treasury stock method.
+The following is a reconciliation of net earnings and weighted average common shares
+outstanding for purposes of calculating earnings per share (in thousands):
+Years Ended December 31, 
+Basic earnings per share 
+2010 
+2009 
+2008 
+Net earnings 
+$ 
+136,148 
+$ 
+54,699 
+$ 
+55,396 
+Weighted average common shares outstanding 
+47,433 
+46,341 
+46,031 
+Basic earnings per share 
+$ 
+2.87 
+$ 
+1.18 
+$ 
+1.20 
+Years Ended December 31, 
+Diluted earnings per share 
+2010 
+2009 
+2008 
+Net earnings 
+$ 
+136,148 
+$ 
+54,699 
+$ 
+55,396 
+Weighted average common shares outstanding 
+47,433 
+46,341 
+46,031 
+Dilutive stock options 
+1,617 
+764 
+677 
+Weighted average common shares outstanding 
+49,050 
+47,105 
+46,708 
+Diluted earnings per share 
+$ 
+2.78 
+$ 
+1.16 
+$ 
+1.19 
+There were no options excluded from the computation of diluted earnings per share for the year
+ended December 31, 2010. Options to purchase 362,653 and 156,716 shares of Class A common stock
+were excluded from the computation of diluted earnings per share for the years ended December 31,
+2009 and 2008, respectively because their inclusion would have been anti-dilutive.
+(q) Product Design and Development Costs
+The Company charges all product design and development costs to expense when incurred. Product
+design and development costs aggregated approximately $12.6 million, $9.3 million and $8.8 million
+during the years ended December 31, 2010, 2009 and 2008, respectively.
+51 
+Table of Contents 
+(r) Fair Value of Financial Instruments
+The carrying amount of the Company’s financial instruments, which principally include cash and
+cash equivalents, investments, accounts receivable, accounts payable and accrued expenses,
+approximates fair value due to the relatively short maturity of such instruments.
+The carrying amount of the Company’s long-term borrowings approximates the fair value based
+upon current rates and terms available to the Company for similar debt.
+(s) New Accounting Standards
+Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2010-20,
+Receivables (Topic 310) — Disclosure about the Credit Quality of Financing Receivables and the
+Allowance for Credit Losses (“ASU 2010-20”) was issued in July 2010. This ASU amends existing
+disclosure requirements and requires additional disclosure regarding financing receivables, other
+than short-term trade receivables or receivables measured at fair value or lower of cost or fair
+value, including: (i) credit quality indicators of financing receivables at the end of the
+reporting period by class of financing receivables, (ii) the aging of past due financing
+receivables at the end of the reporting period by class of financing receivables, and (iii) the
+nature and extent of troubled debt restructurings that occurred during the period by class of
+financing receivables and their effect on the allowance for credit losses. For public entities, the
+requirement for disclosures as of the end of a reporting period is effective for interim and annual
+reporting periods ending on or after December 15, 2010. The requirement for disclosures about
+activities that occur during a reporting period is effective for interim and annual reporting
+periods beginning on or after December 15, 2010. We adopted on December 31, 2010 the applicable
+provisions of ASU 2010-20, which did not have a material impact on the disclosures in our
+consolidated financial statements. We do not expect the adoption of the provisions of ASU 2010-20
+relating to increased disclosure activities relating to financing receivables to have a material
+impact on the disclosures in our consolidated financial statements.
+(2) INVESTMENTS 
+At December 31, 2009, short-term investments were $30.0 million, which consisted of U.S.
+Treasuries with maturities greater than 90 days. During the year ended December 31, 2009, Wells
+Fargo (formerly Wachovia Securities) purchased $95.3 million of the Company’s investments in
+auction rate preferred stocks and auction rate Dividend Received Deduction (“DRD”) preferred
+securities at par for cash.
+(3) PROPERTY AND EQUIPMENT 
+Property and equipment at December 31, 2010 and 2009 is summarized as follows (in thousands):
+2010 
+2009 
+Land 
+$ 
+62,589 
+$ 
+28,951 
+Buildings and improvements 
+187,649 
+108,367 
+Furniture, fixtures and equipment 
+107,371 
+94,293 
+Leasehold improvements 
+123,500 
+104,939 
+Total property and equipment 
+481,109 
+336,550 
+Less accumulated depreciation and amortization 
+187,307 
+164,883 
+Property and equipment, net 
+$ 
+293,802 
+$ 
+171,667 
+The Company capitalized $2.1 million, $2.2 million and $1.0 million of interest expense during
+2010, 2009 and 2008, respectively, relating to the construction of our corporate headquarters and
+equipment for our new distribution facility.
+52 
+Table of Contents 
+(4) ACCRUED EXPENSES 
+Accrued expenses at December 31, 2010 and 2009 are summarized as follows (in thousands):
+2010 
+2009 
+Accrued inventory purchases 
+$ 
+12,164 
+$ 
+2,678 
+Accrued payroll and related taxes 
+18,201 
+18,016 
+Income taxes payable 
+0 
+11,149 
+Accrued interest 
+20 
+0 
+Accrued expenses 
+$ 
+30,385 
+$ 
+31,843 
+(5) LINE OF CREDIT AND SHORT-TERM BORROWINGS 
+On June 30, 2009, we entered into a $250 million secured credit agreement, as amended with a
+group of eight banks that replaced the existing $150 million credit agreement. The new credit
+facility matures in June 2013. The credit agreement permits us and certain of our subsidiaries to
+borrow up to $250 million based upon a borrowing base of eligible accounts receivable and
+inventory, which amount can be increased to $300 million at our request and upon satisfaction of
+certain conditions including obtaining the commitment of existing or prospective lenders willing to
+provide the incremental amount. Borrowings bear interest at the borrowers’ election based on LIBOR
+or a Base Rate (defined as the greatest of the base LIBOR plus 1.00%, the Federal Funds Rate plus
+0.5% or one of the lenders’ prime rate), in each case, plus an applicable margin based on the
+average daily principal balance of revolving loans under the credit agreement (2.75% to 3.25% for
+Base Rate loans and 3.75% to 4.25% for LIBOR loans). We pay a monthly unused line of credit fee
+between 0.5% and 1.0% per annum, which varies based on the average daily principal balance of
+outstanding revolving loans and undrawn amounts of letters of credit outstanding during such month.
+The credit agreement further provides for a limit on the issuance of letters of credit to a
+maximum of $50 million. The credit agreement contains customary affirmative and negative covenants
+for secured credit facilities of this type, including a fixed charges coverage ratio that applies
+when excess availability is less than $50 million. In addition, the credit agreement places limits
+on additional indebtedness that we are permitted to incur as well as other restrictions on certain
+transactions. The Company and its subsidiaries had $3.4 million of outstanding letters of credit
+and short-term borrowings of $18.3 million as of December 31, 2010. The Company paid syndication
+and commitment fees of $5.9 million on this facility which are being amortized over the four-year
+life of the facility.
+On April 30, 2010, we entered into a Construction Loan Agreement, by and between HF
+Logistics-SKX, LLC and Bank of America, N.A. as administrative agent and as lender and Raymond
+James Bank, FSB. The proceeds from the Loan Agreement will be used to construct our domestic
+distribution facility in Rancho Belago, California. Borrowings made pursuant to the Loan Agreement
+may be made up to a maximum limit of $55.0 million and the loan matures on April 30, 2012, which
+may be extended for six months if certain conditions are met. Borrowings bear interest based on
+LIBOR. We had $16.0 million outstanding which is included in short-term borrowings of December 31,
+2010. We paid commitment fees of $737,500 on this loan that are being amortized over the life of
+the facility.
+(6) LONG-TERM BORROWINGS 
+Long-term debt at December 31, 2010 and 2009 is as follows (in thousands):
+2010 
+2009 
+Note payable to bank, due in
+monthly installments of $531.4
+(includes principal and interest),
+fixed rate interest at 3.54%, secured
+by property, balloon payment of
+$12,635 due December 2015 
+$ 
+39,325 
+$ 
+0 
+Note payable to bank, due in monthly
+installments of $82.2 (includes
+principal and interest), fixed rate
+interest at 7.79%, secured by
+property, balloon payment of $8,716
+due January 2011 
+0 
+9,034 
+Note payable to bank, due in monthly
+installments of $57.6 (includes
+principal and interest), fixed rate
+interest at 7.89%, secured by
+property, balloon payment of $6,889
+paid in January 2011 
+6,900 
+7,033 
+Loan from HF Logistics I, LLC 
+17,358 
+0 
+Capital lease obligations 
+51 
+103 
+Subtotal 
+63,634 
+16,170 
+Less current installments 
+11,984 
+529 
+Total long-term debt 
+$ 
+51,650 
+$ 
+15,641 
+53 
+Table of Contents 
+The aggregate maturities of long-term borrowings at December 31, 2010 are as follows:
+2011 
+$ 
+11,984 
+2012 
+5,260 
+2013 
+5,451 
+2014 
+22,999 
+2015 
+17,940 
+$ 
+63,634 
+The Company’s long-term debt obligations contain both financial and non-financial covenants,
+including cross-default provisions. The Company is in compliance with its non-financial covenants,
+including any cross default provisions, and financial covenants of our long-term debt as of
+December 31, 2010.
+On December 29, 2010, we entered into a Master Loan and Security Agreement, by and between us
+and Banc of America Leasing & Capital, LLC, and an Equipment Security Note, by and among us, Banc
+of America Leasing & Capital, LLC, and Bank of Utah, as agent. We used the proceeds to refinance
+certain equipment already purchased and to purchase new equipment for use in our distribution
+facility. Borrowings made pursuant to the Master Agreement may be in the form of one or more
+equipment security notes up to a maximum limit of $80.0 million and each for a term of 60 months.
+The Note entered into on the same date as the Master Agreement represents a borrowing of
+approximately $39.3 million. Interest will accrue at a fixed rate of 3.54% per annum. We paid
+commitment fees of $825,000 on this facility which are being amortized over the five year life of
+the loan.
+(7) STOCK COMPENSATION 
+(a) Equity Incentive Plans
+In January 1998, the Company’s Board of Directors adopted the Amended and Restated 1998 Stock
+Option, Deferred Stock and Restricted Stock Plan for the grant of incentive stock options (“ISOs”),
+non-qualified stock options and deferred and restricted stock (the “Equity Incentive Plan”). In
+June 2001, the stockholders approved an amendment to the plan to increase the number of shares of
+Class A Common Stock authorized for issuance under the plan to 8,215,154. In May 2003,
+stockholders approved an amendment to the plan to increase the number of shares of Class A Common
+Stock authorized for issuance under the plan to 11,215,154. Stock option awards are generally
+granted with an exercise price per share equal to the market price of a share of Class A Common
+Stock on the date of grant. Stock option awards generally become exercisable over a three-year
+graded vesting period and expire ten years from the date of grant.
+On April 16, 2007, the Company’s Board of Directors adopted the 2007 Plan, which became
+effective upon approval by the Company’s stockholders on May 24, 2007. The Company’s Board of
+Directors terminated the Equity Incentive Plan as of May 24, 2007, with no granting of awards being
+permitted thereafter, although any awards then outstanding under the Equity Incentive Plan remain
+in force according to the terms of such terminated plan and the applicable award agreements. A
+total of 7,500,000 shares of Class A Common Stock are reserved for issuance under the 2007 Plan,
+which provides for grants of ISOs, non-qualified stock options, restricted stock and various other
+types of equity awards as described in the plan to the employees, consultants and directors of the
+Company and its subsidiaries. The 2007 Plan is administered by the Compensation Committee of the
+Company’s Board of Directors.
+(b) Valuation Assumptions
+There were no stock options granted under the Equity Incentive Plan or the 2007 Plan during
+2010, 2009 or 2008. The total intrinsic value of options exercised during 2010, 2009 and 2008 was
+$20.9 million, $1.3 million and $2.7 million, respectively.
+54 
+Table of Contents 
+(c) Stock-Based Payment Awards 
+A summary of the status and changes of our restricted stock awards under the Equity Incentive
+Plan and the 2007 Plan as of and during the period ended December 31, 2010 is presented below:
+WEIGHTED 
+AVERAGE 
+SHARES 
+GRANT-DATE
+FAIR 
+VALUE 
+Nonvested at December 31, 2007 
+15,167 
+$ 
+18.32 
+Granted 
+218,046 
+16.85 
+Vested 
+(10,001 
+) 
+16.26 
+Cancelled 
+(5,928 
+) 
+17.16 
+Nonvested at December 31, 2008 
+217,284 
+16.97 
+Granted 
+2,051,500 
+17.90 
+Vested 
+(108,140 
+) 
+16.99 
+Cancelled 
+(2,000 
+) 
+13.13 
+Nonvested at December 31, 2009 
+2,158,644 
+17.86 
+Granted 
+139,000 
+30.38 
+Vested 
+(804,315 
+) 
+17.96 
+Cancelled 
+0 
+0 
+Nonvested at December 31, 2010 
+1,493,329 
+$ 
+18.97 
+Restricted stock awards generally vest over a graded vesting schedule from one to four years.
+A summary of the status and changes of our stock options granted under the Equity Incentive
+Plan and the 2007 Plan were as follows:
+WEIGHTED 
+AVERAGE 
+SHARES 
+OPTION
+EXERCISE 
+PRICE 
+Outstanding at December 31, 2007 
+1,961,756 
+$ 
+11.56 
+Granted 
+0 
+Exercised 
+(206,844 
+) 
+9.06 
+Cancelled 
+(15,191 
+) 
+19.37 
+Outstanding at December 31, 2008 
+1,739,721 
+11.79 
+Granted 
+0 
+Exercised 
+(125,715 
+) 
+9.68 
+Cancelled 
+(108,312 
+) 
+11.20 
+Outstanding at December 31, 2009 
+1,505,694 
+12.01 
+Granted 
+0 
+Exercised 
+(1,030,516 
+) 
+12.53 
+Cancelled 
+(23,870 
+) 
+4.10 
+Outstanding at December 31, 2010 
+451,308 
+$ 
+11.26 
+As of December 31, 2010, a total of 5,099,382 shares remain available for grant as equity
+awards under the 2007 Plan.
+There was approximately $25.1 million and $33.7 million of total unrecognized compensation
+cost related to unvested stock options and restricted stock granted under the Equity Incentive Plan
+or the 2007 Plan as of December 31, 2010 and 2009, respectively. That cost is expected to be
+recognized over a weighted average period of 1.9 years and 2.8 years, respectively. The total fair
+value of shares vested during the period ended December 31, 2010 and 2009 was $14.4 million and
+$1.8 million, respectively.
+(d) Stock Purchase Plans 
+Effective July 1, 1998, the Company’s Board of Directors adopted the 1998 Employee Stock
+Purchase Plan (the “1998 ESPP”). The 1998 ESPP provides that a total of 2,781,415 shares of Class A
+Common Stock are reserved for issuance under the plan. The 1998 ESPP, which is intended to qualify
+as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as
+amended, was implemented utilizing six-month offerings with purchases occurring at six-month
+intervals. The 1998 ESPP
+55 
+Table of Contents 
+administration was overseen by the Board of Directors. Employees were eligible to participate
+if they are employed by the Company for at least 20 hours per week and more than five months in any
+calendar year. The 1998 ESPP permitted eligible employees to purchase Class A Common Stock through
+payroll deductions, which may not exceed 15% of an employee’s compensation. The price of Class A
+Common Stock purchased under the 1998 ESPP was 85% of the lower of the fair market value of the
+Class A Common Stock at the beginning of each six-month offering period or on the applicable
+purchase date.
+On April 16, 2007, the Company’s Board of Directors adopted the 2008 Employee Stock Purchase
+Plan (the “2008 ESPP”), and the Company’s stockholders approved the 2008 ESPP on May 24, 2007. The
+2008 ESPP became effective on January 1, 2008, and the Company’s Board of Directors terminated the
+1998 ESPP as of such date, with no additional granting of rights being permitted under the 1998
+ESPP. The 2008 ESPP provides that a total of 3,000,000 shares of Class A Common Stock are reserved
+for issuance under the plan. This number of shares that may be made available for sale is subject
+to automatic increases on the first day of each fiscal year during the term of the 2008 ESPP as
+provided in the plan. The 2008 ESPP is intended to qualify as an “employee stock purchase plan”
+under Section 423 of the Internal Revenue Code of 1986, as amended. The terms of the 2008 ESPP,
+which are substantially similar to those of the 1998 ESPP, permit eligible employees to purchase
+Class A Common Stock at six-month intervals through payroll deductions, which may not exceed 15% of
+an employee’s compensation. The price of Class A Common Stock purchased under the 2008 ESPP is 85%
+of the lower of the fair market value of the Class A Common Stock at the beginning of each
+six-month offering period or on the applicable purchase date. Employees may end their participation
+in an offering at any time during the offering period. The 2008 ESPP is administered by the
+Company’s Board of Directors.
+During 2010, 2009 and 2008; 103,430 shares, 189,428 shares and 132,300 shares were issued
+under the 2008 ESPP for which the Company received approximately $2.1 million, $1.6 million and
+$1.8 million, respectively.
+(8) STOCKHOLDERS’ EQUITY 
+The authorized capital stock of the Company consists of 100,000,000 shares of Class A Common
+Stock, par value $.001 per share, 60,000,000 shares of Class B Common Stock, par value $.001 per
+share, and 10,000,000 shares of preferred stock, $.001 par value per share.
+The Class A Common Stock and Class B Common Stock have identical rights other than with
+respect to voting, conversion and transfer. The Class A Common Stock is entitled to one vote per
+share, while the Class B Common Stock is entitled to ten votes per share on all matters submitted
+to a vote of stockholders. The shares of Class B Common Stock are convertible at any time at the
+option of the holder into shares of Class A Common Stock on a share-for-share basis. In addition,
+shares of Class B Common Stock will be automatically converted into a like number of shares of
+Class A Common Stock upon any transfer to any person or entity which is not a permitted transferee.
+During 2010, 2009 and 2008 certain Class B stockholders converted 1,049,005 shares, 422,770
+shares and 69,404 shares, respectively, of Class B Common Stock to Class A Common Stock.
+(9) TOTAL OTHER INCOME (EXPENSE), NET 
+Other income (expense), net at December 31, 2010, 2009 and 2008 is summarized as follows (in
+thousands):
+2010 
+2009 
+2008 
+Gain on foreign currency transactions 
+$ 
+1,255 
+$ 
+1,830 
+$ 
+307 
+Legal settlements 
+(1,172 
+) 
+(2,327 
+) 
+(187 
+) 
+Total other income (expense), net 
+$ 
+83 
+$ 
+(497 
+) 
+$ 
+120 
+56 
+Table of Contents 
+(10) INCOME TAXES 
+The provisions for income tax expense were as follows (in thousands):
+2010 
+2009 
+2008 
+Federal: 
+Current 
+$ 
+45,304 
+$ 
+9,227 
+$ 
+9,026 
+Deferred 
+(2,090 
+) 
+5,902 
+(6,714 
+) 
+Total federal 
+43,214 
+15,129 
+2,312 
+State: 
+Current 
+8,535 
+1,498 
+3,654 
+Deferred 
+473 
+1,268 
+(1,643 
+) 
+Total state 
+9,008 
+2,766 
+2,011 
+Foreign: 
+Current 
+11,529 
+3,088 
+2,448 
+Deferred 
+(3,553 
+) 
+(755 
+) 
+487 
+Total foreign 
+7,976 
+2,333 
+2,935 
+Total income taxes 
+$ 
+60,198 
+$ 
+20,228 
+$ 
+7,258 
+Income taxes differ from the statutory tax rates as applied to earnings before income taxes as
+follows (in thousands):
+2010 
+2009 
+2008 
+Expected income tax expense 
+$ 
+68,811 
+$ 
+24,888 
+$ 
+21,260 
+State income tax, net of federal benefit 
+6,590 
+2,051 
+1,710 
+Rate differential on foreign income 
+(16,398 
+) 
+(6,162 
+) 
+(10,697 
+) 
+Change in unrecognized tax benefits 
+(160 
+) 
+455 
+(7,896 
+) 
+Exempt income 
+0 
+(207 
+) 
+(1,241 
+) 
+Non-deductible expenses 
+569 
+441 
+188 
+Adjustment to tax benefit — 2008 APA 
+0 
+(1,952 
+) 
+0 
+Other 
+(197 
+) 
+(1,049 
+) 
+682 
+Change in valuation allowance 
+983 
+1,763 
+3,252 
+Total provision for income taxes 
+$ 
+60,198 
+$ 
+20,228 
+$ 
+7,258 
+The tax effects of temporary differences that give rise to significant portions of deferred
+tax assets and deferred tax liabilities at December 31, 2010 and 2009 are presented below (in
+thousands):
+DEFERRED TAX ASSETS: 
+2010 
+2009 
+Deferred tax assets — current: 
+Inventory adjustments 
+$ 
+4,785 
+$ 
+2,340 
+Accrued expenses 
+8,808 
+7,789 
+Allowances for bad debts and chargebacks 
+5,492 
+3,486 
+Total current assets 
+19,085 
+13,615 
+Deferred tax assets — long term: 
+Depreciation on property and equipment 
+10,321 
+10,500 
+Loss carryforwards 
+7,334 
+6,880 
+Stock-based compensation 
+1,348 
+1,977 
+Valuation allowance 
+(6,680 
+) 
+(5,697 
+) 
+Total long term assets 
+12,323 
+13,660 
+Total deferred tax assets 
+31,408 
+27,275 
+Deferred tax liabilities — current: 
+Prepaid expenses 
+7,365 
+4,665 
+Net deferred tax assets 
+$ 
+24,043 
+$ 
+22,610 
+Management believes it is more likely than not that the results of future operations will
+generate sufficient taxable income to realize the net deferred tax assets.
+57 
+Table of Contents 
+Consolidated U.S. income before income taxes was $127.7 million, $51.2 million and $27.9
+million for the years ended December 31, 2010, 2009 and 2008, respectively. The corresponding
+income before income taxes for non-U.S. based operations was $68.9 million, $19.9 million and $32.9
+million for the years ended December 31, 2010, 2009 and 2008, respectively.
+As of December 31, 2010 and 2009, the Company had combined foreign operating loss
+carry-forwards available to reduce future taxable income of approximately $26.3 million and $23.7
+million, respectively. Some of these net operating losses expire beginning in 2011; however others
+can be carried forward indefinitely. As of December 31, 2010 and 2009, a valuation allowance
+against deferred tax assets of $6.7 million and $5.7 million, respectively, had been set up for
+those loss carry-forwards that are not more likely than not to be fully utilized in reducing future
+taxable income.
+As of December 31, 2010, withholding and U.S. taxes have not been provided on approximately
+$131.7 million of cumulative undistributed earnings of the Company’s non-U.S. subsidiaries because
+the Company intends to indefinitely reinvest these earnings in its non-U.S. subsidiaries.
+The balance of unrecognized tax benefits included in net prepaid expenses in the consolidated
+balance sheets decreased by $0.4 million during the year. A reconciliation of the beginning and
+ending amount of unrecognized tax benefits is as follows (in thousands):
+2010 
+2009 
+Beginning balance 
+$ 
+9,769 
+$ 
+9,663 
+Additions for current year tax positions 
+346 
+263 
+Additions for prior year tax positions 
+325 
+536 
+Reductions for prior year tax positions 
+0 
+0 
+Settlement of uncertain tax positions 
+(315 
+) 
+(493 
+) 
+Reductions related to lapse of statute of limitations 
+(800 
+) 
+(200 
+) 
+Ending balance 
+$ 
+9,325 
+$ 
+9,769 
+If recognized, the entire amount of unrecognized tax benefits would be recorded as a reduction
+in income tax expense.
+Estimated interest and penalties related to the underpayment of income taxes are classified as
+a component of income tax expense and totaled less than $0.1 million for each of the three years
+ended December 31, 2010, 2009 and 2008, respectively. Accrued interest and penalties were $1.3
+million as of December 31, 2010 and 2009, respectively.
+The Company files income tax returns in the U.S. federal jurisdiction and various state, local
+and foreign jurisdictions. The Company is currently under examination by the IRS for the 2008 and
+2009 tax years. The Company is also under examination by a number of states. During the year ended
+December 31, 2010, settlements were reached with certain state tax jurisdictions which reduced the
+balance of 2010 and prior year unrecognized tax benefits by $0.3 million. It is reasonably possible
+that certain federal and state examinations could be settled during the next twelve months which
+would reduce the balance of 2010 and prior year unrecognized tax benefits by $0.9 million.
+With few exceptions, the Company is no longer subject to federal, state, local or non-U.S.
+income tax examinations by tax authorities for years before 2007. Tax years 2007 through 2009
+remain open to examination by the U.S. federal, state, and foreign tax authorities. During 2010,
+the statute of limitations for the 2006 tax year lapsed for the U.S. federal and several state tax
+jurisdictions. The lapse in statute reduced the balance of prior year unrecognized tax benefits by
+$0.8 million.
+(11) BUSINESS AND CREDIT CONCENTRATIONS 
+The Company generates the majority of its sales in the United States; however, several of its
+products are sold into various foreign countries, which subjects the Company to the risks of doing
+business abroad. In addition, the Company operates in the footwear industry, which is impacted by
+the general economy, and its business depends on the general economic environment and levels of
+consumer spending. Changes in the marketplace may significantly affect management’s estimates and
+the Company’s performance. Management performs regular evaluations concerning the ability of
+customers to satisfy their obligations and provides for estimated doubtful accounts. Domestic
+accounts receivable, which generally do not require collateral from customers, amounted to $164.4
+million and $148.3 million before allowances for bad debts and sales returns, and chargebacks at
+December 31, 2010 and 2009, respectively. Foreign accounts receivable, which generally are
+collateralized by letters of credit, amounted to $121.4 million and $86.0 million before allowance
+for bad debts, sales returns, and chargebacks at December 31, 2010 and 2009, respectively.
+58 
+Table of Contents 
+International net sales amounted to $484.7 million, $358.1 million and $357.2 million for the
+years ended December 31, 2010, 2009 and 2008, respectively. The Company’s credit losses due to
+write-off’s for the years ended December 31, 2010, 2009 and 2008 were $4.8 million, $1.2 million
+and $8.4 million, respectively, and were primarily from domestic accounts.
+Net sales to customers in North America exceeded 75% of total net sales for each of the years
+in the three-year period ended December 31, 2010. Assets located outside the United States consist
+primarily of cash, accounts receivable, inventory, property and equipment, and other assets. Net
+assets held outside the United States were $322.0 million and $205.9 million at December 31, 2010
+and 2009, respectively.
+During 2010, 2009 and 2008, no customer accounted for 10.0% or more of net sales. No customer
+accounted for more than 10% of net trade receivables at December 31, 2010. One customer accounted
+for 11.3% of net trade receivables at December 31, 2009. During 2010, 2009 and 2008, our net
+sales to our five largest customers were approximately 24.9%, 25.1% and 24.1%, respectively.
+The Company’s top five manufacturers produced the following for the years ended December 31,
+2010, 2009 and 2008, respectively:
+Years Ended December 31, 
+2010 
+2009 
+2008 
+Manufacturer #1 
+34.7 
+% 
+29.7 
+% 
+30.6 
+% 
+Manufacturer #2 
+13.0 
+% 
+12.2 
+% 
+11.7 
+% 
+Manufacturer #3 
+9.4 
+% 
+11.2 
+% 
+9.3 
+% 
+Manufacturer #4 
+8.7 
+% 
+10.5 
+% 
+6.6 
+% 
+Manufacturer #5 
+4.8 
+% 
+5.5 
+% 
+6.4 
+% 
+70.6 
+% 
+69.1 
+% 
+64.6 
+% 
+The majority of the Company’s products are produced in China. The Company’s operations are
+subject to the customary risks of doing business abroad, including but not limited to currency
+fluctuations and revaluations, custom duties and related fees, various import controls and other
+monetary barriers, restrictions on the transfer of funds, labor unrest and strikes and, in certain
+parts of the world, political instability. The Company believes it has acted to reduce these risks
+by diversifying manufacturing among various factories. To date, these business risks have not had a
+material adverse impact on the Company’s operations.
+(12) BENEFIT PLAN 
+The Company has adopted a 401(k) profit sharing plan covering all employees who are 21 years
+of age and have completed six months of service. Employees may contribute up to 15.0% of annual
+compensation. Company contributions to the plan are discretionary and vest over a six year period.
+The Company’s cash contributions to the plan amounted to $1.3 million and $1.6 million for the
+years ended December 31, 2010 and 2009, respectively. The Company did not make a contribution to
+the plan for the year ended December 31, 2008.
+(13) COMMITMENTS AND CONTINGENCIES 
+(a) Leases 
+The Company leases facilities under operating lease agreements expiring through March 2029.
+The Company pays taxes, maintenance and insurance in addition to the lease obligations. The Company
+also leases certain equipment and automobiles under operating lease agreements expiring at various
+dates through November 2015. Rent expense for the years ended December 31, 2010, 2009 and 2008
+approximated $74.5 million, $65.9 million and $57.4 million, respectively.
+The Company also leases certain property and equipment under capital lease agreements
+requiring monthly installment payments through June 2013.
+In January 2010, the Company entered into a joint venture agreement to build a new 1.8 million
+square foot distribution facility in Rancho Belago, California, which when completed the Company
+expects to occupy in 2011. This single facility will replace the existing six facilities located
+in or near Ontario, California, of which five are on short-term leases. The Company will lease the
+new distribution center from the JV for a base rent of $940,695 per month for 20 years.
+59 
+Table of Contents 
+Minimum lease payments, which takes into account escalation clauses, are recognized on a
+straight-line basis over the minimum lease term. Subsequent adjustments to our lease payments due
+to changes in an existing index, usually the consumer price index, are typically included in our
+calculation of the minimum lease payments when the adjustment is known. Reimbursements for
+leasehold improvements are recorded as liabilities and are amortized over the lease term. Lease
+concessions, in our case usually a free rent period, are considered in the calculation of our
+minimum lease payments for the minimum lease term.
+Future minimum lease payments under noncancellable leases at December 31, 2010 are as follows
+(in thousands):
+CAPITAL 
+OPERATING 
+LEASES 
+LEASES 
+Year ending December 31: 
+2011 
+$ 
+18 
+$ 
+95,935 
+2012 
+11 
+86,709 
+2013 
+14 
+73,517 
+2014 
+8 
+66,226 
+2015 
+0 
+61,637 
+Thereafter 
+0 
+336,700 
+$ 
+51 
+$ 
+720,724 
+(b) Litigation
+The Company recognizes legal expense in connection with loss contingencies as incurred.
+The Company occasionally becomes involved in litigation arising from the normal course of
+business, and management is unable to determine the extent of any liability that may arise from
+unanticipated future litigation. The Company has no reason to believe that any liability with
+respect to pending legal actions or regulatory requests, individually or in the aggregate, will
+have a material adverse effect on the Company’s consolidated financial statements or results of
+operations.
+(c) Product and Other Financing
+The Company finances production activities in part through the use of interest-bearing open
+purchase arrangements with certain of its international manufacturers. These arrangements currently
+bear interest at rates between 0% and 1.5% for 30- to 60- day financing. The amounts outstanding
+under these arrangements at December 31, 2010 and 2009 were $111.1 million and $93.5 million,
+respectively, which are included in accounts payable in the accompanying consolidated balance
+sheets. Interest expense incurred by the Company under these arrangements amounted to $2.1 million
+in 2010, $3.3 million in 2009 and $3.6 million in 2008. The Company has open purchase commitments
+with our foreign manufacturers of $221.2 million, which are not included in the accompanying
+consolidated balance sheets. The company is currently in the process of designing and purchasing
+the equipment to be used in its new distribution center. The total cost of this equipment is
+expected to be approximately $85.0 million, of which $39.3 million was incurred as of December 31,
+2010.
+(14) SEGMENT INFORMATION 
+We have four reportable segments — domestic wholesale sales, international wholesale sales,
+retail sales, and e-commerce sales. Management evaluates segment performance based primarily on
+net sales and gross margins. All other costs and expenses of the Company are analyzed on an
+aggregate basis, and these costs are not allocated to the Company’s segments. Net sales, gross
+margins and identifiable assets for the domestic wholesale, international wholesale, retail, and
+the e-commerce segment on a combined basis were as follows (in thousands):
+2010 
+2009 
+2008 
+Net sales 
+Domestic wholesale 
+$ 
+1,131,929 
+$ 
+763,514 
+$ 
+807,047 
+International wholesale 
+436,637 
+328,466 
+332,503 
+Retail 
+410,695 
+321,829 
+283,128 
+E-commerce 
+27,607 
+22,631 
+18,065 
+Total 
+$ 
+2,006,868 
+$ 
+1,436,440 
+$ 
+1,440,743 
+60 
+Table of Contents 
+2010 
+2009 
+2008 
+Gross profit 
+Domestic wholesale 
+$ 
+460,355 
+$ 
+292,303 
+$ 
+276,604 
+International wholesale 
+181,528 
+118,440 
+137,840 
+Retail 
+255,894 
+198,243 
+172,870 
+E-commerce 
+14,129 
+12,024 
+8,608 
+Total 
+$ 
+911,906 
+$ 
+621,010 
+$ 
+595,922 
+2010 
+2009 
+Identifiable assets 
+Domestic wholesale 
+$ 
+891,671 
+$ 
+712,712 
+International wholesale 
+300,153 
+192,085 
+Retail 
+112,774 
+90,049 
+E-commerce 
+196 
+706 
+Total 
+$ 
+1,304,794 
+$ 
+995,552 
+2010 
+2009 
+2008 
+Additions to property, plant and equipment 
+Domestic wholesale 
+$ 
+57,375 
+$ 
+21,112 
+$ 
+45,709 
+International wholesale 
+4,241 
+5,568 
+6,893 
+Retail 
+20,653 
+8,661 
+19,859 
+Total 
+$ 
+82,269 
+$ 
+35,341 
+$ 
+72,461 
+Geographic Information
+The following summarizes our operations in different geographic areas for the year indicated:
+2010 
+2009 
+2008 
+Net Sales (1) 
+United States 
+$ 
+1,522,187 
+$ 
+1,078,335 
+$ 
+1,083,498 
+Canada 
+54,476 
+39,498 
+43,088 
+Other International (2) 
+430,205 
+318,607 
+314,157 
+Total 
+$ 
+2,006,868 
+$ 
+1,436,440 
+$ 
+1,440,743 
+Long-lived Assets 
+United States 
+$ 
+276,457 
+$ 
+160,444 
+Canada 
+1,590 
+866 
+Other International (2) 
+15,755 
+10,357 
+Total 
+$ 
+293,802 
+$ 
+171,667 
+(1) 
+The Company has subsidiaries in Canada, United Kingdom, Germany, France, Spain, Italy,
+Netherlands, Brazil, and Chile that generate net sales within those respective countries and
+in some cases the neighboring regions. The Company has joint ventures in China, Hong Kong,
+Malaysia, Singapore, and Thailand that generate net sales from those countries. The Company
+also has a subsidiary in Switzerland that generates net sales from that country in addition to
+net sales to our distributors located in numerous non-European countries. Net sales are
+attributable to geographic regions based on the location of the Company subsidiary. 
+(2) 
+Other international consists of Switzerland, United Kingdom, Germany, France, Spain, Italy,
+Netherlands, China, Hong Kong, Malaysia, Singapore, Thailand, Brazil, Chile, and Portugal. 
+(15) RELATED PARTY TRANSACTIONS 
+The Company paid approximately $319,000, $183,000 and $183,000 during 2010, 2009 and 2008,
+respectively, to the Manhattan Inn Operating Company, LLC (“MIOC”) for lodging, food and events
+including the Company’s holiday party at the Shade Hotel, which is owned and operated by MIOC.
+Michael Greenberg, President and a director of the Company, owns a 12% beneficial
+61 
+Table of Contents 
+ownership interest in MIOC, and four other officers, directors and senior vice presidents of
+the Company own in aggregate an additional 5% beneficial ownership in MIOC. The Company had no
+outstanding accounts receivable or payable with MIOC or the Shade Hotel at December 31, 2010.
+On July 29, 2010, the Company formed Skechers Foundation (the “Foundation”), which
+is a 501(c)(3) non-profit entity that does not have any shareholders or members. The Foundation is
+not a subsidiary of and is not otherwise affiliated with the Company, and the Company does not have
+a financial interest in the Foundation. However, two officers and directors of the Company,
+Michael Greenberg who is its President and David Weinberg who is its Chief Operating Officer and
+Chief Financial Officer, are also officers and directors of the Foundation. During the year ended
+December 31, 2010, the Company contributed $350,000 to the Foundation to use for various charitable
+causes.
+The Company had receivables from officers and employees of $0.2 million and $0.3 million at
+December 31, 2010 and 2009, respectively. These amounts primarily relate to travel advances and
+incidental personal purchases on Company-issued credit cards. These receivables are short-term and
+are expected to be repaid within a reasonable period of time. We had no other significant
+transactions with or payables to officers, directors or significant shareholders of the Company.
+(16) SUBSEQUENT EVENTS 
+The Company has evaluated events subsequent to December 31, 2010, to assess the need for
+potential recognition or disclosure in this filing. Based upon this evaluation, it was determined
+that no subsequent events occurred that require recognition in the financial statements.
+(17) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) 
+Summarized unaudited financial data are as follows (in thousands):
+2010 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+492,764 
+$ 
+504,859 
+$ 
+554,626 
+$ 
+454,619 
+Gross profit 
+237,418 
+237,645 
+252,651 
+184,192 
+Net earnings 
+56,296 
+40,237 
+36,378 
+3,237 
+Net earnings per share: 
+Basic 
+$ 
+1.20 
+$ 
+0.85 
+$ 
+0.76 
+$ 
+0.07 
+Diluted 
+1.15 
+0.82 
+0.74 
+0.07 
+2009 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+343,470 
+$ 
+298,976 
+$ 
+405,374 
+$ 
+388,620 
+Gross profit 
+125,429 
+122,603 
+183,726 
+189,252 
+Net earnings (loss) 
+8,220 
+(5,927 
+) 
+24,460 
+27,946 
+Net earnings (loss)per share: 
+Basic 
+$ 
+0.18 
+$ 
+(0.13 
+) 
+$ 
+0.53 
+$ 
+0.60 
+Diluted 
+0.18 
+(0.13 
+) 
+0.52 
+0.58 
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
+None.
+ITEM 9A. CONTROLS AND PROCEDURES 
+62 
+Table of Contents 
+Attached as exhibits to this annual report on Form 10-K are certifications of our Chief
+Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance
+with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This
+“Controls and Procedures” section includes information concerning the controls and controls
+evaluation referred to in the certifications.
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
+The term “disclosure controls and procedures” refers to the controls and other procedures of a
+company that are designed to provide reasonable assurance that information required to be disclosed
+by a company in the reports that it files or submits under the Exchange Act, is recorded,
+processed, summarized and reported within required time periods. We have established disclosure
+controls and procedures to ensure that material information relating to Skechers and its
+consolidated subsidiaries is made known to the officers who certify our financial reports, as well
+as other members of senior management and the Board of Directors, to allow timely decisions
+regarding required disclosures. As of the end of the period covered by this annual report on Form
+10-K, we carried out an evaluation under the supervision and with the participation of our
+management, including our CEO and CFO, of the effectiveness of the design and operation of our
+disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that
+evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective in
+timely alerting them, at the reasonable assurance level, to material information related to our
+company that is required to be included in our periodic reports filed with the SEC under the
+Exchange Act.
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
+Our management is responsible for establishing and maintaining adequate internal control over
+financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal
+control over financial reporting includes those policies and procedures that (i) pertain to the
+maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
+and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in accordance with generally accepted
+accounting principles, and that our receipts and expenditures are being made only in accordance
+with authorizations of our management and directors; and (iii) provide reasonable assurance
+regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
+assets that could have a material effect on our financial statements.
+We conducted an evaluation of the effectiveness of our internal control over financial
+reporting based on the framework in Internal Control — Integrated Framework issued by the
+Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation
+under the framework in Internal Control- Integrated Framework, our management has concluded that as
+of December 31, 2010, our internal control over financial reporting is effective.
+Our independent registered public accountants, KPMG LLP, audited the consolidated financial
+statements included in this annual report on Form 10-K and have issued an attestation report on the
+effectiveness of our internal control over financial reporting as of December 31, 2010, which is
+included in Part II, Item 8 of this annual report on Form 10-K.
+INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
+Our management, including our Chief Executive Officer and Chief Financial Officer, does not
+expect that our disclosure controls and procedures or our internal control over financial reporting
+will prevent or detect all error and all fraud. A control system, no matter how well designed and
+operated, can provide only reasonable, not absolute, assurance that the control system’s objectives
+will be met. The design of a control system must reflect the fact that there are resource
+constraints, and the benefits of controls must be considered relative to their costs. Further,
+because of the inherent limitations in all control systems, no evaluation of controls can provide
+absolute assurance that misstatements due to error or fraud will not occur or that all control
+issues and instances of fraud, if any, within the company have been detected. These inherent
+limitations include the realities that judgments in decision-making can be faulty and that
+breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the
+individual acts of some persons, by collusion of two or more people, or by management override of
+the controls. The design of any system of controls is based in part on certain assumptions about
+the likelihood of future events, and there can be no assurance that any design will succeed in
+achieving its stated goals under all potential future conditions. Projections of any evaluation of
+controls effectiveness to future periods are subject to risks. Over time, controls may become
+inadequate because of changes in conditions or deterioration in the degree of compliance with
+policies or procedures.
+63 
+Table of Contents 
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
+There were no significant changes to our internal controls over financial reporting that have
+materially affected, or are reasonably likely to materially affect, our internal controls over
+financial reporting during the fourth quarter of 2010, and we have completed our efforts regarding
+compliance with Section 404 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2010.
+The results of our evaluation are discussed above in Management’s Report on Internal Control Over
+Financial Reporting.
+ITEM 9B. OTHER INFORMATION 
+On January 17, 2011, our Compensation Committee approved the 2011 annual incentive
+compensation formulae for our executive management, including the “Named Executive Officers” (as
+defined in Item 402 of Regulation S-K), which will allow for executive management to earn incentive
+compensation on a quarterly basis in the event that certain specified performance goals are
+achieved under our 2006 Annual Incentive Compensation Plan (the “2006 Plan”). The purpose is to
+provide our executive management with the opportunity to earn incentive compensation based on our
+financial performance by linking incentive award opportunities to the achievement of certain
+performance goals.
+The Compensation Committee approved the business criteria to be used in the formulae to
+calculate the incentive compensation to be paid to our executive management on a quarterly basis
+for 2011. The business criteria that will be used to calculate the incentive compensation of
+Robert Greenberg (Chairman and Chief Executive Officer), Michael Greenberg (President), David
+Weinberg (Chief Operating Officer and Chief Financial Officer) and Mark Nason (Executive Vice
+President of Product Development) are our net sales and earnings before interest, taxes,
+depreciation and amortization, while our net sales will be used for calculating the incentive
+compensation of Philip Paccione (Corporate Secretary and General Counsel). The Compensation
+Committee believes that each of these criteria provides an accurate and comprehensive measure of
+our annual performance.
+The potential payments of incentive compensation to our executive management, including the
+Named Executive Officers, are performance-driven and therefore completely at risk. The payment of
+any incentive compensation is conditioned on our company achieving at least certain threshold
+performance levels of the business criteria approved by the Compensation Committee, and no payments
+will be made to the Named Executive Officers if the threshold performance levels are not met. Any
+incentive compensation to be paid to the Named Executive Officers in excess of the threshold
+amounts is based on the Compensation Committee’s pre-approved business criteria and formulae for
+the respective Named Executive Officers. In approving the percentages that will be used in the
+formulae to calculate the Named Executive Officers’ potential payments of incentive compensation
+for 2010, the Compensation Committee considered each Named Executive Officer’s position,
+responsibilities and prospective contribution to the attainment of the Company’s specified
+performance goals. The threshold performance levels for 2011 are “attainable,” and additional
+incentive compensation may be earned based on our company’s financial performance exceeding
+increasingly challenging levels of performance goals, none of which is certain to be achieved.
+Consistent with the prior year, the Compensation Committee did not place a maximum limit on the
+incentive compensation that may be earned by the Named Executive Officers in 2011, although the
+maximum amount of incentive compensation that any Named Executive Officer may earn in a 12-month
+period under the 2006 Plan is $5,000,000.
+64 
+Table of Contents 
+PART III 
+ITEM 10. 
+DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 
+The information required by this Item 10 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2010 fiscal year.
+ITEM 11. 
+EXECUTIVE COMPENSATION 
+The information required by this Item 11 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2010 fiscal year.
+ITEM 12. 
+SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
+STOCKHOLDER MATTERS 
+The information required by this Item 12 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2010 fiscal year.
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+The information required by this Item 13 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2010 fiscal year.
+ITEM 14. 
+PRINCIPAL ACCOUNTING FEES AND SERVICES 
+The information required by this Item 14 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2010 fiscal year.
+PART IV 
+ITEM 15. 
+EXHIBITS, FINANCIAL STATEMENT SCHEDULES 
+1. 
+Financial Statements: See “Index to Consolidated Financial Statements and Financial
+Statement Schedule” in Part II, Item 8 on page 41 of this annual report on Form 10-K. 
+2. 
+Financial Statement Schedule: See “Schedule II—Valuation and Qualifying Accounts” on page
+66 of this annual report on Form 10-K. 
+3. 
+Exhibits: The exhibits listed in the accompanying “Index to Exhibits” are filed or
+incorporated by reference as part of this Form 10-K. 
+65 
+Table of Contents 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+(in thousands) 
+Years Ended December 31, 2010, 2009, and 2008 
+BALANCE AT 
+CHARGED TO 
+DEDUCTIONS 
+BALANCE 
+BEGINNING OF 
+COSTS AND 
+AND 
+AT END 
+DESCRIPTION 
+PERIOD 
+EXPENSES 
+WRITE-OFFS 
+OF PERIOD 
+Year-ended December 31, 2008: 
+Allowance for chargebacks 
+$ 
+2,572 
+$ 
+2,940 
+$ 
+(1,598 
+) 
+$ 
+3,914 
+Allowance for doubtful accounts 
+2,348 
+5,495 
+(3,421 
+) 
+4,422 
+Reserve for sales returns and allowances 
+5,364 
+2,352 
+(1,172 
+) 
+6,544 
+Reserve for shrinkage 
+110 
+690 
+(635 
+) 
+165 
+Reserve for obsolescence 
+1,831 
+11,192 
+0 
+13,023 
+Year-ended December 31, 2009: 
+Allowance for chargebacks 
+$ 
+3,914 
+$ 
+(672 
+) 
+$ 
+(1,299 
+) 
+$ 
+1,943 
+Allowance for doubtful accounts 
+4,422 
+1,863 
+(1,957 
+) 
+4,328 
+Reserve for sales returns and allowances
+6,544 
+2,058 
+(512 
+) 
+8,090 
+Reserve for shrinkage 
+165 
+950 
+(915 
+) 
+200 
+Reserve for obsolescence 
+13,023 
+0 
+(9,568 
+) 
+3,455 
+Year-ended December 31, 2010: 
+Allowance for chargebacks 
+$ 
+1,943 
+$ 
+2,993 
+$ 
+(1,909 
+) 
+$ 
+3,027 
+Allowance for doubtful accounts 
+4,328 
+1,782 
+(465 
+) 
+5,645 
+Reserve for sales returns and allowances
+8,090 
+1,437 
+1,498 
+11,025 
+Reserve for shrinkage 
+200 
+1,100 
+(1,100 
+) 
+200 
+Reserve for obsolescence 
+3,455 
+0 
+(17 
+) 
+3,438 
+See accompanying report of independent registered public accounting firm
+66 
+Table of Contents 
+INDEX TO EXHIBITS 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+3.1
+Amended and Restated Certificate of Incorporation dated April 29,
+1999 (incorporated by reference to exhibit number 3.1 of the
+Registrant’s Registration Statement on Form S-1, as amended (File
+No. 333-60065), filed with the Securities and Exchange Commission
+on May 12, 1999). 
+3.2
+Bylaws dated May 28, 1998 (incorporated by reference to exhibit
+number 3.2 of the Registrant’s Registration Statement on Form S-1
+(File No. 333-60065) filed with the Securities and Exchange
+Commission on July 29, 1998). 
+3.2(a)
+Amendment to Bylaws dated as of April 8, 1999 (incorporated by
+reference to exhibit number 3.2(a) of the Registrant’s Form 10-K
+for the year ended December 31, 2005). 
+3.2(b)
+Second Amendment to Bylaws dated as of December 18, 2007
+(incorporated by reference to exhibit number 3.1 of the
+Registrant’s Form 8-K filed with the Securities and Exchange
+Commission on December 20, 2007). 
+4.1
+Form of Specimen Class A Common Stock Certificate (incorporated
+by reference to exhibit number 4.1 of the Registrant’s
+Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange Commission on
+May 12, 1999). 
+10.1**
+Amended and Restated 1998 Stock Option, Deferred Stock and
+Restricted Stock Plan (incorporated by reference to exhibit
+number 10.1 of the Registrant’s Registration Statement on Form
+S-1 (File No. 333-60065) filed with the Securities and Exchange
+Commission on July 29, 1998). 
+10.1(a)**
+Amendment No. 1 to Amended and Restated 1998 Stock Option,
+Deferred Stock and Restricted Stock Plan (incorporated by
+reference to exhibit number 4.4 of the Registrant’s Registration
+Statement on Form S-8 (File No. 333-71114), filed with the
+Securities and Exchange Commission on October 5, 2001). 
+10.1(b)**
+Amendment No. 2 to Amended and Restated 1998 Stock Option,
+Deferred Stock and Restricted Stock Plan (incorporated by
+reference to exhibit number 4.5 of the Registrant’s Registration
+Statement on Form S-8 (File No. 333-135049), filed with the
+Securities and Exchange Commission on June 15, 2006). 
+10.1(c)**
+Amendment No. 3 to Amended and Restated 1998 Stock Option,
+Deferred Stock and Restricted Stock Plan (incorporated by
+reference to exhibit number 10.1 of the Registrant’s Form 8-K
+filed with the Securities and Exchange Commission on February 23,
+2007). 
+10.2**
+2006 Annual Incentive Compensation Plan (incorporated by
+reference to Appendix A of the Registrant’s Definitive Proxy
+Statement filed with the Securities and Exchange Commission on
+May 1, 2006). 
+10.3**
+2007 Incentive Award Plan (incorporated by reference to exhibit
+number 10.1 of the Registrant’s Form 8-K filed with the
+Securities and Exchange Commission on May 24, 2007). 
+10.4**
+Form of Restricted Stock Agreement under 2007 Incentive Award
+Plan (incorporated by reference to exhibit number 10.3 of the
+Registrant’s Form 10-K for the year ended December 31, 2007). 
+10.5**
+2008 Employee Stock Purchase Plan (incorporated by reference to
+exhibit number 10.2 of the Registrant’s Form 8-K filed with the
+Securities and Exchange Commission on May 24, 2007). 
+10.5(a)**
+Amendment No. 1 to 2008 Employee Stock Purchase Plan
+(incorporated by reference to exhibit number 10.5 of the
+Registrant’s Form 10-Q for the quarter ended June 30, 2010). 
+10.6**
+Indemnification Agreement dated June 7, 1999 between the
+Registrant and its directors and executive officers (incorporated
+by reference to exhibit number 10.6 of the Registrant’s Form 10-K
+for the year ended December 31, 1999). 
+67 
+Table of Contents 
+10.6(a)**
+List of Registrant’s directors and executive officers who entered
+into Indemnification Agreement referenced in Exhibit 10.6 with
+the Registrant (incorporated by reference to exhibit number
+10.6(a) of the Registrant’s Form 10-K for the year ended December
+31, 2005). 
+10.7
+Registration Rights Agreement dated June 9, 1999, between the
+Registrant, the Greenberg Family Trust and Michael Greenberg
+(incorporated by reference to exhibit number 10.7 of the
+Registrant’s Form 10-Q for the quarter ended June 30, 1999). 
+10.8
+Tax Indemnification Agreement dated June 8, 1999, between the
+Registrant and certain shareholders (incorporated by reference to
+exhibit number 10.8 of the Registrant’s Form 10-Q for the quarter
+ended June 30, 1999). 
+10.9 +
+Credit Agreement dated June 30, 2009, by and among the
+Registrant, certain of its subsidiaries that are also borrowers
+under the Agreement, and certain lenders including Wells Fargo
+Foothill, LLC, as co-lead arranger and administrative agent, Bank
+of America, N.A., as syndication agent, and Banc of America
+Securities LLC, as the other co-lead arranger (incorporated by
+reference to exhibit number 10.1 of the Registrant’s Form 10-Q/A
+filed with the Securities and Exchange Commission on November 16,
+2010). 
+10.9(a)
+Amendment Number One to Credit Agreement dated November 5, 2009,
+by and among the Registrant, certain of its subsidiaries that are
+also borrowers under the Agreement, and certain lenders including
+Wells Fargo Foothill, LLC, as co-lead arranger and administrative
+agent, Bank of America, N.A., as syndication agent, and Banc of
+America Securities LLC, as the other co-lead arranger
+(incorporated by reference to exhibit number 10.2 of the
+Registrant’s Form 10-Q/A filed with the Securities and Exchange
+Commission on November 16, 2010). 
+10.9(b)
+Amendment Number Two to Credit Agreement dated March 4, 2010, by
+and among the Registrant, certain of its subsidiaries that are
+also borrowers under the Agreement, and certain lenders including
+Wells Fargo Capital Finance, LLC (formerly known as Wells Fargo
+Foothill, LLC), as co-lead arranger and administrative agent,
+Bank of America, N.A., as syndication agent, and Banc of America
+Securities LLC, as the other co-lead arranger (incorporated by
+reference to exhibit number 10.3 of the Registrant’s Form 10-Q
+for the quarter ended March 31, 2010). 
+10.10
+Schedule 1.1 of Defined Terms to the Credit Agreement dated June
+30, 2009, by and among the Registrant, certain of its
+subsidiaries that are also borrowers under the Agreement, and
+certain lenders including Wells Fargo Foothill, LLC, Bank of
+America, N.A., and Banc of America Securities LLC (incorporated
+by reference to exhibit number 10.2 of the Registrant’s Form 8-K
+filed with the Securities and Exchange Commission on July 7,
+2009). 
+10.11 +
+Amended and Restated Limited Liability Company Agreement dated
+April 12, 2010 between Skechers R.B., LLC, a Delaware limited
+liability company and wholly owned subsidiary of the Registrant,
+and HF Logistics I, LLC, regarding the ownership and management
+of the joint venture, HF Logistics-SKX, LLC, a Delaware limited
+liability company (incorporated by reference to exhibit number
+10.3 of the Registrant’s Form 10-Q for the quarter ended
+September 30, 2010). 
+10.12 +
+Construction Agreement dated April 23, 2010 between HF
+Logistics-SKX T1, LLC, which is a wholly owned subsidiary of a
+joint venture entered into between HF Logistics I, LLC and a
+wholly owned subsidiary of the Registrant, and J. D. Diffenbaugh,
+Inc. regarding 29800 Eucalyptus Avenue, Rancho Belago, California
+(incorporated by reference to exhibit number 10.1 of the
+Registrant’s Form 10-Q for the quarter ended June 30, 2010). 
+10.13
+General Conditions of the Contract for Construction regarding
+29800 Eucalyptus Avenue, Rancho Belago, California (incorporated
+by reference to exhibit number 10.1 of the Registrant’s Form 10-Q
+for the quarter ended September 30, 2010). 
+10.14 +
+Construction Loan Agreement dated as of April 30, 2010, by and
+among HF Logistics-SKX T1, LLC, which is a wholly owned
+subsidiary of a joint venture entered into between HF Logistics
+I, LLC and a wholly owned subsidiary of the Registrant, Bank of
+America, N.A., as administrative agent and as a lender, and
+Raymond James Bank FSB, as a lender (incorporated by reference to
+exhibit number 10.2 of the Registrant’s Form 10-Q for the quarter
+ended September 30, 2010). 
+68 
+Table of Contents 
+10.15
+Lease Agreement, dated November 21, 1997, between the Registrant
+and The Prudential Insurance Company of America, regarding 1661
+South Vintage Avenue, Ontario, California (incorporated by
+reference to exhibit number 10.14 of the Registrant’s
+Registration Statement on Form S-1 (File No. 333-60065) filed
+with the Securities and Exchange Commission on July 29, 1998). 
+10.15(a)
+First Amendment to Lease Agreement, dated April 26, 2002, between
+the Registrant and ProLogis California I LLC, regarding 1661
+South Vintage Avenue, Ontario, California (incorporated by
+reference to exhibit number 10.14(a) of the Registrant’s Form
+10-K for the year ended December 21, 2002). 
+10.15(b)
+Second Amendment to Lease Agreement, dated December 10, 2007,
+between the Registrant and ProLogis California I LLC, regarding
+1661 South Vintage Avenue, Ontario, California (incorporated by
+reference to exhibit number 10.15(b) of the Registrant’s Form
+10-K for the year ended December 31, 2007). 
+10.15(c)
+Third Amendment to Lease Agreement, dated January 29, 2009,
+between the Registrant and ProLogis California I LLC, regarding
+1661 South Vintage Avenue, Ontario, California (incorporated by
+reference to exhibit number 10.15(c) of the Registrant’s Form
+10-K for the year ended December 31, 2009). 
+10.15(d)
+Fourth Amendment to Lease Agreement, dated September 23, 2009,
+between the Registrant and ProLogis California I LLC, regarding
+1661 South Vintage Avenue, Ontario, California (incorporated by
+reference to exhibit number 10.15(d) of the Registrant’s Form
+10-K for the year ended December 31, 2009). 
+10.15(e)
+Fifth Amendment to Lease Agreement, dated June 3, 2010, between
+the Registrant and ProLogis California I LLC, regarding 1661
+South Vintage Avenue, Ontario, California. 
+10.16
+Lease Agreement, dated November 21, 1997, between the
+Registrant and The Prudential Insurance Company of America,
+regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.15 of the
+Registrant’s Registration Statement on Form S-1 (File No.
+333-60065) filed with the Securities and Exchange Commission on
+July 29, 1998). 
+10.16(a)
+First Amendment to Lease Agreement, dated April 26, 2002, between the Registrant and Cabot
+Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.15(a) of the Registrant’s Form 10-K for the
+year ended December 21, 2002). 
+10.16(b)
+Second Amendment to Lease Agreement, dated May 14, 2002, between the Registrant and Cabot
+Industrial Properties, L.P., regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.16(b) of the Registrant’s Form 10-K for the
+year ended December 31, 2007). 
+10.16(c)
+Third Amendment to Lease Agreement, dated May 7, 2007, between the Registrant and CLP
+Industrial Properties, LLC, which is successor to Cabot Industrial Properties, L.P.,
+regarding 1777 South Vintage Avenue, Ontario, California (incorporated by reference to
+exhibit number 10.16(c) of the Registrant’s Form 10-K for the year ended December 31, 2007). 
+10.16(d)
+Fourth Amendment to Lease Agreement, dated November 10, 2007, between the Registrant and CLP
+Industrial Properties, LLC, regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.16(d) of the Registrant’s Form 10-K for the
+year ended December 31, 2007). 
+10.16(e)
+Fifth Amendment to Lease Agreement, dated January 29, 2009, between the Registrant and CLP
+Industrial Properties, LLC, regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.16(e) of the Registrant’s Form 10-K for the
+year ended December 31, 2009). 
+10.16(f)
+Sixth Amendment to Lease Agreement, dated October 26, 2009, between the Registrant and CLP
+Industrial Properties, LLC, regarding 1777 South Vintage Avenue, Ontario, California
+(incorporated by reference to exhibit number 10.16(f) of the Registrant’s Form 10-K for the
+year ended December 31, 2009). 
+69 
+Table of Contents 
+10.17
+Lease Agreement, dated April 10, 2001, between the Registrant and ProLogis California I LLC,
+regarding 4100 East Mission Boulevard, Ontario, California (incorporated by reference to
+exhibit number 10.28 of the Registrant’s Form 10-K for the year ended December 31, 2001). 
+10.17(a)
+First Amendment to Lease Agreement, dated October 22, 2003, between the Registrant and
+ProLogis California I LLC, regarding 4100 East Mission Boulevard, Ontario, California
+(incorporated by reference to exhibit number 10.28(a) of the Registrant’s Form 10-K for the
+year ended December 31, 2003). 
+10.17(b)
+Second Amendment to Lease Agreement, dated April 21, 2006, between the Registrant and
+ProLogis California I LLC, regarding 4100 East Mission Boulevard, Ontario, California
+(incorporated by reference to exhibit number 10.17(b) of the Registrant’s Form 10-K for the
+year ended December 31, 2009). 
+10.17(c)
+Third Amendment to Lease Agreement, dated September 29, 2010, between the Registrant and
+ProLogis California I LLC, regarding 4100 East Mission Boulevard, Ontario, California. 
+10.18
+Lease Agreement, dated February 8, 2002, between Skechers International, a subsidiary of the
+Registrant, and ProLogis Belgium II SPRL, regarding ProLogis Park Liege Distribution Center
+I in Liege, Belgium (incorporated by reference to exhibit number 10.29 of the Registrant’s
+Form 10-K for the year ended December 31, 2002). 
+10.19
+Lease Agreement dated September 25, 2007 between the Registrant and HF Logistics I, LLC,
+regarding distribution facility in Rancho Belago, California (incorporated by reference to
+exhibit number 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange
+Commission on September 27, 2007). 
+10.19(a)
+First Amendment to Lease Agreement, dated December 18, 2009, between the Registrant and HF
+Logistics I, LLC, regarding distribution facility in Rancho Belago, California (incorporated
+by reference to exhibit number 10.6 of the Registrant’s Form 10-Q for the quarter ended
+March 31, 2010). 
+10.19(b)
+Second Amendment to Lease Agreement, dated April 12, 2010, between the Registrant and HF
+Logistics I, LLC, regarding distribution facility in Rancho Belago, California (incorporated
+by reference to exhibit number 10.4 of the Registrant’s Form 10-Q for the quarter ended
+September 30, 2010). 
+10.19(c)
+Assignment of Lease Agreement, dated April 12, 2010, between HF Logistics I, LLC and HF
+Logistics-SKX T1, LLC, regarding distribution facility in Rancho Belago, California
+(incorporated by reference to exhibit number 10.5 of the Registrant’s Form 10-Q for the
+quarter ended September 30, 2010). 
+10.19(d)
+Third Amendment to Lease Agreement, dated August 18, 2010, between the Registrant and HF
+Logistics-SKX T1, LLC, regarding distribution facility in Rancho Belago, California
+(incorporated by reference to exhibit number 10.6 of the Registrant’s Form 10-Q for the
+quarter ended September 30, 2010). 
+10.20
+Lease Agreement dated May 20, 2008 between Skechers EDC SPRL, a subsidiary of the
+Registrant, and ProLogis Belgium III SPRL, regarding ProLogis Park Liege Distribution Center
+II in Liege, Belgium (incorporated by reference to exhibit number 10.3 of the Registrant’s
+Form 10-Q for the quarter ended June 30 , 2010). 
+10.21
+Addendum to Lease Agreement dated May 20, 2008 between Skechers EDC SPRL, a subsidiary of
+the Registrant, and ProLogis Belgium III SPRL, regarding ProLogis Park Liege Distribution
+Center I in Liege, Belgium (incorporated by reference to exhibit number 10.4 of the
+Registrant’s Form 10-Q for the quarter ended June 30 , 2010). 
+10.22
+Master Loan and Security Agreement, dated December 29, 2010, by and between the Registrant
+and Banc of America Leasing & Capital, LLC (incorporated by reference to exhibit number 10.1
+of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 4,
+2011). 
+10.23
+Equipment Security Note, dated December 29, 2010, by and among the Registrant, Banc of
+America Leasing & Capital, LLC, and Bank of Utah, as agent (incorporated by reference to
+exhibit number 10.2 of the Registrant’s Form 8-K filed with the Securities and Exchange
+Commission on January 4, 2011). 
+70 
+Table of Contents 
+21.1
+Subsidiaries of the Registrant. 
+23.1
+Consent of Independent Registered Public Accounting Firm. 
+31.1
+Certification of the Chief Executive Officer pursuant Securities Exchange Act Rule 13a-14(a). 
+31.2
+Certification of the Chief Financial Officer pursuant Securities Exchange Act Rule 13a-14(a). 
+32.1***
+Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
+Sarbanes-Oxley Act of 2002. 
++ 
+The Company has applied with the Secretary of the Securities and Exchange
+Commission for confidential treatment of certain information pursuant to Rule 24b-2 of
+the Securities Exchange Act of 1934, as amended. The Company has filed separately with
+its application a copy of the exhibit including all confidential portions, which may be
+made available for public inspection pending the Securities and Exchange Commission’s
+review of the application in accordance with Rule 24b-2. 
+** 
+Management contract or compensatory plan or arrangement required to be filed as an exhibit. 
+*** 
+In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not
+be deemed “filed” for the purposes of Section 18 of the Exchange Act or otherwise
+subject to the liability of that section, nor shall it be deemed incorporated by
+reference in any filing under the Securities Act of 1933, as amended, or the Exchange
+Act. 
+71 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Manhattan Beach, State of California on the 1st day of March 2011.
+SKECHERS U.S.A., INC. 
+By: 
+/s/ Robert Greenberg
+Robert Greenberg 
+Chairman of the Board and
+Chief Executive Officer 
+Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
+signed by the following persons on behalf of the Registrant and in the capacities and on the dates
+indicated.
+SIGNATURE 
+TITLE 
+DATE 
+/s/ Robert Greenberg
+Robert Greenberg
+Chairman of the Board and Chief Executive Officer
+(Principal Executive Officer)
+March 1, 2011 
+/s/ Michael Greenberg
+President and Director 
+March 1, 2011 
+Michael Greenberg 
+/s/ David Weinberg
+Executive Vice President, Chief Operating Officer,
+March 1, 2011 
+David Weinberg
+Chief Financial Officer and Director 
+(Principal Financial and Accounting Officer) 
+/s/ Jeffrey Greenberg
+Jeffrey Greenberg
+Director 
+March 1, 2011 
+/s/ J. Geyer Kosinski
+J. Geyer Kosinski
+Director 
+March 1, 2011 
+/s/ Morton D. Erlich
+Morton D. Erlich
+Director 
+March 1, 2011 
+/s/ Richard Siskind
+Richard Siskind
+Director 
+March 1, 2011 
+/s/ Thomas Walsh
+Thomas Walsh
+Director 
+March 1, 2011 
+/s/ Rick Rappaport
+Rick Rappaport
+Director 
+March 1, 2011 
+72
\ No newline at end of file
diff --git a/raw/filings/0001065837/2010/0000950123-11-020586/filing_metadata.csv b/raw/filings/0001065837/2010/0000950123-11-020586/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..b4b6232da879397ab6171287a511b51a47ee0e0a
--- /dev/null
+++ b/raw/filings/0001065837/2010/0000950123-11-020586/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0001065837,SKX,SKECHERS USA INC,10-K,2011-03-01,2010-12-31,2011-03-01T20:39:27.000Z,0000950123-11-020586,v58766e10vk.htm,FORM 10-K,802509,0,0,https://www.sec.gov/Archives/edgar/data/1065837/000095012311020586/v58766e10vk.htm,https://www.sec.gov/Archives/edgar/data/1065837/000095012311020586/,2010,2010,1
diff --git a/raw/filings/0001065837/2010/0000950123-11-020586/item1.txt b/raw/filings/0001065837/2010/0000950123-11-020586/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b1f319afa10e6382e893733925109cbf71981ede
--- /dev/null
+++ b/raw/filings/0001065837/2010/0000950123-11-020586/item1.txt
@@ -0,0 +1,889 @@
+ITEM 1. 
+BUSINESS 
+We were incorporated in California in 1992 and reincorporated in Delaware in 1999. Throughout
+this annual report, we refer to Skechers U.S.A., Inc., a Delaware corporation, and its consolidated
+subsidiaries as “we,” “us,” “our,” “our company” and “Skechers” unless otherwise indicated. Our
+Internet website address is www.skechers.com . Our annual report on Form 10-K, quarterly reports on
+Form 10-Q, current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of directors,
+officers and 10% stockholders, and any amendments to those reports filed or furnished pursuant to
+Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our
+website as soon as reasonably practicable after we electronically file such material with, or
+furnish it to, the U.S. Securities and Exchange Commission (“SEC”). You can learn more about us by
+reviewing such filings on our website or at the SEC’s website at www.sec.gov .
+GENERAL
+We design and market Skechers-branded lifestyle and athletic footwear for men, women and
+children under several unique lines. Our footwear reflects a combination of style, quality and
+value that appeals to a broad range of consumers. In addition to Skechers-branded lines, we also
+offer several uniquely branded fashion and street-focused footwear lines for men, women and
+children. These lines are branded and marketed separately from Skechers and appeal to specific
+audiences. Our brands are sold through department and specialty stores, athletic and independent
+retailers, and boutiques as well as catalog and Internet retailers. Along with wholesale
+distribution, our footwear is available at our e-commerce websites and our own retail stores. As of
+February 15 th , 2011 we operated 105 concept stores, 99 factory outlet stores and 40
+warehouse outlet stores in the United States, and 28 concept stores and 16 factory outlets
+internationally. Our objective is to profitably grow our operations worldwide while leveraging our
+recognizable Skechers brand through our strong product lines, innovative advertising and
+diversified distribution channels.
+We seek to offer consumers a vast array of fashionable footwear that satisfies their active,
+casual, dress casual and athletic; footwear needs. Our core consumers are style-conscious men and
+women attracted to our youthful brand image and fashion-forward designs. Many of our best-selling
+and core styles are also developed for children with colors and materials that reflect a playful
+image appropriate for this demographic.
+We believe that brand recognition is an important element for success in the footwear
+business. We have aggressively promoted our brands through comprehensive marketing campaigns for
+men, women and children. During 2010, our Skechers brand was supported by print, television and
+outdoor campaigns for men and women; animated kids’ television campaigns featuring our own action
+heroes and characters; and print, television and outdoor campaigns featuring our Shape-ups
+endorsees. These endorsees included celebrities and reality stars Kim Kardashian and Kris Jenner,
+Hall of Fame quarterback Joe Montana, television personality Brooke Burke, fitness expert Denise
+Austin, and Hall of Fame basketball player Karl Malone. Our Marc Ecko and Zoo York footwear lines
+are also supported by advertising campaigns developed by Marc Ecko.
+Since we introduced our first line, Skechers USA Sport Utility Footwear, in December 1992, we
+have expanded our product offering and grown our net sales while substantially increasing the
+breadth and penetration of our account base. Our men’s, women’s and children’s Skechers-branded
+product lines benefit from the Skechers reputation for contemporary and progressive styling,
+quality, comfort and affordability. Our lines that are not branded with the Skechers name benefit
+from our marketing support, quality management and expertise. To promote innovation and brand
+relevance, we manage our product lines separately by utilizing dedicated sales and design teams.
+Our product lines share back office services in order to limit our operating expenses and fully
+utilize our management’s vast experience in the footwear industry.
+SKECHERS LINES
+Skechers offers multiple branded product lines for men, women and children as well as other
+products sold under established names not associated with Skechers. Within these various product
+lines, we also have numerous categories, some of which have developed into well-known names. Most
+of these categories are marketed and packaged with unique shoe boxes, hangtags and in-store
+support. Management evaluates segment performance based primarily on net sales and gross margins;
+however, sales and costs are not allocated to specific product lines.
+2 
+Table of Contents 
+Skechers USA. Our Skechers USA category for men and women includes: (i) Casuals, (ii) Dress
+Casuals, (iii) Relaxed Fit (for men only), (iv) Sandals, (v) Casual Fusion and (vi) Benefitting
+Others By Shoes (“BOBS”). This category is generally sold through mid-tier retailers, department
+stores and some footwear specialty shops.
+• 
+The Casuals line for men and women is defined by lugged outsoles and utilizes
+value-oriented and leather materials in the uppers. For men, the Casuals category includes
+“black and brown” boots, shoes and sandals that generally have a rugged urban design — some
+with industrial-inspired fashion features. For women, the Casuals category includes basic
+“black and brown” oxfords and slip-ons, lug outsole and fashion boots, and casual sandals.
+We design and price both the men’s and women’s categories to appeal primarily to younger
+consumers with broad acceptance across age groups. 
+• 
+The Dress Casuals category for men is comprised of basic “black and brown” men’s
+shoes that feature shiny leathers and dress details, but may utilize traditional or lugged
+outsoles as well as value-oriented materials. The Dress Casual line for women is comprised
+of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or
+faux fur lining or trim, and water-resistant materials. 
+• 
+Skechers Relaxed Fit is a line of trend-right casuals for men who want all-day
+comfort without compromising style. Characteristics of the line include comfortable
+outsoles, cushioned insoles and quality leather uppers. A category with unique features, we
+market and package Skechers Relaxed Fit styles in a shoe box that is distinct from that of
+other categories in the Skechers USA line of footwear. 
+• 
+Our Sandals collection for men and women is designed with many of our existing and
+proven outsoles for our Casuals, Dress Casuals and Casual Fusion lines, stylized with basic
+or core uppers as well as fresh looks. These styles are generally made with quality leather
+uppers, but may also be in canvas or fabric. 
+• 
+Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals
+targeted to trend-conscious young men and women. The outsoles are primarily rubber and
+adopted from our men’s Sport and women’s Active lines. This collection features leather or
+nubuck uppers, but may also include mesh. 
+• 
+Our BOBS footwear is an alpagarta-inspired footwear line created to help millions of
+children worldwide. For every pair of BOBS shoes sold, Skechers donates two pairs of BOBS
+shoes to boys and girls in need through the Soles4Souls organization, which is an
+international shoe charity that distributes footwear to children and families around the
+world. Made with a canvas upper, BOBS’ versatile, classic designs are available at
+department, specialty shoe stores and online retailers. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes: (i) Joggers, Trail
+Runners, Sport Hikers, Terrainers, (ii) Performance, (iii) Skechers D’Lites (for women only), (iv)
+Revv Air, and (v) Sport Sandals. Our Skechers Sport category is distinguished by its technical
+performance-inspired looks; however, we generally do not promote the technical performance features
+of these shoes. Skechers Sport is typically sold through specialty shoe stores, department stores
+and athletic footwear retailers.
+• 
+Our Jogger, Trail Runner, Sport Hiker and cross trainer-inspired Terrainer designs
+are lightweight constructions that include cushioned heels, polyurethane midsoles, phylon
+and other synthetic outsoles, as well as leather or synthetic uppers such as durabuck,
+cordura and nylon mesh. Careful attention is devoted to the design, pattern and construction
+of the outsoles, which vary greatly depending on the intended use. This category features
+earth tones and athletic-inspired hues with contrasting pop colors such as lime green,
+orange and red in addition to traditional athletic white. 
+• 
+The Performance category is comprised of multi-purpose running shoes that are
+marketed as men’s lifestyle athletic footwear. Some styles include 3M reflective accents,
+breathable upper construction, quality leathers, abrasion-resistant toe and heel cap,
+removable moisture wicking molded ethyl vinyl acetate (“EVA”) sock liner, outsole forefoot
+flex grooves for improved flexibility, non-marking rubber lugs with impact dispersment
+technology (“IDT”), aggressive all terrain traction lugs, external torsion stabilizer and
+tuned dual-density molded EVA midsole with pronation control. 
+• 
+Skechers D’Lites are ultra lightweight women’s sneakers that feature sturdy, sculpted
+midsoles for all-day comfort, durable rubber treads for improved traction and a sole design
+that provides superior flexibility and cushioning. The uppers are designed in leather,
+suede, nubuck and mesh. 
+3 
+Table of Contents 
+• 
+Revv Air is an ultra-lightweight sport trainer for women featuring a ventilated
+upper, air-injected midsole and flex-groove, high-grip outsole for optimum ventilation,
+flexibility and comfort. Designed as a versatile, trend-right athletic suitable for all-day
+wear, the line features leather and trubuck uppers and distinct color accents. 
+• 
+Our Sport Sandals are primarily designed from existing Skechers Sport outsoles and
+may include many of the same sport features as our sneakers with the addition of new
+technologies geared toward making a comfortable sport sandal. Sport sandals are designed as
+seasonal footwear for the consumer who already wears our Skechers Sport sneakers. 
+Skechers Active. A natural companion to Skechers Sport, Skechers Active has grown from a
+casual everyday line into a complete line of fusion and sport fusion sneakers for females of all
+ages. The Active line now includes low-profile, wedge and sporty styles. The line, with lace-up,
+Mary Janes, sandals and open back styles, is available in a multitude of colors as well as solid
+white or black, in fabrics, leathers and meshes, and with various closures — traditional laces,
+zig-zag and cross straps, among others. Active sneakers are typically retailed through specialty
+casual shoe stores and department stores.
+Skechers Kids. The Skechers Kids line includes: (i) Skechers Kids, which is a range of
+infants’, toddlers’, boys’ and girls’ boots, shoes and sneakers, (ii) S-Lights, Hot Lights by
+Skechers and Luminators by Skechers, (iii) Skechers Cali for Girls, which is trend-inspired boots,
+shoes, sandals and dress sneakers, (iv) Airators by Skechers, (v) Skechers Super Z-Strap, (vi)
+Skechers Bungees, (vii) HyDee HyTop from Skechers, (viii) Twinkle Toes by Skechers, (ix) Pretty
+Tall by Skechers, (x) Sporty Shorty by Skechers, (xi) Shape-ups for Kids (girls only), and (xii)
+Babiez by Skechers. Skechers Kids and Skechers Cali for Girls are comprised primarily of shoes that
+are designed as “takedowns” of their adult counterparts, allowing the younger set the opportunity
+to wear the same popular styles as their older siblings and schoolmates. This “takedown” strategy
+maintains the product’s integrity by offering premium leathers, hardware and outsoles without the
+attendant costs involved in designing and developing new products. In addition, we adapt current
+fashions from our men’s and women’s lines by modifying designs and choosing colors and materials
+that are more suitable for the playful image that we have established in the children’s footwear
+market. Each Skechers Kids line is marketed and packaged separately with a distinct shoe box.
+Skechers Kids shoes are available at department stores and specialty and athletic retailers.
+• 
+The Skechers Kids line includes embellishments or adornments such as fresh colors and
+fabrics from our Skechers adult shoes. Some of these styles are also adapted for toddlers
+with softer, more pliable outsoles and for infants with soft, leather-sole crib shoes. 
+• 
+S-Lights and Hot Lights by Skechers are lighted sneakers and sandals for boys and girls.
+The S-Lights combine patterns of lights on the outsoles and sides of the shoes while Hot
+Lights feature lights on the front of the toe to simulate headlights as well as on other
+areas of the shoes. New to the offering with lights, Luminators by Skechers feature glowing
+green lights and a marketing campaign with the Luminator character. 
+• 
+Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young women
+designed to typify the California lifestyle. The sneakers are designed primarily with canvas
+uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and
+flats are designed with many of the same upper materials and outsoles as the sneakers. 
+• 
+Airators by Skechers is a line of boys sneakers with a foot-cooling system designed to
+pump air from the heel through to the toes. The line is marketed with the character Kewl
+Breeze. 
+• 
+Skechers Super Z-Strap is a line of athletic styled sneakers with a unique “z” shaped
+closure system for easy closure. The line is marketed with the character Z-Strap. 
+• 
+Skechers Bungees is a line of girls’ sneakers with bungee closures. The line is marketed
+with the character Elastika. 
+• 
+HyDee HyTop from Skechers is a line of colorful high-top sneakers for young girls. The
+line is marketed with the character HyDee HyTop. 
+• 
+Twinkle Toes by Skechers is a new line of girls’ sneakers and boots that feature
+bejeweled toe caps and brightly designed uppers. The line is marketed with the character
+Twinkle Toes. 
+• 
+Pretty Tall by Skechers is a line of girls’ sneakers with a hidden wedge. The line is
+marketed with the character Pretty Tall. 
+4 
+Table of Contents 
+• 
+Sporty Shorty by Skechers is a new line of athletic-inspired sneakers for girls who like
+to wear sport-style footwear off the field. The line is marketed with the character Sporty
+Shorty. 
+• 
+Shape-ups for Kids is a new line of footwear that uses our patented Shape-ups technology
+in styles and sizes for girls. The footwear is being marketed as a fun way to stay fit, and
+does not focus on the benefits of Shape-ups. 
+• 
+Babiez by Skechers is a line of crib shoes for infants. The uppers and outsoles are
+designed in leather and are extremely flexible for newborn feet. 
+Shape-ups by Skechers. Shape-ups are stylish and comfortable toning footwear for men and women
+who want to incorporate more fitness into their daily lives. Ideal for walking around town, work or
+home, Shape-ups feature a unique Resamax™ kinetic wedge and rocker bottom designed to give the
+sensation and benefits of walking on soft sand. When worn regularly for walking and exercising, we
+believe that Shape-ups may help tone muscles, improve posture, and reduce joint stress. The
+Shape-ups lines include: (i) Original for women, (ii) XF for women and XT for men, (iii) SRT for
+men and women, (iv) AT for men and women, (v) Healthy Living for women, (vi) XW, (vii) S2-Lite for
+women, (viii) Shape-ups Toners for women, and (ix) Shape-ups for Work for men and women. Shape-ups
+are available at athletic footwear retailers, department stores and specialty shoe stores.
+• 
+Shape-ups Originals offer the most benefits with a higher kinetic wedge. 
+• 
+Shape-ups XF (Extended Fitness) for women and XT (Extended Training) for men feature the
+same Shape-ups technology in a lower profile for all-day wear. 
+• 
+SRT (Shape-ups Radius Trainer) is designed to be worn in the gym or while exercising to
+maximize the wearer’s workout. The shoe features an Advanced Stabilization Insole and Roll
+Bridge™ for improved stability and support during high-intensity activities. 
+• 
+Shape-ups AT (All-Terrain) features the Shape-ups technology with an Advanced
+Stabilization Insole and Motion Control Cage™ for enhanced stabilization and protection on
+rugged surfaces. The line is marketed to those wanting the benefits of Shape-ups while
+hiking on trails. 
+• 
+Healthy Living offers women Shape-ups technology in a dress casual profile ideal for the
+office and all-day wear — and is crafted with high-quality leather uppers and soft linings
+and insoles. 
+• 
+Like XT and XF, Shape-ups XW (Extended Wear) features a lower profile kinetic wedge
+outsole, but with casual uppers. The style is marketed as a comfortable alternative to
+traditional black and brown shoes. 
+• 
+S2 Lite offers Shape-ups technology in an ultra-lightweight design, and features a unique
+support system for improved medial and lateral stability. 
+• 
+Shape-ups Toners is inspired by core-strengthening activities like yoga balls, balance
+disks and foam rolls, and features convex-shaped Resamax™ Kinetic Toning Pods™ that create a
+bi-axial instability that may activate muscles. 
+• 
+Shape-ups for Work is a collection of primarily slip-resistant footwear with Shape-ups
+patented technology. These shoes are marketed for their comfort as well as relief of joint
+stress and postural benefits for service and occupational industry professionals. 
+Tone-ups by Skechers and Tone-ups Fitness. Targeting 18- to 34-year old fitness and trend
+conscious women, Tone-ups by Skechers are casual and athletic-inspired sandals that feature a
+gradual density midsole designed for comfort and support. Tone-ups uppers range from leather to
+microfiber suede, mitobuck and nylon webbing. The offering is available in department stores and
+casual shoe retailers.
+New in the Tone-ups collection is Tone-ups Fitness footwear. Primarily targeting the same
+consumer as Tone-ups, Tone-ups Fitness is a collection of stylish sneakers primarily with a padded
+bottom featuring Resalyte technology. While the packaging highlights the benefits of this toning
+footwear, the marketing positions the brand as stylish toning footwear.
+5 
+Table of Contents 
+Skechers Resistance Runner. Marketed as an “intelligent” technical shoe for serious runners,
+The Skechers Resistance Runner (or “SRR”) is designed with Shape-ups’ innovative Resamax™ kinetic
+wedge technology to absorb more energy and achieve higher levels of fitness in shorter periods,
+while its intuitive profile helps return athletes’ strides to a more natural state — reducing
+injuries and enhancing comfort and performance. Designed with patent and man-made leather uppers
+for men and women, SRR shoes are available at athletic footwear retailers, department stores and
+specialty shoe stores.
+Skechers Work. Expanding on our heritage of cutting-edge utility footwear, Skechers Work
+offers a complete line of men’s and women’s casuals, field boots, hikers and athletic shoes. The
+Skechers Work line includes athletic-inspired, casual safety toe, and non-slip safety toe
+categories that may feature lightweight aluminum safety toe, electrical hazard, and slip-resistant
+technologies, as well as breathable, seam-sealed waterproof membranes. Designed for men and women
+with jobs that require certain safety requirements, these durable styles are constructed on
+high-abrasion, long wearing soles, and feature breathable lining, oil and abrasion resistant
+outsoles offering all-day comfort and prolonged durability. The Skechers Work line incorporates
+design elements from the other Skechers mens and womens line. The uppers are comprised of
+high-quality leather, nubuck, trubuck and durabuck. Our safety toe athletic sneakers, boots,
+hikers, and casuals are ideal for environments requiring safety footwear and offer comfort and
+safety in dry or wet conditions. Our slip-resistant boots, hikers, athletics, casuals and clogs
+are ideal for the service industry. Our safety toe products have been independently tested and
+certified to meet ASTM standards, and our slip-resistant soles have been tested pursuant to the
+Mark II testing method for slip resistance. Skechers Work is typically sold through department
+stores, athletic footwear retailers and specialty shoe stores, as well as marketed directly to
+consumers through business-to-business channels.
+FASHION AND STREET BRANDS
+The Fashion and Street Division and its brands are marketed and packaged separately from Skechers.
+Unltd. by Marc Ecko. Unltd. by Marc Ecko is a line of men’s street-inspired traditional
+sneakers, fusion sneakers and urban-focused casuals. The men’s and women’s footwear collections
+are designed in leather, canvas, mesh, as well as other materials. Unltd. by Marc Ecko for boys and
+Rhino Red for girls sneaker lines primarily consist of takedowns from the adult Marc Ecko footwear
+lines with additional or different colorways geared toward children. The licensed brands are sold
+through select department stores and specialty retailers.
+Zoo York. Zoo York footwear is a line of action sports and lifestyle footwear for men, women
+and boys. The Zoo York footwear follows the color palette and trends of Zoo York apparel and
+targets skateboarders and those that embrace skate fashion. The licensed brand is available in
+skate and specialty shops as well as select athletic and department stores.
+Mark Nason. Mark Nason is a sophisticated and fashion forward footwear collection, marketed
+to style-conscious men and designed to complement designer denim and dress casual wear.
+Hand-crafted and constructed in Italy, the Mark Nason collection is comprised of classic and modern
+boots, shoes and sandals with distinctive profiles, signature embellishments and luxurious hand
+treated and distressed leathers. Also part of Mark Nason, Lounge is a collection of boots and
+casual loafers that have many similar design elements as the heritage Mark Nason collection, but
+are constructed in Asia, giving consumers a more price-conscious option.
+PRODUCT DESIGN AND DEVELOPMENT
+Our principal goal in product design is to generate new and exciting footwear in all of our
+product lines with contemporary and progressive styles and comfort-enhancing performance features.
+Targeted to the active, youthful and style-savvy, we design most new styles to be fashionable and
+marketable to the 12- to 24-year old consumer, while substantially all of our lines appeal to the
+broader range of 5- to 40-year old consumers, with an exclusive selection for infants and toddlers.
+With the exception of our fitness and toning products which have performance features, we generally
+do not position our shoes in the marketplace as technical performance shoes.
+We believe that our products’ success is related to our ability to recognize trends in the
+footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving
+preferences. We are able to quickly translate the latest fashion trends into stylish, quality
+footwear at a reasonable price by analyzing and interpreting current and emerging lifestyle trends.
+Lifestyle trend information is compiled and analyzed by our designers from various sources,
+including: the review and analysis of modern music, television, cinema, clothing, alternative
+sports and other trend-setting media; traveling to domestic and international fashion markets to
+identify and confirm current trends; consulting with our retail and e-commerce customers for
+information on current retail selling trends; participating in major footwear trade shows to stay
+abreast of popular brands, fashions and styles; and subscribing to various fashion and color
+information services. In addition, a key component of our design philosophy is to continually
+reinterpret and develop our successful styles in our brands’ image.
+6 
+Table of Contents 
+The footwear design process typically begins about nine months before the start of a season.
+Our products are designed and developed primarily by our in-house design staff. To promote
+innovation and brand relevance, we utilize dedicated design teams, who report to our senior design
+executives and focus on each of the men’s, women’s and children’s categories. In addition, we
+utilize outside design firms on an item-specific basis to supplement our internal design efforts.
+The design process is extremely collaborative, as members of the design staff frequently meet with
+the heads of retail, merchandising, sales, production and sourcing to further refine our products
+to meet the particular needs of the target market.
+After a design team arrives at a consensus regarding the fashion themes for the coming season,
+the designers then translate these themes into our products. These interpretations include
+variations in product color, material structure and embellishments, which are arrived at after
+close consultation with our production department. Prototype blueprints and specifications are
+created and forwarded to our manufacturers for a design prototype. The design prototypes are then
+sent back to our design teams. Our major retail customers may also review these new design
+concepts. Customer input not only allows us to measure consumer reaction to the latest designs, but
+also affords us an opportunity to foster deeper and more collaborative relationships with our
+customers. We also occasionally order limited production runs that may initially be tested in our
+concept stores. By working closely with store personnel, we obtain customer feedback that often
+influences product design and development. Our design teams can easily and quickly modify and
+refine a design based on customer input. Generally, the production process can take six months to
+nine months from design concept to commercialization.
+SOURCING
+Factories. Our products are produced by independent contract manufacturers located primarily
+in China and, to a lesser extent, in Italy, Vietnam, Brazil and various other countries. We do not
+own or operate any manufacturing facilities. We believe that the use of independent manufacturers
+substantially increases our production flexibility and capacity while reducing capital expenditures
+and avoiding the costs of managing a large production work force.
+When possible, we seek to use manufacturers that have previously produced our footwear, which
+we believe enhances continuity and quality while controlling production costs. We attempt to
+monitor our selection of independent factories to ensure that no one manufacturer is responsible
+for a disproportionate amount of our merchandise. We source product for styles that account for a
+significant percentage of our net sales from at least five different manufacturers. During 2010,
+five of our contract manufacturers accounted for approximately 70.6% of total purchases. One
+manufacturer accounted for 34.7%, and one other accounted for 13.0% of our total purchases. To
+date, we have not experienced difficulty in obtaining manufacturing services.
+We finance our production activities in part through the use of interest-bearing open purchase
+arrangements with certain of our Asian manufacturers. These facilities currently bear interest at a
+rate between 0% and 1.5% for 30- to 60-day financing, depending on the factory. We believe that the
+use of these arrangements affords us additional liquidity and flexibility. We do not have any
+long-term contracts with any of our manufacturers; however, we have long-standing relationships
+with many of our manufacturers and believe our relationships to be good.
+We closely monitor sales activity after initial introduction of a product in our concept
+stores to determine whether there is substantial demand for a style, thereby aiding us in our
+sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming
+collections or offered as part of our periodic style offerings, while less popular styles can be
+discontinued after a limited production run. We believe that sales in our concept stores can also
+help forecast sales in national retail stores, and we share this sales information with our
+wholesale customers. Sales, merchandising, production and allocations management analyze historical
+and current sales and market data from our wholesale account base and our own retail stores to
+develop an internal product quantity forecast that allows us to better manage our future production
+and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock
+position to minimize the time necessary to fill customer orders by placing orders with our
+manufacturers prior to the time we receive customers’ orders for such footwear.
+Production Oversight . To safeguard product quality and consistency, we oversee the key aspects
+of production from initial prototype manufacture through initial production runs to final
+manufacture. Monitoring of all production is performed in the United States by our in-house
+production department and in Asia through an approximately 300-person staff working from our
+offices in China. We believe that our Asian presence allows us to negotiate supplier and
+manufacturer arrangements more effectively, decrease product turnaround time and ensure timely
+delivery of finished footwear. In addition, we require our manufacturers to certify that neither
+convicted, forced nor indentured labor (as defined under U.S. law) nor child labor (as defined by
+law in the manufacturer’s
+7 
+Table of Contents 
+country) is used in the production process, and that compensation will be paid according to
+local law and that the factory is in compliance with local safety regulations.
+Quality Control. We believe that quality control is an important and effective means of
+maintaining the quality and reputation of our products. Our quality control program is designed to
+ensure that not only finished goods meet our established design specifications, but also that all
+goods bearing our trademarks meet our standards for quality. Our quality control personnel located
+in China perform an array of inspection procedures at various stages of the production process,
+including examination and testing of prototypes of key raw materials prior to manufacture, samples
+and materials at various stages of production and final products prior to shipment. Our employees
+are on site at each of our major manufacturers to oversee production. For some of our lower volume
+manufacturers, our staff is on site during significant production runs or we will perform
+unannounced visits to their manufacturing sites to further monitor compliance with our
+manufacturing specifications.
+ADVERTISING AND MARKETING
+With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted approach to
+marketing to drive traffic, build brand recognition and properly position our diverse lines within
+the marketplace. Senior management is directly involved in shaping our image and the conception,
+development and implementation of our advertising and marketing activities. The focus of our
+marketing plan is print and television advertising, which is supported by outdoor, trend-influenced
+marketing, public relations, promotions and in-store support. In addition, we utilize celebrity
+endorsers in our advertisements. We also believe our websites and trade shows are effective
+marketing tools to both consumers and wholesale accounts. We have historically budgeted advertising
+as a percentage of projected net sales.
+The majority of our advertising is conceptualized by our in-house design team. We believe that
+our advertising strategies, methods and creative campaigns are directly related to our success.
+Through our lifestyle and image-driven advertising, we generally seek to build and increase brand
+awareness by linking the Skechers brand and our fashion and street brands to youthful, contemporary
+lifestyles and attitudes. We have built on this approach by featuring select styles in our
+lifestyle ads for men and women. Our ads are designed to provide merchandise flexibility and to
+facilitate the Skechers brand’s direction.
+To further build brand awareness and influence consumer spending, we have selectively signed
+endorsement agreements with celebrities whom we believe would reach new markets. Hall of Fame
+quarterback Joe Montana and Hall of Fame basketball player Karl Malone appeared in “Comeback”
+Shape-ups print and television campaigns in 2010. Fitness expert Denise Austin appeared in a
+television campaign and at promotional events through 2010. Television hostess Brooke Burke
+appeared in print and television campaigns for Shape-ups in 2010. In 2010, we also signed celebrity
+icons and reality stars Kim Kardashian and Kris Jenner for Shape-ups. The Kardashian and Jenner
+print and television advertisements will appear through 2011. From time to time, we may sign other
+celebrities to endorse our brand name and image in order to strategically market our products among
+specific consumer groups in the future.
+In addition to advertising our Skechers branded lines through men’s, women’s and children’s
+ads, we also support product-driven ads for Mark Nason footwear that capture the brand’s essence.
+For the Marc Ecko footwear brands, Marc Ecko’s design team has created relevant targeted print and
+television commercials for men, women and kids.
+With a targeted approach, our print ads appear regularly in popular fashion and lifestyle
+consumer publications, including GQ, Cosmopolitan, Shape, Lucky, In Style, Seventeen, Maxim, Men’s
+Fitness, and Women’s Health, as well as in weekly publications such as People, Us Weekly, OK!,
+Sports Illustrated and InTouch, among others. Our advertisements also appear in international
+magazines around the world.
+Our television commercials are produced both in-house and through producers that we have
+utilized in the past who are familiar with our brands. In 2010, we developed commercials for men,
+women and children for our Skechers brands, including our animated spots for kids featuring our own
+action heroes and our Shape-ups and SRR collections. We have found these to be a cost-effective
+way to advertise on key national and cable programming during high selling seasons. In 2010, many
+of our television commercials were translated into multiple languages and aired in Brazil, Canada,
+the United Kingdom, France, the Benelux Region, Germany, Spain, Italy, Chile, Austria and
+Switzerland.
+Outdoor. In an effort to reach consumers where they shop and in high-traffic areas as they
+travel to and from work, we continued our multi-level outdoor campaign that included kiosks in key
+malls across the United States and billboards, transportation systems and telephone kiosks in North
+America and Europe. In addition, we advertised on football perimeter boards in the United Kingdom,
+Spain
+8 
+Table of Contents 
+and Germany. We believe these are effective and efficient ways to reach a broad range of
+consumers and leave a lasting impression for our brands.
+Trend-Influenced Marketing/Public Relations. Our public relations objectives are to secure
+product placement in key fashion magazines, place our footwear on the feet of trend-setting
+celebrities and their children, and gain positive and accurate press about us and our products.
