Skechers U.S.A. Annual Report 2017

FY2017 Annual Report · Skechers U.S.A.

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To our Shareholders,

February 2018

The Skechers success story started just over 25 years ago. We founded the company with a goal of designing
comfortable and relevant men’s Sport Utility boots and delivering this new collection to the right stores in the
United States and around the world.

From day one we’ve focused on the needs of our consumer on a global scale. Delivering comfort, quality
and style at an affordable price is in our DNA. These differentiators remain constant even as the tastes and
requirements of consumers change over time. It’s what moves us to develop innovative new styles every day
that meet this mantra as we create the marketing that will drive awareness and ensure success. And it’s why we
have built the infrastructure to deliver this vast collection to our network of Skechers retail stores and third-
party partners.

The cornerstone of our philosophy is to consistently strive for success and be flexible in approach to all avenues
of our business. We search year after year for new opportunities to resonate with consumers through our
product, to broaden our reach, and to continue growing our brand.

These efforts continued in 2017 as we strived to create, innovate, and deliver in design, marketing, sales and
infrastructure. This resulted in four record sales quarters for our company, including the first quarter being
our highest quarterly sales ever, and a new annual record in sales of $4.16 billion. This achievement was a 16.9
percent or $600.8 million increase over 2016, and the first time we surpassed $4 billion in annual sales.

The record annual sales growth we achieved was the result of growth in our three business channels: Domestic
Wholesale, International and Retail.

In our domestic wholesale channel, our sales improved 4.1 percent over the prior year. This was due to growth
in our men’s, women’s and kids’ product lines and an increase in pairs shipped by 7.8 percent. Our focus was
on developing our heritage retro styling as well as the innovation and comfort that have become hallmarks of
Skechers footwear. We remained the No. 1 Walking, Work, Casual Lifestyle, and Casual Dress footwear brand,
and the No. 2 Casual Athletic Footwear brand in the United States (SportsOneSource, year-end 2017).

The universal appeal of our product, our vast range of styles and our focus on comfort is essential to our
global success. In our international wholesale channel, our sales increased 24.3 percent over last year, which
represented 41.5 percent of our total revenues. This annual growth was the result of sales increases of 28.6
percent in our subsidiaries and joint ventures, and 9.0 percent in our distributors. In the year, we saw the highest
growth in our key markets—including China, India, South Korea, Canada and Spain.

In China, we achieved double-digit growth in sales over the prior year and shipped 17 million pairs during the
year, including 1.4 million during the country’s biggest online shopping period—Single’s Day—which was an
increase of 76 percent over last year. By the end of 2017, there were almost 800 Skechers stores in China—the
most for one country—and despite that reach we continue to believe there is opportunity to further extend our
brand in the region.

In total, there were 2,570 Skechers stores around the world. This included 1,925 third-party international stores,
and 645 company-owned Skechers stores, of which 196 were outside the United States. Our company-owned
Skechers retail store sales grew by 21.8 percent for the year, this included retail comps of 7.2 percent for the
year. Adding to our direct-to-consumer business was our e-commerce channel, which improved by 22.9 percent
for the year.

We believe a major factor in the global success of our brand is our ongoing marketing support. Our established
team of legendary athletes and international celebrities drive worldwide appeal of Skechers. In 2017, this
team included retired athletes Sugar Ray Leonard, Howie Long, David Ortiz and Tony Romo; actor Rob Lowe;
television personalities Brooke Burke-Charvet and Kelly Brook; and global singers Meghan Trainor and Camila
Cabello.

We’re particularly excited about Camila, who has immense star power and resonates with teenagers
everywhere. Within a year of signing Camila, her image now appears in markets around the world, her social
media following has doubled, and the release of her debut album broke records—achieving the No. 1 position in
more than 100 countries within 24-hours of release.

Throughout the year, our marketing campaigns appeared globally on TV and online, on billboards and in print—
all with the goal to drive purchase intent and increase brand awareness.

In the fourth quarter, Skechers ambassador Meb competed in the New York Marathon wearing Skechers
Performance footwear. At 42-years-old, this was the final competitive race of his storied career. Meb will
continue to work with the Skechers Performance team as he has done over the past six years.

Our elite roster—which also includes accomplished golfers and Ironman triathletes—grew in 2017 with the
addition of Edward Cheserek, who won 17 NCAA titles before graduating college in 2017 and is considered the
next great American distance runner.

With our elite athletes and technical footwear, Skechers was front and center at high-profile events like the
Skechers Performance Los Angeles Marathon and the Houston Marathon, as well as numerous running and golf
competitions around the world.

While many of our competitors focus on one consumer segment—Skechers uniquely offers an extensive range
of lines to meet the needs of multiple demographics. In addition to our award-winning running and golf
footwear, we have a top-selling work collection that performs on job sites and in health and service industries,
as well as our vast collections of athletic lifestyle, dress casual, casual lifestyle and children’s footwear. With
such a diverse selection, we are able to offer most of what consumers want and need from a brand they know
and trust. This also gives us the opportunity to grow across multiple platforms with successes in each division,
and provides our wholesale partners with many different style options for their men’s, women’s and kids’
departments.

Our orgin in lifestyle gives us flexibility in our product development cycle and allows us to pivot as trends
change. Further, we have implemented a test and react program in our own stores, allowing us to gauge
success from a consumer standpoint and provide that feedback to our design and sales teams. This insight
further informs the development of our product, and helps us strategically grow our offering.

The most significant change on the product front over the past couple years is the universal growth of social
media and the internet. This means trends spread faster on a grander scale—causing more consumers to wear
similar styles in many markets at the same time. A case study of this for Skechers has been the resurgence of
the retro trend and our heritage D’lites style. In 2017, as we celebrated the 10-year anniversary of this design—
which was based on a look from the early 2000’s called the Energy—D’lites took off in South Korea before
quickly spreading across Asia. And by the end of the year it was a coveted look by influencers and trendsetters
in Europe as well as North America and South America. One internet fashion site (HypeBae, January 16, 2018)
even said that Skechers could be the “New It-Shoes of 2018.”