+Through our commitment to aggressively promote our upcoming styles, our products are often featured
+in leading fashion and pop culture magazines, as well as in select films and popular television
+shows. Our footwear and our company have been prominently displayed and referenced on news and
+magazine shows. We have also amassed an array of prominent product placements in magazines
+including Seventeen, OK!, US Weekly, Health and Nylon . In addition, our brands have been associated
+with cutting edge events and various celebrities.
+Promotions. By applying creative sales techniques via a broad spectrum of media, our marketing
+team seeks to build brand recognition and drive traffic to Skechers’ retail stores, websites and
+our retail partners’ locations. Skechers’ promotional strategies have encompassed in-store
+specials, charity events, product tie-ins and giveaways, and collaborations with national retailers
+and radio stations. During 2010, we launched a national bus tour for our Skechers Fitness product
+with stops at popular events such as county fairs, marathons, and specialized conferences that
+focus on fitness or targeted industries which was designed to build the brand and create
+excitement. Our products were made available to consumers at many of these events either direct or
+through key accounts.
+Visual Merchandising. Our in-house visual merchandising department supports wholesale
+customers, distributors and our retail stores by developing displays that effectively leverage our
+products at the point of sale. Our point-of-purchase display items include signage, graphics,
+displays, counter cards, banners and other merchandising items for each of our brands. These
+materials mirror the look and feel of each brand and reinforce the image as well as draw consumers
+into stores.
+Our visual merchandising coordinators (“VMC’s”) work with our sales force and directly with
+our customers to ensure better sell-through at the retail level by generating greater consumer
+awareness through Skechers brand displays. Our VMC’s communicate with and visit our wholesale
+customers on a regular basis to aid in proper display of our merchandise. They also run in-store
+promotions to enhance the sale of Skechers footwear and create excitement surrounding the Skechers
+brand. We believe that these efforts help stimulate impulse sales and repeat purchases.
+Trade Shows. To better showcase our diverse products to footwear buyers in the United States
+and Europe and to distributors around the world, we regularly exhibit at leading trade shows. Along
+with specialty trade shows, we exhibit at WSA’s The Shoe Show, FFANY, ASR, MAGIC and Outdoor
+Retailer in the United States; GDS, MICAM, Bread & Butter, Mess Around and Who’s Next in Europe;
+and Couromoda and Francal in Brazil. Our dynamic, state-of-the-art trade show exhibits are
+developed by our in-house architect to showcase our latest product offerings in a lifestyle setting
+reflective of each of our brands. By investing in innovative displays and individual rooms
+showcasing each line, our sales force can present a sales plan for each line and buyers are able to
+truly understand the breadth and depth of our offerings, thereby optimizing commitments and sales
+at the retail level.
+Internet. We promote and sell our brands through our e-commerce websites www.skechers.com and
+www.soholab.com . These websites enable fans and customers to shop, browse, find store locations,
+socially interact, post a shoe review, photo, video, or question and immerse themselves in our
+brands. These websites are a venue for dialog and feedback from customers about our products which
+enhances the Skechers and fashion brands experience while driving sales through all our retail
+channels. In addition, we established a unique website for Mark Nason ( www.marknason.com ) designed
+to serve primarily as a marketing tool.
+PRODUCT DISTRIBUTION CHANNELS
+We have four reportable segments — domestic wholesale sales, international wholesale sales,
+retail sales and e-commerce sales. In the United States, our products are available through a
+network of wholesale customers comprised of department, athletic and specialty stores.
+Internationally, our products are available through wholesale customers in more than 100 countries
+and territories via our global network of distributors in addition to our subsidiaries in Asia,
+Europe, Canada and South America. Skechers owns and operates retail stores both domestically and
+internationally through three integrated retail formats—concept, factory outlet and warehouse
+outlet stores. Each of these channels serves an integral function in the global distribution of our
+products. Nineteen distributors have opened 143 distributor-owned Skechers retail stores in 30
+countries as of December 31, 2010.
+Domestic Wholesale. We distribute our footwear through the following domestic wholesale
+distribution channels: department stores, specialty stores, athletic specialty shoe stores and
+independent retailers, as well as catalog and Internet retailers. While department stores and
+specialty retailers are the largest distribution channels, we believe that we appeal to a variety
+of wholesale
+9 
+Table of Contents 
+customers, many of whom may operate stores within the same retail location due to our distinct
+product lines, variety of styles and the price criteria of their specific customers. Management has
+a clearly defined growth strategy for each of our channels of distribution. An integral component
+of our strategy is to offer our accounts the highest level of customer service so that our products
+will be fully represented in existing retail locations and new locations of each customer.
+In an effort to provide knowledgeable and personalized service to our wholesale customers, the
+sales force is segregated by product line, each of which is headed by a vice president or national
+sales manager. Reporting to each sales manager are knowledgeable account executives and territory
+managers. Our vice presidents and national sales managers report to a senior vice president of
+sales. All of our vice presidents and national sales managers are compensated on a salary basis,
+while our account executives and territory managers are compensated on a commission basis. None of
+our domestic sales personnel sells competing products.
+We believe that we have developed a loyal customer base through exceptional customer service.
+We believe that our close relationships with these accounts help us to maximize their retail
+sell-throughs. Our visual merchandise coordinators work with our wholesale customers to ensure that
+our merchandise and point-of-purchase marketing materials are properly presented. Sales executives
+and merchandise personnel work closely with accounts to ensure that appropriate styles are
+purchased for specific accounts and for specific stores within those accounts as well as to ensure
+that appropriate inventory levels are carried at each store. Such information is then utilized to
+help develop sales projections and determine the product needs of our wholesale customers. The
+value-added services we provide our wholesale customers help us maintain strong relationships with
+our existing wholesale customers and attract potential new wholesale customers.
+International Wholesale. Our products are sold in more than 100 countries and territories
+throughout the world. We generate revenues from outside the United States from three principal
+sources: (i) direct sales to department stores and specialty retail stores through our subsidiaries
+and joint ventures in Canada, France, Germany, Spain, Portugal, Italy, Switzerland, Austria,
+Malaysia, Thailand, Singapore, Hong Kong, China, the Benelux Region, the United Kingdom, Brazil and
+Chile; (ii) sales to foreign distributors who distribute our footwear to department stores and
+specialty retail stores in countries and territories across Eastern Europe, Asia, Central America,
+South America, Africa, the Middle East and Australia, among other regions; and (iii) to a lesser
+extent, royalties from licensees who manufacture and distribute our non-footwear products outside
+the United States.
+We believe that international distribution of our products represents a significant
+opportunity to increase sales and profits. We intend to further increase our share of the
+international footwear market by heightening our marketing in those countries in which we currently
+have a presence through our international advertising campaigns, which are designed to establish
+Skechers as a global brand synonymous with trend-right casual shoes.
+• 
+International Subsidiaries 
+Europe 
+We currently distribute product in most of Western Europe through the following
+subsidiaries: Skechers USA Ltd., with its offices and showrooms in London, England; Skechers
+S.a.r.l., with its offices in Lausanne, Switzerland; Skechers USA France S.A.S., with its
+offices and showrooms in Paris, France; Skechers USA Deutschland GmbH, with its offices and
+showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L., with its offices and showrooms
+in Madrid, Spain; Skechers USA Benelux B.V., with its offices and showrooms in Waalwijk, the
+Netherlands; and Skechers USA Italia S.r.l., with its offices and showroom in Verona, Italy.
+Skechers-owned retail stores in Europe include nine concept stores and thirteen factory
+outlet stores located in nine countries, including the key locations of Covent Garden and
+Oxford Street in London, Alstadt District in Düsseldorf and Kalverstraat Street in Amsterdam.
+To accommodate our European subsidiaries’ operations, we operate an approximately
+490,000 square foot distribution center in Liege, Belgium. This distribution center is
+currently used to store and deliver product to our subsidiaries and retail stores throughout
+Europe.
+10 
+Table of Contents 
+Canada 
+Merchandising and marketing of our product in Canada is managed by our wholly-owned
+subsidiary, Skechers USA Canada, Inc. with its offices and showrooms outside Toronto in
+Mississauga, Ontario. Product sold in Canada is primarily sourced from our U.S. distribution
+center in Ontario, California. We have five concept stores; Toronto Eaton Centre, West
+Edmonton Mall, Chinook Centre, Richmond Centre, and Pacific Centre; and two factory outlet
+stores in Toronto and Alberta.
+Malaysia, Singapore and Thailand 
+We have a 50% interest in a joint venture in Malaysia and Singapore, and a 51% interest
+in a joint venture in Thailand that generate net sales in those countries. The joint
+ventures operate three concept stores and six shops-in-shop in Malaysia, eight concept stores
+and one shop-in-shop in Singapore, and three concept stores and two shops-in-shop in
+Thailand. These joint ventures are included in our consolidated financial statements.
+China and Hong Kong 
+We have a 50% interest in a joint venture in China and a minority interest in a joint
+venture in Hong Kong that generate net sales in those countries. Under the joint venture
+agreements, the joint venture partners contribute capital in proportion to their respective
+ownership interests. The joint ventures operate 18 direct-owned stores and in excess of 90
+shops-in-shop in China and 11 direct-owned stores and 12 shops-in-shop in Hong Kong. The
+joint ventures are included in our consolidated financial statements.
+Brazil 
+Merchandising and marketing of our product in Brazil is managed by our wholly-owned
+subsidiary, Skechers Do Brasil Calcados LTDA., with its offices located in Sao Paulo, Brazil.
+Product sold in Brazil is primarily shipped directly from our contract manufacturers’
+factories in China and occasionally from our U.S. distribution center in Ontario, California.
+Chile 
+We have established a subsidiary in Chile, Comercializadora Skechers Chile Limitada, to
+support our 15 retail stores as well as wholesale accounts in that country. Product sold in
+Chile is primarily shipped directly from our contract manufacturers’ factories in China and
+occasionally from our U.S. distribution center in Ontario, California.
+11 
+Table of Contents 
+• 
+Distributors 
+Where we do not sell direct through our international subsidiaries and joint ventures,
+our footwear is distributed through an extensive network of more than 30 distributors who
+sell our products to department, athletic and specialty stores in more than 100 countries
+around the world. As of December 31, 2010, we had agreements with 19 of these distributors
+regarding 143 distributor-owned Skechers retail stores that are open in 30 countries,
+including 42 stores that were opened in 2010, while 11 distributor-owned stores were closed
+during the year. Our distributors own and operate the following retail stores:
+REGION 
+STORE FORMAT 
+NUMBER OF STORES 
+LOCATION (1) 
+Americas 
+Concept
+41 
+Aruba; Columbia (6); Costa Rica (2); Ecuador (2); Guatemala (3);
+Mexico (3); Panama (3); Peru (4); Venezuela (17)
+Warehouse
+3 
+Columbia; Mexico (2)
+Asia 
+Concept
+43 
+Japan (3); Korea (26); Indonesia (3); Mongolia;
+Philippines (7); Taiwan (3) 
+Warehouse
+8 
+Japan (4); Korea (4) 
+Australia 
+Concept
+3 
+Castle Hill; Chadstone; Sydney 
+Warehouse
+6 
+Cairns; Canberra; Jindalee; Melbourne (2); Sydney 
+Europe 
+Concept
+20 
+Croatia (2); Estonia; Israel; Lithuania (2);
+Malta (2); Russia (10); Ukraine (2) 
+Middle East 
+Concept
+12 
+Bahrain; Kuwait (2); Saudi Arabia (2); UAE (7) 
+Warehouse
+1 
+UAE 
+Africa 
+Concept
+6 
+Egypt; Morocco; South Africa (4) 
+(1) 
+One store per location except as otherwise noted. 
+The distributors are responsible for their respective stores’ operations, have ownership
+of their respective stores’ assets, and select the broad collection of our products to sell
+to consumers in their regions. In order to maintain a globally consistent image, we provide
+architectural, graphic and visual guidance and materials for the design of the stores, and we
+train the local staff on our products and corporate culture. We intend to expand our
+international presence and global recognition of the Skechers brand name by continuing to
+sell our footwear to foreign distributors and by opening flagship retail stores with
+distributors that have local market expertise.
+Retail Stores. We pursue our retail store strategy through our three integrated retail
+formats: the concept store, the factory outlet store and the warehouse outlet store. Our three
+store formats enable us to promote the full Skechers product offering in an attractive environment
+that appeals to a broad group of consumers. In addition, most of our retail stores are profitable
+and have a positive effect on our operating results. We periodically review all of our stores for
+impairment. We prepare a summary of cash flows for each of our retail stores to assess potential
+impairment of the fixed assets and leasehold improvements. If the assets are considered to be
+impaired, the impairment we recognize is the amount by which the carrying value of the assets
+exceeds the fair value of the assets. In addition, we base the useful lives and related
+amortization or depreciation expense on our estimate of the period that the assets will generate
+revenues or otherwise be used by us. As of February 15, 2011, we owned and operated 105 concept
+stores, 99 factory outlet stores and 40 warehouse outlet stores in the United States, and 28
+concept stores and 16 factory outlet stores internationally. During 2010, we opened 25 domestic
+stores and 17 international stores, and closed one domestic store. During 2011, we plan to open 30
+to 35 new stores, including 3 to 5 international locations.
+• 
+Concept Stores. 
+Our concept stores are located at either marquee street locations or in major shopping
+malls in large metropolitan cities. Our concept stores have a threefold purpose in our
+operating strategy. First, concept stores serve as a showcase for a wide
+12 
+Table of Contents 
+range of our product offering for the current season, as we estimate that our average
+wholesale customer carries no more than 5% of the complete Skechers line in any one location.
+Our concept stores showcase our products in an attractive, easy-to-shop open-floor setting,
+providing the customer with the complete Skechers story. Second, retail locations are
+generally chosen to generate maximum marketing value for the Skechers brand name through
+signage, store front presentation and interior design. Domestic locations include concept
+stores at Times Square, Union Square and 34th Street in New York, Powell Street in San
+Francisco, Hollywood and Highland in Hollywood, Santa Monica’s Third Street Promenade, and
+Las Vegas’ Fashion Show Mall. International locations include Covent Garden and Oxford
+Street in London, Alstadt District in Dusseldorf, Toronto’s Eaton Centre, Vancouver’s Pacific
+Centre, and Kalverstraat Street in Amsterdam. The stores are typically designed to create a
+distinctive Skechers look and feel, and enhance customer association of the Skechers brand
+name with current youthful lifestyle trends and styles. Third, the concept stores serve as
+marketing and product testing venues. We believe that product sell-through information and
+rapid customer feedback derived from our concept stores enables our design, sales,
+merchandising and production staff to respond to market changes and new product
+introductions. Such responses serve to augment sales and limit our inventory markdowns and
+customer returns and allowances. In 2010, we opened 15 domestic concept stores and six
+international concept stores.
+During 2010, we opened our first two Shape-ups concept stores in California at the Santa
+Monica Place Mall and on Hollywood Boulevard next to Grauman’s Chinese Theatre. Similar to
+the Skechers stores, the Shape-ups concept stores are designed to showcase the growing
+collection of Skechers Fitness products with knowledgeable sales associates who can discuss
+the benefits of the lines. We also view the stores as brand-building marketing vehicles and,
+as we continue to open Shape-ups concept stores, we will seek locations that either have
+heavy tourist traffic or are in areas focused on walking or fitness.
+The typical Skechers concept store is approximately 2,500 square feet, although in
+certain markets we have opened concept stores as large as 7,800 square feet or as small as
+1,100 square feet. When deciding where to open concept stores, we identify top geographic
+markets in the larger metropolitan cities in the United States, Canada, Europe and Asia. When
+selecting a specific site, we evaluate the proposed sites’ traffic pattern, co-tenancies,
+sales volume of neighboring concept stores, lease economics and other factors considered
+important within the specific location. If we are considering opening a concept store in a
+shopping mall, our strategy is to obtain space as centrally located as possible in the mall
+where we expect foot traffic to be most concentrated. We believe that the strength of the
+Skechers brand name has enabled us to negotiate more favorable terms with shopping malls that
+want us to open up concept stores to attract customer traffic to their venues.
+• 
+Factory Outlet Stores. 
+Our factory outlet stores are generally located in manufacturers’ direct outlet centers
+throughout the United States. In addition, we have 16 international outlet stores — five in
+England, two each in Canada, Italy and Germany, and one each in Scotland, Austria, the
+Netherlands, Portugal, and Chile. Our factory outlet stores provide opportunities for us to
+sell discontinued and excess merchandise, thereby reducing the need to sell such merchandise
+to discounters at excessively low prices and potentially compromise the Skechers brand image.
+Skechers’ factory outlet stores range in size from approximately 1,900 to 9,000 square feet.
+Unlike our warehouse outlet stores, inventory in these stores is supplemented by certain
+first-line styles sold at full retail price points. We opened seven domestic factory outlet
+stores and 11 international factory outlet stores in 2010.
+• 
+Warehouse Outlet Stores. 
+Our free-standing warehouse outlet stores, which are located throughout the United
+States, enable us to liquidate excess merchandise, discontinued lines and odd-size inventory
+in a cost-efficient manner. Skechers’ warehouse outlet stores are typically larger than our
+factory outlet stores and range in size from approximately 5,200 to 15,000 square feet. Our
+warehouse outlet stores enable us to sell discontinued and excess merchandise that would
+otherwise typically be sold to discounters at excessively low prices, which could otherwise
+compromise the Skechers brand image. We seek to open our warehouse outlet stores in areas
+that are in close proximity to our concept stores to facilitate the timely transfer of
+inventory that we want to liquidate as soon as practicable. We opened three domestic
+warehouse outlet stores in 2010.
+Electronic Commerce. Our websites, www.skechers.com and www.soholab.com are virtual
+storefronts that promote the Skechers and Fashion and Street Division’s brands. Our websites are
+designed to provide a positive shopping and brand experience, showcasing our products in an
+easy-to-navigate format, allowing consumers to browse our selections and purchase our footwear.
+These virtual
+13 
+Table of Contents 
+stores have provided a convenient alternative-shopping environment and brand experience.
+These websites are an efficient and effective additional retail distribution channel, and they have
+improved our customer service.
+For disclosure of segment information for our four reportable segments — domestic wholesale
+sales, international wholesale sales, retail sales and e-commerce sales—see note 14 to the
+financial statements on page 60 of this annual report.
+LICENSING
+We believe that selective licensing of the Skechers brand name and our product line names to
+manufacturers may broaden and enhance the individual brands without requiring significant capital
+investments or additional incremental operating expenses. Our multiple product lines plus
+additional subcategories present many potential licensing opportunities on terms with licensees
+that we believe will provide more effective manufacturing, distribution or marketing of
+non-footwear products. We also believe that the reputation of Skechers and its history in launching
+brands has also enabled us to partner with reputable non-footwear brands to design and market their
+footwear.
+As of January 31, 2011, we had 18 active domestic and international licensing agreements in
+which we are the licensor. These include agreements for the recently launched Skechers branded
+leather goods and backpacks. We also have licensed Skechers Kids apparel, Skechers Scrubs for
+health care professionals and Skechers Eyewear. We have international licensing agreements for the
+design and distribution of men’s and women’s apparel in Germany, India, Israel, South Africa, and
+Korea; bags in Panama; and watches in the Philippines.
+DISTRIBUTION FACILITIES AND OPERATIONS
+We believe that strong distribution support is a critical factor in our operations. Once
+manufactured, our products are packaged in shoe boxes bearing bar codes that are shipped either:
+(i) to our six distribution centers located in or near Ontario, California, which measure in
+aggregate approximately 2.0 million square-feet, (ii) to our approximately 490,000 square-foot
+distribution center located in Liege, Belgium or (iii) directly from third-party manufacturers to
+our other international customers and other international third-party distribution centers. Upon
+receipt at either of the distribution centers, merchandise is inspected and recorded in our
+management information system and packaged according to customers’ orders for delivery. Merchandise
+is shipped to customers by whatever means each customer requests, which is usually by common
+carrier. The distribution centers have multi-access docks, enabling us to receive and ship
+simultaneously, and to pack separate trailers for shipments to different customers at the same
+time. We have an electronic data interchange system, or EDI system, to which some of our larger
+customers are linked. This system allows these customers to automatically place orders with us,
+thereby eliminating the time involved in transmitting and inputting orders, and it includes direct
+billing and shipping information.
+In January 2010, we entered into a joint venture agreement to build a new 1.8 million square
+foot distribution facility in Rancho Belago, California, which we expect to occupy when completed
+in 2011. This single facility will replace the existing six facilities located in or near Ontario,
+California, of which five are on short-term leases and the sixth we own. We will lease the new
+distribution center from the joint venture for a base rent of $940,695 per month for 20 years. The
+joint venture is included in the consolidated financial statements.
+BACKLOG
+As of December 31, 2010, our backlog was $588.9 million, compared to $454.7 million as of
+December 31, 2009. Backlog orders are subject to cancellation by customers, as evidenced by order
+cancellations that we have experienced over the past few years due to the weakened U.S. economy and
+the toning market becoming saturated with lower priced products. For a variety of reasons,
+including changes in the economy, customer demand for our products, the timing of shipments,
+product mix of customer orders, the amount of in-season orders and a shift towards tighter lead
+times within backlog levels, backlog may not be a reliable measure of future sales for any
+succeeding period.
+INTELLECTUAL PROPERTY RIGHTS
+We own and utilize a variety of trademarks, including the Skechers trademark. We have a
+significant number of both registrations and pending applications for our trademarks in the United
+States. In addition, we have trademark registrations and trademark applications in approximately
+102 foreign countries. We also have design patents and pending design and utility patent
+applications in both the United States and approximately 27 foreign countries. We continuously look
+to increase the number of our patents and
+14 
+Table of Contents 
+trademarks both domestically and internationally where necessary to protect valuable
+intellectual property. We regard our trademarks and other intellectual property as valuable assets
+and believe that they have significant value in the marketing of our products. We vigorously
+protect our trademarks against infringement, including through the use of cease and desist letters,
+administrative proceedings and lawsuits.
+We rely on trademark, patent, copyright and trade secret protection, non-disclosure agreements
+and licensing arrangements to establish, protect and enforce intellectual property rights in our
+logos, tradenames and in the design of our products. In particular, we believe that our future
+success will largely depend on our ability to maintain and protect the Skechers trademark and other
+key trademarks. Despite our efforts to safeguard and maintain our intellectual property rights, we
+cannot be certain that we will be successful in this regard. Furthermore, we cannot be certain that
+our trademarks, products and promotional materials or other intellectual property rights do not or
+will not violate the intellectual property rights of others, that our intellectual property would
+be upheld if challenged, or that we would, in such an event, not be prevented from using our
+trademarks or other intellectual property rights. Such claims, if proven, could materially and
+adversely affect our business, financial condition and results of operations. In addition, although
+any such claims may ultimately prove to be without merit, the necessary management attention to and
+legal costs associated with litigation or other resolution of future claims concerning trademarks
+and other intellectual property rights could materially and adversely affect our business,
+financial condition and results of operations. We have sued and have been sued by third parties for
+infringement of intellectual property. It is our opinion that none of these claims has materially
+impaired our ability to utilize our intellectual property rights.
+The laws of certain foreign countries do not protect intellectual property rights to the same
+extent or in the same manner as do the laws of the United States. Although we continue to implement
+protective measures and intend to defend our intellectual property rights vigorously, these efforts
+may not be successful or the costs associated with protecting our rights in certain jurisdictions
+may be prohibitive. From time to time we discover products in the marketplace that are counterfeit
+reproductions of our products or that otherwise infringe upon intellectual property rights held by
+us. Actions taken by us to establish and protect our trademarks and other intellectual property
+rights may not be adequate to prevent imitation of our products by others or to prevent others from
+seeking to block sales of our products as violating trademarks and intellectual property rights. If
+we are unsuccessful in challenging a third party’s products on the basis of infringement of our
+intellectual property rights, continued sales of such products by that or any other third party
+could adversely impact the Skechers brand, result in the shift of consumer preferences away from
+our products and generally have a material adverse effect on our business, financial condition and
+results of operations.
+COMPETITION
+Competition in the footwear industry is intense. Although we believe that we do not compete
+directly with any single company with respect to its entire range of products, our products compete
+with other branded products within their product category as well as with private label products
+sold by retailers, including some of our customers. Our utility footwear and casual shoes compete
+with footwear offered by companies such as The Timberland Company, Clarks, Kenneth Cole Productions
+Inc., Steven Madden, Ltd., Wolverine World Wide, Inc., and V.F. Corporation. Our athletic
+lifestyle and performance shoes compete with footwear offered by companies such as Nike, Inc.,
+adidas AG, Puma AG, and New Balance Athletic Shoe, Inc. The intense competition among these
+companies and the rapid changes in technology and consumer preferences in the markets for
+performance footwear, including the walking fitness category, constitute significant risk factors
+in our operations. Our children’s shoes compete with footwear offered by companies such as
+Collective Brands Inc. and Geox. In varying degrees, depending on the product category involved,
+we compete on the basis of style, price, quality, comfort and brand name prestige and recognition,
+among other considerations. These and other competitors pose challenges to our market share in our
+major domestic markets and may make it more difficult to establish our products in Europe, Asia and
+other international regions. We also compete with numerous manufacturers, importers and
+distributors of footwear for the limited shelf space available for the display of such products to
+the consumer. Moreover, the general availability of contract manufacturing capacity allows ease of
+access by new market entrants. Many of our competitors are larger, have been in existence for a
+longer period of time, have achieved greater recognition for their brand names, have captured
+greater market share and/or have substantially greater financial, distribution, marketing and other
+resources than we do. We cannot be certain that we will be able to compete successfully against
+present or future competitors, or that competitive pressures will not have a material adverse
+effect on our business, financial condition and results of operations.
+15 
+Table of Contents 
+EMPLOYEES
+As of January 31, 2011, we employed 5,440 persons, 2,517 of whom were employed on a full-time
+basis and 2,923 of whom were employed on a part-time basis. None of our employees is subject to a
+collective bargaining agreement. We believe that our relations with our employees are satisfactory.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2010/0000950123-11-020586/item13.txt b/raw/filings/0001065837/2010/0000950123-11-020586/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..03d1c2065226169af205679018832fc097e995be
--- /dev/null
+++ b/raw/filings/0001065837/2010/0000950123-11-020586/item13.txt
@@ -0,0 +1,5 @@
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+The information required by this Item 13 is hereby incorporated by reference from our
+definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of
+our 2010 fiscal year.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2010/0000950123-11-020586/item9a.txt b/raw/filings/0001065837/2010/0000950123-11-020586/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..56c313eb910c91ff87f3275a7eae5bb03a63d54a
--- /dev/null
+++ b/raw/filings/0001065837/2010/0000950123-11-020586/item9a.txt
@@ -0,0 +1,72 @@
+ITEM 9A. CONTROLS AND PROCEDURES 
+62 
+Table of Contents 
+Attached as exhibits to this annual report on Form 10-K are certifications of our Chief
+Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance
+with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This
+“Controls and Procedures” section includes information concerning the controls and controls
+evaluation referred to in the certifications.
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
+The term “disclosure controls and procedures” refers to the controls and other procedures of a
+company that are designed to provide reasonable assurance that information required to be disclosed
+by a company in the reports that it files or submits under the Exchange Act, is recorded,
+processed, summarized and reported within required time periods. We have established disclosure
+controls and procedures to ensure that material information relating to Skechers and its
+consolidated subsidiaries is made known to the officers who certify our financial reports, as well
+as other members of senior management and the Board of Directors, to allow timely decisions
+regarding required disclosures. As of the end of the period covered by this annual report on Form
+10-K, we carried out an evaluation under the supervision and with the participation of our
+management, including our CEO and CFO, of the effectiveness of the design and operation of our
+disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that
+evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective in
+timely alerting them, at the reasonable assurance level, to material information related to our
+company that is required to be included in our periodic reports filed with the SEC under the
+Exchange Act.
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
+Our management is responsible for establishing and maintaining adequate internal control over
+financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal
+control over financial reporting includes those policies and procedures that (i) pertain to the
+maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
+and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in accordance with generally accepted
+accounting principles, and that our receipts and expenditures are being made only in accordance
+with authorizations of our management and directors; and (iii) provide reasonable assurance
+regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
+assets that could have a material effect on our financial statements.
+We conducted an evaluation of the effectiveness of our internal control over financial
+reporting based on the framework in Internal Control — Integrated Framework issued by the
+Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation
+under the framework in Internal Control- Integrated Framework, our management has concluded that as
+of December 31, 2010, our internal control over financial reporting is effective.
+Our independent registered public accountants, KPMG LLP, audited the consolidated financial
+statements included in this annual report on Form 10-K and have issued an attestation report on the
+effectiveness of our internal control over financial reporting as of December 31, 2010, which is
+included in Part II, Item 8 of this annual report on Form 10-K.
+INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
+Our management, including our Chief Executive Officer and Chief Financial Officer, does not
+expect that our disclosure controls and procedures or our internal control over financial reporting
+will prevent or detect all error and all fraud. A control system, no matter how well designed and
+operated, can provide only reasonable, not absolute, assurance that the control system’s objectives
+will be met. The design of a control system must reflect the fact that there are resource
+constraints, and the benefits of controls must be considered relative to their costs. Further,
+because of the inherent limitations in all control systems, no evaluation of controls can provide
+absolute assurance that misstatements due to error or fraud will not occur or that all control
+issues and instances of fraud, if any, within the company have been detected. These inherent
+limitations include the realities that judgments in decision-making can be faulty and that
+breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the
+individual acts of some persons, by collusion of two or more people, or by management override of
+the controls. The design of any system of controls is based in part on certain assumptions about
+the likelihood of future events, and there can be no assurance that any design will succeed in
+achieving its stated goals under all potential future conditions. Projections of any evaluation of
+controls effectiveness to future periods are subject to risks. Over time, controls may become
+inadequate because of changes in conditions or deterioration in the degree of compliance with
+policies or procedures.
+63 
+Table of Contents 
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
+There were no significant changes to our internal controls over financial reporting that have
+materially affected, or are reasonably likely to materially affect, our internal controls over
+financial reporting during the fourth quarter of 2010, and we have completed our efforts regarding
+compliance with Section 404 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2010.
+The results of our evaluation are discussed above in Management’s Report on Internal Control Over
+Financial Reporting.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2010/0000950123-11-020586/rp_note.txt b/raw/filings/0001065837/2010/0000950123-11-020586/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001065837/2010/0000950123-11-020586/rpt_disclosure.txt b/raw/filings/0001065837/2010/0000950123-11-020586/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..48abfa4dc2b40663461310136646130eea8825d7
--- /dev/null
+++ b/raw/filings/0001065837/2010/0000950123-11-020586/rpt_disclosure.txt
@@ -0,0 +1,327 @@
+entitled “ Transactions with Related Persons ” in
+this proxy statement for a description of transactions between
+the Greenberg Family Trust, of which Robert Greenberg is a
+trustee, Michael Greenberg and our company. To our knowledge,
+unless otherwise indicated in the footnotes to this table and
+subject to applicable community property laws, each person named
+in the table has sole voting and investment power with respect
+to the shares of Class A and Class B Common Stock set
+forth opposite such person’s name. Unless otherwise
+indicated in the footnotes below, the address of each beneficial
+owner listed below is
+c/o Skechers 
+U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach,
+California 90266.
+Number of 
+Percentage of 
+Number of 
+Percentage of 
+Class A Shares 
+Class A Shares 
+Class B Shares 
+Class B Shares 
+Name of Beneficial Owner 
+Beneficially Owned 
+Beneficially Owned 
+Beneficially Owned 
+Beneficially Owned 
+5% stockholders: 
+Janus Capital Management LLC
+2,775,985
+(1) 
+7.2
+%
+—
+—
+BlackRock, Inc. 
+2,526,744
+(2) 
+6.6
+—
+—
+Cadian Capital Management, LLC
+2,400,000
+(3) 
+6.2
+—
+—
+Gil Schwartzberg
+6,100,766
+(4) 
+13.7
+6,100,766
+(5) 
+53.9
+%
+Named Executive Officers and directors: 
+Robert Greenberg
+3,374,261
+(6) 
+8.1
+3,365,030
+(7) 
+29.8
+Michael Greenberg
+859,648
+(8) 
+2.2
+540,341
+(9) 
+4.8
+Jeffrey Greenberg
+710,614
+(10) 
+1.8
+403,209
+(11) 
+3.6
+David Weinberg
+220,772
+(12) 
+*
+—
+—
+Mark Nason
+77,499
+(13) 
+*
+—
+—
+Philip Paccione
+50,475
+*
+—
+—
+Leonard Armato
+50,000
+*
+—
+—
+Morton Erlich
+21,000
+(14) 
+*
+—
+—
+Geyer Kosinski
+9,700
+*
+—
+—
+Richard Rappaport
+11,000
+*
+—
+—
+Richard Siskind
+61,333
+(15) 
+*
+—
+—
+Thomas Walsh
+3,850
+*
+—
+—
+All current directors and executive officers as a group
+(12 persons)
+5,450,152
+(16) 
+12.7
+%
+4,308,580
+38.1
+%
+* 
+Less than 1.0%
+(1)
+Information is based on a
+Schedule 13G filed with the SEC on February 14, 2011,
+which disclosed the number of shares beneficially owned as of
+December 31, 2010. Janus Capital Management LLC
+(“Janus Capital”) has a direct 94.5% ownership stake
+in INTECH Investment Management (“INTECH”) and a
+direct 77.8% ownership stake in Perkins Investment Management
+LLC (“Perkins LLC”). Due to the above ownership
+structure, holdings for Janus Capital, Perkins LLC and INTECH
+are aggregated for purposes of their Schedule 13G and this
+table. Janus Capital, Perkins LLC and INTECH are registered
+investment advisers, each furnishing investment advice to
+various investment companies registered under Section 8 of
+the Investment Company Act of 1940 and to individual and
+institutional clients (collectively
+29
+Table of Contents 
+referred to herein as “Managed
+Portfolios”). As a result of its role as investment adviser
+or
+sub-adviser 
+to the Managed Portfolios, Perkins LLC may be deemed to be the
+beneficial owner of 2,775,985 shares of Class A Common
+Stock held by such Managed Portfolios, or 7.2% of our shares
+outstanding of Class A Common Stock. However, Perkins LLC
+does not have the right to receive any dividends from, or the
+proceeds from the sale of, the securities held in the Managed
+Portfolios and disclaims any ownership associated with such
+rights. Perkins Mid Cap Value Fund (“Perkins Fund”) is
+an investment company registered under the Investment Company
+Act of 1940 and is one of the Managed Portfolios to which Janus
+Capital provides investment advice. The principal business
+offices of Janus Capital and Perkins Fund are located at 151
+Detroit Street, Denver, Colorado 80206.
+(2)
+Information is based on a
+Schedule 13G filed with the SEC on February 8, 2011
+and represents the number of shares beneficially owned as of
+December 31, 2010. BlackRock, Inc. has sole voting power
+and sole dispositive power with respect to
+2,526,744 shares. The principal business office of
+BlackRock, Inc. is located at 40 East 52nd Street, New York, New
+York 10022.
+(3)
+Information is based on a
+Schedule 13G filed with the SEC on February 14, 2011
+and represents the number of shares beneficially owned as of
+December 31, 2010. Cadian Capital Management, LLC and Eric
+Bannnasch have shared voting power and shared dispositive power
+with respect to 2,400,000 shares. The principal business
+office of Cadian is located at 461 Fifth Avenue, 24th
+Floor, New York, New York 10017.
+(4)
+Represents 6,100,766 shares of
+Class B Common Stock that are convertible at any time into
+shares of Class A Common Stock on a
+one-for-one 
+basis. Beneficial ownership of these shares is described in
+greater detail in note 5 below.
+(5)
+Represents 1,550,383 shares of
+Class B Common Stock held by the Robert Y. Greenberg 2009
+Annuity Trust, 1,550,383 shares of Class B Common
+Stock held by the M. Susan Greenberg 2009 Annuity Trust,
+1,500,000 shares of Class B Common Stock held by the
+Robert Y. Greenberg 2010 Annuity Trust, 1,500,000 shares of
+Class B Common Stock held by the M. Susan Greenberg 2010
+Annuity Trust. Gil Schwartzberg may be deemed to beneficially
+own these shares as sole trustee of the trusts, and
+Mr. Schwartzberg has sole voting power and sole dispositive
+power with respect to the shares held by these trusts.
+Mr. Schwartzberg disclaims beneficial ownership of any of
+these shares except to the extent of his pecuniary interest
+therein. The principal business office of Mr. Schwartzberg
+is located at 269 S. Beverly Drive, Suite 1315,
+Beverly Hills, California 90212.
+(6)
+Includes 3,365,030 shares of
+Class B Common Stock that are convertible at any time into
+shares of Class A Common Stock on a
+one-for-one 
+basis. Beneficial ownership of these shares is described in
+greater detail in note 7 below.
+(7)
+Represents 3,365,030 shares of
+Class B Common Stock held by the Greenberg Family Trust
+(the “Trust”) that Robert Greenberg, our Chief
+Executive Officer and Chairman of the Board, is deemed to
+beneficially own as a trustee of the Trust. His wife, Susan
+Greenberg, is also a trustee of the Trust and is also deemed to
+beneficially own all shares held by the Trust.
+(8)
+Includes 540,341 shares of
+Class B Common Stock that are convertible at any time into
+shares of Class A Common Stock on a
+one-for-one 
+basis, and 50,262 shares of Class A Common Stock
+beneficially owned by Michael Greenberg, our President and a
+member of our Board of Directors, indirectly through his wife,
+Wendy Greenberg, and their children. Mr. Greenberg
+disclaims beneficial ownership of these 50,262 shares
+except to the extent of his pecuniary interest therein.
+Beneficial ownership of the 540,341 shares of Class B
+Common Stock is described in greater detail in note 9 below.
+(9)
+Represents 489,041 shares of
+Class B Common Stock held by the Michael and Wendy
+Greenberg Family Trust that Michael Greenberg is deemed to
+beneficially own as trustee of such trust, and
+51,300 shares of Class B Common Stock held in various
+trust accounts for Mr. Greenberg’s minor children and
+of which a third party acts as trustee. Mr. Greenberg
+disclaims beneficial ownership of these 51,300 shares
+except to the extent of his pecuniary interest therein.
+(10)
+Includes 403,209 shares of
+Class B Common Stock that are convertible at any time into
+shares of Class A Common Stock on a
+one-for-one 
+basis, 62,740 shares of Class A Common Stock held by
+the Jeffrey Greenberg 2010 GRAT that Mr. Greenberg is
+deemed to beneficially own as his wife is trustee of such
+annuity trust, which is for the benefit of his two daughters who
+are minors, and 9,204 shares of Class A Common Stock
+held by the Chloe July Greenberg 2004 Trust and
+9,204 shares of Class A Common Stock held by the
+Catherine Elle Greenberg 2006 Trust that Mr. Greenberg is
+deemed to beneficially own as trustee of such trusts.
+Mr. Greenberg disclaims beneficial ownership of the
+62,740 shares held in the annuity trust except to the
+extent of his pecuniary interest therein. Beneficial ownership
+of the 403,209 shares of Class B Common Stock is
+described in greater detail in note 11 below.
+(11)
+Represents 26,849 shares of
+Class B Common Stock held by the Jeffrey and Lori Greenberg
+Family Trust that Jeffrey Greenberg, a member of our Board of
+Directors, is deemed to beneficially own as trustee of such
+trust, and 287,260 shares of Class B Common Stock held
+by the Jeffrey Greenberg 2010 GRAT that Mr. Greenberg is
+deemed to beneficially own as his wife is trustee of such
+annuity trust, which is for the benefit of his two daughters who
+are minors. Also represents 70,816 shares of Class B
+Common Stock held in various trust accounts for
+Mr. Greenberg’s two daughters who are minors and of
+which Mr. Greenberg is deemed to beneficially own as he or
+his wife is trustee of such trusts, and 10,792 shares of
+Class B Common Stock held by the Chloe July Greenberg
+custodial account and 7,492 shares of Class B Common
+Stock held by the Catherine Elle Greenberg custodial account,
+for which one of his siblings acts as custodian. These custodial
+accounts are for the benefit of Mr. Greenberg’s two
+daughters who are minors, and he disclaims beneficial ownership
+of the 287,260 shares held in the annuity trust and the
+18,284 shares held in the two custodial accounts except to
+the extent of his pecuniary interest therein.
+(12)
+Includes 107,438 shares of
+Class A Common Stock that David Weinberg, our Chief
+Operating Officer, Chief Financial Officer, Executive Vice
+President and a member of our Board of Directors, is deemed to
+beneficially own as sole trustee of The David Weinberg Trust
+dated September 7, 2000, and 30,000 shares of
+Class A Common Stock underlying options that are currently
+exercisable.
+(13)
+Includes 27,448 shares of
+Class A Common Stock underlying options that are currently
+exercisable.
+(14)
+Includes 14,000 shares of
+Class A Common Stock held by The Erlich Family Trust that
+Morton Erlich, a member of our Board of Directors, is deemed to
+beneficially own as a trustee of such trust.
+(15)
+Includes 35,000 shares of
+Class A Common Stock underlying options that are currently
+exercisable.
+(16)
+Includes 92,448 shares of
+Class A Common Stock underlying options that are currently
+exercisable by our executive officers and Board of Directors.
+The group of 12 current directors and executive officers
+excludes Leonard Armato, who was hired as our Chief Marketing
+Officer in March 2010 but is no longer serving as an executive
+officer in his current capacity as President of Fitness Group.
+30
+Table of Contents 
+COMPLIANCE
\ No newline at end of file
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@@ -0,0 +1,4398 @@
+10-K
+1
+d255229d10k.htm
+FORM 10-K
+Form 10-K 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+WASHINGTON, D.C. 20549 
+FORM 10-K 
+(Mark One) 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR
+15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31, 2011 
+OR 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 
+For the transition period from
+to 
+Commission File Number 001-14429 
+SKECHERS U.S.A., INC. 
+(Exact Name of Registrant as Specified in Its
+Charter) 
+Delaware 
+95-4376145 
+(State or Other Jurisdiction of Incorporation or Organization) 
+(I.R.S. Employer Identification No.) 
+228 Manhattan Beach Blvd., Manhattan Beach, California 
+90266 
+(Address of Principal Executive Offices) 
+(Zip Code) 
+Registrant’s telephone number, including area code: (310) 318-3100 
+Securities registered pursuant to Section 12(b) of the Act: 
+Title of Each Class 
+Name of Each Exchange
+on 
+Which
+Registered 
+Class A Common Stock, $0.001 par value 
+New York Stock Exchange 
+Securities registered pursuant to Section 12(g) of the Act: 
+None 
+(Title of Class) 
+Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
+No 
+Indicate by check mark if the Registrant is not required to file reports pursuant to
+Section 13 or Section 15(d) of the Act. Yes
+No
+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
+No
+Indicate by check mark whether the registrant has submitted electronically and posted on its
+corporate Website, 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
+No
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
+Regulation S-K(§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
+this Form 10-K. 
+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. 
+Large accelerated filer
+Accelerated filer
+Non-accelerated filer
+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
+As of June 30, 2011, the aggregate market value of the voting and non-voting Class A
+and Class B Common Stock held by non-affiliates of the Registrant was approximately $538 million based upon the closing price of $14.48 of the Class A Common Stock on the New York Stock Exchange on such date. 
+The number of shares of Class A Common Stock outstanding as of February 15, 2012: 38,721,910. 
+The number of shares of Class B Common Stock outstanding as of February 15, 2012: 11,274,090. 
+DOCUMENTS INCORPORATED BY REFERENCE 
+Portions of the Registrant’s Definitive Proxy Statement issued in connection with the 2012 Annual Meeting of the Stockholders of the Registrant are incorporated by reference into Part III.
+Table of Contents 
+SKECHERS U.S.A., INC. 
+TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K 
+FOR THE YEAR ENDED DECEMBER 31, 2011 
+PART I 
+ITEM 1. 
+BUSINESS 
+2 
+ITEM 1A. 
+RISK FACTORS 
+14 
+ITEM 1B. 
+UNRESOLVED STAFF COMMENTS 
+22 
+ITEM 2. 
+PROPERTIES 
+22 
+ITEM 3. 
+LEGAL PROCEEDINGS 
+23 
+ITEM 4. 
+MINE SAFETY DISCLOSURES 
+29 
+PART II 
+ITEM 5. 
+MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 
+29 
+ITEM 6. 
+SELECTED FINANCIAL DATA 
+31 
+ITEM 7. 
+MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
+32 
+ITEM 7A. 
+QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+42 
+ITEM 8. 
+FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+43 
+ITEM 9. 
+CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
+65 
+ITEM 9A. 
+CONTROLS AND PROCEDURES 
+65 
+ITEM 9B. 
+OTHER INFORMATION 
+68 
+PART III 
+ITEM 10. 
+DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 
+68 
+ITEM 11. 
+EXECUTIVE COMPENSATION 
+68 
+ITEM 12. 
+SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 
+68 
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+68 
+ITEM 14. 
+PRINCIPAL ACCOUNTING FEES AND SERVICES 
+68 
+PART IV 
+ITEM 15. 
+EXHIBITS, FINANCIAL STATEMENT SCHEDULES 
+68 
+i 
+Table of Contents 
+SPECIAL NOTE ON FORWARD LOOKING STATEMENTS 
+This annual report on Form 10-K contains forward-looking statements that are made pursuant to the safe harbor provisions
+of the Private Securities Litigation Reform Act of 1995, including statements with regards to future revenue, projected 2012 results, earnings, spending, margins, cash flow, orders, expected timing of shipment of products, inventory levels, future
+growth or success in specific countries, categories or market sectors, continued or expected distribution to specific retailers, liquidity, capital resources and market risk, strategies and objectives. Forward-looking statements include, without
+limitation, any statement that may predict, forecast, indicate or simply state future results, performance or achievements, and can be identified by the use of forward looking language such as “believe,” “anticipate,”
+“expect,” “estimate,” “intend,” “plan,” “project,” “will be,” “will continue,” “will result,” “could,” “may,” “might,” or any variations of
+such words with similar meanings. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected in forward-looking statements, and reported results shall not be considered
+an indication of our company’s future performance. Factors that might cause or contribute to such differences include: 
+— 
+international, national and local general economic, political and market conditions including the recent global economic recession and the uncertain
+pace of recovery in our markets; 
+— 
+our ability to maintain our brand image and to anticipate, forecast, identify, and respond to changes in fashion trends, consumer demand for the
+products and other market factors; 
+— 
+our ability to remain competitive among sellers of footwear for consumers, including in the highly competitive performance footwear market;
+— 
+our ability to sustain, manage and forecast our costs and proper inventory levels; 
+— 
+the loss of any significant customers, decreased demand by industry retailers and the cancellation of order commitments;
+— 
+our ability to continue to manufacture and ship our products that are sourced in China, which could be adversely affected by various economic,
+political or trade conditions, or a natural disaster in China; 
+— 
+our ability to predict our revenues, which have varied significantly in the past and can be expected to fluctuate in the future due to a number of
+reasons, many of which are beyond our control; and 
+— 
+sales levels during the spring, back-to-school and holiday selling seasons. 
+The risks included here are not exhaustive. Other sections of this report may include additional factors that could
+adversely impact our business, financial condition and results of operations. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and we cannot 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, which reflect our opinions only as of the date of this annual report, as a prediction of actual results. We undertake no obligation to publicly release any
+revisions to the forward-looking statements after the date of this document, except as otherwise required by reporting requirements of applicable federal and states securities laws. 
+1 
+Table of Contents 
+PART I 
+ITEM 1. 
+BUSINESS 
+We were incorporated in California in 1992 and reincorporated in Delaware in 1999. Throughout this annual report, we
+refer to Skechers U.S.A., Inc., a Delaware corporation, and its consolidated subsidiaries as “we,” “us,” “our,” “our company” and “Skechers” unless otherwise indicated. Our Internet address is
+www.skechers.com . Our annual report on Form 10-K, quarterly
+reports on Form 10-Q, current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of directors, officers and 10% stockholders, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of
+the Securities Exchange Act of 1934 are available free of charge on our corporate website, www.skx.com , as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and
+Exchange Commission (“SEC”). You can learn more about us by reviewing such filings at www.skx.com or
+at the SEC’s website at www.sec.gov .
+GENERAL 
+We design and market Skechers-branded lifestyle footwear for men, women and children, and performance footwear for men and women under several unique lines. Our footwear reflects a combination of style,
+quality and value that appeals to a broad range of consumers. In addition to Skechers-branded lines, we also offer uniquely branded fashion and street-focused footwear lines for men, women and children. These lines are branded and marketed
+separately from Skechers and appeal to specific audiences. Our brands are sold through department and specialty stores, athletic and independent retailers, and boutiques as well as catalog and internet retailers. Along with wholesale
+distribution, our footwear is available at our e-commerce website and our own retail stores. As of February 15, 2012, we operated 120 concept stores, 107 factory outlet stores and 54 warehouse outlet stores in the United States, and 33 concept
+stores and 16 factory outlets internationally. Our objective is to profitably grow our operations worldwide while leveraging our recognizable Skechers brand through our strong product lines, innovative advertising and diversified distribution
+channels. 
+We seek to offer consumers a vast array of fashionable footwear that satisfies their active,
+casual, dress casual and athletic footwear needs. Our core consumers are style-conscious men and women attracted to our youthful brand image and fashion-forward designs, and with our new performance footwear, athletes and fitness enthusiasts. Many
+of our best-selling and core styles are also developed for children with colors and materials that reflect a playful image appropriate for this demographic. 
+We believe that brand recognition is an important element for success in the footwear business. We have aggressively promoted our brands through comprehensive marketing campaigns for men, women and
+children. During 2011, our Skechers brand was supported by print, television and outdoor campaigns for men and women; animated kids’ television campaigns featuring our own action heroes and characters; and print, television and outdoor
+campaigns featuring our Skechers Fitness endorsees. These endorsees included celebrities and reality stars Kim Kardashian and Kris Jenner, television personality Brooke Burke and fitness expert Denise Austin. We also signed Olympic medalist Meb
+Keflezighi, Hall of Fame hockey player Wayne Gretzky, Hall of Fame basketball player Karl Malone and Hall of Fame quarterback Joe Montana as endorsees to market our fitness footwear. 
+Since we introduced our first line, Skechers USA Sport Utility Footwear, in December 1992, we have expanded our product
+offering and grown our net sales while substantially increasing the breadth and penetration of our account base. Our men’s, women’s and children’s Skechers-branded product lines benefit from the Skechers reputation for
+contemporary and progressive styling, quality, comfort and affordability. Our lines that are not branded with the Skechers name benefit from our marketing support, quality management and expertise. To promote innovation and brand relevance, we
+manage our product lines separately by utilizing dedicated sales and design teams. Our product lines share back office services in order to limit our operating expenses and fully utilize our management’s vast experience in the footwear
+industry. 
+SKECHERS LINES 
+Skechers offers multiple branded product lines for men, women and children as well as other products sold under established names not associated with Skechers. Within these various product lines, we also
+have numerous categories, some of which have developed into well-known names. Most of these categories are marketed and packaged with unique shoe boxes, hangtags and in-store support. Management evaluates segment performance based primarily on net
+sales and gross margins; however, sales and costs are not allocated to specific product lines. 
+2 
+Table of Contents 
+Lifestyle Brands 
+Skechers USA. Our Skechers USA category for men and women includes: (i) Casuals, (ii) Dress
+Casuals, (iii) Relaxed Fit (for men only), (iv) seasonal sandals and boots and (v) Casual Fusion. This category is generally sold through mid-tier retailers, department stores and some footwear specialty shops. 
+• 
+The Casuals line for men and women is defined by lugged outsoles and utilizes value-oriented and leather materials in the uppers. For men, the
+Casuals category includes “black and brown” boots, shoes and sandals that generally have a rugged urban design — some with industrial-inspired fashion features. For women, the Casuals category includes basic “black and
+brown” oxfords and slip-ons, lug outsole and fashion boots, and casual sandals. We design and price both the men’s and women’s categories to appeal primarily to younger consumers with broad acceptance across age
+groups. 
+• 
+The Dress Casuals category for men is comprised of basic “black and brown” men’s shoes that feature shiny leathers and dress details,
+but may utilize traditional or lugged outsoles as well as value-oriented materials. The Dress Casual line for women is comprised of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or faux fur lining or
+trim, and water-resistant materials. 
+• 
+Skechers Relaxed Fit is a line of trend-right casuals for men who want all-day comfort without compromising style. Characteristics of the line
+include comfortable outsoles, memory foam insoles and quality leather uppers. A category with unique features, we market and package Skechers Relaxed Fit styles in a shoe box that is distinct from that of other categories in the Skechers USA line of
+footwear. 
+• 
+Our seasonal sandals and boots collection for men and women is designed with many of our existing and proven outsoles for our Casuals, Dress Casuals
+and Casual Fusion lines, stylized with basic or core uppers as well as fresh looks. These styles are generally made with quality leather uppers, but may also be in canvas or fabric for sandals, and water-resistant materials and fur and faux fur
+linings for boots. 
+• 
+Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals targeted to trend-conscious young men and women. The outsoles
+are primarily rubber and adopted from our men’s Sport and women’s Active lines. This collection features leather or nubuck uppers, but may also include mesh. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes: (i) Lightweight Joggers,
+(ii) Trail-inspired, (iii) Athletic-inspired, (iv) Performance-inspired athletics and (v) Sport sandals and boots. Our Skechers Sport category is distinguished by its technical performance-inspired looks; however, we generally do
+not promote the technical performance features of these shoes. Skechers Sport is typically sold through specialty shoe stores, department stores and athletic footwear retailers. 
+• 
+Our Lightweight Joggers are designed with comfort and flexibility in mind. Careful attention is devoted to the cushioning, weight, materials, design
+and construction of the outsoles, which vary greatly depending on the intended use. This category features bright colors, earth tones and traditional athletic white. 
+• 
+Trail-inspired athletics are designed for city and off-road wear, some with aggressive all terrain traction lugs, external torsion stabilizer,
+abrasion-resistant toe and tuned dual-density molded EVA midsole with pronation control. Many of the uppers are in breathable materials, mesh, leather and nubuck. 
+• 
+Athletic inspired casuals are designed with the comfort of sneakers and the styling of casuals. With all-day comfort and durable rubber treads, the
+shoes are intended to go from weekend to work. Many of the designs are in natural shades with athletic accents. The uppers are designed in leather, suede, nubuck and canvas. 
+• 
+Performance-inspired athletics take their styling and design cues from our performance footwear in the Skechers Fitness division, allowing consumers
+to wear similar looks without the technology and associated costs. The styles are primarily lightweight and flexible, and feature cushioned outsoles and ventilated uppers. Designed as a versatile, trend-right athletic shoe suitable for all-day wear,
+the line features leather and trubuck uppers in both bright and classic athletic colors. 
+• 
+Our Sport sandals and boots are primarily designed from existing Skechers Sport outsoles and may include many of the same sport features as our
+sneakers with the addition of new technologies geared toward making a comfortable sport sandal. Sport sandals and boots are designed as seasonal footwear for the consumer who already wears our Skechers Sport sneakers. 
+3 
+Table of Contents 
+Skechers Active. A natural companion to Skechers Sport,
+Skechers Active has grown from a casual everyday line into a complete line of sneakers for active females of all ages. The Active line now includes low-profile, lightweight, flexible and sporty styles. The line, with lace-up, Mary Janes, sandals and
+open back styles, is available in a multitude of colors as well as solid white or black, in fabrics, leathers and meshes, and with various closures – traditional laces, zig-zag and cross straps, among others. Active sneakers are typically
+retailed through specialty casual shoe stores and department stores. 
+BOBS from Skechers. Our
+BOBS from Skechers footwear for men, women and kids is an alpagarta-inspired footwear line created to help millions of children worldwide. For every pair of BOBS shoes sold, Skechers will donate a pair of new shoes to a child in need around the
+world through reputable charity organizations. Primarily designed with canvas and linen uppers, BOBS are also made with corduroy, boiled wool and Tyvek (a paper fabric) uppers. BOBS’ versatile, classic designs are available at department,
+specialty shoe stores and online retailers. 
+Skechers Kids. The Skechers Kids line includes:
+(i) Skechers Kids, which is a range of infants’, toddlers’, boys’ and girls’ boots, shoes and sneakers, (ii) S-Lights, Hot Lights by Skechers and Luminators by Skechers, (iii) Skechers Cali for Girls,
+(iv) Airators by Skechers, (v) Skechers Super Z-Strap, (vi) Elastika by Skechers, (vii) Bella Ballerina by Skechers, (viii) Twinkle Toes by Skechers, and (ix) Sporty Shorty by Skechers. 
+• 
+The Skechers Kids line includes embellishments or adornments such as fresh colors and fabrics from our Skechers adult shoes. Some of these styles
+are also adapted for toddlers with softer, more pliable outsoles and for infants with soft, leather-sole crib shoes. 
+• 
+S-Lights, Hot Lights and Luminators by Skechers are lighted sneakers and sandals for boys and girls. The S-Lights combine patterns of lights on the
+outsoles and sides of the shoes while Hot Lights feature lights on the front of the toe to simulate headlights as well as on other areas of the shoes. Luminators by Skechers feature glowing green lights and a marketing campaign with the Luminator
+character. 
+• 
+Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young girls designed to typify the California lifestyle. The sneakers are
+designed primarily with canvas uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and flats are designed with many of the same upper materials and outsoles as the sneakers. 
+• 
+Airators by Skechers is a line of boys sneakers with a foot-cooling system designed to pump air from the heel through to the toes. The line is
+marketed with the character Kewl Breeze. 
+• 
+Skechers Super Z-Strap is a line of athletic styled sneakers with a unique “z” shaped closure system for easy closure. The line is
+marketed with the character Z-Strap. 
+• 
+Elastika by Skechers is a line of girls’ sneakers with bungee closures. The line is marketed with the character Elastika.
+• 
+Bella Ballerina by Skechers is a new line of shoes with a disc that spins on the outsole, allowing girls to twirl like a ballerina.
+• 
+Twinkle Toes by Skechers is a new line of girls’ sneakers and boots that feature bejeweled toe caps and brightly designed uppers. Some also
+include lights. The line is marketed with the character Twinkle Toes. 
+• 
+Sporty Shorty by Skechers is a new line of athletic-inspired sneakers for girls who like to wear sport-style footwear off the field. Many of the
+styles are lightweight and come in bright colors. Some also include lights. The line is marketed with the character Sporty Shorty. 
+Skechers Kids and Skechers Cali for Girls are comprised primarily of shoes that are designed as “takedowns” of their adult counterparts, allowing the younger set the opportunity to wear the same
+popular styles as their older siblings and schoolmates. This “takedown” strategy maintains the product’s integrity by offering premium leathers, hardware and outsoles without the attendant costs involved in designing and developing
+new products. In addition, we adapt current fashions from our men’s and women’s lines by modifying designs and choosing colors and materials that are more suitable for the playful image that we have established in the children’s
+footwear market. Each Skechers Kids line is marketed and packaged separately with a distinct shoe box. Skechers Kids shoes are available at department stores and specialty and athletic retailers. 
+4 
+Table of Contents 
+Skechers Work. Expanding on our heritage of cutting-edge
+utility footwear, Skechers Work offers a complete line of men’s and women’s casuals, field boots, hikers and athletic shoes. The Skechers Work line includes athletic-inspired, casual safety toe and non-slip safety toe categories that may
+feature lightweight aluminum safety toe, electrical hazard and slip-resistant technologies, as well as breathable, seam-sealed waterproof membranes. Designed for men and women with jobs that require certain safety requirements, these durable
+styles are constructed on high-abrasion, long wearing soles, and feature breathable lining, oil and abrasion resistant outsoles offering all-day comfort and prolonged durability. The Skechers Work line incorporates design elements from the
+other Skechers men’s and women’s line. The uppers are comprised of high-quality leather, nubuck, trubuck and durabuck. Our safety toe athletic sneakers, boots, hikers and casuals are ideal for environments requiring safety
+footwear and offer comfort and safety in dry or wet conditions. Our slip-resistant boots, hikers, athletics, casuals and clogs are ideal for the service industry. Our safety toe products have been independently tested and certified to meet
+ASTM standards, and our slip-resistant soles have been tested pursuant to the Mark II testing method for slip resistance. Skechers Work is typically sold through department stores, athletic footwear retailers and specialty shoe stores, as well as
+marketed directly to consumers through business-to-business channels. 
+Fitness Brands 
+Shape-ups by Skechers. is a comfortable line of footwear that features a patented Resamax™ kinetic
+wedge designed to give the sensation of walking on sand. Primarily sneakers for men and women, the shoes are also available in slip-resistant styles for service professionals. 
+Shape-ups Liv by Skechers. is an ultra-lightweight sneaker collection for men and women with Natural Stride
+technology. The curved bottom is designed to guide you back to the body’s natural stride, the Resalyte® cushioning gives you a cushioned base, and the flex groove bottom offers more flexibility. Uppers are in leather, breathable mesh and
+lightweight fabrics in classic athletic colors, whites and brights. Shape-ups Liv by Skechers are marketed in their own box as a stylish walking and light running shoe for men and women. The line is available at athletic footwear retailers,
+department stores and specialty shoe stores. 
+Tone-ups by Skechers and Tone-ups Fitness.
+Targeting 18 to 34 year-old fitness and trend conscious women, Tone-ups by Skechers are casual and athletic-inspired sandals that feature a gradual density midsole designed for comfort and support. Tone-ups uppers range from leather to
+microfiber suede, mitobuck and nylon webbing. Tone-ups Fitness is a collection of stylish sneakers primarily with a padded bottom featuring Resalyte® technology. These styles are available in department stores and at casual shoe retailers.
+Skechers GOperform. Skechers Performance is a collection of technical footwear designed with a
+focus on a specific activity to maximize performance and promote natural motion. Developed by our Advanced Concepts Team, the footwear utilizes the latest advancements in materials and design, including an ultra-lightweight Resalyte® compound
+for the midsole. The footwear is available at athletic footwear retailers, department stores and specialty running stores. 
+• 
+Skechers GOrun is an extremely flexible, minimalistic line of performance running shoes that feature a mid-foot strike design for efficient running,
+GOimpulse sensors for responsive feedback, and a low 4mm heel drop for a natural running feel. The shoes are ultra-lightweight at only 4.9 ounces for women’s size 6 and 6.9 ounces for men’s size 9. This line is primarily marketed to
+serious runners as well as recreational runners. 
+• 
+Skechers GOwalk offers performance features in a comfortable casual slip-on. The line is also very lightweight and extremely flexible so your feet
+can move naturally when walking. 
+PRODUCT DESIGN AND DEVELOPMENT 
+Our principal goal in product design is to generate new and exciting footwear in all of our product lines with
+contemporary and progressive styles and comfort-enhancing performance features. Targeted to the active, youthful and style-savvy, we design our lifestyle line to be fashionable and marketable to the 12 to 24 year old consumer, while substantially
+all of our lines appeal to the broader range of 5 to 40 year old consumers, with an exclusive selection for infants and toddlers. Designed by our Advanced Concept Team, our performance products are for professional athletes and for those who want a
+technical fitness shoe with revolutionary design. 
+We believe that our products’ success is related to
+our ability to recognize trends in the footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving preferences. We are able to quickly translate the latest fashion trends into stylish, quality footwear at a
+reasonable price by analyzing and interpreting current and emerging lifestyle trends. Lifestyle trend 
+5 
+Table of Contents 
+information is compiled and analyzed by our designers from various sources, including as follows: the review and analysis of modern music, television, cinema, clothing, alternative sports and
+other trend-setting media; traveling to domestic and international fashion markets to identify and confirm current trends; consulting with our retail and e-commerce customers for information on current retail selling trends; participating in major
+footwear trade shows to stay abreast of popular brands, fashions and styles; and subscribing to various fashion and color information services. In addition, a key component of our design philosophy is to continually reinterpret and develop our
+successful styles in our brands’ image. 
+The footwear design process typically begins about nine months
+before the start of a season. Our products are designed and developed primarily by our in-house design staff. To promote innovation and brand relevance, we utilize dedicated design teams, who report to our senior design executives and focus on each
+of the men’s, women’s and children’s categories. In addition, we utilize outside design firms on an item-specific basis to supplement our internal design efforts. The design process is extremely collaborative, as members of the design
+staff frequently meet with the heads of retail, merchandising, sales, production and sourcing to further refine our products to meet the particular needs of the target market. 
+After a design team arrives at a consensus regarding the fashion themes for the coming season, the designers then
+translate these themes into our products. These interpretations include variations in product color, material structure and embellishments, which are arrived at after close consultation with our production department. Prototype blueprints and
+specifications are created and forwarded to our manufacturers for a design prototype. The design prototypes are then sent back to our design teams. Our major retail customers may also review these new design concepts. Customer input not only allows
+us to measure consumer reaction to the latest designs, but also affords us an opportunity to foster deeper and more collaborative relationships with our customers. We also occasionally order limited production runs that may initially be tested in
+our concept stores. By working closely with store personnel, we obtain customer feedback that often influences product design and development. Our design teams can easily and quickly modify and refine a design based on customer input. Generally, the
+production process can take six months to nine months from design concept to commercialization. 
+SOURCING 
+Factories. Our products are produced by independent contract manufacturers located primarily in China and,
+to a lesser extent, in Italy, Vietnam, Brazil and various other countries. We do not own or operate any manufacturing facilities. We believe that the use of independent manufacturers substantially increases our production flexibility and capacity
+while reducing capital expenditures and avoiding the costs of managing a large production work force. 
+When
+possible, we seek to use manufacturers that have previously produced our footwear, which we believe enhances continuity and quality while controlling production costs. We attempt to monitor our selection of independent factories to ensure that no
+one manufacturer is responsible for a disproportionate amount of our merchandise. We source product for styles that account for a significant percentage of our net sales from at least five different manufacturers. During 2011, five of our contract
+manufacturers accounted for approximately 62.5% of total purchases. One manufacturer accounted for 30.8%, and another accounted for 11.5% of our total purchases. To date, we have not experienced difficulty in obtaining manufacturing services or with
+the availability of raw materials. 
+We finance our production activities in part through the use of
+interest-bearing open purchase arrangements with certain of our Asian manufacturers. These facilities currently bear interest at a rate between 0% and 1.5% for 30- to 60-day financing, depending on the factory. We believe that the use of these
+arrangements affords us additional liquidity and flexibility. We do not have any long-term contracts with any of our manufacturers; however, we have long-standing relationships with many of our manufacturers and believe our relationships to be good.
+We closely monitor sales activity after initial introduction of a product in our concept stores to determine
+whether there is substantial demand for a style, thereby aiding us in our sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming collections or offered as part of our periodic style offerings, while less popular
+styles can be discontinued after a limited production run. We believe that sales in our concept stores can also help forecast sales in national retail stores, and we share this sales information with our wholesale customers. Sales, merchandising,
+production and allocations management analyze historical and current sales and market data from our wholesale account base and our own retail stores to develop an internal product quantity forecast that allows us to better manage our future
+production and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock position to minimize the time necessary to fill customer orders by placing orders with our manufacturers prior to the time we receive
+customers’ orders for such footwear. 
+6 
+Table of Contents 
+Production Oversight. To safeguard product quality and
+consistency, we oversee the key aspects of production from initial prototype manufacture through initial production runs to final manufacture. Monitoring of all production is performed in the United States by our in-house production department and
+in Asia through an approximately 230-person staff working from our offices in China. We believe that our Asian presence allows us to negotiate supplier and manufacturer arrangements more effectively, decrease product turnaround time and ensure
+timely delivery of finished footwear. In addition, we require our manufacturers to certify that neither convicted, forced nor indentured labor (as defined under U.S. law) nor child labor (as defined by law in the manufacturer’s country) is used
+in the production process, and that compensation will be paid according to local law and that the factory is in compliance with local safety regulations. 
+Quality Control. We believe that quality control is an important and effective means of maintaining the quality and reputation of our products. Our quality control program is designed to
+ensure that not only finished goods meet our established design specifications, but also that all goods bearing our trademarks meet our standards for quality. Our quality control personnel located in China perform an array of inspection procedures
+at various stages of the production process, including examination and testing of prototypes of key raw materials prior to manufacture, samples and materials at various stages of production and final products prior to shipment. Our employees are on
+site at each of our major manufacturers to oversee production. For some of our lower volume manufacturers, our staff is on site during significant production runs or we will perform unannounced visits to their manufacturing sites to further monitor
+compliance with our manufacturing specifications. 
+ADVERTISING AND MARKETING 
+With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted approach to marketing to drive
+traffic, build brand recognition and properly position our diverse lines within the marketplace. Senior management is directly involved in shaping our image and the conception, development and implementation of our advertising and marketing
+activities. The focus of our marketing plan is print and television advertising, which is supported by outdoor, trend-influenced marketing, public relations, promotions, grass roots and in-store support. In addition, we utilize celebrity endorsers
+in our advertisements. We also believe our websites and trade shows are effective marketing tools to both consumers and wholesale accounts. We have historically budgeted advertising as a percentage of projected net sales. 
+The majority of our advertising is conceptualized by our in-house design team. We believe that our advertising
+strategies, methods and creative campaigns are directly related to our success. Through our lifestyle, performance-inspired and image-driven advertising, we generally seek to build and increase brand awareness by linking the Skechers brand to
+youthful attitudes for our lifestyle lines, and technology with authentic runners and athletes for our performance lines. Our ads are designed to provide merchandise flexibility and to facilitate the Skechers brand’s direction. 
+To further build brand awareness and influence consumer spending, we have selectively signed endorsement agreements with
+celebrities whom we believe would reach new markets. Television host Brooke Burke appeared in print and television campaigns as did as celebrity icons and reality stars Kim Kardashian and Kris Jenner for our fitness lines in 2011. We also utilized
+athletes in our fitness advertisements, including Hall of Fame quarterback Joe Montana, Hall of Fame basketball player Karl Malone, and Hall of Fame hockey player Wayne Gretzky. In 2011, we also signed emerging New England Patriots running back
+Danny Woodhead and Olympic medalist Meb Keflizighi to help launch our performance lines. From time to time, we may sign other celebrities to endorse our brand name and image in order to strategically market our products among specific consumer
+groups in the future. 
+With a targeted approach, our print ads appear regularly in popular fashion and
+lifestyle consumer publications, including Runner’s World, Cosmopolitan, Shape, Lucky, In Style, Seventeen, Maxim, Men’s Fitness, and Women’s Health, as well as in weekly publications such as People, Us Weekly, OK!,
+and Sports Illustrated, among others. Our advertisements also appear in international magazines around the world. 
+Our television commercials are produced both in-house and through producers that we have utilized in the past who are familiar with our brands. In 2011, we developed commercials for men, women and
+children for our Skechers brands, including our animated spots for kids featuring our own action heroes and our fitness and performance collections. We have found these to be a cost-effective way to advertise on key national and cable programming
+during high selling seasons. In 2011, many of our television commercials were translated into multiple languages and aired in Brazil, Canada, the United Kingdom, France, the Benelux Region, Germany, Spain, Italy, Chile, Austria and Switzerland.
+Outdoor. In an effort to reach consumers where they shop and in high-traffic areas as they
+travel to and from work, we continued our multi-level outdoor campaign that included kiosks in key malls across the United States and billboards, transportation systems and 
+7 
+Table of Contents 
+telephone kiosks in North America, Brazil, Chile, Asia and Europe. In addition, we advertised on football perimeter boards in the United Kingdom, Spain and Germany. We believe these are effective
+and efficient ways to reach a broad range of consumers and leave a lasting impression for our brands. 
+Trend-Influenced Marketing/Public Relations. Our public relations objectives are to secure product
+placement in key fashion magazines, place our footwear on the feet of trend-setting celebrities and their children, and gain positive and accurate press about us and our products. Through our commitment to aggressively promote our upcoming styles,
+our products are often featured in leading fashion and pop culture magazines, as well as in select films and popular television shows. Our footwear and our company have been prominently displayed and referenced on news and magazine shows. We have
+also amassed an array of prominent product placements in magazines including Seventeen, OK!, US Weekly, Health and Competitor . In addition, our brands have been associated with cutting edge events and various
+celebrities. 
+Promotions and Grass Roots. By applying creative sales techniques via a broad
+spectrum of media, our marketing team seeks to build brand recognition and drive traffic to Skechers’ retail stores, websites and our retail partners’ locations. Skechers’ promotional strategies have encompassed in-store specials,
+charity events, product tie-ins and giveaways, and collaborations with national retailers and radio stations. In 2011, we appeared at numerous marathons and walks with Skechers Fitness branded booths to allow runners the ability to try on and often
+buy our product -- including at the New York Marathon where Meb Keflezighi achieved a personal best time while running in Skechers GOrun footwear. Our products were made available to consumers directly or through key accounts at many of these
+events. 
+Visual Merchandising. Our in-house visual merchandising department supports wholesale
+customers, distributors and our retail stores by developing displays that effectively leverage our products at the point of sale. Our point-of-purchase display items include signage, graphics, displays, counter cards, banners and other merchandising
+items for each of our brands. These materials mirror the look and feel of each brand and reinforce the image as well as draw consumers into stores. 
+Our visual merchandising coordinators (“VMC’s”) work with our sales force and directly with our customers to ensure better sell-through at the retail level by generating greater consumer
+awareness through Skechers brand displays. Our VMC’s communicate with and visit our wholesale customers on a regular basis to aid in proper display of our merchandise. They also run in-store promotions to enhance the sale of Skechers footwear
+and create excitement surrounding the Skechers brand. We believe that these efforts help stimulate impulse sales and repeat purchases. 
+Trade Shows. To better showcase our diverse products to footwear buyers in the United States and Europe and to distributors around the world, we regularly exhibit at leading trade shows.
+Along with specialty trade shows, we exhibit at WSA’s The Shoe Show, FFANY, ASR, MAGIC and Outdoor Retailer in the United States; GDS, MICAM, ISPO, Mess Around and Who’s Next in Europe; and Couromoda and Francal in Brazil. Our dynamic,
+state-of-the-art trade show exhibits are developed by our in-house architect to showcase our latest product offerings in a lifestyle setting reflective of each of our brands. By investing in innovative displays and individual rooms showcasing each
+line, our sales force can present a sales plan for each line and buyers are able to truly understand the breadth and depth of our offerings, thereby optimizing commitments and sales at the retail level. 
+Internet. We promote and sell our brands through our e-commerce website www.skechers.com , which enables fans and customers to shop, browse,
+find store locations, socially interact, post a shoe review, photo, video, or question and immerse themselves in our brands. Our website is a venue for dialog and feedback from customers about our products which enhances the Skechers brand
+experience while driving sales through all our retail channels. 
+PRODUCT DISTRIBUTION CHANNELS 
+We have four reportable segments – domestic wholesale sales, international wholesale sales, retail sales and
+e-commerce sales. In the United States, our products are available through a network of wholesale customers comprised of department, athletic and specialty stores. Internationally, our products are available through wholesale customers in more than
+100 countries and territories via our global network of distributors in addition to our subsidiaries in Asia, Europe, Canada and South America. Skechers owns and operates retail stores both domestically and internationally through three integrated
+retail formats—concept, factory outlet and warehouse outlet stores. Each of these channels serves an integral function in the global distribution of our products. Twenty one distributors have opened 207 distributor-owned Skechers retail stores
+in 34 countries as of December 31, 2011. 
+Domestic Wholesale. We distribute our footwear
+through the following domestic wholesale distribution channels: department stores, specialty stores, athletic specialty shoe stores and independent retailers, as well as catalog and internet retailers. While
+8 
+Table of Contents 
+department stores and specialty retailers are the largest distribution channels, we believe that we appeal to a variety of wholesale customers, many of whom may operate stores within the same
+retail location due to our distinct product lines, variety of styles and the price criteria of their specific customers. Management has a clearly defined growth strategy for each of our channels of distribution. An integral component of our strategy
+is to offer our accounts the highest level of customer service so that our products will be fully represented in existing retail locations and new locations of each customer. 
+In an effort to provide knowledgeable and personalized service to our wholesale customers, the sales force is segregated
+by product line, each of which is headed by a vice president or national sales manager. Reporting to each sales manager are knowledgeable account executives and territory managers. The vice presidents and national sales managers report to our senior
+vice president of sales. All of our vice presidents and national sales managers are compensated on a salary basis, while our account executives and territory managers are compensated on a commission basis. None of our domestic sales personnel sells
+competing products. 
+We believe that we have developed a loyal customer base through exceptional customer
+service. We believe that our close relationships with these accounts help us to maximize their retail sell-throughs. Our visual merchandise coordinators work with our wholesale customers to ensure that our merchandise and point-of-purchase marketing
+materials are properly presented. Sales executives and merchandise personnel work closely with accounts to ensure that appropriate styles are purchased for specific accounts and for specific stores within those accounts as well as to ensure that
+appropriate inventory levels are carried at each store. Such information is then utilized to help develop sales projections and determine the product needs of our wholesale customers. The value-added services we provide our wholesale customers help
+us maintain strong relationships with our existing wholesale customers and attract potential new wholesale customers. 
+International Wholesale. Our products are sold in more than 100 countries and territories throughout the world. We generate revenues from outside the United States from three principal
+sources: (i) direct sales to department stores and specialty retail stores through our subsidiaries and joint ventures in Canada, France, Germany, Spain, Portugal, Italy, Switzerland, Austria, Malaysia, Thailand, Singapore, Hong Kong, China,
+Japan, the Benelux Region, the United Kingdom, Brazil and Chile; (ii) sales to foreign distributors who distribute our footwear to department stores and specialty retail stores in countries and territories across Eastern Europe, Asia, Central
+America, South America, Africa, the Middle East and Australia, among other regions; and (iii) to a lesser extent, royalties from licensees who manufacture and distribute our non-footwear products outside the United States. 
+We believe that international distribution of our products represents a significant opportunity to increase sales and
+profits. We intend to further increase our share of the international footwear market by heightening our marketing in those countries in which we currently have a presence through our international advertising campaigns, which are designed to
+establish Skechers as a global brand synonymous with trend-right casual shoes. 
+• 
+International Subsidiaries 
+Europe 
+We currently distribute product in most of Western Europe through the following subsidiaries: Skechers
+USA Ltd., with its offices and showrooms in London, England; Skechers S.a.r.l., with its offices in Lausanne, Switzerland; Skechers USA France S.A.S., with its offices and showrooms in Paris, France; Skechers USA Deutschland GmbH, with its offices
+and showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L., with its offices and showrooms in Madrid, Spain; Skechers USA Benelux B.V., with its offices and showrooms in Waalwijk, the Netherlands; and Skechers USA Italia S.r.l., with its
+offices and showroom in Verona, Italy. 
+Skechers-owned retail stores in Europe include eleven
+concept stores and thirteen factory outlet stores located in nine countries, including the key locations of Covent Garden and Oxford Street in London, Alstadt District in Düsseldorf and Kalverstraat Street in Amsterdam. 
+To accommodate our European subsidiaries’ operations, we operate an approximately 490,000 square
+foot distribution center in Liege, Belgium. This distribution center is currently used to store and deliver product to our subsidiaries and retail stores throughout Europe. 
+9 
+Table of Contents 
+Canada 
+Merchandising and marketing of our product in Canada is managed by our wholly-owned subsidiary, Skechers
+USA Canada, Inc. with its offices and showrooms outside Toronto in Mississauga, Ontario. Product sold in Canada is primarily sourced from our U.S. distribution center in Rancho Belago, California. We have five concept stores; Toronto Eaton Centre,
+West Edmonton Mall, Chinook Centre, Richmond Centre, and Pacific Centre; and two factory outlet stores in Toronto and Alberta. 
+Malaysia, Singapore and Thailand 
+We have
+a 50% interest in a joint venture in Malaysia and Singapore, and a 51% interest in a joint venture in Thailand that generate net sales in those countries. The joint ventures operate four concept stores and seven shops-in-shop in Malaysia, twelve
+concept stores and two shop-in-shops in Singapore, and three concept stores in Thailand. These joint ventures are included in our consolidated financial statements. 
+China and Hong Kong 
+We have a 50% interest in a joint venture in China and a minority interest in a joint venture in Hong
+Kong that generate net sales in those countries. Under the joint venture agreements, the joint venture partners contribute capital in proportion to their respective ownership interests. The joint ventures operate 47 direct-owned stores and in excess
+of 140 shops-in-shop in China and 19 direct-owned stores and 11 shops-in-shop in Hong Kong. These stores are in key locations in Shanghai, Beijing, Guangzhou, Xiamen, Hong, Kong, Macau, and other cities. The joint ventures are included in our
+consolidated financial statements. 
+Japan 
+Merchandising and marketing of our product in Japan is managed by our wholly-owned subsidiary, Skechers
+Japan GK, with its offices located in Tokyo, Japan. Product sold in Japan is primarily shipped directly from our contract manufacturers’ factories in China. 
+Brazil 
+Merchandising and marketing of our product in Brazil is managed by our wholly-owned subsidiary, Skechers
+Do Brasil Calcados LTDA., with its offices located in Sao Paulo, Brazil. Product sold in Brazil is primarily shipped directly from our contract manufacturers’ factories in China and occasionally from our U.S. distribution center in Rancho
+Belago, California. 
+Chile 
+Our wholly-owned subsidiary, Comercializadora Skechers Chile Limitada, supports our 18 retail stores as
+well as wholesale accounts in Chile. Product sold in Chile is primarily shipped directly from our contract manufacturers’ factories in China and occasionally from our U.S. distribution center in Rancho Belago, California. 
+10 
+Table of Contents 
+• 
+Distributors 
+Where we do not sell directly through our international subsidiaries and joint ventures, our footwear is
+distributed through an extensive network of more than 30 distributors who sell our products to department, athletic and specialty stores in more than 100 countries around the world. As of December 31, 2011, we had agreements with 21 of these
+distributors regarding 207 distributor-owned Skechers retail stores that are open in 34 countries, including 71 stores that were opened in 2011, while seven distributor-owned stores were closed during the year. Our distributors own and operate the
+following retail stores: 
+REGION 
+STORE FORMAT 
+NUMBER OF 
+STORES 
+LOCATION (1) 
+Americas 
+Concept 
+51 
+Aruba, Colombia (6), Costa Rica (2), Ecuador (2), Guatemala (2), Honduras, Mexico (13), Panama (3), Peru (4), Venezuela (17) 
+Warehouse 
+5 
+Colombia, Mexico (4) 
+Asia 
+Concept 
+79 
+India, Indonesia (9), Japan (4), Korea (48), Mongolia, Philippines (10), Taiwan (6) 
+Warehouse 
+8 
+Japan (4), Korea (2), Taiwan (2) 
+Australia 
+Concept 
+5 
+Castle Hill, Chadstone, Maribyrnong, Sydney (2) 
+Warehouse 
+10 
+Brisbane, Bundoora, Cairns, Canberra, Jindalee, Melbourne (4), Sydney 
+Europe 
+Concept 
+23 
+Croatia (3), Estonia (2), Israel, Lithuania, Malta (3), Russia (10), 
+Ukraine (3) 
+Warehouse 
+1 
+Greece 
+Middle East 
+Concept 
+13 
+Bahrain, Kuwait, Qatar, Saudi Arabia (5), UAE (5) 
+Warehouse 
+1 
+UAE 
+Africa 
+Concept 
+11 
+Egypt (2), Morocco (2), South Africa (7) 
+(1) One store per location except as otherwise noted. 
+The distributors are responsible for their respective stores’
+operations, have ownership of their respective stores’ assets, and select the broad collection of our products to sell to consumers in their regions. In order to maintain a globally consistent image, we provide architectural, graphic and visual
+guidance and materials for the design of the stores, and we train the local staff on our products and corporate culture. We intend to expand our international presence and global recognition of the Skechers brand name by continuing to sell our
+footwear to foreign distributors and by opening flagship retail stores with distributors that have local market expertise. 
+Retail Stores. We pursue our retail store strategy through our three integrated retail formats: the concept store, the factory outlet store and the warehouse outlet store. Our three store
+formats enable us to promote the full Skechers product offering in an attractive environment that appeals to a broad group of consumers. In addition, most of our retail stores are profitable and have a positive effect on our operating results. We
+periodically review all of our stores for impairment. We prepare a summary of cash flows for each of our retail stores to assess potential impairment of the fixed assets and leasehold improvements. If the assets are considered to be impaired, the
+impairment we recognize is the amount by which the carrying value of the assets exceeds the fair value of the assets. In addition, we base the useful lives and related amortization or depreciation expense on our estimate of the period that the
+assets will generate revenues or otherwise be used by us. As of February 15, 2012, we owned and operated 120 concept stores, 107 factory outlet stores and 54 warehouse outlet stores in the United States, and 33 concept stores and 16 factory
+outlet stores internationally. During 2011, we opened 40 domestic stores and six international stores, and closed three domestic stores and one international store. During 2012, we plan to open 18 to 20 new stores. 
+11 
+Table of Contents 
+• 
+Concept Stores. 
+Our concept stores are located at marquee street locations, major tourist areas or in key shopping malls
+in metropolitan cities. Our concept stores have a threefold purpose in our operating strategy. First, concept stores serve as a showcase for a wide range of our product offering for the current season, as we estimate that our average wholesale
+customer carries no more than 5% of the complete Skechers line in any one location. Our concept stores showcase our products in an attractive, easy-to-shop open-floor setting, providing the customer with the complete Skechers story. Second, retail
+locations are generally chosen to generate maximum marketing value for the Skechers brand name through signage, store front presentation and interior design. Domestic locations include concept stores at Times Square, Union Square and 34th Street in
+New York, Powell Street in San Francisco, Hollywood and Highland in Hollywood, Santa Monica’s Third Street Promenade, and Santa Monica Place Mall and Las Vegas’ Fashion Show Mall. International locations include Covent Garden and Oxford
+Street in London, Alstadt District in Dusseldorf, Toronto’s Eaton Centre, Vancouver’s Pacific Centre, and Kalverstraat Street in Amsterdam. The stores are typically designed to create a distinctive Skechers look and feel, and enhance
+customer association of the Skechers brand name with current youthful lifestyle trends and styles. Third, the concept stores serve as marketing and product testing venues. We believe that product sell-through information and rapid customer feedback
+derived from our concept stores enables our design, sales, merchandising and production staff to respond to market changes and new product introductions. Such responses serve to augment sales and limit our inventory markdowns and customer returns
+and allowances. In 2011, we opened 17 domestic concept stores and six international concept stores. 
+The typical Skechers concept store is approximately 2,500 square feet, although in certain markets we have opened concept stores as large as 7,800 square feet or as small as 1,100 square feet. When
+deciding where to open concept stores, we identify top geographic markets in the larger metropolitan cities in the United States, Canada, Europe, South America and Asia. When selecting a specific site, we evaluate the proposed sites’ traffic
+pattern, co-tenancies, sales volume of neighboring concept stores, lease economics and other factors considered important within the specific location. If we are considering opening a concept store in a shopping mall, our strategy is to obtain space
+as centrally located as possible in the mall where we expect foot traffic to be most concentrated. We believe that the strength of the Skechers brand name has enabled us to negotiate more favorable terms with shopping malls that want us to open up
+concept stores to attract customer traffic to their venues. 
+• 
+Factory Outlet Stores. 
+Our factory outlet stores are generally located in manufacturers’ direct outlet centers throughout
+the United States. In addition, we have 16 international outlet stores – five in England, two each in Canada, Germany and Italy, and one each in Austria, Chile, the Netherlands, Portugal and Scotland. Our factory outlet stores provide
+opportunities for us to sell discontinued and excess merchandise, thereby reducing the need to sell such merchandise to discounters at excessively low prices and potentially compromise the Skechers brand image. Skechers’ factory outlet stores
+range in size from approximately 1,900 to 9,000 square feet. Unlike our warehouse outlet stores, inventory in these stores is supplemented by certain first-line styles sold at full retail price points. We opened nine domestic factory outlet stores
+in 2011. 
+• 
+Warehouse Outlet Stores. 
+Our free-standing warehouse outlet stores, which are primarily located throughout the United States,
+enable us to liquidate excess merchandise, discontinued lines and odd-size inventory in a cost-efficient manner. Skechers’ warehouse outlet stores are typically larger than our factory outlet stores and typically range in size from
+approximately 5,200 to 15,000 square feet. Our warehouse outlet stores enable us to sell discontinued and excess merchandise that would otherwise typically be sold to discounters at excessively low prices, which could otherwise compromise the
+Skechers brand image. We seek to open our warehouse outlet stores in areas that are in close proximity to our concept stores to facilitate the timely transfer of inventory that we want to liquidate as soon as practicable. We opened 14 domestic
+warehouse outlet stores in 2011. 
+Electronic Commerce. Our website, www.skechers.com is a virtual storefront that promotes the Skechers
+brands. Our website is designed to provide a positive shopping and brand experience, showcasing our products in an easy-to-navigate format, allowing consumers to browse our selections and purchase our footwear. This virtual store has provided a
+convenient alternative-shopping environment and brand experience. The website is an efficient and effective additional retail distribution channel, and it has improved our customer service. 
+12 
+Table of Contents 
+For disclosure of segment information for our four reportable segments
+– domestic wholesale sales, international wholesale sales, retail sales and e-commerce sales—see note 12 to the financial statements on page 63 of this annual report. 
+LICENSING 
+We believe that selective licensing of the Skechers
+brand name and our product line names to manufacturers may broaden and enhance the individual brands without requiring significant capital investments or additional incremental operating expenses. Our multiple product lines plus additional
+subcategories present many potential licensing opportunities on terms with licensees that we believe will provide more effective manufacturing, distribution or marketing of non-footwear products. We also believe that the reputation of Skechers and
+its history in launching brands has also enabled us to partner with reputable non-footwear brands to design and market their footwear. 
+As of January 31, 2012, we had 34 active domestic and international licensing agreements in which we are the licensor. These include Skechers branded leather goods and backpacks, Skechers Kids
+apparel, Skechers Scrubs for health care professionals and Skechers Eyewear. We have international licensing agreements for the design and distribution of men’s and women’s apparel in India, Israel, Mexico, South Africa, and Korea; bags in
+Panama; and watches in the Philippines. 
+DISTRIBUTION FACILITIES AND OPERATIONS 
+We believe that strong distribution support is a critical factor in our operations. Once manufactured, our products are
+packaged in shoe boxes bearing bar codes that are shipped either: (i) to our approximate 1.8 million square-foot distribution center located in Rancho Belago, California. This facility was completed in 2011 and has replaced six facilities
+located in Ontario, California, (ii) to our approximately 490,000 square-foot distribution center located in Liege, Belgium or (iii) directly from third-party manufacturers to our other international customers and other international
+third-party distribution centers. Upon receipt at either of the distribution centers, merchandise is inspected and recorded in our management information system and packaged according to customers’ orders for delivery. Merchandise is shipped to
+customers by whatever means each customer requests, which is usually by common carrier. The distribution centers have multi-access docks, enabling us to receive and ship simultaneously, and to pack separate trailers for shipments to different
+customers at the same time. We have an electronic data interchange system, or EDI system, to which some of our larger customers are linked. This system allows these customers to automatically place orders with us, thereby eliminating the time
+involved in transmitting and inputting orders, and it includes direct billing and shipping information. 
+BACKLOG 
+As of December 31, 2011, our backlog was $390.2 million, compared to $588.9 million as of December 31, 2010.
+Backlog orders are subject to cancellation by customers, as evidenced by order cancellations that we have experienced over the past few years due to the weakened U.S. economy and shifting footwear trends which caused the toning market to become
+saturated with lower priced products. For a variety of reasons, including changes in the economy, customer demand for our products, the timing of shipments, product mix of customer orders, the amount of in-season orders and a shift towards tighter
+lead times within backlog levels, backlog may not be a reliable measure of future sales for any succeeding period. 
+INTELLECTUAL PROPERTY
+RIGHTS 
+We own and utilize a variety of trademarks, including the Skechers trademark. We have a significant
+number of both registrations and pending applications for our trademarks in the United States. In addition, we have trademark registrations and trademark applications in approximately 105 foreign countries. We also have design patents and pending
+design and utility patent applications in both the United States and approximately 27 foreign countries. We continuously look to increase the number of our patents and trademarks both domestically and internationally where necessary to protect
+valuable intellectual property. We regard our trademarks and other intellectual property as valuable assets and believe that they have significant value in the marketing of our products. We vigorously protect our trademarks against infringement,
+including through the use of cease and desist letters, administrative proceedings and lawsuits. 
+We rely on
+trademark, patent, copyright and trade secret protection, non-disclosure agreements and licensing arrangements to establish, protect and enforce intellectual property rights in our logos, trade names and in the design of our products. In particular,
+we believe that our future success will largely depend on our ability to maintain and protect the Skechers trademark and other key trademarks. Despite our efforts to safeguard and maintain our intellectual property rights, we cannot be certain that
+we will be successful in this regard. Furthermore, we cannot be certain that our trademarks, products and promotional materials or other 
+13 
+Table of Contents 
+intellectual property rights do not or will not violate the intellectual property rights of others, that our intellectual property would be upheld if challenged, or that we would, in such an
+event, not be prevented from using our trademarks or other intellectual property rights. Such claims, if proven, could materially and adversely affect our business, financial condition and results of operations. In addition, although any such claims
+may ultimately prove to be without merit, the necessary management attention to and legal costs associated with litigation or other resolution of future claims concerning trademarks and other intellectual property rights could materially and
+adversely affect our business, financial condition and results of operations. We have sued and have been sued by third parties for infringement of intellectual property. It is our opinion that none of these claims has materially impaired our ability
+to utilize our intellectual property rights. 
+The laws of certain foreign countries do not protect
+intellectual property rights to the same extent or in the same manner as do the laws of the United States. Although we continue to implement protective measures and intend to defend our intellectual property rights vigorously, these efforts may not
+be successful or the costs associated with protecting our rights in certain jurisdictions may be prohibitive. From time to time we discover products in the marketplace that are counterfeit reproductions of our products or that otherwise infringe
+upon intellectual property rights held by us. Actions taken by us to establish and protect our trademarks and other intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from seeking to
+block sales of our products as violating trademarks and intellectual property rights. If we are unsuccessful in challenging a third party’s products on the basis of infringement of our intellectual property rights, continued sales of such
+products by that or any other third party could adversely impact the Skechers brand, result in the shift of consumer preferences away from our products and generally have a material adverse effect on our business, financial condition and results of
+operations. 
+COMPETITION 
+Competition in the footwear industry is intense. Although we believe that we do not compete directly with any single company with respect to its entire range of products, our products compete with other
+branded products within their product category as well as with private label products sold by retailers, including some of our customers. Our utility footwear and casual shoes compete with footwear offered by companies such as The Timberland
+Company, Clarks, Kenneth Cole Productions Inc., Steven Madden, Ltd., Wolverine World Wide, Inc., K-Swiss Inc., and V.F. Corporation. Our athletic lifestyle and performance shoes compete with footwear offered by companies such as Nike, Inc., adidas
+AG, Puma AG, and New Balance Athletic Shoe, Inc. The intense competition among these companies and the rapid changes in technology and consumer preferences in the markets for performance footwear, including the walking fitness category, constitute
+significant risk factors in our operations. Our children’s shoes compete with footwear offered by companies such as Collective Brands Inc. and Geox. In varying degrees, depending on the product category involved, we compete on the basis of
+style, price, quality, comfort and brand name prestige and recognition, among other considerations. These and other competitors pose challenges to our market share in our major domestic markets and may make it more difficult to establish our
+products in Europe, Asia and other international regions. We also compete with numerous manufacturers, importers and distributors of footwear for the limited shelf space available for the display of such products to the consumer. Moreover, the
+general availability of contract manufacturing capacity allows ease of access by new market entrants. Many of our competitors are larger, have been in existence for a longer period of time, have achieved greater recognition for their brand names,
+have captured greater market share and/or have substantially greater financial, distribution, marketing and other resources than we do. We cannot be certain that we will be able to compete successfully against present or future competitors, or that
+competitive pressures will not have a material adverse effect on our business, financial condition and results of operations. 
+EMPLOYEES
+As of January 31, 2012, we employed 5,636 persons, 2,434 of whom were employed on a full-time basis and
+3,202 of whom were employed on a part-time basis, primarily in our retail stores. None of our employees is subject to a collective bargaining agreement. We believe that our relations with our employees are satisfactory. 
+ITEM 1A. 
+RISK FACTORS 
+In addition to the other information in this annual report, the following factors should be considered in evaluating us and our business. 
+14 
+Table of Contents 
+The Effects Of The Ongoing Global Economic Slowdown May Continue To Have A Negative
+Impact On Our Business, Results Of Operations Or Financial Condition. 
+The ongoing global economic
+slowdown has caused disruptions and extreme volatility in global financial markets, increased rates of default and bankruptcy, and declining consumer and business confidence, which has led to decreased levels of consumer spending, particularly on
+discretionary items such as footwear. These macroeconomic developments have and could continue to negatively impact our business, which depends on the general economic environment and levels of consumer spending in the United States and other parts
+of the world that affect not only the ultimate consumer, but also retailers, who are our primary direct customers. As a result, we may not be able to maintain or increase our sales to existing customers, make sales to new customers, open and operate
+new retail stores, maintain sales levels at our existing stores, maintain or increase our international operations on a profitable basis, or maintain or improve our earnings from operations as a percentage of net sales. If the global economic
+slowdown continues for a significant period or continues to worsen, our results of operations, financial condition, and cash flows could be materially adversely affected. 
+We Face Many New Challenges After Entering The Highly Competitive Performance Footwear Market In 2008. 
+Although the design and aesthetics of our products have traditionally been the most important factors in consumer acceptance of our footwear, we began incorporating technical innovations into certain of
+our product offerings in late 2008 and have continued to develop and introduce new performance footwear since then. The performance footwear market is keenly competitive in the United States and worldwide, and the newer entrants in that market
+including our company face many challenges. Negative consumer perceptions of our performance features due to our historical reputation as a fashion and lifestyle footwear company, product offerings and technologies from our competitors, and failure
+to keep up with rapid changes in footwear technology and consumer preferences may constitute significant risk factors in our strategy and may negatively impact our business. 
+Our Operating Results Could Be Negatively Impacted If Our Sales Are Concentrated In Any One Style Or Group Of Styles. 
+If any single style or group of similar styles of our footwear were to represent a substantial portion of our net sales,
+we could be exposed to risk should consumer demand for such style or group of styles decrease in subsequent periods. We attempt to mitigate this risk by offering a broad range of products, and no style comprised over 5% of our gross wholesale sales
+during 2011 or 2010. However, this may change in the future and fluctuations in sales of any given style that represents a significant portion of our future net sales could have a negative impact on our operating results. 
+Our Business And The Success Of Our Products Could Be Harmed If We Are Unable To Maintain Our Brand Image. 
+Our success to date has been due in large part to the strength of the Skechers brand. If we are unable to timely and
+appropriately respond to changing consumer demand, our brand name and brand image may be impaired. Even if we react appropriately to changes in consumer preferences, consumers may consider our brand image to be outdated or associate our brand with
+styles of footwear that are no longer popular. In the past, several footwear companies including ours have experienced periods of rapid growth in revenues and earnings followed by periods of declining sales and losses. Our business has been and may
+be similarly affected in the future. 
+The Toning Footwear Category Has Come Under Public And Regulatory Scrutiny That May
+Have A Material Negative Impact On Our Business And Results Of Operations. 
+The toning footwear product
+category, including our own Shape-ups products, has come under significant public scrutiny in the past year, including highly publicized negative professional opinions, negative publicity and media attention, personal injury lawsuits and attorneys
+publicly marketing their services to consumers who were allegedly aggrieved by the marketing of our toning products or injured by Shape-ups. In addition, we have been responding to inquiries by the FTC and SAG regarding our claims and advertising
+for our toning products and are engaged as defendants in related consumer class actions. This public and regulatory scrutiny has included the questioning of our advertising, promotional claims, and the overall safety of these products, as well as
+allegations of personal injury lawsuits. We believe that Shape-ups and our other toning products are safe, but the negative publicity from this public and regulatory scrutiny appears to have had a negative impact on sales of toning footwear
+generally and our Shape-ups products in particular. We are not able to predict whether such publicity, regulatory review and related litigation will continue or what the continued effect will be on the sales of our Shape-up products, our business,
+and our results of operations beyond that included in this annual report. Further details regarding these legal and regulatory matters are discussed in greater detail under “Legal Proceedings” in Part I, Item 3 of this annual report.
+15 
+Table of Contents 
+It Is Difficult To Predict The Effect Of Regulatory Inquiries About Advertising And
+Promotional Claims Related To Our Products In The Fitness Footwear Market. 
+The toning footwear market is
+dominated by a handful of competitors who design, market and advertise their products to promote benefits associated with wearing the footwear. Advertising promoting benefits associated with the toning footwear market has come under review from
+regulators including the FTC, SAG, and government and quasi-government regulators in foreign countries. As discussed in greater detail under “Legal Proceedings” in Part I, Item 3 of this annual report, while we continue to defend our
+claims and advertising with respect to our core toning products vigorously before the FTC, SAG and other regulators, we have reserved $45 million for costs and potential exposure and have recorded a pre-tax expense of $5 million in additional
+legal and professional fees relating to these matters and related consumer class actions in the fourth quarter of 2011. Although we believe at this time that these charges appropriately reflect our estimated level of exposure with regard to these
+matters, it is not possible to predict their final outcome and it is possible that the final resolution of these matters could have a further material adverse impact on our advertising, promotional claims, business, results of operations and
+financial position. 
+We Face Intense Competition, Including Competition From Companies With Significantly Greater Resources
+Than Ours, And If We Are Unable To Compete Effectively With These Companies, Our Market Share May Decline And Our Business Could Be Harmed. 
+We face intense competition in the footwear industry from other established companies. A number of our competitors have significantly greater financial, technological, engineering, manufacturing,
+marketing and distribution resources than we do. Their greater capabilities in these areas may enable them to better withstand periodic downturns in the footwear industry, compete more effectively on the basis of price and production, and more
+quickly develop new products. In addition, new companies may enter the markets in which we compete, further increasing competition in the footwear industry. 
+We believe that our ability to compete successfully depends on a number of factors, including the style and quality of our products and the strength of our brand name, as well as many factors beyond our
+control. We may not be able to compete successfully in the future, and increased competition may result in price reductions, reduced profit margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or
+expand our development and marketing of new products, which would adversely impact the trading price of our Class A Common Stock. 
+Our Business Could Be Harmed If We Fail To Maintain Proper Inventory Levels. 
+We place orders with our manufacturers for some of our products prior to the time we receive all of our customers’ orders. We do this to minimize purchasing costs, the time necessary to fill customer
+orders and the risk of non-delivery. We also maintain an inventory of certain products that we anticipate will be in greater demand. However, similar to the changes in the marketplace for toning footwear in 2011 that led to excess inventory,
+discounted pricing and inventory write-downs, continued lower levels of consumer spending due to the global economic slowdown, an unanticipated decline in the popularity of Skechers footwear or other unforeseen circumstances may make it difficult
+for us and our customers to accurately forecast product demand trends, and we may be unable to sell the products we have ordered in advance from manufacturers or that we have in our inventory. Inventory levels in excess of customer demand may result
+in inventory write-downs and the sale of excess inventory at discounted prices, which could significantly impair our brand image and have a material adverse effect on our operating results and financial condition. Conversely, if we underestimate
+consumer demand for our products or if our manufacturers fail to supply the quality products that we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact
+retailer and distributor relationships, and diminish brand loyalty. 
+Our Future Success Depends On Our Ability To Respond
+To Changing Consumer Demands, Identify And Interpret Fashion Trends And Successfully Market New Products. 
+The footwear industry is subject to rapidly changing consumer demands and fashion trends. Accordingly, we must identify
+and interpret fashion trends and respond in a timely manner. Demand for and market acceptance of new products are uncertain and achieving market acceptance for new products generally requires substantial product development and marketing efforts and
+expenditures. If we do not continue to meet changing consumer demands and develop successful styles in the future, our growth and profitability will be negatively impacted. We frequently make decisions about product designs and marketing
+expenditures several months in advance of the time when consumer acceptance can be determined. If we fail to anticipate, identify or react appropriately to changes in styles and trends or are not successful in marketing new products, we could
+experience excess inventories, higher than normal markdowns or an inability to profitably sell our products. Because of these risks, a number of companies in the footwear 
+16 
+Table of Contents 
+industry specifically, and others in the fashion and apparel industry in general, have experienced periods of rapid growth in revenues and earnings and thereafter periods of declining sales and
+losses, which in some cases have resulted in companies in these industries ceasing to do business. Similarly, these risks could have a material adverse effect on our results of operations or financial condition. 
+Our Business Could Be Adversely Affected By Changes In The Business Or Financial Condition Of Significant Customers Due To Global
+Economic Conditions. 
+The global financial crisis affected the banking system and financial markets and
+resulted in a tightening in the credit markets, more stringent lending standards and terms, and higher volatility in fixed income, credit, currency and equity markets. There could be a number of follow-on effects from the credit crisis on our
+business, including insolvency of certain of our key distributors, which could impair our distribution channels, or our significant customers, including our distributors, may experience diminished liquidity or an inability to obtain credit to
+finance purchases of our product. Our customers may also experience weak demand for our products or other difficulties in their businesses. If conditions in the global financial markets deteriorate in the future, demand may be lower than forecasted
+and insufficient to achieve our anticipated financial results. Any of these events would likely harm our business, results of operations and financial condition. 
+We May Have Difficulty Managing Our Costs If Global Economic Conditions Worsen. 
+Our future results of operations will depend on our overall ability to manage our costs. These challenges include (i) managing our infrastructure, including the addition of our new distribution
+center in Rancho Belago, California, (ii) hiring and maintaining, as required, the appropriate number of qualified employees, (iii) managing inventory levels and (iv) controlling other expenses. If global economic conditions worsen
+and lead to an unexpected decline in our revenues without a corresponding and timely reduction in expenses or a failure to manage other aspects of our operations, that could have a material adverse effect on our business, results of operations or
+financial condition. 
+The Popularity Of Skechers Footwear May Not Continue To Grow As Rapidly As It Has In The Past Or May
+Decline, Which Would Have A Material Adverse Effect On Our Business, Results Of Operations And Financial Condition. 
+Although our company has generally exhibited steady growth since we began operations through 2010, we have suffered decreases in net sales at times in the past, including in 2011, our rate of growth has
+declined at times as well and we may experience similar decreases in net sales or declines in rate of growth again in the future. Our ability to grow in the future depends upon, among other things, the continued popularity of our footwear, the
+acceptance by customers of performance footwear including the Skechers GOrun and Skechers GOwalk lines, and the development of new lines and styles of footwear with widespread appeal to a broad demographic of customers. If the popularity of our
+footwear declines or does not increase in the future, we may experience, among other things, a decrease in our revenues and profitability, which could have a material adverse effect on our business and financial condition. 
+Our Children’s Shoe Business May Be Negatively Impacted By The Consumer Product Safety Improvement Act Of 2008. 
+The Consumer Product Safety Commission issued new standards under the Consumer Product Safety Improvement Act of 2008
+(“CPSIA”) regarding lead content in consumer products directed at children 12 years of age and under, including children’s shoes. The lead limits on the outer or accessible part of a children’s shoe was decreased to 600 parts per
+million beginning February 10, 2009 and was subsequently reduced on August 14, 2009 to 300 parts per million. These standards apply retroactively to all products that existed on February 10, 2009 and August 14, 2009,
+respectively, and they are not limited to new manufacturing. Effective as of August 12, 2011, the lead limits were reduced again to 100 parts per million for all products manufactured after that date, while the 600 and 300 parts per million
+limits remain in effect for saleable products that had already been manufactured as of the respective prior effective dates. The effective enforcement date for third party testing and certification is January 1, 2012 and applies to products
+manufactured after December 31, 2011. We have been working to ensure that covered products are appropriately tested, and we are regularly monitoring the evolution and interpretation of the regulation to ensure compliance. There is still
+uncertainty regarding the meaning of the CPSIA, how it applies to products or product components, and the level of detail that each of our retailers will require. Consequently, we are unable to predict whether the total financial impact of these new
+standards will have a material adverse impact on our business, results of operation or financial condition. 
+We Depend Upon
+A Relatively Small Group Of Customers For A Large Portion Of Our Sales. 
+During 2011, 2010 and 2009, our
+net sales to our five largest customers accounted for approximately 17.8%, 24.9% and 25.1% of total net sales, respectively. No customer accounted for more than 10.0% of our net sales during 2011, 2010 and 2009. One customer
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+Table of Contents 
+accounted for 12.5% and another accounted for 10.0% of net trade receivables at December 31, 2011. No customer accounted for more than 10% of net trade receivables at December 31, 2010.
+Although we have long-term relationships with many of our customers, our customers do not have a contractual obligation to purchase our products and we cannot be certain that we will be able to retain our existing major customers. Furthermore, the
+retail industry regularly experiences consolidation, contractions and closings which may result in our loss of customers or our inability to collect accounts receivable of major customers. If we lose a major customer, experience a significant
+decrease in sales to a major customer or are unable to collect the accounts receivable of a major customer, our business could be harmed. 
+Many Of Our Retail Stores Depend Heavily On The Customer Traffic Generated By Shopping And Factory Outlet Malls Or By Tourism. 
+Many of our concept stores are located in shopping malls and some of our factory outlet stores are located in
+manufacturers’ outlet malls where we depend on obtaining prominent locations and the overall success of the malls to generate customer traffic. We cannot control the success of individual malls, and an increase in store closures by other
+retailers may lead to mall vacancies and reduced foot traffic. Some of our concept stores occupy street locations that are heavily dependent on customer traffic generated by tourism. Any substantial decrease in tourism resulting from the global
+economic slowdown, political, social or military events or otherwise, is likely to adversely affect sales in our existing stores, particularly those with street locations. The effects of these factors could reduce sales of particular existing stores
+or hinder our ability to open retail stores in new markets, which could negatively affect our operating results. 
+Our
+International Sales And Manufacturing Operations Are Subject To The Risks Of Doing Business Abroad, Particularly In China, Which Could Affect Our Ability To Sell Or Manufacture Our Products In International Markets, Obtain Products From Foreign
+Suppliers Or Control The Costs Of Our Products. 
+Substantially all of our net sales during the year ended
+December 31, 2011 were derived from sales of footwear manufactured in foreign countries, with most manufactured in China and, to a lesser extent, in Italy, Brazil and Vietnam. We also sell our footwear in several foreign countries and plan to
+increase our international sales efforts as part of our growth strategy. Foreign manufacturing and sales are subject to a number of risks, including the following: political and social unrest, including the military presence in Iraq and terrorism;
+changing economic conditions, including higher labor costs; increased costs of raw materials; currency exchange rate fluctuations; labor shortages and work stoppages; electrical shortages; transportation delays; loss or damage to products in
+transit; expropriation; nationalization; the adjustment, elimination or imposition of domestic and international duties, tariffs, quotas, import and export controls and other non-tariff barriers; exposure to different legal standards (particularly
+with respect to intellectual property); compliance with foreign laws; and changes in domestic and foreign governmental policies. We have not, to date, been materially affected by any such risks, but we cannot predict the likelihood of such
+developments occurring or the resulting long-term adverse impact on our business, results of operations or financial condition. 
+In particular, because most of our products are manufactured in China, the possibility of adverse changes in trade or political relations with China, political instability in China, increases in labor
+costs, the occurrence of prolonged adverse weather conditions or a natural disaster such as an earthquake or typhoon in China, or the outbreak of a pandemic disease in China could severely interfere with the manufacture and/or shipment of our
+products and would have a material adverse effect on our operations. In addition, electrical shortages, labor shortages or work stoppages may extend the production time necessary to produce our orders, and there may be circumstances in the future
+where we may have to incur premium freight charges to expedite the delivery of product to our customers. If we incur a significant amount of premium charges to airfreight product for our customers, our gross profit will be negatively affected if we
+are unable to collect those charges. 
+Currency Exchange Rate Fluctuations In China Could Result In Higher Costs And
+Decreased Margins. 
+Our manufacturers located in China may be subject to the effects of exchange rate
+fluctuations should the Chinese currency not remain stable with the U.S. dollar. The value of the Chinese currency depends to a large extent on the Chinese government’s policies and China’s domestic and international economic and political
+developments. Since 1994, the official exchange rate for the conversion of the Chinese currency was pegged to the U.S. dollar at a virtually fixed rate of approximately 8.28 Yuan per U.S. dollar. However, on July 21, 2005, the Chinese
+government revalued the Yuan by 2.1%, setting the exchange rate at 8.11 Yuan per U.S. dollar, and adopted a more flexible system based on a trade-weighted basket of foreign currencies of China’s main trading partners. Since then, the value of
+the Yuan has gradually appreciated against the U.S. dollar to 6.29 Yuan per U.S. dollar on December 31, 2011. The valuation of the Yuan may continue to increase incrementally over time should the China central bank allow it to do so, which
+could significantly increase labor and other costs incurred in the production of our footwear in China, resulting in a potentially material adverse effect on our results of operations and financial condition. 
+18 
+Table of Contents 
+The Potential Imposition Of Additional Duties, Quotas, Tariffs And Other Trade
+Restrictions Could Have An Adverse Impact On Our Sales And Profitability. 
+All of our products
+manufactured overseas and imported into the United States, the European Union (“EU”) and other countries are subject to customs duties collected by customs authorities. Customs information submitted by us is routinely subject to review by
+customs authorities. We are unable to predict whether additional customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions to prevent terrorism or other trade restrictions may be imposed on the importation of our
+products in the future. Such actions could result in increases in the cost of our products generally and might adversely affect the sales and profitability of Skechers and the imported footwear industry as a whole. 
+Our Quarterly Revenues And Operating Results Fluctuate As A Result Of A Variety Of Factors, Including Seasonal Fluctuations In Demand
+For Footwear, Delivery Date Delays And Potential Fluctuations In Our Estimated Annualized Tax Rate, Which May Result In Volatility Of Our Stock Price. 
+Our quarterly revenues and operating results have varied significantly in the past and can be expected to fluctuate in the future due to a number of factors, many of which are beyond our control. Our
+major customers generally have no obligation to purchase forecasted amounts, may and have canceled orders, and may change delivery schedules or change the mix of products ordered with minimal notice and without penalty. As a result, we may not be
+able to accurately predict our quarterly sales. In addition, sales of footwear products have historically been somewhat seasonal in nature with the strongest sales generally occurring in our second and third quarters for the back-to-school selling
+season. Back-to-school sales typically ship in June, July and August, and delays in the timing, cancellation, or rescheduling of these customer orders and shipments by our wholesale customers could negatively impact our net sales and results of
+operations for our second or third quarters. More specifically, the timing of when products are shipped is determined by the delivery schedules set by our wholesale customers, which could cause sales to shift between our second and third quarters.
+Because our expense levels are partially based on our expectations of future net sales, our expenses may be disproportionately large relative to our revenues, and we may be unable to adjust spending in a timely manner to compensate for any
+unexpected revenue shifts, which could have a material adverse effect on our operating results. 
+Our
+annualized tax rate is based on projections of our domestic and international operating results for the year, which we review and revise as necessary at the end of each quarter, and it is highly sensitive to fluctuations in projected international
+earnings. Any quarterly fluctuations in our annualized tax rate that may occur could have a material impact on our quarterly operating results. As a result of these specific and other general factors, our operating results will likely vary from
+quarter to quarter and the results for any particular quarter may not be necessarily indicative of results for the full year. Any shortfall in revenues or net earnings from levels expected by securities analysts and investors could cause a decrease
+in the trading price of our Class A Common Stock. 
+We Rely On Independent Contract Manufacturers And, As A Result, Are
+Exposed To Potential Disruptions In Product Supply. 
+Our footwear products are currently manufactured by
+independent contract manufacturers. During 2011 and 2010, the top five manufacturers of our products produced approximately 62.5% and 70.6% of our total purchases, respectively. One manufacturer accounted for 30.8% and 34.7% of total purchases
+during 2011 and 2010, respectively. One other manufacturer accounted for 11.5% and 13.0% of our total purchases during 2011 and 2010, respectively. We do not have long-term contracts with manufacturers and we compete with other footwear companies
+for production facilities. We could experience difficulties with these manufacturers, including reductions in the availability of production capacity, failure to meet our quality control standards, failure to meet production deadlines or increased
+manufacturing costs. This could result in our customers canceling orders, refusing to accept deliveries or demanding reductions in purchase prices, any of which could have a negative impact on our cash flow and harm our business. 
+If our current manufacturers cease doing business with us, we could experience an interruption in the manufacture of our
+products. Although we believe that we could find alternative manufacturers, we may be unable to establish relationships with alternative manufacturers that will be as favorable as the relationships we have now. For example, new manufacturers may
+have higher prices, less favorable payment terms, lower manufacturing capacity, lower quality standards or higher lead times for delivery. If we are unable to provide products consistent with our standards or the manufacture of our footwear is
+delayed or becomes more expensive, our business would be harmed. 
+19 
+Table of Contents 
+Our Business Could Be Harmed If Our Contract Manufacturers, Suppliers Or Licensees
+Violate Labor, Trade Or Other Laws. 
+We require our independent contract manufacturers, suppliers and
+licensees to operate in compliance with applicable laws and regulations. Manufacturers are required to certify that neither convicted, forced or indentured labor (as defined under United States law) nor child labor (as defined by law in the
+manufacturer’s country) is used in the production process, that compensation is paid in accordance with local law and that their factories are in compliance with local safety regulations. Although we promote ethical business practices and our
+sourcing personnel periodically visit and monitor the operations of our independent contract manufacturers, suppliers and licensees, we do not control them or their labor practices. If one of our independent contract manufacturers, suppliers or
+licensees violates labor or other laws or diverges from those labor practices generally accepted as ethical in the United States, it could result in adverse publicity for us, damage our reputation in the United States or render our conduct of
+business in a particular foreign country undesirable or impractical, any of which could harm our business. 
+In
+addition, if we, or our foreign manufacturers, violate United States or foreign trade laws or regulations, we may be subject to extra duties, significant monetary penalties, the seizure and the forfeiture of the products we are attempting to import
+or the loss of our import privileges. Possible violations of United States or foreign laws or regulations could include inadequate record keeping of our imported products, misstatements or errors as to the origin, quota category, classification,
+marketing or valuation of our imported products, fraudulent visas or labor violations. The effects of these factors could render our conduct of business in a particular country undesirable or impractical and have a negative impact on our operating
+results. 
+Our Strategies Involve A Number Of Risks That Could Prevent Or Delay Any Successful Opening Of New Stores As Well
+As Impact The Performance Of Our Existing Stores. 
+Our ability to open and operate new stores successfully
+depends on many factors, including, among others: our ability to identify suitable store locations, the availability of which is outside of our control; negotiate acceptable lease terms, including desired tenant improvement allowances; source
+sufficient levels of inventory to meet the needs of new stores; hire, train and retain store personnel; successfully integrate new stores into our existing operations; and satisfy the fashion preferences in new geographic areas. 
+In addition, some or a substantial number of new stores could be opened in regions of the United States in which we
+currently have few or no stores. Any expansion into new markets may present competitive, merchandising and distribution challenges that are different from those currently encountered in our existing markets. Any of these challenges could adversely
+affect our business and results of operations. In addition, to the extent that any new store openings are in existing markets, we may experience reduced net sales volumes in existing stores in those markets. 
+We Depend On Key Personnel To Manage Our Business Effectively In A Rapidly Changing Market, And If We Are Unable To Retain Existing
+Personnel, Our Business Could Be Harmed. 
+Our future success depends upon the continued services of Robert
+Greenberg, Chairman of the Board and Chief Executive Officer; Michael Greenberg, President and a member of our Board of Directors; and David Weinberg, Executive Vice President, Chief Operating Officer, Chief Financial Officer and a member of our
+Board of Directors. The loss of the services of any of these individuals or any other key employee could harm us. Our future success also depends on our ability to identify, attract and retain additional qualified personnel. Competition for
+employees in our industry is intense and we may not be successful in attracting and retaining such personnel. 
+The
+Disruption, Expense And Potential Liability Associated With Existing And Unanticipated Future Litigation Against Us Could Have A Material Adverse Effect On Our Business, Results Of Operations And Financial Condition. 
+In addition to the legal matters included in our reserve for loss contingencies, we occasionally become involved in
+litigation arising from the normal course of business, and we are unable to determine the extent of any liability that may arise from any such unanticipated future litigation. We have no reason to believe that there is a reasonable possibility or a
+probability our company may incur a material loss, or a material loss in excess of a recorded accrual, with respect to any other such loss contingencies. However, the outcome of litigation is inherently uncertain and assessments and decisions on
+defense and settlement can change significantly in a short period of time. Therefore, although we consider the likelihood of such an outcome to be remote with respect to those matters for which we have not reserved an amount for loss contingencies,
+if one or more of these legal matters were resolved against us in the same reporting period for amounts in excess of our expectations, our consolidated financial statements of a particular reporting period could be materially adversely affected.
+Further, any unanticipated litigation in the future, regardless of its merits, could also 
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+Table of Contents 
+significantly divert management’s attention from our operations and result in substantial legal fees being incurred. Such disruptions, legal fees and any losses resulting from these
+unanticipated future claims could have a material adverse effect on our business, consolidated financial statements and financial condition. 
+For a discussion of risks related to regulatory inquiries, see the risks discussed on page 16 under “It Is Difficult To Predict The Effect Of Regulatory Inquiries About Advertising And Promotional
+Claims Related To Our Products In The Fitness Footwear Market.” 
+Our Ability To Compete Could Be Jeopardized If We Are
+Unable To Protect Our Intellectual Property Rights Or If We Are Sued For Intellectual Property Infringement. 
+We believe that our trademarks, design patents and other proprietary rights are important to our success and our competitive position. We use trademarks on nearly all of our products and believe that
+having distinctive marks that are readily identifiable is an important factor in creating a market for our goods, in identifying us and in distinguishing our goods from the goods of others. We consider our Skechers®, S in Shield Design®,
+Performance-S Shifted Design®, Shape-ups®, Twinkle Toes®, Bella Ballerina™, Skechers GOrun™ and Skechers GOwalk™ trademarks to be among our most valuable assets, and we have registered these trademarks in many countries.
+In addition, we own many other trademarks that we utilize in marketing our products. We also have a number of design patents and a limited number of utility patents covering components and features used in various shoes. We believe that our patents
+and trademarks are generally sufficient to permit us to carry on our business as presently conducted. While we vigorously protect our trademarks against infringement, we cannot guarantee that we will be able to secure patents or trademark protection
+for our intellectual property in the future or that protection will be adequate for future products. Further, we have been sued for patent and trademark infringement and cannot be sure that our activities do not and will not infringe on the
+intellectual property rights of others. If we are compelled to prosecute infringing parties, defend our intellectual property or defend ourselves from intellectual property claims made by others, we may face significant expenses and liability as
+well as the diversion of management’s attention from our business, each of which could negatively impact our business or financial condition. 
+In addition, the laws of foreign countries where we source and distribute our products may not protect intellectual property rights to the same extent as do the laws of the United States. We cannot assure
+you that the actions we have taken to establish and protect our trademarks and other intellectual property rights outside the United States will be adequate to prevent imitation of our products by others or, if necessary, successfully challenge
+another party’s counterfeit products or products that otherwise infringe on our intellectual property rights on the basis of trademark or patent infringement. Continued sales of these products could adversely affect our sales and our brand and
+result in the shift of consumer preference away from our products. We may face significant expenses and liability in connection with the protection of our intellectual property rights outside the United States, and if we are unable to successfully
+protect our rights or resolve intellectual property conflicts with others, our business or financial condition could be adversely affected. 
+Natural Disasters Or A Decline In Economic Conditions In California Could Increase Our Operating Expenses Or Adversely Affect Our Sales Revenue. 
+As of December 31, 2011, a substantial portion of our operations are located in California, including 73 of our
+retail stores, our headquarters in Manhattan Beach, and our domestic distribution center in Rancho Belago. Because a significant portion of our net sales is derived from sales in California, a decline in the economic conditions in California,
+whether or not such decline spreads beyond California, could materially adversely affect our business. Furthermore, a natural disaster or other catastrophic event, such as an earthquake or wild fires affecting California, could significantly disrupt
+our business including the operation of our only domestic distribution center. We may be more susceptible to these issues than our competitors whose operations are not as concentrated in California. 
+Breaches Of Our Information Technology Systems And Other Disruptions Could Compromise Our Information, Expose Us To Liability And Harm
+Our Reputation And Business. 
+We maintain information necessary to conduct our business, including
+confidential and proprietary information as well as personal information regarding our customers and employees, in digital form. Data maintained in digital form is subject to the risk of intrusion, tampering and theft. We develop and maintain
+systems to prevent this from occurring, but the development and maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Moreover,
+despite our efforts, the possibility of intrusion tampering and theft cannot be eliminated 
+21 
+Table of Contents 
+entirely, and risks associated with each of these remain. In addition, we provide confidential, proprietary and personal information to third parties when it is necessary to pursue business
+objectives. While we obtain assurances that these third parties will protect this information and, where appropriate, monitor the protections employed by these third parties, there is a risk the confidentiality of data held by third parties may be
+compromised. If our data systems are compromised, our ability to conduct our business may be impaired, we may lose profitable opportunities or the value of those opportunities may be diminished and we may lose revenue as a result of unlicensed use
+of our intellectual property. If personal information of our customers or employees is misappropriated, our reputation with our customers and employees may be injured resulting in loss of business or morale, and we may incur costs to remediate
+possible injury to our customers and employees or to pay fines or take other action with respect to judicial or regulatory actions arising out of the incident. 
+One Principal Stockholder Is Able To Control Substantially All Matters Requiring Approval By Our Stockholders And Another Stockholder Is Able To Exert Significant Influence Over All Matters Requiring A
+Vote Of Our Stockholders, And Their Interests May Differ From The Interests Of Our Other Stockholders. 
+As
+of December 31, 2011, our Chairman of the Board and Chief Executive Officer, Robert Greenberg, beneficially owned 60.4% of our outstanding Class B common shares, members of Mr. Greenberg’s immediate family beneficially owned an
+additional 15.6% of our outstanding Class B common shares, and Gil Schwartzberg, trustee of several trusts formed by Mr. Greenberg and his wife for estate planning purposes, beneficially owned 23.4% of our outstanding Class B common shares. The
+holders of Class A common shares and Class B common shares have identical rights except that holders of Class A common shares are entitled to one vote per share while holders of Class B common shares are entitled to ten votes per share on
+all matters submitted to a vote of our stockholders. As a result, as of December 31, 2011, Mr. Greenberg beneficially owned 45.0% of the aggregate number of votes eligible to be cast by our stockholders, and together with shares
+beneficially owned by other members of his immediate family, Mr. Greenberg and his immediate family beneficially owned 57.5% of the aggregate number of votes eligible to be cast by our stockholders, and Mr. Schwartzberg beneficially owned
+17.4% of the aggregate number of votes eligible to be cast by our stockholders. Therefore, Mr. Greenberg is able to control substantially all matters requiring approval by our stockholders, and Mr. Schwartzberg is able to exert significant
+influence over all matters requiring approval by our stockholders. Matters that require the approval of our stockholders include the election of directors and the approval of mergers or other business combination transactions. Mr. Greenberg
+also has significant influence over our management and operations. As a result of such influence, certain transactions are not likely without the approval of Messrs. Greenberg and Schwartzberg, including proxy contests, tender offers, open market
+purchase programs or other transactions that can give our stockholders the opportunity to realize a premium over the then-prevailing market prices for their shares of our Class A common shares. Because Messrs. Greenberg’s and
+Schwartzberg’s interests may differ from the interests of the other stockholders, their ability to significantly influence or substantially control, respectively, actions requiring stockholder approval may result in our company taking action
+that is not in the interests of all stockholders. The differential in the voting rights may also adversely affect the value of our Class A common shares to the extent that investors or any potential future purchaser view the superior voting
+rights of our Class B common shares to have value. 
+Our Charter Documents And Delaware Law May Inhibit A Takeover, Which
+May Adversely Affect The Value Of Our Stock. 
+Provisions of Delaware law, our certificate of incorporation
+or our bylaws could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. Mr. Greenberg’s substantial beneficial ownership position, together with the
+authorization of Preferred Stock, the disparate voting rights between our Class A Common Stock and Class B Common Stock, the classification of our Board of Directors and the lack of cumulative voting in our certificate of incorporation and
+bylaws, may have the effect of delaying, deferring or preventing a change in control, may discourage bids for our Class A Common Stock at a premium over the market price of the Class A Common Stock and may adversely affect the market price
+of our Class A Common Stock. 
+ITEM 1B. UNRESOLVED STAFF COMMENTS 
+None. 
+ITEM 2. 
+PROPERTIES 
+Our corporate headquarters and additional administrative offices are located at six properties in Manhattan Beach,
+California, which consist of an aggregate of approximately 150,000 square feet. We own and lease portions of our corporate headquarters and administrative offices. 
+22 
+Table of Contents 
+Our U.S. distribution center is located in Rancho Belago, California. In
+January 2010, we entered into an agreement with HF Logistics I, LLC (“HF”) to form a joint venture, HF Logistics-SKX (the “JV”), to build a new 1.8 million square foot distribution facility on approximately 110 acres, which
+was completed in 2011. This single facility has replaced the previous six facilities located in or near Ontario, California. We are leasing the new distribution center for 20 years from the JV for a base rent of $940,695 per month, or approximately
+$11.3 million per year. The JV’s objective is to operate the facility for the production of income and profit. The term of the JV is fifty years. The parties are equal fifty percent partners. In April 2010, Skechers, through our wholly-owned
+subsidiary Skechers RB, LLC, made an initial cash capital contribution of $30 million and HF made an initial capital contribution of the land. Additional capital contributions, if necessary, would be made on an equal basis by Skechers RB, LLC and
+HF. 
+Our European distribution center consists of a 490,000 square-foot facility in Liege, Belgium under a
+20-year operating lease with base rent of approximately $3.0 million per year. The lease agreement also provides for early termination rights at five-year intervals beginning in April 2014, pending notification as prescribed in the lease, of which
+the first such right was not exercised. 
+All of our domestic retail stores and showrooms are leased with terms
+expiring between April 2012 and June 2023. The leases provide for rent escalations tied to either increases in the lessor’s operating expenses, fluctuations in the consumer price index in the relevant geographical area or a percentage of the
+store’s gross sales in excess of the base annual rent. Total base rent expense related to our domestic retail stores and showrooms was $39.8 million for the year ended December 31, 2011. 
+We also lease all of our international administrative offices, retail stores and showrooms located in Canada,
+Switzerland, United Kingdom, Germany, France, Spain, Italy, Netherlands, Brazil, Malaysia, China, Hong Kong, Japan, Chile, Singapore, Thailand, and Portugal. The property leases expire at various dates between March 2012 and April 2025. Total base
+rent for the leased administrative properties aggregated approximately $23.0 million for the year ended December 31, 2011. 
+ITEM 3. 
+LEGAL PROCEEDINGS 
+Our claims and advertising for our toning products including for our Shape-ups are subject to the requirements of, and routinely come under review by regulators including pending inquiries from the U.S.
+Federal Trade Commission (“FTC”), states’ Attorneys General and government and quasi-government regulators in foreign countries. We are currently responding to requests for information regarding our claims and advertising from
+regulatory and quasi-regulatory agencies in the United States and several other countries and are fully cooperating with those requests. While we believe that our claims and advertising with respect to our core toning products are supported by
+scientific tests, expert opinions and other relevant data, and while we have been successful in defending our claims and advertising in several different countries, we have discontinued using certain test results and we periodically review and
+update our claims and advertising. The regulatory inquiries may conclude in a variety of outcomes, including the closing of the inquiry with no further regulatory action, settlement of any issues through changes in our claims and advertising,
+settlement of any issues through payment to the regulatory entity, or litigation. 
+Based on discussions with
+the FTC staff, we are now aware that the FTC’s pending inquiry into our toning products will not end in a closure letter assuring no further regulatory action. In the fourth quarter, the FTC’s Director of the Bureau of Consumer Protection
+referred the matter to the FTC Commissioners for consideration of whether to bring an action against us for false and deceptive advertising in connection with our toning products, and the Company met with the individual Commissioners to present
+evidence and arguments against bringing such an action. Our discussions with the FTC staff are continuing. 
+Since June 2010, we have been a defendant in multiple consumer class actions challenging our claims and advertising for
+our toning products, including our Shape-ups, actions which are described below. We also received notice in the fourth quarter that a multistate group of state Attorneys General (“SAG”), comprised of 44 States and the District of Columbia,
+is reviewing substantially the same claims and advertising for toning products as the FTC, and discussions relating to that inquiry are likewise ongoing. 
+In this regard, one of our competitors, which also sells toning products, recently settled a matter with the FTC and related consumer class actions for the payment of $25 million plus an additional $4.6
+million in attorneys’ fees. While we believe that the facts relating to the FTC and SAG inquiries into our toning products and our consumer class actions are different from our competitor’s, we have evaluated this evidence and other
+related facts and interpretations and have concluded that we could be subject to a higher exposure as a result of these proceedings. After extensive consultation with our advisors, we have recorded a charge of $45 million to reserve for costs
+and potential other exposures relating to existing litigation and regulatory matters and, in addition, have recorded an expense of $5 million for legal and professional fees related to the aforementioned matters. Due to the sensitive and
+23 
+Table of Contents 
+complex nature of these proceedings and the large number of parties involved, it is currently not possible to predict the final outcomes of the FTC inquiry, the SAG inquiry, or the related
+consumer class actions. Although we believe our fourth quarter charges of $50 million appropriately reflect our estimated level of exposure, it is possible that additional exposure associated with the final resolution of these proceedings could
+have a further material adverse impact on our results of operations or financial position. 
+The toning
+footwear category, including our Shape-ups products, has also been the subject of some media attention arising from a number of consumer complaints and allegations of injury while wearing Shape-ups. We believe our products are safe and are defending
+ourselves from these media stories and injury allegations. It is too early, however, to predict the outcome of the ongoing inquiries and whether such an outcome will have a material effect on our advertising, promotional claims, business, results of
+operations or financial position. 
+Asics Corporation and Asics America Corporation v. Skechers U.S.A.,
+Inc. — On May 11, 2010, Asics Corporation and Asics America Corporation (collectively, “Asics”) filed an action against our company in the United States District Court for the Central District of California, SACV 10-00636
+CJC/MLG, alleging trademark infringement, unfair competition, and trademark dilution under both federal and California law and false advertising under California law arising out of our alleged use of stripe designs similar to Asics trademarks. The
+complaint seeks, among other things, permanent and preliminary injunctive relief, compensatory damages, profits, treble and punitive damages, and attorneys’ fees. The matter is in the discovery phase. While it is too early to predict the
+outcome of the litigation and whether an adverse result would have a material adverse impact on our operations or financial position, we believe we have meritorious defenses and counterclaims, vehemently deny the allegations and intend to defend the
+case vigorously. 
+Tamara Grabowski v. Skechers U.S.A., Inc. — On June 18, 2010, Tamara
+Grabowski filed an action against our company in the United States District Court for the Southern District of California, Case No. 10 CV 1300 JM (MDD), on her behalf and on behalf of all others similarly situated. The complaint, as
+subsequently amended, alleges that our advertising for Shape-ups violates California’s Unfair Competition Law and the California Consumer Legal Remedies Act, and constitutes a breach of express warranty (the “Grabowski action”). The
+complaint seeks certification of a nationwide class, damages, restitution and disgorgement of profits, declaratory and injunctive relief, corrective advertising, and attorneys’ fees and costs. On March 7, 2011, the court stayed the action
+on the ground that the outcomes in pending appeals in two unrelated actions will significantly affect whether a class should be certified. On January 13, 2012, the plaintiff filed a motion to lift the stay, which Skechers opposed. The court has
+not issued a decision on plaintiff’s motion, and the stay remains in place. While it is too early to predict the outcome of the litigation or a reasonable range of potential losses and whether an adverse result would have a material adverse
+impact on our results of operations or financial position, we believe we have meritorious defenses, vehemently deny the allegations, believe that class certification is not warranted and intend to defend the case vigorously. 
+Sonia Stalker v. Skechers U.S.A., Inc. — On July 2, 2010, Sonia Stalker filed an action against our
+company in the Superior Court of the State of California for the County of Los Angeles, on her behalf and on behalf of all others similarly situated, alleging that our advertising for Shape-ups violates California’s Unfair Competition Law and
+the California Consumer Legal Remedies Act. The complaint seeks certification of a nationwide class, actual and punitive damages, restitution, declaratory and injunctive relief, corrective advertising, and attorneys’ fees and costs. On
+July 23, 2010, we removed the case to the United States District Court for the Central District of California, and it is now pending as Sonia Stalker v. Skechers USA, Inc., CV 10-5460 JAK (JEM). On August 23, 2010, we filed a motion to
+dismiss the action or transfer it to the United States District Court for the Southern District of California, in view of the prior pending Grabowski action. On August 27, 2010, plaintiff moved to certify the class, which motion we have
+opposed. On January 21, 2011, the court stayed the action for the separate reasons that the Grabowski action was filed first and takes priority under the first-to-file doctrine and that the outcomes in pending appeals in two unrelated actions
+will significantly affect the outcome of plaintiff’s motion for class certification and the resolution of this action. The stay remains in effect. While it is too early to predict the outcome of the litigation or a reasonable range of potential
+losses and whether an adverse result would have a material adverse impact on our results of operations or financial position, we believe we have meritorious defenses, vehemently deny the allegations, believe that class certification is not warranted
+and intend to defend the case vigorously. 
+Venus Morga v. Skechers U.S.A., Inc. — On
+August 25, 2010, Venus Morga filed an action against our company in the United States District Court for the Southern District of California, Case No. 10 CV 1780 JM (MDD), on her behalf and on behalf of all others similarly situated. The
+complaint, as subsequently amended, alleges that our advertising for Shape-ups violates California’s Unfair Competition Law and the California Consumer Legal Remedies Act, and constitutes a breach of express warranty. The complaint seeks
+certification of a nationwide class, damages, restitution and disgorgement of profits, declaratory and injunctive relief, corrective advertising, and attorneys’ fees and costs. On March 7, 2011, the court stayed the action on the ground
+that the outcomes in pending appeals in two unrelated actions will significantly affect whether a class should be certified. On January 13, 2012, the plaintiff 
+24 
+Table of Contents 
+filed a motion to lift the stay, which Skechers opposed. The court has not issued a decision on plaintiff’s motion, and the stay remains in place, While it is too early to predict the
+outcome of the litigation or a reasonable range of potential losses and whether an adverse result would have a material adverse impact on our results of operations or financial position, we believe we have meritorious defenses, vehemently deny the
+allegations, believe that class certification is not warranted and intend to defend the case vigorously. 
+Tamia Richmond v. Skechers U.S.A., Inc. and HKM Productions, Inc. — On August 31, 2010, Tamia Richmond
+filed a lawsuit against our company and HKM Productions in California Superior Court, County of Los Angeles, Case No. BC444730. The complaint alleged, among other things, that we had used Ms. Richmond’s image and likeness in certain
+unauthorized forms of media. We subsequently settled the matter and, on July 13, 2011, Ms. Richmond filed a dismissal with prejudice with the court. The settlement did not have a material adverse impact on our results of operations or
+financial position. 
+Charles Davis, Angela Meng, Paisley McCollum, Daniel Liu, Chanel Celaya, Kathy
+Gardiner, Samantha Rex, Tracy Long Stover, Talesha Byrd, Sean Myrie, and Marielle Jaffe v. Skechers U.S.A., Inc. and Skechers U.S.A., Inc. II — On August 12, 2011, Charles Davis, Angela Meng, Paisley McCollum, Daniel Liu, Chanel
+Celaya, Kathy Gardiner, Samantha Rex, Tracy Long Stover, Talesha Byrd, Sean Myrie, and Marielle Jaffe (collectively, the “Plaintiffs”) filed a lawsuit against our company in the Superior Court of the State of California for the County of
+Los Angeles, Case No. SC113783. The complaint alleges, among other things, that we have intentionally and knowingly misappropriated Plaintiffs’ common law and statutory law rights of publicity by using their images and likenesses in certain
+unauthorized forms of media. Plaintiffs are seeking compensatory, punitive and exemplary damages, injunctive relief, interest, attorneys’ fees and costs. The matter is now in the discovery phase. While it is too early to predict the outcome of
+the litigation and whether an adverse result would have a material adverse impact on our operations or financial position, we believe we have meritorious defenses, vehemently deny the allegations and intend to defend the case vigorously. 
+Patty Tomlinson v. Skechers U.S.A., Inc. — On January 13, 2011, Patty Tomlinson filed a lawsuit against
+our company in Circuit Court in Washington County, Arkansas, Case No. CV11-121-7. The complaint alleges, on her behalf and on behalf of all others similarly situated, that our advertising for Shape-ups violates Arkansas’ Deceptive Trade
+Practices Act, constitutes a breach of certain express and implied warranties, and is resulting in unjust enrichment (the “ Tomlinson action”). The complaint seeks certification of a statewide class, compensatory damages, prejudgment
+interest, and attorneys’ fees and costs. On February 18, 2011, we removed the case to the United States District Court for the Western District of Arkansas, and it is now pending as Patty Tomlinson v. Skechers U.S.A., Inc. , CV
+11-05042 JLH. On March 16, 2011, we filed a motion to dismiss the action or transfer it to the United States District Court for the Southern District of California, in view of the prior pending Grabowski action. On March 21, 2011,
+Ms. Tomlinson moved to remand the action back to Arkansas state court, which motion we opposed. On May 25, 2011, the court ordered the case remanded to Arkansas state court and denied our motion to dismiss or transfer as moot, but has
+stayed remand pending completion of appellate review. On September 2, 2011, we filed a petition in the United States Supreme Court seeking a writ of certiorari relating to the propriety of remand, and on November 7, 2011, the
+Supreme Court denied our petition. While it is too early to predict the outcome of the litigation or a reasonable range of potential losses and whether an adverse result would have a material adverse impact on our results of operations or financial
+position, we believe we have meritorious defenses, vehemently deny the allegations, believe that class certification is not warranted and intend to defend the case vigorously. 
+Terena Lovston v. Skechers U.S.A., Inc. — On May 13, 2011, Terena Lovston filed a lawsuit against our
+company in Circuit Court in Lonoke County, Arkansas, Case No. CV-11-321. The complaint alleges, on her behalf and on behalf of all others similarly situated, that our advertising for our toning footwear products violates Arkansas’
+Deceptive Trade Practices Act, and is resulting in unjust enrichment. The complaint seeks certification of a statewide class and compensatory damages. On June 3, 2011, we removed the case to the United States District Court for the Eastern
+District of Arkansas, and it is now pending as Terena Lovston v. Skechers U.S.A., Inc. , 4:11- cv-00460-DPM. On June 6, 2011, we filed a motion to dismiss the action or transfer it to the United States District Court for the Southern
+District of California, in view of the prior pending Grabowski action. On July 19, 2011, the court indicated its intent to remand the case to Arkansas state court but stayed remand pending further briefing by the parties. On
+August 5, 2011, the court issued an order staying the case pending completion of the appellate process in the Tomlinson action. On November 7, 2011, the United States Supreme Court denied our petition for a writ of certiorari in the
+Tomlinson action. While it is too early to predict the outcome of the litigation or a reasonable range of potential losses and whether an adverse result would have a material adverse impact on our results of operations or financial position,
+we believe we have meritorious defenses, vehemently deny the allegations, believe that class certification is not warranted and intend to defend the case vigorously. 
+Skechers U.S.A., Inc. and Skechers U.S.A., Inc. II v. Elon A. Pollack, Elon A. Pollack, a Professional Corporation dba
+Law Offices of Elon A. Pollock, and Stein, Shostak, Shostak, Pollack & O’Hara, LLP — On March 3, 2011, we filed a complaint against Elon A. Pollack, Elon A. Pollack, a Professional Corporation dba Law Offices of Elon A.
+Pollock, and Stein, Shostak, Shostak, Pollack & O’Hara, LLP (collectively, the “Defendants”) in Superior Court of the State of California in Los Angeles County, Case 
+25 
+Table of Contents 
+No. YC064333. In our current amended complaint, we allege, among other things, that the Defendants have breached their duties of care, loyalty and fidelity to us by negligently and
+carelessly providing legal representation, and that the Defendants have engaged in self-dealing and breaches of their fiduciary duties to us. We are seeking actual and consequential damages, declaratory relief, interest, punitive damages, and
+attorneys’ fees and costs. On August 3, 2011, the Defendants filed a first amended cross complaint against us, which alleges breach of written contract for failure to pay certain contingency fees, entitlement to contingency fees based on
+the principal of quantum meruit, breach of implied covenant of good faith and fair dealing, and fraud and intentional misrepresentation. The Defendants seek damages under a retainer agreement, the reasonable value of their services, as well as
+consequential and incidental damages, interest, punitive damages, and costs. While it is too early to predict the outcome of the litigation and whether an adverse result would have a material adverse impact on our operations or financial position,
+we believe we have meritorious defenses and counterclaims, vehemently deny the allegations and intend to defend the case vigorously. 
+Wendie Hochberg and Brenda Baum v. Skechers U.S.A., Inc .— On November 23, 2011, Wendie Hochberg and Brenda Baum filed a lawsuit against our company in the United States District Court for
+the Eastern District of New York, Case No. CV11-5751. The complaint alleges, on their behalf and on behalf of all others similarly situated, that our advertising for Shape-ups violates the New York Consumer Protection Act, and is resulting in unjust
+enrichment. The complaint seeks certification of a statewide class, damages, restitution, disgorgement, injunctive relief, and attorneys’ fees and costs. While it is too early to predict the outcome of the litigation or a reasonable range of
+potential losses and whether an adverse result would have a material adverse impact on our results of operations or financial position, we believe we have meritorious defenses, vehemently deny the allegations, believe that class certification is not
+warranted and intend to defend the case vigorously. 
+Shannon Loss, Kayla Hedges and Donald Horner v.
+Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group — On February 12, 2012, Shannon Loss, Kayla Hedges and Donald Horner filed a lawsuit against our company in the United States District Court for the Western
+District of Kentucky, Case No. 3:12-cv-78-H. The complaint alleges, on behalf of the named plaintiffs and all others similarly situated, that our advertising for Shape-ups is false and misleading, thereby constituting a breach of contract,
+breach of implied and express warranties, and resulting in unjust enrichment. The complaint seeks certification of a nationwide class, compensatory damages, and attorneys’ fees and costs. While it is too early to predict the outcome of the
+litigation or a reasonable range of potential losses and whether an adverse result would have a material adverse impact on our results of operations or financial position, we believe we have meritorious defenses, vehemently deny the allegations,
+believe that class certification is not warranted and intend to defend the case vigorously. 
+Elma Boatright
+and Sharon White v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group — On February 15, 2012, Elma Boatright and Sharon White filed a lawsuit against our company in the United States District Court for the
+Western District of Kentucky, Case No. 3:12-cv-87-S. The complaint alleges, on behalf of the named plaintiffs and all others similarly situated, that our advertising for Shape-ups is false and misleading, thereby constituting a breach of
+contract, breach of implied and express warranties, fraud, and resulting in unjust enrichment. The complaint seeks certification of a nationwide class, compensatory damages, and attorneys’ fees and costs. While it is too early to predict the
+outcome of the litigation or a reasonable range of potential losses and whether an adverse result would have a material adverse impact on our results of operations or financial position, we believe we have meritorious defenses, vehemently deny the
+allegations, believe that class certification is not warranted and intend to defend the case vigorously. 
+Personal Injury Lawsuits Involving Shape-ups. As previously reported, on February 20, 2011, Skechers U.S.A.,
+Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group were named as defendants in a lawsuit that alleged, among other things, that Shape-ups are defective and unreasonably dangerous, negligently designed and/or manufactured, and do not conform
+to representations made by us, and that we failed to provide adequate warnings of alleged risks associated with Shape-ups. Also, as previously reported, through August 9, 2011, four additional cases were filed in state and federal courts
+against these defendants, claiming a variety of alleged injuries, but asserting legal theories similar to those in the first case and adding claims for breach of express and implied warranties, loss of consortium, and fraud. Since then, our company
+has been named in an additional 24 currently pending cases that assert further varying injuries but employ similar legal theories and assert similar claims to the first five cases. In each of the following cases, except as noted below, the
+plaintiffs seek compensatory and/or economic damages, exemplary and/or punitive damages, and attorneys’ fees and costs. 
+26 
+Table of Contents 
+Case Name 
+Original Case Number 
+Court 
+Holly and Timothy Ward v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+(No exemplary or punitive damages sought) 
+1:11-cv-00080-MRB 
+United States District Court, Southern District of Ohio 
+Allison Drury v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+3:11-cv-00201-CRS 
+United States District Court, Western District of Kentucky, Louisville Division 
+Melissa and Richard Kearnely v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+6:11-cv-00139-GFVT 
+United States District Court, Eastern District of Kentucky, London Division 
+Lynn P. Orsine and Raymond J. Orsine v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+1:11-cv-01654-DCN 
+United States District Court, Northern District of Ohio, Eastern Division, Cleveland 
+Theresa Croak and Neill Croak v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+1:11-cv-01458-TFH 
+United States District Court, District of Columbia 
+Helen Simpson v. Sketchers [sic.] U.S.A., Inc. 
+(No exemplary or punitive damages sought.) 
+136479-C 
+26 th Judicial District Court, Bossier Parish, Louisiana 
+Jessica Wilson v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+5:11-cv-02008-DDD 
+United States District Court, Northern District of Ohio, Akron 
+Susan Reno-Gilliland and Frederick Gilliland IV v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+4:11-cv-00241-HLM 
+United States District Court, Northern District of Georgia, Rome Division 
+Mai L. Moore v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+2:11-cv-02849-CGC 
+United States District Court, Western District of Tennessee, Western Division 
+Linda Nell v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+4:11-cv-02050-BYP 
+United States District Court, Northern District of Ohio, Eastern Division, Youngstown 
+Denise Hagvall v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+1:11-cv-02805-CCB 
+United States District Court, District of Maryland (Baltimore) 
+Karen McClain v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+1:11-cv-02807-CCB 
+United States District Court, District of Maryland (Baltimore) 
+Lisa Fuller and Terry Fuller v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+1:11-cv-00084-BRW 
+United States District Court, Eastern District of Arkansas, Northern Division 
+Mark Stanley and Rebecca Stanley v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+11-CI-00494 
+Circuit Court in Graves County, Kentucky 
+27 
+Table of Contents 
+Corin Hall and Robert Hall v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+2:11-cv-00921-SA 
+United States District Court, District of Utah 
+Gale Leiter v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+3:11-cv-00351-TMR 
+United States District Court, Southern District of Ohio, Western Division, Dayton 
+Lisa Delzoppo-Patel v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+1:11-cv-02129 
+United States District Court, Northern District of Ohio, Eastern Division, Cleveland 
+Karita Pierson v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+3:11-cv-00352-WHR 
+United States District Court, Southern District of Ohio, Western Division, Dayton 
+Peggy Stults v. Skechers U.S.A. Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+2:11-cv-1036-BCW 
+United States District Court, District of Utah, Central Division 
+Lisa Peniston v. Skechers U.S.A. Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+4:11-cv-889-A 
+United States District Court, Northern District of Texas 
+Kathy Bartek, et al. v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skecher Fitness Group 
+BC476903 
+Los Angeles Superior Court for the State of California, Central Division 
+Evelyn Rice v. Skechers U.S.A. Inc, Skechers U.S.A., Inc. II, and Skechers Fitness Group 
+1:12-cv-181-PAG 
+United States District Court, Northern District of Ohio, Eastern Division 
+Jewel Trsek v. Skechers U.S.A. Inc, Skechers U.S.A., Inc. II and Skechers Fitness Group 
+3:12-cv-183-LW 
+United States District Court, Northern District of Ohio, Eastern Division 
+Tammy Santarosa v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+3:12-cv-182-JZ 
+United States District Court for the Northern District of Ohio, Northern Division 
+Sharon Schinder v. Skechers U.S.A. Inc; Skechers U.S.A., Inc. II; and Skechers Fitness Group 
+2:11-cv-00408-WOB 
+United States District Court, Eastern District of Kentucky 
+Virginia Phillips v. Skechers U.S.A., Inc and The Sports Authority Inc. 
+37-2012-00092016 
+San Diego Superior Court for the State of California 
+Richard Raskopf and Cynthia Raskopf v. Skechers U.S.A., Inc; Skechers U.S.A. Inc. II and Skechers Fitness Group 
+3:12-cv-00070-JVB 
+United States District Court, Northern District of Indiana 
+Roxann Romano and Paul Romano v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+2:12-cv-00370-DRH 
+United States District Court, Eastern District of New York 
+Gina Williams-Lowe v. Skechers U.S.A. Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group 
+8:12-cv-603-DKC 
+United States District Court, District of Maryland 
+28 
+Table of Contents 
+On December 19, 2011, the Judicial Panel on Multidistrict Litigation issued an order
+establishing a multidistrict litigation proceeding in the United States District Court for the Western District of Kentucky entitled In re Skechers Toning Shoe Products Liability Litigation, case no. 11-md-02308-TBR, that currently or will
+shortly encompasses 27 personal injury cases that were initiated in various federal courts. In addition, the Company recently was named as a defendant in a 37-plaintiff personal injury action filed in the Los Angeles Superior Court, entitled
+Bartek v. Skechers U.S.A., Inc., et al. , case no. BC476903. While it is too early to predict the outcome of any of these cases and whether an adverse result would have a material adverse impact on our operations or financial position, we
+believe we have meritorious defenses, vehemently deny the allegations and intend to defend each of these cases vigorously. 
+As discussed above, we have reserved $45 million for costs and potential exposure relating to existing litigation and regulatory matters and have recorded a pre-tax expense of $5 million in additional
+legal and professional fees. In addition to the matters included in our reserve for loss contingencies, we occasionally become involved in litigation arising from the normal course of business, and we are unable to determine the extent of any
+liability that may arise from any such unanticipated future litigation. We have no reason to believe that there is a reasonable possibility or a probability our company may incur a material loss, or a material loss in excess of a recorded accrual,
+with respect to any other such loss contingencies. However, the outcome of litigation is inherently uncertain and assessments and decisions on defense and settlement can change significantly in a short period of time. Therefore, although we consider
+the likelihood of such an outcome to be remote with respect to those matters for which we have not reserved an amount for loss contingencies, if one or more of these legal matters were resolved against us in the same reporting period for amounts in
+excess of our expectations, our consolidated financial statements of a particular reporting period could be materially adversely affected. 
+ITEM 4. 
+MINE SAFETY DISCLOSURES 
+Not applicable. 
+PART II 
+ITEM 5. 
+MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 
+Our Class A Common Stock trades on the New York Stock Exchange under the symbol “SKX.” The following table
+sets forth, for the periods indicated, the high and low sales prices of our Class A Common Stock. 
+HIGH 
+LOW 
+YEAR ENDED DECEMBER 31, 2011 
+First Quarter 
+$ 
+23.66 
+$ 
+17.86 
+Second Quarter 
+21.47 
+13.29 
+Third Quarter 
+17.88 
+13.31 
+Fourth Quarter 
+15.42 
+11.75 
+YEAR ENDED DECEMBER 31, 2010 
+First Quarter 
+$ 
+37.74 
+$ 
+26.76 
+Second Quarter 
+44.90 
+32.61 
+Third Quarter 
+40.20 
+21.22 
+Fourth Quarter 
+26.25 
+19.00 
+HOLDERS 
+As of February 15, 2012, there were 102 holders of record of our Class A Common Stock (including holders who are nominees for an undetermined number of beneficial owners) and 28 holders of
+record of our Class B Common Stock. These figures do not include beneficial owners who hold shares in nominee name. The Class B Common Stock is not publicly traded but each share is convertible upon request of the holder into one share of
+Class A Common Stock. 
+29 
+Table of Contents 
+DIVIDEND POLICY 
+Earnings have been and will be retained for the foreseeable future in the operations of our business. We have not declared or paid any cash dividends on our Class A Common Stock and do not anticipate
+paying any cash dividends in the foreseeable future. Our current policy is to retain all of our earnings to finance the growth and development of our business. 
+EQUITY COMPENSATION PLAN INFORMATION 
+Our equity compensation
+plan information is provided as set forth in Part III, Item 12 of this annual report. 
+PERFORMANCE GRAPH 
+The following graph demonstrates the total return to stockholders of our company’s Class A Common Stock from
+December 31, 2006 to December 31, 2011, relative to the performance of the Russell 2000 Index, which includes our Class A Common Stock, and our peer group index, which consists of six companies believed to be engaged in similar
+businesses: Nike, Inc., adidas AG, Kenneth Cole Productions, Inc., K-Swiss Inc., Steven Madden, Ltd., and Wolverine World Wide, Inc. 
+The graph assumes an investment of $100 on December 31, 2006 in each of our company’s Class A Common Stock and the stocks comprising each of the Russell 2000 Index and the customized peer
+group index. Each of the indices assumes that all dividends were reinvested. The stock performance of our company’s Class A Common Stock shown on the graph is not necessarily indicative of future performance. We will not make nor endorse
+any predictions as to our future stock performance. 
+12/31/06 
+12/31/07 
+12/31/08 
+12/31/09 
+12/31/10 
+12/31/11 
+Skechers U.S.A., Inc. 
+100.00 
+58.57 
+38.49 
+88.29 
+60.04 
+36.39 
+Russell 2000 
+100.00 
+98.43 
+65.18 
+82.89 
+105.14 
+100.75 
+Peer Group 
+100.00 
+132.40 
+93.11 
+126.91 
+162.19 
+178.67 
+30 
+Table of Contents 
+ITEM 6. 
+SELECTED FINANCIAL DATA 
+The following tables set forth our company’s selected consolidated financial data as of and for each of the years in the five-year period ended December 31, 2011 and should be read in
+conjunction with our audited consolidated financial statements and notes thereto included under Part II, Item 8 of this annual report. 
+(In thousands, except net earnings (loss) per share) 
+YEARS ENDED DECEMBER 31, 
+STATEMENT OF OPERATIONS DATA: 
+2011 
+2010 
+2009 
+2008 
+2007 
+Net sales 
+$ 
+1,606,016 
+$ 
+2,006,868 
+$ 
+1,436,440 
+$ 
+1,440,743 
+$ 
+1,394,181 
+Gross profit 
+623,748 
+911,906 
+621,010 
+595,922 
+599,989 
+Earnings (loss) from operations 
+(133,793 
+) 
+195,568 
+70,255 
+57,705 
+113,323 
+Earnings (loss) before income taxes (benefit) 
+(131,047 
+) 
+196,603 
+71,110 
+60,743 
+118,305 
+Net earnings (loss) attributable to Skechers U.S.A., Inc. 
+(67,484 
+) 
+136,148 
+54,699 
+55,396 
+75,686 
+Net earnings (loss) per share:(1) 
+Basic 
+(1.39 
+) 
+2.87 
+1.18 
+1.20 
+1.67 
+Diluted 
+(1.39 
+) 
+2.78 
+1.16 
+1.19 
+1.63 
+Weighted average shares:(1) 
+Basic 
+48,491 
+47,433 
+46,341 
+46,031 
+45,262 
+Diluted 
+48,491 
+49,050 
+47,105 
+46,708 
+46,741 
+AS OF DECEMBER 31, 
+BALANCE SHEET DATA: 
+2011 
+2010 
+2009 
+2008 
+2007 
+Working capital 
+$ 
+578,885 
+$ 
+666,054 
+$ 
+558,468 
+$ 
+413,771 
+$ 
+523,888 
+Total assets 
+1,281,888 
+1,304,794 
+995,552 
+876,316 
+827,977 
+Long-term debt, excluding current portion 
+76,531 
+51,650 
+15,641 
+16,188 
+16,462 
+Skechers U.S.A., Inc. equity 
+852,561 
+908,203 
+745,922 
+668,693 
+626,663 
+(1) 
+Basic earnings per share represents net earnings (loss) divided by the weighted-average number of common shares outstanding for the period. Diluted
+earnings (loss) per share, in addition to the weighted average determined for basic earnings (loss) per share, reflects the potential dilution that could occur if options to issue common stock were exercised or converted into common stock and
+assumes the conversion of our 4.50% convertible subordinated notes for the period outstanding since their issuance in April 2002 until their conversion in February 2007, unless their inclusion would be anti-dilutive. 
+31 
+Table of Contents 
+ITEM 7. 
+MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
+GENERAL 
+We
+design, market and sell contemporary footwear for men, women and children under the Skechers brand. Our footwear is sold through a wide range of department stores and leading specialty retail stores, mid-tier retailers, boutiques, our own retail
+stores, distributor-owned international retail stores and our e-commerce website. Our objective is to continue to profitably grow our domestic operations while leveraging our brand name to expand internationally. 
+Our operations are organized along our distribution channels, and we have the following four reportable sales segments:
+domestic wholesale sales, international wholesale sales, retail sales and e-commerce sales. We evaluate segment performance based primarily on net sales and gross margins. See detailed segment information in note 12 to our consolidated financial
+statements included under Part II, Item 8 of this annual report. 
+FINANCIAL OVERVIEW 
+Our net sales for 2011 were $1.606 billion, a decrease of $400.9 million, or 20.0%, compared to net sales of $2.007
+billion in 2010. Net loss was $67.5 million, a decrease of $203.6 million or 149.6% from net earnings of $136.1 million in 2010. Diluted loss per share was $1.39, which reflected a 150.0% decrease from the $2.78 diluted earnings per share reported
+in the prior year. Our decreased earnings were primarily the result of lower sales volumes and decreased margins primarily due to overall lower demand for toning footwear and a weak U.S. retail environment, inventory write-downs of $10.0 million on
+our toning products, a reserve of $45.0 million for costs and potential exposure relating to existing litigation and regulatory matters, foreign bad debt write-offs of $4.6 million and $3.1 million in asset impairments. Working capital was $578.9
+million at December 31, 2011, a decrease of $87.2 million from working capital of $666.1 million at December 31, 2010. Cash increased by $117.5 million to $351.1 million at December 31, 2011 compared to $233.6 million at
+December 31, 2010. The increase in cash of $117.5 million was the result of reduced inventory levels of $170.2 million, lower receivables of $86.1 million, and increased borrowings of $69.3 million, partially offset by capital expenditures of
+$122.2 million and net loss of $67.5 million. 
+2011 OVERVIEW 
+In 2011, we focused on product development, domestic and international growth, and developing our infrastructure to
+support future growth. 
+New product design and delivery . Our success depends on our ability to design
+and deliver trend-right, affordable product in a diverse range. In 2011, we focused on continuously updating our core styles, adding fresh looks to our existing lines, and developing new lines including our first true performance footwear line. This
+approach has broadened our product offering and ensured the relevance of our brands. 
+Grow our domestic
+business. In 2011, our focus was on maintaining our core Skechers business in our domestic wholesale accounts, while finding new opportunities to add shelf space and expand into new locations with new Skechers categories. We also focused on
+expanding our domestic retail distribution channel by opening 40 additional stores while closing three underperforming locations. 
+Further develop our international businesses. In 2011, we continued to focus on improving our international operations by (i) growing our subsidiary business by increasing our customer base
+within our existing subsidiary business, including developing our subsidiaries in Brazil and Chile; (ii) increasing the product offering within each account; (iii) delivering the right product into the right markets; and (iv) by
+building the business of our joint ventures in Asia through additional retail stores and wholesale channels. 
+Develop our infrastructure. In 2011, we completed the transition to our new domestic distribution center enabling
+us to move out of our six existing distribution facilities and creating a more efficient distribution center. 
+OUTLOOK FOR 2012 
+During 2012, we will continue to develop new lifestyle and performance product at affordable prices in an effort to
+offset the decline in our toning products that we experienced during 2011 and expect to continue to experience throughout 2012. The global 
+32 
+Table of Contents 
+footwear market is competitive; however, we believe our new styles and lines that will be launching in the spring and fall seasons will enable us to broaden the targeted demographic profile of
+our consumer base, increase our shelf space and open new locations without detracting from existing business. As we transition into our new product offerings, we expect gross margins will return to our historical rates of 40% to 42% in the second
+half of 2012. 
+YEAR ENDED DECEMBER 31, 2011 COMPARED TO THE YEAR ENDED DECEMBER 31, 2010 
+Net sales 
+Net sales for 2011 were $1.606 billion, a decrease of $400.9 million, or 20.0%, compared to net sales of $2.007 billion in 2010. The decrease in net sales was primarily attributable to lower sales in our
+domestic wholesale segment due to reduced sales of toning products and lower average selling prices for our products partially offset by higher sales in our international wholesale segment. 
+Our domestic wholesale net sales decreased $443.8 million, or 39.2%, to $688.2 million in 2011 compared to $1.132 billion
+in 2010. The decrease in our domestic wholesale segment was broad-based and across key divisions primarily due to overall lower demand for toning footwear and a weak U.S. retail environment. The largest decrease in our domestic wholesale segment
+came in our women’s and men’s toning divisions. The average selling price per pair within the domestic wholesale segment decreased to $20.46 per pair for 2011 from $24.33 in 2010, as a result of the sell-through of our excess toning
+inventory. The decrease in the domestic wholesale segment’s net sales also resulted from a 27.8% unit sales volume decrease to 33.6 million pairs in 2011 from 46.5 million pairs in 2010. 
+Our international wholesale segment net sales increased $50.7 million, or 11.6%, to $487.3 million in 2011 compared to
+sales of $436.6 million in 2010. Our international wholesale sales consist of direct subsidiary sales – those we make to department stores and specialty retailers — and sales to our distributors who in turn sell to department stores and
+specialty retailers in various international regions where we do not sell direct. Direct subsidiary sales increased $29.1 million, or 9.2%, to $343.9 million compared to sales of $314.8 million in 2010. The largest sales increases came from our
+subsidiaries in Italy and our joint ventures in Asia. Our distributor sales increased $21.5 million, or 17.6%, to $143.4 million in 2011, compared to sales of $121.9 million in 2010. This was primarily attributable to increased sales to our
+distributors in Panama and Japan. 
+Our retail segment net sales decreased $0.2 million, or 0.1% to $410.5
+million in 2011, compared to sales of $410.7 million in 2010. The decrease in retail sales was attributable to negative comparable store sales partially offset by a net increase of 37 domestic stores. For the year ended December 31, 2011, we
+realized negative comparable store sales of 11.9% in our domestic retail stores and 2.1% in our international retail stores. The comparable store sales decline was principally driven by reduced demand for our toning product as well as decreased
+average retail pricing. During the year ended December 31, 2011, we opened 17 new domestic concept stores, nine domestic outlet stores, 14 domestic warehouse stores, and six international concept stores. Our domestic retail sales decreased 3.0%
+for the year ended December 31, 2011 compared to the same period in 2010 as the result of negative comparable store sales partially offset by a net increase of 37 domestic stores. Our international retail sales increased 22.2% for the year
+ended December 31, 2011 compared to the same period in 2010 attributable to a net increase of five international stores. 
+We had 281 domestic stores and 49 international retail stores as of February 15, 2012, and during 2012 we currently plan to open approximately 18 to 20 stores. We closed three domestic stores and one
+international concept store in 2011 and one domestic store in 2010. We periodically review all of our stores for impairment. During 2011, we recorded an impairment charge of $1.5 million related to eleven of our underperforming domestic stores.
+During 2010, we did not record an impairment charge. Further, we carefully review our under-performing stores and may consider the non-renewal of leases upon completion of the current term of the applicable lease. 
+Our e-commerce net sales decreased $7.5 million to $20.1 million in 2011, a 27.2% decrease compared to sales of $27.6
+million in 2010. Our e-commerce sales made up approximately 1% of our consolidated net sales in 2011 and 2010. 
+Gross profit
+Gross profit for 2011 decreased $288.2 million to $623.7 million from $911.9 million in 2010. Gross
+profit as a percentage of net sales, or gross margin, decreased to 38.8% in 2011 from 45.4% in 2010. Our domestic wholesale segment gross profit decreased $274.4 million, or 59.6%, to $186.0 million in 2011 from $460.4 million in 2010. Domestic
+wholesale margins decreased to 27.0% in 2011 from 40.7% for 2010. The decrease in domestic wholesale margins was primarily attributable to lower average selling prices due to the sell-through of our excess toning inventory and inventory write-downs.
+In the second quarter 2011, we reduced our excess 
+33 
+Table of Contents 
+toning inventory by selling two million pairs of our original Shape-ups at a loss of $21.0 million and recorded an additional $4.4 million reserve for our remaining toning product. In the fourth
+quarter of 2011, we recorded an additional reserve of $5.6 million on our original Shape-ups. The reserves were taken to reflect the current wholesale selling price for our remaining toning inventory. 
+Gross profit for our international wholesale segment increased $14.7 million, or 8.1%, to $196.2 million for 2011
+compared to $181.5 million in 2010. Gross margins were 40.3% for 2011 compared to 41.6% in 2010. The decrease in gross margins for our international wholesale segment was attributable to increased distributor sales, which achieved lower gross
+margins than our international wholesale sales through our foreign subsidiaries. International wholesale sales through our foreign subsidiaries historically have achieved higher gross margins than our international wholesale sales through our
+foreign distributors. Gross margins for our direct subsidiary sales were 46.5% in 2011 as compared to 47.3% in 2010. Gross margins for our distributor sales were 25.4% in 2011 as compared to 26.8% in 2010. Our international wholesale segment was not
+impacted as severely by the decline in demand for our toning product that we experienced in our domestic wholesale segment. 
+Gross profit for our retail segment decreased $24.1 million, or 9.4%, to $231.8 million in 2011 as compared to $255.9 million in 2010. Gross margins for all stores were 56.5% for 2011 compared to 62.3% in
+2010. Gross margins for our domestic stores were 56.8% in 2011 as compared to 62.3% in 2010. Gross margins for our international stores were 54.7% in 2011 as compared to 62.3% in 2010. The decrease in retail margins was primarily due to lower
+average selling prices and negative comparable sales. 
+Our cost of sales includes the cost of footwear
+purchased from our manufacturers, royalties, duties, quota costs, inbound freight (including ocean, air and freight from the dock to our distribution centers), broker fees and storage costs. Because we include expenses related to our distribution
+network in general and administrative expenses while some of our competitors may include expenses of this type in cost of sales, our gross margins may not be comparable, and we may report higher gross margins than some of our competitors in part for
+this reason. 
+Selling expenses 
+Selling expenses decreased by $34.7 million, or 18.6%, to $152.0 million for 2011 from $186.7 million in 2010. As a percentage of net sales, selling expenses were 9.5% and 9.3% in 2011 and 2010,
+respectively. The decrease in selling expenses was primarily the result of lower advertising expenses. Selling expenses consist primarily of the following: sales representative sample costs, sales commissions, trade shows, advertising and
+promotional costs, which may include television and ad production costs, and expenses associated with marketing materials. 
+General and
+administrative expenses 
+General and administrative expenses increased by $78.9 million, or 14.8%, to
+$613.1 million for 2011 from $534.2 million in 2010. As a percentage of sales, general and administrative expenses were 38.2% and 26.6% in 2011 and 2010, respectively. The increase in general and administrative expenses was primarily attributable to
+higher legal settlement expenses of $42.8 million which includes a $45.0 million charge for potential exposure relating to previously disclosed litigation and regulatory matters, increased outside professional fees of $13.6 million, $4.6 million in
+foreign bad debt reserves, increased depreciation expense of $12.0 million, and higher rent expense of $10.4 million attributable to an additional 42 stores from the prior year. In addition, the expenses related to our distribution network,
+including the functions of purchasing, receiving, inspecting, allocating, warehousing and packaging of our products totaled $114.2 million and $119.1 million for 2011 and 2010, respectively. 
+General and administrative expenses consist primarily of the following: salaries, wages and related taxes, various
+overhead costs associated with our corporate staff, stock-based compensation, domestic and international retail operations, non-selling related costs of our international operations, costs associated with our domestic and European distribution
+centers, professional fees related to both legal and accounting, insurance, and depreciation and amortization, asset impairment, amongst other expenses. Our distribution network related costs are included in general and administrative expenses and
+are not allocated to specific segments. 
+We believe that we have established our presence in most major
+domestic retail markets. We opened 40 domestic retail stores and six international retail stores in 2011, while closing three domestic stores and one international store. During 2012, we currently plan to open between 18 and 20 stores. 
+34 
+Table of Contents 
+Interest income 
+Interest income for 2011 decreased $0.9 million to $1.9 million as compared to $2.8 million for the same period in 2010.
+The decrease in interest income was primarily due to interest received on refunds of customs and duties payments during the year ended December 31, 2010. 
+Interest expense 
+Interest expense for 2011
+increased $4.9 million to $7.9 million as compared to $3.0 million for the same period in 2010. The increase was attributable to increased interest paid to our foreign manufacturers and interest paid on our equipment loans. Interest expense was
+incurred on amounts owed to our foreign manufacturers and loans on property, plant and equipment for our new distribution center. 
+Gain
+on disposal of assets 
+Gain on disposal of assets for 2011 increased $9.6 million to $9.6 million
+primarily from the gain on the sale of our Ontario, California distribution center of $9.9 million for which we received cash proceeds of $17.1 million. 
+Income taxes 
+The effective tax rate for 2011 was
+48.4% as compared to 30.6% in 2010. Income tax benefit for 2011 was $63.5 million compared to expense of $60.2 million for 2010. The effective tax rate is subject to fluctuation resulting from the combination of domestic and international operating
+results and different tax rates on a worldwide basis. As a result of the net operating loss realized in 2011, we will carryback these losses to prior tax years and will receive a refund of approximately $52.0 million of income taxes previously paid.
+Income taxes were computed using the effective tax rates applicable to each of our domestic and international
+taxable jurisdictions. The rate for the year ended December 31, 2011 was higher than the expected domestic federal and state rate of approximately 40% due to a combination of the tax benefit from our U.S. net operating loss with the tax benefit
+from the rate differential on our non-U.S. subsidiary earnings in lower tax rate jurisdictions, and our planned permanent reinvestment of undistributed earnings from our non-U.S. subsidiaries, thereby indefinitely postponing their repatriation to
+the United States. As such, we did not provide for deferred income taxes on accumulated undistributed earnings of our non-U.S. subsidiaries. As of December 31, 2011, withholding and U.S. taxes have not been recorded on approximately $158.9
+million of cumulative undistributed earnings. 
+Noncontrolling interest in net income and loss of consolidated subsidiaries
+Noncontrolling interest for 2011 decreased $0.4 million to loss of $0.1 million as compared to income
+of $0.3 million for the same period in 2010. Noncontrolling interest represents the share of net earnings or loss that is attributable to our joint venture partners. 
+YEAR ENDED DECEMBER 31, 2010 COMPARED TO THE YEAR ENDED DECEMBER 31, 2009 
+Net sales
+Net sales for 2010 were $2.007 billion, an increase of $570.4 million, or 39.7%, compared to net
+sales of $1.436 billion in 2009. The increase in net sales was broad-based across all segments. 
+Our domestic
+wholesale net sales increased $368.4 million, or 48.3%, to $1.132 billion in 2010 compared to $763.5 million in 2009. The largest increases in our domestic wholesale segment came in our Women’s and Men’s divisions. The average selling
+price per pair within the domestic wholesale segment increased to $24.33 per pair for 2010 from $20.49 in 2009, primarily due to acceptance of new designs and styles for our in-demand products and reduced close-outs. The increase in domestic
+wholesale segment sales were based on a 24.9% unit sales volume increase to 46.5 million pairs in 2010 from 37.3 million pairs in 2009. 
+Our international wholesale segment net sales increased $108.2 million, or 32.9%, to $436.6 million in 2010 compared to sales of $328.5 million in 2009. Direct subsidiary sales increased $88.5 million, or
+39.1%, to $314.8 million compared to sales of $226.3 million in 2009. The largest sales increases came from our subsidiaries in Chile, Canada, and Germany. Our distributor sales 
+35 
+Table of Contents 
+increased $19.8 million, or 19.3%, to $121.9 million in 2010, compared to sales of $102.1 million in 2009. This was primarily due to increased sales to our distributors in Korea, UAE, and Russia.
+Our retail segment net sales increased $88.9 million, or 27.6% to $410.7 million in 2010, compared to sales
+of $321.8 million in 2009. The increase in retail sales was due to positive comparable store sales of 15.2% (i.e. those open at least one year) and a net increase of 41 stores. For the year ended December 31, 2010, we realized positive
+comparable store sales of 15.9% in our domestic retail stores and 8.7% in our international retail stores. During the year ended December 31, 2010, we opened 15 new domestic concept stores, seven domestic outlet stores, three domestic warehouse
+stores, six international concept stores and 11 international outlet stores. Our domestic retail sales increased 24.1% for the year ended December 31, 2010 compared to the same period in 2009 due to positive comparable store sales and a net
+increase of 24 domestic stores. Our international retail sales increased 62.1% for the year ended December 31, 2010 compared to the same period in 2009 attributable to positive comparable store sales and a net increase of 17 international
+stores. 
+We closed one domestic store in 2010 and two domestic stores in 2009. We periodically review all of
+our stores for impairment. During 2010, we did not record an impairment charge. During 2009, we recorded an impairment charge of $0.8 million related to three of our domestic stores. 
+Our e-commerce net sales increased $5.0 million to $27.6 million in 2010, a 22.0% increase over sales of $22.6 million in
+2009. Our e-commerce sales made up approximately 1% of our consolidated net sales in 2010 and 2009. 
+Gross profit 
+Gross profit for 2010 increased $290.9 million to $911.9 million from $621.0 million in 2009. Gross profit as a
+percentage of net sales, or gross margin, increased to 45.4% in 2010 from 43.2% in 2009. Gross profit for our domestic wholesale segment increased $168.1 million, or 57.5%, to $460.4 million in 2010 from $292.3 million in 2009. Domestic wholesale
+margins increased to 40.7% in 2010 from 38.3% for 2009. The increase in domestic wholesale margins was due to increased average selling prices, less closeouts and more in-demand inventory. 
+Gross profit for our international wholesale segment increased $63.1 million, or 53.3%, to $181.5 million for 2010
+compared to $118.4 million in 2009. Gross margins were 41.6% for 2010 compared to 36.1% in 2009. The increase in gross margins for our international wholesale segment was due to less closeouts and more in-demand inventory. International wholesale
+sales through our foreign subsidiaries historically have achieved higher gross margins than our international wholesale sales through our foreign distributors. Gross margins for our direct subsidiary sales were 47.3% in 2010 as compared to 40.0% in
+2009. Gross margins for our distributor sales were 26.8% in 2010 as compared to 27.3% in 2009. 
+Gross profit
+for our retail segment increased $57.7 million, or 29.1%, to $255.9 million in 2010 as compared to $198.2 million in 2009. Gross margins for all stores were 62.3% for 2010 compared to 61.6% in 2009. Gross margins for our domestic stores were 62.3%
+in 2010 as compared to 60.7% in 2009. Gross margins for our international stores were 62.3% in 2010 as compared to 70.5% in 2009. The increase in retail margins was due to less closeouts and more in-demand inventory. 
+Selling expenses 
+Selling expenses increased by $57.7 million, or 44.8%, to $186.7 million for 2010 from $129.0 million in 2009. As a percentage of net sales, selling expenses were 9.3% and 9.0% in 2010 and 2009,
+respectively. The increase in selling expenses was primarily due to advertising expenses that increased by $52.1 million for the year ended December 31, 2010. 
+General and administrative expenses 
+General and
+administrative expenses increased by $110.6 million, or 26.2%, to $534.2 million for 2010 from $423.4 million in 2009. As a percentage of sales, general and administrative expenses were 26.6% and 29.5% in 2010 and 2009, respectively. The increase in
+general and administrative expenses was primarily due to increased salaries and wages of $44.0 million that included $13.7 million in stock compensation costs, increased professional fees of $9.7 million, higher rent expense of $8.7 million due to
+an additional 41 stores, increased temporary help costs of $6.1 million, and higher outside service fees of $5.6 million. In addition, the expenses related to our distribution network, including the functions of purchasing, receiving, inspecting,
+allocating, warehousing and packaging of our products totaled $119.1 million and $109.2 million for 2010 and 2009, respectively. The $9.9 million increase was primarily due to significantly higher sales volumes. 
+36 
+Table of Contents 
+Interest income 
+Interest income for 2010 increased $0.7 million to $2.8 million as compared to $2.1 million for the same period in 2009.
+The increase in interest income was primarily due to interest received on refunds of customs and duties payments for the year ended December 31, 2010. 
+Interest expense 
+Interest expense was $3.0 million
+for both 2010 and 2009. Interest expense was incurred on our mortgages for our domestic distribution center and our corporate office located in Manhattan Beach, California, and on amounts owed to our foreign manufacturers. 
+Income taxes 
+The effective tax rate for 2010 was 30.6% as compared to 28.4% in 2009. Income tax expense for 2010 was $60.2 million compared to $20.2 million for 2009. The increase in income taxes was primarily due to
+increased earnings before taxes. 
+Income taxes were computed using the effective tax rates applicable to each
+of our domestic and international taxable jurisdictions. The rate for the year ended December 31, 2010 was lower than the expected domestic federal and state rate of approximately 40% due to our non-U.S. subsidiary earnings in lower tax rate
+jurisdictions and our planned permanent reinvestment of undistributed earnings from our non-U.S. subsidiaries, thereby indefinitely postponing their repatriation to the United States. As such, we did not provide for deferred income taxes on
+accumulated undistributed earnings of our non-U.S. subsidiaries. As of December 31, 2010, withholding and U.S. taxes have not been recorded on approximately $131.7 million of cumulative undistributed earnings. 
+Noncontrolling interest in net income and loss of consolidated subsidiaries 
+Noncontrolling interest for 2010 increased $4.1 million to income of $0.3 million as compared to a loss of $3.8 million
+for the same period in 2009. Noncontrolling interest represents the share of net earnings or loss that is attributable to our joint venture partners. 
+LIQUIDITY AND CAPITAL RESOURCES 
+Our working capital at
+December 31, 2011 was $578.9 million, a decrease of $87.2 million from working capital of $666.1 million at December 31, 2010. Our cash at December 31, 2011 was $351.1 million compared to $233.6 million at December 31, 2010. The
+increase in cash of $117.5 million was the result of reduced inventory levels of $170.2 million, lower receivables of $86.1 million, and increased borrowings of $69.3 million, partially offset by capital expenditures of $122.2 million and net loss
+of $67.5 million. 
+During 2011, net cash provided by operating activities was $164.9 million compared to net
+cash used of $47.4 million for 2010. The increase in net cash provided by operating activities in 2011 as compared to the same period in the prior year was the result of reduced inventory levels and lower receivable balances, partially offset by
+reduced earnings and decreased payables. 
+Net cash used in investing activities was $105.1 million for 2011 as
+compared to $52.3 million in 2010. The increase in cash used in investing activities in 2011 as compared to 2010 was the result of increased capital expenditures and the maturity of short-term investments in the prior year partially offset by the
+sale of our Ontario, California distribution center. Capital expenditures for 2011 were approximately $122.2 million, which consisted of $40.9 million of development costs for our new distribution center, $44.2 million in warehouse equipment
+upgrades, and $27.5 million for new store openings and remodels. This was compared to capital expenditures of $82.3 million in the prior year, which primarily consisted of new store openings and remodels and development costs for our new
+distribution center. During 2011, we received $17.1 million in sale proceeds from our Ontario, California distribution center. We expect our ongoing capital expenditures for the remainder of 2012 to be between $15 million and $20 million, which
+includes opening between 18 to 20 retail stores as well as investments in information technology. We believe our operating cash flows, current cash, available lines of credit and current financing arrangements should be adequate to fund these
+capital expenditures, although we may seek additional funding for all or a portion of these expenditures. 
+37 
+Table of Contents 
+Net cash provided by financing activities was $60.4 million during 2011
+compared to $67.4 million during 2010. The decrease in cash provided by financing activities was primarily attributable to lower proceeds from the issuance of Class A common stock upon the exercise of stock options, partially offset by
+increased borrowings. 
+On December 29, 2010, we entered into a master loan and security agreement (the
+“Master Agreement”), by and between us and Banc of America Leasing & Capital, LLC, and an Equipment Security Note (together with the Master Agreement, the “Loan Documents”), by and among us, Banc of America
+Leasing & Capital, LLC, and Bank of Utah, as agent (“Agent”). We used the proceeds to refinance certain equipment already purchased and to purchase new equipment for use in our Rancho Belago distribution facility. Borrowings made
+pursuant to the Master Agreement may be in the form of one or more equipment security notes (each a “Note,” and, collectively, the “Notes”) up to a maximum limit of $80.0 million and each for a term of 60 months. The Note entered
+into on the same date as the Master Agreement represents a borrowing of approximately $39.3 million. Interest will accrue at a fixed rate of 3.54% per annum. On June 30, 2011, we entered into another Note agreement for approximately $36.3
+million. Interest will accrue at a fixed rate of 3.19% per annum. As of December 31, 2011, the total outstanding amount on these notes was $68.3 million. We paid commitment fees of $825,000 on this loan, which are being amortized over the
+five-year life of the facility. 
+On April 30, 2010, we entered into a construction loan agreement (the
+“Loan Agreement”), by and between HF Logistics-SKX, LLC and Bank of America, N.A. as administrative agent and as lender (“Bank of America” or the “Administrative Agent”) and Raymond James Bank, FSB. The proceeds from
+the Loan Agreement have been used to construct our domestic distribution facility in Rancho Belago, California. Borrowings made pursuant to the Loan Agreement may be made up to a maximum limit of $55.0 million and the loan matures on April 30,
+2012, which may be extended for six months, if certain conditions are met. We expect to be able to meet all of the conditions necessary to extend this agreement for six months and refinance the loan before October 30, 2012. Borrowings bear
+interest based on LIBOR. We had $47.1 million outstanding under this facility, which is included in short-term borrowings on December 31, 2011. We paid commitment fees of $737,500 on this loan, which are being amortized over the life of the
+facility. 
+On June 30, 2009, we entered into a $250.0 million secured credit agreement, (the “Credit
+Agreement”) with a syndicate of seven banks that replaced the previous $150 million credit agreement. On November 5, 2009, March 4, 2010 and May 3, 2011, we entered into three successive amendments to the Credit Agreement
+(collectively, the “Amended Credit Agreement”). The Amended Credit Agreement matures in June 2015. The credit agreement permits us and certain of our subsidiaries to borrow up to $250.0 million based upon a borrowing base of eligible
+accounts receivable and inventory, which amount can be increased to $300.0 million at our request and upon satisfaction of certain conditions including obtaining the commitment of existing or prospective lenders willing to provide the incremental
+amount. Borrowings bear interest at our election based on LIBOR or a Base Rate (defined as the greatest of the base LIBOR plus 1.00%, the Federal Funds Rate plus 0.5% or one of the lenders’ prime rate), in each case, plus an applicable margin
+based on the average daily principal balance of revolving loans under the credit agreement (1.00%, 1.25% or 1.50% for Base Rate loans and 2.00%, 2.25% or 2.50% for LIBOR loans). We pay a monthly unused line of credit fee of 0.375% or 0.5% per
+annum, which varies based on the average daily principal balance of outstanding revolving loans and undrawn amounts of letters of credit outstanding during such month. The Amended Credit Agreement further provides for a limit on the issuance of
+letters of credit to a maximum of $50.0 million. The Amended Credit Agreement contains customary affirmative and negative covenants for secured credit facilities of this type, including a fixed charge coverage ratio that applies when excess
+availability is less than $40.0 million. In addition, the Amended Credit Agreement places limits on additional indebtedness that we are permitted to incur as well as other restrictions on certain transactions. We paid syndication and commitment fees
+of $6.7 million on this facility, which are being amortized over the remaining four-year life of the facility. 
+We had outstanding short-term and long-term borrowings of $137.0 million as of December 31, 2011, of which $68.3
+million relates to notes payable for warehouse equipment for our new distribution center that are secured by the equipment, $47.1 million relates to our construction loan for our new distribution center, $18.3 million relates to a note for
+development costs paid by and due to HF for our new distribution center, and the remaining balance relates to our joint venture in China. 
+We believe that anticipated cash flows from operations, available borrowings under our secured line of credit, existing cash balances and current financing arrangements will be sufficient to provide us
+with the liquidity necessary to fund our anticipated working capital and capital requirements through December 31, 2012 and for the foreseeable future. However, in connection with our current strategies, we will incur significant working
+capital requirements and capital expenditures. Our future capital requirements will depend on many factors, including, but not limited to, the global recession and the pace of recovery in our markets, the levels at which we maintain inventory, sale
+of excess inventory at discounted prices, the market acceptance of our footwear, the success of our international operations, the levels of advertising and marketing required to promote our footwear, the extent to which we invest in new product
+design and improvements to our existing product design, any potential acquisitions of other brands or companies, and the 
+38 
+Table of Contents 
+number and timing of new store openings. To the extent that available funds are insufficient to fund our future activities, we may need to raise additional funds through public or private
+financing of debt or equity. Recently, we have been successful in raising additional funds through financing activities however, we cannot be assured that additional financing will be available to us or that, if available, it can be obtained on past
+terms which have been favorable to our stockholders and us. Failure to obtain such financing could delay or prevent our current business plans, which could adversely affect our business, financial condition and results of operations. In addition, if
+additional capital is raised through the sale of additional equity or convertible securities, dilution to our stockholders could occur. 
+DISCLOSURE ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS 
+The following table summarizes our material contractual obligations and commercial commitments as of December 31, 2011: 
+Total 
+Less than 
+One 
+Year 
+One to 
+Three 
+Years 
+Three
+to 
+Five 
+Years 
+More Than 
+Five 
+Years 
+Short-term borrowings (1) 
+$ 
+51,371 
+$ 
+51,371 
+0 
+0 
+0 
+Long-term borrowings (1) 
+93,299 
+12,202 
+$ 
+42,719 
+$ 
+38,378 
+0 
+Operating lease obligations (2) 
+803,482 
+99,750 
+177,010 
+151,551 
+$ 
+375,171 
+Purchase obligations (3) 
+350,634 
+350,633 
+0 
+0 
+0 
+Minimum payments related to other arrangements 
+3,165 
+2,955 
+209 
+0 
+0 
+Total (4) 
+$ 
+1,301,951 
+$ 
+516,913 
+$ 
+219,938 
+$ 
+189,929 
+$ 
+375,171 
+(1) 
+Amounts include anticipated interest payments. 
+(2) 
+Operating lease obligations consists primarily of real property leases for our retail stores, corporate offices and distribution center. These
+leases frequently include options that permit us to extend beyond the terms of the initial fixed term. Payments for these lease terms are provided for by cash flows generated from operations and existing cash balances. 
+(3) 
+Purchase obligations include the following: (i) accounts payable balances for the purchase of footwear of $71.8 million, (ii) outstanding
+letters of credit of $3.4 million and (iii) open purchase commitments with our foreign manufacturers for $275.4 million. We currently expect to fund these commitments with cash flows from operations and existing cash balances.
+(4) 
+Our consolidated balance sheet as of December 31, 2011, included $10.9 million in unrecognized tax benefits. The future payments related to these
+unrecognized tax benefits have not been presented in the table above due to the uncertainty of the amounts and potential timing of cash settlements with the tax authorities, and whether any settlement would occur. 
+OFF-BALANCE SHEET ARRANGEMENTS 
+We do not have any relationships with unconsolidated entities or financial partnerships such as entities often referred
+to as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance-sheet arrangements or for other contractually narrow or limited purposes. As such, we are not exposed to any financing,
+liquidity, market or credit risk that could arise if we had engaged in such relationships. 
+CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
+Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our
+consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make difficult, subjective and
+complex estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. 
+We base our estimates and judgments on historical experience, other available information, and on other assumptions that
+are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. In determining whether an estimate is critical, we consider if the nature of the
+estimates or assumptions is material due to the levels of subjectivity and judgment or the susceptibility of such matters to change, and if the impact of the estimates and assumptions on financial condition or operating performance is material.
+Actual results may differ from these estimates under different assumptions or conditions. 
+39 
+Table of Contents 
+We believe the following critical accounting estimates are affected by
+significant judgments used in the preparation of our consolidated financial statements: revenue recognition, allowance for bad debts, returns, sales allowances and customer chargebacks, inventory write-downs, valuation of long-lived assets,
+litigation reserves, valuation of deferred income taxes. 
+Revenue Recognition . We derive
+income from the sale of footwear and royalties earned from licensing the Skechers brand. Domestically, goods are shipped Free on Board (“FOB”) shipping point directly from our domestic distribution center in Rancho Belago, California. For
+our international wholesale customers in the European community, product is shipped FOB shipping point direct from our distribution center in Liege, Belgium. For our distributor sales, the goods are generally delivered directly from the independent
+factories to our distributors’ freight forwarders on a Free Named Carrier (“FCA”) basis. We recognize revenue on wholesale sales when products are shipped and the customer takes title and assumes risk of loss, collection of the
+relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. This generally occurs at time of shipment. While customers do not have the right to return goods, we periodically
+decide to accept returns or provide customers with credits. 
+Allowances for estimated returns, discounts,
+doubtful accounts and chargebacks are provided for when related revenue is recorded. Related costs paid to third-party shipping companies are recorded as a cost of sales. We recognize revenue from retail sales at the point of sale. 
+Royalty income is earned from our licensing arrangements. Upon signing a new licensing agreement, we receive up-front
+fees, which are generally characterized as prepaid royalties. These fees are initially deferred and recognized as revenue as earned (i.e., as licensed sales are reported to the company or on a straight-line basis over the term of the agreement). The
+first calculated royalty payment is based on actual sales of the licensed product or, in some cases minimum royalty payments. Typically, at each quarter-end we receive correspondence from our licensees indicating what the actual sales for the period
+were. This information is used to calculate and accrue the related royalties currently receivable based on the terms of the agreement. 