This global acceptance and universal appeal of Skechers resulted in our international wholesale and retail
business representing just over 50 percent of our total sales in 2017. With tremendous opportunity to further
grow our retail footprint as well as establish Skechers as a lifestyle footwear leader in India, across South
America, and in many other markets, we believe international sales will represent a larger piece of our total
business in the coming years. With this in mind, we have continued to build our infrastructure in many global
markets as well as in the United States.

Already in 2018, we quickly reacted to the chunky shoe trend, delivered the next wave of Skechers GOwalk
(called Joy), launched our Camila Cabello marketing campaign in many markets, sponsored our third Skechers
Performance Los Angeles Marathon, and expanded our reach with more Skechers stores.

And in February 2018, our Board of Directors approved a three-year, $150 million stock repurchase program.
This decision reflects the strength of our balance sheet, confidence in our growth prospects, and a comfort as
to capital allocation needs in the future.

While we are continuing to strive for success and deliver comfortable and stylish shoes to millions around
the world, we’re looking forward to more opportunities in 2018 to profitably grow our business, and to again
achieve a new record sales year.

Sincerely,

Robert Greenberg
Chairman and CEO

Michael Greenberg
President

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, 2017
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
(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

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, smaller reporting company, or
an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer



Non-accelerated filer

 (Do not check if a smaller reporting company)

Accelerated filer

Smaller reporting company




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
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, 2017, 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 $3.9 billion based upon the closing price of $29.50 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, 2018: 135,670,030.
The number of shares of Class B Common Stock outstanding as of February 15, 2018: 24,545,188.

Emerging growth company

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement issued in connection with the 2018 Annual Meeting of the Stockholders of the Registrant are
incorporated by reference into Part III.

SKECHERS U.S.A., INC. AND SUBSIDIARIES
TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2017

PART I

ITEM 1.
BUSINESS......................................................................................................................................................................
ITEM 1A. RISK FACTORS ............................................................................................................................................................
ITEM 1B. UNRESOLVED STAFF COMMENTS .........................................................................................................................
PROPERTIES.................................................................................................................................................................
ITEM 2.
ITEM 3.
LEGAL PROCEEDINGS...............................................................................................................................................
ITEM 4. MINE SAFETY DISCLOSURES ..................................................................................................................................

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES....................................................................................................................
SELECTED FINANCIAL DATA..................................................................................................................................

ITEM 6.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS................................................................................................................................................................
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..............................................
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............................................................................
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
ITEM 9.
DISCLOSURE................................................................................................................................................................
ITEM 9A. CONTROLS AND PROCEDURES...............................................................................................................................
ITEM 9B. OTHER INFORMATION ..............................................................................................................................................

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE .......................................................
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, AND DIRECTOR INDEPENDENCE............
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES ................................................................................................

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES..............................................................................................
ITEM 16. FORM 10-K SUMMARY ..............................................................................................................................................

PART IV

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This annual report includes our trademarks including Skechers®, Skechers Performance™, Skechers GOrun®, Skechers
GOwalk®, Skechers GOgolf®, You by Skechers™,
®, Skechers Cali™, Relaxed Fit®, Skecher Street™,
®,
D’Lites®, DLT-A™, Skechers Memory Foam™, BOBS®, Energy Lights®, and Twinkle Toes®, 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.

®,

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 2018 operating
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:

•

global economic, political and market conditions including the challenging consumer retail market in the United States;

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 and Vietnam, which could be
adversely affected by various economic, political or trade conditions, or a natural disaster in China or Vietnam;

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.

ITEM 1.

BUSINESS

PART I

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 Performance brand name. Our footwear reflects a combination of style, comfort, quality and value that
appeals to a broad range of consumers. Our brands are sold through department and specialty stores, athletic and independent retailers,
boutiques and internet retailers. In addition to wholesale distribution, our footwear is available at our e-commerce websites and our
own retail stores. As of February 15, 2018, we owned and operated 117 concept stores, 170 factory outlet stores and 162 warehouse
outlet stores in the United States, and 120 concept stores, 67 factory outlet stores, and 9 warehouse outlet stores internationally. Our
objective is to profitably grow our operations worldwide while leveraging our recognizable Skechers brand through our diversified
product lines, innovative advertising and diversified distribution channels.

We seek to offer consumers a vast array of stylish and comfortable footwear that satisfies their active, casual, dress casual and
athletic footwear needs. Our core consumers are style-conscious men and women attracted to our relevant brand image, fashion-
forward designs and affordable product, 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. Further, we offer children a unique collection of footwear designed just for them, including those with innovative light
technology.

We believe that brand recognition is an important element for success in the footwear business. We have aggressively marketed
our brands through comprehensive marketing campaigns for men, women and children. During 2017, the Skechers brand was
supported by print, television, digital and outdoor campaigns for men and women; animated and live action kids’ television and digital
campaigns; marathons and other events for Skechers Performance and BOBS from Skechers divisions. To further drive recognition,
we have enlisted numerous celebrities, former and current athletes, and influencers to appear in our campaigns, including globally-
known recording artists Camila Cabello; sports legends Sugar Ray Leonard, Howie Long, David Ortiz, Tony Romo and Joe Montana;
and television personalities and actresses Brooke Burke-Charvet and Kelly Brook. For the Skechers Performance Division, we also
had Olympians Meb, Kara Goucher, and Matt Kuchar; and professional golfers Ashlan Ramsey, Belen Mozo, Brooke Henderson,
Billy Andrade and Colin Montgomerie as well as the newly signed Edward Cheserek, who won 17 National Collegiate Athletic
Association (“NCAA”) distance titles before graduating from college in 2017.

Since 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 product lines benefit from the Skechers reputation for styling, quality, comfort, innovation and affordability. Our
performance lines benefit from our marketing, product development, manufacturing support, and management 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

We offer a wide array of Skechers-branded footwear lines for men, women and children, many of which have categories that
have developed into well-known names. Most of these categories are marketed and packaged with unique shoe boxes, hangtags and
in-store support, and are generally sold through department stores, footwear specialty stores, athletic retailers, Skechers retail stores as
well as skechers.com and numerous online accounts. Management evaluates segment performance based primarily on net sales and
gross margins; however, sales and costs are not allocated to specific product lines.