+Allowance for bad debts, returns, sales allowances and customer chargebacks. We provide a reserve against our receivables for estimated losses that may result from our customers’
+inability to pay. To minimize the likelihood of uncollectibility, customers’ credit-worthiness is reviewed periodically based on external credit reporting services, financial statements issued by the customer and our experience with the
+account, and it is adjusted accordingly. When a customer’s account becomes significantly past due, we generally place a hold on the account and discontinue further shipments to that customer, minimizing further risk of loss. We determine the
+amount of the reserve by analyzing known uncollectible accounts, aged receivables, economic conditions in the customers’ countries or industries, historical losses and our customers’ credit-worthiness. Amounts later determined and
+specifically identified to be uncollectible are charged or written off against this reserve. 
+We also reserve
+for potential disputed amounts or chargebacks from our customers. Our chargeback reserve is based on a collectibility percentage based on factors such as historical trends, current economic conditions, and nature of the chargeback receivables. We
+also reserve for potential sales returns and allowances based on historical trends. 
+The likelihood of a
+material loss on an uncollectible account would be mainly dependent on deterioration in the overall economic conditions in a particular country or environment. Reserves are fully provided for all probable losses of this nature. For receivables that
+are not specifically identified as high risk, we provide a reserve based upon our historical loss rate as a percentage of sales. Gross trade accounts receivable balance were $196.4 million and $285.8 million and the allowance for bad debts, returns,
+sales allowances and customer chargebacks was $20.4 million and $19.7 million, at December 31, 2011 and 2010, respectively. The Company’s credit losses due to write-off’s for the years ended December 31, 2011, 2010 and 2009 were
+$7.0 million, $4.8 million and $1.2 million, respectively. 
+Inventory write-downs .
+Inventories are stated at the lower of cost or market. We review our inventory on a regular basis for excess and slow moving inventory. Our review is based on inventory on hand, prior sales and our expected net realizable value. Our analysis
+includes a review of inventory quantities on hand at period end in relation to year-to-date sales, existing orders from customers and projections for sales in the near future. The net realizable value, or market value, is determined based on our
+estimate of sales prices of such inventory based upon historical sales experience on a style by style basis. A write-down of inventory is considered permanent and creates a new cost basis for those units. The likelihood of any material inventory
+write-down is dependent primarily on our expectation of future consumer demand for our product. A misinterpretation or misunderstanding of future consumer demand for our product or of the economy, or other failure to estimate correctly, could result
+in inventory valuation changes, either favorably or unfavorably, compared to the requirement determined to be appropriate as of the balance sheet date. Our gross inventory value was 
+40 
+Table of Contents 
+$238.7 million and $402.2 million and our inventory reserve was $12.3 million and $3.6 million, at December 31, 2011 and 2010, respectively. During the year ended December 31, 2011 we
+recorded $10.0 million in inventory reserves for our toning products. 
+Valuation of long-lived
+assets . When circumstances warrant, we test for recoverability of the asset groups carrying value using estimates of undiscounted future cash flows based on the existing service potential of the applicable asset group in determining
+the fair value of each asset group. The assets are considered to be impaired if we determine that the carrying value may not be recoverable based upon our assessment of the following events or changes in circumstances: 
+• 
+the asset’s ability to continue to generate income; 
+• 
+any loss of legal ownership or title to the asset(s); 
+• 
+any significant changes in our strategic business objectives and utilization of the asset(s); or 
+• 
+the impact of significant negative industry or economic trends. 
+If the assets are considered to be impaired, the impairment we recognize is the amount by which the carrying value of the
+assets exceeds the fair value of the assets. In addition, we base the useful lives and related amortization or depreciation expense on our estimate of the period that the assets will generate revenues or otherwise be used by us. If a change were to
+occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase. In addition, we prepare a summary of store cash flows from our retail stores to assess potential impairment of the
+fixed assets and leasehold improvements. Stores with negative cash flows opened in excess of twenty-four months are then reviewed in detail to determine if impairment exists. Management reviews both quantitative and qualitative factors to asses if a
+triggering event occurred. For the year ended December 31, 2011, we recorded a $1.5 million impairment charge for eleven of our underperforming domestic stores and $1.6 million for intangible assets. For the year ended December 31, 2010,
+we did not record an impairment charge for our stores. For the year ended December 31, 2009, we recorded a $0.8 million impairment charge for three of our domestic stores. We early adopted ASU 2011-08 during the year ended December 31,
+2011. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements. 
+Litigation reserves . Estimated amounts for claims that are probable and can be reasonably estimated are recorded as liabilities in our consolidated balance sheets. The likelihood of a
+material change in these estimated reserves would depend on new claims as they may arise and the favorable or unfavorable outcome of the particular litigation. Both the amount and range of loss on a large portion of the remaining pending litigation
+is uncertain. As such, we are unable to make a reasonable estimate of the liability that could result from unfavorable outcomes in litigation. As additional information becomes available, we will assess the potential liability related to our pending
+litigation and revise our estimates. Such revisions in our estimates of the potential liability could materially impact our results of operations and financial position. For the year ended December 31, 2011, we recorded $43.9 million in expense
+as a result of legal settlements. 
+Valuation of deferred income taxes . We record a
+valuation allowance when necessary to reduce our deferred tax assets to the amount that is more likely than not to be realized. The likelihood of a material change in our expected realization of our deferred tax assets depends on future taxable
+income and the effectiveness of our tax planning strategies amongst the various domestic and international tax jurisdictions in which we operate. We evaluate our projections of taxable income to determine the recoverability of our deferred tax
+assets and the need for a valuation allowance. As of December 31, 2011, we had net deferred tax assets of $46.4 million reduced by a valuation allowance of $11.1 million against loss carry-forwards not expected to be utilized by certain foreign
+subsidiaries. 
+INFLATION 
+We do not believe that the relatively moderate rates of inflation experienced in the United States over the last three years have had a significant effect on our sales or profitability. However, we cannot
+accurately predict the effect of inflation on future operating results. Although higher rates of inflation have been experienced in a number of foreign countries in which our products are manufactured, we do not believe that inflation has had a
+material effect on our sales or profitability. While we have been able to offset our foreign product cost increases by increasing prices or changing suppliers in the past, we cannot assure you that we will be able to continue to make such increases
+or changes in the future. 
+41 
+Table of Contents 
+EXCHANGE RATES 
+We receive U.S. dollars for substantially all of our domestic and a portion of our international product sales as well as our royalty income. Inventory purchases from offshore contract manufacturers are
+primarily denominated in U.S. dollars; however, purchase prices for our products may be impacted by fluctuations in the exchange rate between the U.S. dollar and the local currencies of the contract manufacturers, which may have the effect of
+increasing our cost of goods in the future. During 2011 and 2010, exchange rate fluctuations did not have a material impact on our inventory costs. We do not engage in hedging activities with respect to such exchange rate risk. 
+RECENT ACCOUNTING PROUNCEMENTS 
+In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive
+Income , (“ASU 2011-05”). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in equity. ASU 2011-05 requires that all non-owner changes in stockholders’ equity be
+presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This new guidance is to be applied retrospectively. ASU 2011-05 is effective for fiscal years and interim periods within those
+years, beginning after December 15, 2011. The adoption of this ASU only impacts the presentation of our consolidated financial statements and does not materially impact its consolidated financial statements. 
+In September 2011, the FASB issued Accounting Standard Update No. 2011-08, Testing Goodwill for Impairment 
+(“ASU 2011-08”), which changes the way a company completes its annual impairment review process. The provisions of this pronouncement provides an entity with the option to first assess qualitative factors to determine whether the existence
+of events or circumstances leads to a determination that is more likely than not that the fair value of a reporting unit is less than its carrying amount. ASU-2011-08 allows an entity the option to bypass the qualitative-assessment for any reporting
+unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. The pronouncement does not change the current guidance for testing other indefinite-lived intangible assets for impairment. This standard
+is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. We early adopted ASU 2011-08 during the year ended December 31, 2011. The adoption of
+this ASU did not have a material impact on our consolidated financial statements. 
+In May 2011, the FASB
+issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU expands existing disclosure requirements for fair value
+measurements and provides additional information on how to measure fair value. The Company is required to apply this ASU prospectively for interim and annual periods beginning after December 15, 2011. The adoption of this guidance will not have
+a significant impact on our consolidated financial statements. 
+ITEM 7A. 
+QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+Market risk is the potential loss arising from the adverse changes in market rates and prices, such as interest rates,
+marketable debt security prices and foreign currency exchange rates. Changes in interest rates, marketable debt security prices and changes in foreign currency exchange rates have and will have an impact on our results of operations. We do not hold
+any derivative securities that require fair value presentation under ASC 815-10. 
+Interest rate
+fluctuations. Interest rate charged on our line of credit facility is based on either the prime rate of interest or the LIBOR, and changes in the either of these rates of interest could have an effect on the interest charged on our
+outstanding balances. At December 31, 2011 we had $50.4 million of outstanding short-term borrowings subject to changes in interest rates; however, we do not expect that any changes will have a material impact on our financial condition or
+results of operations. 
+Foreign exchange rate fluctuations . We face market risk to the extent
+that changes in foreign currency exchange rates affect our non-U.S. dollar functional currency foreign subsidiary’s revenues, expenses, assets and liabilities. In addition, changes in foreign exchange rates may affect the value of our inventory
+commitments. Also, inventory purchases of our products may be impacted by fluctuations in the exchange rates between the U.S. dollar and the local currencies of the contract manufacturers, which could have the effect of increasing the cost of goods
+sold in the future. We manage these risks by primarily denominating these purchases and commitments in U.S. dollars. We do not currently engage in hedging activities with respect to such exchange rate risks. A 200 basis point reduction in the
+exchange rates used to calculate foreign currency translations at December 31, 2011 would have reduced the values of our net investments by approximately $6.5 million. 
+42 
+Table of Contents 
+ITEM 8. 
+FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE 
+Page 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+44 
+CONSOLIDATED BALANCE SHEETS 
+45 
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+46 
+CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS) 
+47 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+48 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+49 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+69 
+43 
+Table of Contents 
+Report of Independent Registered Public Accounting Firm
+The Board of Directors and Stockholders 
+Skechers U.S.A., Inc.: 
+We have audited the accompanying consolidated balance
+sheets of Skechers U.S.A., Inc. and subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, equity and comprehensive income (loss), and cash flows for each of the years in the
+three-year period ended December 31, 2011. In connection with our audits of the consolidated financial statements, we also have audited the related financial statement schedule. These consolidated financial statements and financial statement
+schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. 
+We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
+standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
+disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
+provide a reasonable basis for our opinion. 
+In our opinion, the consolidated financial statements referred to above present
+fairly, in all material respects, the financial position of Skechers U.S.A., Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended
+December 31, 2011, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a
+whole, presents fairly, in all material respects, the information set forth therein. 
+We also have audited, in accordance with
+the standards of the Public Company Accounting Oversight Board (United States), the internal control over financial reporting of Skechers U.S.A., Inc. and subsidiaries as of December 31, 2011, based on criteria established in Internal
+Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 29, 2012, expressed an unqualified opinion on the effectiveness of the Company’s
+internal control over financial reporting . 
+/s/ KPMG LLP 
+Los Angeles, California 
+February 29, 2012 
+44 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED BALANCE SHEETS 
+(In thousands) 
+December 31, 
+2011 
+December 
+31, 
+2010 
+ASSETS 
+Current Assets: 
+Cash and cash equivalents 
+$ 
+351,144 
+$ 
+233,558 
+Trade accounts receivable, less allowances of $20,423 in 2011 and $19,697 in 2010 
+176,018 
+266,057 
+Other receivables 
+6,636 
+9,650 
+Total receivables 
+182,654 
+275,707 
+Inventories 
+226,407 
+398,588 
+Prepaid expenses and other current assets 
+88,005 
+53,791 
+Deferred tax assets 
+39,141 
+11,720 
+Total current assets 
+887,351 
+973,364 
+Property, plant and equipment, at cost, less accumulated depreciation and amortization 
+376,446 
+293,802 
+Goodwill and other intangible assets, less accumulated amortization 
+4,148 
+7,367 
+Deferred tax assets 
+530 
+12,323 
+Other assets, at cost 
+13,413 
+17,938 
+TOTAL ASSETS 
+$ 
+1,281,888 
+$ 
+1,304,794 
+LIABILITIES AND EQUITY 
+Current Liabilities: 
+Current installments of long-term borrowings 
+$ 
+10,059 
+$ 
+11,984 
+Short-term borrowings 
+50,413 
+18,346 
+Accounts payable 
+231,000 
+246,595 
+Accrued expenses 
+16,994 
+30,385 
+Total current liabilities 
+308,466 
+307,310 
+Long-term borrowings, excluding current installments 
+76,531 
+51,650 
+Deferred tax liabilities 
+4,364 
+0 
+Total liabilities 
+389,361 
+358,960 
+Commitments and contingencies 
+Stockholders’ equity: 
+Preferred Stock, $.001 par value; 10,000 authorized; none issued and outstanding 
+0 
+0 
+Class A Common Stock, $.001 par value; 100,000 shares authorized; 37,959 and 36,894 shares issued and outstanding at
+December 31, 2011 and 2010, respectively 
+38 
+37 
+Class B Common Stock, $.001 par value; 60,000 shares authorized; 11,297 and 11,311 shares issued and outstanding at
+December 31, 2011 and 2010, respectively 
+11 
+11 
+Additional paid-in capital 
+320,877 
+303,877 
+Accumulated other comprehensive income (loss) 
+(894 
+) 
+4,265 
+Retained earnings 
+532,529 
+600,013 
+Skechers U.S.A., Inc. equity 
+852,561 
+908,203 
+Noncontrolling interests 
+39,966 
+37,631 
+Total equity 
+892,527 
+945,834 
+TOTAL LIABILITIES AND EQUITY 
+$ 
+1,281,888 
+$ 
+1,304,794 
+See accompanying notes to consolidated financial statements. 
+45 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+(In thousands, except per share data) 
+Years ended December 31, 
+2011 
+2010 
+2009 
+Net sales 
+$ 
+1,606,016 
+$ 
+2,006,868 
+$ 
+1,436,440 
+Cost of sales 
+982,268 
+1,094,962 
+815,430 
+Gross profit 
+623,748 
+911,906 
+621,010 
+Royalty income, net 
+7,558 
+4,568 
+1,655 
+631,306 
+916,474 
+622,665 
+Operating expenses: 
+Selling 
+152,000 
+186,738 
+128,989 
+General and administrative 
+569,164 
+532,996 
+421,094 
+Legal settlements 
+43,935 
+1,172 
+2,327 
+765,099 
+720,906 
+552,410 
+Earnings (loss) from operations 
+(133,793 
+) 
+195,568 
+70,255 
+Other income (expense): 
+Interest income 
+1,851 
+2,802 
+2,070 
+Interest expense 
+(7,853 
+) 
+(3,022 
+) 
+(3,045 
+) 
+Gain on disposal of assets 
+9,632 
+44 
+20 
+Gain (loss) on foreign currency transactions 
+(884 
+) 
+1,211 
+1,810 
+2,746 
+1,035 
+855 
+Earnings (loss) before income taxes (benefit) 
+(131,047 
+) 
+196,603 
+71,110 
+Income tax expense (benefit) 
+(63,467 
+) 
+60,198 
+20,228 
+Net earnings (loss) 
+(67,580 
+) 
+136,405 
+50,882 
+Less: Net earnings (loss) attributable to noncontrolling interests 
+(96 
+) 
+257 
+(3,817 
+) 
+Net earnings (loss) attributable to Skechers U.S.A., Inc. 
+$ 
+(67,484 
+) 
+$ 
+136,148 
+$ 
+54,699 
+Net earnings (loss) per share attributable to Skechers U.S.A., Inc.: 
+Basic 
+$ 
+(1.39 
+) 
+$ 
+2.87 
+$ 
+1.18 
+Diluted 
+$ 
+(1.39 
+) 
+$ 
+2.78 
+$ 
+1.16 
+Weighted average shares used in calculating earnings (loss) per share attributable to Skechers U.S.A., Inc.: 
+Basic 
+48,491 
+47,433 
+46,341 
+Diluted 
+48,491 
+49,050 
+47,105 
+See accompanying notes to consolidated financial statements. 
+46 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS) 
+(In thousands) 
+SHARES 
+AMOUNT 
+ACCUMULATED 
+OTHER 
+COMPREHENSIVE 
+INCOME
+(LOSS) 
+RETAINED 
+EARNINGS 
+CLASS A 
+COMMON 
+STOCK 
+CLASS B 
+COMMON 
+STOCK 
+CLASS A 
+COMMON 
+STOCK 
+CLASS B 
+COMMON 
+STOCK 
+ADDITIONAL 
+PAID-IN 
+CAPITAL 
+SKECHERS 
+U.S.A., INC. 
+EQUITY 
+NON 
+CONTROLLING 
+INTERESTS 
+TOTAL 
+STOCKHOLDERS’ 
+EQUITY 
+Balance at December 31, 2008 
+33,410 
+12,782 
+$ 
+33 
+$ 
+13 
+$ 
+264,200 
+$ 
+(4,719) 
+$ 
+409,166 
+$ 
+668,693 
+$ 
+3,199 
+$ 
+671,892 
+Comprehensive income: 
+Net earnings 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+54,699 
+54,699 
+(3,817) 
+50,882 
+Net unrealized gain (loss) on investments 
+-- 
+-- 
+-- 
+-- 
+-- 
+8,151 
+-- 
+8,151 
+-- 
+8,151 
+Foreign currency translation adjustment 
+-- 
+-- 
+-- 
+-- 
+-- 
+5,916 
+-- 
+5,916 
+66 
+5,982 
+Total comprehensive income 
+68,766 
+(3,751) 
+65,015 
+Capital contribution 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+4,000 
+4,000 
+Stock compensation expense 
+-- 
+-- 
+-- 
+-- 
+5,736 
+-- 
+-- 
+5,736 
+-- 
+5,736 
+Proceeds from issuance of common stock under the employee stock purchase plan 
+190 
+-- 
+-- 
+-- 
+1,590 
+-- 
+-- 
+1,590 
+-- 
+1,590 
+Proceeds from issuance of common stock under the employee stock option plan 
+207 
+-- 
+-- 
+-- 
+1,217 
+-- 
+-- 
+1,217 
+-- 
+1,217 
+Tax benefit of stock options exercised 
+-- 
+-- 
+-- 
+-- 
+(81) 
+-- 
+-- 
+(81) 
+-- 
+(81) 
+Conversion of Class B Common Stock into Class A Common Stock 
+422 
+(422) 
+1 
+-- 
+-- 
+-- 
+-- 
+1 
+-- 
+1 
+Balance at December 31, 2009 
+34,229 
+12,360 
+$ 
+34 
+$ 
+13 
+$ 
+272,662 
+$ 
+9,348 
+$ 
+463,865 
+$ 
+745,922 
+$ 
+3,448 
+$ 
+749,370 
+Comprehensive income: 
+Net earnings 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+136,148 
+136,148 
+257 
+136,405 
+Foreign currency translation adjustment 
+-- 
+-- 
+-- 
+-- 
+-- 
+(5,083) 
+-- 
+(5,083) 
+426 
+(4,657) 
+Total comprehensive income 
+131,065 
+683 
+131,748 
+Capital contribution 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+33,500 
+33,500 
+Stock compensation expense 
+-- 
+-- 
+-- 
+-- 
+13,739 
+-- 
+-- 
+13,739 
+-- 
+13,739 
+Proceeds from issuance of common stock under the employee stock purchase plan 
+103 
+-- 
+-- 
+-- 
+2,143 
+-- 
+-- 
+2,143 
+-- 
+2,143 
+Proceeds from issuance of common stock under the employee stock option plan 
+1,513 
+-- 
+2 
+-- 
+11,895 
+-- 
+-- 
+11,897 
+-- 
+11,897 
+Tax benefit of stock options exercised 
+-- 
+-- 
+-- 
+-- 
+9,042 
+-- 
+-- 
+9,042 
+-- 
+9,042 
+Shares redeemed for employee tax withholdings 
+-- 
+-- 
+-- 
+-- 
+(5,604) 
+-- 
+-- 
+(5,604) 
+-- 
+(5,604) 
+Conversion of Class B Common Stock into Class A Common Stock 
+1,049 
+(1,049) 
+1 
+(2) 
+-- 
+-- 
+-- 
+(1) 
+-- 
+(1) 
+Balance at December 31, 2010 
+36,894 
+11,311 
+$ 
+37 
+$ 
+11 
+$ 
+303,877 
+$ 
+4,265 
+$ 
+600,013 
+$ 
+908,203 
+$ 
+37,631 
+$ 
+945,834 
+Comprehensive income (loss): 
+Net loss 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+(67,484) 
+(67,484) 
+(96) 
+(67,580) 
+Foreign currency translation adjustment 
+-- 
+-- 
+-- 
+-- 
+-- 
+(5,159) 
+-- 
+(5,159) 
+316 
+(4,843) 
+Total comprehensive income (loss) 
+(72,643) 
+220 
+(72,423) 
+Capital contribution 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+2,115 
+2,115 
+Stock compensation expense 
+-- 
+-- 
+-- 
+-- 
+14,320 
+-- 
+-- 
+14,320 
+-- 
+14,320 
+Proceeds from issuance of common stock under the employee stock purchase plan 
+178 
+-- 
+-- 
+-- 
+2,023 
+-- 
+-- 
+2,023 
+-- 
+2,023 
+Proceeds from issuance of common stock under the employee stock option plan 
+873 
+-- 
+1 
+-- 
+1,297 
+-- 
+-- 
+1,298 
+-- 
+1,298 
+Tax benefit of stock options exercised 
+-- 
+-- 
+-- 
+-- 
+(640) 
+-- 
+-- 
+(640) 
+-- 
+(640) 
+Conversion of Class B Common Stock into Class A Common Stock 
+14 
+(14) 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+-- 
+Balance at December 31, 2011 
+37,959 
+11,297 
+$ 
+38 
+$ 
+11 
+$ 
+320,877 
+$ 
+(894) 
+$ 
+532,529 
+$ 
+852,561 
+$ 
+39,966 
+$ 
+892,527 
+See accompanying notes to consolidated financial statements 
+47 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+(In thousands) 
+Years ended December 31, 
+2011 
+2010 
+2009 
+Cash flows from operating activities: 
+Net earnings (loss) 
+$ 
+(67,484 
+) 
+$ 
+136,148 
+$ 
+54,699 
+Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: 
+Noncontrolling interests in subsidiaries 
+(96 
+) 
+258 
+(3,817 
+) 
+Depreciation of property, plant and equipment 
+33,652 
+24,707 
+19,694 
+Amortization of deferred financing costs 
+1,128 
+1,482 
+741 
+Amortization of intangible assets 
+1,580 
+1,683 
+935 
+Provision for bad debts and returns 
+5,882 
+6,212 
+3,249 
+Tax benefits from stock-based compensation 
+(640 
+) 
+0 
+(81 
+) 
+Non-cash stock compensation 
+14,320 
+13,739 
+5,736 
+Deferred income taxes 
+(7,863 
+) 
+(5,170 
+) 
+1,954 
+Inventory write-down 
+9,971 
+0 
+0 
+(Gain) loss on disposal of equipment 
+(9,632 
+) 
+36 
+(18 
+) 
+Impairment of property, plant and equipment 
+1,481 
+0 
+761 
+Impairment of intangible assets 
+1,649 
+0 
+0 
+(Increase) decrease in assets: 
+Receivables 
+86,114 
+(50,040 
+) 
+(46,562 
+) 
+Inventories 
+160,241 
+(172,417 
+) 
+39,362 
+Prepaid expenses and other current assets 
+(38,247 
+) 
+(21,402 
+) 
+2,812 
+Other assets 
+3,291 
+(7,571 
+) 
+(1,023 
+) 
+Increase (decrease) in liabilities: 
+Accounts payable 
+(18,074 
+) 
+32,828 
+28,136 
+Accrued expenses 
+(12,354 
+) 
+(7,872 
+) 
+8,531 
+Net cash provided by (used in) operating activities 
+164,919 
+(47,379 
+) 
+115,109 
+Cash flows from investing activities: 
+Capital expenditures 
+(122,238 
+) 
+(82,269 
+) 
+(35,341 
+) 
+Purchases of investments 
+0 
+0 
+(30,000 
+) 
+Maturities of investments 
+0 
+30,000 
+375 
+Redemption of auction rate securities 
+0 
+0 
+95,250 
+Proceeds from the sale of property, plant and equipment 
+17,100 
+0 
+0 
+Intangible additions 
+(10 
+) 
+(41 
+) 
+(4,500 
+) 
+Net cash (used in) provided by investing activities 
+(105,148 
+) 
+(52,310 
+) 
+25,784 
+Cash flows from financing activities: 
+Net proceeds from the issuances of stock through employee stock purchase plan and the exercise of stock options 
+3,321 
+14,040 
+2,807 
+Shares redeemed for employee tax withholdings 
+0 
+(5,604 
+) 
+0 
+Contribution from noncontrolling interest of consolidated entity 
+2,115 
+3,500 
+4,000 
+Excess tax benefits from stock-based compensation 
+0 
+9,042 
+0 
+Increase in short-term borrowings 
+31,958 
+16,271 
+2,006 
+Proceeds from long-term debt 
+37,326 
+39,293 
+0 
+Payments on long-term debt 
+(14,287 
+) 
+(9,121 
+) 
+(413 
+) 
+Net cash provided by financing activities 
+60,433 
+67,421 
+8,400 
+Net increase (decrease) in cash and cash equivalents 
+120,204 
+(32,268 
+) 
+149,293 
+Effect of exchange rates on cash and cash equivalents 
+(2,618 
+) 
+151 
+1,441 
+Cash and cash equivalents at beginning of year 
+233,558 
+265,675 
+114,941 
+Cash and cash equivalents at end of year 
+$ 
+351,144 
+$ 
+233,558 
+$ 
+265,675 
+Supplemental disclosures of cash flow information: 
+Cash paid during the year for: 
+Interest 
+$ 
+7,692 
+$ 
+3,438 
+$ 
+4,445 
+Income taxes 
+15,772 
+87,063 
+17,492 
+Non-cash transactions: 
+Land contribution from noncontrolling interest 
+0 
+30,000 
+0 
+Note payable contribution from noncontrolling interest 
+0 
+17,358 
+0 
+Acquisition of Chilean distributor 
+0 
+0 
+4,382 
+See accompanying notes to consolidated financial statements. 
+48 
+Table of Contents 
+SKECHERS U.S.A., INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+DECEMBER 31, 2011, 2010 and 2009 
+(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
+(a) 
+The Company and Basis of Presentation 
+Skechers U.S.A., Inc. (the “Company”) designs, develops, markets and distributes footwear. The Company also operates 329 retail stores and an e-commerce business as of December 31, 2011.
+The consolidated financial statements have been prepared in accordance with accounting principles generally
+accepted in the United States and include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 
+(b) 
+Use of Estimates 
+Management has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these
+consolidated financial statements in conformity with accounting principles generally accepted in the United States. Significant areas requiring the use of management estimates relate primarily to revenue recognition, allowance for bad debts,
+returns, sales allowances and customer chargebacks, inventory write-downs, valuation of long-lived assets, litigation reserves and valuation of deferred income taxes. Actual results could differ from those estimates. 
+(c) 
+Noncontrolling interests 
+The Company has interests in certain joint ventures which are consolidated into its financial statements. Noncontrolling interest income (loss) was ($0.1) million, $0.3 million and ($3.8) million for the
+years ended December 31, 2011, 2010 and 2009, respectively, which represents the share of net earnings or loss that is attributable to our joint venture partners. Our joint venture partners made a cash capital contribution of $2.1 million
+during the year ended December 31, 2011. 
+The Company has determined that its joint venture with HF
+Logistics I, LLC (“HF”) is a variable interest entity (“VIE”) and that the Company is the primary beneficiary. The VIE is consolidated into the consolidated financial statements and the carrying amounts and classification of
+assets and liabilities were as follows (in thousands): 
+December 31, 2011 
+December 31, 2010 
+Current assets 
+$ 
+11,287 
+$ 
+6,058 
+Noncurrent assets 
+132,925 
+107,723 
+Total assets 
+$ 
+144,212 
+$ 
+113,781 
+Current
+liabilities 
+$ 
+65,608 
+$ 
+36,364 
+Noncurrent liabilities 
+18,297 
+17,359 
+Total liabilities 
+$ 
+83,905 
+$ 
+53,723 
+The assets of the joint ventures are restricted in that they are not available for our general business
+use outside the context of the joint venture. The holders of the liabilities of each joint venture have no recourse to Skechers U.S.A., Inc. The Company does not have a significant variable interest in any unconsolidated VIE’s. 
+(d) 
+Business Segment Information 
+Skechers’ operations and segments are organized along its distribution channels and consist of the following: domestic wholesale, international wholesale, retail and e-commerce sales. Information
+regarding these segments is summarized in Note 12 to the Consolidated Financial Statements. 
+(e) 
+Revenue Recognition 
+The Company recognizes revenue on wholesale sales when products are shipped and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is reasonably assured,
+persuasive evidence of an arrangement exists and the sales price is fixed or determinable. This generally occurs at the time of shipment. Wholesale and e-commerce sales are recognized on a net sales basis, which reflects allowances for estimated
+returns, sales allowances, discounts, chargebacks and amounts billed for 
+49 
+Table of Contents 
+shipping and handling costs. Shipping and handling costs paid by the Company are included in cost of sales. The Company recognizes revenue from retail sales at the point of sale. The Company
+currently presents sales tax collected from customers on a net basis. 
+Net royalty income is earned from our
+licensing arrangements. Upon signing a new licensing agreement, we receive up-front fees, which are generally characterized as prepaid royalties. These fees are initially deferred and recognized as revenue when earned based on the terms of the
+contract as licensed sales are reported to the company or on a straight-line basis over the term of the agreement. The first calculated royalty payment is based on actual sales of the licensed product. Typically, at each quarter-end we receive
+correspondence from our licensees indicating actual sales for the period. This information is used to calculate and accrue the related royalties based on the terms of the agreement. 
+(f) 
+Allowance for Bad Debts, Returns, Sales Allowances and Customer Chargebacks 
+The Company provides a reserve against its receivables for estimated losses that may result from its customers’
+inability to pay. To minimize the likelihood of uncollectibility, customers’ credit-worthiness is reviewed periodically based on external credit reporting services, financial statements issued by the customer and the Company’s experience
+with the account, and it is adjusted accordingly. When a customer’s account becomes significantly past due, the Company generally places a hold on the account and discontinues further shipments to that customer, minimizing further risk of loss.
+The Company determines the amount of the reserve by analyzing known uncollectible accounts, aged receivables, economic conditions in the customers’ countries or industries, historical losses and its customers’ credit-worthiness. Amounts
+later determined and specifically identified to be uncollectible are charged or written off against this reserve. 
+The Company also reserves for potential disputed amounts or chargebacks from its customers. The Company’s chargeback reserve is based on a collectibility percentage based on factors such as
+historical trends, current economic conditions, and nature of the chargeback receivables. The Company also reserves for potential sales returns and allowances based on historical trends. 
+The likelihood of a material loss on an uncollectible account would be mainly dependent on deterioration in the overall
+economic conditions in a particular country or environment. Reserves are fully provided for all probable losses of this nature. For receivables that are not specifically identified as high risk, the Company provides a reserve based upon our
+historical loss rate as a percentage of sales. 
+(g) 
+Cash and Cash Equivalents 
+Cash and cash equivalents consist primarily of certificates of deposit with an initial term of less than three months. For purposes of the consolidated statements of cash flows, the Company considers all
+highly liquid debt instruments with original maturities of three months or less to be cash equivalents. 
+(h) 
+Foreign Currency Translation 
+In accordance with ASC 830-30, certain international operations use the respective local currencies as their functional currency, while other international operations use the U.S. Dollar as their
+functional currency. The Company considers the U.S. dollar as its functional currency. The Company operates internationally through several foreign subsidiaries. Translation adjustments for these subsidiaries are included in other comprehensive
+income (loss). Additionally, one international subsidiary, Skechers S.a.r.l. located in Switzerland, operates with a functional currency of the U.S. dollar. Resulting re-measurement gains and losses from this subsidiary are included in the
+determination of net earnings (loss). Assets and liabilities of the foreign operations denominated in local currencies are translated at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the weighted average
+rate of exchange during the period. Translations of intercompany loans of a long-term investment nature are included as a component of translation adjustment in other comprehensive income (loss). 
+(i) 
+Inventories 
+Inventories, principally finished goods, are stated at the lower of cost (based on the first-in, first-out method) or market (net realizable value). Cost includes shipping and handling fees and costs,
+which are subsequently expensed to cost of sales. The Company provides for estimated losses from obsolete or slow-moving inventories and writes down the cost of inventory at the time such determinations are made. Reserves are estimated based upon
+inventory on hand, historical sales activity, industry trends, the retail environment, and the expected net realizable value. The net realizable value is determined based upon estimated sales prices of such inventory through off-price or discount
+store channels. The Company recorded $10.0 million in inventory reserves for our toning products during the year ended December 31, 2011. 
+50 
+Table of Contents 
+(j) 
+Income Taxes 
+The Company accounts for income taxes in accordance with ASC 740-10, which requires that the Company recognize deferred tax liabilities for taxable temporary differences and deferred tax assets for
+deductible temporary differences and operating loss carry-forwards using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit or expense is recognized as a result of changes in net deferred
+tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all of any deferred tax assets will not be realized. 
+(k) 
+Depreciation and Amortization 
+Depreciation and amortization of property, plant and equipment is computed using the straight-line method based on the following estimated useful lives: 
+Buildings 
+20 years 
+Building improvements 
+10 years 
+Furniture, fixtures and equipment 
+5 to 20 years 
+Leasehold improvements 
+Useful life or remaining lease term, whichever is shorter 
+(l) 
+Goodwill and Intangible assets 
+Goodwill and intangible assets are measured for impairment at least annually and more often when events indicate that impairment exists. Intellectual property, which include purchased intellectual
+property, artwork and design, trade name and trademark are amortized over their useful lives ranging from 1–10 years, generally on a straight-line basis. Intangible assets, which were primarily allocated to the domestic wholesale segment, as of
+December 31, 2011 and 2010 are as follows (in thousands): 
+2011 
+2010 
+Intellectual property 
+$ 
+7,840 
+$ 
+11,331 
+Goodwill 
+1,575 
+1,575 
+Other intangibles 
+0 
+840 
+Less accumulated amortization 
+(5,267 
+) 
+(6,379 
+) 
+Total Intangible Assets 
+$ 
+4,148 
+$ 
+7,367 
+We recorded amortization expense of $2.7 million, $3.2 million and $1.7 million for the years ended
+December 31, 2011, 2010 and 2009, respectively, in general and administrative expenses. The Company recorded $1.6 million in impairment charges on certain acquired intangibles during the year ended December 31, 2011. The Company did not
+record impairment charges during the years ended December 31, 2010 or December 31, 2009. We early adopted ASU 2011-08 during the year ended December 31, 2011. The adoption of this ASU did not have a material impact on the
+Company’s consolidated financial statements. 
+(m) 
+Long-Lived Assets 
+Long-lived assets such as property, plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
+amount of an asset may not be recoverable. We prepare a summary of store cash flows from our retail stores to assess potential impairment of the fixed assets and leasehold improvements. Stores with negative cash flows opened in excess of twenty-four
+months are then reviewed in detail to determine if impairment exists. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be
+generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Management reviews
+both quantitative and qualitative factors to assess if a triggering event occurred. The Company recorded $1.5 million in impairment charges during the year ended December 31, 2011. The Company did not record impairment charges during the year
+ended December 31, 2010. The Company recorded impairment charges during the year ended December 31, 2009 of $0.8 million. 
+51 
+Table of Contents 
+(n) 
+Advertising Costs 
+Advertising costs are expensed in the period in which the advertisements are first run or over the life of the endorsement contract. Advertising expense for the years ended December 31, 2011, 2010
+and 2009 was approximately $119.3 million, $154.6 million and $98.3 million, respectively. Prepaid advertising costs were $4.7 million and $11.5 million at December 31, 2011 and 2010, respectively. Prepaid amounts outstanding at
+December 31, 2011 and 2010, represent the unamortized portion of endorsement contracts, advertising in trade publications and media productions created which had not run as of December 31, 2011 and 2010, respectively. 
+(o) 
+Net Earnings (loss) Per Share Attributable to Skechers U.S.A., Inc. 
+Basic earnings (loss) per share represents net earnings (loss) divided by the weighted average number of common shares
+outstanding for the period. Diluted earnings (loss) per share, in addition to the weighted average determined for basic earnings (loss) per share, includes potential common shares which would arise from the exercise of stock options using the
+treasury stock method. 
+The following is a reconciliation of net earnings (loss) and weighted average common
+shares outstanding for purposes of calculating earnings (loss) per share (in thousands): 
+Years Ended December 31, 
+Basic earnings (loss) per share 
+2011 
+2010 
+2009 
+Net earnings (loss) 
+$ 
+(67,484) 
+$ 
+136,148 
+$ 
+54,699 
+Weighted average common shares outstanding 
+48,491 
+47,433 
+46,341 
+Basic earnings (loss) per share 
+$ 
+(1.39) 
+$ 
+2.87 
+$ 
+1.18 
+Years Ended December 31, 
+Diluted earnings (loss) per share 
+2011 
+2010 
+2009 
+Net earnings (loss) 
+$ 
+(67,484) 
+$ 
+136,148 
+$ 
+54,699 
+Weighted average common shares outstanding 
+48,491 
+47,433 
+46,341 
+Dilutive stock options 
+0 
+1,617 
+764 
+Weighted average common shares outstanding 
+48,491 
+49,050 
+47,105 
+Diluted earnings (loss) per share 
+$ 
+(1.39) 
+$ 
+2.78 
+$ 
+1.16 
+There were no options excluded from the computation of diluted earnings (loss) per share for the year
+ended December 31, 2011 or 2010. Options to purchase 362,653 shares of Class A common stock were excluded from the computation of diluted earnings per share for the year ended December 31, 2009, because their inclusion would have been
+anti-dilutive. 
+(p) 
+Product Design and Development Costs 
+The Company charges all product design and development costs to expense when incurred. Product design and development costs aggregated approximately $15.9 million, $12.6 million and $9.3 million during
+the years ended December 31, 2011, 2010 and 2009, respectively. 
+(q) 
+Fair Value of Financial Instruments 
+The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, investments, accounts receivable, accounts payable and accrued expenses, approximates
+fair value due to the relatively short maturity of such instruments. 
+The carrying amount of the
+Company’s long-term borrowings approximates the fair value based upon current rates and terms available to the Company for similar debt. 
+52 
+Table of Contents 
+(r) Comprehensive Income 
+Comprehensive income consists of net earnings, foreign currency translation adjustments, and net unrealized gain (loss)
+on investments. Comprehensive income is presented in the consolidated statements of equity and comprehensive income (loss). Components of accumulated other comprehensive income (loss) consist of foreign currency translation adjustments and net
+unrealized gain (loss) on investments. 
+(s) New Accounting Pronouncements
+In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
+No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income , (“ASU 2011-05”). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in
+equity. ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This new guidance is to be applied
+retrospectively. ASU 2011-05 is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The adoption of this ASU only impacts the presentation of the Company’s consolidated financial statements
+and does not materially impact its consolidated financial statements. 
+In September 2011, the FASB issued
+Accounting Standard Update No. 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”), which changes the way a company completes its annual impairment review process. The provisions of this pronouncement provides an entity
+with the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that is more likely than not that the fair value of a reporting unit is less than its carrying amount.
+ASU-2011-08 allows an entity the option to bypass the qualitative-assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. The pronouncement does not change the
+current guidance for testing other indefinite-lived intangible assets for impairment. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is
+permitted. We early adopted ASU 2011-08 during the year ended December 31, 2011. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements. 
+In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve
+Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU expands existing disclosure requirements for fair value measurements and provides additional information on how to measure fair value. The Company is
+required to apply this ASU prospectively for interim and annual periods beginning after December 15, 2011. The adoption of this guidance will not have a significant impact on the Company’s consolidated financial statements. 
+(2) PROPERTY, PLANT AND EQUIPMENT 
+Property, plant and equipment at December 31, 2011 and 2010 is summarized as follows (in
+thousands): 
+2011 
+2010 
+Land 
+$ 
+59,113 
+$ 
+62,589 
+Buildings and improvements 
+172,959 
+187,649 
+Furniture, fixtures and equipment 
+177,443 
+107,371 
+Leasehold improvements 
+139,051 
+123,500 
+Total property, plant and equipment 
+548,566 
+481,109 
+Less accumulated depreciation and amortization 
+172,120 
+187,307 
+Property, plant and equipment, net 
+$ 
+376,446 
+$ 
+293,802 
+The Company capitalized $4.2 million, $2.1 million and $2.2 million of interest expense during 2011,
+2010 and 2009, respectively, relating to the construction of our corporate headquarters and equipment for our new distribution facility. 
+53 
+Table of Contents 
+(3) ACCRUED EXPENSES 
+Accrued expenses at December 31, 2011 and 2010 are summarized as follows (in thousands):
+2011 
+2010 
+Accrued inventory purchases 
+$ 
+1,518 
+$ 
+12,164 
+Accrued payroll and related taxes 
+15,399 
+18,201 
+Accrued interest 
+77 
+20 
+Accrued expenses 
+$ 
+16,994 
+$ 
+30,385 
+(4) LINE OF CREDIT AND SHORT-TERM BORROWINGS 
+On June 30, 2009, we entered into a $250.0 million secured credit agreement, (the “Credit
+Agreement”) with a syndicate of seven banks that replaced the previous $150 million credit agreement. On November 5, 2009, March 4, 2010 and May 3, 2011, we entered into three successive amendments to the Credit Agreement
+(collectively, the “Amended Credit Agreement”). The Amended Credit Agreement matures in June 2015. The Amended Credit Agreement permits us and certain of our subsidiaries to borrow up to $250.0 million based upon a borrowing base of
+eligible accounts receivable and inventory, which amount can be increased to $300.0 million at our request and upon satisfaction of certain conditions including obtaining the commitment of existing or prospective lenders willing to provide the
+incremental amount. Borrowings bear interest at our election based on LIBOR or a Base Rate (defined as the greatest of the base LIBOR plus 1.00%, the Federal Funds Rate plus 0.5% or one of the lenders’ prime rate), in each case, plus an
+applicable margin based on the average daily principal balance of revolving loans under the credit agreement (1.00%, 1.25% or 1.50% for Base Rate loans and 2.00%, 2.25% or 2.50% for LIBOR loans). We pay a monthly unused line of credit fee of 0.375%
+or 0.5% per annum, which varies based on the average daily principal balance of outstanding revolving loans and undrawn amounts of letters of credit outstanding during such month. The Amended Credit Agreement further provides for a limit on the
+issuance of letters of credit to a maximum of $50.0 million. The Amended Credit Agreement contains customary affirmative and negative covenants for secured credit facilities of this type, including a fixed charge coverage ratio that applies when
+excess availability is less than $40.0 million. In addition, the Amended Credit Agreement places limits on additional indebtedness that we are permitted to incur as well as other restrictions on certain transactions. We paid syndication and
+commitment fees of $6.7 million on this facility, which are being amortized over the life of the facility. 
+On
+April 30, 2010, we entered into a construction loan agreement (the “Loan Agreement”), by and between HF Logistics-SKX, LLC and Bank of America, N.A. as administrative agent and as lender (“Bank of America” or the
+“Administrative Agent”) and Raymond James Bank, FSB. The proceeds from the Loan Agreement have been used to construct our domestic distribution facility in Rancho Belago, California. Borrowings made pursuant to the Loan Agreement may be
+made up to a maximum limit of $55.0 million and the loan matures on April 30, 2012, which may be extended for six months if certain conditions are met. We expect to be able to meet all of the conditions necessary to extend this agreement for
+six months and refinance the loan before October 30, 2012. Borrowings bear interest based on LIBOR. We had $47.1 million outstanding under this facility, which is included in short-term borrowings on December 31, 2011. We paid commitment
+fees of $737,500 on this loan, which are being amortized over the life of the facility. 
+54 
+Table of Contents 
+(5) LONG-TERM BORROWINGS 
+Long-term debt at December 31, 2011 and 2010 is as follows (in thousands): 
+2011 
+2010 
+Note payable to bank, due in monthly installments of $531.4 (includes principal and interest), fixed rate interest at 3.54%,
+secured by property, balloon payment of $12,635 due December 2015 
+$ 
+34,259 
+$ 
+39,325 
+Note payable to bank, due in monthly installments of $483.9 (includes principal and interest), fixed rate interest at 3.19%,
+secured by property, balloon payment of $11,670 due June 2016 
+34,005 
+0 
+Note payable to bank, due in monthly installments of $57.6 (includes principal and interest), fixed rate interest at 7.89%,
+secured by property, balloon payment of $6,889 paid in January 2011 
+0 
+6,900 
+Loan from HF Logistics I, LLC 
+18,297 
+17,358 
+Capital lease obligations 
+29 
+51 
+Subtotal 
+86,590 
+63,634 
+Less current installments 
+10,059 
+11,984 
+Total long-term debt 
+$ 
+76,531 
+$ 
+51,650 
+The aggregate maturities of long-term borrowings at December 31, 2011 are as follows: 
+2012 
+$ 
+10,059 
+2013 
+19,522 
+2014 
+19,911 
+2015 
+23,212 
+2016 
+13,886 
+$ 
+86,590 
+The Company’s long-term debt obligations contain both financial and non-financial covenants,
+including cross-default provisions. The Company is in compliance with its non-financial covenants, including any cross default provisions, and financial covenants of our long-term debt as of December 31, 2011. 
+On December 29, 2010, we entered into a master loan and security agreement (the “Master Agreement”), by
+and between us and Banc of America Leasing & Capital, LLC, and an Equipment Security Note (together with the Master Agreement, the “Loan Documents”), by and among us, Banc of America Leasing & Capital, LLC, and Bank of
+Utah, as agent (“Agent”). We used the proceeds to refinance certain equipment already purchased and to purchase new equipment for use in our Rancho Belago distribution facility. Borrowings made pursuant to the Master Agreement may be in
+the form of one or more equipment security notes (each a “Note,” and, collectively, the “Notes”) up to a maximum limit of $80.0 million and each for a term of 60 months. The Note entered into on the same date as the Master
+Agreement represents a borrowing of approximately $39.3 million. Interest will accrue at a fixed rate of 3.54% per annum. On June 30, 2011, we entered into another Note agreement for approximately $36.3 million. Interest will accrue at a
+fixed rate of 3.19% per annum. As of December 31, 2011, the total outstanding amount on these notes was $68.3 million. We paid commitment fees of $825,000 on this loan, which are being amortized over the five-year life of the facility.
+(6) STOCK COMPENSATION 
+(a) 
+Equity Incentive Plans 
+In January 1998, the Company’s Board of Directors adopted the Amended and Restated 1998 Stock Option, Deferred Stock and Restricted Stock Plan for the grant of incentive stock options
+(“ISOs”), non-qualified stock options and deferred and restricted stock (the “Equity Incentive Plan”). In June 2001, the stockholders approved an amendment to the plan to increase the number of shares of Class A Common Stock
+authorized for issuance under the plan to 8,215,154. In May 2003, stockholders approved an amendment to the plan to increase the number of shares of Class A Common Stock authorized for issuance under the plan to 11,215,154. Stock option awards
+are generally granted with an exercise price per share equal to the market price of a share of Class A Common Stock on the date of grant. Stock option awards generally become exercisable over a three-year graded vesting period and expire ten
+years from the date of grant. 
+55 
+Table of Contents 
+On April 16, 2007, the Company’s Board of Directors adopted the
+2007 Plan, which became effective upon approval by the Company’s stockholders on May 24, 2007. The Company’s Board of Directors terminated the Equity Incentive Plan as of May 24, 2007, with no granting of awards being permitted
+thereafter, although any awards then outstanding under the Equity Incentive Plan remain in force according to the terms of such terminated plan and the applicable award agreements. A total of 7,500,000 shares of Class A Common Stock are
+reserved for issuance under the 2007 Plan, which provides for grants of ISOs, non-qualified stock options, restricted stock and various other types of equity awards as described in the plan to the employees, consultants and directors of the Company
+and its subsidiaries. The 2007 Plan is administered by the Compensation Committee of the Company’s Board of Directors. 
+(b) 
+Valuation Assumptions 
+There were no stock options granted under the Equity Incentive Plan or the 2007 Plan during 2011, 2010 or 2009. The total intrinsic value of options exercised during 2011, 2010 and 2009 was $1.2 million,
+$20.9 million and $1.3 million, respectively. 
+(c) 
+Stock-Based Payment Awards 
+Stock options granted pursuant to the 1998 Stock Option, Deferred Stock and Restricted Stock Plan and the 2007 Incentive Award Plan (the “Equity Incentive Plans”) were as follows: 
+SHARES 
+WEIGHTED AVERAGE 
+OPTION 
+EXERCISE PRICE 
+Outstanding at December 31, 2008 
+1,739,721 
+$ 11.79 
+Granted 
+0 
+Exercised 
+(125,715 
+) 
+9.68 
+Cancelled 
+(108,312 
+) 
+11.20 
+Outstanding at December 31, 2009 
+1,505,694 
+12.01 
+Granted 
+0 
+Exercised 
+(1,030,516 
+) 
+12.53 
+Cancelled 
+(23,870 
+) 
+4.10 
+Outstanding at December 31, 2010 
+451,308 
+11.26 
+Granted 
+0 
+Exercised 
+(137,197 
+) 
+9.46 
+Cancelled 
+(107,711 
+) 
+20.55 
+Outstanding at December 31, 2011 
+206,400 
+$ 7.62 
+There was no unrecognized compensation cost related to stock option shares as of December 31, 2011
+and 2010, respectively. 
+A summary of the status and changes of our nonvested shares related to our Equity
+Incentive Plans as of and for the period ended December 31, 2011 is presented below: 
+SHARES 
+WEIGHTED 
+AVERAGE 
+GRANT-DATE 
+FAIR 
+VALUE 
+Nonvested at December 31, 2008 
+217,284 
+$ 16.97 
+Granted 
+2,051,500 
+17.90 
+Vested 
+(108,140 
+) 
+16.99 
+Cancelled 
+(2,000 
+) 
+13.13 
+Nonvested at December 31, 2009 
+2,158,644 
+17.86 
+Granted 
+139,000 
+30.38 
+Vested 
+(804,315 
+) 
+17.96 
+Cancelled 
+0 
+0 
+Nonvested at December 31, 2010 
+1,493,329 
+18.97 
+Granted 
+10,000 
+21.00 
+Vested 
+(735,337 
+) 
+18.95 
+Cancelled 
+(27,499 
+) 
+18.74 
+Nonvested at December 31, 2011 
+740,493 
+$ 19.02 
+56 
+Table of Contents 
+As of December 31, 2011, a total of 5,116,881 shares remain available
+for grant as equity awards under the 2007 Plan. 
+There was $11.3 million and $25.1 million of unrecognized
+compensation cost related to nonvested common shares as of December 31, 2011 and 2010, respectively. That cost is expected to be recognized over a weighted average period of 0.9 years and 1.9 years, respectively. The total fair value of shares
+vested during the period ended December 31, 2011 and 2010 was $13.9 million and $14.4 million, respectively. 
+(d) 
+Stock Purchase Plans 
+Effective July 1, 1998, the Company’s Board of Directors adopted the 1998 Employee Stock Purchase Plan (the “1998 ESPP”). The 1998 ESPP provides that a total of 2,781,415 shares of
+Class A Common Stock are reserved for issuance under the plan. The 1998 ESPP, which is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended, was implemented
+utilizing six-month offerings with purchases occurring at six-month intervals. The 1998 ESPP administration was overseen by the Board of Directors. Employees were eligible to participate if they are employed by the Company for at least 20 hours per
+week and more than five months in any calendar year. The 1998 ESPP permitted eligible employees to purchase Class A Common Stock through payroll deductions, which may not exceed 15% of an employee’s compensation. The price of Class A
+Common Stock purchased under the 1998 ESPP was 85% of the lower of the fair market value of the Class A Common Stock at the beginning of each six-month offering period or on the applicable purchase date. 
+On April 16, 2007, the Company’s Board of Directors adopted the 2008 Employee Stock Purchase Plan (the
+“2008 ESPP”), and the Company’s stockholders approved the 2008 ESPP on May 24, 2007. The 2008 ESPP became effective on January 1, 2008, and the Company’s Board of Directors terminated the 1998 ESPP as of such date, with
+no additional granting of rights being permitted under the 1998 ESPP. The 2008 ESPP provides that a total of 3,000,000 shares of Class A Common Stock are reserved for issuance under the plan. This number of shares that may be made available for
+sale is subject to automatic increases on the first day of each fiscal year during the term of the 2008 ESPP as provided in the plan. The 2008 ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the
+Internal Revenue Code of 1986, as amended. The terms of the 2008 ESPP, which are substantially similar to those of the 1998 ESPP, permit eligible employees to purchase Class A Common Stock at six-month intervals through payroll deductions,
+which may not exceed 15% of an employee’s compensation. The price of Class A Common Stock purchased under the 2008 ESPP is 85% of the lower of the fair market value of the Class A Common Stock at the beginning of each six-month
+offering period or on the applicable purchase date. Employees may end their participation in an offering at any time during the offering period. The 2008 ESPP is administered by the Company’s Board of Directors. 
+During 2011, 2010 and 2009; 178,189 shares, 103,430 shares and 189,428 shares were issued under the 2008 ESPP for which
+the Company received approximately $2.0 million, $2.1 million and $1.6 million, respectively. 
+(7) STOCKHOLDERS’ EQUITY 
+The authorized capital stock of the Company consists of 100,000,000 shares of Class A Common
+Stock, par value $.001 per share, 60,000,000 shares of Class B Common Stock, par value $.001 per share, and 10,000,000 shares of preferred stock, $.001 par value per share. 
+The Class A Common Stock and Class B Common Stock have identical rights other than with respect to voting,
+conversion and transfer. The Class A Common Stock is entitled to one vote per share, while the Class B Common Stock is entitled to ten votes per share on all matters submitted to a vote of stockholders. The shares of Class B Common Stock are
+convertible at any time at the option of the holder into shares of Class A Common Stock on a share-for-share basis. In addition, shares of Class B Common Stock will be automatically converted into a like number of shares of Class A Common
+Stock upon any transfer to any person or entity which is not a permitted transferee. 
+During 2011, 2010 and
+2009 certain Class B stockholders converted 13,640 shares, 1,049,005 shares and 422,770 shares, respectively, of Class B Common Stock to Class A Common Stock. 
+57 
+Table of Contents 
+(8) INCOME TAXES 
+The provisions for income tax expense (benefit) were as follows (in thousands): 
+2011 
+2010 
+2009 
+Federal: 
+Current 
+$ 
+(54,231 
+) 
+$ 
+45,304 
+$ 
+9,227 
+Deferred 
+(1,361 
+) 
+(2,090 
+) 
+5,902 
+Total federal 
+(55,592 
+) 
+43,214 
+15,129 
+State: 
+Current 
+(346 
+) 
+8,535 
+1,498 
+Deferred 
+(10,417 
+) 
+473 
+1,268 
+Total state 
+(10,763 
+) 
+9,008 
+2,766 
+Foreign: 
+Current 
+(1,027 
+) 
+11,529 
+3,088 
+Deferred 
+3,915 
+(3,553 
+) 
+(755 
+) 
+Total foreign 
+2,888 
+7,976 
+2,333 
+Total income taxes (benefit) 
+$ 
+(63,467 
+) 
+$ 
+60,198 
+$ 
+20,228 
+Income taxes differ from the statutory tax rates as applied to earnings (loss) before income taxes as
+follows (in thousands): 
+2011 
+2010 
+2009 
+Expected income tax expense (benefit) 
+$ 
+(45,866 
+) 
+$ 
+68,811 
+$ 
+24,888 
+State income tax, net of federal benefit 
+(7,320 
+) 
+6,590 
+2,051 
+Rate differential on foreign income 
+(11,808 
+) 
+(16,398 
+) 
+(6,162 
+) 
+Change in unrecognized tax benefits 
+2,906 
+(160 
+) 
+455 
+Exempt income 
+0 
+0 
+(207 
+) 
+Non-deductible expenses 
+168 
+569 
+441 
+Prior year R&D credit claims 
+(6,253 
+) 
+0 
+0 
+Adjustment to tax benefit - 2008 advanced pricing agreement 
+0 
+0 
+(1,952 
+) 
+Other 
+304 
+(197 
+) 
+(1,049 
+) 
+Change in valuation allowance 
+4,402 
+983 
+1,763 
+Total provision (benefit) for income taxes 
+$ 
+(63,467 
+) 
+$ 
+60,198 
+$ 
+20,228 
+58 
+Table of Contents 
+The tax effects of temporary differences that give rise to significant
+portions of deferred tax assets and deferred tax liabilities at December 31, 2011 and 2010 are presented below (in thousands): 
+DEFERRED TAX ASSETS: 
+2011 
+2010 
+Deferred tax assets - current: 
+Inventory adjustments 
+$ 
+8,741 
+$ 4,785 
+Accrued legal settlement 
+19,344 
+0 
+Accrued expenses 
+13,664 
+8,808 
+Allowances for bad debts and chargebacks 
+5,867 
+5,492 
+Total current assets 
+47,616 
+19,085 
+Deferred tax assets - long term: 
+Depreciation on property, plant and equipment 
+0 
+10,321 
+Loss carryforwards 
+37,177 
+7,334 
+Business credit carryforward 
+5,452 
+0 
+Stock-based compensation 
+1,131 
+1,348 
+Valuation allowance 
+(11,082 
+) 
+(6,680 
+) 
+Total long term assets 
+32,678 
+12,323 
+Total deferred tax assets 
+80,294 
+31,408 
+Deferred tax liabilities - current: 
+Prepaid expenses 
+8,475 
+7,365 
+Deferred tax liabilities – long term: 
+Depreciation on property, plant and equipment 
+36,512 
+0 
+Total deferred tax liabilities 
+44,987 
+7,365 
+Net deferred tax assets 
+$ 
+35,307 
+$ 
+24,043 
+Management believes it is more likely than not that the results of future operations will generate
+sufficient taxable income to realize the net deferred tax assets. 
+Consolidated U.S. income before income
+taxes was ($162.0) million, $127.7 million and $51.2 million for the years ended December 31, 2011, 2010 and 2009, respectively. The corresponding income before income taxes for non-U.S. based operations was $31.0 million, $68.9 million and
+$19.9 million for the years ended December 31, 2011, 2010 and 2009, respectively. 
+The U.S. net operating
+loss for the year ended December 31, 2011 can be carried back to offset federal taxable income for 2009 and 2010. Such carrybacks are expected to generate tax refunds of approximately $52.0 million in the first quarter of 2012. The remaining
+unused net operating loss carryback of $59.0 million can be carried forward to reduce future taxable income. These net operating losses can be carried forward for 20 years and do not begin to expire until 2032. As of December 31, 2011 no
+valuation allowance against the related deferred tax asset has been set up for these loss carry-forwards as it is believed the loss carry-forwards will be fully utilized in reducing future taxable income. 
+As of December 31, 2011 and 2010, the Company had combined foreign operating loss carry-forwards available to reduce
+future taxable income of approximately $38.9 million and $26.3 million, respectively. Some of these net operating losses expire beginning in 2014; however others can be carried forward indefinitely. As of December 31, 2011 and 2010, a valuation
+allowance against deferred tax assets of $11.1 million and $6.7 million, respectively, had been set up for those loss carry-forwards that are not more likely than not to be fully utilized in reducing future taxable income. 
+As of December 31, 2011, withholding and U.S. taxes have not been provided on approximately $158.9 million of
+cumulative undistributed earnings of the Company’s non-U.S. subsidiaries because the Company intends to indefinitely reinvest these earnings in its non-U.S. subsidiaries. 
+59 
+Table of Contents 
+The balance of unrecognized tax benefits included in net prepaid expenses in
+the consolidated balance sheets increased by $1.6 million during the year. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): 
+2011 
+2010 
+Beginning balance 
+$ 
+9,325 
+$ 
+9,769 
+Additions for current year tax positions 
+595 
+346 
+Additions for prior year tax positions 
+2,206 
+325 
+Reductions for prior year tax positions 
+(177 
+) 
+0 
+Settlement of uncertain tax positions 
+(1,001 
+) 
+(315 
+) 
+Reductions related to lapse of statute of limitations 
+0 
+(800 
+) 
+Ending balance 
+$ 
+10,948 
+$ 
+9,325 
+If recognized, the entire amount of unrecognized tax benefits would be recorded as a reduction in
+income tax expense. 
+Estimated interest and penalties related to the underpayment of income taxes are
+classified as a component of income tax expense and totaled $0.6 million for the year ended December 31, 2011 and less than $0.1 million for each of the two years ended December 31, 2010 and 2009, respectively. Accrued interest and
+penalties were $1.6 million and $1.3 million as of December 31, 2011 and 2010, respectively. 
+The amount
+of income taxes the Company pays is subject to ongoing audits by taxing jurisdictions around the world. The Company’s estimate of the potential outcome of any uncertain tax position is subject to management’s assessment of relevant risks,
+facts, and circumstances existing at that time. The Company believes that it has adequately provided for these matters. However, the Company’s future results may include favorable or unfavorable adjustments to its estimates in the period the
+audits are resolved, which may impact the Company’s effective tax rate. As of December 31, 2011, the Company’s tax filings are generally subject to examination in major tax jurisdictions for years ending on or after December 31, 2007.
+The Company is currently under examination by the IRS for the 2008 and 2009 tax years. The Company is also
+under examination by a number of states. During the year ended December 31, 2011, settlements were reached with certain state tax jurisdictions which reduced the balance of 2011 and prior year unrecognized tax benefits by $0.8 million. It is
+reasonably possible that certain federal and state examinations could be settled during the next twelve months which would reduce the balance of 2011 and prior year unrecognized tax benefits by $1.8 million. 
+(9) BUSINESS AND CREDIT CONCENTRATIONS 
+The Company generates the majority of its sales in the United States; however, several of its products
+are sold into various foreign countries, which subjects the Company to the risks of doing business abroad. In addition, the Company operates in the footwear industry, which is impacted by the general economy, and its business depends on the general
+economic environment and levels of consumer spending. Changes in the marketplace may significantly affect management’s estimates and the Company’s performance. Management performs regular evaluations concerning the ability of customers to
+satisfy their obligations and provides for estimated doubtful accounts. Domestic accounts receivable, which generally do not require collateral from customers, amounted to $90.9 million and $164.4 million before allowances for bad debts and sales
+returns, and chargebacks at December 31, 2011 and 2010, respectively. Foreign accounts receivable, which generally are collateralized by letters of credit, amounted to $105.5 million and $121.4 million before allowance for bad debts, sales
+returns, and chargebacks at December 31, 2011 and 2010, respectively. International net sales amounted to $546.0 million, $484.7 million and $358.1 million for the years ended December 31, 2011, 2010 and 2009, respectively. The
+Company’s credit losses due to write-off’s for the years ended December 31, 2011, 2010 and 2009 were $7.0 million, $4.8 million and $1.2 million, respectively. 
+Assets located outside the United States consist primarily of cash, accounts receivable, inventory, property, plant and
+equipment, and other assets. Net assets held outside the United States were $325.3 million and $322.0 million at December 31, 2011 and 2010, respectively. 
+During 2011, 2010 and 2009, no customer accounted for 10.0% or more of net sales. One customer accounted for 12.5% and another accounted for 10.0% of net trade receivables at December 31, 2011. No
+customer accounted for more than 10% of net trade receivables at December 31, 2010. During 2011, 2010 and 2009, net sales to our five largest customers were approximately 17.8%, 24.9% and 25.1%, respectively. 
+60 
+Table of Contents 
+The Company’s top five manufacturers produced the following for the
+years ended December 31, 2011, 2010 and 2009, respectively: 
+Years Ended December 31, 
+2011 
+2010 
+2009 
+Manufacturer #1 
+30.8% 
+34.7% 
+29.7% 
+Manufacturer #2 
+11.5% 
+13.0% 
+12.2% 
+Manufacturer #3 
+7.7% 
+9.4% 
+11.2% 
+Manufacturer #4 
+6.6% 
+8.7% 
+10.5% 
+Manufacturer #5 
+5.9% 
+4.8% 
+5.5% 
+62.5% 
+70.6% 
+69.1% 
+The majority of the Company’s products are produced in China. The Company’s operations are
+subject to the customary risks of doing business abroad, including but not limited to currency fluctuations and revaluations, custom duties and related fees, various import controls and other monetary barriers, restrictions on the transfer of funds,
+labor unrest and strikes and, in certain parts of the world, political instability. The Company believes it has acted to reduce these risks by diversifying manufacturing among various factories. To date, these business risks have not had a material
+adverse impact on the Company’s operations. 
+(10) EMPLOYEE BENEFIT PLAN 
+The Company has a 401(k) profit sharing plan covering all employees who are 21 years of age and have
+completed six months of service. Employees may contribute up to 15.0% of annual compensation. Company contributions to the plan are discretionary and vest over a six year period. 
+The Company did not make a contribution to the plan for the year ended December 31, 2011. The Company’s cash
+contributions to the plan amounted to $1.3 million and $1.6 million during the years ended December 31, 2010 and 2009, respectively 
+(11) COMMITMENTS AND CONTINGENCIES 
+(a) 
+Leases 
+The Company leases facilities under operating lease agreements expiring through March 2029. The Company pays taxes, maintenance and insurance in addition to the lease obligations. The Company also leases
+certain equipment and automobiles under operating lease agreements expiring at various dates through December 2014. Rent expense for the years ended December 31, 2011, 2010 and 2009 approximated $85.0 million, $74.5 million and $65.9 million,
+respectively. 
+The Company also leases certain property, plant and equipment under capital lease agreements
+requiring monthly installment payments through June 2013. 
+Minimum lease payments, which takes into account
+escalation clauses, are recognized on a straight-line basis over the minimum lease term. Subsequent adjustments to our lease payments due to changes in an existing index, usually the consumer price index, are typically included in our calculation of
+the minimum lease payments when the adjustment is known. Reimbursements for leasehold improvements are recorded as liabilities and are amortized over the lease term. Lease concessions, in our case usually a free rent period, are considered in the
+calculation of our minimum lease payments for the minimum lease term. 
+61 
+Table of Contents 
+Future minimum lease payments under noncancellable leases at
+December 31, 2011 are as follows (in thousands): 
+CAPITAL 
+LEASES 
+OPERATING 
+LEASES 
+Year ending December 31: 
+2012 
+$ 
+19 
+$ 
+99,750 
+2013 
+10 
+92,559 
+2014 
+0 
+84,451 
+2015 
+0 
+79,565 
+2016 
+0 
+71,986 
+Thereafter 
+0 
+375,171 
+$ 
+29 
+$ 
+803,482 
+(b) 
+Litigation 
+The Company recognizes legal expense in connection with loss contingencies as incurred. 
+The Company’s claims and advertising for its toning products including for its Shape-ups are subject to the requirements of, and routinely come under review by regulators including pending inquiries
+from the U.S. Federal Trade Commission (“FTC”), states’ Attorneys General and government and quasi-government regulators in foreign countries. The Company is currently responding to requests for information regarding its claims and
+advertising from regulatory and quasi-regulatory agencies in the United States and several other countries and is fully cooperating with those requests. While the Company believes that its claims and advertising with respect to its core toning
+products are supported by scientific tests, expert opinions and other relevant data, and while the Company has been successful in defending its claims and advertising in several different countries, the Company has discontinued using certain test
+results and periodically reviews and updates its claims and advertising. The regulatory inquiries may conclude in a variety of outcomes, including the closing of the inquiry with no further regulatory action, settlement of any issues through changes
+in its claims and advertising, settlement of any issues through payment to the regulatory entity, or litigation. 
+Based on discussions with the FTC staff, the Company is now aware that the FTC’s pending inquiry into its toning products will not end in a closure letter assuring no further regulatory action. In
+the fourth quarter, the FTC’s Director of the Bureau of Consumer Protection referred the matter to the FTC Commissioners for consideration of whether to bring an action against the Company for false and deceptive advertising in connection with
+its toning products, and the Company met with the individual Commissioners to present evidence and arguments against bringing such an action. Our discussions with the FTC staff are continuing. 
+Since June 2010, the Company has been a defendant in multiple consumer class actions challenging the Company’s
+claims and advertising for its toning products, including its Shape-ups. On November 15, 2011, the Company received notice that a multistate group of state Attorneys General (“SAG”) is reviewing substantially the same claims and
+advertising for toning products as the FTC. Our discussions with the group, which currently is comprised of 44 states and the District of Columbia, are ongoing. 
+In accordance with U.S. GAAP, the Company records a liability in its consolidated financial statements for loss
+contingencies when a loss is known or considered probable and the amount can be reasonably estimated. When determining the estimated loss or range of loss, significant judgment is required to estimate the amount and timing of a loss to be recorded.
+Estimates of probable losses resulting from litigation and governmental proceedings are inherently difficult to predict, particularly when the matters are in the procedural stages or with unspecified or indeterminate claims for damages, potential
+penalties, or fines. In this regard, one of the Company’s competitors, which also sells toning products, recently settled a matter with the FTC and related consumer class actions for the payment of $25 million plus an additional $4.6 million in
+attorneys’ fees. While the Company believes that the facts relating to the FTC and SAG inquiries into its toning products and its consumer class actions are different from its competitor’s, the Company has evaluated this evidence and other
+related facts and interpretations with its advisors and has concluded that it could be subject to a higher exposure as a result of these proceedings. The Company has reserved $45 million for costs and potential exposure relating to existing
+litigation and regulatory matters. Additionally, the Company has recorded an expense of $5 million in legal and professional fees related to the aforementioned matters, which is included in general and administrative expense in the accompanying
+consolidated statement of operations for the year ended December 31, 2011. Although we believe our fourth quarter reserve of $45 million and expense of $5 million appropriately reflect the current estimated range of loss, it is not possible to
+predict the final outcome of the related proceedings or any other pending legal proceedings and, consequently, the final exposure and costs associated with pending legal proceedings could have a further material adverse impact on our result of
+operations or financial position. 
+62 
+Table of Contents 
+(c) 
+Product and Other Financing 
+The Company finances production activities in part through the use of interest-bearing open purchase arrangements with certain of its international manufacturers. These arrangements currently bear
+interest at rates between 0% and 1.5% for 30- to 60- day financing. The amounts outstanding under these arrangements at December 31, 2011 and 2010 were $71.8 million and $111.1 million, respectively, which are included in accounts payable in
+the accompanying consolidated balance sheets. Interest expense incurred by the Company under these arrangements amounted to $3.2 million in 2011, $2.1 million in 2010, and $3.3 million in 2009. The Company has open purchase commitments with our
+foreign manufacturers of $275.4 million, which are not included in the accompanying consolidated balance sheets. 
+(12) SEGMENT INFORMATION 
+We have four reportable segments – domestic wholesale sales, international wholesale sales,
+retail sales, and e-commerce sales. Management evaluates segment performance based primarily on net sales and gross margins. All other costs and expenses of the Company are analyzed on an aggregate basis, and these costs are not allocated to the
+Company’s segments. Net sales, gross margins and identifiable assets for the domestic wholesale, international wholesale, retail, and the e-commerce segment on a combined basis were as follows (in thousands): 
+2011 
+2010 
+2009 
+Net sales 
+Domestic wholesale 
+$ 
+688,194 
+$ 
+1,131,929 
+$ 
+763,514 
+International wholesale 
+487,296 
+436,637 
+328,466 
+Retail 
+410,458 
+410,695 
+321,829 
+E-commerce 
+20,068 
+27,607 
+22,631 
+Total 
+$ 
+1,606,016 
+$ 
+2,006,868 
+$ 
+1,436,440 
+2011 
+2010 
+2009 
+Gross profit 
+Domestic wholesale 
+$ 
+186,010 
+$ 
+460,355 
+$ 
+292,303 
+International wholesale 
+196,248 
+181,528 
+118,440 
+Retail 
+231,835 
+255,894 
+198,243 
+E-commerce 
+9,655 
+14,129 
+12,024 
+Total 
+$ 
+623,748 
+$ 
+911,906 
+$ 
+621,010 
+2011 
+2010 
+Identifiable assets 
+Domestic wholesale 
+$ 
+844,383 
+$ 
+891,671 
+International wholesale 
+304,025 
+300,153 
+Retail 
+133,081 
+112,774 
+E-commerce 
+399 
+196 
+Total 
+$ 
+1,281,888 
+$ 
+1,304,794 
+2011 
+2010 
+2009 
+Additions to property, plant and equipment 
+Domestic wholesale 
+$ 
+92,496 
+$ 
+57,375 
+$ 
+21,112 
+International wholesale 
+2,236 
+4,241 
+5,568 
+Retail 
+27,506 
+20,653 
+8,661 
+Total 
+$ 
+122,238 
+$ 
+82,269 
+$ 
+35,341 
+63 
+Table of Contents 
+Geographic Information 
+The following summarizes our operations in different geographic areas for the year indicated: 
+2011 
+2010 
+2009 
+Net Sales (1) 
+United States 
+$ 
+1,059,990 
+$ 
+1,522,187 
+$ 
+1,078,335 
+Canada 
+48,057 
+54,476 
+39,498 
+Other International (2) 
+497,969 
+430,205 
+318,607 
+Total 
+$ 
+1,606,016 
+$ 
+2,006,868 
+$ 
+1,436,440 
+2011 
+2010 
+Property, plant and equipment 
+United States 
+$ 
+358,405 
+$ 
+276,457 
+Canada 
+1,179 
+1,590 
+Other International (2) 
+16,862 
+15,755 
+Total 
+$ 
+376,446 
+$ 
+293,802 
+(1) 
+The Company has subsidiaries in Canada, United Kingdom, Germany, France, Spain, Portugal, Italy, Netherlands, Brazil and Chile that generate net
+sales within those respective countries and in some cases the neighboring regions. The Company has joint ventures in China, Hong Kong, Malaysia, Singapore and Thailand that generate net sales from those countries. The Company also has a subsidiary
+in Switzerland that generates net sales from that country in addition to net sales to our distributors located in numerous non-European countries. Net sales are attributable to geographic regions based on the location of the Company subsidiary.
+(2) 
+Other international consists of Switzerland, United Kingdom, Germany, Austria, France, Spain, Portugal, Italy, Netherlands, China, Hong Kong,
+Malaysia, Singapore, Thailand, Brazil, Chile, Vietnam and Japan. 
+(13) RELATED PARTY TRANSACTIONS 
+The Company paid approximately $188,000, $319,000 and $183,000 during 2011, 2010 and 2009,
+respectively, to the Manhattan Inn Operating Company, LLC (“MIOC”) for lodging, food and events including the Company’s holiday party at the Shade Hotel, which is owned and operated by MIOC. Michael Greenberg, President and a director
+of the Company, owns a 12% beneficial ownership interest in MIOC, and four other officers, directors and senior vice presidents of the Company own in aggregate an additional 5% beneficial ownership in MIOC. The Company had no outstanding accounts
+receivable or payable with MIOC or the Shade Hotel at December 31, 2011. 
+On
+July 29, 2010, the Company formed the Skechers Foundation (the “Foundation”), which is a 501(c)(3) non-profit entity that does not have any shareholders or members. The Foundation is not a subsidiary of and is not otherwise affiliated
+with the Company, and the Company does not have a financial interest in the Foundation. However, two officers and directors of the Company, Michael Greenberg, the Company’s President, and David Weinberg, the Company’s Chief Operating
+Officer and Chief Financial Officer, are also officers and directors of the Foundation. During the years ended December 31, 2011 and 2010, respectively, the Company contributed $1.3 million and $0.4 million, respectively, to the Foundation
+to use for various charitable causes. 
+The Company had receivables from officers and employees of $0.3 million
+and $0.2 million at December 31, 2011 and 2010, respectively. These amounts primarily relate to travel advances and incidental personal purchases on Company-issued credit cards. These receivables are short-term and are expected to be repaid
+within a reasonable period of time. We had no other significant transactions with or payables to officers, directors or significant shareholders of the Company. 
+(14) SUBSEQUENT EVENTS 
+The Company has evaluated events subsequent to December 31, 2011, to assess the need for
+potential recognition or disclosure in this filing. Based upon this evaluation, it was determined that no subsequent events occurred that require recognition in the consolidated financial statements. 
+64 
+Table of Contents 
+(15) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) 
+Summarized unaudited financial data are as follows (in thousands): 
+2011 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+476,234 
+$ 
+434,351 
+$ 412,183 
+$ 283,248 
+Gross profit 
+192,610 
+143,330 
+175,195 
+112,613 
+Net earnings (loss) * 
+11,808 
+(29,916) 
+8,285 
+(57,661) 
+Net earnings (loss) per share: 
+Basic 
+$ 
+0.24 
+$ 
+(0.62) 
+$ 0.17 
+$ (1.18) 
+Diluted 
+0.24 
+(0.62) 
+0.17 
+(1.18) 
+2010 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+492,764 
+$ 
+504,859 
+$ 554,626 
+$ 454,619 
+Gross profit 
+237,418 
+237,645 
+252,651 
+184,192 
+Net earnings 
+56,296 
+40,237 
+36,378 
+3,237 
+Net earnings per share: 
+Basic 
+$ 
+1.20 
+$ 
+0.85 
+$ 0.76 
+$ 0.07 
+Diluted 
+1.15 
+0.82 
+0.74 
+0.07 
+* Included in the quarter ended December 31, 2011 is an impairment of property,
+plant and equipment of $1.5 million and an impairment of intangible assets of $1.6 million (see note 1). 
+ITEM 9. 
+CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
+None. 
+ITEM 9A. 
+CONTROLS AND PROCEDURES 
+Attached as exhibits to this annual report on Form 10-K are certifications of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance
+with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the
+certifications. 
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES 
+We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information
+required to be disclosed by a company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within required time periods and that such information is accumulated and communicated to allow
+timely decisions regarding required disclosures. As of the end of the period covered by this annual report on Form 10-K, we carried out an evaluation under the supervision and with the participation of our management, including our CEO and CFO, of
+the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective at
+the reasonable assurance level as of the end of such period. 
+65 
+Table of Contents 
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
+such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
+reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
+and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
+disposition of our assets that could have a material effect on our financial statements. 
+We conducted an
+evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
+Based on our evaluation under the framework in Internal Control – Integrated Framework, our management has concluded that as of December 31, 2011, our internal control over financial reporting is effective. 
+Our independent registered public accountants, KPMG LLP, audited the consolidated financial statements included in this
+annual report on Form 10-K and have issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2011, which is set forth below. 
+INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS 
+Our
+management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control
+system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints,
+and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not
+occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple
+error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions
+about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are
+subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. 
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING 
+There were
+no significant changes to our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting during the fourth quarter of 2011. The results of
+our evaluation are discussed above in Management’s Report on Internal Control Over Financial Reporting. 
+66 
+Table of Contents 
+Report of Independent Registered Public Accounting Firm 
+The Board of Directors and Stockholders 
+Skechers U.S.A., Inc.: 
+We have audited the internal control over financial reporting of Skechers U.S.A., Inc. (the Company) as of December 31, 2011, based on criteria established in Internal Control – Integrated
+Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
+effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the
+Company’s internal control over financial reporting based on our audit. 
+We conducted our audit in accordance with the
+standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
+all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
+control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 
+A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and
+procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
+recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
+and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
+statements. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect
+misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
+deteriorate. 
+In our opinion, Skechers U.S.A., Inc. maintained, in all material respects, effective internal control over
+financial reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the COSO. 
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Skechers U.S.A., Inc. and subsidiaries as of
+December 31, 2011 and 2010, and the related consolidated statements of operations, equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2011, and the related financial
+statement schedule, and our report dated February 29, 2012, expressed an unqualified opinion on those consolidated financial statements and financial statement schedule. 
+/s/ KPMG LLP 
+Los Angeles, California 
+February 29, 2012 
+67 
+Table of Contents 
+ITEM 9B. 
+OTHER INFORMATION 
+None. 
+PART III 
+ITEM 10. 
+DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 
+The information required by this Item 10 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of our 2011
+fiscal year. 
+ITEM 11. 
+EXECUTIVE COMPENSATION 
+The information required by this Item 11 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of our 2011
+fiscal year. 
+ITEM 12. 
+SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 
+The information required by this Item 12 is hereby incorporated by reference from our definitive proxy statement, to
+be filed pursuant to Regulation 14A within 120 days after the end of our 2011 fiscal year. 
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+The information required by this Item 13 is hereby incorporated by reference from our definitive proxy statement, to
+be filed pursuant to Regulation 14A within 120 days after the end of our 2011 fiscal year. 
+ITEM 14. 
+PRINCIPAL ACCOUNTING FEES AND SERVICES 
+The information required by this Item 14 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of our 2011
+fiscal year. 
+PART IV
+ITEM 15. 
+EXHIBITS, FINANCIAL STATEMENT SCHEDULES 
+1. 
+Financial Statements: See “Index to Consolidated Financial Statements and Financial Statement Schedule” in Part II, Item 8 on page 43
+of this annual report on Form 10-K. 
+2. 
+Financial Statement Schedule: See “Schedule II—Valuation and Qualifying Accounts” on page 69 of this annual report on Form 10-K.
+3. 
+Exhibits: The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Form 10-K.
+68 
+Table of Contents 
+SCHEDULE 
+VALUATION AND QUALIFYING ACCOUNTS 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+(in thousands) 
+Years Ended December 31, 2011, 2010, and 2009 
+DESCRIPTION 
+BALANCE AT 
+BEGINNING OF 
+PERIOD 
+CHARGED TO 
+COSTS AND 
+EXPENSES 
+DEDUCTIONS 
+AND 
+WRITE-OFFS 
+BALANCE 
+AT END 
+OF PERIOD 
+Year-ended December 31, 2009: 
+Allowance for chargebacks 
+$ 3,914 
+$ 
+(672) 
+$ 
+(1,299) $ 
+1,943 
+Allowance for doubtful accounts 
+4,422 
+1,863 
+(1,957) 
+4,328 
+Reserve for sales returns and allowances 
+6,544 
+2,058 
+(512) 
+8,090 
+Reserve for shrinkage 
+165 
+950 
+(915) 
+200 
+Reserve for obsolescence 
+13,023 
+0 
+(9,568) 
+3,455 
+Year-ended December 31, 2010: 
+Allowance for chargebacks 
+$ 1,943 
+$ 
+2,993 
+$ 
+(1,909) $ 
+3,027 
+Allowance for doubtful accounts 
+4,328 
+1,782 
+(465) 
+5,645 
+Reserve for sales returns and allowances 
+8,090 
+1,437 
+1,498 
+11,025 
+Reserve for shrinkage 
+200 
+1,100 
+(1,100) 
+200 
+Reserve for obsolescence 
+3,455 
+0 
+(17) 
+3,438 
+Year-ended December 31, 2011: 
+Allowance for chargebacks 
+$ 3,027 
+$ 
+1,463 
+$ 
+(2,150) $ 
+2,340 
+Allowance for doubtful accounts 
+5,645 
+5,560 
+(874) 
+10,331 
+Reserve for sales returns and allowances 
+11,025 
+(1,141) 
+(2,132) 
+7,752 
+Reserve for shrinkage 
+200 
+1,100 
+(1,000) 
+300 
+Reserve for obsolescence 
+3,438 
+9,971 
+(1,450) 
+11,959 
+See accompanying report of independent registered public accounting firm 
+69 
+Table of Contents 
+INDEX TO EXHIBITS 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+3.1 
+Amended and Restated Certificate of Incorporation dated April 29, 1999 (incorporated by reference to exhibit number 3.1 of the Registrant’s Registration Statement on Form S-1,
+as amended (File No. 333-60065), filed with the Securities and Exchange Commission on May 12, 1999). 
+3.2 
+Bylaws dated May 28, 1998 (incorporated by reference to exhibit number 3.2 of the Registrant’s Registration Statement on Form S-1 (File No. 333-60065) filed with the Securities
+and Exchange Commission on July 29, 1998). 
+3.2(a) 
+Amendment to Bylaws dated as of April 8, 1999 (incorporated by reference to exhibit number 3.2(a) of the Registrant’s Form 10-K for the year ended December 31,
+2005). 
+3.2(b) 
+Second Amendment to Bylaws dated as of December 18, 2007 (incorporated by reference to exhibit number 3.1 of the Registrant’s Form 8-K filed with the Securities and Exchange
+Commission on December 20, 2007). 
+4.1 
+Form of Specimen Class A Common Stock Certificate (incorporated by reference to exhibit number 4.1 of the Registrant’s Registration Statement on Form S-1, as amended (File No.
+333-60065), filed with the Securities and Exchange Commission on May 12, 1999). 
+10.1** 
+Amended and Restated 1998 Stock Option, Deferred Stock and Restricted Stock Plan (incorporated by reference to exhibit number 10.1 of the Registrant’s Registration Statement on
+Form S-1 (File No. 333-60065) filed with the Securities and Exchange Commission on July 29, 1998). 
+10.1(a)** 
+Amendment No. 1 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted Stock Plan (incorporated by reference to exhibit number 4.4 of the Registrant’s
+Registration Statement on Form S-8 (File No. 333-71114), filed with the Securities and Exchange Commission on October 5, 2001). 
+10.1(b)** 
+Amendment No. 2 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted Stock Plan (incorporated by reference to exhibit number 4.5 of the Registrant’s
+Registration Statement on Form S-8 (File No. 333-135049), filed with the Securities and Exchange Commission on June 15, 2006). 
+10.1(c)** 
+Amendment No. 3 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted Stock Plan (incorporated by reference to exhibit number 10.1 of the Registrant’s Form
+8-K filed with the Securities and Exchange Commission on February 23, 2007). 
+10.2** 
+2006 Annual Incentive Compensation Plan (incorporated by reference to Appendix A of the Registrant’s Definitive Proxy Statement filed with the Securities and Exchange
+Commission on May 1, 2006). 
+10.3** 
+2007 Incentive Award Plan (incorporated by reference to exhibit number 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 24,
+2007). 
+10.4** 
+Form of Restricted Stock Agreement under 2007 Incentive Award Plan (incorporated by reference to exhibit number 10.3 of the Registrant’s Form 10-K for the year ended December
+31, 2007). 
+10.5** 
+2008 Employee Stock Purchase Plan (incorporated by reference to exhibit number 10.2 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 24,
+2007). 
+10.5(a)** 
+Amendment No. 1 to 2008 Employee Stock Purchase Plan (incorporated by reference to exhibit number 10.5 of the Registrant’s Form 10-Q for the quarter ended June 30,
+2010). 
+10.6** 
+Indemnification Agreement dated June 7, 1999 between the Registrant and its directors and executive officers (incorporated by reference to exhibit number 10.6 of the
+Registrant’s Form 10-K for the year ended December 31, 1999). 
+70 
+Table of Contents 
+10.6(a)** 
+List of Registrant’s directors and executive officers who entered into Indemnification Agreement referenced in Exhibit 10.6 with the Registrant (incorporated by reference to
+exhibit number 10.6(a) of the Registrant’s Form 10-K for the year ended December 31, 2005). 
+10.7 
+Registration Rights Agreement dated June 9, 1999, between the Registrant, the Greenberg Family Trust and Michael Greenberg (incorporated by reference to exhibit number 10.7 of the
+Registrant’s Form 10-Q for the quarter ended June 30, 1999). 
+10.8 
+Tax Indemnification Agreement dated June 8, 1999, between the Registrant and certain shareholders (incorporated by reference to exhibit number 10.8 of the Registrant’s Form
+10-Q for the quarter ended June 30, 1999). 
+10.9 + 
+Credit Agreement dated June 30, 2009, by and among the Registrant, certain of its subsidiaries that are also borrowers under the Agreement, and certain lenders including Wells Fargo
+Foothill, LLC, as co-lead arranger and administrative agent, Bank of America, N.A., as syndication agent, and Banc of America Securities LLC, as the other co-lead arranger (incorporated by reference to exhibit number 10.1 of the Registrant’s
+Form 10-Q/A filed with the Securities and Exchange Commission on November 16, 2010). 
+10.9(a) 
+Amendment Number One to Credit Agreement dated November 5, 2009, by and among the Registrant, certain of its subsidiaries that are also borrowers under the Agreement, and certain
+lenders including Wells Fargo Foothill, LLC, as co-lead arranger and administrative agent, Bank of America, N.A., as syndication agent, and Banc of America Securities LLC, as the other co-lead arranger (incorporated by reference to exhibit number
+10.2 of the Registrant’s Form 10-Q/A filed with the Securities and Exchange Commission on November 16, 2010). 
+10.9(b) 
+Amendment Number Two to Credit Agreement dated March 4, 2010, by and among the Registrant, certain of its subsidiaries that are also borrowers under the Agreement, and certain
+lenders including Wells Fargo Capital Finance, LLC (formerly known as Wells Fargo Foothill, LLC), as co-lead arranger and administrative agent, Bank of America, N.A., as syndication agent, and Banc of America Securities LLC, as the other co-lead
+arranger (incorporated by reference to exhibit number 10.3 of the Registrant’s Form 10-Q for the quarter ended March 31, 2010). 
+10.9(c)+ 
+Amendment Number Three to Credit Agreement dated May 3, 2011, by and among the Registrant, certain of its subsidiaries that are also borrowers under the Agreement, and certain
+lenders including Wells Fargo Capital Finance, LLC (formerly known as Wells Fargo Foothill, LLC), as co-lead arranger and administrative agent, Bank of America, N.A., as syndication agent, and Banc of America Securities LLC, as the other co-lead
+arranger (incorporated by reference to exhibit number 10.1 of the Registrant’s Form 10-Q for the quarter ended March 31, 2011). 
+10.10 
+Schedule 1.1 of Defined Terms to the Credit Agreement dated June 30, 2009, by and among the Registrant, certain of its subsidiaries that are also borrowers under the Agreement, and
+certain lenders including Wells Fargo Foothill, LLC, Bank of America, N.A., and Banc of America Securities LLC (incorporated by reference to exhibit number 10.2 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on
+July 7, 2009). 
+10.11 
+Amended and Restated Limited Liability Company Agreement dated April 12, 2010 between Skechers R.B., LLC, a Delaware limited liability company and wholly owned subsidiary of the
+Registrant, and HF Logistics I, LLC, regarding the ownership and management of the joint venture, HF Logistics-SKX, LLC, a Delaware limited liability company. 
+10.12 
+Construction Loan Agreement dated as of April 30, 2010, by and among HF Logistics-SKX T1, LLC, which is a wholly owned subsidiary of a joint venture entered into between HF
+Logistics I, LLC and a wholly owned subsidiary of the Registrant, Bank of America, N.A., as administrative agent and as a lender, and Raymond James Bank FSB, as a lender. 
+10.13 
+Master Loan and Security Agreement, dated December 29, 2010, by and between the Registrant and Banc of America Leasing & Capital, LLC (incorporated by reference to exhibit
+number 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 4, 2011). 
+71 
+Table of Contents 
+10.14 
+Equipment Security Note, dated December 29, 2010, by and among the Registrant, Banc of America Leasing & Capital, LLC, and Bank of Utah, as agent (incorporated by reference
+to exhibit number 10.2 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 4, 2011). 
+10.15 
+Equipment Security Note, dated June 30, 2011, by and among the Registrant, Banc of America Leasing & Capital, LLC, and Bank of Utah, as agent (incorporated by reference to
+exhibit number 10.3 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on July 1, 2011). 
+10.16 
+Lease Agreement, dated February 8, 2002, between Skechers International, a subsidiary of the Registrant, and ProLogis Belgium II SPRL, regarding ProLogis Park Liege Distribution
+Center I in Liege, Belgium (incorporated by reference to exhibit number 10.29 of the Registrant’s Form 10-K for the year ended December 31, 2002). 
+10.17 
+Lease Agreement dated September 25, 2007 between the Registrant and HF Logistics I, LLC, regarding distribution facility in Rancho Belago, California (incorporated by reference to
+exhibit number 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on September 27, 2007). 
+10.17(a) 
+First Amendment to Lease Agreement, dated December 18, 2009, between the Registrant and HF Logistics I, LLC, regarding distribution facility in Rancho Belago, California
+(incorporated by reference to exhibit number 10.6 of the Registrant’s Form 10-Q for the quarter ended March 31, 2010). 
+10.17(b) 
+Second Amendment to Lease Agreement, dated April 12, 2010, between the Registrant and HF Logistics I, LLC, regarding distribution facility in Rancho Belago, California (incorporated
+by reference to exhibit number 10.4 of the Registrant’s Form 10-Q for the quarter ended September 30, 2010). 
+10.17(c) 
+Assignment of Lease Agreement, dated April 12, 2010, between HF Logistics I, LLC and HF Logistics-SKX T1, LLC, regarding distribution facility in Rancho Belago, California
+(incorporated by reference to exhibit number 10.5 of the Registrant’s Form 10-Q for the quarter ended September 30, 2010). 
+10.17(d) 
+Third Amendment to Lease Agreement, dated August 18, 2010, between the Registrant and HF Logistics-SKX T1, LLC, regarding distribution facility in Rancho Belago, California
+(incorporated by reference to exhibit number 10.6 of the Registrant’s Form 10-Q for the quarter ended September 30, 2010). 
+10.18 
+Lease Agreement dated May 20, 2008 between Skechers EDC SPRL, a subsidiary of the Registrant, and ProLogis Belgium III SPRL, regarding ProLogis Park Liege Distribution Center II in
+Liege, Belgium (incorporated by reference to exhibit number 10.3 of the Registrant’s Form 10-Q for the quarter ended June 30 , 2010). 
+10.19 
+Addendum to Lease Agreement dated May 20, 2008 between Skechers EDC SPRL, a subsidiary of the Registrant, and ProLogis Belgium III SPRL, regarding ProLogis Park Liege Distribution
+Center I in Liege, Belgium (incorporated by reference to exhibit number 10.4 of the Registrant’s Form 10-Q for the quarter ended June 30 , 2010). 
+21.1 
+Subsidiaries of the Registrant. 
+23.1 
+Consent of Independent Registered Public Accounting Firm. 
+31.1 
+Certification of the Chief Executive Officer pursuant Securities Exchange Act Rule 13a-14(a). 
+31.2 
+Certification of the Chief Financial Officer pursuant Securities Exchange Act Rule 13a-14(a). 
+32.1*** 
+Certification pursuant to 18 U.S.C. 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. 
+72 
+Table of Contents 
+101.LAB**** 
+Taxonomy Extension Label Linkbase Document. 
+101.PRE**** 
+XBRL Taxonomy Extension Presentation Linkbase Document. 
+101.DEF**** 
+XBRL Taxonomy Extension Definition Linkbase Document. 
++ 
+Confidential treatment has been granted by the SEC with respect to certain information in the exhibit pursuant to Rule 24b-2 of the Exchange Act.
+Such information was omitted from the filing and filed separately with the Secretary of the SEC. 
+** 
+Management contract or compensatory plan or arrangement required to be filed as an exhibit. 
+*** 
+In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed “filed” for the purposes of Section 18 of the Exchange
+Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act. 
+**** 
+Furnished, not filed, herewith. 
+73 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Manhattan Beach, State of California on the 29th day of February 2012. 
+SKECHERS U.S.A., INC. 
+By: 
+/s/ Robert Greenberg 
+Robert Greenberg 
+Chairman of the Board and 
+Chief Executive Officer 
+Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
+signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. 
+SIGNATURE 
+TITLE 
+DATE 
+/s/ Robert Greenberg 
+Chairman of the Board and Chief Executive Officer 
+(Principal Executive Officer) 
+February 29, 2012 
+Robert Greenberg 
+/s/ Michael Greenberg 
+President and Director 
+February 29, 2012 
+Michael Greenberg 
+/s/ David Weinberg 
+Executive Vice President, Chief Operating Officer, 
+Chief Financial Officer and Director 
+(Principal Financial and Accounting Officer) 
+February 29, 2012 
+David Weinberg 
+/s/ Jeffrey Greenberg 
+Director 
+February 29, 2012 
+Jeffrey Greenberg 
+/s/ Geyer Kosinski 
+Director 
+February 29, 2012 
+Geyer Kosinski 
+/s/ Morton D. Erlich 
+Director 
+February 29, 2012 
+Morton D. Erlich 
+/s/ Richard Siskind 
+Director 
+February 29, 2012 
+Richard Siskind 
+/s/ Thomas Walsh 
+Director 
+February 29, 2012 
+Thomas Walsh 
+/s/ Rick Rappaport 
+Director 
+February 29, 2012 
+Rick Rappaport 
+74
\ No newline at end of file
diff --git a/raw/filings/0001065837/2011/0001193125-12-088845/filing_metadata.csv b/raw/filings/0001065837/2011/0001193125-12-088845/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..015ea979e961640bee1516173c05c8e6086f41d0
--- /dev/null
+++ b/raw/filings/0001065837/2011/0001193125-12-088845/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0001065837,SKX,SKECHERS USA INC,10-K,2012-02-29,2011-12-31,2012-02-29T20:29:24.000Z,0001193125-12-088845,d255229d10k.htm,FORM 10-K,11133353,1,0,https://www.sec.gov/Archives/edgar/data/1065837/000119312512088845/d255229d10k.htm,https://www.sec.gov/Archives/edgar/data/1065837/000119312512088845/,2011,2011,1
diff --git a/raw/filings/0001065837/2011/0001193125-12-088845/item1.txt b/raw/filings/0001065837/2011/0001193125-12-088845/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..03a068113978f7855888278b97f9d9c8f4b5c659
--- /dev/null
+++ b/raw/filings/0001065837/2011/0001193125-12-088845/item1.txt
@@ -0,0 +1,479 @@
+ITEM 1. 
+BUSINESS 
+We were incorporated in California in 1992 and reincorporated in Delaware in 1999. Throughout this annual report, we
+refer to Skechers U.S.A., Inc., a Delaware corporation, and its consolidated subsidiaries as “we,” “us,” “our,” “our company” and “Skechers” unless otherwise indicated. Our Internet address is
+www.skechers.com . Our annual report on Form 10-K, quarterly
+reports on Form 10-Q, current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of directors, officers and 10% stockholders, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of
+the Securities Exchange Act of 1934 are available free of charge on our corporate website, www.skx.com , as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and
+Exchange Commission (“SEC”). You can learn more about us by reviewing such filings at www.skx.com or
+at the SEC’s website at www.sec.gov .
+GENERAL 
+We design and market Skechers-branded lifestyle footwear for men, women and children, and performance footwear for men and women under several unique lines. Our footwear reflects a combination of style,
+quality and value that appeals to a broad range of consumers. In addition to Skechers-branded lines, we also offer uniquely branded fashion and street-focused footwear lines for men, women and children. These lines are branded and marketed
+separately from Skechers and appeal to specific audiences. Our brands are sold through department and specialty stores, athletic and independent retailers, and boutiques as well as catalog and internet retailers. Along with wholesale
+distribution, our footwear is available at our e-commerce website and our own retail stores. As of February 15, 2012, we operated 120 concept stores, 107 factory outlet stores and 54 warehouse outlet stores in the United States, and 33 concept
+stores and 16 factory outlets internationally. Our objective is to profitably grow our operations worldwide while leveraging our recognizable Skechers brand through our strong product lines, innovative advertising and diversified distribution
+channels. 
+We seek to offer consumers a vast array of fashionable footwear that satisfies their active,
+casual, dress casual and athletic footwear needs. Our core consumers are style-conscious men and women attracted to our youthful brand image and fashion-forward designs, and with our new performance footwear, athletes and fitness enthusiasts. Many
+of our best-selling and core styles are also developed for children with colors and materials that reflect a playful image appropriate for this demographic. 
+We believe that brand recognition is an important element for success in the footwear business. We have aggressively promoted our brands through comprehensive marketing campaigns for men, women and
+children. During 2011, our Skechers brand was supported by print, television and outdoor campaigns for men and women; animated kids’ television campaigns featuring our own action heroes and characters; and print, television and outdoor
+campaigns featuring our Skechers Fitness endorsees. These endorsees included celebrities and reality stars Kim Kardashian and Kris Jenner, television personality Brooke Burke and fitness expert Denise Austin. We also signed Olympic medalist Meb
+Keflezighi, Hall of Fame hockey player Wayne Gretzky, Hall of Fame basketball player Karl Malone and Hall of Fame quarterback Joe Montana as endorsees to market our fitness footwear. 
+Since we introduced our first line, Skechers USA Sport Utility Footwear, in December 1992, we have expanded our product
+offering and grown our net sales while substantially increasing the breadth and penetration of our account base. Our men’s, women’s and children’s Skechers-branded product lines benefit from the Skechers reputation for
+contemporary and progressive styling, quality, comfort and affordability. Our lines that are not branded with the Skechers name benefit from our marketing support, quality management and expertise. To promote innovation and brand relevance, we
+manage our product lines separately by utilizing dedicated sales and design teams. Our product lines share back office services in order to limit our operating expenses and fully utilize our management’s vast experience in the footwear
+industry. 
+SKECHERS LINES 
+Skechers offers multiple branded product lines for men, women and children as well as other products sold under established names not associated with Skechers. Within these various product lines, we also
+have numerous categories, some of which have developed into well-known names. Most of these categories are marketed and packaged with unique shoe boxes, hangtags and in-store support. Management evaluates segment performance based primarily on net
+sales and gross margins; however, sales and costs are not allocated to specific product lines. 
+2 
+Table of Contents 
+Lifestyle Brands 
+Skechers USA. Our Skechers USA category for men and women includes: (i) Casuals, (ii) Dress
+Casuals, (iii) Relaxed Fit (for men only), (iv) seasonal sandals and boots and (v) Casual Fusion. This category is generally sold through mid-tier retailers, department stores and some footwear specialty shops. 
+• 
+The Casuals line for men and women is defined by lugged outsoles and utilizes value-oriented and leather materials in the uppers. For men, the
+Casuals category includes “black and brown” boots, shoes and sandals that generally have a rugged urban design — some with industrial-inspired fashion features. For women, the Casuals category includes basic “black and
+brown” oxfords and slip-ons, lug outsole and fashion boots, and casual sandals. We design and price both the men’s and women’s categories to appeal primarily to younger consumers with broad acceptance across age
+groups. 
+• 
+The Dress Casuals category for men is comprised of basic “black and brown” men’s shoes that feature shiny leathers and dress details,
+but may utilize traditional or lugged outsoles as well as value-oriented materials. The Dress Casual line for women is comprised of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or faux fur lining or
+trim, and water-resistant materials. 
+• 
+Skechers Relaxed Fit is a line of trend-right casuals for men who want all-day comfort without compromising style. Characteristics of the line
+include comfortable outsoles, memory foam insoles and quality leather uppers. A category with unique features, we market and package Skechers Relaxed Fit styles in a shoe box that is distinct from that of other categories in the Skechers USA line of
+footwear. 
+• 
+Our seasonal sandals and boots collection for men and women is designed with many of our existing and proven outsoles for our Casuals, Dress Casuals
+and Casual Fusion lines, stylized with basic or core uppers as well as fresh looks. These styles are generally made with quality leather uppers, but may also be in canvas or fabric for sandals, and water-resistant materials and fur and faux fur
+linings for boots. 
+• 
+Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals targeted to trend-conscious young men and women. The outsoles
+are primarily rubber and adopted from our men’s Sport and women’s Active lines. This collection features leather or nubuck uppers, but may also include mesh. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes: (i) Lightweight Joggers,
+(ii) Trail-inspired, (iii) Athletic-inspired, (iv) Performance-inspired athletics and (v) Sport sandals and boots. Our Skechers Sport category is distinguished by its technical performance-inspired looks; however, we generally do
+not promote the technical performance features of these shoes. Skechers Sport is typically sold through specialty shoe stores, department stores and athletic footwear retailers. 
+• 
+Our Lightweight Joggers are designed with comfort and flexibility in mind. Careful attention is devoted to the cushioning, weight, materials, design
+and construction of the outsoles, which vary greatly depending on the intended use. This category features bright colors, earth tones and traditional athletic white. 
+• 
+Trail-inspired athletics are designed for city and off-road wear, some with aggressive all terrain traction lugs, external torsion stabilizer,
+abrasion-resistant toe and tuned dual-density molded EVA midsole with pronation control. Many of the uppers are in breathable materials, mesh, leather and nubuck. 
+• 
+Athletic inspired casuals are designed with the comfort of sneakers and the styling of casuals. With all-day comfort and durable rubber treads, the
+shoes are intended to go from weekend to work. Many of the designs are in natural shades with athletic accents. The uppers are designed in leather, suede, nubuck and canvas. 
+• 
+Performance-inspired athletics take their styling and design cues from our performance footwear in the Skechers Fitness division, allowing consumers
+to wear similar looks without the technology and associated costs. The styles are primarily lightweight and flexible, and feature cushioned outsoles and ventilated uppers. Designed as a versatile, trend-right athletic shoe suitable for all-day wear,
+the line features leather and trubuck uppers in both bright and classic athletic colors. 
+• 
+Our Sport sandals and boots are primarily designed from existing Skechers Sport outsoles and may include many of the same sport features as our
+sneakers with the addition of new technologies geared toward making a comfortable sport sandal. Sport sandals and boots are designed as seasonal footwear for the consumer who already wears our Skechers Sport sneakers. 
+3 
+Table of Contents 
+Skechers Active. A natural companion to Skechers Sport,
+Skechers Active has grown from a casual everyday line into a complete line of sneakers for active females of all ages. The Active line now includes low-profile, lightweight, flexible and sporty styles. The line, with lace-up, Mary Janes, sandals and
+open back styles, is available in a multitude of colors as well as solid white or black, in fabrics, leathers and meshes, and with various closures – traditional laces, zig-zag and cross straps, among others. Active sneakers are typically
+retailed through specialty casual shoe stores and department stores. 
+BOBS from Skechers. Our
+BOBS from Skechers footwear for men, women and kids is an alpagarta-inspired footwear line created to help millions of children worldwide. For every pair of BOBS shoes sold, Skechers will donate a pair of new shoes to a child in need around the
+world through reputable charity organizations. Primarily designed with canvas and linen uppers, BOBS are also made with corduroy, boiled wool and Tyvek (a paper fabric) uppers. BOBS’ versatile, classic designs are available at department,
+specialty shoe stores and online retailers. 
+Skechers Kids. The Skechers Kids line includes:
+(i) Skechers Kids, which is a range of infants’, toddlers’, boys’ and girls’ boots, shoes and sneakers, (ii) S-Lights, Hot Lights by Skechers and Luminators by Skechers, (iii) Skechers Cali for Girls,
+(iv) Airators by Skechers, (v) Skechers Super Z-Strap, (vi) Elastika by Skechers, (vii) Bella Ballerina by Skechers, (viii) Twinkle Toes by Skechers, and (ix) Sporty Shorty by Skechers. 
+• 
+The Skechers Kids line includes embellishments or adornments such as fresh colors and fabrics from our Skechers adult shoes. Some of these styles
+are also adapted for toddlers with softer, more pliable outsoles and for infants with soft, leather-sole crib shoes. 
+• 
+S-Lights, Hot Lights and Luminators by Skechers are lighted sneakers and sandals for boys and girls. The S-Lights combine patterns of lights on the
+outsoles and sides of the shoes while Hot Lights feature lights on the front of the toe to simulate headlights as well as on other areas of the shoes. Luminators by Skechers feature glowing green lights and a marketing campaign with the Luminator
+character. 
+• 
+Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young girls designed to typify the California lifestyle. The sneakers are
+designed primarily with canvas uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and flats are designed with many of the same upper materials and outsoles as the sneakers. 
+• 
+Airators by Skechers is a line of boys sneakers with a foot-cooling system designed to pump air from the heel through to the toes. The line is
+marketed with the character Kewl Breeze. 
+• 
+Skechers Super Z-Strap is a line of athletic styled sneakers with a unique “z” shaped closure system for easy closure. The line is
+marketed with the character Z-Strap. 
+• 
+Elastika by Skechers is a line of girls’ sneakers with bungee closures. The line is marketed with the character Elastika.
+• 
+Bella Ballerina by Skechers is a new line of shoes with a disc that spins on the outsole, allowing girls to twirl like a ballerina.
+• 
+Twinkle Toes by Skechers is a new line of girls’ sneakers and boots that feature bejeweled toe caps and brightly designed uppers. Some also
+include lights. The line is marketed with the character Twinkle Toes. 
+• 
+Sporty Shorty by Skechers is a new line of athletic-inspired sneakers for girls who like to wear sport-style footwear off the field. Many of the
+styles are lightweight and come in bright colors. Some also include lights. The line is marketed with the character Sporty Shorty. 
+Skechers Kids and Skechers Cali for Girls are comprised primarily of shoes that are designed as “takedowns” of their adult counterparts, allowing the younger set the opportunity to wear the same
+popular styles as their older siblings and schoolmates. This “takedown” strategy maintains the product’s integrity by offering premium leathers, hardware and outsoles without the attendant costs involved in designing and developing
+new products. In addition, we adapt current fashions from our men’s and women’s lines by modifying designs and choosing colors and materials that are more suitable for the playful image that we have established in the children’s
+footwear market. Each Skechers Kids line is marketed and packaged separately with a distinct shoe box. Skechers Kids shoes are available at department stores and specialty and athletic retailers. 
+4 
+Table of Contents 
+Skechers Work. Expanding on our heritage of cutting-edge
+utility footwear, Skechers Work offers a complete line of men’s and women’s casuals, field boots, hikers and athletic shoes. The Skechers Work line includes athletic-inspired, casual safety toe and non-slip safety toe categories that may
+feature lightweight aluminum safety toe, electrical hazard and slip-resistant technologies, as well as breathable, seam-sealed waterproof membranes. Designed for men and women with jobs that require certain safety requirements, these durable
+styles are constructed on high-abrasion, long wearing soles, and feature breathable lining, oil and abrasion resistant outsoles offering all-day comfort and prolonged durability. The Skechers Work line incorporates design elements from the
+other Skechers men’s and women’s line. The uppers are comprised of high-quality leather, nubuck, trubuck and durabuck. Our safety toe athletic sneakers, boots, hikers and casuals are ideal for environments requiring safety
+footwear and offer comfort and safety in dry or wet conditions. Our slip-resistant boots, hikers, athletics, casuals and clogs are ideal for the service industry. Our safety toe products have been independently tested and certified to meet
+ASTM standards, and our slip-resistant soles have been tested pursuant to the Mark II testing method for slip resistance. Skechers Work is typically sold through department stores, athletic footwear retailers and specialty shoe stores, as well as
+marketed directly to consumers through business-to-business channels. 
+Fitness Brands 
+Shape-ups by Skechers. is a comfortable line of footwear that features a patented Resamax™ kinetic
+wedge designed to give the sensation of walking on sand. Primarily sneakers for men and women, the shoes are also available in slip-resistant styles for service professionals. 
+Shape-ups Liv by Skechers. is an ultra-lightweight sneaker collection for men and women with Natural Stride
+technology. The curved bottom is designed to guide you back to the body’s natural stride, the Resalyte® cushioning gives you a cushioned base, and the flex groove bottom offers more flexibility. Uppers are in leather, breathable mesh and
+lightweight fabrics in classic athletic colors, whites and brights. Shape-ups Liv by Skechers are marketed in their own box as a stylish walking and light running shoe for men and women. The line is available at athletic footwear retailers,
+department stores and specialty shoe stores. 
+Tone-ups by Skechers and Tone-ups Fitness.
+Targeting 18 to 34 year-old fitness and trend conscious women, Tone-ups by Skechers are casual and athletic-inspired sandals that feature a gradual density midsole designed for comfort and support. Tone-ups uppers range from leather to
+microfiber suede, mitobuck and nylon webbing. Tone-ups Fitness is a collection of stylish sneakers primarily with a padded bottom featuring Resalyte® technology. These styles are available in department stores and at casual shoe retailers.
+Skechers GOperform. Skechers Performance is a collection of technical footwear designed with a
+focus on a specific activity to maximize performance and promote natural motion. Developed by our Advanced Concepts Team, the footwear utilizes the latest advancements in materials and design, including an ultra-lightweight Resalyte® compound
+for the midsole. The footwear is available at athletic footwear retailers, department stores and specialty running stores. 
+• 
+Skechers GOrun is an extremely flexible, minimalistic line of performance running shoes that feature a mid-foot strike design for efficient running,
+GOimpulse sensors for responsive feedback, and a low 4mm heel drop for a natural running feel. The shoes are ultra-lightweight at only 4.9 ounces for women’s size 6 and 6.9 ounces for men’s size 9. This line is primarily marketed to
+serious runners as well as recreational runners. 
+• 
+Skechers GOwalk offers performance features in a comfortable casual slip-on. The line is also very lightweight and extremely flexible so your feet
+can move naturally when walking. 
+PRODUCT DESIGN AND DEVELOPMENT 
+Our principal goal in product design is to generate new and exciting footwear in all of our product lines with
+contemporary and progressive styles and comfort-enhancing performance features. Targeted to the active, youthful and style-savvy, we design our lifestyle line to be fashionable and marketable to the 12 to 24 year old consumer, while substantially
+all of our lines appeal to the broader range of 5 to 40 year old consumers, with an exclusive selection for infants and toddlers. Designed by our Advanced Concept Team, our performance products are for professional athletes and for those who want a
+technical fitness shoe with revolutionary design. 
+We believe that our products’ success is related to
+our ability to recognize trends in the footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving preferences. We are able to quickly translate the latest fashion trends into stylish, quality footwear at a
+reasonable price by analyzing and interpreting current and emerging lifestyle trends. Lifestyle trend 
+5 
+Table of Contents 
+information is compiled and analyzed by our designers from various sources, including as follows: the review and analysis of modern music, television, cinema, clothing, alternative sports and
+other trend-setting media; traveling to domestic and international fashion markets to identify and confirm current trends; consulting with our retail and e-commerce customers for information on current retail selling trends; participating in major
+footwear trade shows to stay abreast of popular brands, fashions and styles; and subscribing to various fashion and color information services. In addition, a key component of our design philosophy is to continually reinterpret and develop our
+successful styles in our brands’ image. 
+The footwear design process typically begins about nine months
+before the start of a season. Our products are designed and developed primarily by our in-house design staff. To promote innovation and brand relevance, we utilize dedicated design teams, who report to our senior design executives and focus on each
+of the men’s, women’s and children’s categories. In addition, we utilize outside design firms on an item-specific basis to supplement our internal design efforts. The design process is extremely collaborative, as members of the design
+staff frequently meet with the heads of retail, merchandising, sales, production and sourcing to further refine our products to meet the particular needs of the target market. 
+After a design team arrives at a consensus regarding the fashion themes for the coming season, the designers then
+translate these themes into our products. These interpretations include variations in product color, material structure and embellishments, which are arrived at after close consultation with our production department. Prototype blueprints and
+specifications are created and forwarded to our manufacturers for a design prototype. The design prototypes are then sent back to our design teams. Our major retail customers may also review these new design concepts. Customer input not only allows
+us to measure consumer reaction to the latest designs, but also affords us an opportunity to foster deeper and more collaborative relationships with our customers. We also occasionally order limited production runs that may initially be tested in
+our concept stores. By working closely with store personnel, we obtain customer feedback that often influences product design and development. Our design teams can easily and quickly modify and refine a design based on customer input. Generally, the
+production process can take six months to nine months from design concept to commercialization. 
+SOURCING 
+Factories. Our products are produced by independent contract manufacturers located primarily in China and,
+to a lesser extent, in Italy, Vietnam, Brazil and various other countries. We do not own or operate any manufacturing facilities. We believe that the use of independent manufacturers substantially increases our production flexibility and capacity
+while reducing capital expenditures and avoiding the costs of managing a large production work force. 
+When
+possible, we seek to use manufacturers that have previously produced our footwear, which we believe enhances continuity and quality while controlling production costs. We attempt to monitor our selection of independent factories to ensure that no
+one manufacturer is responsible for a disproportionate amount of our merchandise. We source product for styles that account for a significant percentage of our net sales from at least five different manufacturers. During 2011, five of our contract
+manufacturers accounted for approximately 62.5% of total purchases. One manufacturer accounted for 30.8%, and another accounted for 11.5% of our total purchases. To date, we have not experienced difficulty in obtaining manufacturing services or with
+the availability of raw materials. 
+We finance our production activities in part through the use of
+interest-bearing open purchase arrangements with certain of our Asian manufacturers. These facilities currently bear interest at a rate between 0% and 1.5% for 30- to 60-day financing, depending on the factory. We believe that the use of these
+arrangements affords us additional liquidity and flexibility. We do not have any long-term contracts with any of our manufacturers; however, we have long-standing relationships with many of our manufacturers and believe our relationships to be good.
+We closely monitor sales activity after initial introduction of a product in our concept stores to determine
+whether there is substantial demand for a style, thereby aiding us in our sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming collections or offered as part of our periodic style offerings, while less popular
+styles can be discontinued after a limited production run. We believe that sales in our concept stores can also help forecast sales in national retail stores, and we share this sales information with our wholesale customers. Sales, merchandising,
+production and allocations management analyze historical and current sales and market data from our wholesale account base and our own retail stores to develop an internal product quantity forecast that allows us to better manage our future
+production and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock position to minimize the time necessary to fill customer orders by placing orders with our manufacturers prior to the time we receive
+customers’ orders for such footwear. 
+6 
+Table of Contents 
+Production Oversight. To safeguard product quality and
+consistency, we oversee the key aspects of production from initial prototype manufacture through initial production runs to final manufacture. Monitoring of all production is performed in the United States by our in-house production department and
+in Asia through an approximately 230-person staff working from our offices in China. We believe that our Asian presence allows us to negotiate supplier and manufacturer arrangements more effectively, decrease product turnaround time and ensure
+timely delivery of finished footwear. In addition, we require our manufacturers to certify that neither convicted, forced nor indentured labor (as defined under U.S. law) nor child labor (as defined by law in the manufacturer’s country) is used
+in the production process, and that compensation will be paid according to local law and that the factory is in compliance with local safety regulations. 
+Quality Control. We believe that quality control is an important and effective means of maintaining the quality and reputation of our products. Our quality control program is designed to
+ensure that not only finished goods meet our established design specifications, but also that all goods bearing our trademarks meet our standards for quality. Our quality control personnel located in China perform an array of inspection procedures
+at various stages of the production process, including examination and testing of prototypes of key raw materials prior to manufacture, samples and materials at various stages of production and final products prior to shipment. Our employees are on
+site at each of our major manufacturers to oversee production. For some of our lower volume manufacturers, our staff is on site during significant production runs or we will perform unannounced visits to their manufacturing sites to further monitor
+compliance with our manufacturing specifications. 
+ADVERTISING AND MARKETING 
+With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted approach to marketing to drive
+traffic, build brand recognition and properly position our diverse lines within the marketplace. Senior management is directly involved in shaping our image and the conception, development and implementation of our advertising and marketing
+activities. The focus of our marketing plan is print and television advertising, which is supported by outdoor, trend-influenced marketing, public relations, promotions, grass roots and in-store support. In addition, we utilize celebrity endorsers
+in our advertisements. We also believe our websites and trade shows are effective marketing tools to both consumers and wholesale accounts. We have historically budgeted advertising as a percentage of projected net sales. 
+The majority of our advertising is conceptualized by our in-house design team. We believe that our advertising
+strategies, methods and creative campaigns are directly related to our success. Through our lifestyle, performance-inspired and image-driven advertising, we generally seek to build and increase brand awareness by linking the Skechers brand to
+youthful attitudes for our lifestyle lines, and technology with authentic runners and athletes for our performance lines. Our ads are designed to provide merchandise flexibility and to facilitate the Skechers brand’s direction. 
+To further build brand awareness and influence consumer spending, we have selectively signed endorsement agreements with
+celebrities whom we believe would reach new markets. Television host Brooke Burke appeared in print and television campaigns as did as celebrity icons and reality stars Kim Kardashian and Kris Jenner for our fitness lines in 2011. We also utilized
+athletes in our fitness advertisements, including Hall of Fame quarterback Joe Montana, Hall of Fame basketball player Karl Malone, and Hall of Fame hockey player Wayne Gretzky. In 2011, we also signed emerging New England Patriots running back
+Danny Woodhead and Olympic medalist Meb Keflizighi to help launch our performance lines. From time to time, we may sign other celebrities to endorse our brand name and image in order to strategically market our products among specific consumer
+groups in the future. 
+With a targeted approach, our print ads appear regularly in popular fashion and
+lifestyle consumer publications, including Runner’s World, Cosmopolitan, Shape, Lucky, In Style, Seventeen, Maxim, Men’s Fitness, and Women’s Health, as well as in weekly publications such as People, Us Weekly, OK!,
+and Sports Illustrated, among others. Our advertisements also appear in international magazines around the world. 
+Our television commercials are produced both in-house and through producers that we have utilized in the past who are familiar with our brands. In 2011, we developed commercials for men, women and
+children for our Skechers brands, including our animated spots for kids featuring our own action heroes and our fitness and performance collections. We have found these to be a cost-effective way to advertise on key national and cable programming
+during high selling seasons. In 2011, many of our television commercials were translated into multiple languages and aired in Brazil, Canada, the United Kingdom, France, the Benelux Region, Germany, Spain, Italy, Chile, Austria and Switzerland.
+Outdoor. In an effort to reach consumers where they shop and in high-traffic areas as they
+travel to and from work, we continued our multi-level outdoor campaign that included kiosks in key malls across the United States and billboards, transportation systems and 
+7 
+Table of Contents 
+telephone kiosks in North America, Brazil, Chile, Asia and Europe. In addition, we advertised on football perimeter boards in the United Kingdom, Spain and Germany. We believe these are effective
+and efficient ways to reach a broad range of consumers and leave a lasting impression for our brands. 
+Trend-Influenced Marketing/Public Relations. Our public relations objectives are to secure product
+placement in key fashion magazines, place our footwear on the feet of trend-setting celebrities and their children, and gain positive and accurate press about us and our products. Through our commitment to aggressively promote our upcoming styles,
+our products are often featured in leading fashion and pop culture magazines, as well as in select films and popular television shows. Our footwear and our company have been prominently displayed and referenced on news and magazine shows. We have
+also amassed an array of prominent product placements in magazines including Seventeen, OK!, US Weekly, Health and Competitor . In addition, our brands have been associated with cutting edge events and various
+celebrities. 
+Promotions and Grass Roots. By applying creative sales techniques via a broad
+spectrum of media, our marketing team seeks to build brand recognition and drive traffic to Skechers’ retail stores, websites and our retail partners’ locations. Skechers’ promotional strategies have encompassed in-store specials,
+charity events, product tie-ins and giveaways, and collaborations with national retailers and radio stations. In 2011, we appeared at numerous marathons and walks with Skechers Fitness branded booths to allow runners the ability to try on and often
+buy our product -- including at the New York Marathon where Meb Keflezighi achieved a personal best time while running in Skechers GOrun footwear. Our products were made available to consumers directly or through key accounts at many of these
+events. 
+Visual Merchandising. Our in-house visual merchandising department supports wholesale
+customers, distributors and our retail stores by developing displays that effectively leverage our products at the point of sale. Our point-of-purchase display items include signage, graphics, displays, counter cards, banners and other merchandising
+items for each of our brands. These materials mirror the look and feel of each brand and reinforce the image as well as draw consumers into stores. 
+Our visual merchandising coordinators (“VMC’s”) work with our sales force and directly with our customers to ensure better sell-through at the retail level by generating greater consumer
+awareness through Skechers brand displays. Our VMC’s communicate with and visit our wholesale customers on a regular basis to aid in proper display of our merchandise. They also run in-store promotions to enhance the sale of Skechers footwear
+and create excitement surrounding the Skechers brand. We believe that these efforts help stimulate impulse sales and repeat purchases. 
+Trade Shows. To better showcase our diverse products to footwear buyers in the United States and Europe and to distributors around the world, we regularly exhibit at leading trade shows.
+Along with specialty trade shows, we exhibit at WSA’s The Shoe Show, FFANY, ASR, MAGIC and Outdoor Retailer in the United States; GDS, MICAM, ISPO, Mess Around and Who’s Next in Europe; and Couromoda and Francal in Brazil. Our dynamic,
+state-of-the-art trade show exhibits are developed by our in-house architect to showcase our latest product offerings in a lifestyle setting reflective of each of our brands. By investing in innovative displays and individual rooms showcasing each
+line, our sales force can present a sales plan for each line and buyers are able to truly understand the breadth and depth of our offerings, thereby optimizing commitments and sales at the retail level. 
+Internet. We promote and sell our brands through our e-commerce website www.skechers.com , which enables fans and customers to shop, browse,
+find store locations, socially interact, post a shoe review, photo, video, or question and immerse themselves in our brands. Our website is a venue for dialog and feedback from customers about our products which enhances the Skechers brand
+experience while driving sales through all our retail channels. 
+PRODUCT DISTRIBUTION CHANNELS 
+We have four reportable segments – domestic wholesale sales, international wholesale sales, retail sales and
+e-commerce sales. In the United States, our products are available through a network of wholesale customers comprised of department, athletic and specialty stores. Internationally, our products are available through wholesale customers in more than
+100 countries and territories via our global network of distributors in addition to our subsidiaries in Asia, Europe, Canada and South America. Skechers owns and operates retail stores both domestically and internationally through three integrated
+retail formats—concept, factory outlet and warehouse outlet stores. Each of these channels serves an integral function in the global distribution of our products. Twenty one distributors have opened 207 distributor-owned Skechers retail stores
+in 34 countries as of December 31, 2011. 
+Domestic Wholesale. We distribute our footwear
+through the following domestic wholesale distribution channels: department stores, specialty stores, athletic specialty shoe stores and independent retailers, as well as catalog and internet retailers. While
+8 
+Table of Contents 
+department stores and specialty retailers are the largest distribution channels, we believe that we appeal to a variety of wholesale customers, many of whom may operate stores within the same
+retail location due to our distinct product lines, variety of styles and the price criteria of their specific customers. Management has a clearly defined growth strategy for each of our channels of distribution. An integral component of our strategy
+is to offer our accounts the highest level of customer service so that our products will be fully represented in existing retail locations and new locations of each customer. 
+In an effort to provide knowledgeable and personalized service to our wholesale customers, the sales force is segregated
+by product line, each of which is headed by a vice president or national sales manager. Reporting to each sales manager are knowledgeable account executives and territory managers. The vice presidents and national sales managers report to our senior
+vice president of sales. All of our vice presidents and national sales managers are compensated on a salary basis, while our account executives and territory managers are compensated on a commission basis. None of our domestic sales personnel sells
+competing products. 
+We believe that we have developed a loyal customer base through exceptional customer
+service. We believe that our close relationships with these accounts help us to maximize their retail sell-throughs. Our visual merchandise coordinators work with our wholesale customers to ensure that our merchandise and point-of-purchase marketing
+materials are properly presented. Sales executives and merchandise personnel work closely with accounts to ensure that appropriate styles are purchased for specific accounts and for specific stores within those accounts as well as to ensure that
+appropriate inventory levels are carried at each store. Such information is then utilized to help develop sales projections and determine the product needs of our wholesale customers. The value-added services we provide our wholesale customers help
+us maintain strong relationships with our existing wholesale customers and attract potential new wholesale customers. 
+International Wholesale. Our products are sold in more than 100 countries and territories throughout the world. We generate revenues from outside the United States from three principal
+sources: (i) direct sales to department stores and specialty retail stores through our subsidiaries and joint ventures in Canada, France, Germany, Spain, Portugal, Italy, Switzerland, Austria, Malaysia, Thailand, Singapore, Hong Kong, China,
+Japan, the Benelux Region, the United Kingdom, Brazil and Chile; (ii) sales to foreign distributors who distribute our footwear to department stores and specialty retail stores in countries and territories across Eastern Europe, Asia, Central
+America, South America, Africa, the Middle East and Australia, among other regions; and (iii) to a lesser extent, royalties from licensees who manufacture and distribute our non-footwear products outside the United States. 
+We believe that international distribution of our products represents a significant opportunity to increase sales and
+profits. We intend to further increase our share of the international footwear market by heightening our marketing in those countries in which we currently have a presence through our international advertising campaigns, which are designed to
+establish Skechers as a global brand synonymous with trend-right casual shoes. 
+• 
+International Subsidiaries 
+Europe 
+We currently distribute product in most of Western Europe through the following subsidiaries: Skechers
+USA Ltd., with its offices and showrooms in London, England; Skechers S.a.r.l., with its offices in Lausanne, Switzerland; Skechers USA France S.A.S., with its offices and showrooms in Paris, France; Skechers USA Deutschland GmbH, with its offices
+and showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L., with its offices and showrooms in Madrid, Spain; Skechers USA Benelux B.V., with its offices and showrooms in Waalwijk, the Netherlands; and Skechers USA Italia S.r.l., with its
+offices and showroom in Verona, Italy. 
+Skechers-owned retail stores in Europe include eleven
+concept stores and thirteen factory outlet stores located in nine countries, including the key locations of Covent Garden and Oxford Street in London, Alstadt District in Düsseldorf and Kalverstraat Street in Amsterdam. 
+To accommodate our European subsidiaries’ operations, we operate an approximately 490,000 square
+foot distribution center in Liege, Belgium. This distribution center is currently used to store and deliver product to our subsidiaries and retail stores throughout Europe. 
+9 
+Table of Contents 
+Canada 
+Merchandising and marketing of our product in Canada is managed by our wholly-owned subsidiary, Skechers
+USA Canada, Inc. with its offices and showrooms outside Toronto in Mississauga, Ontario. Product sold in Canada is primarily sourced from our U.S. distribution center in Rancho Belago, California. We have five concept stores; Toronto Eaton Centre,
+West Edmonton Mall, Chinook Centre, Richmond Centre, and Pacific Centre; and two factory outlet stores in Toronto and Alberta. 
+Malaysia, Singapore and Thailand 
+We have
+a 50% interest in a joint venture in Malaysia and Singapore, and a 51% interest in a joint venture in Thailand that generate net sales in those countries. The joint ventures operate four concept stores and seven shops-in-shop in Malaysia, twelve
+concept stores and two shop-in-shops in Singapore, and three concept stores in Thailand. These joint ventures are included in our consolidated financial statements. 
+China and Hong Kong 
+We have a 50% interest in a joint venture in China and a minority interest in a joint venture in Hong
+Kong that generate net sales in those countries. Under the joint venture agreements, the joint venture partners contribute capital in proportion to their respective ownership interests. The joint ventures operate 47 direct-owned stores and in excess
+of 140 shops-in-shop in China and 19 direct-owned stores and 11 shops-in-shop in Hong Kong. These stores are in key locations in Shanghai, Beijing, Guangzhou, Xiamen, Hong, Kong, Macau, and other cities. The joint ventures are included in our
+consolidated financial statements. 
+Japan 
+Merchandising and marketing of our product in Japan is managed by our wholly-owned subsidiary, Skechers
+Japan GK, with its offices located in Tokyo, Japan. Product sold in Japan is primarily shipped directly from our contract manufacturers’ factories in China. 
+Brazil 
+Merchandising and marketing of our product in Brazil is managed by our wholly-owned subsidiary, Skechers
+Do Brasil Calcados LTDA., with its offices located in Sao Paulo, Brazil. Product sold in Brazil is primarily shipped directly from our contract manufacturers’ factories in China and occasionally from our U.S. distribution center in Rancho
+Belago, California. 
+Chile 
+Our wholly-owned subsidiary, Comercializadora Skechers Chile Limitada, supports our 18 retail stores as
+well as wholesale accounts in Chile. Product sold in Chile is primarily shipped directly from our contract manufacturers’ factories in China and occasionally from our U.S. distribution center in Rancho Belago, California. 
+10 
+Table of Contents 
+• 
+Distributors 
+Where we do not sell directly through our international subsidiaries and joint ventures, our footwear is
+distributed through an extensive network of more than 30 distributors who sell our products to department, athletic and specialty stores in more than 100 countries around the world. As of December 31, 2011, we had agreements with 21 of these
+distributors regarding 207 distributor-owned Skechers retail stores that are open in 34 countries, including 71 stores that were opened in 2011, while seven distributor-owned stores were closed during the year. Our distributors own and operate the
+following retail stores: 
+REGION 
+STORE FORMAT 
+NUMBER OF 
+STORES 
+LOCATION (1) 
+Americas 
+Concept 
+51 
+Aruba, Colombia (6), Costa Rica (2), Ecuador (2), Guatemala (2), Honduras, Mexico (13), Panama (3), Peru (4), Venezuela (17) 
+Warehouse 
+5 
+Colombia, Mexico (4) 
+Asia 
+Concept 
+79 
+India, Indonesia (9), Japan (4), Korea (48), Mongolia, Philippines (10), Taiwan (6) 
+Warehouse 
+8 
+Japan (4), Korea (2), Taiwan (2) 
+Australia 
+Concept 
+5 
+Castle Hill, Chadstone, Maribyrnong, Sydney (2) 
+Warehouse 
+10 
+Brisbane, Bundoora, Cairns, Canberra, Jindalee, Melbourne (4), Sydney 
+Europe 
+Concept 
+23 
+Croatia (3), Estonia (2), Israel, Lithuania, Malta (3), Russia (10), 
+Ukraine (3) 
+Warehouse 
+1 
+Greece 
+Middle East 
+Concept 
+13 
+Bahrain, Kuwait, Qatar, Saudi Arabia (5), UAE (5) 
+Warehouse 
+1 
+UAE 
+Africa 
+Concept 
+11 
+Egypt (2), Morocco (2), South Africa (7) 
+(1) One store per location except as otherwise noted. 
+The distributors are responsible for their respective stores’
+operations, have ownership of their respective stores’ assets, and select the broad collection of our products to sell to consumers in their regions. In order to maintain a globally consistent image, we provide architectural, graphic and visual
+guidance and materials for the design of the stores, and we train the local staff on our products and corporate culture. We intend to expand our international presence and global recognition of the Skechers brand name by continuing to sell our
+footwear to foreign distributors and by opening flagship retail stores with distributors that have local market expertise. 
+Retail Stores. We pursue our retail store strategy through our three integrated retail formats: the concept store, the factory outlet store and the warehouse outlet store. Our three store
+formats enable us to promote the full Skechers product offering in an attractive environment that appeals to a broad group of consumers. In addition, most of our retail stores are profitable and have a positive effect on our operating results. We
+periodically review all of our stores for impairment. We prepare a summary of cash flows for each of our retail stores to assess potential impairment of the fixed assets and leasehold improvements. If the assets are considered to be impaired, the
+impairment we recognize is the amount by which the carrying value of the assets exceeds the fair value of the assets. In addition, we base the useful lives and related amortization or depreciation expense on our estimate of the period that the
+assets will generate revenues or otherwise be used by us. As of February 15, 2012, we owned and operated 120 concept stores, 107 factory outlet stores and 54 warehouse outlet stores in the United States, and 33 concept stores and 16 factory
+outlet stores internationally. During 2011, we opened 40 domestic stores and six international stores, and closed three domestic stores and one international store. During 2012, we plan to open 18 to 20 new stores. 
+11 
+Table of Contents 
+• 
+Concept Stores. 
+Our concept stores are located at marquee street locations, major tourist areas or in key shopping malls
+in metropolitan cities. Our concept stores have a threefold purpose in our operating strategy. First, concept stores serve as a showcase for a wide range of our product offering for the current season, as we estimate that our average wholesale
+customer carries no more than 5% of the complete Skechers line in any one location. Our concept stores showcase our products in an attractive, easy-to-shop open-floor setting, providing the customer with the complete Skechers story. Second, retail
+locations are generally chosen to generate maximum marketing value for the Skechers brand name through signage, store front presentation and interior design. Domestic locations include concept stores at Times Square, Union Square and 34th Street in
+New York, Powell Street in San Francisco, Hollywood and Highland in Hollywood, Santa Monica’s Third Street Promenade, and Santa Monica Place Mall and Las Vegas’ Fashion Show Mall. International locations include Covent Garden and Oxford
+Street in London, Alstadt District in Dusseldorf, Toronto’s Eaton Centre, Vancouver’s Pacific Centre, and Kalverstraat Street in Amsterdam. The stores are typically designed to create a distinctive Skechers look and feel, and enhance
+customer association of the Skechers brand name with current youthful lifestyle trends and styles. Third, the concept stores serve as marketing and product testing venues. We believe that product sell-through information and rapid customer feedback
+derived from our concept stores enables our design, sales, merchandising and production staff to respond to market changes and new product introductions. Such responses serve to augment sales and limit our inventory markdowns and customer returns
+and allowances. In 2011, we opened 17 domestic concept stores and six international concept stores. 
+The typical Skechers concept store is approximately 2,500 square feet, although in certain markets we have opened concept stores as large as 7,800 square feet or as small as 1,100 square feet. When
+deciding where to open concept stores, we identify top geographic markets in the larger metropolitan cities in the United States, Canada, Europe, South America and Asia. When selecting a specific site, we evaluate the proposed sites’ traffic
+pattern, co-tenancies, sales volume of neighboring concept stores, lease economics and other factors considered important within the specific location. If we are considering opening a concept store in a shopping mall, our strategy is to obtain space
+as centrally located as possible in the mall where we expect foot traffic to be most concentrated. We believe that the strength of the Skechers brand name has enabled us to negotiate more favorable terms with shopping malls that want us to open up
+concept stores to attract customer traffic to their venues. 
+• 
+Factory Outlet Stores. 
+Our factory outlet stores are generally located in manufacturers’ direct outlet centers throughout
+the United States. In addition, we have 16 international outlet stores – five in England, two each in Canada, Germany and Italy, and one each in Austria, Chile, the Netherlands, Portugal and Scotland. Our factory outlet stores provide
+opportunities for us to sell discontinued and excess merchandise, thereby reducing the need to sell such merchandise to discounters at excessively low prices and potentially compromise the Skechers brand image. Skechers’ factory outlet stores
+range in size from approximately 1,900 to 9,000 square feet. Unlike our warehouse outlet stores, inventory in these stores is supplemented by certain first-line styles sold at full retail price points. We opened nine domestic factory outlet stores
+in 2011. 
+• 
+Warehouse Outlet Stores. 
+Our free-standing warehouse outlet stores, which are primarily located throughout the United States,
+enable us to liquidate excess merchandise, discontinued lines and odd-size inventory in a cost-efficient manner. Skechers’ warehouse outlet stores are typically larger than our factory outlet stores and typically range in size from
+approximately 5,200 to 15,000 square feet. Our warehouse outlet stores enable us to sell discontinued and excess merchandise that would otherwise typically be sold to discounters at excessively low prices, which could otherwise compromise the
+Skechers brand image. We seek to open our warehouse outlet stores in areas that are in close proximity to our concept stores to facilitate the timely transfer of inventory that we want to liquidate as soon as practicable. We opened 14 domestic
+warehouse outlet stores in 2011. 
+Electronic Commerce. Our website, www.skechers.com is a virtual storefront that promotes the Skechers
+brands. Our website is designed to provide a positive shopping and brand experience, showcasing our products in an easy-to-navigate format, allowing consumers to browse our selections and purchase our footwear. This virtual store has provided a
+convenient alternative-shopping environment and brand experience. The website is an efficient and effective additional retail distribution channel, and it has improved our customer service. 
+12 
+Table of Contents 
+For disclosure of segment information for our four reportable segments
+– domestic wholesale sales, international wholesale sales, retail sales and e-commerce sales—see note 12 to the financial statements on page 63 of this annual report. 
+LICENSING 
+We believe that selective licensing of the Skechers
+brand name and our product line names to manufacturers may broaden and enhance the individual brands without requiring significant capital investments or additional incremental operating expenses. Our multiple product lines plus additional
+subcategories present many potential licensing opportunities on terms with licensees that we believe will provide more effective manufacturing, distribution or marketing of non-footwear products. We also believe that the reputation of Skechers and
+its history in launching brands has also enabled us to partner with reputable non-footwear brands to design and market their footwear. 
+As of January 31, 2012, we had 34 active domestic and international licensing agreements in which we are the licensor. These include Skechers branded leather goods and backpacks, Skechers Kids
+apparel, Skechers Scrubs for health care professionals and Skechers Eyewear. We have international licensing agreements for the design and distribution of men’s and women’s apparel in India, Israel, Mexico, South Africa, and Korea; bags in
+Panama; and watches in the Philippines. 
+DISTRIBUTION FACILITIES AND OPERATIONS 
+We believe that strong distribution support is a critical factor in our operations. Once manufactured, our products are
+packaged in shoe boxes bearing bar codes that are shipped either: (i) to our approximate 1.8 million square-foot distribution center located in Rancho Belago, California. This facility was completed in 2011 and has replaced six facilities
+located in Ontario, California, (ii) to our approximately 490,000 square-foot distribution center located in Liege, Belgium or (iii) directly from third-party manufacturers to our other international customers and other international
+third-party distribution centers. Upon receipt at either of the distribution centers, merchandise is inspected and recorded in our management information system and packaged according to customers’ orders for delivery. Merchandise is shipped to
+customers by whatever means each customer requests, which is usually by common carrier. The distribution centers have multi-access docks, enabling us to receive and ship simultaneously, and to pack separate trailers for shipments to different
+customers at the same time. We have an electronic data interchange system, or EDI system, to which some of our larger customers are linked. This system allows these customers to automatically place orders with us, thereby eliminating the time
+involved in transmitting and inputting orders, and it includes direct billing and shipping information. 
+BACKLOG 
+As of December 31, 2011, our backlog was $390.2 million, compared to $588.9 million as of December 31, 2010.
+Backlog orders are subject to cancellation by customers, as evidenced by order cancellations that we have experienced over the past few years due to the weakened U.S. economy and shifting footwear trends which caused the toning market to become
+saturated with lower priced products. For a variety of reasons, including changes in the economy, customer demand for our products, the timing of shipments, product mix of customer orders, the amount of in-season orders and a shift towards tighter
+lead times within backlog levels, backlog may not be a reliable measure of future sales for any succeeding period. 
+INTELLECTUAL PROPERTY
+RIGHTS 
+We own and utilize a variety of trademarks, including the Skechers trademark. We have a significant
+number of both registrations and pending applications for our trademarks in the United States. In addition, we have trademark registrations and trademark applications in approximately 105 foreign countries. We also have design patents and pending
+design and utility patent applications in both the United States and approximately 27 foreign countries. We continuously look to increase the number of our patents and trademarks both domestically and internationally where necessary to protect
+valuable intellectual property. We regard our trademarks and other intellectual property as valuable assets and believe that they have significant value in the marketing of our products. We vigorously protect our trademarks against infringement,
+including through the use of cease and desist letters, administrative proceedings and lawsuits. 
+We rely on
+trademark, patent, copyright and trade secret protection, non-disclosure agreements and licensing arrangements to establish, protect and enforce intellectual property rights in our logos, trade names and in the design of our products. In particular,
+we believe that our future success will largely depend on our ability to maintain and protect the Skechers trademark and other key trademarks. Despite our efforts to safeguard and maintain our intellectual property rights, we cannot be certain that
+we will be successful in this regard. Furthermore, we cannot be certain that our trademarks, products and promotional materials or other 
+13 
+Table of Contents 
+intellectual property rights do not or will not violate the intellectual property rights of others, that our intellectual property would be upheld if challenged, or that we would, in such an
+event, not be prevented from using our trademarks or other intellectual property rights. Such claims, if proven, could materially and adversely affect our business, financial condition and results of operations. In addition, although any such claims
+may ultimately prove to be without merit, the necessary management attention to and legal costs associated with litigation or other resolution of future claims concerning trademarks and other intellectual property rights could materially and
+adversely affect our business, financial condition and results of operations. We have sued and have been sued by third parties for infringement of intellectual property. It is our opinion that none of these claims has materially impaired our ability
+to utilize our intellectual property rights. 
+The laws of certain foreign countries do not protect
+intellectual property rights to the same extent or in the same manner as do the laws of the United States. Although we continue to implement protective measures and intend to defend our intellectual property rights vigorously, these efforts may not
+be successful or the costs associated with protecting our rights in certain jurisdictions may be prohibitive. From time to time we discover products in the marketplace that are counterfeit reproductions of our products or that otherwise infringe
+upon intellectual property rights held by us. Actions taken by us to establish and protect our trademarks and other intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from seeking to
+block sales of our products as violating trademarks and intellectual property rights. If we are unsuccessful in challenging a third party’s products on the basis of infringement of our intellectual property rights, continued sales of such
+products by that or any other third party could adversely impact the Skechers brand, result in the shift of consumer preferences away from our products and generally have a material adverse effect on our business, financial condition and results of
+operations. 
+COMPETITION 
+Competition in the footwear industry is intense. Although we believe that we do not compete directly with any single company with respect to its entire range of products, our products compete with other
+branded products within their product category as well as with private label products sold by retailers, including some of our customers. Our utility footwear and casual shoes compete with footwear offered by companies such as The Timberland
+Company, Clarks, Kenneth Cole Productions Inc., Steven Madden, Ltd., Wolverine World Wide, Inc., K-Swiss Inc., and V.F. Corporation. Our athletic lifestyle and performance shoes compete with footwear offered by companies such as Nike, Inc., adidas
+AG, Puma AG, and New Balance Athletic Shoe, Inc. The intense competition among these companies and the rapid changes in technology and consumer preferences in the markets for performance footwear, including the walking fitness category, constitute
+significant risk factors in our operations. Our children’s shoes compete with footwear offered by companies such as Collective Brands Inc. and Geox. In varying degrees, depending on the product category involved, we compete on the basis of
+style, price, quality, comfort and brand name prestige and recognition, among other considerations. These and other competitors pose challenges to our market share in our major domestic markets and may make it more difficult to establish our
+products in Europe, Asia and other international regions. We also compete with numerous manufacturers, importers and distributors of footwear for the limited shelf space available for the display of such products to the consumer. Moreover, the
+general availability of contract manufacturing capacity allows ease of access by new market entrants. Many of our competitors are larger, have been in existence for a longer period of time, have achieved greater recognition for their brand names,
+have captured greater market share and/or have substantially greater financial, distribution, marketing and other resources than we do. We cannot be certain that we will be able to compete successfully against present or future competitors, or that
+competitive pressures will not have a material adverse effect on our business, financial condition and results of operations. 
+EMPLOYEES
+As of January 31, 2012, we employed 5,636 persons, 2,434 of whom were employed on a full-time basis and
+3,202 of whom were employed on a part-time basis, primarily in our retail stores. None of our employees is subject to a collective bargaining agreement. We believe that our relations with our employees are satisfactory.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2011/0001193125-12-088845/item13.txt b/raw/filings/0001065837/2011/0001193125-12-088845/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3255e570cebf42e7bd80e424950473bc9e4f2ae0
--- /dev/null
+++ b/raw/filings/0001065837/2011/0001193125-12-088845/item13.txt
@@ -0,0 +1,4 @@
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+The information required by this Item 13 is hereby incorporated by reference from our definitive proxy statement, to
+be filed pursuant to Regulation 14A within 120 days after the end of our 2011 fiscal year.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2011/0001193125-12-088845/item9a.txt b/raw/filings/0001065837/2011/0001193125-12-088845/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3ce8d4ae9e79e921ed0525cbc2cce0e442e55a6f
--- /dev/null
+++ b/raw/filings/0001065837/2011/0001193125-12-088845/item9a.txt
@@ -0,0 +1,69 @@
+ITEM 9A. 
+CONTROLS AND PROCEDURES 
+Attached as exhibits to this annual report on Form 10-K are certifications of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance
+with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the
+certifications. 
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES 
+We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information
+required to be disclosed by a company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within required time periods and that such information is accumulated and communicated to allow
+timely decisions regarding required disclosures. As of the end of the period covered by this annual report on Form 10-K, we carried out an evaluation under the supervision and with the participation of our management, including our CEO and CFO, of
+the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective at
+the reasonable assurance level as of the end of such period. 
+65 
+Table of Contents 
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
+such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
+reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
+and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
+disposition of our assets that could have a material effect on our financial statements. 
+We conducted an
+evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
+Based on our evaluation under the framework in Internal Control – Integrated Framework, our management has concluded that as of December 31, 2011, our internal control over financial reporting is effective. 
+Our independent registered public accountants, KPMG LLP, audited the consolidated financial statements included in this
+annual report on Form 10-K and have issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2011, which is set forth below. 
+INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS 
+Our
+management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control
+system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints,
+and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not
+occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple
+error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions
+about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are
+subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. 
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING 
+There were
+no significant changes to our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting during the fourth quarter of 2011. The results of
+our evaluation are discussed above in Management’s Report on Internal Control Over Financial Reporting. 
+66 
+Table of Contents 
+Report of Independent Registered Public Accounting Firm 
+The Board of Directors and Stockholders 
+Skechers U.S.A., Inc.: 
+We have audited the internal control over financial reporting of Skechers U.S.A., Inc. (the Company) as of December 31, 2011, based on criteria established in Internal Control – Integrated
+Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
+effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the
+Company’s internal control over financial reporting based on our audit. 
+We conducted our audit in accordance with the
+standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
+all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
+control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 
+A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and
+procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
+recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
+and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
+statements. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect
+misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
+deteriorate. 
+In our opinion, Skechers U.S.A., Inc. maintained, in all material respects, effective internal control over
+financial reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the COSO. 
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Skechers U.S.A., Inc. and subsidiaries as of
+December 31, 2011 and 2010, and the related consolidated statements of operations, equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2011, and the related financial
+statement schedule, and our report dated February 29, 2012, expressed an unqualified opinion on those consolidated financial statements and financial statement schedule. 
+/s/ KPMG LLP 
+Los Angeles, California 
+February 29, 2012 
+67 
+Table of Contents
\ No newline at end of file
diff --git a/raw/filings/0001065837/2011/0001193125-12-088845/rp_note.txt b/raw/filings/0001065837/2011/0001193125-12-088845/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001065837/2011/0001193125-12-088845/rpt_disclosure.txt b/raw/filings/0001065837/2011/0001193125-12-088845/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2279cf6bbf30cb2d7d010edd1e5c61668e7840c4
--- /dev/null
+++ b/raw/filings/0001065837/2011/0001193125-12-088845/rpt_disclosure.txt
@@ -0,0 +1,42 @@
+TRANSACTIONS WITH RELATED PERSONS 
+Policies and Procedures 
+As provided in our Audit Committee Charter, the
+Audit Committee shall review (i) at least annually a summary of directors’ and executive officers’ related party transactions and potential conflicts of interest and our policies relating to the avoidance of conflicts of interest
+(which is discussed in our Code of Business Conduct and Ethics), (ii) past and proposed transactions between our company, on the one hand, and any of our directors or executive officers, on the other hand, and (iii) policies and procedures
+as well as audit results associated with directors’ and executive officers’ expense accounts and perquisites, including the use of corporate assets. 
+Our Policies and Procedures for Related Person Transactions (the “Policy”), which was adopted by the Board of Directors as of March 8, 2007, covers any transaction, arrangement or
+relationship, or series of similar transactions, arrangements or relationships, (including any indebtedness or guarantee of indebtedness) in which (i) the aggregate amount involved will or may be expected to exceed $100,000 in any calendar
+year, (ii) we are a participant, and (iii) any Related Person has or will have a direct or indirect interest (other than solely as a result of being a director or a less than ten percent beneficial owner of another entity). A “Related
+Person” is any (a) person who is or was (since the beginning of the last fiscal year for which we have filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for
+election as a director of Skechers, (b) greater than five percent beneficial owner of our Class A or Class B Common Stock or (c) immediate family member of either of the foregoing. 
+Certain categories of transactions with Related Persons (such as transactions involving competitive bids) have been reviewed and
+pre-approved by the Audit Committee under the Policy. The Audit Committee shall review the material facts of all other transactions with Related Persons that require the Committee’s approval. If advance approval by the Audit Committee of a
+transaction with a Related Person is not feasible, then the transaction shall be considered and, if the Committee determines it to be appropriate, ratified at the Committee’s next regularly scheduled meeting. Factors that the Audit Committee
+will take into account include whether the transaction with a Related Person is on terms no less favorable than terms generally available to an unaffiliated 
+28 
+third-party under the same or similar circumstances and the extent of the Related Person’s interest in the transaction. No Audit Committee member shall participate in any discussion or
+approval of a transaction with a Related Person pursuant to which he is a Related Person except for providing material information concerning the transaction. For those transactions with a Related Person that are ongoing, the Audit Committee, on at
+least an annual basis, shall review and assess ongoing relationships with the Related Person to determine that the Related Person remains appropriate. 
+The following list of transactions with Related Persons includes all such transactions equal to or greater than $120,000 that took place since January 1, 2011, which were identified by the Audit
+Committee, and each of these transactions was reviewed, and approved or ratified by the Audit Committee, pursuant to the policies and procedures discussed herein. 
+Related Person Transactions 
+As of March 30, 2012, Robert Greenberg,
+who is our Chairman of the Board and Chief Executive Officer, his children and the Greenberg Family Trust, collectively, beneficially own 58.2% of our Class B Common Stock and approximately 44.2% of the combined voting power of our Class A
+and Class B Common Stock. Robert Greenberg, directly and indirectly through the Greenberg Family Trust, beneficially owns approximately 31.7% of the combined voting power of our Class A and Class B Common Stock. As a result, Robert
+Greenberg is a “control person” of Skechers within the meaning of the rules and regulations promulgated under the Securities Act of 1933, as amended, and we are considered a “Controlled Company” under the NYSE Rules and are
+thereby exempt from certain listing requirements and regulations as set forth in the NYSE Rules. Michael Greenberg, who is our President, and Jeffrey Greenberg, both of whom are members of our Board of Directors, are each beneficiaries of the
+Greenberg Family Trust, which influences the election of Robert Greenberg, Michael Greenberg and Jeffrey Greenberg to our Board of Directors. 
+Michael Greenberg owns a 12% beneficial ownership interest in Manhattan Inn Operating Company, LLC (“MIOC”), the primary business of which is to own and operate the Shade Hotel in Manhattan
+Beach, California. David Weinberg, who is our Chief Operating Officer, Chief Financial Officer, Executive Vice President and a member of our Board of Directors, and Michael Greenberg’s brothers Jeffrey Greenberg, who is a director of Skechers,
+and Jason and Joshua Greenberg, all of whom are senior vice presidents of Skechers, own in aggregate a 17% beneficial ownership interest in MIOC. During 2011, we paid approximately $188,000 to the Shade Hotel for lodging, food and events that were
+held there including our annual holiday party. 
+On July 29, 2010, we formed Skechers Foundation (the
+“Foundation”), which is a 501(c)(3) non-profit entity that does not have any shareholders or members. The Foundation is not a subsidiary of and is not otherwise affiliated with Skechers, and Skechers does not have a financial interest in
+the Foundation. However, two officers and directors of Skechers, Michael Greenberg who is our President and David Weinberg who is our Chief Operating Officer and Chief Financial Officer, are also officers and directors of the
+Foundation. During the year ended December 31, 2011, we contributed $1,250,000 to the Foundation to use for various charitable causes. 
+Jeffrey Greenberg, Jason Greenberg, Joshua Greenberg and Jennifer Greenberg Messer, who are the children of Robert Greenberg and also the siblings of Michael Greenberg, are non-executive employees of
+Skechers, and they earned total compensation of $318,623, $547,007, $528,639 and $241,696, respectively, in 2011. Jeffrey Greenberg was also a member of our Board of Directors in 2011, but did not earn any additional compensation for services
+provided as a director. 
+Andrew Weinberg, who is the child of David Weinberg, is a non-executive employee of Skechers, and he
+earned total compensation of $203,408 in 2011. 
+29
\ No newline at end of file
diff --git a/raw/filings/0001065837/2013/0001193125-14-077061/filing.txt b/raw/filings/0001065837/2013/0001193125-14-077061/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3ad32b06822351164f5a22e4b8f46ef70dbf50cc
--- /dev/null
+++ b/raw/filings/0001065837/2013/0001193125-14-077061/filing.txt
@@ -0,0 +1,5030 @@
+10-K
+1
+d647920d10k.htm
+FORM 10-K
+Form 10-K 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+WASHINGTON, D.C. 20549 
+FORM 10-K
+(Mark One) 
+x 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31, 2013 
+OR 
+¨ 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 
+For the transition period from
+to
+Commission File Number 001-14429 
+SKECHERS
+U.S.A., INC. 
+(Exact Name of Registrant as Specified in Its Charter) 
+Delaware 
+95-4376145 
+(State or Other Jurisdiction of 
+Incorporation or Organization) 
+(I.R.S. Employer 
+Identification No.) 
+228 Manhattan Beach Blvd., Manhattan Beach, California 
+90266 
+(Address of Principal Executive Offices) 
+(Zip Code) 
+Registrant’s telephone number, including area code: (310) 318-3100 
+Securities registered pursuant to Section 12(b) of the Act: 
+Title of Each Class 
+Name of Each Exchange on 
+Which Registered 
+Class A Common Stock, $0.001 par value 
+New York Stock Exchange 
+Securities registered pursuant to Section 12(g) of the Act: 
+None 
+(Title of Class)
+Indicate by check mark if the Registrant is a well-known seasoned
+issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨ 
+Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
+Act. Yes ¨ No x 
+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 Website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§229.405) is not contained herein,
+and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨ 
+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. 
+Large accelerated filer 
+x 
+Accelerated filer 
+¨ 
+Non-accelerated filer 
+¨ 
+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 
+As of June 30, 2013, the aggregate market value of the voting and non-voting Class A and Class B Common Stock held by non-affiliates
+of the Registrant was approximately $940.0 million based upon the closing price of $24.01 of the Class A Common Stock on the New York Stock Exchange on such date. 
+The number of shares of Class A Common Stock outstanding as of February 15, 2014: 39,964,447. 
+The number of shares of Class B Common Stock outstanding as of February 15, 2014: 10,869,694. 
+DOCUMENTS INCORPORATED BY REFERENCE 
+Portions of the Registrant’s Definitive Proxy Statement issued in connection with the 2014 Annual Meeting of the Stockholders of the
+Registrant are incorporated by reference into Part III. 
+Table of Contents 
+SKECHERS U.S.A., INC. AND SUBSIDIARIES 
+TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K 
+FOR THE YEAR ENDED DECEMBER 31, 2013 
+PART I 
+ITEM 1. 
+BUSINESS 
+2 
+ITEM 1A. 
+RISK FACTORS 
+16 
+ITEM 1B. 
+UNRESOLVED STAFF COMMENTS 
+23 
+ITEM 2. 
+PROPERTIES 
+24 
+ITEM 3. 
+LEGAL PROCEEDINGS 
+24 
+ITEM 4. 
+MINE SAFETY DISCLOSURES 
+28 
+PART II 
+ITEM 5. 
+MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
+29 
+ITEM 6. 
+SELECTED FINANCIAL DATA 
+31 
+ITEM 7. 
+MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
+32 
+ITEM 7A. 
+QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+45 
+ITEM 8. 
+FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+46 
+ITEM 9. 
+CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
+70 
+ITEM 9A. 
+CONTROLS AND PROCEDURES 
+70 
+ITEM 9B. 
+OTHER INFORMATION 
+73 
+PART III 
+ITEM 10. 
+DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 
+73 
+ITEM 11. 
+EXECUTIVE COMPENSATION 
+73 
+ITEM 12. 
+SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 
+73 
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+73 
+ITEM 14. 
+PRINCIPAL ACCOUNTING FEES AND SERVICES 
+73 
+PART IV 
+ITEM 15. 
+EXHIBITS, FINANCIAL STATEMENT SCHEDULES 
+73 
+This annual report includes our trademarks, including Skechers®, Skechers Performance®, Skechers GOrun®, Skechers
+GOwalk®, Skechers on-the-Go™, 
+®, 
+®, 
+®, Skechers Cali™, Relaxed Fit®, Skechers Memory Foam™, Skech-Air®, BOBS™, Hot Lights®, Twinkle Toes®, Bella Ballerina™, Shape-ups®, Resalyte®, Resagrip®,
+Resamax®, each of which is our property. This report contains additional trademarks of other companies. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us by
+such companies, or any relationship with any of these companies. 
+i 
+Table of Contents 
+SPECIAL NOTE ON FORWARD LOOKING STATEMENTS 
+This annual report on Form 10-K contains forward-looking statements that are made pursuant to the safe harbor provisions of
+the Private Securities Litigation Reform Act of 1995, including statements with regards to future revenue, projected 2014 results, earnings, spending, margins, cash flow, orders, expected timing of shipment of products, inventory levels, future
+growth or success in specific countries, categories or market sectors, continued or expected distribution to specific retailers, liquidity, capital resources and market risk, strategies and objectives. Forward-looking statements include, without
+limitation, any statement that may predict, forecast, indicate or simply state future results, performance or achievements, and can be identified by the use of forward looking language such as “believe,” “anticipate,”
+“expect,” “estimate,” “intend,” “plan,” “project,” “will be,” “will continue,” “will result,” “could,” “may,” “might,” or any variations of
+such words with similar meanings. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected in forward-looking statements, and reported results shall not be considered
+an indication of our company’s future performance. Factors that might cause or contribute to such differences include: 
+• 
+the resignation of our former independent registered public accounting firm, and its withdrawal of its audit reports with respect to certain of our
+historical financial statements; 
+• 
+international, national and local general economic, political and market conditions including the timing and strength of the economic recovery in
+the United States and the uncertainty of market conditions in Europe; 
+• 
+our ability to maintain our brand image and to anticipate, forecast, identify, and respond to changes in fashion trends, consumer demand for the
+products and other market factors; 
+• 
+our ability to remain competitive among sellers of footwear for consumers, including in the highly competitive performance footwear market;
+• 
+our ability to sustain, manage and forecast our costs and proper inventory levels; 
+• 
+the loss of any significant customers, decreased demand by industry retailers and the cancellation of order commitments; 
+• 
+our ability to continue to manufacture and ship our products that are sourced in China, which could be adversely affected by various economic,
+political or trade conditions, or a natural disaster in China; 
+• 
+our ability to predict our revenues, which have varied significantly in the past and can be expected to fluctuate in the future due to a number of
+reasons, many of which are beyond our control; and 
+• 
+sales levels during the spring, back-to-school and holiday selling seasons. 
+The risks included here are not exhaustive. Other sections of this report may include additional factors that could adversely
+impact our business, financial condition and results of operations. Moreover, we operate in a very competitive and rapidly changing environment and new risk factors emerge from time to time. We cannot 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 inherent and changing
+risks and uncertainties, investors should not place undue reliance on forward-looking statements, which reflect our opinions only as of the date of this annual report, as a prediction of actual results. We undertake no obligation to publicly release
+any revisions to the forward-looking statements after the date of this document, except as otherwise required by reporting requirements of applicable federal and states securities laws. 
+1 
+Table of Contents 
+PART I 
+ITEM 1. 
+BUSINESS 
+We were incorporated in California in 1992 and reincorporated
+in Delaware in 1999. Throughout this annual report, we refer to Skechers U.S.A., Inc., a Delaware corporation, its consolidated subsidiaries and certain variable interest entities (“VIE’s”) of which it is the primary beneficiary, as
+“we,” “us,” “our,” “our company” and “Skechers” unless otherwise indicated. Our Internet address is www.skechers.com . Our annual report on Form 10-K, quarterly reports on Form 10-Q,
+current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of directors, officers and 10% stockholders, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
+Act of 1934 are available free of charge on our corporate website, www.skx.com , as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission
+(“SEC”). You can learn more about us by reviewing such filings at www.skx.com or at the SEC’s website at www.sec.gov . 
+GENERAL 
+We design and market
+Skechers-branded lifestyle footwear for men, women and children, and performance footwear for men and women under the Skechers GO brand name. Our footwear reflects a combination of style, quality and value that appeals to a broad range of consumers.
+Our brands are sold through department and specialty stores, athletic and independent retailers, and boutiques as well as catalog and internet retailers. In addition to wholesale distribution, our footwear is available at our e-commerce website
+and our own retail stores. As of February 15, 2014, we operated 122 concept stores, 131 factory outlet stores and 71 warehouse outlet stores in the United States, and 44 concept stores and 26 factory outlets internationally. Our objective
+is to profitably grow our operations worldwide while leveraging our recognizable Skechers brand through our strong product lines, innovative advertising and diversified distribution channels. 
+We seek to offer consumers a vast array of fashionable footwear that satisfies their active, casual, dress casual and athletic
+footwear needs. Our core consumers are style-conscious men and women attracted to our youthful brand image and fashion-forward designs, as well as athletes and fitness enthusiasts attracted to our performance footwear. Many of our best-selling and
+core styles are also developed for children with colors and materials that reflect a playful image appropriate for this demographic. 
+We believe that brand recognition is an important element for success in the footwear business. We have aggressively
+marketed our brands through comprehensive advertising and promotional campaigns for men, women and children. During 2013, our Skechers brand was supported by print, television and outdoor campaigns for men and women; animated kids’
+television campaigns featuring our own action heroes and characters; marathons and other events for our Skechers Performance Division; donation events surrounding our BOBS from Skechers charitable footwear program; and print, television and outdoor
+campaigns featuring our Skechers Performance and Skechers lifestyle endorsees. These endorsees included television personality Brooke Burke-Charvet, Hall of Fame quarterback Joe Montana, Dallas Mavericks owner Mark Cuban, Dodgers baseball legend
+Tommy Lasorda, Olympic medalist Meb, and recent addition, Danielle Bradbery, the youngest winner of The Voice. 
+Since
+December 1992, when we introduced our first line, Skechers USA Sport Utility Footwear, we have expanded our product offering and grown our net sales while substantially increasing the breadth and penetration of our account base. Our men’s,
+women’s and children’s Skechers-branded product lines benefit from the Skechers reputation for contemporary and progressive styling, quality, comfort and affordability. Our lines that are not branded with the Skechers name benefit
+from our marketing support, quality management and expertise. To promote innovation and brand relevance, we manage our product lines separately by utilizing dedicated sales and design teams. Our product lines share back office services in order to
+limit our operating expenses and fully utilize our management’s vast experience in the footwear industry. 
+2 
+Table of Contents 
+SKECHERS LINES 
+We offer a wide array of Skechers-branded product lines for men, women, juniors and children. Within these product lines, we
+also have numerous categories, many of which have developed into well-known names. Most of these categories are marketed and packaged with unique shoe boxes, hangtags and in-store support. Management evaluates segment performance based primarily on
+net sales and gross margins; however, sales and costs are not allocated to specific product lines. 
+Lifestyle Brands 
+Skechers USA. Our Skechers USA category for men and women includes: (i) Casuals, (ii) Dress Casuals,
+(iii) Relaxed Fit, (iv) seasonal sandals and boots and (v) Casual Fusion. This category is generally sold through mid-tier retailers, department stores and some footwear specialty shops. 
+• 
+The Casuals line for men and women is defined by lugged outsoles and utilizes value-oriented and leather materials in the uppers. For men, the
+Casuals category includes “black and brown” boots, shoes and sandals that generally have a rugged urban design — some with industrial-inspired fashion features. For women, the Casuals category includes basic “black and
+brown” oxfords and slip-ons, lug outsole and fashion boots, and casual sandals. We design and price both the men’s and women’s categories to appeal primarily to younger consumers with broad acceptance across age
+groups. 
+• 
+The Dress Casuals category for men is comprised of basic “black and brown” men’s shoes that feature shiny leathers and dress
+details, but may utilize traditional or lugged outsoles as well as value-oriented materials. The Dress Casual line for women is comprised of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or faux fur
+lining or trim, and water-resistant materials. 
+• 
+Relaxed Fit from Skechers is a line of trend-right casuals with a wider toe box for men and women who want all-day comfort without compromising
+style. Characteristics of the product line include comfortable outsoles, Skechers Memory Foam insoles and quality leather uppers. A category with unique features, we market and package Relaxed Fit from Skechers styles in a shoe box that is distinct
+from that of other categories in the Skechers USA line of footwear. 
+• 
+Our seasonal sandals and boots collection for men and women is designed with many of our existing and proven outsoles for our Casuals, Dress
+Casuals and Casual Fusion lines, stylized with basic or core uppers as well as fresh looks. These styles are generally made with quality leather uppers, but may also be in canvas or fabric for sandals, and water-resistant materials and fur and faux
+fur linings for boots. 
+• 
+Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals targeted to trend-conscious young men and women. The
+outsoles are primarily rubber and adopted from our men’s Sport and women’s Active lines. This collection features leather or nubuck uppers, but may also include mesh. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes: (i) Skechers Memory Foam styles,
+(ii) Lightweight performance-inspired athletics, (iii) Classic Athletic-inspired styles and (iv) Sport sandals and boots. Our Skechers Sport category is distinguished by its technical performance-inspired looks; however, we generally
+do not promote the technical performance features of these shoes. Skechers Sport is typically sold through specialty shoe stores, department stores and athletic footwear retailers. 
+• 
+Skechers Memory Foam styles are designed with a high-volume memory foam insole that will contour to your foot and provide greater comfort. The
+lightweight and ultra-soft looks also feature a flexible outsole and soft uppers, some of which feature bio-engineered mesh uppers. This category features bright, multi-color and solid basic colored uppers. 
+• 
+Our Lightweight performance-inspired athletics are designed with comfort and flexibility in mind. Careful attention is devoted to the cushioning,
+weight, materials, design and construction of the outsoles. Designed as a versatile, trend-right athletic shoe suitable for all-day wear, the product line features leather and trubuck uppers in both bright and classic athletic colors.
+• 
+Classic athletic inspired styles are core proven looks that continue to be strong performers. With all-day comfort and durable rubber tread, these
+shoes are intended to be a mainstay of any footwear collection. Many of the designs are in white, black and natural shades, with some athletic accents. The uppers are designed in leather, suede and nubuck. 
+3 
+Table of Contents 
+• 
+Our Sport sandals and boots are primarily designed from existing Skechers Sport outsoles and may include many of the same sport features as our
+sneakers with the addition of new technologies geared toward making a comfortable sport sandal. Sport sandals and boots are designed as seasonal footwear for the consumer who already wears our Skechers Sport sneakers. 
+Skechers Active. A natural companion to Skechers Sport, Skechers Active has grown from a casual everyday line
+into a complete line of sneakers for active females of all ages. The product line, with lace-up, Mary Janes, sandals and open back styles, is available in a multitude of colors as well as solid white or black, in fabrics, leathers and meshes, and
+with various closures — traditional laces, zig-zag and cross straps, among others. The Active line now includes low-profile, lightweight, flexible and sporty styles, many of which have Skechers Memory Foam under the names Sport Active and Sport
+Flex, as well as Relaxed Fit from Skechers. Active sneakers are typically available through specialty casual shoe stores and department stores. 
+BOBS from Skechers. The BOBS from Skechers line has grown to a year-round product with the addition of
+vulcanized looks and an “at Home” line. Primarily marketed to young women, the BOBS collection also includes footwear for kids, and men to a smaller degree. BOBS are available at department stores, specialty shoe stores and online
+retailers. 
+• 
+BOBS classic espadrille collection is designed in basic colors with canvas, tweed, crochet and boiled wool uppers, suede, and patterned fabrics.
+Some styles now include Skechers Memory Foam. 
+• 
+BOBS vulcanized looks have a very youthful and California lifestyle appeal. Primarily designed with canvas uppers but also jersey fabrics, the line
+features both classic retro looks and fresh colors and materials for a relevant style. Some styles now include Skechers Memory Foam. 
+• 
+The BOBS at Home collection for women is designed with our flexible rubber Keepsakes outsole, and features faux fur linings for the ultimate dorm
+or winter shoe. The uppers are primarily designed with tweeds, knitted or suede. 
+• 
+BOBS for Kids takes many of our successful women’s styles into bright and patterned fabrics and embellished uppers for girls.
+• 
+BOBS for men features basic slip-on and lace-up canvas styles as well as vulcanized. Some now include Skechers Memory Foam. 
+Skechers donates a pair of new shoes to a child in need through the purchase of BOBS. By the end of 2013, we had donated
+approximately 6.9 million pairs primarily to SolesforSouls, Samaritan’s Feet International and Fashion Delivers, our charity donation partners, who in turn donate the shoes to various reputable charity organizations in the United States
+and around the world. 
+Skechers Kids. The Skechers Kids line includes: (i) Skechers Kids, which is a
+range of infants’, toddlers’, boys’ and girls’ boots, shoes and sneakers, (ii) S-Lights, Hot Lights by Skechers and Luminators by Skechers, (iii) Skechers Cali for Girls, (iv) Airators by Skechers,
+(v) Skechers Super Z-Strap, (vi) Elastika by Skechers, (vii) Bella Ballerina by Skechers, (viii) Twinkle Toes by Skechers, (ix) Sporty Shorty by Skechers, and (x) Air-Mazing by Skechers. 
+• 
+The Skechers Kids line includes embellishments or adornments such as fresh colors and fabrics from our Skechers adult shoes. Some of these styles
+are also adapted for toddlers with softer, more pliable outsoles and for infants with soft, leather-sole crib shoes. 
+• 
+S-Lights, Hot Lights and Luminators by Skechers are lighted sneakers and sandals for boys and girls. The S-Lights combine patterns of lights on the
+outsoles and sides of the shoes while Hot Lights feature lights on the front of the toe to simulate headlights as well as on other areas of the shoes. Luminators by Skechers feature glowing green lights and a marketing campaign with the Luminators
+characters. 
+• 
+Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young girls designed to typify the California lifestyle. The sneakers are
+designed primarily with canvas uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and flats are designed with many of the same upper materials and outsoles as the sneakers. 
+• 
+Airators by Skechers is a line of boys’ sneakers with a foot-cooling system designed to pump air from the heel through to the toes. The
+product line is marketed with the character, Kewl Breeze. 
+4 
+Table of Contents 
+• 
+Skechers Super Z-Strap is a line of athletic styled sneakers with a unique “z” shaped closure system for easy closure. The product line
+is marketed with the character, Z-Strap. 
+• 
+Elastika by Skechers is a line of girls’ sneakers with bungee closures. The product line is marketed with the character, Elastika.
+• 
+Bella Ballerina by Skechers is a line of girls’ shoes with a disc that spins on the outsole, allowing girls to twirl like a ballerina.
+• 
+Twinkle Toes by Skechers is a line of girls’ sneakers and boots that feature bejeweled toe caps and brightly designed uppers. Some also
+include lights. The product line is marketed with the character, Twinkle Toes. 
+• 
+Sporty Shorty by Skechers is a line of athletic-inspired sneakers for girls who like to wear sport-style footwear off the field. Many of the styles
+are lightweight and come in bright colors. Some also include lights. The product line is marketed with the character, Sporty Shorty. 
+• 
+Air-Mazing by Skechers is a lightweight line of colorful sneakers designed for older boys. The product line is marketed with the character,
+Air-Mazing Kid, who performs air tricks in his sneakers. 
+Skechers Kids and Skechers Cali for Girls are
+comprised primarily of shoes that are designed as “takedowns” of their adult counterparts, allowing the younger consumers the opportunity to wear the same popular styles as their older siblings and schoolmates. This “takedown”
+strategy maintains the product’s integrity by offering premium leathers, hardware and outsoles without the costs involved in designing and developing new products. In addition, we adapt current fashions from our men’s and women’s
+lines by modifying designs and choosing colors and materials that are more suitable for the playful image that we have established in the children’s footwear market. Each Skechers Kids line is marketed and packaged separately with a distinct
+shoe box. Skechers Kids shoes are available at department stores and specialty and athletic retailers. 
+Skechers Work. Expanding on our heritage of cutting-edge utility footwear, Skechers Work offers a complete line
+of men’s and women’s casuals, field boots, hikers and athletic shoes. The Skechers Work line includes athletic-inspired, casual safety toe and non-slip safety toe categories that may feature lightweight aluminum safety toe, electrical
+hazard and slip-resistant technologies, as well as breathable, seam-sealed waterproof membranes. Designed for men and women with jobs that require certain safety requirements, these durable styles are constructed on high-abrasion, long wearing
+soles, and feature breathable lining, oil and abrasion resistant outsoles offering all-day comfort and prolonged durability. The Skechers Work line incorporates design elements from the other Skechers men’s and women’s line. The
+uppers are comprised of high-quality leather, nubuck, trubuck and durabuck. Our safety toe athletic sneakers, boots, hikers and casuals are ideal for environments requiring safety footwear and offer comfort and safety in dry or wet
+conditions. Our slip-resistant boots, hikers, athletics, casuals and clogs are ideal for the service industry. Our safety toe products have been independently tested and certified to meet ASTM standards, and our slip-resistant soles have
+been tested pursuant to the Mark II testing method for slip resistance. Skechers Work is typically sold through department stores, athletic footwear retailers and specialty shoe stores, as well as marketed directly to consumers through
+business-to-business channels. 
+Performance Brands 
+Skechers Performance. Skechers Performance is a collection of technical footwear designed with a focus on a
+specific activity to maximize performance and promote natural motion. Developed by the Skechers Performance Design Team, the footwear utilizes the latest advancements in materials and innovative design, including an ultra-lightweight Resalyte
+compound for the midsole and GOimpulse sensors for responsive feedback. Limited edition packs with all-weather protection or Skechers Nite Owl glow-in-the-dark technology are featured across multiple product lines. The footwear is available at
+athletic footwear retailers, department stores and specialty running stores. 
+• 
+Skechers GOrun. Skechers GOrun 3 is the latest in a collection of lightweight, flexible running shoes that features a midfoot strike
+design for efficient running and a low 4mm heel drop for a natural running feel. Skechers GOrun ride 3 features a similar design with enhanced cushioning for elevated comfort and support. Skechers GOrun ultra offers maximum cushioning for the
+most support with a 6mm heel drop. Skechers GOmeb Speed 2 is the high-performance racing shoe worn by elite marathon runner Meb. This range of running product is marketed to serious runners and recreational runners alike. 
+• 
+Skechers GOwalk. Skechers GOwalk is designed for walking and casual wear, and offers performance features in a comfortable casual
+slip-on. The product line features a lightweight and flexible design to promote natural foot movement 
+5 
+Table of Contents 
+when walking. Skechers GOwalk 2 incorporates more performance technologies with a unique V-Stride outsole designed specifically to promote a natural walking stride. Skechers on-the-GO footwear
+fuses iconic designs and premium materials with Skechers Performance technologies for comfort and style. 
+• 
+Skechers GObionic. Skechers GObionic is engineered with inspiration from nature’s ultimate design — the human body —
+to create a shoe that moves like the foot. Eighteen fully articulated bio-responsive zones offer flexibility, feel and ground conformity. Skechers GObionic trail is designed for trail running with rugged, uneven running surfaces in mind. A
+proprietary Resagrip outsole increases the durability to handle wear-and-tear from tougher terrain and hydrophobic Skechers GOdri technology shields feet from harsh elements. Skechers GObionic engineering is also featured in select running, golfing
+and casual Skechers on-the-GO styles. 
+• 
+Skechers GOtrain. Skechers GOtrain is designed for the gym and features a wider forefoot and extended outriggers for maximum
+stability and control at lateral and medial strike points. This shoe is an all-encompassing trainer that meets the need of intense and rigorous workouts. 
+• 
+Skechers GOgolf. Skechers GOgolf is designed for the golf course and offers a zero heel drop design, which keeps feet in a neutral
+position that is low to the ground to promote a solid foundation while playing golf. A Resagrip outsole helps with traction control and a soft Resamax cushioned insole delivers comfort. 
+PRODUCT DESIGN AND DEVELOPMENT 
+Our principal goal in product design is to generate new and exciting footwear in all of our product lines with contemporary and
+progressive styles and comfort-enhancing performance features. Targeted to the active, youthful and style-savvy, we design our lifestyle line to be fashionable and marketable to the 12- to 24-year old consumer, while substantially all of our lines
+appeal to the broader range of 5- to 40-year old consumers, with an exclusive selection for infants and toddlers. Designed by the Skechers Performance Division, our performance products are for professional and recreational athletes who want a
+technical fitness shoe. 
+We believe that our products’ success is related to our ability to recognize trends in the
+footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving preferences. We are able to quickly translate the latest fashion trends into stylish, quality footwear at a reasonable price by analyzing and
+interpreting current and emerging lifestyle trends. Lifestyle trend information is compiled and analyzed by our designers from various sources, including the review and analysis of modern music, television, cinema, clothing, alternative sports and
+other trend-setting media; traveling to domestic and international fashion markets to identify and confirm current trends; consulting with our retail and e-commerce customers for information on current retail selling trends; participating in major
+footwear trade shows to stay abreast of popular brands, fashions and styles; and subscribing to various fashion and color information services. In addition, a key component of our design philosophy is to continually reinterpret and develop our
+successful styles in our brands’ images. 
+The footwear design process typically begins about nine months before the
+start of a season. Our products are designed and developed primarily by our in-house design staff. To promote innovation and brand relevance, we utilize dedicated design teams, who report to our senior design executives and focus on each of the
+men’s, women’s and children’s categories. In addition, we utilize outside design firms on an item-specific basis to supplement our internal design efforts. The design process is extremely collaborative, as members of the design staff
+frequently meet with the heads of retail, merchandising, sales, production and sourcing to further refine our products to meet the particular needs of the target market. 
+After a design team arrives at a consensus regarding the fashion themes for the coming season, the designers then translate
+these themes into our products. These interpretations include variations in product color, material structure and embellishments, which are arrived at after close consultation with our production department. Prototype blueprints and specifications
+are created and forwarded to our manufacturers for a design prototype. The design prototypes are then sent back to our design teams. Our major retail customers may also review these new design concepts. Customer input not only allows us to measure
+consumer reaction to the latest designs, but also affords us an opportunity to foster deeper and more collaborative relationships with our customers. We also occasionally order limited production runs that may initially be tested in our concept
+stores. By working closely with store personnel, we obtain customer feedback that often influences product design and development. Our design teams can easily and quickly modify and refine a design based on customer input. Generally, the production
+process can take six to nine months from design concept to commercialization. 
+For disclosure of product design and
+development costs during the last three fiscal years, see note 1 to the financial statements of this annual report. 
+6 
+Table of Contents 
+SOURCING 
+Factories. Our products are produced by independent contract manufacturers located primarily in China and, to a
+lesser extent, in Vietnam, Brazil and various other countries. We do not own or operate any manufacturing facilities. We believe that the use of independent manufacturers substantially increases our production flexibility and capacity, while
+reducing capital expenditures and avoiding the costs of managing a large production work force. For disclosure of information regarding the risks associated with having our manufacturing operations abroad and relying on independent contract
+manufacturers, see the relevant risk factors under Item 1A of this annual report. 
+When possible, we seek to use
+manufacturers that have previously produced our footwear, which we believe enhances continuity and quality while controlling production costs. We source product for styles that account for a significant percentage of our net sales from at least five
+different manufacturers. During 2013, five of our contract manufacturers accounted for approximately 59.9% of total purchases. One manufacturer accounted for 37.8%, and another accounted for 7.1% of our total purchases. To date, we have not
+experienced difficulty in obtaining manufacturing services or with the availability of raw materials. 
+We finance our
+production activities in part through the use of interest-bearing open purchase arrangements with certain of our Asian manufacturers. These facilities currently bear interest at a rate between 0% and 1.0% for 30- to 60-day financing, depending on
+the factory. We believe that the use of these arrangements affords us additional liquidity and flexibility. We do not have any long-term contracts with any of our manufacturers; however, we have long-standing relationships with many of our
+manufacturers and believe our relationships to be good. 
+We closely monitor sales activity after initial introduction of a
+product in our concept stores to determine whether there is substantial demand for a style, thereby aiding us in our sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming collections or offered as part of our
+periodic style offerings, while less popular styles can be discontinued after a limited production run. We believe that sales in our concept stores can also help forecast sales in national retail stores, and we share this sales information with our
+wholesale customers. Sales, merchandising, production and allocations management analyze historical and current sales, and market data from our wholesale account base and our own retail stores to develop an internal product quantity forecast that
+allows us to better manage our future production and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock position to minimize the time necessary to fill customer orders by placing orders with our
+manufacturers prior to the time we receive customers’ orders for such footwear. 
+Production Oversight. 
+To safeguard product quality and consistency, we oversee the key aspects of production from initial prototype manufacture through initial production runs to final manufacture. Monitoring of all production is performed in the United States by our
+in-house production department and in Asia through an approximately 200-person staff working from our offices in China. We believe that our Asian presence allows us to negotiate supplier and manufacturer arrangements more effectively, decrease
+product turnaround time and ensure timely delivery of finished footwear. In addition, we require our manufacturers to certify that neither convicted, forced nor indentured labor (as defined under U.S. law), nor child labor (as defined by law in the
+manufacturer’s country) is used in the production process, that compensation will be paid according to local law, and that the factory is in compliance with local safety regulations. 
+Quality Control. We believe that quality control is an important and effective means of maintaining the quality
+and reputation of our products. Our quality control program is designed to ensure that not only finished goods meet our established design specifications, but also that all goods bearing our trademarks meet our standards for quality. Our quality
+control personnel located in China perform an array of inspection procedures at various stages of the production process, including examination and testing of prototypes of key raw materials prior to manufacture, samples and materials at various
+stages of production and final products prior to shipment. Our employees are on site at each of our major manufacturers to oversee production. For some of our lower volume manufacturers, our staff is on site during significant production runs or we
+will perform unannounced visits to their manufacturing sites to further monitor compliance with our manufacturing specifications. 
+ADVERTISING AND
+MARKETING 
+With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted approach to marketing to
+drive traffic, build brand recognition and properly position our diverse lines within the marketplace. Senior management is directly involved in shaping our image and the conception, development and implementation of our advertising and marketing
+activities. The focus of our marketing plan is print and television advertising, which is supported by outdoor, trend-influenced marketing, public relations, promotions, grass roots and in-store support. In addition, we utilize celebrity endorsers
+in our advertisements. We also believe our websites and trade 
+7 
+Table of Contents 
+shows are effective marketing tools to both consumers and wholesale accounts. We have historically budgeted advertising as a percentage of projected net sales. 
+The majority of our advertising is conceptualized by our in-house design team. We believe that our advertising strategies,
+methods and creative campaigns are directly related to our success. Through our lifestyle, performance-inspired and image-driven advertising, we generally seek to build and increase brand awareness by linking the Skechers brand to youthful attitudes
+for our lifestyle lines, and technology with runners and athletes for our performance lines. Our ads are designed to provide merchandise flexibility and to facilitate the Skechers brand’s direction. 
+To further build brand awareness and influence consumer spending, we have selectively signed endorsement agreements with
+celebrities whom we believe will reach new markets. Our endorsees Brooke Burke-Charvet, Mark Cuban, Joe Montana and Tommy Lasorda all appeared in print and television campaigns in 2013. The Skechers Performance Division launched in 2011, with a
+global marketing campaign starring elite distance runner and Olympic medalist Meb. Competing in Skechers GOrun footwear, he recently achieved two back-to-back personal best marathon times during the 2011 New York City marathon and a first place
+finish in the 2012 Olympic Trials. Meb was the fastest American at the London Games, finishing fourth overall. From time to time, we may sign other celebrities to endorse our brand name and image in order to strategically market our products among
+specific consumer groups in the future. 
+With a targeted approach, our print ads appear regularly in popular fashion and
+lifestyle consumer publications, including Runner’s World, Cosmopolitan, Shape, Lucky, In Style, Seventeen, Maxim, Men’s Fitness and Women’s Health, as well as in weekly publications such as People, Us Weekly, OK!
+and Sports Illustrated, among others. Our advertisements also appear in international magazines around the world. 
+Our television commercials are produced both in-house and through producers that we have utilized in the past who are familiar
+with our brands. In 2013, we developed commercials for men, women and children for our Skechers brands, including our animated spots for kids featuring our own action heroes and our performance collections. We have found these to be a cost-effective
+way to advertise on key national and cable programming during high selling seasons. In 2013, many of our television commercials were translated into multiple languages and aired in Brazil, Canada, the United Kingdom, France, the Benelux Region,
+Germany, Spain, Italy, Chile, Japan, Austria and Switzerland. 
+Outdoor. In an effort to reach consumers
+where they shop and in high-traffic areas as they travel to and from work, we continued our multi-level outdoor campaign that included kiosks in key malls across the United States plus billboards, transportation systems and telephone kiosks in North
+America, Brazil, Chile, Asia and Europe. In addition, we advertised on perimeter boards at soccer matches in several European countries. We believe these are effective and efficient ways to reach a broad range of consumers and leave a lasting
+impression for our brands. 
+Trend-Influenced Marketing/Public Relations. Our public relations
+objectives are to secure product placement in key fashion magazines, place our footwear on the feet of trend-setting celebrities and their children, and gain positive and accurate press about us and our products. Through our commitment to
+aggressively promote our upcoming styles, our products are often featured in leading fashion and pop culture magazines, as well as in select films and popular television shows. Our footwear and our company have been prominently displayed and
+referenced on news and magazine shows. We have also amassed an array of prominent product placements in magazines including Seventeen, OK!, Us Weekly, Runner’s World and Competitor . In addition, our brands
+have been associated with cutting edge events and various celebrities. 
+Promotions and Grass Roots. By
+applying creative sales techniques via a broad spectrum of media, our marketing team seeks to build brand recognition and drive traffic to Skechers’ retail stores, websites and our retail partners’ locations. Skechers’ promotional
+strategies have encompassed in-store specials, charity events, product tie-ins and giveaways, and collaborations with national retailers and radio stations. In 2013, we appeared at walks and at numerous marathons in Boston, London, Paris, Santiago
+and other cities with Skechers Performance branded booths to allow runners the ability to try on and often buy our products. Our products were made available to consumers directly or through key accounts at many of these events. In addition, we
+partnered with several key accounts for BOBS donation events in cities throughout the United States. 
+Visual
+Merchandising. Our in-house visual merchandising department supports wholesale customers, distributors and our retail stores by developing displays that effectively leverage our products at the point of sale. Our point-of-purchase display
+items include signage, graphics, displays, counter cards, banners and other merchandising items for each of our brands. These materials mirror the look and feel of each brand and reinforce the image as well as draw consumers into stores. 
+8 
+Table of Contents 
+Our visual merchandising coordinators (“VMC’s”) work with our
+sales force and directly with our customers to ensure better sell-through at the retail level by generating greater consumer awareness through Skechers brand displays. Our VMC’s communicate with and visit our wholesale customers on a regular
+basis to aid in proper display of our merchandise. They also run in-store promotions to enhance the sale of Skechers footwear and create excitement surrounding the Skechers brand. We believe that these efforts help stimulate impulse sales and repeat
+purchases. 
+Trade Shows. To better showcase our diverse products to footwear buyers in the United States and
+Europe and to distributors around the world, we regularly exhibit at leading trade shows. Along with specialty trade shows, we exhibit at WSA’s The Shoe Show, FFANY, ASR, MAGIC and Outdoor Retailer in the United States; GDS, MICAM, ISPO, Mess
+Around and Who’s Next in Europe; and Couromoda and Francal in Brazil. Our dynamic, state-of-the-art trade show exhibits are developed by our in-house architect to showcase our latest product offerings in a lifestyle setting reflective of each
+of our brands. By investing in innovative displays and individual rooms showcasing each line, our sales force can present a sales plan for each line and buyers are able to truly understand the breadth and depth of our offerings, thereby optimizing
+commitments and sales at the retail level. 
+Internet. We promote and sell our brands through our e-commerce
+website www.skechers.com ,which enables fans and customers to shop, browse, find store locations, socially interact, post a shoe review, photo, video, or question and immerse themselves in our brands. Our website is a venue for dialog and
+feedback from customers about our products which enhances the Skechers brand experience while driving sales through all our retail channels. 
+PRODUCT
+DISTRIBUTION CHANNELS 
+We have four reportable segments — domestic wholesale sales, international wholesale sales,
+retail sales and e-commerce sales. In the United States, our products are available through a network of wholesale customers comprised of department, athletic and specialty stores. Internationally, our products are available through wholesale
+customers in more than 100 countries and territories via our global network of distributors in addition to our subsidiaries in Asia, Europe, Canada and South America. Skechers owns and operates retail stores both domestically and internationally
+through three integrated retail formats — concept, factory outlet and warehouse outlet stores. Each of these channels serves an integral function in the global distribution of our products. Twenty-two distributors and seven licensees have
+opened 340 distributor-owned and licensee-owned Skechers retail stores in 48 countries as of December 31, 2013. 
+Domestic Wholesale. We distribute our footwear through the following domestic wholesale distribution channels:
+department stores, specialty stores, athletic specialty shoe stores and independent retailers, as well as catalog and internet retailers. While department stores and specialty retailers are the largest distribution channels, we believe that we
+appeal to a variety of wholesale customers, many of whom may operate stores within the same retail location due to our distinct product lines, variety of styles and the price criteria of their specific customers. Management has a clearly defined
+growth strategy for each of our channels of distribution. An integral component of our strategy is to offer our accounts the highest level of customer service so that our products will be fully represented in existing retail locations and new
+locations of each customer. 
+In an effort to provide knowledgeable and personalized service to our wholesale customers,
+the sales force is segregated by product line, each of which is headed by a vice president or national sales manager. Reporting to each sales manager are knowledgeable account executives and territory managers. The vice presidents and national sales
+managers report to our senior vice president of sales. All of our vice presidents and national sales managers are compensated on a salary basis, while our account executives and territory managers are compensated on a commission basis. None of our
+domestic sales personnel sells competing products. 
+We believe that we have developed a loyal customer base through
+exceptional customer service. We believe that our close relationships with these accounts help us to maximize their retail sell-throughs. Our visual merchandise coordinators work with our wholesale customers to ensure that our merchandise and
+point-of-purchase marketing materials are properly presented. Sales executives and merchandise personnel work closely with accounts to ensure that appropriate styles are purchased for specific accounts and for specific stores within those accounts
+as well as to ensure that appropriate inventory levels are carried at each store. Such information is then utilized to help develop sales projections and determine the product needs of our wholesale customers. The value-added services we provide our
+wholesale customers help us maintain strong relationships with our existing wholesale customers and attract potential new wholesale customers. 