In addition, Skechers designs and markets running and golf apparel under the Skechers Performance brand. The apparel is

primarily available at Skechers retail stores, but is also available to domestic wholesale accounts and select international partners.

Lifestyle Brands

Skechers USA. Our Skechers USA category for men and women includes: (i) Dress Casuals and Modern Comfort, (ii) Casuals,
(iii) Casual Athletic, and (iv) seasonal sandals and boots. Styles are available in several fits including Classic Fit, Relaxed Fit and
Wide Fit.

•

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 Casuals line,
which is also referred to as the Modern Comfort collection 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.

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.

Our Casual Athletic line is comprised of low-profile, sport-influenced streetwear targeted to trend-conscious young men
and women. The outsoles are primarily rubber and are sometimes adopted from our men’s Sport and women’s Active
lines. This collection features leather or nubuck uppers, but may also include mesh.

Our seasonal sandals and boots for men and women are designed with many of our existing and proven outsoles, 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, faux fur and sherpa linings for boots.

Skechers Sport. Our Skechers Sport footwear collection for men and women includes: (i) lightweight sport athletic lifestyle
products, (ii) classic athletic-inspired styles, (iii) sport sandals and booties, and (iv) retro and fashion. Many Skechers Sport styles are
enhanced with comfort features such as Skechers Air-Cooled Memory Foam™ insoles, lightweight designs, flexible outsoles and soft
uppers such as bio-engineered mesh, soft knit fabrics and stretchable woven materials. Known for bright, multi-colored and solid
basic-colored uppers, Skechers Sport is distinguished by its technical performance-inspired looks; however, we generally do not
promote the technical performance features of these shoes. Styles are available in several fits including Classic Fit, Relaxed Fit and
Wide Fit.

•

Our lightweight sport athletic product is designed with comfort and flexibility in mind. Careful attention is devoted to the
cushioning, weight, design and construction by using innovative materials and technologies including Skech-Knit uppers.
Designed as a versatile, trend-right athletic shoe suitable for all-day wear, the product line features styles in both bright
and classic athletic colors.

Classic Skechers 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.

Our sport sandals and booties 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 comfortable seasonal
footwear.

Retro and fashion styles feature throwback fashionable profiles with sport-inspired features and trend-right silhouettes. At
the forefront is the D’Lites® collection with iconic Skechers sneaker looks updated with contemporary Skechers Air-
Cooled Memory Foam™ insoles for total comfort.

Skechers Active and Skechers Sport Active. A natural companion to Skechers Sport, Skechers Active and Skechers Sport
Active have grown from a casual everyday line into two complete lines of sneakers and casual sneakers for active females of all ages.
The Skechers Active line, with lace-ups, Mary Janes, sandals and open back styles, is available in a multitude of colors as well as solid
white or black, in knits, fabrics, leathers and meshes, and with various closures — traditional laces, zig-zag and cross straps, among
others. The Skechers Sport Active line includes low-profile, lightweight, flexible and sporty styles, many of which have Skechers Air-
Cooled Memory Foam™.

Skecher Street™. A bold urban street-inspired sneaker collection for millennials, Gen Y’s and young women, Skecher Street™
Los Angeles delivers sneakers, platforms and fashion trainers with premium metallic finishes, sophisticated takes on glimmer

embellishments and playful embroidered pairs with star and graphic treatments. Skecher Street™ styles pair the latest trends with
comfort features including Air Cooled Memory Foam insoles, the brand’s patented Rise Fit technology and contoured barefoot liners.

BOBS from Skechers. At the core of the BOBS from Skechers line is its vast collection of colorful, playful as well as basic
espadrilles. The line now also includes wedges, vulcanized looks and comfortable faux fur styles for home. Many styles also include
Skechers Memory Foam™.

•

The BOBS classic espadrille collection is designed in basic colors with canvas, tweed, crochet and boiled wool uppers,
suede and patterned fabrics. We also have a collection with dog and cat prints for our BOBS for Dogs charitable offering.

BOBS’ vulcanized and sport 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.

For each pair of specially packaged BOBS from Skechers sold in the United States from September 1, 2015 through August 31,
2018, twenty-five cents is donated to Best Friends to help save the lives of dogs and cats in America’s shelters. Skechers has
committed to donating at least $3.0 million dollars to Best Friends Animal Society during the promotion period. Skechers also
continues to donate new shoes to children in need through the BOBS program for which more than 15 million pairs of new kids’ shoes
have been donated, including one million pairs in 2017. The charitable shoes are primarily donated to charity partner Delivering
Good, which then donates the shoes to various reputable charity organizations in the United States and around the world.

Mark Nason. Inspired by classic rock and roll and its trends, the Mark Nason Collection originally started in Italy with an exotic
offering of boots and accessories. The high-end collection has evolved into Mark Nason Los Angeles, an expanded offering of dress,
casual and active styles for style-conscious men, with many featuring Premium Relaxed Fit construction and Memory Foam Lux
insoles for enhanced comfort.

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 Division, the footwear utilizes the
latest advancements in materials and innovative design, including ultra-lightweight Resalyte or the latest 5GEN midsole compounds
for comfort and an outsole that delivers responsive feedback. Limited edition features such as Skechers Nite Owl glow-in-the-dark
technology or special colorways are featured across multiple product lines.

•

Skechers GOrun. Skechers GOrun is a collection of lightweight, flexible running shoes that feature a midfoot strike
design for efficient running. Skechers GOrun Ride features similar designs to their GOrun counterparts, with enhanced
cushioning for elevated comfort and support. Skechers GOrun Forza offers extra stability on long runs. The Skechers
GOmeb collection includes the high-performance racing and training shoes worn by elite marathon runner Meb. These
flagship lines, as well as other Skechers GOrun products, are marketed to serious runners and recreational runners alike,
and are available in running stores as well as other retailers. Special limited-edition collections of key running styles are
released to commemorate major marathon events in cities like New York, Houston and Los Angeles.