+9 
+Table of Contents 
+Retail Stores. We pursue our retail store strategy through our
+three integrated retail formats: the concept store, the factory outlet store and the warehouse outlet store. Our three store formats enable us to promote the full Skechers product offering in an attractive environment that appeals to a broad group
+of consumers. In addition, most of our retail stores are profitable and have a positive effect on our operating results. We periodically review all of our stores for impairment. We prepare a summary of cash flows for each of our retail stores to
+assess potential impairment of the fixed assets and leasehold improvements. If the assets are considered to be impaired, the impairment we recognize is the amount by which the carrying value of the assets exceeds the fair value of the assets. In
+addition, we base the useful lives and related amortization or depreciation expense on our estimate of the period that the assets will generate revenues or otherwise be used by us. As of February 15, 2014, we owned and operated 122 concept
+stores, 131 factory outlet stores and 71 warehouse outlet stores in the United States, and 44 concept stores and 26 factory outlet stores internationally. During 2014, we plan to open 60 to 70 new stores. 
+• 
+Concept Stores 
+Our concept stores are located
+at marquee street locations, major tourist areas or in key shopping malls in metropolitan cities. Our concept stores have a threefold purpose in our operating strategy. First, concept stores serve as a showcase for a wide range of our product
+offering for the current season, as we estimate that our average wholesale customer carries no more than 5% of the complete Skechers line in any one location. Our concept stores showcase our products in an attractive, easy-to-shop open-floor
+setting, providing the customer with the complete Skechers story. Second, retail locations are generally chosen to generate maximum marketing value for the Skechers brand name through signage, store front presentation and interior design. Domestic
+locations include concept stores at Times Square, Union Square and 34th Street in New York, Powell Street in San Francisco, Hollywood and Highland in Hollywood, Santa Monica’s Third Street Promenade, Ala Moana Center in Hawaii and Las
+Vegas’ Fashion Show Mall. International locations include Covent Garden, Westfield London and Westfield Stratford in London, Buchanan Street in Glasgow, Toronto’s Eaton Centre, Vancouver’s Pacific Centre, and Kalverstraat Street in
+Amsterdam. The stores are typically designed to create a distinctive Skechers look and feel, and enhance customer association of the Skechers brand name with current youthful lifestyle trends and styles. Third, the concept stores serve as marketing
+and product testing venues. We believe that product sell-through information and rapid customer feedback derived from our concept stores enables our design, sales, merchandising and production staff to respond to market changes and new product
+introductions. Such responses serve to augment sales and limit our inventory markdowns and customer returns and allowances. 
+The typical Skechers concept store is approximately 2,500 square feet, although in certain markets we have
+opened concept stores as large as 7,800 square feet or as small as 800 square feet. When deciding where to open concept stores, we identify top geographic markets in the larger metropolitan cities in North America, Europe, South America and Asia.
+When selecting a specific site, we evaluate the proposed sites’ traffic pattern, co-tenancies, sales volume of neighboring concept stores, lease economics and other factors considered important within the specific location. If we are
+considering opening a concept store in a shopping mall, our strategy is to obtain space as centrally located as possible in the mall where we expect foot traffic to be most concentrated. We believe that the strength of the Skechers brand name has
+enabled us to negotiate more favorable terms with shopping malls that want us to open up concept stores to attract customer traffic to their venues. 
+• 
+Factory Outlet Stores 
+Our factory outlet stores
+are generally located in manufacturers’ direct outlet centers throughout the United States. In addition, we have 26 international outlet stores – five in England, three each in Canada, Chile, Japan and Spain, two each in Germany and Italy,
+and one each in Austria, the Netherlands, Portugal, Wales and Scotland. Our factory outlet stores provide opportunities for us to sell discontinued and excess merchandise, thereby reducing the need to sell such merchandise to discounters at
+excessively low prices and potentially compromise the Skechers brand image. Skechers’ factory outlet stores range in size from approximately 1,400 to 9,000 square feet. Unlike our warehouse outlet stores, inventory in these stores is
+supplemented by certain first-line styles sold at full retail price points. 
+• 
+Warehouse Outlet Stores 
+Our free-standing
+warehouse outlet stores, which are primarily located throughout the United States, enable us to liquidate excess merchandise, discontinued lines and odd-size inventory in a cost-efficient manner. Skechers’ warehouse outlet stores are typically
+larger than our factory outlet stores and typically range in size from approximately 5,200 to 15,000 square feet. Our warehouse outlet stores enable us to sell discontinued and excess merchandise that would otherwise typically be sold to discounters
+at excessively low prices, which could otherwise compromise the Skechers brand image. We seek to 
+10 
+Table of Contents 
+open our warehouse outlet stores in areas that are in close proximity to our concept stores to facilitate the timely transfer of inventory that we want to liquidate as soon as practicable. 
+Store count, openings and closings for our domestic, international and joint venture stores are as follows: 
+December 31, 2012 
+December 31, 2013 
+Number of Store 
+Locations 
+Number of Stores 
+Opened during 2013 
+Number of Stores 
+Closed during 2013 
+Number of Store 
+Locations 
+Domestic stores 
+Concept 
+120 
+10 
+(7 
+) 
+123 
+Outlet 
+119 
+13 
+(2 
+) 
+130 
+Warehouse 
+61 
+8 
+(1 
+) 
+68 
+Domestic stores total 
+300 
+31 
+(10 
+) 
+321 
+International stores 
+Concept 
+36 
+8 
+(1 
+) 
+43 
+Outlet 
+18 
+8 
+0 
+26 
+International stores total 
+54 
+16 
+(1 
+) 
+69 
+Joint venture stores 
+China Concept 
+24 
+0 
+0 
+24 
+China Outlet 
+30 
+2 
+0 
+32 
+China Shops-in-Shop 
+127 
+8 
+0 
+135 
+Hong Kong Concept 
+20 
+3 
+(2 
+) 
+21 
+Hong Kong Outlet 
+1 
+0 
+0 
+1 
+Hong Kong Shops-in-Shop 
+11 
+1 
+0 
+12 
+Malaysia Concept 
+17 
+7 
+(1 
+) 
+23 
+Malaysia Outlet 
+1 
+0 
+0 
+1 
+Malaysia Shops-in-Shop 
+8 
+0 
+0 
+8 
+Singapore Concept 
+12 
+4 
+(1 
+) 
+15 
+Singapore Shops-in-Shop 
+3 
+1 
+0 
+4 
+Southeast Asia Concept 
+10 
+4 
+(1 
+) 
+13 
+Southeast Asia Shops-in-Shop 
+41 
+5 
+0 
+46 
+India Concept 
+1 
+5 
+0 
+6 
+Joint venture stores total 
+306 
+40 
+(5 
+) 
+341 
+Total Domestic, International and Joint venture stores 
+660 
+87 
+(16 
+) 
+731 
+International Wholesale. Our products are sold in more than 100 countries and
+territories throughout the world. We generate revenues from outside the United States from three principal sources: (i) direct sales to department stores and specialty retail stores through our subsidiaries and joint ventures in Canada, France,
+Germany, Spain, Portugal, Italy, Switzerland, Austria, Malaysia, Thailand, Singapore, Hong Kong, China, Japan, India, the Benelux Region, the United Kingdom, Brazil and Chile; (ii) sales to foreign distributors who distribute our footwear to
+department stores and specialty retail stores in countries and territories across Eastern Europe, Asia, Central America, South America, Africa, the Middle East and Australia, among other regions; and (iii) to a lesser extent, royalties from
+licensees who manufacture and distribute our non-footwear products outside the United States. 
+We believe that
+international distribution of our products represents a significant opportunity to increase net sales and profits. We intend to further increase our share of the international footwear market by heightening our marketing in those countries in which
+we currently have a presence through our international advertising campaigns, which are designed to establish Skechers as a global brand synonymous with trend-right casual shoes. 
+11 
+Table of Contents 
+• 
+International Subsidiaries 
+Europe 
+We currently distribute product in most of Western Europe through the following subsidiaries: Skechers USA
+Ltd., with its offices and showrooms in London, England; Skechers S.a.r.l., with its offices in Lausanne, Switzerland; Skechers USA France S.A.S., with its offices and showrooms in Paris, France; Skechers USA Deutschland GmbH, with its offices and
+showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L., with its offices and showrooms in Madrid, Spain; Skechers USA Benelux B.V., with its offices and showrooms in Waalwijk, the Netherlands; and Skechers USA Italia S.r.l., with its offices
+and showrooms in Milan, Italy. Skechers-owned retail stores in Europe include 12 concept stores and 17 factory outlet stores located in nine countries. 
+To accommodate our European subsidiaries’ operations, we operate an approximately 490,000 square-foot
+distribution center in Liege, Belgium. This distribution center is currently used to store and deliver product to our subsidiaries and retail stores throughout Europe. 
+Canada 
+Merchandising and marketing of our product in Canada is managed by our wholly-owned subsidiary, Skechers USA
+Canada, Inc. with its offices and showrooms outside Toronto in Mississauga, Ontario. Product sold in Canada is primarily sourced from our U.S. distribution center in Rancho Belago, California. We have eight concept stores; Toronto Eaton Centre, West
+Edmonton Mall, Chinook Centre, Richmond Centre, Pacific Centre, Yorkdale Centre, Scarborough Centre and Square One Centre; and three factory outlet stores in Toronto, Alberta and Ontario. 
+Brazil 
+Merchandising and marketing of our product in Brazil is managed by our wholly-owned subsidiary, Skechers Do
+Brasil Calcados LTDA., with its offices located in Sao Paulo, Brazil. Product sold in Brazil is primarily shipped directly from our contract manufacturers’ factories in China and occasionally from our U.S. distribution center in Rancho Belago,
+California. 
+Chile 
+Our wholly-owned subsidiary, Comercializadora Skechers Chile Limitada, supports our 25 retail stores and
+wholesale accounts in Chile. Product sold in Chile is primarily shipped directly from our contract manufacturers’ factories in China and occasionally from our U.S. distribution center in Rancho Belago, California. 
+Japan 
+Merchandising and marketing of our product in Japan is managed by our wholly-owned subsidiary, Skechers Japan
+GK, with its offices located in Tokyo, Japan. Product sold in Japan is primarily shipped directly from our contract manufacturers’ factories in China. We have one concept store in Osaka and three factory outlet stores one each in Osaka, Narita
+and Toki. 
+China and Hong Kong 
+We have a 50% interest in a joint venture in China and a minority interest in a joint venture in Hong Kong that
+generate net sales in those countries. Under the joint venture agreements, the joint venture partners contribute capital in proportion to their respective ownership interests. These stores are in key locations in Shanghai, Beijing, Guangzhou,
+Xiamen, Hong Kong, Macau, and other cities. The joint ventures are included in our consolidated financial statements. 
+Malaysia and
+Singapore 
+We have a 50% interest in a joint venture in Malaysia and Singapore that generate net sales
+in those countries. Under the joint venture agreement, the joint venture partners contribute capital in proportion to their respective ownership interests. These joint ventures are included in our consolidated financial statements. 
+12 
+Table of Contents 
+India 
+We have a 51% interest in a joint venture in India that generates net sales in that country. Under the joint
+venture agreement, the joint venture partners contribute capital in proportion to their respective ownership interests. The joint venture is included in our consolidated financial statements. 
+• 
+Distributors and Licensees 
+Where we do not sell
+directly through our international subsidiaries and joint ventures, our footwear is distributed through an extensive network of more than 30 distributors who sell our products to department, athletic and specialty stores in more than 100 countries
+around the world. As of December 31, 2013, we also had agreements with 22 of these distributors and seven licensees regarding 312 distributor-owned or licensed Skechers retail stores and 28 licensee-owned Skechers retail stores that are open in
+48 countries. Our distributors and licensees own and operate the following retail stores: 
+December 31, 2012 
+December 31, 2013 
+Distributor and Licensee stores 
+Number of Store 
+Locations 
+Number of Stores 
+Opened during 2013 
+Number of Stores 
+Closed during 2013 
+Number of Store 
+Locations 
+North America Concept 
+25 
+11 
+0 
+36 
+North America Warehouse 
+8 
+0 
+0 
+8 
+Central America Concept 
+9 
+0 
+(1 
+) 
+8 
+Central America Warehouse 
+1 
+0 
+0 
+1 
+South America Concept 
+32 
+7 
+0 
+39 
+South America Warehouse 
+1 
+0 
+0 
+1 
+Africa Concept 
+12 
+4 
+(1 
+) 
+15 
+Asia Concept 
+106 
+30 
+(3 
+) 
+133 
+Asia Warehouse 
+4 
+0 
+0 
+4 
+Australia Concept 
+8 
+3 
+0 
+11 
+Australia Warehouse 
+11 
+0 
+0 
+11 
+Europe Concept 
+34 
+8 
+(9 
+) 
+33 
+Europe Warehouse 
+3 
+0 
+0 
+3 
+Middle East Concept 
+23 
+13 
+0 
+36 
+Middle East Warehouse 
+1 
+0 
+0 
+1 
+Total Distributor and Licensee stores 
+278 
+76 
+(14 
+) 
+340 
+Distributors and licensees are responsible for their respective stores’
+operations, have ownership of their respective stores’ assets, and select the broad collection of our products to sell to consumers in their regions. In order to maintain a globally consistent image, we provide architectural, graphic and visual
+guidance and materials for the design of the stores, and we train the local staff on our products and corporate culture. We intend to expand our international presence and global recognition of the Skechers brand name by continuing to sell our
+footwear to foreign distributors and by opening flagship retail stores with distributors that have local market expertise. 
+Electronic Commerce. Our website, www.skechers.com , is a virtual storefront that promotes the Skechers
+brands. Our website is designed to provide a positive shopping and brand experience, showcasing our products in an easy-to-navigate format, allowing consumers to browse our selections and purchase our footwear. This virtual store has provided a
+convenient, alternative shopping environment and brand experience. The website is an additional efficient and effective retail distribution channel, and it has improved our customer service. 
+13 
+Table of Contents 
+For disclosure of financial information about geographic areas and segment
+information for our four reportable segments – domestic wholesale sales, international wholesale sales, retail sales and e-commerce sales — see note 12 to the financial statements of this annual report. 
+LICENSING 
+We believe that
+selective licensing of the Skechers brand name and our product line names to manufacturers may broaden and enhance the individual brands without requiring significant capital investments or additional incremental operating expenses. Our multiple
+product lines plus additional subcategories present many potential licensing opportunities on terms with licensees that we believe will provide more effective manufacturing, distribution or marketing of non-footwear products. We also believe that
+the reputation of Skechers and its history in launching brands has also enabled us to partner with reputable non-footwear brands to design and market their footwear. 
+As of January 31, 2014, we had 37 active domestic and international licensing agreements in which we are the licensor.
+These include Skechers branded leather goods and backpacks, Skechers Performance and sport apparel, Skechers Scrubs for health care professionals and Skechers Eyewear. We have international licensing agreements for the design and distribution of
+men’s and women’s apparel in India, Israel, Mexico, and Korea; bags in Panama; and watches in the Philippines. 
+DISTRIBUTION FACILITIES AND
+OPERATIONS 
+We believe that strong distribution support is a critical factor in our operations. Once manufactured, our
+products are packaged in shoe boxes bearing bar codes that are shipped either: (i) to our approximate 1.8 million square-foot distribution center located in Rancho Belago, California, (ii) to our approximately 490,000 square-foot
+distribution center located in Liege, Belgium or (iii) directly from third-party manufacturers to our other international customers and other international third-party distribution centers. Upon receipt at either of the distribution centers,
+merchandise is inspected and recorded in our management information system and packaged according to customers’ orders for delivery. Merchandise is shipped to customers by whatever means each customer requests, which is usually by common
+carrier. The distribution centers have multi-access docks, enabling us to receive and ship simultaneously, and to pack separate trailers for shipments to different customers at the same time. We have an electronic data interchange system, or EDI
+system, to which some of our larger customers are linked. This system allows these customers to automatically place orders with us, thereby eliminating the time involved in transmitting and inputting orders, and it includes direct billing and
+shipping information. 
+BACKLOG 
+As of December 31, 2013, our backlog was $616.1 million, compared to $468.9 million as of December 31, 2012. Backlog
+orders are subject to cancellation by customers, as evidenced by order cancellations that we have experienced in the past, due to the weakened U.S. economy and shifting footwear trends. For a variety of reasons, including changes in the economy,
+customer demand for our products, the timing of shipments, product mix of customer orders, the amount of in-season orders and a shift towards tighter shipment lead times, our backlog may not be a reliable measure of future sales for any succeeding
+period. 
+INTELLECTUAL PROPERTY RIGHTS 
+We own and utilize a variety of trademarks, including the Skechers trademark. We have a significant number of both
+registrations and pending applications for our trademarks in the United States. In addition, we have trademark registrations and trademark applications in approximately 119 foreign countries. We also have design patents and pending design and
+utility patent applications in both the United States and approximately 27 foreign countries. We continuously look to increase the number of our patents and trademarks both domestically and internationally where necessary to protect valuable
+intellectual property. We regard our trademarks and other intellectual property as valuable assets and believe that they have significant value in the marketing of our products. We vigorously protect our trademarks against infringement, including
+through the use of cease and desist letters, administrative proceedings and lawsuits. 
+We rely on trademark, patent,
+copyright and trade secret protection, non-disclosure agreements and licensing arrangements to establish, protect and enforce intellectual property rights in our logos, trade names and in the design of our products. In particular, we believe that
+our future success will largely depend on our ability to maintain and protect the Skechers trademark and other key trademarks. Despite our efforts to safeguard and maintain our intellectual property rights, we cannot be certain that we will be
+successful in this regard. Furthermore, we cannot be certain that our trademarks, products and promotional materials or other 
+14 
+Table of Contents 
+intellectual property rights do not, or will not, violate the intellectual property rights of others, that our intellectual property would be upheld if challenged, or that we would, in such an
+event, not be prevented from using our trademarks or other intellectual property rights. Such claims, if proven, could materially and adversely affect our business, financial condition and results of operations. In addition, although any such claims
+may ultimately prove to be without merit, the necessary management attention to and legal costs associated with litigation or other resolution of future claims concerning trademarks and other intellectual property rights could materially and
+adversely affect our business, financial condition and results of operations. We have sued and have been sued by third parties for infringement of intellectual property. It is our opinion that none of these claims has materially impaired our ability
+to utilize our intellectual property rights. 
+The laws of certain foreign countries do not protect intellectual property
+rights to the same extent, or in the same manner, as do the laws of the United States. Although we continue to implement protective measures and intend to defend our intellectual property rights vigorously, these efforts may not be successful or the
+costs associated with protecting our rights in certain jurisdictions may be prohibitive. From time to time we discover products in the marketplace that are counterfeit reproductions of our products or that otherwise infringe upon intellectual
+property rights held by us. Actions taken by us to establish and protect our trademarks and other intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our
+products as violating trademarks and intellectual property rights. If we are unsuccessful in challenging a third party’s products on the basis of infringement of our intellectual property rights, continued sales of such products by that or any
+other third party could adversely impact the Skechers brand, result in the shift of consumer preferences away from our products and generally have a material adverse effect on our business, financial condition and results of operations. 
+COMPETITION 
+Competition in the
+footwear industry is intense. Although we believe that we do not compete directly with any single company with respect to its entire range of products, our products compete with other branded products within their product category as well as with
+private label products sold by retailers, including some of our customers. Our casual shoes and utility footwear compete with footwear offered by companies such as Columbia Sportswear Company, Converse by Nike, Inc., Crocs, Inc., Deckers Outdoor
+Corporation, Kenneth Cole Productions Inc., Steven Madden, Ltd., The Timberland Company, V.F. Corporation and Wolverine World Wide, Inc. Our athletic lifestyle and performance shoes compete with footwear offered by companies such as Nike, Inc.,
+adidas AG, Reebok International Ltd., Puma AG, ASICS America Corporation, New Balance Athletic Shoe, Inc. and Under Armour, Inc. The intense competition among these companies and the rapid changes in technology and consumer preferences in the
+markets for performance footwear, including the walking fitness category, constitute significant risk factors in our operations. Our children’s shoes compete with footwear offered by these companies and others including Payless Holdings, and
+with other brands such as Stride Rite by Wolverine World Wide, Inc. In varying degrees, depending on the product category involved, we compete on the basis of style, price, quality, comfort and brand name prestige and recognition, among other
+considerations. These and other competitors pose challenges to our market share in our major domestic markets and may make it more difficult to establish our products in Europe, Asia and other international regions. We also compete with numerous
+manufacturers, importers and distributors of footwear for the limited shelf space available for the display of such products to the consumer. Moreover, the general availability of contract manufacturing capacity allows ease of access by new market
+entrants. Many of our competitors are larger, have been in existence for a longer period of time, have achieved greater recognition for their brand names, have captured greater market share and/or have substantially greater financial, distribution,
+marketing and other resources than we do. We cannot be certain that we will be able to compete successfully against present or future competitors, or that competitive pressures will not have a material adverse effect on our business, financial
+condition and results of operations. 
+EMPLOYEES 
+As of January 31, 2014, we employed 6,868 persons, 2,768 of whom were employed on a full-time basis and 4,100 of whom were
+employed on a part-time basis, primarily in our retail stores. None of our employees are subject to a collective bargaining agreement. We believe that our relations with our employees are satisfactory. 
+15 
+Table of Contents 
+ITEM 1A. 
+RISK FACTORS 
+In addition to the other information in this annual
+report, the following factors should be considered in evaluating us and our business. 
+Our Future Success Depends On Our Ability To
+Maintain Our Brand Name And Image With Consumers. 
+Our success to date has in large part been due to the strength of
+the Skechers brand. Maintaining, promoting and growing our brand name and image depends on sustained effort and commitment to, and significant investment in, both the successful development of high-quality, innovative, fashion forward products, and
+fresh and relevant marketing and advertising campaigns. Even if we are able to timely and appropriately respond to changing consumer preferences and trends with new high-quality products, our marketing and advertising campaigns may not resonate with
+consumers, or consumers may consider our brand to be outdated or associated with footwear styles that are no longer popular or relevant. Our brand name and image with consumers could also be negatively impacted if we or any of our products were to
+receive negative publicity, whether related to our products or otherwise. If we are unable to maintain, promote and grow our brand image, then our business, financial condition and results of operations could be materially and adversely affected.
+Our Future Success Also Depends On Our Ability To Respond To Changing Consumer Preferences, Identify And Interpret Consumer Trends,
+And Successfully Market New Products. 
+The footwear industry is subject to rapidly changing consumer preferences. The
+continued popularity of our footwear and the development of new lines and styles of footwear with widespread consumer appeal, including consumer acceptance of our performance footwear, requires us to accurately identify and interpret changing
+consumer trends and preferences, and to correctly respond in a timely manner. Continuing demand and market acceptance for both existing and new products are uncertain and depend on the following factors: 
+• 
+substantial investment in product innovation, design and development; 
+• 
+commitment to product quality; and 
+• 
+significant and sustained marketing efforts and expenditures, including with respect to the monitoring of consumer trends in footwear specifically,
+and in fashion and lifestyle categories generally. 
+In assessing our response to anticipated changing
+consumer preferences and trends, we frequently must make decisions about product designs and marketing expenditures several months in advance of the time when actual consumer acceptance can be determined. As a result, we may not be successful in
+responding to shifting consumer preferences and trends with new products that achieve market acceptance. Because of the ever changing nature of consumer preferences and market trends, a number of companies in the footwear industry, including ours,
+experience periods of both rapid growth, followed by declines, in revenue and earnings. If we fail to identify and interpret changing consumer preferences and trends, or are not successful in responding to these changes with the timely development
+of products that achieve market acceptance, we could experience excess inventories, higher than normal markdowns, returns, order cancellations or an inability to profitably sell our products, and our business, financial condition and results of
+operations could be materially and adversely affected. 
+Our Business Could Be Harmed If We Fail To Maintain Proper Inventory Levels.
+We place orders with our manufacturers for some of our products prior to the time we receive all of our
+customers’ orders. We do this to minimize purchasing costs, the time necessary to fill customer orders and the risk of non-delivery. We also maintain an inventory of certain products that we anticipate will be in greater demand. However,
+similar to the changes in the marketplace for toning footwear in 2011 that led to excess inventory, discounted pricing and inventory write-downs, lower levels of consumer spending resulting from future economic slowdowns, an unanticipated decline in
+the popularity of Skechers footwear or other unforeseen circumstances may make it difficult for us and our customers to accurately forecast product demand trends, and we may be unable to sell the products we have ordered in advance from
+manufacturers or that we have in our inventory. Inventory levels in excess of customer demand may result in inventory write-downs and the sale of excess inventory at discounted prices, which could significantly impair our brand image and have a
+material adverse effect on our operating results and financial condition. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply the quality products that we require at the
+16 
+Table of Contents 
+time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact retailer and distributor relationships, and diminish brand
+loyalty. 
+We Face Intense Competition, Including Competition From Companies With Significantly Greater Resources Than Ours, And If We
+Are Unable To Compete Effectively With These Companies, Our Market Share May Decline And Our Business Could Be Harmed. 
+We face intense competition in the footwear industry from other established companies. Our competitors’ product
+offerings, pricing, costs of production, and advertising and marketing expenditures are highly competitive areas in our business. If we do not adequately and timely anticipate and respond to our competitors, consumer demand for our products may
+decline significantly. In addition, a number of our competitors have significantly greater financial, technological, engineering, manufacturing, marketing and distribution resources than we do. Their greater capabilities in these areas may enable
+them to better withstand periodic downturns in the footwear industry, compete more effectively on the basis of price and production, and more quickly develop new products. New companies may also enter the markets in which we compete, further
+increasing competition in the footwear industry. We may not be able to compete successfully in the future, and increased competition may result in price reductions, cost increases, reduced profit margins, loss of market share and an inability to
+generate cash flows that are sufficient to maintain or expand our development and marketing of new products, which would materially adversely impact our business, results of operations and financial condition. 
+We Continue To Face Many New Challenges In The Highly Competitive Performance Footwear Market. 
+Although the design and aesthetics of our products have traditionally been the most important factors in consumer acceptance of our footwear,
+we began incorporating technical innovations into certain of our product offerings in late 2008 and since then have continued to develop and introduce new performance footwear. The performance footwear market is keenly competitive in the United
+States and worldwide, and the newer entrants in that market including our company face many challenges. Negative consumer perceptions of our performance features due to our historical reputation as a fashion and lifestyle footwear company, product
+offerings and technologies from our competitors, and failure to keep up with rapid changes in footwear technology and consumer preferences may constitute significant risk factors in our strategy and may negatively impact our business. 
+Our Operating Results Could Be Negatively Impacted If Our Sales Are Concentrated In Any One Style Or Group Of Styles. 
+If any single style or group of similar styles of our footwear were to represent a substantial portion of our net sales, we
+could be exposed to risk should consumer demand for such style or group of styles decrease in subsequent periods. We attempt to mitigate this risk by offering a broad range of products, and no style comprised over 5% of our gross wholesale sales
+during 2013 or 2012. However, this may change in the future and fluctuations in sales of any given style that represents a significant portion of our future net sales could have a negative impact on our operating results. 
+The Effects Of The Timing And Strength Of The Economic Recovery In The United States And The Uncertainty Of Market Conditions In Europe May
+Continue To Have A Negative Impact On Our Business, Results Of Operations Or Financial Condition. 
+The timing and
+strength of the economic recovery in the United States and the uncertainty of market conditions in Europe continues to impact consumer and business confidence, which has resulted in decreased levels of consumer spending, particularly on
+discretionary items such as footwear. While economic conditions have recently improved slightly, these macroeconomic developments have and could continue to negatively impact our business, which depends on the general economic environment and levels
+of consumers’ discretionary spending in the United States and other parts of the world that affect not only the ultimate consumer, but also retailers, who are our primary direct customers. If the current economic situation does not continue to
+improve or if it weakens, we may not be able to maintain or increase our sales to existing customers, make sales to new customers, open and operate new retail stores, maintain sales levels at our existing stores, maintain or increase our
+international operations on a profitable basis, or maintain or improve our earnings from operations as a percentage of net sales. Additionally, if there is an unexpected decline in sales, our results of operations will depend on our ability to
+implement a corresponding and timely reduction in our costs and manage other aspects of our operations. These challenges include (i) managing our infrastructure, including our distribution center in Rancho Belago, California, (ii) hiring
+and maintaining, as required, the appropriate number of qualified employees, (iii) managing inventory levels and (iv) controlling other expenses. If the economic recovery in the United States continues to be slow or experiences a prolonged
+period of decelerating or negative growth, or if the uncertain market conditions in Europe continue for a significant period of time or worsen, our results of operations, financial condition, and cash flows could be materially adversely affected.
+17 
+Table of Contents 
+Our Business Could Be Adversely Affected By Changes In The Business Or Financial Condition Of
+Significant Customers Due To Global Economic Conditions. 
+The global financial crisis affected the banking system and
+financial markets and resulted in a tightening in the credit markets, more stringent lending standards and terms, and higher volatility in fixed income, credit, currency and equity markets. There could be a number of follow-on effects from the
+credit crisis on our business, including insolvency of certain of our key distributors, which could impair our distribution channels, or our significant customers, including our distributors, may experience diminished liquidity or an inability to
+obtain credit to finance purchases of our product. Our customers may also experience weak demand for our products or other difficulties in their businesses. If conditions in the global financial markets deteriorate in the future, demand may be lower
+than forecasted and insufficient to achieve our anticipated financial results. Any of these events would likely harm our business, results of operations and financial condition. 
+We Depend Upon A Relatively Small Group Of Customers For A Large Portion Of Our Sales. 
+During 2013, 2012 and 2011, our net sales to our five largest customers accounted for approximately 18.1%, 18.1% and 17.8% of
+total net sales, respectively. No customer accounted for more than 10.0% of our net sales during 2013, 2012 and 2011. No customer accounted for more than 10% of net trade receivables at December 31, 2013 and 2012. Although we have long-term
+relationships with many of our customers, our customers do not have a contractual obligation to purchase our products and we cannot be certain that we will be able to retain our existing major customers. Furthermore, the retail industry regularly
+experiences consolidation, contractions and closings which may result in our loss of customers or our inability to collect accounts receivable of major customers. If we lose a major customer, experience a significant decrease in sales to a major
+customer or are unable to collect the accounts receivable of a major customer, our business could be harmed. 
+Our Quarterly Revenues
+And Operating Results Fluctuate As A Result Of A Variety Of Factors, Including Seasonal Fluctuations In Demand For Footwear, Delivery Date Delays And Potential Fluctuations In Our Estimated Annualized Tax Rate, Which May Result In Volatility Of Our
+Stock Price. 
+Our quarterly revenues and operating results have varied significantly in the past and can be expected
+to fluctuate in the future due to a number of factors, many of which are beyond our control. Our major customers have no obligation to purchase forecasted amounts, may and have canceled orders, and may change delivery schedules or change the mix of
+products ordered with minimal notice and without penalty. As a result, we may not be able to accurately predict our quarterly sales. In addition, sales of footwear products have historically been somewhat seasonal in nature with the strongest sales
+generally occurring in our second and third quarters for the back-to-school selling season. Back-to-school sales typically ship in June, July and August, and delays in the timing, cancellation, or rescheduling of these customer orders and shipments
+by our wholesale customers could negatively impact our net sales and results of operations for our second or third quarters. More specifically, the timing of when products are shipped is determined by the delivery schedules set by our wholesale
+customers, which could cause sales to shift between our second and third quarters. Because our expense levels are partially based on our expectations of future net sales, our expenses may be disproportionately large relative to our revenues, and we
+may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shifts, which could have a material adverse effect on our operating results. 
+Our annualized tax rate is based on projections of our domestic and international operating results for the year, which we
+review and revise as necessary at the end of each quarter, and it is highly sensitive to fluctuations in projected international earnings. Any quarterly fluctuations in our annualized tax rate that may occur could have a material impact on our
+quarterly operating results. As a result of these specific and other general factors, our operating results will likely vary from quarter to quarter and the results for any particular quarter may not be necessarily indicative of results for the full
+year. Any shortfall in revenues or net earnings from levels expected by securities analysts and investors could cause a decrease in the trading price of our Class A Common Stock. 
+The Toning Footwear Category Has Come Under Public And Regulatory Scrutiny That May Have A Material Negative Impact On Our Business And
+Results Of Operations. 
+Since 2010, the toning footwear product category, including our Shape-ups products, has come
+under significant public scrutiny, such as highly publicized negative professional opinions, negative publicity and media attention, personal injury lawsuits and attorneys publicly marketing their services to consumers allegedly injured by toning
+products, including Shape-ups. In addition, we have been responding to inquiries by state, federal, and foreign governmental and quasi-governmental regulators regarding the claims, 
+18 
+Table of Contents 
+advertising, and safety of our toning products, and are engaged as defendants in civil lawsuits that involve similar claims. This public and regulatory scrutiny has included the questioning of
+our advertising, promotional claims, and the overall safety of these products, as well as allegations of personal injuries. We believe that Shape-ups and our other toning products are safe, but the negative publicity from this public and regulatory
+scrutiny appears to have had a negative impact on sales of toning footwear generally and our Shape-ups products in particular. We are not able to predict whether such negative publicity, regulatory review and related litigation will continue or what
+the continued effect will be on the sales of our Shape-up products, our business, and our results of operations beyond that included in this annual report. Further details regarding these legal and regulatory matters are discussed in greater detail
+under “Legal Proceedings” in Part I, Item 3 of this annual report. 
+It Is Difficult To Predict The Effect Of Regulatory
+Inquiries About Advertising And Promotional Claims Related To Our Toning Shoe Products. 
+The toning footwear market is
+dominated by a handful of competitors who design, market and advertise their products to promote fitness benefits associated with wearing the footwear. Advertising that promotes fitness benefits associated with the toning footwear market has come
+under review from state, federal, and foreign governmental and quasi-governmental regulators. As discussed in greater detail under “Legal Proceedings” in Part I, Item 3 of this annual report, we announced on May 16, 2012
+that we had settled all domestic legal proceedings relating to advertising claims made in connection with the marketing of our toning shoe products. Under the terms of the global settlement — without admitting any fault or liability, with no
+findings being made that our company had violated any law, and with no fines or penalties being imposed — we made payments in the aggregate amount of $50 million to settle all domestic advertising class action lawsuits and related claims
+brought by the FTC and the SAGs. On November 8, 2012, we were served with a Grand Jury Subpoena (“Subpoena”) that was issued by a Grand Jury of the United States District Court for the Northern District of Ohio, in Cleveland, Ohio for
+documents and information relating to past advertising claims for our toning footwear, including Shape-ups and Resistance Runners. The Subpoena, which seeks documents and information related to outside studies conducted on our toning footwear,
+appears related to the FTC’s inquiry into our claims and advertising for Shape-ups and our other toning shoe products. The Grand Jury investigation is in its early stages and we are fully cooperating in the process of producing documents and
+other information requested. The Assistant United States Attorney has informed us that neither we nor our employees are targets at the present time. Although we do not believe this Grand Jury investigation will have a material adverse impact on our
+results of operations or financial position, it is too early to predict the timing and outcome of this investigation, if there will be any additional regulatory inquiries or whether the final resolution of these matters could have a material adverse
+impact on our advertising, promotional claims, business, results of operations and financial position. 
+Our International Sales And
+Manufacturing Operations Are Subject To The Risks Of Doing Business Abroad, Particularly In China, Which Could Affect Our Ability To Sell Or Manufacture Our Products In International Markets, Obtain Products From Foreign Suppliers Or Control The
+Costs Of Our Products. 
+Substantially all of our net sales during the year ended December 31, 2013 were derived
+from sales of footwear manufactured in foreign countries, with most manufactured in China and, to a lesser extent, in Brazil and Vietnam. We also sell our footwear in several foreign countries and plan to increase our international sales efforts as
+part of our growth strategy. Foreign manufacturing and sales are subject to a number of risks, including the following: political and social unrest, including terrorism; changing economic conditions, including higher labor costs; increased costs of
+raw materials; currency exchange rate fluctuations; labor shortages and work stoppages; electrical shortages; transportation delays; loss or damage to products in transit; expropriation; nationalization; the adjustment, elimination or imposition of
+domestic and international duties, tariffs, quotas, import and export controls and other non-tariff barriers; exposure to different legal standards (particularly with respect to intellectual property); compliance with foreign laws; and changes in
+domestic and foreign governmental policies. We have not, to date, been materially affected by any such risks, but we cannot predict the likelihood of such developments occurring or the resulting long-term adverse impact on our business, results of
+operations or financial condition. 
+In particular, because most of our products are manufactured in China, the possibility
+of adverse changes in trade or political relations with China, political instability in China, increases in labor costs, the occurrence of prolonged adverse weather conditions or a natural disaster such as an earthquake or typhoon in China, or the
+outbreak of a pandemic disease in China could severely interfere with the manufacturing and/or shipment of our products and would have a material adverse effect on our operations. In addition, electrical shortages, labor shortages or work stoppages
+may extend the production time necessary to produce our orders, and there may be circumstances in the future where we may have to incur premium freight charges to expedite the delivery of product to our customers. If we incur a significant amount of
+premium charges to airfreight product for our customers, our gross profit will be negatively affected if we are unable to collect those charges. 
+19 
+Table of Contents 
+The Potential Imposition Of Additional Duties, Quotas, Tariffs And Other Trade Restrictions
+Could Have An Adverse Impact On Our Sales And Profitability. 
+All of our products manufactured overseas and imported
+into the United States, the European Union (“EU”) and other countries are subject to customs duties collected by customs authorities. Customs information submitted by us is routinely subject to review by customs authorities. We are unable
+to predict whether additional customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions to prevent terrorism or other trade restrictions may be imposed on the importation of our products in the future. Such actions
+could result in increases in the cost of our products generally and might adversely affect the sales and profitability of Skechers and the imported footwear industry as a whole. 
+Many Of Our Retail Stores Depend Heavily On The Customer Traffic Generated By Shopping And Factory Outlet Malls Or By Tourism. 
+Many of our concept stores are located in shopping malls and some of our factory outlet stores are located in
+manufacturers’ outlet malls where we depend on obtaining prominent locations and the overall success of the malls to generate customer traffic. We cannot control the success of individual malls, and an increase in store closures by other
+retailers may lead to mall vacancies and reduced foot traffic. Some of our concept stores occupy street locations that are heavily dependent on customer traffic generated by tourism. Any substantial decrease in tourism resulting from an economic
+slowdown, political, social or military events or otherwise, is likely to adversely affect sales in our existing stores, particularly those with street locations. The effects of these factors could reduce sales of particular existing stores or
+hinder our ability to open retail stores in new markets, which could negatively affect our operating results. 
+We Rely On Independent
+Contract Manufacturers And, As A Result, Are Exposed To Potential Disruptions In Product Supply. 
+Our footwear
+products are currently manufactured by independent contract manufacturers. During 2013 and 2012, the top five manufacturers of our products produced approximately 59.9% and 61.6% of our total purchases, respectively. One manufacturer accounted for
+37.8% and 33.5% of total purchases during 2013 and 2012, respectively. One other manufacturer accounted for 7.1% and 9.2% of our total purchases during 2013 and 2012, respectively. We do not have long-term contracts with manufacturers and we compete
+with other footwear companies for production facilities. We could experience difficulties with these manufacturers, including reductions in the availability of production capacity, failure to meet our quality control standards, failure to meet
+production deadlines or increased manufacturing costs. This could result in our customers canceling orders, refusing to accept deliveries or demanding reductions in purchase prices, any of which could have a negative impact on our cash flow and harm
+our business. 
+If our current manufacturers cease doing business with us, we could experience an interruption in the
+manufacture of our products. Although we believe that we could find alternative manufacturers, we may be unable to establish relationships with alternative manufacturers that will be as favorable as the relationships we have now. For example, new
+manufacturers may have higher prices, less favorable payment terms, lower manufacturing capacity, lower quality standards or higher lead times for delivery. If we are unable to provide products consistent with our standards or the manufacture of our
+footwear is delayed or becomes more expensive, our business would be harmed. 
+Our Business Could Be Harmed If Our Contract
+Manufacturers, Suppliers Or Licensees Violate Labor, Trade Or Other Laws. 
+We require our independent contract
+manufacturers, suppliers and licensees to operate in compliance with applicable laws and regulations. Manufacturers are required to certify that neither convicted, forced or indentured labor (as defined under United States law) nor child labor (as
+defined by law in the manufacturer’s country) is used in the production process, that compensation is paid in accordance with local law and that their factories are in compliance with local safety regulations. Although we promote ethical
+business practices and our sourcing personnel periodically visit and monitor the operations of our independent contract manufacturers, suppliers and licensees, we do not control them or their labor practices. If one of our independent contract
+manufacturers, suppliers or licensees violates labor or other laws or diverges from those labor practices generally accepted as ethical in the United States, it could result in adverse publicity for us, damage our reputation in the United States or
+render our conduct of business in a particular foreign country undesirable or impractical, any of which could harm our business. 
+In addition, if we, or our foreign manufacturers, violate United States or foreign trade laws or regulations, we may be
+subject to extra duties, significant monetary penalties, the seizure and the forfeiture of the products we are attempting to import or the loss of our import privileges. Possible violations of United States or foreign laws or regulations could
+include inadequate record keeping of our 
+20 
+Table of Contents 
+imported products, misstatements or errors as to the origin, quota category, classification, marketing or valuation of our imported products, fraudulent visas or labor violations. The effects of
+these factors could render our conduct of business in a particular country undesirable or impractical and have a negative impact on our operating results. 
+Our Strategies Involve A Number Of Risks That Could Prevent Or Delay The Successful Opening Of New Stores As Well As Negatively Impact The
+Performance Of Our Existing Stores. 
+Our ability to open and operate new stores successfully depends on many factors,
+including, among others: our ability to identify suitable store locations, the availability of which is outside of our control; negotiate acceptable lease terms, including desired tenant improvement allowances; source sufficient levels of inventory
+to meet the needs of new stores; hire, train and retain store personnel; successfully integrate new stores into our existing operations; and satisfy the fashion preferences in new geographic areas. 
+In addition, some or a substantial number of new stores could be opened in regions of the United States in which we currently
+have few or no stores. Any expansion into new markets may present competitive, merchandising and distribution challenges that are different from those currently encountered in our existing markets. Any of these challenges could adversely affect our
+business and results of operations. In addition, to the extent that any new store openings are in existing markets, we may experience reduced net sales volumes in existing stores in those markets. 
+We Depend On Key Personnel To Manage Our Business Effectively In A Rapidly Changing Market, And If We Are Unable To Retain Existing
+Personnel, Our Business Could Be Harmed. 
+Our future success depends upon the continued services of Robert Greenberg,
+Chairman of the Board and Chief Executive Officer; Michael Greenberg, President and a member of our Board of Directors; and David Weinberg, Executive Vice President, Chief Operating Officer, Chief Financial Officer and a member of our Board of
+Directors. The loss of the services of any of these individuals or any other key employee could harm us. Our future success also depends on our ability to identify, attract and retain additional qualified personnel. Competition for employees in our
+industry is intense and we may not be successful in attracting and retaining such personnel. 
+The Disruption, Expense And Potential
+Liability Associated With Existing And Unanticipated Future Litigation Against Us Could Have A Material Adverse Effect On Our Business, Results Of Operations And Financial Condition. 
+In addition to the legal matters included in our reserve for loss contingencies, we occasionally become involved in litigation
+arising from the normal course of business, and we are unable to determine the extent of any liability that may arise from any such unanticipated future litigation. We have no reason to believe that there is a reasonable possibility or a probability
+our company may incur a material loss, or a material loss in excess of a recorded accrual, with respect to any other such loss contingencies. However, the outcome of litigation is inherently uncertain and assessments and decisions on defense and
+settlement can change significantly in a short period of time. Therefore, although we consider the likelihood of such an outcome to be remote with respect to those matters for which we have not reserved an amount for loss contingencies, if one or
+more of these legal matters were resolved against us in the same reporting period for amounts in excess of our expectations, our consolidated financial statements of a particular reporting period could be materially adversely affected. Further, any
+unanticipated litigation in the future, regardless of its merits, could also significantly divert management’s attention from our operations and result in substantial legal fees being incurred. Such disruptions, legal fees and any losses
+resulting from these unanticipated future claims could have a material adverse effect on our business, consolidated financial statements and financial condition. 
+For a discussion of risks related to regulatory inquiries, see the risks discussed on page 19 under “It Is Difficult To
+Predict The Effect Of Regulatory Inquiries About Advertising And Promotional Claims Related To Our Toning Shoe Products.” 
+Our
+Ability To Compete Could Be Jeopardized If We Are Unable To Protect Our Intellectual Property Rights Or If We Are Sued For Intellectual Property Infringement. 
+We believe that our trademarks, design patents and other proprietary rights are important to our success and our competitive
+position. We use trademarks on nearly all of our products and believe that having distinctive marks that are readily identifiable is an important factor in creating a market for our goods, in identifying us and in distinguishing our goods from the
+goods of others. We consider our Skechers®, S in Shield Design, Performance-S Shifted Design, Shape-ups®, Twinkle Toes®, Bella Ballerina™, Skechers GOrun® and Skechers GOwalk® trademarks to be among our most valuable assets,
+and we have registered these trademarks 
+21 
+Table of Contents 
+in many countries. In addition, we own many other trademarks that we utilize in marketing our products. We also have a number of design patents and a limited number of utility patents covering
+components and features used in various shoes. We believe that our patents and trademarks are generally sufficient to permit us to carry on our business as presently conducted. While we vigorously protect our trademarks against infringement, we
+cannot guarantee that we will be able to secure patents or trademark protection for our intellectual property in the future or that protection will be adequate for future products. Further, we have been sued for patent and trademark infringement and
+cannot be sure that our activities do not and will not infringe on the intellectual property rights of others. If we are compelled to prosecute infringing parties, defend our intellectual property or defend ourselves from intellectual property
+claims made by others, we may face significant expenses and liability as well as the diversion of management’s attention from our business, each of which could negatively impact our business or financial condition. 
+In addition, the laws of foreign countries where we source and distribute our products may not protect intellectual property
+rights to the same extent as do the laws of the United States. We cannot assure you that the actions we have taken to establish and protect our trademarks and other intellectual property rights outside the United States will be adequate to prevent
+imitation of our products by others or, if necessary, successfully challenge another party’s counterfeit products or products that otherwise infringe on our intellectual property rights on the basis of trademark or patent infringement.
+Continued sales of these products could adversely affect our sales and our brand and result in the shift of consumer preference away from our products. We may face significant expenses and liability in connection with the protection of our
+intellectual property rights outside the United States, and if we are unable to successfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition could be adversely affected. 
+Breaches Or Compromises Of Our Information Security Systems, Information Technology Systems And Our Infrastructure To Support Our Business
+Could Result In Exposure Of Private Information, Disruption Of Our Business And Damage To Our Reputation, Which Could Harm Our Business, Results Of Operation And Financial Condition. 
+We utilize information security and information technology systems and websites that allow for the secure storage and
+transmission of proprietary or private information regarding our customers, employees, and others, including credit card information and personal identification information. A security breach may expose us to a risk of loss or misuse of this
+information, litigation, and potential liability. We may not have the resources or technical sophistication to anticipate or prevent rapidly-evolving types of cyber attacks. Attacks may be targeted at us, our customers, or others who have entrusted
+us with information. Actual or anticipated attacks may cause us to incur costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants. Advances in computer
+capabilities, new technological discoveries, or other developments may result in the technology used by us to protect transaction or other data being breached or compromised. In addition, data and security breaches can also occur as a result of
+non-technical issues, including breach by us or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. Any compromise or breach of our cyber security systems could
+result in private information exposure and a violation of applicable privacy and other laws, significant potential liability including legal and financial costs, and loss of confidence in our security measures by customers, which could have an
+adverse effect on our business, financial condition and reputation. 
+Natural Disasters Or A Decline In Economic Conditions In
+California Could Increase Our Operating Expenses Or Adversely Affect Our Sales Revenue. 
+As of December 31, 2013,
+a substantial portion of our operations are located in California, including 75 of our retail stores, our headquarters in Manhattan Beach, and our domestic distribution center in Rancho Belago. Because a significant portion of our net sales is
+derived from sales in California, a decline in the economic conditions in California, whether or not such decline spreads beyond California, could materially adversely affect our business. Furthermore, a natural disaster or other catastrophic event,
+such as an earthquake or wild fires affecting California, could significantly disrupt our business including the operation of our only domestic distribution center. We may be more susceptible to these issues than our competitors whose operations are
+not as concentrated in California. 
+One Principal Stockholder Is Able To Control Substantially All Matters Requiring Approval By Our
+Stockholders And Another Stockholder Is Able To Exert Significant Influence Over All Matters Requiring A Vote Of Our Stockholders, And Their Interests May Differ From The Interests Of Our Other Stockholders. 
+As of December 31, 2013, our Chairman of the Board and Chief Executive Officer, Robert Greenberg, beneficially owned
+63.6% of our outstanding Class B common shares, members of Mr. Greenberg’s immediate family beneficially owned an additional 15.4% of our outstanding Class B common shares, and Gil Schwartzberg, trustee of several trusts formed by
+Mr. Greenberg and his wife for 
+22 
+Table of Contents 
+estate planning purposes, beneficially owned 20.4% of our outstanding Class B common shares. The holders of Class A common shares and Class B common shares have identical rights except that
+holders of Class A common shares are entitled to one vote per share while holders of Class B common shares are entitled to ten votes per share on all matters submitted to a vote of our stockholders. As a result, as of December 31, 2013,
+Mr. Greenberg beneficially owned 46.5% of the aggregate number of votes eligible to be cast by our stockholders, and together with shares beneficially owned by other members of his immediate family, Mr. Greenberg and his immediate family
+beneficially owned 58.5% of the aggregate number of votes eligible to be cast by our stockholders, and Mr. Schwartzberg beneficially owned 14.9% of the aggregate number of votes eligible to be cast by our stockholders. Therefore,
+Mr. Greenberg is able to control substantially all matters requiring approval by our stockholders, and Mr. Schwartzberg is able to exert significant influence over all matters requiring approval by our stockholders. Matters that require
+the approval of our stockholders include the election of directors and the approval of mergers or other business combination transactions. Mr. Greenberg also has significant influence over our management and operations. As a result of such
+influence, certain transactions are not likely without the approval of Messrs. Greenberg and Schwartzberg, including proxy contests, tender offers, open market purchase programs or other transactions that can give our stockholders the opportunity to
+realize a premium over the then-prevailing market prices for their shares of our Class A common shares. Because Messrs. Greenberg’s and Schwartzberg’s interests may differ from the interests of the other stockholders, their ability to
+significantly influence or substantially control, respectively, actions requiring stockholder approval may result in our company taking action that is not in the interests of all stockholders. The differential in the voting rights may also adversely
+affect the value of our Class A common shares to the extent that investors or any potential future purchaser view the superior voting rights of our Class B common shares to have value. 
+Our Charter Documents And Delaware Law May Inhibit A Takeover, Which May Adversely Affect The Value Of Our Stock. 
+Provisions of Delaware law, our certificate of incorporation or our bylaws could make it more difficult for a third party to
+acquire us, even if closing such a transaction would be beneficial to our stockholders. Mr. Greenberg’s substantial beneficial ownership position, together with the authorization of Preferred Stock, the disparate voting rights between our
+Class A Common Stock and Class B Common Stock, the classification of our Board of Directors and the lack of cumulative voting in our certificate of incorporation and bylaws, may have the effect of delaying, deferring or preventing a change in
+control, may discourage bids for our Class A Common Stock at a premium over the market price of the Class A Common Stock and may adversely affect the market price of our Class A Common Stock. 
+ITEM 1B. 
+UNRESOLVED STAFF COMMENTS 
+None. 
+23 
+Table of Contents 
+ITEM 2. 
+PROPERTIES 
+Our corporate headquarters are located at three properties
+in Manhattan Beach, California, which consist of an aggregate of approximately 143,000 square feet. We own our corporate headquarters. 
+Our U.S. distribution center is a 1.8 million square-foot facility located on approximately 110 acres in Rancho Belago,
+California. We are leasing the distribution center from a joint venture, HF Logistics-SKX (the “JV”), that we formed with HF Logistics I, LLC (“HF”) in January 2010 for the purpose of building and operating the facility. The
+lease for this facility expires in 2031, with a base rent of $940,695 per month, or approximately $11.3 million per year. The JV is included in our consolidated financial statements. 
+Our European distribution center consists of 490,000 square-foot facilities in Liege, Belgium currently under two concurrent
+operating leases that expire in 2029, with base rent of approximately $3.0 million per year. The lease agreements also provide for early termination rights at five-year intervals upon 12-month advance notice in writing to terminate the lease. We did
+not exercise the first such early termination right prior to April 1, 2013. 
+All of our domestic retail stores and
+showrooms are leased with terms expiring between April 2014 and January 2024. The leases provide for rent escalations tied to either increases in the lessor’s operating expenses, fluctuations in the consumer price index in the relevant
+geographical area or a percentage of the store’s gross sales in excess of the base annual rent. Total base rent expense related to our domestic retail stores and showrooms was $48.1 million for the year ended December 31, 2013. 
+We also lease all of our international administrative offices, retail stores and showrooms located in Canada, Switzerland, the
+United Kingdom, Germany, France, Spain, Italy, the Netherlands, Brazil, Malaysia, China, Hong Kong, Japan, Chile, Singapore, India and Portugal. The property leases expire at various dates between May 2014 and April 2025. Total base rent for the
+leased administrative properties aggregated approximately $29.8 million for the year ended December 31, 2013. 
+ITEM 3. 
+LEGAL PROCEEDINGS 
+Our claims and advertising for our toning products
+including for our Shape-ups are subject to the requirements of, and routinely come under review by regulators including the U.S. Federal Trade Commission (“FTC”), states’ Attorneys General and government and quasi-government
+regulators in foreign countries. We are currently responding to requests for information regarding our claims and advertising from regulatory and quasi-regulatory agencies in several countries and are fully cooperating with those requests. While we
+believe that our claims and advertising with respect to our core toning products are supported by scientific tests, expert opinions and other relevant data, and while we have been successful in defending our claims and advertising in several
+different countries, we have discontinued using certain test results and we periodically review and update our claims and advertising. The regulatory inquiries may conclude in a variety of outcomes, including the closing of the inquiry with no
+further regulatory action, settlement of any issues through changes in its claims and advertising, settlement of any issues through payment to the regulatory entity, or litigation. 
+As we disclosed in previous periodic SEC filings, the FTC and Attorneys General for 44 states and the District of Columbia
+(“SAGs”) had been reviewing the claims and advertising for Shape-ups and our other toning shoe products. We also disclosed that we had been named as a defendant in multiple consumer class actions challenging our claims and advertising for
+our toning shoe products, including Shape-ups. On May 16, 2012, we announced that we had settled all domestic legal proceedings relating to advertising claims made in connection with the marketing of our toning shoe products. Under the terms of
+the global settlement — without admitting any fault or liability, with no findings being made that our company had violated any law, and with no fines or penalties being imposed — we have made payments in the aggregate amount of $50
+million to settle and finally resolve the domestic advertising class action lawsuits and related claims brought by the FTC and the SAGs. The FTC Stipulated Final Judgment was approved by the United States District Court for the Northern District of
+Ohio on July 12, 2012. Consent judgments in the 45 SAG actions have been approved and entered by courts in those jurisdictions. On May 13, 2013, the United States District Court for the Western District of Kentucky entered an order finally
+approving the nationwide consumer class action settlement, and the time for any appeals from that final approval order has expired. 
+On November 8, 2012, we were served with a Grand Jury Subpoena (“Subpoena”) for documents and information
+relating to our past advertising claims for our toning footwear, including Shape-ups and Resistance Runners. The Subpoena was issued by a Grand Jury of the United States District Court for the Northern District of Ohio, in Cleveland, Ohio. The
+Subpoena seeks documents and 
+24 
+Table of Contents 
+information related to outside studies conducted on our toning footwear. This Subpoena appears to grow out of the FTC’s inquiry into our claims and advertising for Shape-ups and our other
+toning shoe products, which we settled with the FTC, SAGs and consumer class as part of a global settlement, as set forth above. We are fully cooperating and are in the process of producing documents and other information requested in the Subpoena.
+The Assistant United States Attorney has informed us that neither our company nor our employees are targets at the present time. Although we do not believe this matter will have a material adverse impact on our results of operations or financial
+position, it is too early to predict the timing and outcome of this matter or reasonably estimate a range of potential losses, if any. 
+The toning footwear category, including our Shape-ups products, has also been the subject of some media attention arising from
+a number of consumer complaints and lawsuits alleging injury while wearing Shape-ups. We believe our products are safe and are defending ourselves from these media stories and injury lawsuits. It is too early to predict the outcome of any case or
+inquiry, whether there will be future personal injury cases filed, whether adverse results in any single case or in the aggregate would have a material adverse impact on our results of operations or financial position, and whether insurance coverage
+will be adequate to cover any losses. 
+Patty Tomlinson v. Skechers U.S.A., Inc. — On January 13, 2011,
+Patty Tomlinson filed a lawsuit against our company in Circuit Court in Washington County, Arkansas, Case No. CV11-121-7. The complaint alleges, on her behalf and on behalf of all others similarly situated, that our advertising for Shape-ups
+violates Arkansas’ Deceptive Trade Practices Act, constitutes a breach of certain express and implied warranties, and is resulting in unjust enrichment (the “ Tomlinson action”). The complaint seeks certification of a statewide
+class, compensatory damages, prejudgment interest, and attorneys’ fees and costs. On February 18, 2011, we removed the case to the United States District Court for the Western District of Arkansas, where it was pending as Patty
+Tomlinson v. Skechers U.S.A., Inc. , CV 11-05042 JLH. On March 21, 2011, Ms. Tomlinson moved to remand the action back to Arkansas state court, which motion we opposed. On May 25, 2011, the Court ordered the case remanded to
+Arkansas state court and denied our motion to dismiss or transfer as moot, but stayed the remand pending completion of appellate review. On September 11, 2012, the District Court lifted its stay and remanded this case to the Circuit Court of
+Washington County, Arkansas. On October 11, 2012, by stipulation of the parties, the state Circuit Court issued an order staying the case. On August 13, 2012, the United States District Court for the Western District of Kentucky granted
+preliminary approval of the nationwide consumer class action settlement in Grabowski v. Skechers U.S.A. , Inc. Case No. 3:12-CV-00204, and Morga v. Skechers U.S.A., Inc. , Case No. 3:12-CV-00205 (the
+“ Grabowski/Morga class actions”), and issued a preliminary injunction enjoining the continued prosecution of the Tomlinson action, among other cases. On May 13, 2013, the Court in the Grabowski/Morga class actions
+entered an order finally approving the nationwide consumer class action settlement, and the time for any appeals therefrom has expired. The settlement in the Grabowski/Morga class actions is expected entirely to resolve the class claims
+brought by the plaintiff in Tomlinson . 
+Elma Boatright and Sharon White v. Skechers U.S.A., Inc., Skechers
+U.S.A., Inc. II and Skechers Fitness Group — On February 15, 2012, Elma Boatright and Sharon White filed a lawsuit against our company in the United States District Court for the Western District of Kentucky, Case
+No. 3:12-cv-87-S. The complaint alleges, on behalf of the named plaintiffs and all others similarly situated, that our advertising for Shape-ups is false and misleading, thereby constituting a breach of contract, breach of implied and express
+warranties, fraud, and resulting in unjust enrichment. The complaint seeks certification of a nationwide class, compensatory damages, and attorneys’ fees and costs. On March 6, 2012, the named plaintiffs filed a motion to consolidate this
+action with In re Skechers Toning Shoe Products Liability Litigation, case no. 11-md-02308-TBR. On August 13, 2012, the United States District Court for the Western District of Kentucky granted preliminary approval of the consumer class
+action settlement agreement in the Grabowski/Morga class actions (described above), and issued a preliminary injunction enjoining the continued prosecution of this action. On May 13, 2013, the Court in the Grabowski/Morga class
+actions entered an order finally approving the nationwide consumer class action settlement, and the time for any appeals therefrom has expired. The settlement in the Grabowski/Morga class actions is expected entirely to resolve the class
+claims brought by the plaintiff in Boatright . 
+Jason Angell v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II
+and Skechers U.S.A. Canada, Inc. — On April 12, 2012, Jason Angell filed a motion to authorize the bringing of a class action in the Superior Court of Québec, District of Montréal. Petitioner Angell seeks to bring a class
+action on behalf of all residents of Canada (or in the alternative, all residents of Québec) who purchased Skechers Shape-ups footwear. Petitioner’s motion alleges that we have marketed Shape-ups through the use of false and misleading
+advertisements and representations about the products’ ability to provide health benefits to users. The motion requests the Court’s authorization to institute a class action seeking damages (including damages for bodily injury), punitive
+damages, and injunctive relief. Petitioner’s motion was formally presented to the Court on June 29, 2012. At a mediation held on February 28, 2013, the parties reached an agreement in principle to settle the Angell action (as
+well as the Niras and Dedato actions described below) through authorization by the Québec Superior Court of a nationwide settlement class. The parties are currently finalizing the terms of the settlement agreement. If the motion
+for approval of the class action settlement is denied or approval is reversed on appeal, we cannot predict the outcome of the Angell action or a reasonable range of potential losses or whether the outcome of the Angell action would
+25 
+Table of Contents 
+have a material adverse impact on our results of operations or financial position in excess of the settlement. 
+Brenda Davies/Kourtney Smith v. Skechers U.S.A, Inc., Skechers U.S.A., Inc. II, and Skechers U.S.A. Canada Inc. —
+On September 5, 2012, Brenda Davies filed a Statement of Claim in the Court of Queen’s Bench in Edmonton, Alberta, on behalf of all residents of Canada who purchased Skechers Shape-ups footwear. The Statement of Claim alleges that Skechers
+marketed Shape-ups through the use of false and misleading advertisements and representations about the products’ ability to provide fitness benefits to users. The Statement of Claim seeks damages (including damages for bodily injury),
+restitution, punitive damages, and injunctive relief. On or about November 21, 2013, an Amended Statement of Claim was filed to substitute a new representative plaintiff, Kourtney Smith, in place of Ms. Davies and to allege substantially
+the same claims as in the original Statement of Claim with respect to all Skechers toning footwear sold to residents of Canada. Skechers has not yet responded to the Amended Statement of Claim. The settlement in the Angell , Niras , and
+Dedato class actions (described above and below), if finally approved by the Court and affirmed on appeal in the event an appeal is taken, is expected entirely to resolve the class claims brought by the plaintiff in Davies/Smith . If
+the motion for approval of the class action settlement is denied or approval is reversed on appeal, we cannot predict the outcome of the Davies/Smith action or a reasonable range of potential losses or whether the outcome of the
+Davies/Smith action would have a material adverse impact on our results of operations or financial position in excess of the settlement. 
+George Niras v. Skechers U.S.A., Inc., Skechers U.S.A., Inc. II, and Skechers U.S.A. Canada Inc. — On
+September 21, 2012, George Niras filed a Statement of Claim in the Ontario Superior Court of Justice on behalf of all residents of Canada who purchased Shape-ups, Resistance Runner, Shape-ups Toners/Trainers, or Tone-ups. The Statement of Claim
+alleges that Skechers marketed these toning shoes through the use of false and misleading advertisements and representations about the products’ ability to provide health benefits to users. The Statement seeks damages, restitution, punitive
+damages, and injunctive relief. Skechers has not yet responded to the Statement. At a mediation held on February 28, 2013, the parties reached an agreement in principle to settle the Niras action (as well as the Angell action
+described above and the Dedato action described below) through authorization by the Québec Superior Court of a nationwide settlement class. The parties are currently finalizing the terms of the settlement agreement. It is anticipated
+that the agreement will provide for the voluntary discontinuance (dismissal) of the Niras action upon approval of the settlement by the Québec Superior Court. If the motion for approval of the class action settlement is denied or
+approval is reversed on appeal, we cannot predict the outcome of the Niras action or a reasonable range of potential losses or whether the outcome of the Niras action would have a material adverse impact on our results of operations or
+financial position in excess of the settlement. 
+Frank Dedato v. Skechers U.S.A., Inc. and Skechers U.S.A. Canada, Inc.
+— On or about November 5, 2012, Frank Dedato filed a Statement of Claim in Ontario Superior Court of Justice on behalf of all residents of Canada who purchased Shape-ups, Tone-ups or Resistance Runner footwear. The Statement of Claim
+alleges that Skechers has allegedly made misleading statements about its footwear products’ ability to provide fitness benefits to users. The Statement of Claim seeks damages, restitution, punitive damages, and injunctive relief. Skechers has
+not yet responded to the Statement of Claim. At a mediation held on February 28, 2013, the parties reached an agreement in principle to settle the Dedato action (as well as the Angell and Niras actions described above)
+through authorization by the Québec Superior Court of a nationwide settlement class. The parties are currently finalizing the terms of the settlement agreement. It is anticipated that the agreement will provide for the voluntary
+discontinuance (dismissal) of the Dedato action upon approval of the settlement by the Québec Superior Court. If the motion for approval of the class action settlement is denied or approval is reversed on appeal, we cannot predict the
+outcome of the Dedato action or a reasonable range of potential losses or whether the outcome of the Dedato action would have a material adverse impact on our results of operations or financial position in excess of the settlement.
+Esteban Chavez v. Skechers U.S.A., Inc. — On September 18, 2012, Esteban Chavez filed a class action
+lawsuit against our company in the Superior Court of the State of California for the County of Los Angeles, Case No. BC492357, alleging violations of the California Labor Code, including unpaid overtime, unpaid minimum wages, non-compliant wage
+statements, and wages not timely paid upon termination. The complaint seeks actual, consequential and incidental losses and damages; general and special damages; civil, statutory and waiting time penalties; restitution of unpaid wages; injunctive
+relief; attorneys’ fees and costs; pre-judgment interest on unpaid compensation; and appointment of a receiver. On September 25, 2012, the Court issued an order staying the action until an initial status conference that was held on
+December 19, 2012. This case was dismissed on July 18, 2013 by plaintiff’s counsel as largely duplicative of the class action claims in Roneshia Sayles v. Skechers U.S.A., Inc. , which is discussed below. 
+Roneshia Sayles v. Skechers U.S.A., Inc. — On October 2, 2012, Roneshia Sayles filed a class action lawsuit
+against our company in the Superior Court of the State of California for the County of Los Angeles, Case No. BC473067. The complaint involves a wage and hour claim, alleging violations of the California Labor Code, including unpaid time for
+certain breaks and when retail employees’ bags are checked upon leaving the store at the ends of their shifts. The complaint seeks actual, consequential and incidental losses and damages; general and special damages; civil, statutory and
+waiting time penalties; restitution of unpaid wages; injunctive relief; 
+26 
+Table of Contents 
+attorneys’ fees and costs; pre-judgment interest on unpaid compensation. In January 2014, the parties entered into a Stipulation and Settlement of Class Action Claims (the
+“Settlement”). The Settlement still has to be approved by the Court. In the event that the Settlement is not approved by the Court, it is too early to predict the outcome of the litigation or a reasonable range of potential losses and
+whether an adverse result would have a material adverse impact on our results of operations or financial position, we believe we have meritorious defenses, vehemently deny the allegations, and intend to defend the case vigorously. 
+Personal Injury Lawsuits Involving Shape-ups — As previously reported, on February 20, 2011, Skechers U.S.A.,
+Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group were named as defendants in a lawsuit that alleged, among other things, that Shape-ups are defective and unreasonably dangerous, negligently designed and/or manufactured, and do not conform
+to representations made by our company, and that we failed to provide adequate warnings of alleged risks associated with Shape-ups. In total, we are named as a defendant in 760 currently pending cases (some on behalf of multiple plaintiffs)
+that assert further varying injuries but employ similar legal theories and assert similar claims to the first case, as well as claims for breach of express and implied warranties, loss of consortium, and fraud. Although there are some
+variations in the relief sought, the plaintiffs generally seek compensatory and/or economic damages, exemplary and/or punitive damages, and attorneys’ fees and costs. On December 19, 2011, the Judicial Panel on Multidistrict
+Litigation issued an order establishing a multidistrict litigation (“MDL”) proceeding in the United States District Court for the Western District of Kentucky entitled In re Skechers Toning Shoe Products Liability Litigation, case
+no. 11-md-02308-TBR, that currently encompasses 704 personal injury cases that were initiated as individual lawsuits in the MDL or in various federal courts and 22 claims submitted by plaintiff fact sheets. Skechers U.S.A., Inc., Skechers
+U.S.A., Inc. II and Skechers Fitness Group are also named defendants in 51 pending personal injury actions filed in the Superior Court of California in Los Angeles (“LASC”) that have been brought on behalf of 632 individual plaintiffs.
+Additionally, there currently are 5 personal injury actions pending in various state courts. 
+Since 2011, a total of 777
+personal injury cases have been filed in or transferred to the MDL proceeding. Additionally, 414 unfiled claims have been submitted by plaintiff fact sheets for mediation purposes in the MDL proceeding. The Company has resolved 335 personal injury
+claims in the MDL proceedings, 51 that were filed as formal actions and 284 that were submitted by plaintiff fact sheets. Skechers has also settled 93 claims in principle — 16 filed cases and 77 claims submitted by plaintiff fact sheets
+— and anticipates that those settlements will finalized in the near term. Six cases in the MDL proceeding have been dismissed either voluntarily or on motions by Skechers and 31 unfiled claims submitted by plaintiff fact sheet have been
+abandoned. 
+In the coordinated LASC proceedings, a total of 54 personal injury actions have been filed on behalf of 673
+individual plaintiffs. Two actions, brought on behalf of a total of 4 plaintiffs, have been dismissed. Settlements with all 17 plaintiffs in another action have either been finalized or reached in principle, and Skechers anticipates that action will
+be dismissed in the near term. The claims of 20 additional plaintiffs have been dismissed in whole, and the claims of 16 persons have been dismissed in part, either voluntarily or on motions by Skechers. 
+In other state courts, a total 16 personal injury actions have been filed that were not removed to federal court and
+transferred to the MDL or coordinated in the LASC proceedings. Ten of those actions have been resolved and dismissed, and Skechers has reached a settlement in principle in an eleventh matter that it anticipates will be dismissed in the near term.
+The personal injury cases in the MDL and LASC proceedings are in many instances solicited and handled by the same
+plaintiff’s law firms. It is too early to predict the outcome of any case, whether there will be future personal injury cases filed, whether adverse results in any single case or in the aggregate would have a material adverse impact on our
+operations or financial position, and whether insurance coverage will be adequate to cover any losses. Notwithstanding, we believe we have meritorious defenses, vehemently deny the allegations and intend to defend each of these cases vigorously.
+Gloria Basaraba v. Robert Greenberg, et al. — On July 15, 2013, plaintiff Gloria Basaraba moved to file
+under seal a shareholder derivative complaint against Skechers, nine individual members of its Board of Directors and a former employee in the United States District Court for the Central District of California, Case No. CV13-5061. The complaint
+included allegations of breach of fiduciary duties, gross mismanagement, waste of corporate assets and unjust enrichment based on the development of Skechers’ toning footwear products, advertising and marketing activities relating thereto, and
+subsequent litigation involving those issues. The complaint sought compensatory damages, a court order directing Skechers to reform and improve their corporate governance and internal procedures, and attorneys’ fees, costs and expenses. On
+August 26, 2013, the Court denied plaintiff’s motion to seal and ordered that she file an operative complaint. On September 5, 2013, plaintiff filed the operative complaint against the same defendants, except for the former employee.
+The operative complaint seeks to recover under the same causes of action as in the prior complaint on the basis of many of the same allegations. On November 12, 2013 and November 15, 2013, the individual defendants and Skechers
+respectively moved to dismiss the complaint. Under the parties’ stipulated briefing schedule, the motions are currently set for hearing on April 21, 2014. 
+27 
+Table of Contents 
+Discovery has not yet commenced. While it is too early to predict the outcome of litigation or a reasonable range of potential losses and whether an adverse result would have a material adverse
+impact on our results of operations or financial position, Skechers believes this lawsuit is without merit and intends to vigorously defend against the allegations. 
+In addition to the matters included in its reserve for loss contingencies, we occasionally become involved in litigation
+arising from the normal course of business, and we are unable to determine the extent of any liability that may arise from any such unanticipated future litigation. We have no reason to believe that there is a reasonable possibility or a probability
+that we may incur a material loss, or a material loss in excess of a recorded accrual, with respect to any other such loss contingencies. However, the outcome of litigation is inherently uncertain and assessments and decisions on defense and
+settlement can change significantly in a short period of time. Therefore, although we consider the likelihood of such an outcome to be remote with respect to those matters for which we have not reserved an amount for loss contingencies, if one or
+more of these legal matters were resolved against our company in the same reporting period for amounts in excess of our expectations, our consolidated financial statements of a particular reporting period could be materially adversely affected. 
+ITEM 4. 
+MINE SAFETY DISCLOSURES 
+Not applicable. 
+28 
+Table of Contents 
+PART II 
+ITEM 5. 
+MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 
+Our Class A Common Stock trades on the New York Stock Exchange under the symbol “SKX.” The following table sets
+forth, for the periods indicated, the high and low sales prices of our Class A Common Stock. 
+LOW 
+HIGH 
+YEAR ENDED DECEMBER 31, 2012 
+First Quarter 
+$ 
+11.21 
+$ 
+14.70 
+Second Quarter 
+12.50 
+21.50 
+Third Quarter 
+18.07 
+22.37 
+Fourth Quarter 
+15.18 
+20.74 
+YEAR ENDED DECEMBER 31, 2013 
+First Quarter 
+$ 
+17.02 
+$ 
+22.61 
+Second Quarter 
+19.99 
+24.50 
+Third Quarter 
+23.93 
+31.56 
+Fourth Quarter 
+26.62 
+34.95 
+HOLDERS 
+As of February 15, 2014, there were 108 holders of record of our Class A Common Stock (including holders who are
+nominees for an undetermined number of beneficial owners) and 29 holders of record of our Class B Common Stock. These figures do not include beneficial owners who hold shares in nominee name. The Class B Common Stock is not publicly traded but each
+share is convertible upon request of the holder into one share of Class A Common Stock. 
+DIVIDEND POLICY 
+Earnings have been and will be retained for the foreseeable future in the operations of our business. We have not declared or
+paid any cash dividends on our Class A Common Stock and do not anticipate paying any cash dividends in the foreseeable future. Our current policy is to retain all of our earnings to finance the growth and development of our business. 
+EQUITY COMPENSATION PLAN INFORMATION 
+Our equity compensation plan information is provided as set forth in Part III, Item 12 of this annual report. 
+29 
+Table of Contents 
+PERFORMANCE GRAPH 
+The following graph demonstrates the total return to stockholders of our company’s Class A Common Stock from
+December 31, 2008 to December 31, 2013, relative to the performance of the Russell 2000 Index, which includes our Class A Common Stock, the new peer group index and the old peer group index, both of which are believed to include
+companies engaged in businesses similar to ours The old peer group index consists of four companies: Nike, Inc., adidas AG, Steven Madden, Ltd., and Wolverine World Wide, Inc., but the index excludes K-Swiss Inc., which was included in prior years,
+as the company was taken private in April 2013 and stock price information is no longer available. The new peer group index has been added to the performance graph because the old peer group index has decreased from eight companies to only four
+companies since the index was formed. With the addition of Crocs, Inc. and Deckers Outdoor Corporation to the four remaining companies from the old peer group index, we believe that the new peer group index with these six companies is a more
+accurate representation of stock performance of the public companies that we currently compete with in the footwear industry. 
+The graph assumes an investment of $100 on December 31, 2008 in each of our company’s Class A Common Stock and
+the stocks comprising each of the Russell 2000 Index and the customized peer group index. Each of the indices assumes that all dividends were reinvested. The stock performance of our company’s Class A Common Stock shown on the graph is not
+necessarily indicative of future performance. We will not make nor endorse any predictions as to our future stock performance. 
+12/08 
+12/09 
+12/10 
+12/11 
+12/12 
+12/13 
+Skechers U.S.A., Inc. 
+100.00 
+229.41 
+156.01 
+94.54 
+144.31 
+258.42 
+Russell 2000 
+100.00 
+127.17 
+161.32 
+154.59 
+179.86 
+249.69 
+Old Peer Group 
+100.00 
+136.82 
+174.87 
+193.79 
+226.93 
+344.35 
+New Peer Group 
+100.00 
+137.61 
+183.34 
+200.26 
+227.05 
+345.56 
+30 
+Table of Contents 
+ITEM 6. 
+SELECTED FINANCIAL DATA 
+The following tables set forth our
+company’s selected consolidated financial data as of and for each of the years in the five-year period ended December 31, 2013 and should be read in conjunction with our audited consolidated financial statements and notes thereto included
+under Part II, Item 8 of this annual report. 
+(In thousands, except net earnings (loss) per share) 
+YEARS ENDED DECEMBER 31, 
+STATEMENT OF OPERATIONS DATA: 
+2013 
+2012 
+2011 
+2010 
+2009 
+Net sales 
+$ 
+1,846,361 
+$ 
+1,560,321 
+$ 
+1,606,016 
+$ 
+2,006,868 
+$ 
+1,436,440 
+Gross profit 
+818,792 
+683,326 
+623,748 
+911,906 
+621,010 
+Earnings (loss) from operations 
+93,609 
+22,319 
+(133,793 
+) 
+195,568 
+70,255 
+Earnings (loss) before income taxes (benefit) 
+82,215 
+10,473 
+(131,047 
+) 
+196,603 
+71,110 
+Net earnings (loss) attributable to Skechers U.S.A., Inc. 
+54,788 
+9,512 
+(67,484 
+) 
+136,148 
+54,699 
+Net earnings (loss) per share:(1) 
+Basic 
+1.09 
+0.19 
+(1.39 
+) 
+2.87 
+1.18 
+Diluted 
+1.08 
+0.19 
+(1.39 
+) 
+2.78 
+1.16 
+Weighted average shares:(1) 
+Basic 
+50,363 
+49,495 
+48,491 
+47,433 
+46,341 
+Diluted 
+50,563 
+49,942 
+48,491 
+49,050 
+47,105 
+AS OF DECEMBER 31, 
+BALANCE SHEET DATA: 
+2013 
+2012 
+2011 
+2010 
+2009 
+Working capital 
+$ 
+704,506 
+$ 
+647,771 
+$ 
+578,885 
+$ 
+666,054 
+$ 
+558,468 
+Total assets 
+1,408,570 
+1,340,220 
+1,281,888 
+1,304,794 
+995,552 
+Long-term borrowings, excluding current installments 
+116,488 
+128,517 
+76,531 
+51,650 
+15,641 
+Skechers U.S.A., Inc. equity 
+930,322 
+875,969 
+852,561 
+908,203 
+745,922 
+(1) 
+Basic earnings per share represents net earnings (loss) divided by the weighted-average number of common shares outstanding for the period. Diluted
+earnings (loss) per share, in addition to the weighted average determined for basic earnings (loss) per share, reflects the potential dilution that could occur if options to issue common stock were exercised or converted into common stock.
+31 
+Table of Contents 
+ITEM 7. 
+MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
+GENERAL 
+We design, market and
+sell contemporary footwear for men, women and children under the Skechers brand. Our footwear is sold through a wide range of department stores and leading specialty retail stores, mid-tier retailers, boutiques, our own retail stores, distributor
+and licensee-owned international retail stores and our e-commerce websites. Our objective is to continue to profitably grow our domestic operations while leveraging our brand name to expand internationally. 
+Our operations are organized along our distribution channels, and we have the following four reportable sales segments:
+domestic wholesale sales, international wholesale sales, retail sales and e-commerce sales. We evaluate segment performance based primarily on net sales and gross margins. See detailed segment information in note 12 to our consolidated financial
+statements included under Part II, Item 8 of this annual report. 
+FINANCIAL OVERVIEW 
+Our net sales for 2013 increased $286.0 million, or 18.3% to $1.846 billion, compared to net sales of $1.560 billion in 2012.
+The increase in net sales was broad based across our domestic wholesale, international subsidiaries and retail segments, with the largest increases across our Women’s Go, Men’s and Women’s Sport, and BOBS divisions, which was
+partially offset by reduced sales of our toning products during 2013. Net earnings were $54.8 million for 2013, an increase of $45.3 million, or 476.0%, compared to net earnings of $9.5 million in 2012. Diluted income per share for 2013 was $1.08,
+which reflected a 468.9% increase from the $0.19 diluted income per share reported in the prior year. The increase in earnings for 2013 was primarily the result of increased sales in our domestic wholesale and international direct sales segments
+following the introduction of new products during the second half of 2012 and increased margins in our retail and international direct sales segments due to sales of product mix with higher margins. Our working capital was $704.5 million at
+December 31, 2013, which was an increase of $56.7 million from working capital of $647.8 million at December 31, 2012. Our cash increased to $372.0 million at December 31, 2013 from $325.8 million at December 31, 2012. This
+increase in cash of $46.2 million was primarily the result of our increased net earnings and reduced capital expenditures, which were partially offset by increased inventories and increased accounts receivables. 
+2013 OVERVIEW 
+In 2013, we
+focused on product development, domestic and international growth, balance sheet and expense management and completing our 2012 and 2011 re-audits. 
+New product design and delivery . Our success depends on our ability to design and deliver trend-right, affordable
+product to consumers across a broad range of demographics. In 2013, we focused on continuously updating our core styles, by adding fresh looks to our existing lines, and developing new lines that included lifestyle and performance footwear such as
+Skechers on-the-GO, which has broadened and diversified our collection of product offerings, while we continued to reduce our inventory of older toning styles. 
+Grow our domestic business. In 2013, our focus was on maintaining our core Skechers business in our domestic wholesale
+accounts, while finding new opportunities to add shelf space and expand into new locations with new Skechers categories. We also focused on expanding our domestic retail distribution channel by opening 31 additional stores. 
+Further develop our international businesses. In 2013, we continued to focus on improving our international operations
+by increasing our customer base within our existing subsidiary business and increasing our product offering to accounts within each country. We also focused on expanding our international retail distribution channel by opening 16 additional stores.
+Balance sheet and expense management. During 2013, we also focused on managing our inventory levels and bringing
+our marketing expenses and general and administrative expenses in line with expected sales, which enabled us to return to profitability. 
+Completing the re-audit of our 2012 and 2011 financial statements. Following the resignation of our prior independent
+registered accounting firm due to impaired independence, we completed the re-audit of our 2012 and 2011 financial statements and became current in our filings with the Securities and Exchange Commission as of July 31, 2013. No adjustments or
+changes were made to our consolidated financial statements or related notes for the fiscal years ended December 31, 2012 and 2011, except for 
+32 
+Table of Contents 
+anticipated updates with respect to subsequent events, including certain litigation matters required as a consequence of re-dating the audit reports. 
+OUTLOOK FOR 2014 
+During 2014,
+we will continue to develop new lifestyle and performance product at affordable prices. The global footwear market is competitive; however, we believe our new styles and lines that we will be launching in the spring and fall seasons will enable us
+to continue to broaden the targeted demographic profile of our consumer base, increase our shelf space and open 60 to 70 new retail locations, predominantly in the U.S., without detracting from existing business. In addition, we will continue to
+develop our product distribution infrastructure to be more efficient and to support expected future growth by upgrading the equipment at our European distribution center, which we expect to have on-line and ready for operation by the end of 2014.
+DEFINITIONS 
+Comparable Sales 
+As part of our discussion of our results of operations, we disclose comparable store sales, which exclude the impact of
+e-commerce sales. With respect to any reporting period, we define comparable store sales as sales for stores that are owned and operated for at least thirteen full calendar months as of the last day of any calendar month within the current reporting
+period, and include only those sales for each of the comparable full calendar months that the store is open within each period. When a store closes at the end of a lease during a reporting period, we include in comparable store sales the sales for
+the number of comparable full calendar months that the store was open within the reporting period. We include new stores in comparable store sales commencing with the fourteenth month of operations because we believe it provides a more meaningful
+comparison of operating results of months with stabilized operations, and excludes a new store’s first full calendar month of operations when operating results may not be representative for a variety of reasons. 
+Definitions and calculations of comparable store sales differ among companies in the retail industry, and therefore comparable
+store sales disclosed by us may not be comparable to the metrics disclosed by other companies. 
+Cost of Sales or Gross Margins 
+Our cost of sales includes the cost of footwear purchased from our manufacturers, duties, quota costs, inbound freight
+(including ocean, air and freight from the dock to our distribution centers), broker fees and storage costs. Because we include expenses related to our distribution network in general and administrative expenses, while some of our competitors may
+include expenses of this type in cost of sales, our gross margins may not be comparable and we may report higher gross margins than some of our competitors in part for this reason. 
+Selling expenses 
+Selling expenses consist primarily of the following: sales representative sample costs, sales commissions, trade shows,
+advertising and promotional costs, which may include television and ad production costs, and point-of-purchase costs. 
+General, administrative and
+legal expenses 
+General, administrative and legal expenses consist primarily of the following: salaries, wages and
+related taxes, various overhead costs associated with our corporate staff, stock-based compensation, domestic and international retail operations, non-selling related costs of our international operations, costs associated with our domestic and
+European distribution centers, professional fees related to both legal and accounting, insurance, depreciation and amortization, and asset impairment, amongst other expenses. Our distribution network related costs are included in general and
+administrative expenses and are not allocated to specific segments. 
+33 
+Table of Contents 
+YEAR ENDED DECEMBER 31, 2013 COMPARED TO THE YEAR ENDED DECEMBER 31, 2012 
+Net sales 
+Net
+sales for 2013 were $1.846 billion, which was an increase of $286.0 million, or 18.3%, compared to net sales of $1.560 billion for 2012. The increase in net sales was primarily attributable to higher sales in our domestic wholesale, international
+subsidiaries and retail segments of new styles and lines of footwear that we launched in the second half of 2012. 
+Our
+domestic wholesale net sales increased $149.5 million, or 22.9%, to $802.2 million for 2013 compared to $652.7 million for 2012. The increase in our domestic wholesale segment was due to strong sales and significant growth in several key divisions
+including our Women’s Go, and Men’s and Women’s Sport and BOBS divisions, which were offset by reduced sales in our Women’s Active and Women’s USA divisions. The increase in the domestic wholesale segment’s net sales
+also resulted from a 24.3% unit sales volume increase to 37.7 million pairs in 2013 from 30.4 million pairs in 2012. The average selling price per pair within the domestic wholesale segment decreased slightly to $21.26 per pair for 2013
+from $21.50 for 2012, which was primarily the result of lower selling prices in our BOBS and Men’s lines and increased closeouts as compared to 2012. 
+Our international wholesale segment net sales increased $46.6 million, or 10.8%, to $478.8 million for 2013 compared to sales
+of $432.2 million for 2012. Our international wholesale sales consist of direct sales by our foreign subsidiaries — those sales we make to department stores and specialty retailers — and sales to our distributors, who in turn sell to
+retailers in various international regions where we do not sell directly. Direct sales by our foreign subsidiaries increased $59.7 million, or 20.3%, to $354.1 million for 2013 compared to sales of $294.4 million for 2012. The largest sales
+increases during the year came from our subsidiaries in Canada and France and our joint ventures in Hong Kong, China, Singapore and India, which were offset by decreases in Spain and Italy. The increases are primarily attributable to sales of our
+Women’s and Men’s Go, Women’s Active, Women’s Sport and Twinkle Toes’ lines. Our distributor sales decreased $13.0 million, or 9.5%, to $124.7 million for 2013, compared to sales of $137.7 million for 2012. This was
+primarily attributable to decreased sales to our distributors in Panama, South Korea, Ukraine and the United Arab Emirates (“UAE”). 
+Our retail segment net sales increased $84.6 million, or 18.7%, to $538.2 million for 2013, compared to sales of $453.6
+million for 2012. The increase in retail sales was attributable to positive comparable store sales and a net increase of 21 domestic stores and 15 international stores. For 2013, we realized positive comparable store sales of 14.8% in our domestic
+retail stores and 15.2% in our international retail stores. The comparable store sales increase was principally driven by increased sales of our newer products. During 2013, we opened 10 new domestic concept stores, 13 domestic outlet stores, eight
+domestic warehouse stores, eight international concept stores and eight international outlet stores. Our domestic retail sales increased 17.8% for 2013 in comparison to 2012 as the result of the positive comparable store sales and the net increase
+of 21 domestic stores. Our international retail sales increased 24.1% for 2013 compared to 2012, which was primarily attributable to increases in net sales in Canada, Chile and the United Kingdom as well as a net increase of 15 international stores.
+We believe that we have established our presence in most major domestic retail markets. We had 324 domestic stores and 70
+international retail stores as of February 15, 2014, and we currently plan to open approximately 60 to 70 stores in 2014. We opened 31 domestic retail stores and 16 international retail stores in 2013, while closing 10 underperforming domestic
+stores and one international store. In 2012, we closed five domestic stores and two international concept stores. We periodically review all of our stores for impairment. During 2013 and 2012, we did not record an impairment charge. Further, we
+carefully review our under-performing stores and may consider the non-renewal of leases upon completion of the current term of the applicable lease. 
+Our e-commerce net sales increased $5.3 million to $27.2 million for 2013, a 24.2% increase compared to sales of $21.9 million
+for 2012. Our e-commerce sales made up approximately 1.5% and 1.4% of our consolidated net sales for 2013 and 2012, respectively. 
+Gross profit
+Gross profit for 2013 increased $135.5 million to $818.8 million from $683.3 million for 2012. Gross profit as a
+percentage of net sales, or gross margin, increased to 44.4% in 2013 from 43.8% for 2012. Our domestic wholesale segment gross profit increased $45.9 million, or 18.9%, to $288.8 million for 2013 from $242.9 million for 2012 due to increased sales
+volume. Domestic wholesale margins decreased to 36.0% for 2013 from 37.2% for 2012. The decrease in domestic wholesale margins was primarily due to lower margins in our Men’s and Women’s Active lines as well as increased non-toning
+closeouts, which were partially offset by reduced sales of discounted toning products as compared to the same period in the prior year. 
+34 
+Table of Contents 
+Gross profit for our international wholesale segment increased $32.4 million, or
+19.5%, to $198.9 million for 2013 compared to $166.5 million for 2012. Gross margins were 41.5% for 2013 compared to 38.5% for 2012. The increase in gross margins for our international wholesale segment was primarily attributable to increased sales
+by our European subsidiaries, which historically have achieved higher gross margins due to direct sales to customers than our international wholesale sales through our foreign distributors. Gross margins for our direct foreign subsidiary sales were
+47.3% for 2013 as compared to 44.7% for 2012 primarily due to reduced sales of discounted toning products and increased sales of our newer products. Gross margins for our international distributor sales were 25.1% for 2013 as compared to 25.3% for
+2012. 
+Gross profit for our retail segment increased $55.0 million, or 20.8%, to $319.0 million for 2013 as compared to
+$264.0 million for 2012. Gross margins for all stores were 59.3% for 2013 compared to 58.2% for 2012. Gross margins for our domestic stores were 59.6% for 2013 as compared to 58.6% for 2012. Gross margins for our international stores were 57.2% for
+2013 as compared to 56.1% for 2012. The increases in domestic and overall retail margins were primarily due to increased sales of our newer products at higher margins and reduced sales of discounted toning products at lower margins. 
+Selling expenses 
+Selling expenses increased by $18.6 million, or 13.8%, to $153.5 million for 2013 from $134.9 million for 2012, although
+selling expenses decreased as a percentage of net sales to 8.3% for 2013 from 8.7% for 2012 due to increased net sales. The increase in selling expenses was primarily the result of higher advertising expenses, which also decreased as a percentage of
+net sales to 5.6% in 2013 from 5.8% in 2012 due to increased net sales. 
+General, administrative and legal expenses 
+General, administrative and legal expenses increased by $46.2 million, or 8.7%, to $579.4 million for 2013 from $533.2 million
+for 2012. As a percentage of sales, general, administrative and legal expenses were 31.4% and 34.2% for 2013 and 2012, respectively. The increase in general, administrative and legal expenses was primarily attributable to increased salaries and
+wages, which includes incentive compensation, of $14.3 million, increased warehouse and distribution costs of $8.1 million and increased rent expense of $5.3 million primarily attributable to an additional 36 stores in comparison to the prior year.
+In addition, the expenses related to our distribution network, including the functions of purchasing, receiving, inspecting, allocating, warehousing and packaging of our products totaled $122.9 million and $119.3 million for 2013 and 2012,
+respectively. 
+Interest income 
+Interest income for 2013 increased $0.2 million to $0.8 million as compared to $0.6 million for 2012. The increase in interest
+income was primarily due to higher cash balances. 
+Interest expense 
+Interest expense for 2013 decreased $1.4 million to $11.9 million compared to $13.3 million in 2012. The decrease was primarily
+due to decreased interest expense of $0.3 million due to reduced principal balances on loans related to equipment in our domestic distribution center and reduced interest expense of $0.5 million due to lower interest rates on loans related to our
+domestic distribution center that we refinanced in November 2012. Interest expense was also incurred on amounts owed to our foreign manufacturers. 
+Gain on disposal of assets 
+Gain on disposal of assets for 2013 increased $0.6 million to a gain of $0.4 million as compared to a loss of $0.2 million in
+2012. 
+Income taxes 
+Our provision for income tax expense (benefit) and our effective income tax rate are significantly impacted by the mix of our
+domestic and foreign earnings (loss) before income taxes. In the non-U.S. jurisdictions in which we have operations, the applicable statutory rates are generally significantly lower than in the U.S., ranging from 0% to 41%. Our provision for income
+tax expense (benefit) was calculated using the applicable statutory income tax rate for each jurisdiction applied to our pre-tax earnings (loss) in each jurisdiction, while our effective tax rate is calculated by dividing income tax expense
+(benefit) by earnings (loss) before income taxes. 
+35 
+Table of Contents 
+Our earnings (loss) before income taxes and income tax expense (benefit) for
+2013, 2012 and 2011 are as follows (in thousands): 
+Years Ended December 31, 
+2013 
+2012 
+2011 
+Income tax jurisdiction 
+Earnings (loss) 
+before income 
+taxes 
+Income tax 
+expense 
+Earnings (loss) 
+before income 
+taxes 
+Income tax 
+expense 
+(benefit) 
+Earnings (loss) 
+before income 
+taxes 
+Income tax 
+expense 
+(benefit) 
+United States 
+$ 
+38,705 
+$ 
+12,807 
+$ 
+(27,379 
+) 
+$ 
+(5,867 
+) 
+$ 
+(161,976 
+) 
+$ 
+(66,355 
+) 
+Canada 
+4,091 
+1,187 
+2,564 
+545 
+945 
+309 
+Chile 
+9,622 
+1,920 
+5,971 
+1,043 
+9,321 
+2,030 
+Peoples Republic of China (“China”) 
+6,148 
+1,646 
+1,278 
+319 
+1,416 
+354 
+Jersey (1) 
+25,348 
+0 
+25,162 
+0 
+25,109 
+0 
+Non-benefited loss operations (2) 
+(15,841 
+) 
+0 
+(13,492 
+) 
+0 
+(16,844 
+) 
+0 
+Other jurisdictions (3) 
+14,142 
+3,787 
+16,369 
+3,921 
+10,982 
+195 
+Earnings (loss) before income taxes 
+$ 
+82,215 
+$ 
+21,347 
+$ 
+10,473 
+$ 
+(39 
+) 
+$ 
+(131,047 
+) 
+$ 
+(63,467 
+) 
+Effective tax rate (4) 
+26.0 
+% 
+(0.4 
+%) 
+48.4 
+% 
+(1) 
+Jersey does not assess income tax on corporate net earnings. 
+(2) 
+Consists of entities in the following tax jurisdictions where no tax benefit is recognized in the period being reported because of the provision of
+offsetting valuation allowances: Japan, Brazil, China, Hong Kong and India. 
+(3) 
+Consists of entities in the following tax jurisdictions, each of which comprises not more than 5%, of 2013 consolidated earnings (loss) before
+taxes: UK, Germany, France, Spain, Belgium, Italy, Netherlands, Switzerland, Malaysia, Thailand, Singapore, China, Hong Kong, Portugal and Austria. 
+(4) 
+The effective tax rate is calculated by dividing income tax expense (benefit) by earnings (loss) before income taxes. 
+For 2013, the effective tax rate was lower than the U.S. federal and state combined statutory rate of approximately 40%
+primarily because of earnings from foreign operations in jurisdictions imposing either lower tax rates on corporate earnings or no corporate income tax. As reflected in the table above, earnings (loss) before income taxes in the U.S. was earnings of
+$38.7 million, with income tax expense of $12.8 million, an average rate of 33.1%, while earnings (loss) before income taxes in non-U.S. jurisdictions was earnings of $43.5 million, with aggregate income tax expense of $8.5 million, an average rate
+of 19.6%. Combined, this results in consolidated net earnings for the period of $82.2 million, and a consolidated tax expense for the period of $21.3, resulting in an effective tax rate of 26.0%. We estimate our annual effective tax rate for 2014 to
+be between 25 percent and 30 percent. The estimated effective tax rate for 2014 is subject to management’s ongoing review and revision, if necessary. 