Skechers GOwalk. Skechers GOwalk is designed for walking and casual wear, and offers performance features in a
comfortable casual slip-on or lace-up sneaker. The product line features a lightweight and flexible design to promote
natural foot movement when walking as well as more advanced performance technologies including a high-rebound
GogaMax insole, comfortable 5GEN cushioning and Memory Form Fit for a custom-fit experience. Skechers GOwalk Joy
adds knitted upper sneaker styles to the collection. Skechers GO FLEX Walk features a unique articulated, segmented
flexible outsole that is designed to move with you. Skechers on-the-GO footwear fuses iconic designs and premium
materials with Skechers Performance technologies for comfort and style.

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 GOtrail. The Skechers GOtrail collection features the performance materials and innovations found in our
running shoes with rugged designs that can protect against impact during all-terrain runs.

Skechers GO GOLF. Skechers GO GOLF 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 grip outsole helps
with traction control and 5GEN cushioning delivers comfort. Styles in the Skechers GO GOLF Pro line, worn by PGA
golfer Matt Kuchar and a roster of other golf pros, also offers H2GO Shield waterproof protection and features
replaceable softspikes on the outsole.

•

YOU by Skechers™. The versatile YOU by Skechers™ footwear collection combines lifestyle with wellness in an
eclectic assortment of easy-to-wear and comfortable knitted lace-up and slip-on sneakers for women.

Skechers Kids

The Skechers Kids line includes: (i) Skechers Kids, which is a range of infants’, toddlers’, boys’ and girls’ boots, shoes, high-
tops, sneakers and sandals, (ii) Skechers’ athletic-inspired sneakers with Memory Foam, (iii) Twinkle Toes, (iv) character supported
collections, (v) Lighted footwear, (vi) Game Kicks.

•

The Skechers Kids line is inspired by our many adult styles and includes embellishments or adornments such as fresh
colors and fabrics. Some of these styles are also adapted for toddlers with softer, more pliable outsoles and for infants with
soft, leather-sole crib shoes. The line’s Fashion Hi-Tops subcategory offers trend-forward high-top looks designed to
appeal to fashion-conscious young girls.

Skechers’ athletic-inspired collection includes Memory Foam sneakers designed with many of the same meshes, knits and
weaves as the company’s adult styles such as Skechers Sport in bright colors and patterns, Skechers GOrun and Skech-Air
athletic sneakers which have a unique visible air-cushioned outsole and a gel-infused memory foam insole. The collection
is designed to offer the latest comfort innovations and appeal both to younger kids as well as tweens transitioning to adult
shoes.

Twinkle Toes by Skechers is a line of girls’ sneakers and boots that feature bejeweled toe caps and brightly designed
uppers. Some styles also include lights. The product line is marketed with the character Twinkle Toes.

Along with Twinkle Toes, we market several of our collections with characters that resonate with younger consumers.
Skechers Super Z-Strap is a line of athletic-styled sneakers with an easy “z”-shaped closure system marketed with the
character Z-Strap; Elastika by Skechers is a line of girls’ sneakers with bungee closures marketed with the character
Elastika; and Mega Flex is a line of athletic sneakers with heel springs or articulated blades for boys based on a robot
character.

Skechers’ lighted footwear collection for boys and girls includes multiple categories, featuring S-Lights and rechargeable
technology with brands like Energy Lights by Skechers footwear. S-Lights combine patterns of lights on the outsoles and
sides of the shoes, while Energy Lights by Skechers is a classic high-top or low-top sneaker with a rechargeable lighted
outsole that features a variety of colors and light.

Game Kicks for boys and girls are innovative sneakers with a built-in interactive sound and light memory game that kids
can play any time they’re wearing the shoes. Some styles include a remote control operating system.

Skechers Kids lines include 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 Work

Skechers Work offers a complete line of men’s and women’s casuals such as field boots, hikers and athletic shoes, many of
which may also include Skechers Memory Foam™. 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 working in jobs with 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 other Skechers men’s
and women’s lines. 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, clogs and comfortable Shape-ups are ideal for the service industry. The new
Skechers Healthcare Pro SR Series offers slip and stain resistant footwear with air-cooled memory foam in a wide range of colors for
medical professionals. 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, and is marketed directly to consumers through business-to-
business channels.

PRODUCT DESIGN AND DEVELOPMENT

Our principal goal in product design is to generate fresh and innovative footwear in all of our product lines. Targeted to the
active, youthful and style-savvy, we design our lifestyle line to be comfortable, fashionable and marketable to the 12- to 24-year-old
consumer, with broader appeal to 5- to 50-year olds, and 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 in various ways, including reviewing and analyzing pop culture, clothing, and
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 design prototypes. 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 with our test and react program, which gives us further insight
into the strength of particular styles and allowing our design teams to quickly modify and refine our designs. 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 - The Company and

Summary of Significant Accounting Policies in the Consolidated Financial Statements included in this annual report.

SOURCING

Factories. Our products are produced by independent contract manufacturers located primarily in China and Vietnam. 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 2017, five of our contract manufacturers accounted for approximately
47.5% of total purchases. One manufacturer accounted for 17.9%, and another accounted for 11.1% 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 0.0% and 0.5% 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 a 367-person staff working from our offices in China and Vietnam.
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 and Vietnam 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. Our marketing plan has a
multi-pronged approach: traditional print and television advertising, supported by digital, outdoor, trend-influenced marketing, public
relations, social media, promotions, events and in-store. In addition, we utilize celebrity endorsers in some of 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 performance-inspired and image-driven advertising,
we generally seek to build and drive brand awareness, create purchase intent and inform the consumer about new innovations and
lines. Our campaigns 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 will reach new markets. In 2017, our Skechers lifestyle endorsees included Camila Cabello, Brooke
Burke-Charvet, Kelly Brook, Joe Montana, Sugar Ray Leonard, Howie Long, David Ortiz, and Tony Romo. Our Skechers
Performance Division 2017 endorsees included elite runner and Olympic medalist Meb, elite runners Kara Goucher and Edward
Cheserek, and professional golfers Matt Kuchar, Belen Mozo, Brooke Henderson, Ashlan Ramsey, Billy Andrade and Colin
Montgomerie. Additionally, several international markets signed local ambassadors for marketing campaigns. Along with these global
ambassadors, we also had local or regional ambassadors including Korean pop groups for numerous countries in Asia. 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 in popular fashion, lifestyle and pop culture publications in the United States and

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 2017, we developed commercials for men, women and children for our Skechers brands, including our animated
spots for kids featuring our own action heroes, as well as live action commercials that appeal to older kids and tweens. We also have
commercials for our performance lines that feature elite athletes, and for our lifestyle lines that feature musicians, actors and retired
athletes. We have found these to be cost-effective ways to advertise on key national and cable programming during high-selling
seasons. In 2017, many of our television commercials were translated into multiple languages and aired in numerous markets around
the world. Further, select markets have created television commercials specific to their market with local celebrities, and many
international Skechers teams have translated our television commercials and aired in their markets around the world.

Outdoor. In an effort to reach consumers where they shop and in high-traffic areas as they travel to and from work, at times we
execute outdoor campaigns that may include mall and telephone kiosks, billboards, transportation systems and airports, and the
covering of large stadiums and buildings around the world. In many markets these now include LED billboards that broadcast our
commercials. In addition, we advertised on perimeter boards at soccer matches and professional sporting events in Europe, Latin
America and Canada. We believe these mediums are an effective and efficient way to target specific consumers.

Public Relations/Trend-Influenced Marketing. Our public relations objectives are to accurately position Skechers as a leading
footwear brand within the business, general news and trade publications as well as to secure product placement in key fashion and
lifestyle magazines and television shows, and place our footwear on the feet of trend-setting influencers, celebrities and their families.
We have been featured on leading business shows with interviews of our executives discussing our business strategy and position
within the footwear market. We have amassed an array of prominent product placements in leading fashion, lifestyle, sports and pop
culture magazines and websites. Additionally, we have partnered with influencers, bloggers and vloggers who have both appeared at
events and posted on their social media channels about our footwear.

Social Media. With the goal of engaging with consumers, showcasing our product in relatable settings and relaying the latest
news, we have built communities on Facebook, Twitter, Instagram, Pinterest and Snapchat in the United States and in countries
around the world where our product is sold. To promote both our lifestyle and performance brands, we have developed several unique
channels under Skechers®, Skechers Performance™, Skecher Street™ and Mark Nason. The social platforms are divided into
Skechers and Skechers Performance sites, as well as a BOBS page to feature our charitable footwear line. The online communities
also connect consumers around the world, allowing an easy glimpse into trends and events in other countries. Additionally, many
countries also utilize platforms specific to their market, such as Weibo in China.

Promotions and Events. 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 2017, we appeared at walks and at numerous marathons in Boston, New York, London, Paris, Santiago and other
cities with Skechers Performance branded booths to allow runners the ability to try on and often buy our products. In 2017, the
Skechers Performance Division was the footwear and apparel sponsor for the Houston Marathon, the title sponsor of The Skechers
Performance Los Angeles Marathon, and the footwear sponsor for Ironman across Europe. Our products were made available to
consumers directly or through key accounts at many of these events. In addition, we partnered with key accounts by donating BOBS
footwear to children in need at donation events in cities throughout the United States which built our relationships with these accounts
as well as the local communities. As part of our BOBS for Dogs charity program we also partnered with Best Friends Animal Society,
an organization dedicated to saving the lives of dogs and cats, in Strut your Mutt Dog donation events across the country.

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, and 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 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 FFANY, The Licensing Show
and Outdoor Retailer in the United States; MICAM and ISPO in Europe; and many other international shows. Our state-of-the-art
trade show exhibits showcase our latest product offerings in a setting reflective of each of our brands.

Digital. In 2017, we launched marketing campaigns on YouTube, and launched digital campaigns in many international markets
to coincide with key selling time periods. We promote and sell our products through our e-commerce sites in the United States,
Canada, United Kingdom, Germany, Spain, Chile and China, among other countries, as well as through non-ecommerce sites in many
other countries. Our websites are 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 three reportable segments: domestic wholesale sales, international wholesale sales, and retail sales, which includes e-
commerce sales. In the United States, our products are available through a network of wholesale customers comprised of department,
athletic and specialty stores and online retailers. Internationally, our products are available through wholesale customers in more than
170 countries and territories via our global network of distributors, in addition to our subsidiaries in Asia, Europe, Canada, Central
America 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. In addition, 18 distributors and 46 licensees have opened and operate 616 distributor-owned or -licensed
Skechers retail stores and 1,047 licensee-owned Skechers retail stores, respectively, in over 170 countries as of December 31, 2017.

Domestic Wholesale. We distribute our footwear through the following domestic wholesale distribution channels: department
stores, specialty stores, athletic specialty shoe stores, independent retailers, 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
and new customer retail locations.

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 account base through exceptional customer service. We believe that our close
relationships with these accounts help us to maximize their retail sell-through. Our marketing teams work with our wholesale
customers to ensure that our merchandise and 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.

Retail stores and e-commerce. We pursue our retail store strategy through our three integrated retail formats: concept stores,
factory outlet stores and warehouse outlet stores. 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. In 2015, we upgraded the technologies in many of our stores, providing visibility to our
merchandise in other stores and at our distribution center in order to better serve our customers with an omni-channel approach to
sales. We review all of our stores for impairment annually or more frequently if events or changes in circumstances require it. 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 1, 2018, we owned and
operated 117 concept stores, 170 factory outlet stores and 162 warehouse outlet stores in the United States, and 120 concept stores, 67
factory outlet stores, and 9 warehouse outlet stores internationally. We plan to open 75 to 85 new stores in 2018.

Our retail stores are supported by our company-owned ecommerce businesses in the United States, Canada, United Kingdom,
Germany, Spain, Chile and China, among other countries. These virtual storefronts 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 provide a convenient, alternative shopping environment and brand experience, and are an additional
efficient and effective retail distribution channel, which has improved our customer service. They enable consumers to shop, browse,
find store locations, socially interact, post a shoe review, photo, video or question, and immerse themselves in our brands.