+For 2013, of our $43.5 million in earnings before income tax earned outside the U.S., $25.3 million was earned in Jersey,
+which does not impose a tax on corporate earnings. In addition, there were foreign losses of $15.8 million for which no tax benefit was recognized during the year ended December 31, 2013 because of the provision of offsetting valuation
+allowances. Individually, none of the other foreign jurisdictions included in “Other jurisdictions” in the table above had more than 5% of our 2013 consolidated earnings (loss) before taxes. 
+Unremitted earnings of non-U.S. subsidiaries are expected to be reinvested outside of the U.S. indefinitely. Such earnings
+would become taxable upon the sale or liquidation of these subsidiaries or upon the remittance of dividends. 
+As of
+December 31, 2013, we had approximately $372.0 million in cash and cash equivalents, of which $166.5 million, or 44.8%, was held outside the U.S. Of the $166.5 million held by our non-U.S. subsidiaries, approximately $51.2 million is available
+for repatriation to the U.S. without incurring U.S. income taxes and applicable non-U.S. income and withholding taxes in excess of the amounts accrued in our financial statements as of December 31, 2013. We believe our cash and cash equivalents
+held in the U.S. and cash provided from operations are sufficient to meet our liquidity needs in the U.S. for the next twelve months and we do not expect that we will need to repatriate any of the funds presently designated as indefinitely
+reinvested outside the U.S. Under current applicable tax laws, if we chose to repatriate some or all of the funds we have designated as indefinitely reinvested outside the U.S., the amount repatriated would be subject to U.S. income taxes and
+applicable non-U.S. income and withholding taxes. As of December 31, 2013 and 2012, U.S. income taxes have not been provided on cumulative total earnings of $226.0 million and $171.2 million, respectively. 
+36 
+Table of Contents 
+Non-controlling interest in net income and loss of consolidated subsidiaries 
+Non-controlling interest for 2013 increased $5.1 million to expense of $6.1 million as compared expense of $1.0 million for
+2012. Non-controlling interest represents the share of net earnings or loss that is attributable to our joint venture partners. 
+YEAR ENDED DECEMBER 31,
+2012 COMPARED TO THE YEAR ENDED DECEMBER 31, 2011 
+Net sales 
+Net sales for 2012 were $1.560 billion, which was a decrease of $45.7 million, or 2.9%, compared to net sales of $1.606 billion
+for 2011. The decrease in net sales was primarily attributable to lower sales in our international and domestic wholesale segments due to reduced sales of toning footwear and non-Skechers branded fashion footwear in 2012, partially offset by
+increased domestic wholesale and retail sales of new styles and lines of footwear that we launched in the second half of 2012. 
+Our domestic wholesale net sales decreased $35.5 million, or 5.2%, to $652.7 million for 2012 compared to $688.2 million for
+2011. The decrease in our domestic wholesale segment was primarily due to overall lower demand for toning and non-Skechers branded footwear, which was partially offset by increased domestic sales from new styles and lines of footwear that we
+launched in the second half of 2012. The largest decrease in our domestic wholesale segment came in our women’s and men’s toning divisions. The average selling price per pair within the domestic wholesale segment increased to $21.50 per
+pair for 2012 from $20.49 for 2011, which was primarily the result of decreased sales of discounted toning products following the sell-through of excess toning inventory in 2011 and increased sales of newer products that were introduced in 2012. The
+decrease in the domestic wholesale segment’s net sales also resulted from a 9.6% unit sales volume decrease to 30.4 million pairs in 2012 from 33.6 million pairs in 2011. 
+Our international wholesale segment net sales decreased $55.1 million, or 11.3%, to $432.2 million for 2012 compared to sales
+of $487.3 million for 2011. Direct subsidiary sales decreased $49.5 million, or 14.4%, to $294.4 million compared to sales of $343.9 million for 2011. The sales decrease was due to reorganization of our business in Brazil with new management and a
+re-launch of our products in Brazil and reduced sales in our European subsidiaries as a result of reduced sales of toning products and the challenging economic environment in Europe, which was partially offset by increased sales from our joint
+ventures in Asia and our new subsidiary in Japan. Our distributor sales decreased $5.7 million, or 4.0%, to $137.7 million for 2012, compared to sales of $143.4 million for 2011. This was primarily attributable to decreased sales to our distributors
+in Panama and Japan. 
+Our retail segment net sales increased $43.1 million, or 10.5% to $453.6 million for 2012, compared
+to sales of $410.5 million for 2011. The increase in retail sales was attributable to positive comparable store sales and a net increase of 20 domestic stores and five international stores. For 2012, we realized positive comparable store sales of
+2.5% in our domestic retail stores and 0.3% in our international retail stores. The comparable store sales increase was principally driven by increased demand for our newer products and improved retail pricing as the remaining inventory of
+discounted toning was reduced. During 2012, we opened five new domestic concept stores, 12 domestic outlet stores, eight domestic warehouse stores and four international concept stores. In addition, we also took over the operations of one concept
+store and two outlet stores from our distributor in Japan. Our domestic retail sales increased 10.8% for 2012 in comparison to 2011 as the result of the positive comparable store sales and the net increase of 20 domestic stores. Our international
+retail sales increased 8.7% for 2012 compared to 2011, which was primarily attributable to increases in net sales in Chile and the United Kingdom as well as a net increase of five international retail stores. 
+We had 295 domestic stores and 54 international retail stores as of February 15, 2013, and we currently plan to open
+approximately 30 to 35 stores in 2013. We closed five domestic stores and two international concept stores in 2012, and we closed three domestic stores and one international concept store in 2011. We periodically review all of our stores for
+impairment. During 2012, we did not record an impairment charge. During 2011, we recorded an impairment charge of $1.5 million related to eleven of our underperforming domestic stores. Further, we carefully review our under-performing stores and may
+consider the non-renewal of leases upon completion of the current term of the applicable lease. 
+Our e-commerce net sales
+increased $1.8 million to $21.9 million for 2012, a 9.2% increase compared to sales of $20.1 million for 2011. Our e-commerce sales made up approximately 1% of our consolidated net sales for 2012 and 2011. 
+Gross profit 
+Gross profit for 2012 increased $59.6 million to $683.3 million from $623.7 million for 2011. Gross profit as a percentage of
+net sales, or gross margin, increased to 43.8% in 2012 from 38.8% for 2011. Our domestic wholesale segment gross profit increased 
+37 
+Table of Contents 
+$56.9 million, or 30.6%, to $242.9 million for 2012 from $186.0 million for 2011. Domestic wholesale margins increased to 37.2% for 2012 from 27.0% for 2011, which was primarily attributable to
+sales of more full-priced product in the second half of 2012 and reduced close-outs of shape-ups and toning products as well as inventory write-downs in 2012 as compared to 2011. 
+Gross profit for our international wholesale segment decreased $29.7 million, or 15.2%, to $166.5 million for 2012 compared to
+$196.2 million for 2011. Gross margins were 38.5% for 2012 compared to 40.3% for 2011. The decrease in gross margins for our international wholesale segment was primarily attributable to decreased sales by our European subsidiaries, which
+historically have achieved higher gross margins than our international wholesale sales through our foreign distributors. Gross margins for our direct subsidiary sales were 44.7% for 2012 as compared to 46.5% for 2011. Gross margins for our
+distributor sales were 25.3% for 2012 as compared to 25.4% for 2011. 
+Gross profit for our retail segment increased $32.2
+million, or 13.9%, to $264.0 million for 2012 as compared to $231.8 million for 2011. Gross margins for all stores were 58.2% for 2012 compared to 56.5% for 2011. Gross margins for our domestic stores were 58.6% for 2012 as compared to 56.8% for
+2011. Gross margins for our international stores were 56.1% for 2012 as compared to 54.7% for 2011. The increases in domestic and overall retail margins were primarily due to higher average selling prices and positive comparable sales as a result of
+reduced sales of discounted toning products in the first half of 2012 and increased sales of our newer products in the second half of 2012. 
+Selling
+expenses 
+Selling expenses decreased by $17.1 million, or 11.2%, to $134.9 million for 2012 from $152.0 million for
+2011. As a percentage of net sales, selling expenses were 8.7% and 9.5% for 2012 and 2011, respectively. The decrease in selling expenses was primarily the result of lower advertising expenses. Selling expenses consist primarily of the following:
+sales representative sample costs, sales commissions, trade shows, advertising and promotional costs, which may include television and ad production costs, and point-of-purchase costs. 
+General, administrative and legal expenses 
+General, administrative and legal expenses decreased by $79.9 million, or 13.0%, to $533.2 million for 2012 from $613.1 million
+for 2011. As a percentage of sales, general, administrative and legal expenses were 34.2% and 38.2% for 2012 and 2011, respectively. The decrease in general, administrative and legal was primarily attributable to reduced legal settlements of $43.1
+million following our settlement with the Federal Trade Commission in 2011, reduced professional fees of $19.6 million following this settlement and reduced costs of $12.5 million related to a reduction in temporary staffing at our domestic
+distribution center, which was partially offset by increased depreciation expense of $4.5 million, and increased rent expense of $3.7 million primarily attributable to an additional 32 stores in comparison to the prior year. In addition, the
+expenses related to our distribution network, including the functions of purchasing, receiving, inspecting, allocating, warehousing and packaging of our products totaled $119.3 million and $114.2 million for 2012 and 2011, respectively. 
+Interest income 
+Interest income for 2012 decreased $1.3 million to $0.6 million as compared to $1.9 million for 2011. The decrease in interest
+income was primarily due lower cash balances and unfavorable currency translations as compared to 2011. 
+Interest expense 
+Interest expense for 2012 was incurred on amounts owed to our foreign manufacturers and the financing of our domestic
+distribution center and related equipment, which increased $5.4 million to $13.3 million as compared to $7.9 million for 2011. The increase was primarily due to interest on the financing of our domestic distribution center and related equipment
+being recorded as an expense in 2012, while such interest related to the financing of our distribution center was capitalized until the facility was completed in November 2011. 
+Gain on disposal of assets 
+Gain on disposal of assets for 2012 decreased $9.8 million to a loss of $0.2 million as compared to a gain of $9.6 million
+primarily related to the $9.9 million gain on the sale of our Ontario, California distribution center in 2011. 
+38 
+Table of Contents 
+Income taxes 
+For 2012, the effective tax rate was lower than the U.S. federal and state combined statutory rate of approximately 40%
+primarily because losses from U.S. operations were offset by earnings from foreign operations in jurisdictions imposing either lower tax rates on corporate earnings or no corporate income tax. Earnings (loss) before income taxes in the U.S. was a
+loss of $27.4 million, providing an income tax benefit of $5.87 million, while earnings (loss) before income taxes in non-U.S. jurisdictions was earnings of $37.9 million, producing an aggregate income tax expense of $5.83 million. Combined, this
+results in consolidated net earnings for the period of $10.5 million, and an aggregate tax benefit for the period of $39,000. Because our consolidated net tax benefit for the period was $39,000, when divided by our consolidated U.S. and non-U.S.
+income before income taxes of $10.5 million, the result is a negative effective tax rate for the period of (0.4%). 
+For
+2012, of our $37.9 million in earnings before income tax earned outside the U.S., $25.2 million was earned in Jersey, which does not impose a tax on corporate earnings. In addition, there were foreign losses of $13.5 million for which no tax benefit
+was recognized in 2012 because of the provision of offsetting valuation allowances. Individually, none of the other foreign jurisdictions had more than $3.5 million of consolidated income (loss) before taxes. 
+Non-controlling interest in net income and loss of consolidated subsidiaries 
+Non-controlling interest for 2012 increased $1.1 million to expense of $1.0 million as compared to income of $0.1 million for
+2011. Non-controlling interest represents the share of net earnings or loss that is attributable to our joint venture partners. 
+LIQUIDITY AND CAPITAL
+RESOURCES 
+Cash Flows 
+Our working capital at December 31, 2013 was $704.5 million, an increase of $56.7 million from working capital of $647.8
+million at December 31, 2012. Our cash at December 31, 2013 was $372.0 million compared to $325.8 million at December 31, 2012. This increase in cash of $46.2 million, after consideration of the effect of exchange rates, was the
+result of net earnings of $54.8 million, depreciation of property and equipment of $42.4 million and increased payables of $17.6 million, which was partially offset by capital expenditures of $41.3 million, increased receivables of $21.3 million and
+increased inventory levels of $22.6 million. Our primary sources of operating cash are collections from customers on wholesale and retail sales. Our primary uses of cash are inventory purchases, selling, general and administrative expenses and debt
+service payments. 
+During 2013, net cash provided by operating activities was $99.0 million compared to net cash used of
+$3.4 million for 2012. Net cash provided by operating activities in 2013 was the result of our net earnings, decreased deferred taxes, depreciation of property and equipment and increased payables partially offset by increased receivables and
+inventory levels. 
+Net cash used in investing activities was $41.4 million for 2013 as compared to $52.5 million in 2012.
+The decrease in cash used in investing activities in 2013 as compared to 2012 was the result of decreased capital expenditures. Capital expenditures for 2013 were approximately $41.3 million, which consisted of $26.8 million for several new store
+openings and remodels, $2.8 million for computer equipment and software, $2.9 million for building improvements and $1.8 million in warehouse equipment upgrades. This was compared to capital expenditures of $52.5 million in the prior year, which
+primarily consisted of development costs for our new distribution center and new store openings and remodels. We expect our ongoing capital expenditures for 2014 to be between $25 million and $30 million, which includes opening 60 to 70 retail
+stores, store remodels and investments in information technology. In addition, we are currently in the process of designing and installing additional equipment for our European distribution center and estimate the cost of this equipment to be
+approximately $15.8 million. We believe our operating cash flows, current cash, available lines of credit and current financing arrangements should be adequate to fund these capital expenditures, although we may seek additional funding for all or a
+portion of these expenditures. 
+Net cash used in financing activities was $9.9 million during 2013 compared to net cash
+provided by of $29.8 million during 2012. The decrease in cash provided by financing activities was primarily attributable to reduced borrowings from the refinancing of our domestic distribution center as compared to 2012 and increased distributions
+paid to the non-controlling interest partially offset by increased contributions received from the non-controlling interest. 
+39 
+Table of Contents 
+Sources of Liquidity 
+On April 30, 2010, we entered into a construction loan agreement (the “Loan Agreement”), by and among HF
+Logistics-SKX T1, LLC, a wholly-owned subsidiary of the JV (“HF-T1”), Bank of America, N.A. and Raymond James Bank, FSB. Borrowings made pursuant to the Loan Agreement were up to a maximum limit of $55.0 million (the “Loan”),
+which were used to construct our domestic distribution facility in Rancho Belago, California. Borrowings bore interest based on LIBOR, and the Loan Agreement’s original maturity date was April 30, 2012, which was extended to
+November 30, 2012. On November 16, 2012, HF-T1 executed a modification to the Loan Agreement (the “Modification”), which increased the borrowings under the Loan to $80.0 million and extended the maturity date of the Loan to
+November 16, 2015. The $80.0 million was used to (i) repay $54.7 million in outstanding borrowings under the original Loan, (ii) repay a loan of $18.3 million including accrued interest from HF to the JV, (iii) repay a loan to
+the JV of $2.5 million including accrued interest from Skechers RB, LLC, a wholly-owned subsidiary of our company (iv) pay a deferred management fee of $1.9 million to HF, and (iv) pay distributions of $0.9 million to each of HF and
+Skechers RB, LLC, with (v) $0.8 million used for loan fees and other closing costs. Under the Modification, OneWest Bank, FSB is an additional lender that funded in part the increase to the Loan, and the interest rate on the Loan is the daily
+British Bankers Association LIBOR rate plus a margin of 3.75%, which is no longer subject to a minimum rate. The Loan Agreement and the Modification are subject to customary covenants and events of default. We were in compliance with all debt
+covenant provisions related to the Loan Agreement as of the date of this annual report. We had $78.9 million outstanding under the Loan Agreement and the Modification, which is included in long-term borrowings on December 31, 2013. We paid
+commitment fees of $0.6 million on the Loan, which are being amortized to interest expense over the three-year life of the Loan. 
+On December 29, 2010, we entered into a master loan and security agreement (the “Master Agreement”), by and
+between us and Banc of America Leasing & Capital, LLC, and an Equipment Security Note (together with the Master Agreement, the “Loan Documents”), by and among us, Banc of America Leasing & Capital, LLC, and Bank of Utah,
+as agent (“Agent”). We used the proceeds to refinance certain equipment already purchased and to purchase new equipment for use in our Rancho Belago distribution facility. Borrowings made pursuant to the Master Agreement may be in the form
+of one or more equipment security notes (each a “Note,” and, collectively, the “Notes”) up to a maximum limit of $80.0 million and each for a term of 60 months. The Note entered into on the same date as the Master Agreement
+represents a borrowing of approximately $39.3 million. Interest will accrue at a fixed rate of 3.54% per annum. On June 30, 2011, we entered into another Note agreement for approximately $36.3 million. Interest will accrue at a fixed rate
+of 3.19% per annum. We had $47.8 million outstanding under the Notes, which is included in long-term borrowings on December 31, 2013. We paid commitment fees of $0.8 million on this loan, which are being amortized to interest expense over
+the five-year life of the Notes. 
+On June 30, 2009, we entered into a $250.0 million secured credit agreement, (the
+“Credit Agreement”) with a syndicate of banks, of which six currently remain as participants. On November 5, 2009, March 4, 2010, May 3, 2011, and September 30, 2013, we entered into four successive amendments
+to the Credit Agreement (collectively, the “Amended Credit Agreement”). The Amended Credit Agreement matures in June 2015. The Amended Credit Agreement permits us and certain of our subsidiaries to borrow up to $250.0 million based upon a
+borrowing base of eligible accounts receivable and inventory, which amount can be increased to $300.0 million at our request and upon satisfaction of certain conditions including obtaining the commitment of existing or prospective lenders willing to
+provide the incremental amount. Borrowings bear interest at our election based on LIBOR or a Base Rate (defined as the greatest of the base LIBOR plus 1.00%, the Federal Funds Rate plus 0.5% or one of the lenders’ prime rate), in each case,
+plus an applicable margin based on the average daily principal balance of revolving loans under the credit agreement (0.50%, 0.75% or 1.00% for Base Rate loans and 1.50%, 1.75% or 2.00% for LIBOR loans). We pay a monthly unused line of credit fee of
+0.25% or 0.375% per annum, which varies based on the average daily principal balance of outstanding revolving loans and undrawn amounts of letters of credit outstanding during such month. The Amended Credit Agreement further provides for a
+limit on the issuance of letters of credit to a maximum of $50.0 million. The Amended Credit Agreement contains customary affirmative and negative covenants for secured credit facilities of this type, including a fixed charge coverage ratio that
+applies when excess availability is less than $40.0 million. In addition, the Amended Credit Agreement places limits on additional indebtedness that we are permitted to incur as well as other restrictions on certain transactions. We paid syndication
+and commitment fees of $6.7 million on this facility, which are being amortized over the six-year life of the facility. 
+We had outstanding short-term and long-term borrowings of $128.6 million as of December 31, 2013, of which $47.8 million
+relates to notes payable for warehouse equipment for our domestic distribution center that are secured by the equipment, $80.7 million relates to our construction loans for our domestic distribution center and the remaining balance primarily relates
+to our joint venture in China. 
+40 
+Table of Contents 
+We believe that anticipated cash flows from operations, available borrowings
+under our secured line of credit, existing cash balances and current financing arrangements will be sufficient to provide us with the liquidity necessary to fund our anticipated working capital and capital requirements through March 31, 2015
+and for the foreseeable future. We did not provide for deferred income taxes on accumulated undistributed earnings of our non-U.S. subsidiaries on approximately $226.0 million of cumulative undistributed earnings as of December 31, 2013.
+However, in connection with our current strategies, we will face significant working capital requirements and capital expenditures. Our future capital requirements will depend on many factors, including, but not limited to, the pace and strength of
+the economic recovery in our markets, the costs associated with upgrading the equipment in our European distribution center, the levels at which we maintain inventory, sale of excess inventory at discounted prices, the market acceptance of our
+footwear, the success of our international operations, the levels of advertising and marketing required to promote our footwear, the extent to which we invest in new product design and improvements to our existing product design, any potential
+acquisitions of other brands or companies, and the number and timing of new store openings. To the extent that available funds are insufficient to fund our future activities, we may need to raise additional funds through public or private financing
+of debt or equity. Recently, we have been successful in raising additional funds through financing activities however, we cannot be assured that additional financing will be available to us or that, if available, it can be obtained on terms
+favorable to our stockholders and us. Failure to obtain such financing could delay or prevent our current business plans, which could adversely affect our business, financial condition and results of operations. In addition, if additional capital is
+raised through the sale of additional equity or convertible securities, dilution to our stockholders could occur. 
+DISCLOSURE ABOUT CONTRACTUAL
+OBLIGATIONS AND COMMERCIAL COMMITMENTS 
+The following table summarizes our material contractual obligations and commercial commitments as
+of December 31, 2013 (In thousands): 
+Total 
+Less than 
+One 
+Year 
+One to 
+Three 
+Years 
+Three to 
+Five 
+Years 
+More Than 
+Five 
+Years 
+Short-term borrowings 
+$ 
+87 
+$ 
+87 
+$ 
+0 
+$ 
+0 
+$ 
+0 
+Long-term borrowings (1) 
+137,747 
+16,810 
+119,991 
+732 
+214 
+Operating lease obligations (2) 
+897,330 
+122,347 
+224,866 
+167,059 
+383,058 
+Purchase obligations (3) 
+451,668 
+451,668 
+0 
+0 
+0 
+European distribution center equipment 
+15,828 
+15,828 
+0 
+0 
+0 
+Minimum payments related to other arrangements 
+3,383 
+2,646 
+737 
+0 
+0 
+Total (4) 
+$ 
+1,506,043 
+$ 
+609,386 
+$ 
+345,594 
+$ 
+167,791 
+$ 
+383,272 
+(1) 
+Amounts include anticipated interest payments based on interest rates currently in effect. 
+(2) 
+Operating lease obligations consists primarily of real property leases for our retail stores, corporate offices and European distribution center.
+These leases frequently include options that permit us to extend beyond the terms of the initial fixed term. We currently expect to fund these commitments with cash flows from operations and existing cash balances. 
+(3) 
+Purchase obligations include the following: (i) accounts payable balances for the purchase of footwear of $69.1 million, (ii) outstanding
+letters of credit of $4.0 million and (iii) open purchase commitments with our foreign manufacturers for $378.6 million. We currently expect to fund these commitments with cash flows from operations and existing cash balances.
+(4) 
+Our consolidated balance sheet as of December 31, 2013, included $10.8 million in unrecognized tax benefits. The future payments related to
+these unrecognized tax benefits have not been presented in the table above due to the uncertainty of the amounts and potential timing of cash settlements with the tax authorities, and whether any settlement would occur. 
+OFF-BALANCE SHEET ARRANGEMENTS 
+We do not have any relationships with unconsolidated entities or financial partnerships such as entities often referred to as
+structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance-sheet arrangements or for other contractually narrow or limited purposes. As such, we are not exposed to any financing,
+liquidity, market or credit risk that could arise if we had engaged in such relationships. 
+41 
+Table of Contents 
+CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated
+financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make difficult, subjective and complex estimates
+and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. 
+We base our estimates and judgments on historical experience, other available information, and on other assumptions that are
+believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. In determining whether an estimate is critical, we consider if the nature of the
+estimates or assumptions is material due to the levels of subjectivity and judgment or the susceptibility of such matters to change, and if the impact of the estimates and assumptions on financial condition or operating performance is material.
+Actual results may differ from these estimates under different assumptions or conditions. 
+We believe the following
+critical accounting estimates are affected by significant judgments used in the preparation of our consolidated financial statements: revenue recognition, allowance for bad debts, returns, sales allowances and customer chargebacks, inventory
+write-downs, valuation of long-lived assets, litigation reserves, and valuation of deferred income taxes. 
+Revenue
+Recognition . We derive income from the sale of footwear and royalties earned from licensing the Skechers brand. Domestically, goods are shipped Free on Board (“FOB”) shipping point directly from our domestic
+distribution center in Rancho Belago, California. For our international wholesale customers in the European community, product is shipped FOB shipping point direct from our distribution center in Liege, Belgium. For our distributor sales, the goods
+are generally delivered directly from the independent factories to our distributors’ freight forwarders on a Free Named Carrier (“FCA”) basis. We recognize revenue on wholesale sales when products are shipped and the customer takes
+title and assumes risk of loss, collection of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. This generally occurs at time of shipment. Related costs paid to
+third-party shipping companies are recorded as a cost of sales. We recognize revenue from retail sales at the point of sale. While customers do not have the right to return goods, we periodically decide to accept returns or provide customers with
+credits. Allowances for estimated returns, discounts, doubtful accounts and chargebacks are provided for when related revenue is recorded. 
+Royalty income is earned from our licensing arrangements. Upon signing a new licensing agreement, we receive up-front fees,
+which are generally characterized as prepaid royalties. These fees are initially deferred and recognized as revenue as earned (i.e., as licensed sales are reported to the Company or on a straight-line basis over the term of the agreement). The first
+calculated royalty payment is based on actual sales of the licensed product or, in some cases minimum royalty payments. Typically, at each quarter-end we receive correspondence from our licensees indicating what the actual sales for the period were.
+This information is used to calculate and accrue the related royalties currently receivable based on the terms of the agreement. 
+Allowance for bad debts, returns, sales allowances and customer chargebacks. We provide a reserve against our
+receivables for estimated losses that may result from our customers’ inability to pay. To minimize the likelihood of uncollectibility, customers’ credit-worthiness is reviewed periodically based on external credit reporting services,
+financial statements issued by the customer and our experience with the account, and it is adjusted accordingly. When a customer’s account becomes significantly past due, we generally place a hold on the account and discontinue further
+shipments to that customer, minimizing further risk of loss. We determine the amount of the reserve by analyzing known uncollectible accounts, aged receivables, economic conditions in the customers’ countries or industries, historical losses
+and our customers’ credit-worthiness. Amounts later determined and specifically identified to be uncollectible are charged or written off against this reserve. Allowance for returns, sales allowances and customer chargebacks are recorded
+against revenue. Allowances for bad debts are recorded to general and administrative expenses. 
+We also reserve for
+potential disputed amounts or chargebacks from our customers. Our chargeback reserve is based on a collectibility percentage based on factors such as historical trends, current economic conditions, and nature of the chargeback receivables. We also
+reserve for potential sales returns and allowances based on historical trends. 
+The likelihood of a material loss on an
+uncollectible account would be mainly dependent on deterioration in the overall economic conditions in a particular country or region. Reserves are fully provided for all probable losses of this nature. For receivables that are not specifically
+identified as high risk, we provide a reserve based upon our historical loss rate as a percentage of sales. Gross trade accounts receivable were $241.9 million and $230.6 million and the allowance for bad debts, returns, sales allowances and
+customer chargebacks were $15.9 million and $16.9 million, at December 31, 2013 and 2012, respectively. Our credit losses charged to 
+42 
+Table of Contents 
+expense for the years ended December 31, 2013, 2012 and 2011 were $2.6 million, $1.5 million and $7.0 million, respectively. In addition, we recorded sales return and allowance expense
+(recoveries) for the years ended December 31, 2013, 2012 and 2011 of $0.2 million, $(0.4) million and $(1.1) million, respectively. 
+Inventory write-downs . Inventories are stated at the lower of cost or market. We continually review our
+inventory for excess and slow moving inventory. Our review is based on inventory on hand, prior sales and our expected net realizable value. Our analysis includes a review of inventory quantities on hand at period end in relation to year-to-date
+sales, existing orders from customers and projections for sales in the foreseeable future. The net realizable value, or market value, is determined based on our estimate of sales prices of such inventory based upon historical sales experience on a
+style by style basis. A write-down of inventory is considered permanent and creates a new cost basis for those units. The likelihood of any material inventory write-down is dependent primarily on our expectation of future consumer demand for our
+product. A misinterpretation or misunderstanding of future consumer demand for our product or of the economy, or other failure to estimate correctly, could result in inventory valuation changes, either favorably or unfavorably, compared to the
+requirement determined to be appropriate as of the balance sheet date. Our gross inventory value was $361.9 million and $348.1 million and our inventory reserve was $3.8 million and $9.1 million, at December 31, 2013 and 2012, respectively.
+Valuation of intangibles and long-lived assets . When circumstances warrant, we test for
+recoverability of the asset groups’ carrying value using estimates of undiscounted future cash flows based on the existing service potential of the applicable asset group in determining the fair value of each asset group. We evaluate whether it
+is more likely than not that the fair value of a reporting unit is less than its carrying amount based upon our assessment of the following events or changes in circumstances: 
+• 
+macroeconomic conditions such as a deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange
+rates, or other developments in equity and credit markets; 
+• 
+industry and market considerations such as a deterioration in the environment in which an entity operates, an increased competitive environment, a
+decline in market-dependent multiples or metrics, or a change in the market for an entity’s products or services, or a regulatory or political development; 
+• 
+cost factors such as increases in raw materials, labor, or other costs that have a negative effect on earnings and cash flows;
+• 
+overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual
+and projected results of relevant prior periods; 
+• 
+other relevant entity-specific events such as changes in management, key personnel, strategy, or customers, contemplation of bankruptcy, or
+litigation; 
+• 
+events affecting a reporting unit such as a change in the composition or carrying amount of its net assets, a more-likely-than-not expectation of
+selling or disposing all, or a portion, of a reporting unit, the testing for recoverability of a significant asset group within a reporting unit, or recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a
+component of a reporting unit; 
+• 
+a sustained decrease in share price. 
+If the assets are considered to be impaired, the impairment we recognize is the amount by which the carrying value of the
+assets exceeds the fair value of the assets. In addition, we base the useful lives and related amortization or depreciation expense on our estimate of the period that the assets will generate revenues or otherwise be used by us. In addition, we
+prepare a summary of cash flows for each of our retail stores to assess potential impairment of the fixed assets and leasehold improvements. Stores with negative cash flows opened in excess of twenty-four months are then reviewed in detail to
+determine if impairment exists. Management reviews both quantitative and qualitative factors to asses if a triggering event occurred. For the years ended December 31, 2013 and 2012, respectively we did not record an impairment charge. For the
+year ended December 31, 2011, we recorded a $1.5 million impairment charge for eleven of our underperforming domestic stores and $1.6 million for intangible assets. 
+Litigation reserves . Estimated amounts for claims that are probable and can be reasonably estimated are
+recorded as liabilities in our consolidated balance sheets. The likelihood of a material change in these estimated reserves would depend on additional information or new claims as they may arise and the favorable or unfavorable outcome of the
+particular litigation. Both the likelihood and amount (or range of loss) on a large portion of our remaining pending litigation is uncertain. As such, we are unable to make a reasonable estimate of the liability that could result from unfavorable in
+outcomes in our remaining pending litigation. As additional information becomes available, we will assess the potential liability related to our pending litigation and revise our estimates. Such revisions in our estimates of the potential liability
+could materially impact our results of operations and financial position. 
+43 
+Table of Contents 
+Valuation of deferred income taxes . We record a valuation
+allowance when necessary to reduce our deferred tax assets to the amount that is more likely than not to be realized. The likelihood of a material change in our expected realization of our deferred tax assets depends on future taxable income and the
+effectiveness of our tax planning strategies amongst the various domestic and international tax jurisdictions in which we operate. We evaluate our projections of taxable income to determine the recoverability of our deferred tax assets and the need
+for a valuation allowance. As of December 31, 2013, we had net deferred tax assets of $51.2 million reduced by a valuation allowance of $19.9 million against loss carry-forwards not expected to be utilized by certain foreign subsidiaries. 
+INFLATION 
+We do not believe
+that the relatively moderate rates of inflation experienced in the United States over the last three years have had a significant effect on our sales or profitability. However, we cannot accurately predict the effect of inflation on future operating
+results. Although higher rates of inflation have been experienced in a number of foreign countries in which our products are manufactured, we do not believe that inflation has had a material effect on our sales or profitability. While we have been
+able to offset our foreign product cost increases by increasing prices or changing suppliers in the past, we cannot assure you that we will be able to continue to make such increases or changes in the future. 
+EXCHANGE RATES 
+We receive U.S.
+dollars for substantially all of our domestic and a portion of our international product sales as well as our royalty income. Inventory purchases from offshore contract manufacturers are primarily denominated in U.S. dollars; however, purchase
+prices for our products may be impacted by fluctuations in the exchange rate between the U.S. dollar and the local currencies of the contract manufacturers, which may have the effect of increasing our cost of goods in the future. During 2013 and
+2012, exchange rate fluctuations did not have a material impact on our inventory costs. We do not engage in hedging activities with respect to such exchange rate risk. 
+RECENT ACCOUNTING PRONOUNCEMENTS 
+In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2013-11,
+Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU No. 2013-11”). ASU No. 2013-11 amends the guidance within Accounting
+Standards Codification (“ASC”) Topic 740, Income Taxes, to require entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit in the financial statements as a reduction to a deferred tax asset for a net
+operating loss carryforward, a similar tax loss, or a tax credit carryforward. ASU No. 2013-11 is effective for financial statements issued for fiscal years beginning after December 15, 2013, and interim periods within those fiscal years.
+Early adoption is permitted. We early adopted ASU No. 2013-11 for the fiscal year-ended December 31, 2013. Our adoption of ASU No. 2013-11 did not have a material impact on our financial condition or results of operations. 
+44 
+Table of Contents 
+ITEM 7A. 
+QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
+Market risk
+is the potential loss arising from the adverse changes in market rates and prices, such as interest rates, marketable debt security prices and foreign currency exchange rates. Changes in interest rates, marketable debt security prices and changes in
+foreign currency exchange rates have and will have an impact on our results of operations. We do not hold any derivative securities that require fair value presentation under ASC 815-10. 
+Interest rate fluctuations. Interest rates charged on our long-term debt are based on either the prime rate of
+interest or the LIBOR, and changes in the either of these rates of interest could have an effect on the interest charged on our outstanding balances. At December 31, 2013 we had $0.1 million and $78.9 million of outstanding short-term and
+long-term borrowings, respectively subject to changes in interest rates; however, we do not expect that any changes will have a material impact on our financial condition or results of operations. 
+Foreign exchange rate fluctuations . We face market risk to the extent that changes in foreign currency exchange
+rates affect our non-U.S. dollar functional currency foreign subsidiary’s revenues, expenses, assets and liabilities. In addition, changes in foreign exchange rates may affect the value of our inventory commitments. Also, inventory purchases of
+our products may be impacted by fluctuations in the exchange rates between the U.S. dollar and the local currencies of the contract manufacturers, which could have the effect of increasing the cost of goods sold in the future. We manage these risks
+by primarily denominating these purchases and commitments in U.S. dollars. We do not currently engage in hedging activities with respect to such exchange rate risks. A 200 basis point reduction in the exchange rates used to calculate foreign
+currency translations at December 31, 2013 would have reduced the values of our net investments by approximately $8.3 million. 
+45 
+Table of Contents 
+ITEM 8. 
+FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
+INDEX TO CONSOLIDATED FINANCIAL
+STATEMENTS AND FINANCIAL STATEMENT SCHEDULE 
+Page 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+47 
+CONSOLIDATED BALANCE SHEETS 
+48 
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+49 
+CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 
+50 
+CONSOLIDATED STATEMENTS OF EQUITY 
+51 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+52 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+53 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+74 
+46 
+Table of Contents 
+Report of Independent Registered Public Accounting Firm 
+Board of Directors and Stockholders 
+Skechers U.S.A., Inc. 
+Manhattan Beach, CA 
+We have audited the
+accompanying consolidated balance sheets of Skechers U.S.A., Inc. and subsidiaries as of December 31, 2013 and 2012 and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three
+years in the period ended December 31, 2013. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in the accompanying index. These financial statements and schedule are the
+responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. 
+We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
+require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
+financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable
+basis for our opinion. 
+In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
+the financial position of Skechers U.S.A., Inc. and subsidiaries at December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2013 , in conformity
+with accounting principles generally accepted in the United States of America. 
+Also, in our opinion, the financial statement schedule,
+when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. 
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Skechers U.S.A., Inc.
+and subsidiaries’ internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of
+the Treadway Commission (COSO) and our report dated February 28, 2014 expressed an unqualified opinion thereon. 
+/s/ BDO USA, LLP 
+Los Angeles, CA 
+February 28, 2014 
+47 
+Table of Contents 
+SKECHERS U.S.A., INC. AND SUBSIDIARIES 
+CONSOLIDATED BALANCE SHEETS 
+(In thousands, except par values) 
+December 31, 
+2013 
+December 31, 
+2012 
+ASSETS 
+Current Assets: 
+Cash and cash equivalents 
+$ 
+372,011 
+$ 
+325,826 
+Trade accounts receivable, less allowances of $15,926 in 2013 and $16,922 in 2012 
+225,941 
+213,697 
+Other receivables 
+10,599 
+7,491 
+Total receivables 
+236,540 
+221,188 
+Inventories 
+358,168 
+339,012 
+Prepaid expenses and other current assets 
+26,094 
+27,755 
+Deferred tax assets 
+22,115 
+26,531 
+Total current assets 
+1,014,928 
+940,312 
+Property, plant and equipment, at cost, less accumulated depreciation and amortization 
+361,755 
+362,446 
+Goodwill and other intangible assets, less accumulated amortization 
+2,377 
+3,242 
+Deferred tax assets 
+9,950 
+16,387 
+Other assets, at cost 
+19,560 
+17,833 
+Total non-current assets 
+393,642 
+399,908 
+TOTAL ASSETS 
+$ 
+1,408,570 
+$ 
+1,340,220 
+LIABILITIES AND EQUITY 
+Current Liabilities: 
+Current installments of long-term borrowings 
+$ 
+12,028 
+$ 
+11,668 
+Short-term borrowings 
+87 
+2,425 
+Accounts payable 
+258,183 
+241,525 
+Accrued expenses 
+40,124 
+36,923 
+Total current liabilities 
+310,422 
+292,541 
+Long-term borrowings, excluding current installments 
+116,488 
+128,517 
+Other long-term liabilities 
+1,740 
+73 
+Total non-current liabilities 
+118,228 
+128,590 
+Total liabilities 
+428,650 
+421,131 
+Commitments and contingencies 
+Stockholders’ equity: 
+Preferred Stock, $.001 par value; 10,000 authorized; none issued and outstanding 
+0 
+0 
+Class A Common Stock, $.001 par value; 100,000 shares authorized; 39,688 and 39,021 shares issued and outstanding at
+December 31, 2013 and 2012, respectively 
+40 
+39 
+Class B Common Stock, $.001 par value; 60,000 shares authorized; 10,870 and 11,274 shares issued and outstanding at December 31,
+2013 and 2012, respectively 
+11 
+11 
+Additional paid-in capital 
+342,143 
+336,278 
+Accumulated other comprehensive loss 
+(8,701 
+) 
+(2,400 
+) 
+Retained earnings 
+596,829 
+542,041 
+Skechers U.S.A., Inc. equity 
+930,322 
+875,969 
+Noncontrolling interests 
+49,598 
+43,120 
+Total equity 
+979,920 
+919,089 
+TOTAL LIABILITIES AND EQUITY 
+$ 
+1,408,570 
+$ 
+1,340,220 
+See accompanying notes to consolidated financial statements. 
+48 
+Table of Contents 
+SKECHERS U.S.A., INC. AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+(In thousands, except per share data) 
+Years Ended December 31, 
+2013 
+2012 
+2011 
+Net sales 
+$ 
+1,846,361 
+$ 
+1,560,321 
+$ 
+1,606,016 
+Cost of sales 
+1,027,569 
+876,995 
+982,268 
+Gross profit 
+818,792 
+683,326 
+623,748 
+Royalty income 
+7,734 
+7,104 
+7,558 
+826,526 
+690,430 
+631,306 
+Operating expenses: 
+Selling 
+153,491 
+134,920 
+152,000 
+General and administrative 
+577,214 
+532,373 
+569,164 
+Legal settlements 
+2,212 
+818 
+43,935 
+732,917 
+668,111 
+765,099 
+Earnings (loss) from operations 
+93,609 
+22,319 
+(133,793 
+) 
+Other income (expense): 
+Interest income 
+841 
+559 
+1,851 
+Interest expense 
+(11,890 
+) 
+(13,324 
+) 
+(7,853 
+) 
+Gain (loss) on disposal of assets 
+447 
+(216 
+) 
+9,632 
+Gain (loss) on foreign currency transactions 
+(792 
+) 
+1,135 
+(884 
+) 
+(11,394 
+) 
+(11,846 
+) 
+2,746 
+Earnings (loss) before income tax expense (benefit) 
+82,215 
+10,473 
+(131,047 
+) 
+Income tax expense (benefit) 
+21,347 
+(39 
+) 
+(63,467 
+) 
+Net earnings (loss) 
+60,868 
+10,512 
+(67,580 
+) 
+Less: Net earnings (loss) attributable to noncontrolling interests 
+6,080 
+1,000 
+(96 
+) 
+Net earnings (loss) attributable to Skechers U.S.A., Inc. 
+$ 
+54,788 
+$ 
+9,512 
+$ 
+(67,484 
+) 
+Net earnings (loss) per share attributable to Skechers U.S.A., Inc.: 
+Basic 
+$ 
+1.09 
+$ 
+0.19 
+$ 
+(1.39 
+) 
+Diluted 
+$ 
+1.08 
+$ 
+0.19 
+$ 
+(1.39 
+) 
+Weighted average shares used in calculating earnings (loss) per share attributable to Skechers U.S.A., Inc.: 
+Basic 
+50,363 
+49,495 
+48,491 
+Diluted 
+50,563 
+49,942 
+48,491 
+See accompanying notes to consolidated financial statements. 
+49 
+Table of Contents 
+SKECHERS U.S.A., INC. AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 
+(In thousands) 
+Years Ended December 31, 
+2013 
+2012 
+2011 
+Net earnings (loss) 
+$ 
+60,868 
+$ 
+10,512 
+$ 
+(67,580 
+) 
+Other comprehensive income (loss), net of tax: 
+Loss on foreign currency translation adjustment, net of tax 
+(6,363 
+) 
+(1,251 
+) 
+(4,843 
+) 
+Comprehensive income (loss) 
+54,505 
+9,261 
+(72,423 
+) 
+Less: Comprehensive income attributable to noncontrolling interests 
+6,018 
+1,255 
+220 
+Comprehensive income (loss) attributable to Skechers U.S.A., Inc. 
+$ 
+48,487 
+$ 
+8,006 
+$ 
+(72,643 
+) 
+See accompanying notes to consolidated financial statements. 
+50 
+Table of Contents 
+SKECHERS U.S.A., INC. AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF EQUITY 
+(In thousands) 
+SHARES 
+AMOUNT 
+ADDITIONAL 
+PAID-IN 
+CAPITAL 
+ACCUMULATED 
+OTHER 
+COMPREHENSIVE 
+INCOME (LOSS) 
+RETAINED 
+EARNINGS 
+SKECHERS 
+U.S.A., INC. 
+EQUITY 
+NON 
+CONTROLLING 
+INTERESTS 
+TOTAL 
+STOCKHOLDERS’ 
+EQUITY 
+CLASS A 
+COMMON 
+STOCK 
+CLASS B 
+COMMON 
+STOCK 
+CLASS A 
+COMMON 
+STOCK 
+CLASS B 
+COMMON 
+STOCK 
+Balance at December 31, 2010 
+36,894 
+11,311 
+$ 
+37 
+$ 
+11 
+$ 
+303,877 
+$ 
+4,265 
+$ 
+600,013 
+$ 
+908,203 
+$ 
+37,631 
+$ 
+945,834 
+Net loss 
+— 
+— 
+— 
+— 
+— 
+— 
+(67,484 
+) 
+(67,484 
+) 
+(96 
+) 
+(67,580 
+) 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+(5,159 
+) 
+— 
+(5,159 
+) 
+316 
+(4,843 
+) 
+Capital contribution 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+2,115 
+2,115 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+14,320 
+— 
+— 
+14,320 
+— 
+14,320 
+Proceeds from issuance of common stock under the employee stock purchase plan 
+178 
+— 
+— 
+— 
+2,023 
+— 
+— 
+2,023 
+— 
+2,023 
+Proceeds from issuance of common stock under the employee stock option plan 
+873 
+— 
+1 
+— 
+1,297 
+— 
+— 
+1,298 
+— 
+1,298 
+Tax benefit (expense) of stock options exercised 
+— 
+— 
+— 
+— 
+(640 
+) 
+— 
+— 
+(640 
+) 
+— 
+(640 
+) 
+Conversion of Class B Common Stock into Class A Common Stock 
+14 
+(14 
+) 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+Balance at December 31, 2011 
+37,959 
+11,297 
+$ 
+38 
+$ 
+11 
+$ 
+320,877 
+$ 
+(894 
+) 
+$ 
+532,529 
+$ 
+852,561 
+$ 
+39,966 
+$ 
+892,527 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+9,512 
+9,512 
+1,000 
+10,512 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+(1,506 
+) 
+— 
+(1,506 
+) 
+255 
+(1,251 
+) 
+Contribution from noncontrolling interest of consolidated entity 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+3,501 
+3,501 
+Distribution to noncontrolling interest of consolidated entity 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+(1,602 
+) 
+(1,602 
+) 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+11,527 
+— 
+— 
+11,527 
+— 
+11,527 
+Proceeds from issuance of common stock under the employee stock purchase plan 
+186 
+— 
+— 
+— 
+2,374 
+— 
+— 
+2,374 
+— 
+2,374 
+Proceeds from issuance of common stock under the employee stock option plan 
+853 
+— 
+1 
+— 
+1,050 
+— 
+— 
+1,051 
+— 
+1,051 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+450 
+— 
+— 
+450 
+— 
+450 
+Conversion of Class B Common Stock into Class A Common Stock 
+23 
+(23 
+) 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+Balance at December 31, 2012 
+39,021 
+11,274 
+$ 
+39 
+$ 
+11 
+$ 
+336,278 
+$ 
+(2,400 
+) 
+$ 
+542,041 
+$ 
+875,969 
+$ 
+43,120 
+$ 
+919,089 
+Net earnings 
+— 
+— 
+— 
+— 
+— 
+— 
+54,788 
+54,788 
+6,080 
+60,868 
+Foreign currency translation adjustment 
+— 
+— 
+— 
+— 
+— 
+(6,301 
+) 
+— 
+(6,301 
+) 
+(62 
+) 
+(6,363 
+) 
+Contribution from noncontrolling interest of consolidated entity 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+3,635 
+3,635 
+Distribution to noncontrolling interest of consolidated entity 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+(3,175 
+) 
+(3,175 
+) 
+Stock compensation expense 
+— 
+— 
+— 
+— 
+2,388 
+— 
+— 
+2,388 
+— 
+2,388 
+Proceeds from issuance of common stock under the employee stock purchase plan 
+149 
+— 
+— 
+— 
+2,614 
+— 
+— 
+2,614 
+— 
+2,614 
+Proceeds from issuance of common stock under the employee stock option plan 
+114 
+— 
+1 
+— 
+332 
+— 
+— 
+333 
+— 
+333 
+Tax benefit of stock options exercised 
+— 
+— 
+— 
+— 
+531 
+— 
+— 
+531 
+— 
+531 
+Conversion of Class B Common Stock into Class A Common Stock 
+404 
+(404 
+) 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+Balance at December 31, 2013 
+39,688 
+10,870 
+$ 
+40 
+$ 
+11 
+$ 
+342,143 
+$ 
+(8,701 
+) 
+$ 
+596,829 
+$ 
+930,322 
+$ 
+49,598 
+$ 
+979,920 
+See accompanying notes to consolidated financial statements 
+51 
+Table of Contents 
+SKECHERS U.S.A., INC. AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+(In thousands) 
+Years Ended December 31, 
+2013 
+2012 
+2011 
+Cash flows from operating activities: 
+Net earnings (loss) 
+$ 
+60,868 
+$ 
+10,512 
+$ 
+(67,580 
+) 
+Adjustments to reconcile net earnings (loss) to net cash (used in) provided by operating activities: 
+Depreciation of property, plant and equipment 
+42,397 
+41,542 
+33,652 
+Amortization of deferred financing costs 
+1,201 
+1,195 
+1,128 
+Amortization of intangible assets 
+912 
+906 
+1,580 
+Provision for bad debts, returns and allowances 
+2,868 
+1,112 
+5,882 
+Tax expense from share-based compensation 
+(201 
+) 
+(78 
+) 
+(640 
+) 
+Non-cash share-based compensation 
+2,388 
+11,527 
+14,320 
+Deferred income taxes (benefits) 
+11,583 
+(7,538 
+) 
+(7,863 
+) 
+Inventory write-down 
+0 
+0 
+9,971 
+Loss (gain) on disposal of property, plant and equipment 
+(447 
+) 
+216 
+(9,632 
+) 
+Impairment of property, plant and equipment 
+0 
+0 
+1,481 
+Impairment of intangible assets 
+0 
+0 
+1,649 
+(Increase) decrease in assets: 
+Receivables 
+(21,279 
+) 
+(36,989 
+) 
+86,114 
+Inventories 
+(22,589 
+) 
+(111,813 
+) 
+160,241 
+Prepaid expenses and other current assets 
+1,205 
+60,266 
+(38,247 
+) 
+Other assets 
+(3,239 
+) 
+(4,955 
+) 
+3,291 
+Increase (decrease) in liabilities: 
+Accounts payable 
+17,596 
+9,958 
+(18,074 
+) 
+Accrued expenses 
+5,714 
+20,692 
+(12,354 
+) 
+Net cash provided by (used in) operating activities 
+98,977 
+(3,447 
+) 
+164,919 
+Cash flows from investing activities: 
+Capital expenditures 
+(41,294 
+) 
+(52,452 
+) 
+(122,238 
+) 
+Proceeds from the sale of property, plant and equipment 
+0 
+0 
+17,100 
+Intangible additions 
+(87 
+) 
+0 
+(10 
+) 
+Net cash (used in) investing activities 
+(41,381 
+) 
+(52,452 
+) 
+(105,148 
+) 
+Cash flows from financing activities: 
+Net proceeds from the issuances of stock through employee stock purchase plan and the exercise of stock options 
+2,947 
+3,425 
+3,321 
+Contribution from non-controlling interest of consolidated entity 
+3,635 
+3,501 
+2,115 
+Distributions to non-controlling interest of consolidated entity 
+(3,175 
+) 
+(1,602 
+) 
+0 
+Excess tax benefits from share-based compensation 
+732 
+528 
+0 
+Proceeds (payments) on short-term borrowings 
+(2,382 
+) 
+(47,998 
+) 
+31,958 
+Proceeds from long-term debt 
+0 
+82,143 
+37,326 
+Payments on long-term debt 
+(11,667 
+) 
+(10,243 
+) 
+(14,287 
+) 
+Net cash (used in) provided by financing activities 
+(9,910 
+) 
+29,754 
+60,433 
+Net increase (decrease) in cash and cash equivalents 
+47,686 
+(26,145 
+) 
+120,204 
+Effect of exchange rates on cash and cash equivalents 
+(1,501 
+) 
+827 
+(2,618 
+) 
+Cash and cash equivalents at beginning of year 
+325,826 
+351,144 
+233,558 
+Cash and cash equivalents at end of year 
+$ 
+372,011 
+$ 
+325,826 
+$ 
+351,144 
+Supplemental disclosures of cash flow information: 
+Cash paid (received) during the year for: 
+Interest 
+$ 
+10,624 
+$ 
+11,812 
+$ 
+7,692 
+Income taxes paid (recovered) 
+5,480 
+(48,706 
+) 
+15,772 
+See accompanying notes to consolidated financial statements. 
+52 
+Table of Contents 
+SKECHERS U.S.A., INC. AND SUBSIDIARIES 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+DECEMBER 31, 2013, 2012 and 2011 
+(1) 
+THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
+(a) 
+The Company and Basis of Presentation 
+Skechers U.S.A., Inc. and subsidiaries
+(the “Company”) designs, develops, markets and distributes footwear. The Company also operates 390 retail stores and an e-commerce business as of December 31, 2013. 
+The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
+United States and include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 
+(b) 
+Use of Estimates 
+Management has made a number of estimates and assumptions
+relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the
+United States. Significant areas requiring the use of management estimates relate primarily to revenue recognition, allowance for bad debts, returns, sales allowances and customer chargebacks, inventory write-downs, valuation of intangibles and
+long-lived assets, litigation reserves and valuation of deferred income taxes. Actual results could differ from those estimates. 
+(c) 
+Noncontrolling interests 
+The Company has equity interests in several joint
+ventures that were established either to distribute the Company’s products throughout Asia or to construct the Company’s domestic distribution facility. These joint ventures are variable interest entities (VIE)’s under Accounting
+Standards Codification (“ASC”) 810-10-15-14. The Company’s determination of the primary beneficiary of a VIE considers all relationships between the Company and the VIE, including management agreements, governance documents and other
+contractual arrangements. The Company has determined for its VIE’s the Company is the primary beneficiary because it has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact
+the entity’s economic performance, and (b) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be
+significant to the variable interest entity. Accordingly, the Company includes the assets and liabilities and results of operations of these entities in its consolidated financial statements, even though the Company may not hold a majority equity
+interest. There have been no changes during 2013 in the accounting treatment or characterization of any previously identified VIE. The Company continues to reassess these relationships quarterly. The assets of these joint ventures are restricted in
+that they are not available for general business use outside the context of such joint ventures. The holders of the liabilities of each joint venture have no recourse to the Company. The Company does not have a variable interest in any
+unconsolidated VIE’s. 
+53 
+Table of Contents 
+The following VIE’s are consolidated into the Company’s consolidated
+financial statements and the carrying amounts and classification of assets and liabilities were as follows (in thousands): 
+HF Logistics-SKX, LLC 
+December 31, 2013 
+December 31, 2012 
+Current assets 
+$ 
+3,076 
+$ 
+5,239 
+Noncurrent assets 
+129,796 
+133,235 
+Total assets 
+$ 
+132,872 
+$ 
+138,474 
+Current liabilities 
+$ 
+1,835 
+$ 
+1,958 
+Noncurrent liabilities 
+79,389 
+80,678 
+Total liabilities 
+$ 
+81,224 
+$ 
+82,636 
+Distribution joint ventures (1) 
+December 31, 2013 
+December 31, 2012 
+Current assets 
+$ 
+49,835 
+$ 
+34,781 
+Noncurrent assets 
+9,209 
+7,978 
+Total assets 
+$ 
+59,044 
+$ 
+42,759 
+Current liabilities 
+$ 
+15,687 
+$ 
+13,222 
+Noncurrent liabilities 
+32 
+34 
+Total liabilities 
+$ 
+15,719 
+$ 
+13,256 
+(1) 
+Distribution joint ventures include Skechers China Limited, Skechers Southeast Asia Limited, Skechers Thailand Limited and Skechers South Asia
+Private Limited. 
+Noncontrolling interest income (loss) was $6.1 million, $1.0 million and $(0.1)
+million for the years ended December 31, 2013, 2012 and 2011, respectively, which represents the share of net earnings or loss that is attributable to the Company’s joint venture partners. HF Logistics-SKX, LLC made cash capital
+distributions of $3.2 million and $1.6 million during the years ended December 31, 2013 and 2012, respectively. Our distribution joint venture partners made cash capital contributions of $3.6 million, $3.5 million and $2.1 million during the
+year ended December 31, 2013, 2012 and 2011, respectively. 
+(d) 
+Business Segment Information 
+Skechers’ operations and segments are
+organized along its distribution channels and consist of the following: domestic wholesale, international wholesale, retail and e-commerce sales. Information regarding these segments is summarized in Note 12. 
+(e) 
+Revenue Recognition 
+The Company recognizes revenue on wholesale sales when
+products are shipped and the customer takes title and assumes risk of loss, collection of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. This generally occurs
+at time of shipment. Wholesale and e-commerce sales are recognized net of allowances for estimated returns, sales allowances, discounts, chargebacks and amounts billed for shipping and handling costs. The Company recognizes revenue from retail sales
+at the point of sale. Allowances for estimated returns, discounts, doubtful accounts and chargebacks are recorded when related revenue is recorded. Related costs paid to third-party shipping companies are recorded as cost of sales. 
+Royalty income is earned from licensing arrangements. Upon signing a new licensing agreement, the Company receives up-front
+fees, which are generally characterized as prepaid royalties. These fees are initially deferred and recognized as revenue as earned (i.e., as licensed sales are reported to the Company or on a straight-line basis over the term of the agreement). In
+addition, the Company receives royalty payments based on actual sales of the licensed products. Typically, at each quarter-end we receive correspondence from our licensees indicating the actual sales for the period. This information is used to
+calculate and record the related royalties based on the terms of the agreement. 
+54 
+Table of Contents 
+(f) 
+Allowance for Bad Debts, Returns, Sales Allowances and Customer Chargebacks 
+The Company provides a reserve charged against revenue and its receivables for estimated losses that may result from its
+customers’ inability to pay. To minimize the likelihood of uncollectibility, customers’ credit-worthiness is reviewed periodically based on external credit reporting services, financial statements issued by the customer and the
+Company’s experience with the account, and it is adjusted accordingly. When a customer’s account becomes significantly past due, the Company generally places a hold on the account and discontinues further shipments to that customer,
+minimizing further risk of loss. The Company determines the amount of the reserve by analyzing known uncollectible accounts, aged receivables, economic conditions in the customers’ countries or industries, historical losses and its
+customers’ credit-worthiness. Amounts later determined and specifically identified to be uncollectible are charged or written off against this reserve. 
+The Company also reserves for potential disputed amounts or chargebacks from its customers. The Company’s chargeback
+reserve is based on a collectibility percentage based on factors such as historical trends, current economic conditions, and nature of the chargeback receivables. The Company also reserves for potential sales returns and allowances based on
+historical trends. 
+The likelihood of a material loss on an uncollectible account would be mainly dependent on
+deterioration in the overall economic conditions in a particular country or environment. Reserves are fully provided for all probable losses of this nature. For receivables that are not specifically identified as high risk, the Company provides a
+reserve based upon our historical loss rate as a percentage of sales. 
+(g) 
+Cash and Cash Equivalents 
+Cash and cash equivalents consist primarily of
+certificates of deposit with an initial term of less than three months. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash
+equivalents. 
+(h) 
+Foreign Currency Translation 
+In accordance with ASC 830-30, certain
+international operations use the respective local currencies as their functional currency, while other international operations use the U.S. Dollar as their functional currency. The Company considers the U.S. dollar as its functional currency.
+The Company operates internationally through several foreign subsidiaries. Translation adjustments for these subsidiaries are included in other comprehensive income (loss). Additionally, one international subsidiary, Skechers S.a.r.l. located in
+Switzerland, operates with a functional currency of the U.S. dollar. Resulting re-measurement gains and losses from this subsidiary are included in the determination of net earnings (loss). Assets and liabilities of the foreign operations
+denominated in local currencies are translated at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the weighted average rate of exchange during the period. Translations of intercompany loans of a long-term
+investment nature are included as a component of translation adjustment in other comprehensive income (loss). 
+(i) 
+Inventories 
+Inventories, principally finished goods, are stated at the lower
+of cost (based on the first-in, first-out method) or market (net realizable value). Cost includes shipping and handling fees and costs, which are subsequently expensed to cost of sales. The Company provides for estimated losses from obsolete or
+slow-moving inventories and writes down the cost of inventory at the time such determinations are made. Reserves are estimated based upon inventory on hand, historical sales activity, industry trends, the retail environment, and the expected net
+realizable value. The net realizable value is determined based upon estimated sales prices of such inventory through off-price or discount store channels. 
+(j) 
+Income Taxes 
+The Company accounts for income taxes in accordance with ASC
+740-10, which requires that the Company recognize deferred tax liabilities for taxable temporary differences and deferred tax assets for deductible temporary differences and operating loss carry-forwards using enacted tax rates in effect in the
+years the differences are expected to reverse. Deferred income tax benefit or expense is recognized as a result of changes in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that
+some or all of any deferred tax assets will not be realized. 
+55 
+Table of Contents 
+(k) 
+Depreciation and Amortization 
+Depreciation and amortization of property, plant
+and equipment is computed using the straight-line method based on the following estimated useful lives: 
+Buildings 
+20 years 
+Building improvements 
+10 years 
+Furniture, fixtures and equipment 
+5 to 20 years 
+Leasehold improvements 
+Useful life or remaining lease term, whichever is shorter 
+(l) 
+Goodwill, Intangible Assets, Purchased Intangibles and Deferred Financing Costs 
+Goodwill and other intangible assets are measured for impairment at least annually and more often when events indicate that
+impairment exists. Intellectual property, which include purchased intellectual property, artwork and designs, trade names and trademarks are amortized over their useful lives ranging from 1–10 years, generally on a straight-line basis.
+Intangible assets, which were primarily allocated to the domestic wholesale segment, as of December 31, 2013 and 2012 are as follows (in thousands): 
+2013 
+2012 
+Intellectual property 
+$ 
+7,887 
+$ 
+7,840 
+Goodwill 
+1,575 
+1,575 
+Less accumulated amortization 
+(7,085 
+) 
+(6,173 
+) 
+Total intangible assets 
+$ 
+2,377 
+$ 
+3,242 
+We recorded, in general and administrative expenses, amortization expense of $0.9 million,
+$0.9 million and $1.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. We recorded, in interest expense, amortization of deferred financing costs of $1.2 million, $1.2 million and $1.1 million for the years ended
+December 31, 2013, 2012 and 2011, respectively. The Company did not record impairment charges during the years ended December 31, 2013 or December 31, 2012. The Company recorded $1.6 million in impairment charges during the year ended
+December 31, 2011. 
+(m) 
+Property, Plant and Equipment 
+Property, plant and equipment subject to
+depreciation and amortization is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management reviews both quantitative and qualitative factors to assess if a
+triggering event occurred. The Company prepares a summary of store cash flows from our retail stores to assess potential impairment of the fixed assets and leasehold improvements. Stores with negative cash flows opened in excess of 24 months are
+then reviewed in detail to determine if impairment exists. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the
+asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company did not record impairment
+charges during the years ended December 31, 2013 or December 31, 2012. The Company recorded $1.5 million in impairment charges during the year ended December 31, 2011. 
+(n) 
+Advertising Costs 
+Advertising costs are expensed in the period in which the
+advertisements are first run or over the life of the endorsement contract. Advertising expense for the years ended December 31, 2013, 2012 and 2011 was approximately $118.5 million, $103.9 million and $119.3 million, respectively. Prepaid
+advertising costs were $5.5 million and $3.8 million at December 31, 2013 and 2012, respectively. Prepaid amounts outstanding at December 31, 2013 and 2012, represent the unamortized portion of endorsement contracts, advertising in trade
+publications and media productions created which had not run as of December 31, 2013 and 2012, respectively. 
+56 
+Table of Contents 
+(o) 
+Net Earnings (loss) Per Share Attributable to Skechers U.S.A., Inc. 
+Basic
+earnings (loss) per share represents net earnings (loss) divided by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share, in addition to the weighted average determined for basic earnings (loss)
+per share, includes potential common shares which would arise from the exercise of stock options using the treasury stock method. 
+The Company has two classes of issued and outstanding common stock, Class A Common Stock
+and Class B Common Stock. Holders of Class A Common Stock and holders of Class B Common Stock have substantially identical rights, including rights with respect to any declared dividends or distributions of cash or property and the
+right to receive proceeds on liquidation or dissolution of the Company after payment of the Company’s indebtedness. The two classes have different voting rights, with holders of Class A Common Stock entitled to one vote per share while
+holders of Class B Common Stock are entitled to ten votes per share on all matters submitted to a vote of stockholders. The Company uses the two-class method for calculating net earnings per share. Basic and diluted net earnings per
+share of Class A Common Stock and Class B Common Stock are identical. The shares of Class B Common Stock are convertible at any time at the option of the holder into shares of Class A Common Stock on a share-for-share basis. In addition,
+shares of Class B Common Stock will be automatically converted into a like number of shares of Class A Common Stock upon any transfer to any person or entity which is not a permitted transferee. 
+The following is a reconciliation of net earnings (loss) and weighted average common shares outstanding for purposes of
+calculating earnings (loss) per share (in thousands): 
+Years Ended December 31, 
+Basic earnings (loss) per share 
+2013 
+2012 
+2011 
+Net earnings (loss) 
+$ 
+54,788 
+$ 
+9,512 
+$ 
+(67,484 
+) 
+Weighted average common shares outstanding 
+50,363 
+49,495 
+48,491 
+Basic earnings (loss) per share 
+$ 
+1.09 
+$ 
+0.19 
+$ 
+(1.39 
+) 
+Years Ended December 31, 
+Diluted earnings (loss) per share 
+2013 
+2012 
+2011 
+Net earnings (loss) 
+$ 
+54,788 
+$ 
+9,512 
+$ 
+(67,484 
+) 
+Weighted average common shares outstanding 
+50,363 
+49,495 
+48,491 
+Dilutive stock options 
+200 
+447 
+0 
+Weighted average common shares outstanding 
+50,563 
+49,942 
+48,491 
+Diluted earnings (loss) per share 
+$ 
+1.08 
+$ 
+0.19 
+$ 
+(1.39 
+) 
+There were no options excluded from the computation of diluted earnings per share for the
+years ended December 31, 2013 or 2012. 
+(p) 
+Product Design and Development Costs 
+The Company charges all product design
+and development costs to general and administrative expenses when incurred. Product design and development costs aggregated approximately $9.2 million, $9.5 million and $15.9 million during the years ended December 31, 2013, 2012 and 2011,
+respectively. 
+(q) 
+Fair Value of Financial Instruments 
+The carrying amount of the Company’s
+financial instruments are considered Level 1 assets, which principally include cash and cash equivalents, investments, accounts receivable, accounts payable and accrued expenses and approximates fair value due to the relatively short maturity of
+such instruments. 
+The carrying amount of the Company’s long-term borrowings are considered Level 2 liabilities,
+which approximates the fair value based upon current rates and terms available to the Company for similar debt. 
+57 
+Table of Contents 
+(r) 
+Comprehensive Income 
+Comprehensive income consists of net earnings (loss),
+foreign currency translation adjustments. Comprehensive income is presented in the consolidated statements comprehensive income (loss). Components of accumulated other comprehensive income (loss) consist of foreign currency translation adjustments
+and income (loss) attributable to non-controlling interests. The Company operates internationally through several foreign subsidiaries. Assets and liabilities of the foreign operations denominated in local currencies are translated at the rate of
+exchange at the balance sheet date. Revenues and expenses are translated at the weighted average rate of exchange during the period of translation. The resulting translation adjustments along with translation adjustments related to intercompany
+loans of a long-term nature are included in the translation adjustment in other comprehensive income (loss). 
+(2) 
+PROPERTY, PLANT AND EQUIPMENT 
+Property, plant and equipment at December 31, 2013 and 2012 is summarized as follows (in thousands):
+2013 
+2012 
+Land 
+$ 
+59,113 
+$ 
+59,113 
+Buildings and improvements 
+176,987 
+173,691 
+Furniture, fixtures and equipment 
+195,629 
+184,722 
+Leasehold improvements 
+174,663 
+154,828 
+Total property, plant and equipment 
+606,392 
+572,354 
+Less accumulated depreciation and amortization 
+244,637 
+209,908 
+Property, plant and equipment, net 
+$ 
+361,755 
+$ 
+362,446 
+The Company capitalized $4.2 million of interest expense during 2011, relating to the
+construction of our corporate headquarters and equipment for our domestic distribution facility, which was completed in 2011. 
+(3) 
+ACCRUED EXPENSES 
+Accrued expenses at December 31, 2013 and 2012 are summarized as follows (in thousands): 
+2013 
+2012 
+Accrued inventory purchases 
+$ 
+15,514 
+$ 
+18,368 
+Accrued payroll and taxes 
+24,610 
+18,425 
+Accrued interest 
+0 
+130 
+Accrued expenses 
+$ 
+40,124 
+$ 
+36,923 
+(4) 
+LINE OF CREDIT AND SHORT-TERM BORROWINGS 
+On June 30, 2009, we entered into a $250.0 million secured credit agreement, (the “Credit
+Agreement”) with a syndicate of banks, of which six currently remain as participants. On November 5, 2009, March 4, 2010, May 3, 2011, and September 30, 2013, we entered into four successive amendments to the
+Credit Agreement (collectively, the “Amended Credit Agreement”). The Amended Credit Agreement matures in June 2015. The Amended Credit Agreement permits us and certain of our subsidiaries to borrow up to $250.0 million based upon a
+borrowing base of eligible accounts receivable and inventory, which amount can be increased to $300.0 million at our request and upon satisfaction of certain conditions including obtaining the commitment of existing or prospective lenders willing to
+provide the incremental amount. Borrowings bear interest at our election based on LIBOR or a Base Rate (defined as the greatest of the base LIBOR plus 1.00%, the Federal Funds Rate plus 0.5% or one of the lenders’ prime rate), in each case,
+plus an applicable margin based on the average daily principal balance of revolving loans under the credit agreement (0.50%, 0.75% or 1.00% for Base Rate loans and 1.50%, 1.75% or 2.00% for LIBOR loans). We pay a monthly unused line of credit fee of
+0.25% or 0.375% per annum, which varies based on the average daily principal balance of outstanding revolving loans and undrawn amounts of letters of credit outstanding during such month. The Amended Credit Agreement further provides for a
+limit on the issuance of letters of credit to a maximum of $50.0 million. The Amended Credit Agreement contains customary affirmative and negative covenants for secured credit facilities of this type, including a fixed charge coverage ratio that
+applies when excess availability is less than $40.0 million. In addition, the Amended Credit Agreement places limits on additional indebtedness that we are permitted to incur as well as other restrictions on certain transactions. We paid syndication
+and commitment fees of $6.7 million on this facility, which are being amortized to interest expense over the six-year life of the facility. 
+58 
+Table of Contents 
+(5) 
+LONG-TERM BORROWINGS 
+Long-term borrowings at December 31, 2013 and 2012 is as follows (in thousands): 
+2013 
+2012 
+Note payable to bank, due in monthly installments of $350.0 (includes principal and interest), variable rate interest at 3.92%, secured
+by property, balloon payment of $76,976 due November 2015 
+$ 
+78,908 
+$ 
+79,916 
+Note payable to bank, due in monthly installments of $531.4 (includes principal and interest), fixed rate interest at 3.54%, secured by
+property, balloon payment of $12,635 due December 2015 
+23,573 
+29,010 
+Note payable to bank, due in monthly installments of $483.9 (includes principal and interest), fixed rate interest at 3.19%, secured by
+property, balloon payment of $11,670 due June 2016 
+24,265 
+29,213 
+Note payable to TCF Equipment Finance, Inc., due in monthly installments of $30.5 (includes principal and interest), fixed rate
+interest at 5.24%, maturity date of July 2019 
+1,770 
+2,036 
+Capital lease obligations 
+0 
+10 
+Subtotal 
+128,516 
+140,185 
+Less current installments 
+12,028 
+11,668 
+Total long-term borrowings 
+$ 
+116,488 
+$ 
+128,517 
+The aggregate maturities of long-term borrowings at December 31, 2013 are as follows: 
+2014 
+$ 
+12,028 
+2015 
+101,407 
+2016 
+14,198 
+2017 
+328 
+2018 
+345 
+Thereafter 
+210 
+$ 
+128,516 
+The Company’s long-term debt obligations contain both financial and non-financial
+covenants, including cross-default provisions. The Company is in compliance with its non-financial covenants, including any cross default provisions, and financial covenants of our long-term borrowings as of December 31, 2013. 
+On April 30, 2010, we entered into a construction loan agreement (the “Loan Agreement”), by and among HF
+Logistics-SKX T1, LLC, a wholly-owned subsidiary of the JV (“HF-T1”), Bank of America, N.A. and Raymond James Bank, FSB. Borrowings made pursuant to the Loan Agreement were up to a maximum limit of $55.0 million (the “Loan”),
+which were used to construct our domestic distribution facility in Rancho Belago, California. Borrowings bore interest based on LIBOR, and the Loan Agreement’s original maturity date was April 30, 2012, which was extended to
+November 30, 2012. On November 16, 2012, HF-T1 executed a modification to the Loan Agreement (the “Modification”), which increased the borrowings under the Loan to $80.0 million and extended the maturity date of the Loan to
+November 16, 2015. The $80.0 million was used to (i) repay $54.7 million in outstanding borrowings under the original Loan, (ii) repay a loan of $18.3 million including accrued interest from HF to the JV, (iii) repay a loan to
+the JV of $2.5 million including accrued interest from Skechers RB, LLC, a wholly-owned subsidiary of our company (iv) pay a deferred management fee of $1.9 million to HF, and (iv) pay distributions of $0.9 million to each of HF and
+Skechers RB, LLC, with (v) $0.8 million used for loan fees and other closing costs. Under the Modification, OneWest Bank, FSB is an additional lender that funded in part the increase to the Loan, and the interest rate on the Loan is the daily
+British Bankers Association LIBOR rate plus a margin of 3.75%, which is no longer subject to a minimum rate. The Loan Agreement and the Modification are subject to customary covenants and events of default. We had $78.9 million and $79.9 million
+outstanding under the Loan Agreement and the Modification, which is included in long-term borrowings as of December 31, 2013 and 2012, respectively. We paid commitment fees of $0.6 million on the Loan, which are being amortized to interest
+expense over the life of the Loan. 
+On December 29, 2010, the Company entered into a master loan and security
+agreement (the “Master Agreement”), by and between us and Banc of America Leasing & Capital, LLC, and an Equipment Security Note (together with the Master Agreement, the “Loan Documents”), by and among us, Banc of
+America Leasing & Capital, LLC, and Bank of Utah, as agent (“Agent”). We used the 
+59 
+Table of Contents 
+proceeds to refinance certain equipment already purchased and to purchase new equipment for use in our Rancho Belago distribution facility. Borrowings made pursuant to the Master Agreement may be
+in the form of one or more equipment security notes (each a “Note,” and, collectively, the “Notes”) up to a maximum limit of $80.0 million and each for a term of 60 months. The Note entered into on the same date as the Master
+Agreement represents a borrowing of approximately $39.3 million. Interest will accrue at a fixed rate of 3.54% per annum. On June 30, 2011, we entered into another Note agreement for approximately $36.3 million. Interest will accrue at a
+fixed rate of 3.19% per annum. We had $47.8 million and $58.2 million outstanding on the Notes, which is included in long-term borrowings as of December 31, 2013 and 2012, respectively. We paid commitment fees of $0.8 million on this loan,
+which are being amortized to interest expense over the five-year life of the Notes. 
+(6) 
+STOCK COMPENSATION 
+(a) 
+Equity Incentive Plans 
+In January 1998, the Company’s Board of Directors
+adopted the Amended and Restated 1998 Stock Option, Deferred Stock and Restricted Stock Plan for the grant of incentive stock options (“ISOs”), non-qualified stock options and deferred and restricted stock (the “Equity Incentive
+Plan”). In June 2001, the stockholders approved an amendment to the plan to increase the number of shares of Class A Common Stock authorized for issuance under the plan to 8,215,154. In May 2003, stockholders approved an amendment to the
+plan to increase the number of shares of Class A Common Stock authorized for issuance under the plan to 11,215,154. Stock option awards are generally granted with an exercise price per share equal to the market price of a share of Class A
+Common Stock on the date of grant. Stock option awards generally become exercisable over a three-year graded vesting period and expire ten years from the date of grant. 
+On April 16, 2007, the Company’s Board of Directors adopted the 2007 Plan, which became effective upon approval by
+the Company’s stockholders on May 24, 2007. The Company’s Board of Directors terminated the Equity Incentive Plan as of May 24, 2007, with no granting of awards being permitted thereafter, although any awards then outstanding
+under the Equity Incentive Plan remain in force according to the terms of such terminated plan and the applicable award agreements. A total of 7,500,000 shares of Class A Common Stock are reserved for issuance under the 2007 Plan, which
+provides for grants of ISOs, non-qualified stock options, restricted stock and various other types of equity awards as described in the plan to the employees, consultants and directors of the Company and its subsidiaries. The 2007 Plan is
+administered by the Compensation Committee of the Company’s Board of Directors. 
+(b) 
+Valuation Assumptions 
+There were no stock options granted under the Equity
+Incentive Plan or the 2007 Plan during 2013, 2012 or 2011. The total intrinsic value of options exercised during 2013, 2012 and 2011 was $0.9 million, $1.9 million and $1.2 million, respectively. 
+(c) 
+Stock-Based Payment Awards 
+Stock options granted pursuant to the 1998 Stock
+Option, Deferred Stock and Restricted Stock Plan and the 2007 Incentive Award Plan (the “Equity Incentive Plans”) were as follows: 
+SHARES 
+WEIGHTED AVERAGE 
+OPTION EXERCISE 
+PRICE 
+Outstanding at December 31, 2010 
+451,308 
+$ 
+11.26 
+Granted 
+0 
+0 
+Exercised 
+(137,197 
+) 
+9.46 
+Cancelled 
+(107,711 
+) 
+20.55 
+Outstanding at December 31, 2011 
+206,400 
+7.62 
+Granted 
+0 
+0 
+Exercised 
+(149,489 
+) 
+7.03 
+Cancelled 
+(4,215 
+) 
+6.95 
+Outstanding at December 31, 2012 
+52,696 
+9.34 
+Granted 
+0 
+0 
+Exercised 
+(37,696 
+) 
+8.83 
+Cancelled 
+0 
+0 
+Outstanding at December 31, 2013 
+15,000 
+$ 
+10.60 
+There was no unrecognized compensation cost related to stock option shares as of
+December 31, 2013 and 2012, respectively. 
+60 
+Table of Contents 
+A summary of the status and changes of our nonvested shares related to our Equity
+Incentive Plans as of and for the period ended December 31, 2013 is presented below: 
+SHARES 
+WEIGHTED AVERAGE 
+GRANT-DATE FAIR 
+VALUE 
+Nonvested at December 31, 2010 
+1,493,329 
+$ 
+18.97 
+Granted 
+10,000 
+21.00 
+Vested 
+(735,337 
+) 
+18.95 
+Cancelled 
+(27,499 
+) 
+18.74 
+Nonvested at December 31, 2011 
+740,493 
+19.02 
+Granted 
+281,000 
+17.58 
+Vested 
+(704,160 
+) 
+18.58 
+Cancelled 
+(33,000 
+) 
+27.60 
+Nonvested at December 31, 2012 
+284,333 
+17.69 
+Granted 
+67,500 
+27.70 
+Vested 
+(75,667 
+) 
+18.03 
+Cancelled 
+0 
+0 
+Nonvested at December 31, 2013 
+276,166 
+$ 
+20.05 
+As of December 31, 2013, a total of 4,801,381 shares remain available for grant as equity
+awards under the 2007 Plan. 
+The Company recognized compensation expense of $2.4 million, $11.5 million and $14.3 million
+and related income tax benefits (expense) of $0.5 million, $0.5 million, and $(0.6) million for grants under its stock-based compensation plans in the consolidated statements of operations for the years ended December 31, 2013, 2012, and 2011,
+respectively. There was $5.0 million and $4.7 million of unrecognized compensation cost related to nonvested common shares as of December 31, 2013 and 2012, respectively. That cost is expected to be recognized over a weighted average period of
+2.7 years and 3.7 years, respectively. The total fair value of shares vested during the period ended December 31, 2013 and 2012 was $1.4 million and $13.1 million, respectively. 
+(d) 
+Stock Purchase Plans 
+Effective July 1, 1998, the Company’s Board of
+Directors adopted the 1998 Employee Stock Purchase Plan (the “1998 ESPP”). The 1998 ESPP provides that a total of 2,781,415 shares of Class A Common Stock are reserved for issuance under the plan. The 1998 ESPP, which is intended to
+qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended, was implemented utilizing six-month offerings with purchases occurring at six-month intervals. The 1998 ESPP
+administration was overseen by the Board of Directors. Employees were eligible to participate if they were employed by the Company for at least 20 hours per week and more than five months in any calendar year. The 1998 ESPP permitted eligible
+employees to purchase Class A Common Stock through payroll deductions, which may not exceed 15% of an employee’s compensation. The price of Class A Common Stock purchased under the 1998 ESPP was 85% of the lower of the fair market
+value of the Class A Common Stock at the beginning of each six-month offering period or on the applicable purchase date. 
+On April 16, 2007, the Company’s Board of Directors adopted the 2008 Employee Stock Purchase Plan (the “2008
+ESPP”), and the Company’s stockholders approved the 2008 ESPP on May 24, 2007. The 2008 ESPP became effective on January 1, 2008, and the Company’s Board of Directors terminated the 1998 ESPP as of such date, with no
+additional granting of rights being permitted under the 1998 ESPP. The 2008 ESPP provides that a total of 3,000,000 shares of Class A Common Stock are reserved for issuance under the plan. This number of shares that may be made available for
+sale is subject to automatic increases on the first day of each fiscal year during the term of the 2008 ESPP as provided in the plan. The 2008 ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the
+Internal Revenue Code of 1986, as amended. The terms of the 2008 ESPP, which are substantially similar to those of the 1998 ESPP, permit eligible employees to purchase Class A Common Stock at six-month intervals through payroll deductions,
+which may not exceed 15% of an employee’s compensation. The price of Class A Common Stock purchased under the 2008 ESPP is 85% of the lower of the fair market value of the Class A Common Stock at the beginning of each six-month
+offering period or on the applicable purchase date. Employees may end their participation in an offering at any time during the offering period. The 2008 ESPP is administered by the Company’s Board of Directors. 
+61 
+Table of Contents 
+During 2013, 2012 and 2011, 149,257 shares, 186,199 shares and 178,189 shares
+were issued under the 2008 ESPP for which the Company received approximately $2.6 million, $2.4 million and $2.0 million, respectively. 
+(7) 
+STOCKHOLDERS’ EQUITY 
+The authorized capital stock of the Company consists of 100,000,000 shares of Class A Common Stock, par
+value $.001 per share, 60,000,000 shares of Class B Common Stock, par value $.001 per share, and 10,000,000 shares of preferred stock, $.001 par value per share. 
+The Company has two classes of issued and outstanding common stock, Class A Common Stock
+and Class B Common Stock. Holders of Class A Common Stock and holders of Class B Common Stock have substantially identical rights, including rights with respect to any declared dividends or distributions of cash or property and the
+right to receive proceeds on liquidation or dissolution of the Company after payment of the Company’s indebtedness. The two classes have different voting rights, with holders of Class A Common Stock entitled to one vote per share while
+holders of Class B Common Stock are entitled to ten votes per share on all matters submitted to a vote of stockholders. The shares of Class B Common Stock are convertible at any time at the option of the holder into shares of Class A
+Common Stock on a share-for-share basis. In addition, shares of Class B Common Stock will be automatically converted into a like number of shares of Class A Common Stock upon any transfer to any person or entity which is not a permitted
+transferee. 
+During 2013, 2012 and 2011, certain Class B stockholders converted 404,396 shares, 22,880 shares and 13,640
+shares, respectively, of Class B Common Stock to Class A Common Stock. 
+(8) 
+INCOME TAXES 
+The provisions for income tax expense (benefit) were as follows (in thousands): 
+2013 
+2012 
+2011 
+Federal: 
+Current 
+$ 
+632 
+$ 
+(67 
+) 
+$ 
+(53,696 
+) 
+Deferred 
+11,537 
+(6,381 
+) 
+(1,896 
+) 
+Total federal 
+12,169 
+(6,448 
+) 
+(55,592 
+) 
+State: 
+Current 
+519 
+1,796 
+(241 
+) 
+Deferred 
+119 
+(307 
+) 
+(10,522 
+) 
+Total state 
+638 
+1,489 
+(10,763 
+) 
+Foreign: 
+Current 
+8,228 
+5,325 
+(1,027 
+) 
+Deferred 
+312 
+(405 
+) 
+3,915 
+Total foreign 
+8,540 
+4,920 
+2,888 
+Total income taxes (benefit) 
+$ 
+21,347 
+$ 
+(39 
+) 
+$ 
+(63,467 
+) 
+The Company’s provision for income tax expense (benefit) and effective income tax rate
+are significantly impacted by the mix of the Company’s domestic and foreign earnings (loss) before income taxes. In the non-U.S. jurisdictions in which the Company has operations, the applicable statutory rates are generally significantly lower
+than in the U.S., ranging from 0% to 41%. The Company’s provision for income tax expense (benefit) was calculated using the applicable statutory rate for each jurisdiction applied to the Company’s pre-tax earnings (loss) in each
+jurisdiction, while the Company’s effective tax rate is calculated by dividing income tax expense (benefit) by earnings (loss) before income taxes. 
+62 
+Table of Contents 
+The Company’s earnings (loss) before income taxes and income tax expense
+(benefit) for 2013, 2012 and 2011 are as follows (in thousands): 
+Years Ended December 31, 
+2013 
+2012 
+2011 
+Income tax jurisdiction 
+Earnings (loss) 
+before income 
+taxes 
+Income tax 
+expense 
+Earnings (loss) 
+before income 
+taxes 
+Income tax 
+expense 
+(benefit) 
+Earnings (loss) 
+before income 
+taxes 
+Income tax 
+expense 
+(benefit) 
+United States 
+$ 
+38,705 
+$ 
+12,807 
+$ 
+(27,379 
+) 
+$ 
+(5,867 
+) 
+$ 
+(161,976 
+) 
+$ 
+(66,355 
+) 
+Canada 
+4,091 
+1,187 
+2,564 
+545 
+945 
+309 
+Chile 
+9,622 
+1,920 
+5,971 
+1,043 
+9,321 
+2,030 
+China 
+6,148 
+1,646 
+1,278 
+319 
+1,416 
+354 
+Jersey (1) 
+25,348 
+0 
+25,162 
+0 
+25,109 
+0 
+Non-benefited loss operations (2) 
+(15,841 
+) 
+0 
+(13,492 
+) 
+0 
+(16,844 
+) 
+0 
+Other jurisdictions (3) 
+14,142 
+3,787 
+16,369 
+3,921 
+10,982 
+195 
+Earnings (loss) before income taxes 
+$ 
+82,215 
+$ 
+21,347 
+$ 
+10,473 
+$ 
+(39 
+) 
+$ 
+(131,047 
+) 
+$ 
+(63,467 
+) 
+Effective tax rate (4) 
+26.0 
+% 
+(0.4 
+%) 
+48.4 
+% 
+(1) 
+Jersey does not assess income tax on corporate net earnings. 
+(2) 
+Consists of entities in the following tax jurisdictions where no tax benefit is recognized in the period being reported because of the provision of
+offsetting valuation allowances: Japan, Brazil, China, Hong Kong and India. 
+(3) 
+Consists of entities in the following tax jurisdictions, each of which comprises not more than 5%, of 2013 consolidated income (loss) before taxes:
+UK, Germany, France, Spain, Belgium, Italy, Netherlands, Switzerland, Malaysia, Thailand, Singapore, China, Hong Kong, Portugal and Austria. 
+(4) 
+The effective tax rate is calculated by dividing income tax expense (benefit) by earnings (loss) before income taxes. 
+For 2013, the effective tax rate was lower than the U.S. federal and state combined statutory rate of approximately 40%
+primarily because of earnings from foreign operations in jurisdictions imposing either lower tax rates on corporate earnings or no corporate income tax. As reflected in the table above, earnings (loss) before income taxes in the U.S. was earnings of
+$38.7 million, with income tax expense of $12.8 million, an average rate of 33.1%, while earnings (loss) before income taxes in non-U.S. jurisdictions was earnings of $43.5 million, with aggregate income tax expense of $8.5 million, an average rate
+of 19.6%. Combined, this results in consolidated net earnings for the period of $82.2 million, and a consolidated tax expense for the period of $21.3, resulting in an effective tax rate of 26.0%. 
+For 2013, of the Company’s $43.5 million in earnings before income tax earned outside the U.S., $25.3 million was earned
+in Jersey, which does not impose a tax on corporate earnings. In addition, there were foreign losses of $15.8 million for which no tax benefit was recognized during the year ended December 31, 2013 because of the provision of offsetting
+valuation allowances. Individually, none of the other foreign jurisdictions included in “Other jurisdictions” in the table above had more than 5% of 2013 consolidated earnings (loss) before taxes. 
+Unremitted earnings of non-U.S. subsidiaries are expected to be reinvested outside of the U.S. indefinitely. Such earnings
+would become taxable upon the sale or liquidation of these subsidiaries or upon the remittance of dividends. 
+As of
+December 31, 2013, the Company had approximately $372.0 million in cash and cash equivalents, of which $166.5 million, or 44.8%, was held outside the U.S. Of the $166.5 million held by the Company’s non-U.S. subsidiaries, approximately
+$51.2 million is available for repatriation to the U.S. without incurring U.S. income taxes and applicable non-U.S. income and withholding taxes in excess of the amounts accrued in the Company’s financial statements as of December 31,
+2013. The Company’s cash and cash equivalents held in the U.S. and cash provided from operations are sufficient to meet the Company’s liquidity needs in the U.S. for the next twelve months and the Company does not expect to repatriate any
+of the funds presently designated as indefinitely reinvested outside the U.S. Under current applicable tax laws, if the Company chooses to repatriate some or all of the funds designated as indefinitely reinvested outside the U.S., the amount
+repatriated would be subject to U.S. income taxes and applicable non-U.S. income and withholding taxes. As of December 31, 2013 and 2012, U.S. income taxes have not been provided on cumulative total earnings of $226.0 million and $171.2
+million, respectively. 
+63 
+Table of Contents 
+Income taxes differ from the statutory tax rates as applied to earnings (loss)
+before income taxes as follows (in thousands): 
+2013 
+2012 
+2011 
+Expected income tax expense (benefit) 
+$ 
+28,775 
+$ 
+3,666 
+$ 
+(45,866 
+) 
+State income tax, net of federal benefit 
+255 
+1,406 
+(7,320 
+) 
+Rate differential on foreign income 
+(11,897 
+) 
+(8,752 
+) 
+(11,808 
+) 
+Change in unrecognized tax benefits 
+740 
+(149 
+) 
+2,906 
+Non-deductible expenses 
+(150 
+) 
+194 
+168 
+Prior year R&D credit claims 
+(493 
+) 
+0 
+(6,253 
+) 
+Other 
+(1,187 
+) 
+79 
+304 
+Change in valuation allowance 
+5,304 
+3,517 
+4,402 
+Total provision (benefit) for income taxes 
+$ 
+21,347 
+$ 
+(39 
+) 
+$ 
+(63,467 
+) 
+Effective tax rate 
+26.0 
+% 
+(0.4 
+%) 
+48.4 
+% 
+The tax effects of temporary differences that give rise to significant portions of deferred
+tax assets and deferred tax liabilities at December 31, 2013 and 2012 are presented below (in thousands): 
+DEFERRED TAX ASSETS: 
+2013 
+2012 
+Deferred tax assets – current: 
+Inventory adjustments 
+$ 
+5,075 
+$ 
+8,184 
+Accrued expenses 
+17,084 
+16,082 
+Allowances for bad debts and chargebacks 
+6,179 
+6,751 
+Total current assets 
+28,338 
+31,017 
+Deferred tax assets – long term: 
+Loss carryforwards 
+43,711 
+50,399 
+Business credit carryforward 
+9,763 
+5,034 
+Share-based compensation 
+279 
+191 
+Valuation allowance 
+(19,903 
+) 
+(14,599 
+) 
+Total long term assets 
+33,850 
+41,025 
+Total deferred tax assets 
+62,188 
+72,042 
+Deferred tax liabilities – current: 
+Prepaid expenses 
+6,223 
+4,486 
+Deferred tax liabilities – long term: 
+Depreciation on property, plant and equipment 
+24,703 
+24,711 
+Total deferred tax liabilities 
+30,926 
+29,197 
+Net deferred tax assets 
+$ 
+31,262 
+$ 
+42,845 
+Management believes it is more likely than not that the results of future operations will
+generate sufficient taxable income to realize the net deferred tax assets. 
+The U.S. net operating loss for the year ended
+December 31, 2011 was carried back to offset federal taxable income for 2009 and 2010, generating tax refunds of approximately $52.0 million in the first quarter of 2012. The U.S. net operating loss for the year ended December 31, 2012,
+along with the remaining unused net operating loss carryback from December 31, 2011, can be carried forward to reduce future taxable income. These net operating losses can be carried forward for 20 years and do not begin to expire until 2032.
+As of December 31, 2013 and 2012, no valuation allowance against the related deferred tax asset has been set up for these loss carry-forwards as it is believed the loss carry-forwards will be fully utilized in reducing future taxable income.
+As of December 31, 2013 and 2012, the Company had combined foreign operating loss and related deferred tax assets
+carry-forwards available to reduce future taxable income of approximately $66.3 million and $52.1 million, respectively. Some of these net operating losses expire beginning in 2014; however others can be carried forward indefinitely. As of
+December 31, 2013 and 2012, a valuation allowance against deferred tax assets of $19.9 million and $14.6 million, respectively, had been set up for those loss carry-forwards that are not more likely than not to be fully utilized in reducing
+future taxable income. 
+64 
+Table of Contents 
+The balance of unrecognized tax benefits included in net prepaid expenses in the
+consolidated balance sheets increased by $0.6 million during the year. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): 
+2013 
+2012 
+Beginning balance 
+$ 
+10,221 
+$ 
+10,948 
+Additions for current year tax positions 
+696 
+464 
+Additions for prior year tax positions 
+164 
+24 
+Reductions for prior year tax positions 
+(5 
+) 
+(6 
+) 
+Settlement of uncertain tax positions 
+0 
+(301 
+) 
+Reductions related to lapse of statute of limitations 
+(260 
+) 
+(908 
+) 
+Ending balance 
+$ 
+10,816 
+$ 
+10,221 
+If recognized, $9.6 million of unrecognized tax benefits would be recorded as a reduction in
+income tax expense. 
+Estimated interest and penalties related to the underpayment of income taxes are classified as a
+component of income tax expense and totaled $0.1 million for the year ended December 31, 2013, $0.2 million for the year ended December 31, 2012, and $0.6 million for the year ended December 31, 2011. Accrued interest and penalties
+were $1.8 million and $1.6 million as of December 31, 2013 and 2012, respectively. 
+The amount of income taxes the
+Company pays is subject to ongoing audits by taxing jurisdictions around the world. The Company’s estimate of the potential outcome of any uncertain tax position is subject to management’s assessment of relevant risks, facts, and
+circumstances existing at that time. The Company believes that it has adequately provided for these matters. However, the Company’s future results may include favorable or unfavorable adjustments to its estimates in the period the audits are
+resolved, which may impact the Company’s effective tax rate. 
+As of December 31, 2013, the Company’s tax
+filings are generally subject to examination in the U.S. and several Asian and European tax jurisdictions for years ending on or after December 31, 2007. During the year, the Company reduced the balance of 2013 and prior year unrecognized tax
+benefits by $0.3 million as a result of expiring statutes. It is reasonably possible that the statute of limitations will lapse for certain tax jurisdictions during 2014, which would reduce the balance of 2013 and prior year unrecognized tax
+benefits by $1.4 million. 
+The Company is currently under examination by the IRS for tax years 2007 through 2011. The
+Company is also under examination by a number of states. During the year ended December 31, 2013, there was no reduction in the balance of 2013 and prior year unrecognized tax benefits due to any settlement of an examination. It is reasonably
+possible that certain federal and state examinations could be settled during the next twelve months which would reduce the balance of 2013 and prior year unrecognized tax benefits by $3.6 million. 
+(9) 
+BUSINESS AND CREDIT CONCENTRATIONS 
+The Company generates the majority of its sales in the United States; however, several of its products are
+sold into various foreign countries, which subject the Company to the risks of doing business abroad. In addition, the Company operates in the footwear industry, which is impacted by the general economy, and its business depends on the general
+economic environment and levels of consumer spending. Changes in the marketplace may significantly affect management’s estimates and the Company’s performance. Management performs regular evaluations concerning the ability of customers to
+satisfy their obligations and provides for estimated doubtful accounts. Domestic accounts receivable, which generally do not require collateral from customers, amounted to $138.4 million and $111.8 million before allowances for bad debts and sales
+returns, and chargebacks at December 31, 2013 and 2012, respectively. Foreign accounts receivable, which generally are collateralized by letters of credit, amounted to $103.5 million and $118.8 million before allowance for bad debts, sales
+returns, and chargebacks at December 31, 2013 and 2012, respectively. International net sales amounted to $558.1 million, $496.0 million and $546.0 million for the years ended December 31, 2013, 2012 and 2011, respectively. The
+Company’s credit losses charged to expense for the years ended December 31, 2013, 2012 and 2011 were $2.6 million, $1.5 million and $7.0 million, respectively. In addition, the Company’s recorded sales return and allowance expense
+(recoveries) for the years ended December 31, 2013, 2012 and 2011 were $0.2 million, $(0.4) million and $(1.1) million, respectively. 