•

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, 5th Avenue, Union Square, Westfield World Trade Center, 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’ Grand Canal Shoppes at the Venetian and Fashion Show Mall.
International locations include Westfield London and Westfield Stratford in London; Buchanan Street in Glasgow; Princes
Street in Edinburgh; Toronto’s Eaton Centre; Vancouver’s Pacific Centre; the Shinsaibashi shopping district of Osaka and
Harajuku in Tokyo. 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 8,000 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, Central America, 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 67 international factory outlet stores. 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 1,300 to
24,100 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 and inline warehouse outlet stores, which are primarily located throughout the United States and
Canada, 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 4,000 to 30,600 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.

Store count, openings and closings for our domestic, international and consolidated joint venture stores are as follows:

Number of
Store
Locations
December 31,
2016

Opened during
2017

Closed during
2017

Number of
Store
Locations
December 31,
2017

Domestic stores

Concept...............................................................................
Factory Outlet .....................................................................
Warehouse Outlet ...............................................................
Domestic stores total ..........................................................

International stores

Concept...............................................................................
Factory Outlet .....................................................................
Warehouse Outlet ...............................................................
International stores total .....................................................

Joint venture stores

China Concept ....................................................................
China Factory Outlet ..........................................................
Hong Kong Concept ...........................................................
Hong Kong Outlet ..............................................................
India Concept......................................................................
India Outlet .........................................................................
Israel Concept .....................................................................
South Korea Concept..........................................................
South Korea Outlet .............................................................
South East Asia Concept ....................................................
South East Asia Outlet........................................................
Joint venture stores total .....................................................

117
163
133
413

101
51
5
157

68
28
37
3
34
1
6
3
11
19
2
212

5
7
29
41

19
16
4
39

19
44
3
4
11
2
1
3
2
4
3
96

(5)
—
—
(5)

—
—
—
—

(32)
(2)
(4)
(3)
(1)
(1)
—
—
(2)
(1)
—
(46)

Total domestic, international and joint
venture stores.......................................................................

782

176

(51)

117
170
162
449

120
67
9
196

55
70
36
4
44
2
7
6
11
22
5
262

907

International Wholesale. Our products are sold in more than 170 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 joint ventures in Asia and the Middle East, as well as through our subsidiaries in the Americas, Europe, and Japan;
(ii) sales to foreign distributors who distribute our footwear to department stores and specialty retail stores in select countries and
territories across Asia, South America, Africa, the Middle East and Australia; 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.

•

International Subsidiaries

Europe

We currently merchandise, market and distribute product in most of 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; Skechers USA Italia S.r.l., with its
offices and showrooms in Milan, Italy; Skechers CEE, Kft. with its offices and showrooms in Budapest, Hungry as well as
regional showrooms in Albania, Bosnia-Herzegovina, Bulgaria, Croatia, the Czech Republic, Kosovo, Macedonia, Moldova,
Montenegro, Romania, Serbia, Slovakia and Slovenia. To accommodate our European subsidiaries’ operations, we operate a 1.3
million square-foot distribution center in Liege, Belgium.

Canada

We currently merchandise, market and distribute product in Canada through 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.

South America and Central America

We currently merchandise, market and distribute product in South America and Central America through the following
subsidiaries: Skechers Do Brasil Calcados LTDA, with its offices and showrooms located in Sao Paulo, Brazil;
Comercializadora Skechers Chile Limitada, with its offices and showrooms located in Santiago, Chile; Skechers Latin America
LLC, with its offices and showrooms in Panama City, Panama as well as regional showrooms in Panama, Peru, Colombia and
Costa Rica. Our Latin America subsidiary also distributes products in the Caribbean, Ecuador, Guatemala, El Salvador,
Honduras and Nicaragua. Product sold in South America and Central America is primarily shipped directly from our contract
manufacturers’ factories in China and Vietnam. We have retail stores in key locations such as Santiago, Panama City, Lima and
Sao Paulo.

Japan

We currently merchandise, market and distribute product in Japan through our wholly-owned subsidiary, Skechers Japan
GK, with its offices and showrooms located in Tokyo, Japan. Product sold in Japan is primarily shipped directly from our
contract manufacturers’ factories in China. We have retail stores in key locations such as Osaka and Tokyo.

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 operate
and generate net sales in those countries. Under the joint venture agreements, the joint venture partners contribute capital in
proportion to their respective ownership interests. We have retail stores in key locations such as Shanghai, Beijing, Guangzhou,
Hong Kong and Macau. These joint ventures are consolidated in our financial statements.

Malaysia and Singapore

We have a 50% interest in a joint venture in Malaysia and Singapore that operates and generates net sales in those
countries. Under the joint venture agreement, the joint venture partners contribute capital in proportion to their respective
ownership interests. We have retail stores in key locations such as Singapore and Kuala Lumpur. These joint ventures are
consolidated in our financial statements.

India

We have a 51% interest in Skechers South Asia Private Limited and Skechers Retail India Private Limited, which are both
joint ventures, that operate and generate net sales in India. Under the joint venture agreements, the joint venture partners
contribute capital in proportion to their respective ownership interests. We have retail stores in key locations such as Bangalore,
Mumbai and New Delhi. These joint ventures are consolidated in our financial statements.

Israel

We have a 51% interest in Skechers Ltd. (Israel), which is a joint venture that operates and generates net sales in Israel.
Under the joint venture agreement, the joint venture partners contribute capital in proportion to their respective ownership
interests. We have retail stores in key locations such as Jerusalem and Tel Aviv. This joint venture is consolidated in our
financial statements.

South Korea

We have a 65% interest in Skechers Korea Co., Ltd., which is a joint venture that operates and generates net sales in South
Korea. Under the joint venture agreement, the joint venture partners contribute capital in proportion to their respective
ownership interests. We have retail stores in key locations such as Seoul and Busan. This joint venture is consolidated in our
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 23 distributors who sell our products to department, athletic and specialty stores. As of
December 31, 2017, we also had agreements with 18 of these distributors and 46 licensees regarding 616 distributor-owned or -
licensed Skechers retail stores and 1,047 licensee-owned Skechers retail stores, respectively. Our distributors, licensees and
franchisees own and operate the following retail stores in more than 170 countries around the world:

Number of Store
Locations
December 31,
2016

Opened during
2017

Closed during
2017

Number of Store
Locations
December 31,
2017

Distributor, licensee and franchise stores

Africa Concept...............................................................................
Asia Concept..................................................................................
Asia Factory Outlet........................................................................
Australasia Concept.......................................................................
Australasia Outlet ..........................................................................
Central America Concept ..............................................................
Europe Concept .............................................................................
Europe Factory Outlet ...................................................................
Middle East Concept .....................................................................
Middle East Factory Outlet............................................................
North America Concept.................................................................
North America Factory Outlet.......................................................
South America Concept.................................................................
Total distributor, licensee and franchise stores..............................

37
601
157
48
13
5
142
8
118
4
58
16
22
1,229

10
252
189
12
2
2
50
7
32
—
6
1
3
566

(1)
(99)
(12)
—
—
—
(18)
—
(2)
—
—
—
—
(132)

46
754
334
60
15
7
174
15
148
4
64
17
25
1,663

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 retail stores with distributors that have local market expertise.

For disclosure of financial information about geographic areas and segment information for our three reportable segments–
domestic wholesale sales, international wholesale sales, and retail sales, see Note 18 – Segment and Geographic Reporting in the
consolidated financial statements included in 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 February 1, 2018, we had 23 active domestic and international licensing agreements in which we are the licensor. These
include Skechers-branded bags, backpacks and lunch boxes; belts, wallets and watches; headwear, socks and shoe care; prescription
and sunglass eyewear; outerwear, swimwear, underwear, sleepwear and medical scrubs; and bicycles and safety gear. Additional
category-specific collections include Skechers Sport apparel, bags, backpacks and headwear; Twinkle Toes backpacks, lunchboxes,
do-it-yourself fashion kits, sunglasses and hair accessories; and Skechers Work socks. We have international licensing agreements for
the design and distribution of men’s, women’s and kids’ apparel in the United Kingdom and Indonesia; socks throughout Europe; bags
and backpacks in the Philippines, Taiwan, Indonesia, Australia, New Zealand, Europe and the Middle East; apparel, socks, bags,
backpacks and luggage in Mexico; bags, backpacks, apparel, watches and accessories in Latin America; 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 approximate 1.3 million square-foot European Distribution Center (“EDC”) located in Liege,
Belgium, (iii) to our company-operated distribution centers or third-party distribution centers in Central America, South America and
Asia or (vi) 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 (“EDI system”) which is linked to some of our larger customers. 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.

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 133 foreign countries. We also have design patents and pending design and utility patent
applications in both the United States and approximately 21 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 marketing 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
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, results of operations and cash
flows. In addition, although any such claims may ultimately prove to be without merit, the necessary management attention and
associated legal costs 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 filed against us 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, results of operations and cash flows.

COMPETITION

The global footwear industry is a competitive business. 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., 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 SE, 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 factors. These and other competitors pose
challenges to our market share in domestic and international markets. We also compete with numerous manufacturers, importers and
distributors of footwear for the limited shelf space available for displaying such products to the consumer. Moreover, the general
availability of contract manufacturing capacity allows ease of access by new market entrants. Some of our competitors are larger, have
been in existence for a longer period of time, have strong brand recognition, 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, results of operations and cash flows.

EMPLOYEES

As of January 31, 2018, we employed approximately 11,800 persons, of whom approximately 4,500 were employed on a full-
time basis and approximately 7,300 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.

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, results of operations and cash flows 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 effectively
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, results of
operations and cash flows 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. Any 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, financial
condition and cash flows. 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 In The Performance Footwear Market and Those
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 from other established companies in the footwear industry. 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. 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, keep up with rapid changes in footwear technology, and more
quickly develop new products. New companies may also enter the markets in which we compete, further increasing competition in the
footwear industry. In addition, negative consumer perceptions of our performance features due to our historical reputation as a fashion
and lifestyle footwear company may place us at a competitive disadvantage in the performance footwear market. 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.

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 2017 or 2016.
However, this may change in the future, and fluctuations in sales of any style representing a significant portion of our future net sales
could have a negative impact on our operating results.

The Uncertainty Of Global Market Conditions May Continue To Have A Negative Impact On Our Business, Results Of
Operations Or Financial Condition.

While global economic conditions have recently improved slightly, their uncertain state, including the challenging consumer
retail market in the United States, continues to negatively impact our business, which depends on the general economic environment
and levels of consumers’ discretionary spending that affect not only the ultimate consumer, but also retailers, who are our primary
direct customers. If the current economic situation does not 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, (ii) hiring and maintaining, as required, the appropriate number of qualified employees, (iii) managing
inventory levels and (iv) controlling other expenses. If the uncertain global market conditions continue for a significant period of time
or worsen, our results of operations, financial condition, and cash flows could be materially adversely affected.

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. In addition, our
business could be adversely affected by other economic conditions, such as the insolvency of certain of our key distributors, which
could impair our distribution channels, or the diminished liquidity or an inability to obtain credit to finance purchases of our product
by our significant customers. Our customers may also experience weak demand for our products or other difficulties in their
businesses. If economic, financial or political conditions in global 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, financial condition and cash flows.

We Depend Upon A Relatively Small Group Of Customers For A Large Portion Of Our Sales.

During 2017, 2016 and 2015, our net sales to our five largest customers accounted for approximately 10.5%, 11.3% and 14.6%
of total net sales, respectively. No customer accounted for more than 10.0% of our net sales during 2017, 2016 and 2015. No customer
accounted for more than 10.0% of trade receivables at December 31, 2017 and 2016. 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 Experience Losses Because Of The Inability To Collect Accounts Receivable If Our Customers Are Unable To Pay
Their Debts To Us When Due.