+65 
+Table of Contents 
+Assets located outside the United States consist primarily of cash, accounts
+receivable, inventory, property, plant and equipment, and other assets. Net assets held outside the United States were $413.2 million and $387.2 million at December 31, 2013 and 2012, respectively. 
+During 2013, 2012 and 2011, no customer accounted for 10.0% or more of net sales. No customer accounted for more than 10% of
+net trade receivables at December 31, 2013 or December 31, 2012. During 2013, 2012 and 2011, net sales to our five largest customers were approximately 18.1%, 18.1% and 17.8%, respectively. 
+The Company’s top five manufacturers produced the following for the years ended December 31, 2013, 2012 and 2011,
+respectively: 
+Years Ended December 31, 
+2013 
+2012 
+2011 
+Manufacturer #1 
+37.8 
+% 
+33.5 
+% 
+30.8 
+% 
+Manufacturer #2 
+7.1 
+% 
+9.2 
+% 
+11.5 
+% 
+Manufacturer #3 
+6.1 
+% 
+6.7 
+% 
+7.7 
+% 
+Manufacturer #4 
+4.8 
+% 
+6.6 
+% 
+6.6 
+% 
+Manufacturer #5 
+4.1 
+% 
+5.6 
+% 
+5.9 
+% 
+59.9 
+% 
+61.6 
+% 
+62.5 
+% 
+The majority of the Company’s products are produced in China. The Company’s
+operations are subject to the customary risks of doing business abroad, including but not limited to currency fluctuations and revaluations, custom duties and related fees, various import controls and other monetary barriers, restrictions on the
+transfer of funds, labor unrest and strikes and, in certain parts of the world, political instability. The Company believes it has acted to reduce these risks by diversifying manufacturing among various factories. To date, these business risks have
+not had a material adverse impact on the Company’s operations. 
+(10) 
+EMPLOYEE BENEFIT PLANS 
+The Company has a 401(k) profit sharing plan covering all employees who are 21 years of age and have
+completed six months of service. Employees may contribute up to 15.0% of annual compensation. Company contributions to the plan are discretionary and vest over a six year period. The Company did not make a contribution to the plan for the years
+ended December 31, 2013, 2012 and 2011, respectively. 
+In May 2013, the Company established the Skechers U.S.A., Inc.
+Deferred Compensation Plan (the “Plan”), which allows eligible employees to defer compensation up to a maximum amount to a future date on a nonqualified basis. The Plan provides for the Company to make discretionary contributions to
+participating employees, which will be determined by the Company’s Compensation Committee. The Company did not make a contribution to the plan for the year ended December 31, 2013. The value of the deferred compensation is recognized based
+on the fair value of the participants’ accounts as determined monthly. The Company has established a rabbi trust (the “Trust”) as a reserve for the benefits payable under the Plan. The assets of the Trust and deferred liabilities are
+presented in the Company’s condensed consolidated balance sheets. 
+(11) 
+COMMITMENTS AND CONTINGENCIES 
+(a) 
+Leases 
+The Company leases facilities under operating lease agreements expiring
+through November 2031. The Company pays taxes, maintenance and insurance in addition to the lease obligations. The Company also leases certain equipment and automobiles under operating lease agreements expiring at various dates through September
+2018. Rent expense for the years ended December 31, 2013, 2012 and 2011 approximated $94.0 million, $88.7 million and $85.0 million, respectively. 
+Minimum lease payments, which takes into account escalation clauses, are recognized on a straight-line basis over the minimum
+lease term. Subsequent adjustments to our lease payments due to changes in an existing index, usually the consumer price index, are typically included in our calculation of the minimum lease payments when the adjustment is known. Reimbursements for
+leasehold improvements are recorded as liabilities and are amortized over the lease term. Lease concessions, in our case, usually a free rent period, are considered in the calculation of our minimum lease payments for the minimum lease term. 
+66 
+Table of Contents 
+Future minimum lease payments under noncancellable leases at December 31,
+2013 are as follows (in thousands): 
+OPERATING 
+LEASES 
+Year ending December 31: 
+2014 
+$ 
+122,347 
+2015 
+118,289 
+2016 
+106,577 
+2017 
+89,699 
+2018 
+77,360 
+Thereafter 
+383,058 
+$ 
+897,330 
+(b) 
+Litigation 
+The Company recognizes legal expense in connection with loss
+contingencies as incurred. 
+In accordance with U.S. generally accepted accounting principles, the Company records a
+liability in its consolidated financial statements for loss contingencies when a loss is known or considered probable and the amount can be reasonably estimated. When determining the estimated loss or range of loss, significant judgment is required
+to estimate the amount and timing of a loss to be recorded. Estimates of probable losses resulting from litigation and governmental proceedings are inherently difficult to predict, particularly when the matters are in the procedural stages or with
+unspecified or indeterminate claims for damages, potential penalties, or fines. Accordingly, the Company cannot determine the final amount, if any, of its liability beyond the amount accrued in the consolidated financial statements as of
+December 31, 2013, nor is it possible to estimate what litigation-related costs will be in the future. 
+(c) 
+Product and Other Financing 
+The Company finances production activities in part
+through the use of interest-bearing open purchase arrangements with certain of its international manufacturers. These arrangements currently bear interest at rates between 0% and 1.0% for 30- to 60- day financing. The amounts outstanding under these
+arrangements at December 31, 2013 and 2012 were $69.1 million and $87.7 million, respectively, which are included in accounts payable in the accompanying consolidated balance sheets. Interest expense incurred by the Company under these
+arrangements amounted to $3.9 million in 2013, $3.8 million in 2012, and $3.2 million in 2011. The Company has open purchase commitments with our foreign manufacturers of $378.6 million, which are not included in the accompanying consolidated
+balance sheets. 
+(12) 
+SEGMENT INFORMATION 
+We have four reportable segments – domestic wholesale sales, international wholesale sales, retail
+sales, and e-commerce sales. Management evaluates segment performance based primarily on net sales and gross margins. All other costs and expenses of the Company are analyzed on an aggregate basis, and these costs are not allocated to the
+Company’s segments. Net sales, gross margins and identifiable assets for the domestic wholesale, international wholesale, retail, and the e-commerce segment on a combined basis were as follows (in thousands): 
+2013 
+2012 
+2011 
+Net sales 
+Domestic wholesale 
+$ 
+802,163 
+$ 
+652,651 
+$ 
+688,194 
+International wholesale 
+478,799 
+432,163 
+487,296 
+Retail 
+538,186 
+453,600 
+410,458 
+E-commerce 
+27,213 
+21,907 
+20,068 
+Total 
+$ 
+1,846,361 
+$ 
+1,560,321 
+$ 
+1,606,016 
+67 
+Table of Contents 
+2013 
+2012 
+2011 
+Gross profit 
+Domestic wholesale 
+$ 
+288,818 
+$ 
+242,931 
+$ 
+186,010 
+International wholesale 
+198,853 
+166,454 
+196,248 
+Retail 
+319,036 
+264,010 
+231,835 
+E-commerce 
+12,085 
+9,931 
+9,655 
+Total 
+$ 
+818,792 
+$ 
+683,326 
+$ 
+623,748 
+2013 
+2012 
+Identifiable assets 
+Domestic wholesale 
+$ 
+865,071 
+$ 
+820,253 
+International wholesale 
+374,738 
+367,005 
+Retail 
+168,532 
+152,795 
+E-commerce 
+229 
+167 
+Total 
+$ 
+1,408,570 
+$ 
+1,340,220 
+2013 
+2012 
+2011 
+Additions to property, plant and equipment 
+Domestic wholesale 
+$ 
+9,652 
+$ 
+33,488 
+$ 
+92,496 
+International wholesale 
+4,828 
+2,939 
+2,236 
+Retail 
+26,814 
+16,025 
+27,506 
+Total 
+$ 
+41,294 
+$ 
+52,452 
+$ 
+122,238 
+Geographic Information 
+The
+following summarizes our operations in different geographic areas as of and for the years ended December 31: 
+2013 
+2012 
+2011 
+Net Sales (1) 
+United States 
+$ 
+1,288,302 
+$ 
+1,064,298 
+$ 
+1,059,990 
+Canada 
+63,665 
+49,460 
+48,057 
+Other international (2) 
+494,394 
+446,563 
+497,969 
+Total 
+$ 
+1,846,361 
+$ 
+1,560,321 
+$ 
+1,606,016 
+2013 
+2012 
+Property, plant and equipment 
+United States 
+$ 
+337,727 
+$ 
+345,202 
+Canada 
+5,079 
+1,252 
+Other international (2) 
+18,949 
+15,992 
+Total 
+$ 
+361,755 
+$ 
+362,446 
+(1) 
+The Company has subsidiaries in Canada, the United Kingdom, Germany, France, Spain, Portugal, Italy, the Netherlands, Japan, Brazil and Chile that
+generate net sales within those respective countries and in some cases the neighboring regions. The Company has joint ventures in India, China, Hong Kong, Malaysia, Singapore and Thailand that generate net sales from those countries. The Company
+also has a subsidiary in Switzerland that generates net sales from that country in addition to net sales to our distributors located in numerous non-European countries. Net sales are attributable to geographic regions based on the location of the
+Company subsidiary. 
+(2) 
+Other international consists of Switzerland, the United Kingdom, Germany, Austria, France, Spain, Portugal, Italy, the Netherlands, China, Hong
+Kong, Malaysia, Singapore, Thailand, Brazil, Chile, Vietnam and Japan. 
+68 
+Table of Contents 
+(13) 
+RELATED PARTY TRANSACTIONS 
+The Company paid approximately $178,000, $162,000, and $188,000 during 2013, 2012 and 2011, respectively, to
+the Manhattan Inn Operating Company, LLC (“MIOC”) for lodging, food and events including the Company’s holiday party at the Shade Hotel, which is owned and operated by MIOC. Michael Greenberg, President and a director of the Company,
+owns a 12% beneficial ownership interest in MIOC, and four other officers, directors and senior vice presidents of the Company own in aggregate an additional 5% beneficial ownership in MIOC. The Company had no outstanding accounts receivable or
+payable with MIOC or the Shade Hotel at December 31, 2013. 
+On July 29, 2010, the Company formed the Skechers
+Foundation (the “Foundation”), which is a 501(c)(3) non-profit entity that does not have any shareholders or members. The Foundation is not a subsidiary of and is not otherwise affiliated with the Company, and the Company does not have a
+financial interest in the Foundation. However, two officers and directors of the Company, Michael Greenberg, the Company’s President, and David Weinberg, the Company’s Chief Operating Officer and Chief Financial Officer, are also
+officers and directors of the Foundation. During the years ended December 31, 2013, 2012 and 2011, the Company contributed $1.1 million, $1.0 million and $1.3 million, respectively, to the Foundation to use for various charitable causes.
+The Company had receivables from officers and employees of $0.4 million at December 31, 2013 and 2012. These amounts
+primarily relate to travel advances and incidental personal purchases on Company-issued credit cards. These receivables are short-term and are expected to be repaid within a reasonable period of time. We had no other significant transactions with or
+payables to officers, directors or significant shareholders of the Company. 
+(14) 
+SUBSEQUENT EVENTS 
+The Company has evaluated events subsequent to December 31, 2013, to assess the need for potential
+recognition or disclosure in this filing. Based upon this evaluation, it was determined that no subsequent events occurred that require recognition in the consolidated financial statements. 
+(15) 
+SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) 
+Summarized unaudited financial data are as follows (in thousands): 
+2013 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+451,621 
+$ 
+428,247 
+$ 
+515,756 
+$ 
+450,737 
+Gross profit 
+192,732 
+194,894 
+230,521 
+200,645 
+Net earnings 
+6,680 
+7,094 
+26,849 
+14,165 
+Net earnings per share: 
+Basic 
+$ 
+0.13 
+$ 
+0.14 
+$ 
+0.53 
+$ 
+0.28 
+Diluted 
+0.13 
+0.14 
+0.53 
+0.28 
+2012 
+MARCH 31 
+JUNE 30 
+SEPTEMBER 30 
+DECEMBER 31 
+Net sales 
+$ 
+351,274 
+$ 
+384,001 
+$ 
+429,429 
+$ 
+395,617 
+Gross profit 
+155,696 
+171,342 
+187,824 
+168,464 
+Net earnings (loss) 
+(3,666 
+) 
+(1,782 
+) 
+11,004 
+3,956 
+Net earnings (loss) per share: 
+Basic 
+$ 
+(0.07 
+) 
+$ 
+(0.04 
+) 
+$ 
+0.22 
+$ 
+0.08 
+Diluted 
+(0.07 
+) 
+(0.04 
+) 
+0.22 
+0.08 
+69 
+Table of Contents 
+ITEM 9. 
+CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
+None. 
+ITEM 9A. 
+CONTROLS AND PROCEDURES 
+Attached as exhibits to this annual report on
+Form 10-K are certifications of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange
+Act”). This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications. 
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES 
+We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by a
+company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods and that such information is accumulated and communicated to allow timely decisions regarding required
+disclosures. As of the end of the period covered by this annual report on Form 10-K, we carried out an evaluation under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and
+operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective, at the reasonable assurance level as of
+such time. 
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
+is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting includes those policies and procedures that: 
+(i) 
+pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
+(ii) 
+provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
+accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and 
+(iii) 
+provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have
+a material effect on our financial statements. 
+We conducted an evaluation of the effectiveness of our
+internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the
+framework in Internal Control — Integrated Framework (1992), our management has concluded that as of December 31, 2013, our internal control over financial reporting is effective. 
+Our independent registered public accountants, BDO USA, LLP, audited the consolidated financial statements included in this
+annual report on Form 10-K and have issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2013, which is set forth below. 
+INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS 
+Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls
+and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control
+system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in
+all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent
+limitations include the realities that judgments in decision-making can be faulty and that 
+70 
+Table of Contents 
+breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of
+the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
+conditions. Projections of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies
+or procedures. Because of the inherent limitations in a cost-effective control system, misstatements as a result of error or fraud may occur and not be detected. 
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING 
+There were no changes to our internal controls over financial reporting that have materially affected, or are reasonably likely
+to materially affect, our internal controls over financial reporting during the fourth quarter of 2013. The results of our evaluation are discussed above in Management’s Report on Internal Control Over Financial Reporting. 
+71 
+Table of Contents 
+Report of Independent Registered Public Accounting Firm 
+Board of Directors and Stockholders 
+Skechers U.S.A., Inc. 
+Manhattan Beach, CA 
+We have audited
+Skechers U.S.A., Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of
+Sponsoring Organizations of the Treadway Commission (the COSO criteria). Skechers U.S.A., Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
+effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal
+control over financial reporting based on our audit. 
+We conducted our audit in accordance with the standards of the Public
+Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
+Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
+assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 
+A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that
+(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
+of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
+any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+In our opinion, Skechers U.S.A., Inc. and subsidiaries maintained, in all material respects, effective internal control over financial
+reporting as of December 31, 2013, based on the COSO criteria . 
+We also have audited, in accordance with the standards of the
+Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Skechers U.S.A., Inc. and subsidiaries as of December 31, 2013 and 2012 and the related consolidated statements of operations, comprehensive income
+(loss), equity, cash flows, and schedule for each of the three years in the period ended December 31, 2013, and our report dated February 28, 2014 expressed an unqualified opinion thereon. 
+/s/ BDO USA, LLP 
+Los Angeles, CA 
+February 28, 2014 
+72 
+Table of Contents 
+ITEM 9B. 
+OTHER INFORMATION 
+None. 
+PART III 
+ITEM 10. 
+DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 
+The information required by this Item 10 is hereby incorporated by reference from our definitive proxy statement, to be
+filed pursuant to Regulation 14A within 120 days after the end of our 2013 fiscal year. 
+ITEM 11. 
+EXECUTIVE COMPENSATION 
+The information required by this Item 11 is
+hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of our 2013 fiscal year. 
+ITEM 12. 
+SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 
+The information required by this Item 12 is hereby incorporated by reference from our definitive proxy statement, to be
+filed pursuant to Regulation 14A within 120 days after the end of our 2013 fiscal year. 
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+The information required by this Item 13 is hereby incorporated by reference from our definitive proxy statement, to be
+filed pursuant to Regulation 14A within 120 days after the end of our 2013 fiscal year. 
+ITEM 14. 
+PRINCIPAL ACCOUNTING FEES AND SERVICES 
+The information required by this Item 14 is hereby incorporated by reference from our definitive proxy statement, to be
+filed pursuant to Regulation 14A within 120 days after the end of our 2013 fiscal year. 
+PART IV
+ITEM 15. 
+EXHIBITS, FINANCIAL STATEMENT SCHEDULES 
+1. 
+Financial Statements: See “Index to Consolidated Financial Statements and Financial Statement Schedule” in Part II, Item 8 on page
+46 of this annual report on Form 10-K. 
+2. 
+Financial Statement Schedule: See “Schedule II — Valuation and Qualifying Accounts” on page 74 of this annual report on Form 10-K.
+3. 
+Exhibits: The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Form 10-K.
+73 
+Table of Contents 
+SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS 
+(in thousands) 
+Years
+Ended December 31, 2013, 2012, and 2011 
+DESCRIPTION 
+BALANCE AT 
+BEGINNING OF 
+PERIOD 
+CHARGED TO 
+REVENUE 
+COSTS AND 
+EXPENSES 
+DEDUCTIONS 
+AND 
+WRITE-OFFS 
+BALANCE 
+AT END 
+OF PERIOD 
+Year-ended December 31, 2011: 
+Allowance for chargebacks 
+$ 
+3,027 
+$ 
+1,463 
+$ 
+(2,150 
+) 
+$ 
+2,340 
+Allowance for doubtful accounts 
+5,645 
+5,560 
+(874 
+) 
+10,331 
+Reserve for sales returns and allowances 
+11,025 
+(1,141 
+) 
+(2,132 
+) 
+7,752 
+Reserve for shrinkage 
+200 
+1,100 
+(1,000 
+) 
+300 
+Reserve for obsolescence 
+3,438 
+9,971 
+(1,450 
+) 
+11,959 
+Year-ended December 31, 2012: 
+Allowance for chargebacks 
+$ 
+2,340 
+$ 
+1,357 
+$ 
+(896 
+) 
+$ 
+2,801 
+Allowance for doubtful accounts 
+10,331 
+186 
+(3,350 
+) 
+7,167 
+Reserve for sales returns and allowances 
+7,752 
+(431 
+) 
+(367 
+) 
+6,954 
+Reserve for shrinkage 
+300 
+1,300 
+(1,300 
+) 
+300 
+Reserve for obsolescence 
+11,959 
+931 
+(4,041 
+) 
+8,849 
+Year-ended December 31, 2013: 
+Allowance for chargebacks 
+$ 
+2,801 
+$ 
+1,514 
+$ 
+(1,825 
+) 
+$ 
+2,490 
+Allowance for doubtful accounts 
+7,167 
+1,105 
+(2,292 
+) 
+5,980 
+Reserve for sales returns and allowances 
+6,954 
+249 
+253 
+7,456 
+Reserve for shrinkage 
+300 
+1,166 
+(1,200 
+) 
+266 
+Reserve for obsolescence 
+8,849 
+1,333 
+(6,697 
+) 
+3,485 
+See accompanying report of independent registered public accounting firm 
+74 
+Table of Contents 
+INDEX TO EXHIBITS 
+EXHIBIT 
+NUMBER 
+DESCRIPTION OF EXHIBIT 
+3.1 
+Amended and Restated Certificate of Incorporation dated April 29, 1999 (incorporated by reference to exhibit number 3.1 of the Registrant’s Registration
+Statement on Form S-1, as amended (File No. 333-60065), filed with the Securities and Exchange Commission on May 12, 1999). 
+3.2 
+Bylaws dated May 28, 1998 (incorporated by reference to exhibit number 3.2 of the Registrant’s Registration Statement on Form S-1 (File No. 333-60065)
+filed with the Securities and Exchange Commission on July 29, 1998). 
+3.2 (a) 
+Amendment to Bylaws dated as of April 8, 1999 (incorporated by reference to exhibit number 3.2(a) of the Registrant’s Form 10-K for the year ended December
+31, 2005). 
+3.2 (b) 
+Second Amendment to Bylaws dated as of December 18, 2007 (incorporated by reference to exhibit number 3.1 of the Registrant’s Form 8-K filed with the
+Securities and Exchange Commission on December 20, 2007). 
+4.1 
+Form of Specimen Class A Common Stock Certificate (incorporated by reference to exhibit number 4.1 of the Registrant’s Registration Statement on Form S-1,
+as amended (File No. 333-60065), filed with the Securities and Exchange Commission on May 12, 1999). 
+10.1 ** 
+Amended and Restated 1998 Stock Option, Deferred Stock and Restricted Stock Plan (incorporated by reference to exhibit number 10.1 of the Registrant’s
+Registration Statement on Form S-1 (File No. 333-60065) filed with the Securities and Exchange Commission on July 29, 1998). 
+10.1 (a)** 
+Amendment No. 1 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted Stock Plan (incorporated by reference to exhibit number 4.4 of the
+Registrant’s Registration Statement on Form S-8 (File No. 333-71114), filed with the Securities and Exchange Commission on October 5, 2001). 
+10.1 (b)** 
+Amendment No. 2 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted Stock Plan (incorporated by reference to exhibit number 4.5 of the
+Registrant’s Registration Statement on Form S-8 (File No. 333-135049), filed with the Securities and Exchange Commission on June 15, 2006). 
+10.1 (c)** 
+Amendment No. 3 to Amended and Restated 1998 Stock Option, Deferred Stock and Restricted Stock Plan (incorporated by reference to exhibit number 10.1 of the
+Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 23, 2007). 
+10.2 ** 
+2006 Annual Incentive Compensation Plan (incorporated by reference to Appendix A of the Registrant’s Definitive Proxy Statement filed with the Securities
+and Exchange Commission on May 1, 2006). 
+10.3 ** 
+2007 Incentive Award Plan (incorporated by reference to exhibit number 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission
+on May 24, 2007). 
+10.4 ** 
+Form of Restricted Stock Agreement under 2007 Incentive Award Plan (incorporated by reference to exhibit number 10.3 of the Registrant’s Form 10-K for the
+year ended December 31, 2007). 
+10.5 ** 
+2008 Employee Stock Purchase Plan (incorporated by reference to exhibit number 10.2 of the Registrant’s Form 8-K filed with the Securities and
+Exchange Commission on May 24, 2007). 
+10.5 (a)** 
+Amendment No. 1 to 2008 Employee Stock Purchase Plan (incorporated by reference to exhibit number 10.5 of the Registrant’s Form 10-Q for the quarter ended
+June 30, 2010). 
+10.6 ** 
+Indemnification Agreement dated June 7, 1999 between the Registrant and its directors and executive officers (incorporated by reference to exhibit number 10.6
+of the Registrant’s Form 10-K for the year ended December 31, 1999). 
+75 
+Table of Contents 
+10.6 (a)** 
+List of Registrant’s directors and executive officers who entered into Indemnification Agreement referenced in Exhibit 10.6 with the Registrant
+(incorporated by reference to exhibit number 10.6(a) of the Registrant’s Form 10-K for the year ended December 31, 2005). 
+10.7 
+Registration Rights Agreement dated June 9, 1999, between the Registrant, the Greenberg Family Trust and Michael Greenberg (incorporated by reference to exhibit
+number 10.7 of the Registrant’s Form 10-Q for the quarter ended June 30, 1999). 
+10.8 
+Tax Indemnification Agreement dated June 8, 1999, between the Registrant and certain shareholders (incorporated by reference to exhibit number 10.8 of the
+Registrant’s Form 10-Q for the quarter ended June 30, 1999). 
+10.9 + 
+Credit Agreement dated June 30, 2009, by and among the Registrant, certain of its subsidiaries that are also borrowers under the Agreement, and certain lenders
+including Wells Fargo Foothill, LLC, as co-lead arranger and administrative agent, Bank of America, N.A., as syndication agent, and Banc of America Securities LLC, as the other co-lead arranger (incorporated by reference to exhibit number 10.1 of
+the Registrant’s Form 10-Q/A filed with the Securities and Exchange Commission on November 16, 2010). 
+10.9 (a) 
+Amendment Number One to Credit Agreement dated November 5, 2009, by and among the Registrant, certain of its subsidiaries that are also borrowers under the
+Agreement, and certain lenders including Wells Fargo Foothill, LLC, as co-lead arranger and administrative agent, Bank of America, N.A., as syndication agent, and Banc of America Securities LLC, as the other co-lead arranger (incorporated by
+reference to exhibit number 10.2 of the Registrant’s Form 10-Q/A filed with the Securities and Exchange Commission on November 16, 2010). 
+10.9 (b) 
+Amendment Number Two to Credit Agreement dated March 4, 2010, by and among the Registrant, certain of its subsidiaries that are also borrowers under the
+Agreement, and certain lenders including Wells Fargo Capital Finance, LLC (formerly known as Wells Fargo Foothill, LLC), as co-lead arranger and administrative agent, Bank of America, N.A., as syndication agent, and Banc of America Securities LLC,
+as the other co-lead arranger (incorporated by reference to exhibit number 10.3 of the Registrant’s Form 10-Q for the quarter ended March 31, 2010). 
+10.9 (c)+ 
+Amendment Number Three to Credit Agreement dated May 3, 2011, by and among the Registrant, certain of its subsidiaries that are also borrowers under the
+Agreement, and certain lenders including Wells Fargo Capital Finance, LLC (formerly known as Wells Fargo Foothill, LLC), as co-lead arranger and administrative agent, Bank of America, N.A., as syndication agent, and Banc of America Securities LLC,
+as the other co-lead arranger (incorporated by reference to exhibit number 10.1 of the Registrant’s Form 10-Q for the quarter ended March 31, 2011). 
+10.9 (d) 
+Amendment Number Four to Credit Agreement dated September 30, 2013, by and among the Registrant certain of its subsidiaries that are also borrowers under the
+Agreement, and certain lenders including Wells Fargo Capital Finance, LLC (formerly known as Wells Fargo Foothill, LLC), as co-lead arranger and administrative agent, Bank of America, N.A., as syndication agent, and Banc of America Securities LLC,
+as the other co-lead arranger (incorporated by reference to exhibit number 10.1 of the Registrant’s Form 10-Q for the quarter ended September 30, 2013). 
+10.10 
+Schedule 1.1 of Defined Terms to the Credit Agreement dated June 30, 2009, by and among the Registrant, certain of its subsidiaries that are also borrowers
+under the Agreement, and certain lenders including Wells Fargo Foothill, LLC, Bank of America, N.A., and Banc of America Securities LLC (incorporated by reference to exhibit number 10.2 of the Registrant’s Form 8-K filed with the Securities and
+Exchange Commission on July 7, 2009). 
+10.11 
+Amended and Restated Limited Liability Company Agreement dated April 12, 2010 between Skechers R.B., LLC, a Delaware limited liability company and wholly owned
+subsidiary of the Registrant, and HF Logistics I, LLC, regarding the ownership and management of the joint venture, HF Logistics-SKX, LLC, a Delaware limited liability company (incorporated by reference to exhibit number 10.11 of the
+Registrant’s Form 10-K for the year ended December 31, 2011). 
+10.12 
+Construction Loan Agreement dated as of April 30, 2010, by and among HF Logistics-SKX T1, LLC, which is a wholly owned subsidiary of a joint venture entered
+into between HF Logistics I, LLC and a wholly owned subsidiary of the Registrant, Bank of America, N.A., as administrative agent and as a lender, and Raymond James Bank FSB, as a lender (incorporated by reference to exhibit number 10.12 of the
+Registrant’s Form 10-K for the year ended December 31, 2011). 
+10.12 (a) 
+Modification to Construction Loan Agreement And Other Loan Documents dated November 16, 2012, by and among HF Logistics-SKX T1, LLC, which is a wholly owned
+subsidiary of a joint venture 
+76 
+Table of Contents 
+entered into between HF Logistics I, LLC and a wholly owned subsidiary of the Registrant, Bank of America, N.A., as administrative agent and as a lender,
+Raymond James Bank, N.A., as a lender, and Onewest Bank, FSB, as a lender (incorporated by reference to exhibit number 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 21, 2012). 
+10.13 
+Master Loan and Security Agreement, dated December 29, 2010, by and between the Registrant and Banc of America Leasing & Capital, LLC (incorporated by
+reference to exhibit number 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 4, 2011). 
+10.14 
+Equipment Security Note, dated December 29, 2010, by and among the Registrant, Banc of America Leasing & Capital, LLC, and Bank of Utah, as agent
+(incorporated by reference to exhibit number 10.2 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 4, 2011). 
+10.15 
+Equipment Security Note, dated June 30, 2011, by and among the Registrant, Banc of America Leasing & Capital, LLC, and Bank of Utah, as agent (incorporated
+by reference to exhibit number 10.3 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on July 1, 2011). 
+10.16 
+Lease Agreement, dated February 8, 2002, between Skechers International, a subsidiary of the Registrant, and ProLogis Belgium II SPRL, regarding ProLogis Park
+Liege Distribution Center I in Liege, Belgium (incorporated by reference to exhibit number 10.29 of the Registrant’s Form 10-K for the year ended December 31, 2002). 
+10.17 
+Lease Agreement dated September 25, 2007 between the Registrant and HF Logistics I, LLC, regarding distribution facility in Rancho Belago, California
+(incorporated by reference to exhibit number 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on September 27, 2007). 
+10.17 (a) 
+First Amendment to Lease Agreement, dated December 18, 2009, between the Registrant and HF Logistics I, LLC, regarding distribution facility in Rancho Belago,
+California (incorporated by reference to exhibit number 10.6 of the Registrant’s Form 10-Q for the quarter ended March 31, 2010). 
+10.17 (b) 
+Second Amendment to Lease Agreement, dated April 12, 2010, between the Registrant and HF Logistics I, LLC, regarding distribution facility in Rancho Belago,
+California (incorporated by reference to exhibit number 10.4 of the Registrant’s Form 10-Q for the quarter ended September 30, 2010). 
+10.17 (c) 
+Assignment of Lease Agreement, dated April 12, 2010, between HF Logistics I, LLC and HF Logistics-SKX T1, LLC, regarding distribution facility in Rancho Belago,
+California (incorporated by reference to exhibit number 10.5 of the Registrant’s Form 10-Q for the quarter ended September 30, 2010). 
+10.17 (d) 
+Third Amendment to Lease Agreement, dated August 18, 2010, between the Registrant and HF Logistics-SKX T1, LLC, regarding distribution facility in Rancho
+Belago, California (incorporated by reference to exhibit number 10.6 of the Registrant’s Form 10-Q for the quarter ended September 30, 2010). 
+10.18 
+Lease Agreement dated May 20, 2008 between Skechers EDC SPRL, a subsidiary of the Registrant, and ProLogis Belgium III SPRL, regarding ProLogis Park Liege
+Distribution Center II in Liege, Belgium (incorporated by reference to exhibit number 10.3 of the Registrant’s Form 10-Q for the quarter ended June 30, 2010). 
+10.19 
+Addendum to Lease Agreement dated May 20, 2008 between Skechers EDC SPRL, a subsidiary of the Registrant, and ProLogis Belgium III SPRL, regarding ProLogis Park
+Liege Distribution Center I in Liege, Belgium (incorporated by reference to exhibit number 10.4 of the Registrant’s Form 10-Q for the quarter ended June 30, 2010). 
+10.20 
+Stipulated Final Judgment and Order for Permanent Injunction and Other Equitable Relief dated July 12, 2012, between the Registrant and the Federal Trade
+Commission (incorporated by reference to exhibit number 10.1 of the Registrant’s Form 10-Q for the quarter ended June 30, 2012). 
+10.21 
+Agreed Final Consent Judgment dated May 16, 2012, between the Registrant and the State of Tennessee, with a schedule of the additional states, including the
+District of Columbia, in which such consent judgments have been approved that are substantially identical in all material respects, except as noted on 
+77 
+Table of Contents 
+the schedule (incorporated by reference to exhibit number 10.2 of the Registrant’s Form 10-Q for the quarter ended June 30, 2012). 
+10.22 
+Skechers U.S.A., Inc. Deferred Compensation Plan (incorporated by reference to exhibit number 10.1 of the Registrant’s Form 8-K filed with the Securities
+and Exchange Commission on May 3, 2013). 
+21.1 
+Subsidiaries of the Registrant. 
+23.1 
+Consent of Independent Registered Public Accounting Firm. 
+31.1 
+Certification of the Chief Executive Officer pursuant Securities Exchange Act Rule 13a-14(a). 
+31.2 
+Certification of the Chief Financial Officer pursuant Securities Exchange Act Rule 13a-14(a). 
+32.1 *** 
+Certification pursuant to 18 U.S.C. 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.LAB 
+Taxonomy Extension Label Linkbase Document. 
+101.PRE 
+XBRL Taxonomy Extension Presentation Linkbase Document. 
+101.DEF 
+XBRL Taxonomy Extension Definition Linkbase Document. 
++ 
+Confidential treatment has been granted by the SEC and/or a renewal is being requested from the SEC to the previously granted confidential
+treatment with respect to certain information in the exhibit pursuant to Rule 24b-2 of the Exchange Act. Such information was omitted from the filing and filed separately with the Secretary of the SEC. 
+** 
+Management contract or compensatory plan or arrangement required to be filed as an exhibit. 
+*** 
+In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed “filed” for the purposes of
+Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act. 
+78 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Manhattan Beach, State of California on the 28th day of February 2014. 
+SKECHERS U.S.A., INC. 
+By: 
+/s/ Robert Greenberg 
+Robert Greenberg 
+Chairman of the Board and Chief Executive Officer 
+Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
+signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. 
+SIGNATURE 
+TITLE 
+DATE 
+/s/ Robert
+Greenberg 
+Chairman of the Board and Chief Executive Officer 
+February 28, 2014 
+Robert Greenberg 
+(Principal Executive Officer) 
+/s/ Michael
+Greenberg 
+President and Director 
+February 28, 2014 
+Michael Greenberg 
+/s/ David
+Weinberg 
+Executive Vice President, Chief Operating Officer, 
+February 28, 2014 
+David Weinberg 
+Chief Financial Officer and Director 
+(Principal Financial and Accounting Officer) 
+/s/ Jeffrey
+Greenberg 
+Director 
+February 28, 2014 
+Jeffrey Greenberg 
+/s/ Geyer
+Kosinski 
+Director 
+February 28, 2014 
+Geyer Kosinski 
+/s/ Morton D.
+Erlich 
+Director 
+February 28, 2014 
+Morton D. Erlich 
+/s/ Richard
+Siskind 
+Director 
+February 28, 2014 
+Richard Siskind 
+/s/ Thomas
+Walsh 
+Director 
+February 28, 2014 
+Thomas Walsh 
+/s/ Rick
+Rappaport 
+Director 
+February 28, 2014 
+Rick Rappaport 
+79
\ No newline at end of file
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new file mode 100644
index 0000000000000000000000000000000000000000..d280e9afb6161447a4e6a679efa09be8fa88441f
--- /dev/null
+++ b/raw/filings/0001065837/2013/0001193125-14-077061/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0001065837,SKX,SKECHERS USA INC,10-K,2014-02-28,2013-12-31,2014-02-28T20:33:36.000Z,0001193125-14-077061,d647920d10k.htm,FORM 10-K,7907275,1,0,https://www.sec.gov/Archives/edgar/data/1065837/000119312514077061/d647920d10k.htm,https://www.sec.gov/Archives/edgar/data/1065837/000119312514077061/,2013,2013,1
diff --git a/raw/filings/0001065837/2013/0001193125-14-077061/item1.txt b/raw/filings/0001065837/2013/0001193125-14-077061/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..082ad027f72e96caccab340f21bacf48b07c2875
--- /dev/null
+++ b/raw/filings/0001065837/2013/0001193125-14-077061/item1.txt
@@ -0,0 +1,704 @@
+ITEM 1. 
+BUSINESS 
+We were incorporated in California in 1992 and reincorporated
+in Delaware in 1999. Throughout this annual report, we refer to Skechers U.S.A., Inc., a Delaware corporation, its consolidated subsidiaries and certain variable interest entities (“VIE’s”) of which it is the primary beneficiary, as
+“we,” “us,” “our,” “our company” and “Skechers” unless otherwise indicated. Our Internet address is www.skechers.com . Our annual report on Form 10-K, quarterly reports on Form 10-Q,
+current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of directors, officers and 10% stockholders, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
+Act of 1934 are available free of charge on our corporate website, www.skx.com , as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission
+(“SEC”). You can learn more about us by reviewing such filings at www.skx.com or at the SEC’s website at www.sec.gov . 
+GENERAL 
+We design and market
+Skechers-branded lifestyle footwear for men, women and children, and performance footwear for men and women under the Skechers GO brand name. Our footwear reflects a combination of style, quality and value that appeals to a broad range of consumers.
+Our brands are sold through department and specialty stores, athletic and independent retailers, and boutiques as well as catalog and internet retailers. In addition to wholesale distribution, our footwear is available at our e-commerce website
+and our own retail stores. As of February 15, 2014, we operated 122 concept stores, 131 factory outlet stores and 71 warehouse outlet stores in the United States, and 44 concept stores and 26 factory outlets internationally. Our objective
+is to profitably grow our operations worldwide while leveraging our recognizable Skechers brand through our strong product lines, innovative advertising and diversified distribution channels. 
+We seek to offer consumers a vast array of fashionable footwear that satisfies their active, casual, dress casual and athletic
+footwear needs. Our core consumers are style-conscious men and women attracted to our youthful brand image and fashion-forward designs, as well as athletes and fitness enthusiasts attracted to our performance footwear. Many of our best-selling and
+core styles are also developed for children with colors and materials that reflect a playful image appropriate for this demographic. 
+We believe that brand recognition is an important element for success in the footwear business. We have aggressively
+marketed our brands through comprehensive advertising and promotional campaigns for men, women and children. During 2013, our Skechers brand was supported by print, television and outdoor campaigns for men and women; animated kids’
+television campaigns featuring our own action heroes and characters; marathons and other events for our Skechers Performance Division; donation events surrounding our BOBS from Skechers charitable footwear program; and print, television and outdoor
+campaigns featuring our Skechers Performance and Skechers lifestyle endorsees. These endorsees included television personality Brooke Burke-Charvet, Hall of Fame quarterback Joe Montana, Dallas Mavericks owner Mark Cuban, Dodgers baseball legend
+Tommy Lasorda, Olympic medalist Meb, and recent addition, Danielle Bradbery, the youngest winner of The Voice. 
+Since
+December 1992, when we introduced our first line, Skechers USA Sport Utility Footwear, we have expanded our product offering and grown our net sales while substantially increasing the breadth and penetration of our account base. Our men’s,
+women’s and children’s Skechers-branded product lines benefit from the Skechers reputation for contemporary and progressive styling, quality, comfort and affordability. Our lines that are not branded with the Skechers name benefit
+from our marketing support, quality management and expertise. To promote innovation and brand relevance, we manage our product lines separately by utilizing dedicated sales and design teams. Our product lines share back office services in order to
+limit our operating expenses and fully utilize our management’s vast experience in the footwear industry. 
+2 
+Table of Contents 
+SKECHERS LINES 
+We offer a wide array of Skechers-branded product lines for men, women, juniors and children. Within these product lines, we
+also have numerous categories, many of which have developed into well-known names. Most of these categories are marketed and packaged with unique shoe boxes, hangtags and in-store support. Management evaluates segment performance based primarily on
+net sales and gross margins; however, sales and costs are not allocated to specific product lines. 
+Lifestyle Brands 
+Skechers USA. Our Skechers USA category for men and women includes: (i) Casuals, (ii) Dress Casuals,
+(iii) Relaxed Fit, (iv) seasonal sandals and boots and (v) Casual Fusion. This category is generally sold through mid-tier retailers, department stores and some footwear specialty shops. 
+• 
+The Casuals line for men and women is defined by lugged outsoles and utilizes value-oriented and leather materials in the uppers. For men, the
+Casuals category includes “black and brown” boots, shoes and sandals that generally have a rugged urban design — some with industrial-inspired fashion features. For women, the Casuals category includes basic “black and
+brown” oxfords and slip-ons, lug outsole and fashion boots, and casual sandals. We design and price both the men’s and women’s categories to appeal primarily to younger consumers with broad acceptance across age
+groups. 
+• 
+The Dress Casuals category for men is comprised of basic “black and brown” men’s shoes that feature shiny leathers and dress
+details, but may utilize traditional or lugged outsoles as well as value-oriented materials. The Dress Casual line for women is comprised of trend-influenced stylized boots and shoes, which may include leather uppers, shearling or faux fur
+lining or trim, and water-resistant materials. 
+• 
+Relaxed Fit from Skechers is a line of trend-right casuals with a wider toe box for men and women who want all-day comfort without compromising
+style. Characteristics of the product line include comfortable outsoles, Skechers Memory Foam insoles and quality leather uppers. A category with unique features, we market and package Relaxed Fit from Skechers styles in a shoe box that is distinct
+from that of other categories in the Skechers USA line of footwear. 
+• 
+Our seasonal sandals and boots collection for men and women is designed with many of our existing and proven outsoles for our Casuals, Dress
+Casuals and Casual Fusion lines, stylized with basic or core uppers as well as fresh looks. These styles are generally made with quality leather uppers, but may also be in canvas or fabric for sandals, and water-resistant materials and fur and faux
+fur linings for boots. 
+• 
+Our Casual Fusion line is comprised of low-profile, sport-influenced Euro casuals targeted to trend-conscious young men and women. The
+outsoles are primarily rubber and adopted from our men’s Sport and women’s Active lines. This collection features leather or nubuck uppers, but may also include mesh. 
+Skechers Sport. Our Skechers Sport footwear for men and women includes: (i) Skechers Memory Foam styles,
+(ii) Lightweight performance-inspired athletics, (iii) Classic Athletic-inspired styles and (iv) Sport sandals and boots. Our Skechers Sport category is distinguished by its technical performance-inspired looks; however, we generally
+do not promote the technical performance features of these shoes. Skechers Sport is typically sold through specialty shoe stores, department stores and athletic footwear retailers. 
+• 
+Skechers Memory Foam styles are designed with a high-volume memory foam insole that will contour to your foot and provide greater comfort. The
+lightweight and ultra-soft looks also feature a flexible outsole and soft uppers, some of which feature bio-engineered mesh uppers. This category features bright, multi-color and solid basic colored uppers. 
+• 
+Our Lightweight performance-inspired athletics are designed with comfort and flexibility in mind. Careful attention is devoted to the cushioning,
+weight, materials, design and construction of the outsoles. Designed as a versatile, trend-right athletic shoe suitable for all-day wear, the product line features leather and trubuck uppers in both bright and classic athletic colors.
+• 
+Classic athletic inspired styles are core proven looks that continue to be strong performers. With all-day comfort and durable rubber tread, these
+shoes are intended to be a mainstay of any footwear collection. Many of the designs are in white, black and natural shades, with some athletic accents. The uppers are designed in leather, suede and nubuck. 
+3 
+Table of Contents 
+• 
+Our Sport sandals and boots are primarily designed from existing Skechers Sport outsoles and may include many of the same sport features as our
+sneakers with the addition of new technologies geared toward making a comfortable sport sandal. Sport sandals and boots are designed as seasonal footwear for the consumer who already wears our Skechers Sport sneakers. 
+Skechers Active. A natural companion to Skechers Sport, Skechers Active has grown from a casual everyday line
+into a complete line of sneakers for active females of all ages. The product line, with lace-up, Mary Janes, sandals and open back styles, is available in a multitude of colors as well as solid white or black, in fabrics, leathers and meshes, and
+with various closures — traditional laces, zig-zag and cross straps, among others. The Active line now includes low-profile, lightweight, flexible and sporty styles, many of which have Skechers Memory Foam under the names Sport Active and Sport
+Flex, as well as Relaxed Fit from Skechers. Active sneakers are typically available through specialty casual shoe stores and department stores. 
+BOBS from Skechers. The BOBS from Skechers line has grown to a year-round product with the addition of
+vulcanized looks and an “at Home” line. Primarily marketed to young women, the BOBS collection also includes footwear for kids, and men to a smaller degree. BOBS are available at department stores, specialty shoe stores and online
+retailers. 
+• 
+BOBS classic espadrille collection is designed in basic colors with canvas, tweed, crochet and boiled wool uppers, suede, and patterned fabrics.
+Some styles now include Skechers Memory Foam. 
+• 
+BOBS vulcanized looks have a very youthful and California lifestyle appeal. Primarily designed with canvas uppers but also jersey fabrics, the line
+features both classic retro looks and fresh colors and materials for a relevant style. Some styles now include Skechers Memory Foam. 
+• 
+The BOBS at Home collection for women is designed with our flexible rubber Keepsakes outsole, and features faux fur linings for the ultimate dorm
+or winter shoe. The uppers are primarily designed with tweeds, knitted or suede. 
+• 
+BOBS for Kids takes many of our successful women’s styles into bright and patterned fabrics and embellished uppers for girls.
+• 
+BOBS for men features basic slip-on and lace-up canvas styles as well as vulcanized. Some now include Skechers Memory Foam. 
+Skechers donates a pair of new shoes to a child in need through the purchase of BOBS. By the end of 2013, we had donated
+approximately 6.9 million pairs primarily to SolesforSouls, Samaritan’s Feet International and Fashion Delivers, our charity donation partners, who in turn donate the shoes to various reputable charity organizations in the United States
+and around the world. 
+Skechers Kids. The Skechers Kids line includes: (i) Skechers Kids, which is a
+range of infants’, toddlers’, boys’ and girls’ boots, shoes and sneakers, (ii) S-Lights, Hot Lights by Skechers and Luminators by Skechers, (iii) Skechers Cali for Girls, (iv) Airators by Skechers,
+(v) Skechers Super Z-Strap, (vi) Elastika by Skechers, (vii) Bella Ballerina by Skechers, (viii) Twinkle Toes by Skechers, (ix) Sporty Shorty by Skechers, and (x) Air-Mazing by Skechers. 
+• 
+The Skechers Kids line includes embellishments or adornments such as fresh colors and fabrics from our Skechers adult shoes. Some of these styles
+are also adapted for toddlers with softer, more pliable outsoles and for infants with soft, leather-sole crib shoes. 
+• 
+S-Lights, Hot Lights and Luminators by Skechers are lighted sneakers and sandals for boys and girls. The S-Lights combine patterns of lights on the
+outsoles and sides of the shoes while Hot Lights feature lights on the front of the toe to simulate headlights as well as on other areas of the shoes. Luminators by Skechers feature glowing green lights and a marketing campaign with the Luminators
+characters. 
+• 
+Skechers Cali for Girls is a line of sneakers, skimmers and sandals for young girls designed to typify the California lifestyle. The sneakers are
+designed primarily with canvas uppers in unique prints, some with patch details, on vulcanized outsoles. The skimmers and flats are designed with many of the same upper materials and outsoles as the sneakers. 
+• 
+Airators by Skechers is a line of boys’ sneakers with a foot-cooling system designed to pump air from the heel through to the toes. The
+product line is marketed with the character, Kewl Breeze. 
+4 
+Table of Contents 
+• 
+Skechers Super Z-Strap is a line of athletic styled sneakers with a unique “z” shaped closure system for easy closure. The product line
+is marketed with the character, Z-Strap. 
+• 
+Elastika by Skechers is a line of girls’ sneakers with bungee closures. The product line is marketed with the character, Elastika.
+• 
+Bella Ballerina by Skechers is a line of girls’ shoes with a disc that spins on the outsole, allowing girls to twirl like a ballerina.
+• 
+Twinkle Toes by Skechers is a line of girls’ sneakers and boots that feature bejeweled toe caps and brightly designed uppers. Some also
+include lights. The product line is marketed with the character, Twinkle Toes. 
+• 
+Sporty Shorty by Skechers is a line of athletic-inspired sneakers for girls who like to wear sport-style footwear off the field. Many of the styles
+are lightweight and come in bright colors. Some also include lights. The product line is marketed with the character, Sporty Shorty. 
+• 
+Air-Mazing by Skechers is a lightweight line of colorful sneakers designed for older boys. The product line is marketed with the character,
+Air-Mazing Kid, who performs air tricks in his sneakers. 
+Skechers Kids and Skechers Cali for Girls are
+comprised primarily of shoes that are designed as “takedowns” of their adult counterparts, allowing the younger consumers the opportunity to wear the same popular styles as their older siblings and schoolmates. This “takedown”
+strategy maintains the product’s integrity by offering premium leathers, hardware and outsoles without the costs involved in designing and developing new products. In addition, we adapt current fashions from our men’s and women’s
+lines by modifying designs and choosing colors and materials that are more suitable for the playful image that we have established in the children’s footwear market. Each Skechers Kids line is marketed and packaged separately with a distinct
+shoe box. Skechers Kids shoes are available at department stores and specialty and athletic retailers. 
+Skechers Work. Expanding on our heritage of cutting-edge utility footwear, Skechers Work offers a complete line
+of men’s and women’s casuals, field boots, hikers and athletic shoes. The Skechers Work line includes athletic-inspired, casual safety toe and non-slip safety toe categories that may feature lightweight aluminum safety toe, electrical
+hazard and slip-resistant technologies, as well as breathable, seam-sealed waterproof membranes. Designed for men and women with jobs that require certain safety requirements, these durable styles are constructed on high-abrasion, long wearing
+soles, and feature breathable lining, oil and abrasion resistant outsoles offering all-day comfort and prolonged durability. The Skechers Work line incorporates design elements from the other Skechers men’s and women’s line. The
+uppers are comprised of high-quality leather, nubuck, trubuck and durabuck. Our safety toe athletic sneakers, boots, hikers and casuals are ideal for environments requiring safety footwear and offer comfort and safety in dry or wet
+conditions. Our slip-resistant boots, hikers, athletics, casuals and clogs are ideal for the service industry. Our safety toe products have been independently tested and certified to meet ASTM standards, and our slip-resistant soles have
+been tested pursuant to the Mark II testing method for slip resistance. Skechers Work is typically sold through department stores, athletic footwear retailers and specialty shoe stores, as well as marketed directly to consumers through
+business-to-business channels. 
+Performance Brands 
+Skechers Performance. Skechers Performance is a collection of technical footwear designed with a focus on a
+specific activity to maximize performance and promote natural motion. Developed by the Skechers Performance Design Team, the footwear utilizes the latest advancements in materials and innovative design, including an ultra-lightweight Resalyte
+compound for the midsole and GOimpulse sensors for responsive feedback. Limited edition packs with all-weather protection or Skechers Nite Owl glow-in-the-dark technology are featured across multiple product lines. The footwear is available at
+athletic footwear retailers, department stores and specialty running stores. 
+• 
+Skechers GOrun. Skechers GOrun 3 is the latest in a collection of lightweight, flexible running shoes that features a midfoot strike
+design for efficient running and a low 4mm heel drop for a natural running feel. Skechers GOrun ride 3 features a similar design with enhanced cushioning for elevated comfort and support. Skechers GOrun ultra offers maximum cushioning for the
+most support with a 6mm heel drop. Skechers GOmeb Speed 2 is the high-performance racing shoe worn by elite marathon runner Meb. This range of running product is marketed to serious runners and recreational runners alike. 
+• 
+Skechers GOwalk. Skechers GOwalk is designed for walking and casual wear, and offers performance features in a comfortable casual
+slip-on. The product line features a lightweight and flexible design to promote natural foot movement 
+5 
+Table of Contents 
+when walking. Skechers GOwalk 2 incorporates more performance technologies with a unique V-Stride outsole designed specifically to promote a natural walking stride. Skechers on-the-GO footwear
+fuses iconic designs and premium materials with Skechers Performance technologies for comfort and style. 
+• 
+Skechers GObionic. Skechers GObionic is engineered with inspiration from nature’s ultimate design — the human body —
+to create a shoe that moves like the foot. Eighteen fully articulated bio-responsive zones offer flexibility, feel and ground conformity. Skechers GObionic trail is designed for trail running with rugged, uneven running surfaces in mind. A
+proprietary Resagrip outsole increases the durability to handle wear-and-tear from tougher terrain and hydrophobic Skechers GOdri technology shields feet from harsh elements. Skechers GObionic engineering is also featured in select running, golfing
+and casual Skechers on-the-GO styles. 
+• 
+Skechers GOtrain. Skechers GOtrain is designed for the gym and features a wider forefoot and extended outriggers for maximum
+stability and control at lateral and medial strike points. This shoe is an all-encompassing trainer that meets the need of intense and rigorous workouts. 
+• 
+Skechers GOgolf. Skechers GOgolf is designed for the golf course and offers a zero heel drop design, which keeps feet in a neutral
+position that is low to the ground to promote a solid foundation while playing golf. A Resagrip outsole helps with traction control and a soft Resamax cushioned insole delivers comfort. 
+PRODUCT DESIGN AND DEVELOPMENT 
+Our principal goal in product design is to generate new and exciting footwear in all of our product lines with contemporary and
+progressive styles and comfort-enhancing performance features. Targeted to the active, youthful and style-savvy, we design our lifestyle line to be fashionable and marketable to the 12- to 24-year old consumer, while substantially all of our lines
+appeal to the broader range of 5- to 40-year old consumers, with an exclusive selection for infants and toddlers. Designed by the Skechers Performance Division, our performance products are for professional and recreational athletes who want a
+technical fitness shoe. 
+We believe that our products’ success is related to our ability to recognize trends in the
+footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving preferences. We are able to quickly translate the latest fashion trends into stylish, quality footwear at a reasonable price by analyzing and
+interpreting current and emerging lifestyle trends. Lifestyle trend information is compiled and analyzed by our designers from various sources, including the review and analysis of modern music, television, cinema, clothing, alternative sports and
+other trend-setting media; traveling to domestic and international fashion markets to identify and confirm current trends; consulting with our retail and e-commerce customers for information on current retail selling trends; participating in major
+footwear trade shows to stay abreast of popular brands, fashions and styles; and subscribing to various fashion and color information services. In addition, a key component of our design philosophy is to continually reinterpret and develop our
+successful styles in our brands’ images. 
+The footwear design process typically begins about nine months before the
+start of a season. Our products are designed and developed primarily by our in-house design staff. To promote innovation and brand relevance, we utilize dedicated design teams, who report to our senior design executives and focus on each of the
+men’s, women’s and children’s categories. In addition, we utilize outside design firms on an item-specific basis to supplement our internal design efforts. The design process is extremely collaborative, as members of the design staff
+frequently meet with the heads of retail, merchandising, sales, production and sourcing to further refine our products to meet the particular needs of the target market. 
+After a design team arrives at a consensus regarding the fashion themes for the coming season, the designers then translate
+these themes into our products. These interpretations include variations in product color, material structure and embellishments, which are arrived at after close consultation with our production department. Prototype blueprints and specifications
+are created and forwarded to our manufacturers for a design prototype. The design prototypes are then sent back to our design teams. Our major retail customers may also review these new design concepts. Customer input not only allows us to measure
+consumer reaction to the latest designs, but also affords us an opportunity to foster deeper and more collaborative relationships with our customers. We also occasionally order limited production runs that may initially be tested in our concept
+stores. By working closely with store personnel, we obtain customer feedback that often influences product design and development. Our design teams can easily and quickly modify and refine a design based on customer input. Generally, the production
+process can take six to nine months from design concept to commercialization. 
+For disclosure of product design and
+development costs during the last three fiscal years, see note 1 to the financial statements of this annual report. 
+6 
+Table of Contents 
+SOURCING 
+Factories. Our products are produced by independent contract manufacturers located primarily in China and, to a
+lesser extent, in Vietnam, Brazil and various other countries. We do not own or operate any manufacturing facilities. We believe that the use of independent manufacturers substantially increases our production flexibility and capacity, while
+reducing capital expenditures and avoiding the costs of managing a large production work force. For disclosure of information regarding the risks associated with having our manufacturing operations abroad and relying on independent contract
+manufacturers, see the relevant risk factors under Item 1A of this annual report. 
+When possible, we seek to use
+manufacturers that have previously produced our footwear, which we believe enhances continuity and quality while controlling production costs. We source product for styles that account for a significant percentage of our net sales from at least five
+different manufacturers. During 2013, five of our contract manufacturers accounted for approximately 59.9% of total purchases. One manufacturer accounted for 37.8%, and another accounted for 7.1% of our total purchases. To date, we have not
+experienced difficulty in obtaining manufacturing services or with the availability of raw materials. 
+We finance our
+production activities in part through the use of interest-bearing open purchase arrangements with certain of our Asian manufacturers. These facilities currently bear interest at a rate between 0% and 1.0% for 30- to 60-day financing, depending on
+the factory. We believe that the use of these arrangements affords us additional liquidity and flexibility. We do not have any long-term contracts with any of our manufacturers; however, we have long-standing relationships with many of our
+manufacturers and believe our relationships to be good. 
+We closely monitor sales activity after initial introduction of a
+product in our concept stores to determine whether there is substantial demand for a style, thereby aiding us in our sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming collections or offered as part of our
+periodic style offerings, while less popular styles can be discontinued after a limited production run. We believe that sales in our concept stores can also help forecast sales in national retail stores, and we share this sales information with our
+wholesale customers. Sales, merchandising, production and allocations management analyze historical and current sales, and market data from our wholesale account base and our own retail stores to develop an internal product quantity forecast that
+allows us to better manage our future production and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock position to minimize the time necessary to fill customer orders by placing orders with our
+manufacturers prior to the time we receive customers’ orders for such footwear. 
+Production Oversight. 
+To safeguard product quality and consistency, we oversee the key aspects of production from initial prototype manufacture through initial production runs to final manufacture. Monitoring of all production is performed in the United States by our
+in-house production department and in Asia through an approximately 200-person staff working from our offices in China. We believe that our Asian presence allows us to negotiate supplier and manufacturer arrangements more effectively, decrease
+product turnaround time and ensure timely delivery of finished footwear. In addition, we require our manufacturers to certify that neither convicted, forced nor indentured labor (as defined under U.S. law), nor child labor (as defined by law in the
+manufacturer’s country) is used in the production process, that compensation will be paid according to local law, and that the factory is in compliance with local safety regulations. 
+Quality Control. We believe that quality control is an important and effective means of maintaining the quality
+and reputation of our products. Our quality control program is designed to ensure that not only finished goods meet our established design specifications, but also that all goods bearing our trademarks meet our standards for quality. Our quality
+control personnel located in China perform an array of inspection procedures at various stages of the production process, including examination and testing of prototypes of key raw materials prior to manufacture, samples and materials at various
+stages of production and final products prior to shipment. Our employees are on site at each of our major manufacturers to oversee production. For some of our lower volume manufacturers, our staff is on site during significant production runs or we
+will perform unannounced visits to their manufacturing sites to further monitor compliance with our manufacturing specifications. 
+ADVERTISING AND
+MARKETING 
+With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted approach to marketing to
+drive traffic, build brand recognition and properly position our diverse lines within the marketplace. Senior management is directly involved in shaping our image and the conception, development and implementation of our advertising and marketing
+activities. The focus of our marketing plan is print and television advertising, which is supported by outdoor, trend-influenced marketing, public relations, promotions, grass roots and in-store support. In addition, we utilize celebrity endorsers
+in our advertisements. We also believe our websites and trade 
+7 
+Table of Contents 
+shows are effective marketing tools to both consumers and wholesale accounts. We have historically budgeted advertising as a percentage of projected net sales. 
+The majority of our advertising is conceptualized by our in-house design team. We believe that our advertising strategies,
+methods and creative campaigns are directly related to our success. Through our lifestyle, performance-inspired and image-driven advertising, we generally seek to build and increase brand awareness by linking the Skechers brand to youthful attitudes
+for our lifestyle lines, and technology with runners and athletes for our performance lines. Our ads are designed to provide merchandise flexibility and to facilitate the Skechers brand’s direction. 
+To further build brand awareness and influence consumer spending, we have selectively signed endorsement agreements with
+celebrities whom we believe will reach new markets. Our endorsees Brooke Burke-Charvet, Mark Cuban, Joe Montana and Tommy Lasorda all appeared in print and television campaigns in 2013. The Skechers Performance Division launched in 2011, with a
+global marketing campaign starring elite distance runner and Olympic medalist Meb. Competing in Skechers GOrun footwear, he recently achieved two back-to-back personal best marathon times during the 2011 New York City marathon and a first place
+finish in the 2012 Olympic Trials. Meb was the fastest American at the London Games, finishing fourth overall. From time to time, we may sign other celebrities to endorse our brand name and image in order to strategically market our products among
+specific consumer groups in the future. 
+With a targeted approach, our print ads appear regularly in popular fashion and
+lifestyle consumer publications, including Runner’s World, Cosmopolitan, Shape, Lucky, In Style, Seventeen, Maxim, Men’s Fitness and Women’s Health, as well as in weekly publications such as People, Us Weekly, OK!
+and Sports Illustrated, among others. Our advertisements also appear in international magazines around the world. 
+Our television commercials are produced both in-house and through producers that we have utilized in the past who are familiar
+with our brands. In 2013, we developed commercials for men, women and children for our Skechers brands, including our animated spots for kids featuring our own action heroes and our performance collections. We have found these to be a cost-effective
+way to advertise on key national and cable programming during high selling seasons. In 2013, many of our television commercials were translated into multiple languages and aired in Brazil, Canada, the United Kingdom, France, the Benelux Region,
+Germany, Spain, Italy, Chile, Japan, Austria and Switzerland. 
+Outdoor. In an effort to reach consumers
+where they shop and in high-traffic areas as they travel to and from work, we continued our multi-level outdoor campaign that included kiosks in key malls across the United States plus billboards, transportation systems and telephone kiosks in North
+America, Brazil, Chile, Asia and Europe. In addition, we advertised on perimeter boards at soccer matches in several European countries. We believe these are effective and efficient ways to reach a broad range of consumers and leave a lasting
+impression for our brands. 
+Trend-Influenced Marketing/Public Relations. Our public relations
+objectives are to secure product placement in key fashion magazines, place our footwear on the feet of trend-setting celebrities and their children, and gain positive and accurate press about us and our products. Through our commitment to
+aggressively promote our upcoming styles, our products are often featured in leading fashion and pop culture magazines, as well as in select films and popular television shows. Our footwear and our company have been prominently displayed and
+referenced on news and magazine shows. We have also amassed an array of prominent product placements in magazines including Seventeen, OK!, Us Weekly, Runner’s World and Competitor . In addition, our brands
+have been associated with cutting edge events and various celebrities. 
+Promotions and Grass Roots. By
+applying creative sales techniques via a broad spectrum of media, our marketing team seeks to build brand recognition and drive traffic to Skechers’ retail stores, websites and our retail partners’ locations. Skechers’ promotional
+strategies have encompassed in-store specials, charity events, product tie-ins and giveaways, and collaborations with national retailers and radio stations. In 2013, we appeared at walks and at numerous marathons in Boston, London, Paris, Santiago
+and other cities with Skechers Performance branded booths to allow runners the ability to try on and often buy our products. Our products were made available to consumers directly or through key accounts at many of these events. In addition, we
+partnered with several key accounts for BOBS donation events in cities throughout the United States. 
+Visual
+Merchandising. Our in-house visual merchandising department supports wholesale customers, distributors and our retail stores by developing displays that effectively leverage our products at the point of sale. Our point-of-purchase display
+items include signage, graphics, displays, counter cards, banners and other merchandising items for each of our brands. These materials mirror the look and feel of each brand and reinforce the image as well as draw consumers into stores. 
+8 
+Table of Contents 
+Our visual merchandising coordinators (“VMC’s”) work with our
+sales force and directly with our customers to ensure better sell-through at the retail level by generating greater consumer awareness through Skechers brand displays. Our VMC’s communicate with and visit our wholesale customers on a regular
+basis to aid in proper display of our merchandise. They also run in-store promotions to enhance the sale of Skechers footwear and create excitement surrounding the Skechers brand. We believe that these efforts help stimulate impulse sales and repeat
+purchases. 
+Trade Shows. To better showcase our diverse products to footwear buyers in the United States and
+Europe and to distributors around the world, we regularly exhibit at leading trade shows. Along with specialty trade shows, we exhibit at WSA’s The Shoe Show, FFANY, ASR, MAGIC and Outdoor Retailer in the United States; GDS, MICAM, ISPO, Mess
+Around and Who’s Next in Europe; and Couromoda and Francal in Brazil. Our dynamic, state-of-the-art trade show exhibits are developed by our in-house architect to showcase our latest product offerings in a lifestyle setting reflective of each
+of our brands. By investing in innovative displays and individual rooms showcasing each line, our sales force can present a sales plan for each line and buyers are able to truly understand the breadth and depth of our offerings, thereby optimizing
+commitments and sales at the retail level. 
+Internet. We promote and sell our brands through our e-commerce
+website www.skechers.com ,which enables fans and customers to shop, browse, find store locations, socially interact, post a shoe review, photo, video, or question and immerse themselves in our brands. Our website is a venue for dialog and
+feedback from customers about our products which enhances the Skechers brand experience while driving sales through all our retail channels. 
+PRODUCT
+DISTRIBUTION CHANNELS 
+We have four reportable segments — domestic wholesale sales, international wholesale sales,
+retail sales and e-commerce sales. In the United States, our products are available through a network of wholesale customers comprised of department, athletic and specialty stores. Internationally, our products are available through wholesale
+customers in more than 100 countries and territories via our global network of distributors in addition to our subsidiaries in Asia, Europe, Canada and South America. Skechers owns and operates retail stores both domestically and internationally
+through three integrated retail formats — concept, factory outlet and warehouse outlet stores. Each of these channels serves an integral function in the global distribution of our products. Twenty-two distributors and seven licensees have
+opened 340 distributor-owned and licensee-owned Skechers retail stores in 48 countries as of December 31, 2013. 
+Domestic Wholesale. We distribute our footwear through the following domestic wholesale distribution channels:
+department stores, specialty stores, athletic specialty shoe stores and independent retailers, as well as catalog and internet retailers. While department stores and specialty retailers are the largest distribution channels, we believe that we
+appeal to a variety of wholesale customers, many of whom may operate stores within the same retail location due to our distinct product lines, variety of styles and the price criteria of their specific customers. Management has a clearly defined
+growth strategy for each of our channels of distribution. An integral component of our strategy is to offer our accounts the highest level of customer service so that our products will be fully represented in existing retail locations and new
+locations of each customer. 
+In an effort to provide knowledgeable and personalized service to our wholesale customers,
+the sales force is segregated by product line, each of which is headed by a vice president or national sales manager. Reporting to each sales manager are knowledgeable account executives and territory managers. The vice presidents and national sales
+managers report to our senior vice president of sales. All of our vice presidents and national sales managers are compensated on a salary basis, while our account executives and territory managers are compensated on a commission basis. None of our
+domestic sales personnel sells competing products. 
+We believe that we have developed a loyal customer base through
+exceptional customer service. We believe that our close relationships with these accounts help us to maximize their retail sell-throughs. Our visual merchandise coordinators work with our wholesale customers to ensure that our merchandise and
+point-of-purchase marketing materials are properly presented. Sales executives and merchandise personnel work closely with accounts to ensure that appropriate styles are purchased for specific accounts and for specific stores within those accounts
+as well as to ensure that appropriate inventory levels are carried at each store. Such information is then utilized to help develop sales projections and determine the product needs of our wholesale customers. The value-added services we provide our
+wholesale customers help us maintain strong relationships with our existing wholesale customers and attract potential new wholesale customers. 
+9 
+Table of Contents 
+Retail Stores. We pursue our retail store strategy through our
+three integrated retail formats: the concept store, the factory outlet store and the warehouse outlet store. Our three store formats enable us to promote the full Skechers product offering in an attractive environment that appeals to a broad group
+of consumers. In addition, most of our retail stores are profitable and have a positive effect on our operating results. We periodically review all of our stores for impairment. We prepare a summary of cash flows for each of our retail stores to
+assess potential impairment of the fixed assets and leasehold improvements. If the assets are considered to be impaired, the impairment we recognize is the amount by which the carrying value of the assets exceeds the fair value of the assets. In
+addition, we base the useful lives and related amortization or depreciation expense on our estimate of the period that the assets will generate revenues or otherwise be used by us. As of February 15, 2014, we owned and operated 122 concept
+stores, 131 factory outlet stores and 71 warehouse outlet stores in the United States, and 44 concept stores and 26 factory outlet stores internationally. During 2014, we plan to open 60 to 70 new stores. 
+• 
+Concept Stores 
+Our concept stores are located
+at marquee street locations, major tourist areas or in key shopping malls in metropolitan cities. Our concept stores have a threefold purpose in our operating strategy. First, concept stores serve as a showcase for a wide range of our product
+offering for the current season, as we estimate that our average wholesale customer carries no more than 5% of the complete Skechers line in any one location. Our concept stores showcase our products in an attractive, easy-to-shop open-floor
+setting, providing the customer with the complete Skechers story. Second, retail locations are generally chosen to generate maximum marketing value for the Skechers brand name through signage, store front presentation and interior design. Domestic
+locations include concept stores at Times Square, Union Square and 34th Street in New York, Powell Street in San Francisco, Hollywood and Highland in Hollywood, Santa Monica’s Third Street Promenade, Ala Moana Center in Hawaii and Las
+Vegas’ Fashion Show Mall. International locations include Covent Garden, Westfield London and Westfield Stratford in London, Buchanan Street in Glasgow, Toronto’s Eaton Centre, Vancouver’s Pacific Centre, and Kalverstraat Street in
+Amsterdam. The stores are typically designed to create a distinctive Skechers look and feel, and enhance customer association of the Skechers brand name with current youthful lifestyle trends and styles. Third, the concept stores serve as marketing
+and product testing venues. We believe that product sell-through information and rapid customer feedback derived from our concept stores enables our design, sales, merchandising and production staff to respond to market changes and new product
+introductions. Such responses serve to augment sales and limit our inventory markdowns and customer returns and allowances. 
+The typical Skechers concept store is approximately 2,500 square feet, although in certain markets we have
+opened concept stores as large as 7,800 square feet or as small as 800 square feet. When deciding where to open concept stores, we identify top geographic markets in the larger metropolitan cities in North America, Europe, South America and Asia.
+When selecting a specific site, we evaluate the proposed sites’ traffic pattern, co-tenancies, sales volume of neighboring concept stores, lease economics and other factors considered important within the specific location. If we are
+considering opening a concept store in a shopping mall, our strategy is to obtain space as centrally located as possible in the mall where we expect foot traffic to be most concentrated. We believe that the strength of the Skechers brand name has
+enabled us to negotiate more favorable terms with shopping malls that want us to open up concept stores to attract customer traffic to their venues. 
+• 
+Factory Outlet Stores 
+Our factory outlet stores
+are generally located in manufacturers’ direct outlet centers throughout the United States. In addition, we have 26 international outlet stores – five in England, three each in Canada, Chile, Japan and Spain, two each in Germany and Italy,
+and one each in Austria, the Netherlands, Portugal, Wales and Scotland. Our factory outlet stores provide opportunities for us to sell discontinued and excess merchandise, thereby reducing the need to sell such merchandise to discounters at
+excessively low prices and potentially compromise the Skechers brand image. Skechers’ factory outlet stores range in size from approximately 1,400 to 9,000 square feet. Unlike our warehouse outlet stores, inventory in these stores is
+supplemented by certain first-line styles sold at full retail price points. 
+• 
+Warehouse Outlet Stores 
+Our free-standing
+warehouse outlet stores, which are primarily located throughout the United States, enable us to liquidate excess merchandise, discontinued lines and odd-size inventory in a cost-efficient manner. Skechers’ warehouse outlet stores are typically
+larger than our factory outlet stores and typically range in size from approximately 5,200 to 15,000 square feet. Our warehouse outlet stores enable us to sell discontinued and excess merchandise that would otherwise typically be sold to discounters
+at excessively low prices, which could otherwise compromise the Skechers brand image. We seek to 
+10 
+Table of Contents 
+open our warehouse outlet stores in areas that are in close proximity to our concept stores to facilitate the timely transfer of inventory that we want to liquidate as soon as practicable. 
+Store count, openings and closings for our domestic, international and joint venture stores are as follows: 
+December 31, 2012 
+December 31, 2013 
+Number of Store 
+Locations 
+Number of Stores 
+Opened during 2013 
+Number of Stores 
+Closed during 2013 
+Number of Store 
+Locations 
+Domestic stores 
+Concept 
+120 
+10 
+(7 
+) 
+123 
+Outlet 
+119 
+13 
+(2 
+) 
+130 
+Warehouse 
+61 
+8 
+(1 
+) 
+68 
+Domestic stores total 
+300 
+31 
+(10 
+) 
+321 
+International stores 
+Concept 
+36 
+8 
+(1 
+) 
+43 
+Outlet 
+18 
+8 
+0 
+26 
+International stores total 
+54 
+16 
+(1 
+) 
+69 
+Joint venture stores 
+China Concept 
+24 
+0 
+0 
+24 
+China Outlet 
+30 
+2 
+0 
+32 
+China Shops-in-Shop 
+127 
+8 
+0 
+135 
+Hong Kong Concept 
+20 
+3 
+(2 
+) 
+21 
+Hong Kong Outlet 
+1 
+0 
+0 
+1 
+Hong Kong Shops-in-Shop 
+11 
+1 
+0 
+12 
+Malaysia Concept 
+17 
+7 
+(1 
+) 
+23 
+Malaysia Outlet 
+1 
+0 
+0 
+1 
+Malaysia Shops-in-Shop 
+8 
+0 
+0 
+8 
+Singapore Concept 
+12 
+4 
+(1 
+) 
+15 
+Singapore Shops-in-Shop 
+3 
+1 
+0 
+4 
+Southeast Asia Concept 
+10 
+4 
+(1 
+) 
+13 
+Southeast Asia Shops-in-Shop 
+41 
+5 
+0 
+46 
+India Concept 
+1 
+5 
+0 
+6 
+Joint venture stores total 
+306 
+40 
+(5 
+) 
+341 
+Total Domestic, International and Joint venture stores 
+660 
+87 
+(16 
+) 
+731 
+International Wholesale. Our products are sold in more than 100 countries and
+territories throughout the world. We generate revenues from outside the United States from three principal sources: (i) direct sales to department stores and specialty retail stores through our subsidiaries and joint ventures in Canada, France,
+Germany, Spain, Portugal, Italy, Switzerland, Austria, Malaysia, Thailand, Singapore, Hong Kong, China, Japan, India, the Benelux Region, the United Kingdom, Brazil and Chile; (ii) sales to foreign distributors who distribute our footwear to
+department stores and specialty retail stores in countries and territories across Eastern Europe, Asia, Central America, South America, Africa, the Middle East and Australia, among other regions; and (iii) to a lesser extent, royalties from
+licensees who manufacture and distribute our non-footwear products outside the United States. 
+We believe that
+international distribution of our products represents a significant opportunity to increase net sales and profits. We intend to further increase our share of the international footwear market by heightening our marketing in those countries in which
+we currently have a presence through our international advertising campaigns, which are designed to establish Skechers as a global brand synonymous with trend-right casual shoes. 
+11 
+Table of Contents 
+• 
+International Subsidiaries 
+Europe 
+We currently distribute product in most of Western Europe through the following subsidiaries: Skechers USA
+Ltd., with its offices and showrooms in London, England; Skechers S.a.r.l., with its offices in Lausanne, Switzerland; Skechers USA France S.A.S., with its offices and showrooms in Paris, France; Skechers USA Deutschland GmbH, with its offices and
+showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L., with its offices and showrooms in Madrid, Spain; Skechers USA Benelux B.V., with its offices and showrooms in Waalwijk, the Netherlands; and Skechers USA Italia S.r.l., with its offices
+and showrooms in Milan, Italy. Skechers-owned retail stores in Europe include 12 concept stores and 17 factory outlet stores located in nine countries. 
+To accommodate our European subsidiaries’ operations, we operate an approximately 490,000 square-foot
+distribution center in Liege, Belgium. This distribution center is currently used to store and deliver product to our subsidiaries and retail stores throughout Europe. 
+Canada 
+Merchandising and marketing of our product in Canada is managed by our wholly-owned subsidiary, Skechers USA
+Canada, Inc. with its offices and showrooms outside Toronto in Mississauga, Ontario. Product sold in Canada is primarily sourced from our U.S. distribution center in Rancho Belago, California. We have eight concept stores; Toronto Eaton Centre, West
+Edmonton Mall, Chinook Centre, Richmond Centre, Pacific Centre, Yorkdale Centre, Scarborough Centre and Square One Centre; and three factory outlet stores in Toronto, Alberta and Ontario. 
+Brazil 
+Merchandising and marketing of our product in Brazil is managed by our wholly-owned subsidiary, Skechers Do
+Brasil Calcados LTDA., with its offices located in Sao Paulo, Brazil. Product sold in Brazil is primarily shipped directly from our contract manufacturers’ factories in China and occasionally from our U.S. distribution center in Rancho Belago,
+California. 
+Chile 
+Our wholly-owned subsidiary, Comercializadora Skechers Chile Limitada, supports our 25 retail stores and
+wholesale accounts in Chile. Product sold in Chile is primarily shipped directly from our contract manufacturers’ factories in China and occasionally from our U.S. distribution center in Rancho Belago, California. 
+Japan 
+Merchandising and marketing of our product in Japan is managed by our wholly-owned subsidiary, Skechers Japan
+GK, with its offices located in Tokyo, Japan. Product sold in Japan is primarily shipped directly from our contract manufacturers’ factories in China. We have one concept store in Osaka and three factory outlet stores one each in Osaka, Narita
+and Toki. 
+China and Hong Kong 
+We have a 50% interest in a joint venture in China and a minority interest in a joint venture in Hong Kong that
+generate net sales in those countries. Under the joint venture agreements, the joint venture partners contribute capital in proportion to their respective ownership interests. These stores are in key locations in Shanghai, Beijing, Guangzhou,
+Xiamen, Hong Kong, Macau, and other cities. The joint ventures are included in our consolidated financial statements. 
+Malaysia and
+Singapore 
+We have a 50% interest in a joint venture in Malaysia and Singapore that generate net sales
+in those countries. Under the joint venture agreement, the joint venture partners contribute capital in proportion to their respective ownership interests. These joint ventures are included in our consolidated financial statements. 
+12 
+Table of Contents 
+India 
+We have a 51% interest in a joint venture in India that generates net sales in that country. Under the joint
+venture agreement, the joint venture partners contribute capital in proportion to their respective ownership interests. The joint venture is included in our consolidated financial statements. 
+• 
+Distributors and Licensees 
+Where we do not sell
+directly through our international subsidiaries and joint ventures, our footwear is distributed through an extensive network of more than 30 distributors who sell our products to department, athletic and specialty stores in more than 100 countries
+around the world. As of December 31, 2013, we also had agreements with 22 of these distributors and seven licensees regarding 312 distributor-owned or licensed Skechers retail stores and 28 licensee-owned Skechers retail stores that are open in
+48 countries. Our distributors and licensees own and operate the following retail stores: 
+December 31, 2012 
+December 31, 2013 
+Distributor and Licensee stores 
+Number of Store 
+Locations 
+Number of Stores 
+Opened during 2013 
+Number of Stores 
+Closed during 2013 
+Number of Store 
+Locations 
+North America Concept 
+25 
+11 
+0 
+36 
+North America Warehouse 
+8 
+0 
+0 
+8 
+Central America Concept 
+9 
+0 
+(1 
+) 
+8 
+Central America Warehouse 
+1 
+0 
+0 
+1 
+South America Concept 
+32 
+7 
+0 
+39 
+South America Warehouse 
+1 
+0 
+0 
+1 
+Africa Concept 
+12 
+4 
+(1 
+) 
+15 
+Asia Concept 
+106 
+30 
+(3 
+) 
+133 
+Asia Warehouse 
+4 
+0 
+0 
+4 
+Australia Concept 
+8 
+3 
+0 
+11 
+Australia Warehouse 
+11 
+0 
+0 
+11 
+Europe Concept 
+34 
+8 
+(9 
+) 
+33 
+Europe Warehouse 
+3 
+0 
+0 
+3 
+Middle East Concept 
+23 
+13 
+0 
+36 
+Middle East Warehouse 
+1 
+0 
+0 
+1 
+Total Distributor and Licensee stores 
+278 
+76 
+(14 
+) 
+340 
+Distributors and licensees are responsible for their respective stores’
+operations, have ownership of their respective stores’ assets, and select the broad collection of our products to sell to consumers in their regions. In order to maintain a globally consistent image, we provide architectural, graphic and visual
+guidance and materials for the design of the stores, and we train the local staff on our products and corporate culture. We intend to expand our international presence and global recognition of the Skechers brand name by continuing to sell our
+footwear to foreign distributors and by opening flagship retail stores with distributors that have local market expertise. 
+Electronic Commerce. Our website, www.skechers.com , is a virtual storefront that promotes the Skechers
+brands. Our website is designed to provide a positive shopping and brand experience, showcasing our products in an easy-to-navigate format, allowing consumers to browse our selections and purchase our footwear. This virtual store has provided a
+convenient, alternative shopping environment and brand experience. The website is an additional efficient and effective retail distribution channel, and it has improved our customer service. 
+13 
+Table of Contents 
+For disclosure of financial information about geographic areas and segment
+information for our four reportable segments – domestic wholesale sales, international wholesale sales, retail sales and e-commerce sales — see note 12 to the financial statements of this annual report. 
+LICENSING 
+We believe that
+selective licensing of the Skechers brand name and our product line names to manufacturers may broaden and enhance the individual brands without requiring significant capital investments or additional incremental operating expenses. Our multiple
+product lines plus additional subcategories present many potential licensing opportunities on terms with licensees that we believe will provide more effective manufacturing, distribution or marketing of non-footwear products. We also believe that
+the reputation of Skechers and its history in launching brands has also enabled us to partner with reputable non-footwear brands to design and market their footwear. 
+As of January 31, 2014, we had 37 active domestic and international licensing agreements in which we are the licensor.
+These include Skechers branded leather goods and backpacks, Skechers Performance and sport apparel, Skechers Scrubs for health care professionals and Skechers Eyewear. We have international licensing agreements for the design and distribution of
+men’s and women’s apparel in India, Israel, Mexico, and Korea; bags in Panama; and watches in the Philippines. 
+DISTRIBUTION FACILITIES AND
+OPERATIONS 
+We believe that strong distribution support is a critical factor in our operations. Once manufactured, our
+products are packaged in shoe boxes bearing bar codes that are shipped either: (i) to our approximate 1.8 million square-foot distribution center located in Rancho Belago, California, (ii) to our approximately 490,000 square-foot
+distribution center located in Liege, Belgium or (iii) directly from third-party manufacturers to our other international customers and other international third-party distribution centers. Upon receipt at either of the distribution centers,
+merchandise is inspected and recorded in our management information system and packaged according to customers’ orders for delivery. Merchandise is shipped to customers by whatever means each customer requests, which is usually by common
+carrier. The distribution centers have multi-access docks, enabling us to receive and ship simultaneously, and to pack separate trailers for shipments to different customers at the same time. We have an electronic data interchange system, or EDI
+system, to which some of our larger customers are linked. This system allows these customers to automatically place orders with us, thereby eliminating the time involved in transmitting and inputting orders, and it includes direct billing and
+shipping information. 
+BACKLOG 
+As of December 31, 2013, our backlog was $616.1 million, compared to $468.9 million as of December 31, 2012. Backlog
+orders are subject to cancellation by customers, as evidenced by order cancellations that we have experienced in the past, due to the weakened U.S. economy and shifting footwear trends. For a variety of reasons, including changes in the economy,
+customer demand for our products, the timing of shipments, product mix of customer orders, the amount of in-season orders and a shift towards tighter shipment lead times, our backlog may not be a reliable measure of future sales for any succeeding
+period. 
+INTELLECTUAL PROPERTY RIGHTS 
+We own and utilize a variety of trademarks, including the Skechers trademark. We have a significant number of both
+registrations and pending applications for our trademarks in the United States. In addition, we have trademark registrations and trademark applications in approximately 119 foreign countries. We also have design patents and pending design and
+utility patent applications in both the United States and approximately 27 foreign countries. We continuously look to increase the number of our patents and trademarks both domestically and internationally where necessary to protect valuable
+intellectual property. We regard our trademarks and other intellectual property as valuable assets and believe that they have significant value in the marketing of our products. We vigorously protect our trademarks against infringement, including
+through the use of cease and desist letters, administrative proceedings and lawsuits. 
+We rely on trademark, patent,
+copyright and trade secret protection, non-disclosure agreements and licensing arrangements to establish, protect and enforce intellectual property rights in our logos, trade names and in the design of our products. In particular, we believe that
+our future success will largely depend on our ability to maintain and protect the Skechers trademark and other key trademarks. Despite our efforts to safeguard and maintain our intellectual property rights, we cannot be certain that we will be
+successful in this regard. Furthermore, we cannot be certain that our trademarks, products and promotional materials or other 
+14 
+Table of Contents 
+intellectual property rights do not, or will not, violate the intellectual property rights of others, that our intellectual property would be upheld if challenged, or that we would, in such an
+event, not be prevented from using our trademarks or other intellectual property rights. Such claims, if proven, could materially and adversely affect our business, financial condition and results of operations. In addition, although any such claims
+may ultimately prove to be without merit, the necessary management attention to and legal costs associated with litigation or other resolution of future claims concerning trademarks and other intellectual property rights could materially and
+adversely affect our business, financial condition and results of operations. We have sued and have been sued by third parties for infringement of intellectual property. It is our opinion that none of these claims has materially impaired our ability
+to utilize our intellectual property rights. 
+The laws of certain foreign countries do not protect intellectual property
+rights to the same extent, or in the same manner, as do the laws of the United States. Although we continue to implement protective measures and intend to defend our intellectual property rights vigorously, these efforts may not be successful or the
+costs associated with protecting our rights in certain jurisdictions may be prohibitive. From time to time we discover products in the marketplace that are counterfeit reproductions of our products or that otherwise infringe upon intellectual
+property rights held by us. Actions taken by us to establish and protect our trademarks and other intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our
+products as violating trademarks and intellectual property rights. If we are unsuccessful in challenging a third party’s products on the basis of infringement of our intellectual property rights, continued sales of such products by that or any
+other third party could adversely impact the Skechers brand, result in the shift of consumer preferences away from our products and generally have a material adverse effect on our business, financial condition and results of operations. 
+COMPETITION 
+Competition in the
+footwear industry is intense. Although we believe that we do not compete directly with any single company with respect to its entire range of products, our products compete with other branded products within their product category as well as with
+private label products sold by retailers, including some of our customers. Our casual shoes and utility footwear compete with footwear offered by companies such as Columbia Sportswear Company, Converse by Nike, Inc., Crocs, Inc., Deckers Outdoor
+Corporation, Kenneth Cole Productions Inc., Steven Madden, Ltd., The Timberland Company, V.F. Corporation and Wolverine World Wide, Inc. Our athletic lifestyle and performance shoes compete with footwear offered by companies such as Nike, Inc.,
+adidas AG, Reebok International Ltd., Puma AG, ASICS America Corporation, New Balance Athletic Shoe, Inc. and Under Armour, Inc. The intense competition among these companies and the rapid changes in technology and consumer preferences in the
+markets for performance footwear, including the walking fitness category, constitute significant risk factors in our operations. Our children’s shoes compete with footwear offered by these companies and others including Payless Holdings, and
+with other brands such as Stride Rite by Wolverine World Wide, Inc. In varying degrees, depending on the product category involved, we compete on the basis of style, price, quality, comfort and brand name prestige and recognition, among other
+considerations. These and other competitors pose challenges to our market share in our major domestic markets and may make it more difficult to establish our products in Europe, Asia and other international regions. We also compete with numerous
+manufacturers, importers and distributors of footwear for the limited shelf space available for the display of such products to the consumer. Moreover, the general availability of contract manufacturing capacity allows ease of access by new market
+entrants. Many of our competitors are larger, have been in existence for a longer period of time, have achieved greater recognition for their brand names, have captured greater market share and/or have substantially greater financial, distribution,
+marketing and other resources than we do. We cannot be certain that we will be able to compete successfully against present or future competitors, or that competitive pressures will not have a material adverse effect on our business, financial
+condition and results of operations. 
+EMPLOYEES 
+As of January 31, 2014, we employed 6,868 persons, 2,768 of whom were employed on a full-time basis and 4,100 of whom were
+employed on a part-time basis, primarily in our retail stores. None of our employees are subject to a collective bargaining agreement. We believe that our relations with our employees are satisfactory. 
+15 
+Table of Contents
\ No newline at end of file
diff --git a/raw/filings/0001065837/2013/0001193125-14-077061/item13.txt b/raw/filings/0001065837/2013/0001193125-14-077061/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6ecbc9d99fb8f1273eb0b45f9d5b629992b483c2
--- /dev/null
+++ b/raw/filings/0001065837/2013/0001193125-14-077061/item13.txt
@@ -0,0 +1,4 @@
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+The information required by this Item 13 is hereby incorporated by reference from our definitive proxy statement, to be
+filed pursuant to Regulation 14A within 120 days after the end of our 2013 fiscal year.
\ No newline at end of file
diff --git a/raw/filings/0001065837/2013/0001193125-14-077061/item9a.txt b/raw/filings/0001065837/2013/0001193125-14-077061/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..cfa98795b95f7056d31ff54b4cf1374c9c75e383
--- /dev/null
+++ b/raw/filings/0001065837/2013/0001193125-14-077061/item9a.txt
@@ -0,0 +1,74 @@
+ITEM 9A. 
+CONTROLS AND PROCEDURES 
+Attached as exhibits to this annual report on
+Form 10-K are certifications of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange
+Act”). This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications. 
+EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES 
+We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by a
+company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods and that such information is accumulated and communicated to allow timely decisions regarding required
+disclosures. As of the end of the period covered by this annual report on Form 10-K, we carried out an evaluation under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and
+operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective, at the reasonable assurance level as of
+such time. 
+MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
+is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting includes those policies and procedures that: 
+(i) 
+pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
+(ii) 
+provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
+accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and 
+(iii) 
+provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have
+a material effect on our financial statements. 
+We conducted an evaluation of the effectiveness of our
+internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the
+framework in Internal Control — Integrated Framework (1992), our management has concluded that as of December 31, 2013, our internal control over financial reporting is effective. 
+Our independent registered public accountants, BDO USA, LLP, audited the consolidated financial statements included in this
+annual report on Form 10-K and have issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2013, which is set forth below. 
+INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS 
+Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls
+and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control
+system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in
+all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent
+limitations include the realities that judgments in decision-making can be faulty and that 
+70 
+Table of Contents 
+breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of
+the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
+conditions. Projections of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies
+or procedures. Because of the inherent limitations in a cost-effective control system, misstatements as a result of error or fraud may occur and not be detected. 
+CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING 
+There were no changes to our internal controls over financial reporting that have materially affected, or are reasonably likely
+to materially affect, our internal controls over financial reporting during the fourth quarter of 2013. The results of our evaluation are discussed above in Management’s Report on Internal Control Over Financial Reporting. 
+71 
+Table of Contents 
+Report of Independent Registered Public Accounting Firm 
+Board of Directors and Stockholders 
+Skechers U.S.A., Inc. 
+Manhattan Beach, CA 
+We have audited
+Skechers U.S.A., Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of
+Sponsoring Organizations of the Treadway Commission (the COSO criteria). Skechers U.S.A., Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
+effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal
+control over financial reporting based on our audit. 
+We conducted our audit in accordance with the standards of the Public
+Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
+Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
+assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 
+A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that
+(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
+of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
+any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+In our opinion, Skechers U.S.A., Inc. and subsidiaries maintained, in all material respects, effective internal control over financial
+reporting as of December 31, 2013, based on the COSO criteria . 
+We also have audited, in accordance with the standards of the
+Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Skechers U.S.A., Inc. and subsidiaries as of December 31, 2013 and 2012 and the related consolidated statements of operations, comprehensive income
+(loss), equity, cash flows, and schedule for each of the three years in the period ended December 31, 2013, and our report dated February 28, 2014 expressed an unqualified opinion thereon. 
+/s/ BDO USA, LLP 
+Los Angeles, CA 
+February 28, 2014 
+72 
+Table of Contents
\ No newline at end of file
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new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001065837/2013/0001193125-14-077061/rpt_disclosure.txt b/raw/filings/0001065837/2013/0001193125-14-077061/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..671cc7b30873bd640014b208e10165f4052714d1
--- /dev/null
+++ b/raw/filings/0001065837/2013/0001193125-14-077061/rpt_disclosure.txt
@@ -0,0 +1,38 @@
+TRANSACTIONS WITH RELATED PERSONS 
+Policies and Procedures 
+As provided in our Audit Committee Charter, the Audit Committee shall review (i) at least annually a summary of directors’ and
+executive officers’ related party transactions and potential conflicts of interest and our policies relating to the avoidance of conflicts of interest (which is discussed in our Code of Business Conduct and Ethics), (ii) past and proposed
+transactions between our company, on the one hand, and any of our directors or executive officers, on the other hand, and (iii) policies and procedures as well as audit results associated with directors’ and executive officers’
+expense accounts and perquisites, including the use of corporate assets. 
+Our Policies and Procedures for Related Person
+Transactions (the “Policy”), which was adopted by the Board of Directors as of March 8, 2007, covers any transaction, arrangement or relationship, or series of similar transactions, arrangements or relationships, (including any
+indebtedness or guarantee of indebtedness) in which (i) the aggregate amount involved will or may be expected to exceed $100,000 in any calendar year, (ii) we are a participant, and (iii) any Related Person has or will have a direct
+or indirect interest (other than solely as a result of being a director or a less than ten percent beneficial owner of another entity). A “Related Person” is any (a) person who is or was (since the beginning of the last fiscal year
+for which we have filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director of Skechers, (b) greater than five percent beneficial owner of our
+Class A or Class B Common Stock or (c) immediate family member of either of the foregoing. 
+Certain categories of
+transactions with Related Persons (such as transactions involving competitive bids) have been reviewed and pre-approved by the Audit Committee under the Policy. The Audit Committee shall review the material facts of all other transactions with
+Related Persons that require the Committee’s approval. If advance approval by the Audit Committee of a transaction with a Related Person is not feasible, then the transaction shall be considered and, if the Committee determines it to be
+appropriate, ratified at the Committee’s next regularly scheduled meeting. Factors that the Audit Committee will take into account include whether the transaction with a Related Person is on terms no less favorable than terms generally
+available to an unaffiliated third-party under the same or similar circumstances and the extent of the Related Person’s interest in the transaction. No Audit Committee member shall participate in any discussion or approval of a transaction with
+a Related Person pursuant to which he is a Related Person except for providing material information concerning the transaction. For those transactions with a Related Person that are ongoing, the Audit Committee, on at least an annual basis, shall
+review and assess ongoing relationships with the Related Person to determine that the Related Person remains appropriate. 
+The
+following list of transactions with Related Persons includes all such transactions equal to or greater than $120,000 that took place since January 1, 2013. Each of these transactions was reviewed, and approved or ratified by the Audit
+Committee, pursuant to the policies and procedures discussed herein. 
+Related Person Transactions 
+Michael Greenberg owns a 12% beneficial ownership interest in Manhattan Inn Operating Company, LLC (“MIOC”), the primary
+business of which is to own and operate the Shade Hotel in Manhattan Beach, California. David Weinberg, who is our Chief Operating Officer, Chief Financial Officer, Executive Vice President and a member of our Board of Directors, and Michael
+Greenberg’s brothers Jeffrey Greenberg, who is a director of Skechers, and Jason and Joshua Greenberg, all of whom are senior vice presidents of Skechers, own in aggregate a 17% beneficial ownership interest in MIOC. During 2013, we paid
+approximately $178,000 to the Shade Hotel for lodging, food and events that were held there including our annual holiday party. 
+On July 29, 2010, we formed Skechers Foundation (the “Foundation”), which is a 501(c)(3) non-profit entity that does not
+have any shareholders or members. The Foundation is not a subsidiary of and is not otherwise affiliated with Skechers, and Skechers does not have a financial interest in the Foundation. However, two officers
+33 
+and directors of Skechers, Michael Greenberg who is our President and David Weinberg who is our Chief Operating Officer and Chief Financial Officer, are also officers and directors of the
+Foundation. During the year ended December 31, 2013, we contributed $1,101,500 to the Foundation to use for various charitable causes. 
+Jeffrey Greenberg, Jason Greenberg, Joshua Greenberg and Jennifer Greenberg Messer, who are the children of Robert Greenberg and also the siblings of Michael Greenberg, are non-executive employees of
+Skechers, and they earned total compensation of $247,356, $1,275,836, $724,485 and $233,255, respectively, during 2013. Jeffrey Greenberg was also a member of our Board of Directors in 2013, but did not earn any additional compensation for services
+provided as a director. 
+Andrew Weinberg, who is the son of David Weinberg, is a non-executive employee of Skechers, and he
+earned total compensation of $279,750 in 2013. 
+34
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