We rely on our network of domestic and international wholesale customers, comprised of department, athletic and specialty
stores and online retailers, to distribute our products. Certain of our wholesale customers may from time to time experience
bankruptcy, insolvency, and/or an inability to pay their debts to us as they come due. If our wholesale customers suffer significant
financial difficulty, they may be unable to pay their debts to us timely or at all, which could have a material adverse effect on our
results of operations. It is possible that wholesale customers may contest their contractual obligations to us under bankruptcy laws or
otherwise. Significant customer bankruptcies could further adversely affect our net sales and increase our operating expenses by
requiring larger accruals for bad debt expense. In addition, even when our contracts with these customers are not contested, if
customers are unable to meet their obligations on a timely basis, it could adversely affect our ability to collect receivables. Further, we
may have to negotiate significant discounts and/or extended financing terms with these customers in such a situation. If we are unable
to collect upon our accounts receivable as they come due in an efficient and timely manner, our business, financial condition, or
results of operations may be materially adversely affected. We also face risk from international customers that file for bankruptcy
protection in foreign jurisdictions, as the application of foreign bankruptcy laws may be more difficult to predict. Although we believe
that we have sufficient reserves to cover anticipated customer bankruptcies, there can be no assurance that such reserves will be
adequate, and if they are not adequate, our business, cash flows, operating results and financial condition would be adversely affected.

Our Global Retail Business Has Required, And Will Continue To Require, A Substantial Investment And Commitment Of
Resources And Is Subject To Numerous Risks And Uncertainties.

Our global retail business has required substantial investments in leasehold improvements, inventory and personnel. We have
also made substantial operating lease commitments for retail space worldwide. Due to the high fixed-cost structure associated with our
global retail business, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant
lease termination costs, write-offs or impairments of leasehold improvements, and employee-related termination costs. The success of
our global retail operations also depends on our ability to identify and adapt to changes in consumer spending patterns and retail
shopping preferences globally, including the shift from brick and mortar to e-commerce and mobile channels, and our ability to
effectively develop our e-commerce and mobile channels. Our failure to successfully respond to these factors could adversely affect
our retail business, as well as damage our brand and reputation, and could materially affect our results of operations, financial position
and cash flows.

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 in the past, 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 domestic sales generally occurring in our
second and third quarters for the back-to-school selling season. Domestically, 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.

Foreign Currency Exchange Rate Fluctuations Could Have A Material Adverse Effect On Our Business And Results Of
Operations.

Foreign currency fluctuations affect our revenue and profitability. Changes in currency exchange rates may impact our financial
results positively or negatively in one period and not another, which may make it difficult to compare our operating results from
different periods. Currency exchange rate fluctuations may also adversely impact third parties that manufacture our products by
making their costs of raw materials or other production costs more expensive and more difficult to finance, thereby raising prices for
our company, our distributors and/or our licensees. We do not currently engage in hedging activities with respect to these currency
exchange rate risks. For a more detailed discussion of the risks related to foreign currency fluctuation, see Item 7A: “Quantitative and
Qualitative Disclosures About Market Risk.”

In addition, our foreign subsidiaries purchase products in U.S. dollars in which the cost of those products will vary depending on
the foreign currency rates and will impact the price charged to customers. Our foreign distributors also purchase products in U.S.
dollars and sell in local currencies, which impacts the price to foreign consumers. As the U.S. dollar strengthens relative to foreign
currencies, our revenues and profits are reduced when translated into U.S. dollars and our margins may be negatively impacted by the
increase in product costs due to foreign currency rates. Although we typically work to mitigate this negative foreign currency
transaction impact through price increases and further actions to reduce costs, we may not be able to fully offset the impact, if at all.
Our success depends, in part, on our ability to manage or mitigate these foreign currency impacts as changes in the value of the U.S.
dollar relative to other currencies could have a material adverse effect on our business, results of operations, financial position and
cash flows.

Recent U.S. Tax Legislation May Materially Adversely Affect Our Financial Condition, Results of Operations and Cash Flows.

Recently enacted U.S. tax legislation has significantly changed the U.S. federal income taxation of U.S. corporations, by
reducing the U.S. corporate income tax rate, permitting immediate expensing of certain capital expenditures, adopting elements of a
territorial tax system, imposing a one-time Transition Tax on all undistributed earnings and profits of certain U.S.-owned foreign
corporations, revising the rules governing foreign tax credits, and introducing new anti-base-erosion provisions. Many of these
changes are effective immediately, without any transition periods or grandfathering for existing transactions. The legislation is unclear
in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing
regulations by the U.S. Treasury Department (“Treasury”) and U.S. Internal Revenue Service (“IRS”), any of which could lessen or
increase certain adverse impacts of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state
and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities.

While our analysis and interpretation of this legislation is preliminary and ongoing, based on our current evaluation, we have
reflected a $1.9 million write-down of our deferred income tax assets due the reduction of the U.S. corporate income tax rate and
incurred an additional $98.0 million tax liability as a result of the Transition Tax. These items have resulted in a total charge against

earnings in the fourth quarter of 2017 in an amount of $99.9 million. This amount may be subject to further adjustment in subsequent
periods throughout 2018 in accordance with U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin 118 (“SAB
118”) and subsequent interpretive guidance issued by the SEC or the IRS. Further, there may be other material adverse effects
resulting from the legislation that we have not yet identified.

While some of the changes made by the tax legislation may adversely affect the Company in one or more reporting periods and
prospectively, other changes may be beneficial on a going forward basis. We continue to work with our tax advisors to determine the
full impact that the recent tax legislation as a whole will have on us. We urge our investors to consult with their legal and tax advisors
with respect to such legislation.

An Increase In Our Effective Tax Rate Could Have A Material Adverse Effect On Our Results Of Operations And Financial
Position.

A significant amount of our foreign earnings are generated in low or zero tax jurisdictions. As a result, our income tax expense
has historically been lower than the tax computed at the U.S. statutory income tax rate because we had not previously provided for
U.S. taxes on earnings that we considered to be indefinitely reinvested outside the U.S. As discussed above, recent U.S. tax legislation
included a one-time Transition Tax on the accumulated earnings of our foreign operations including those that we considered to be
indefinitely reinvested outside the U.S. The resulting $98.0 million one-time tax increased our effective tax rate for the year ended
December 31, 2017 to 38.8%. Our future effective tax rates could be unfavorably affected by a number of factors, including but not
limited to, changes in the tax rates or the tax rules and regulations (including rules and regulations related to recently enacted U.S. tax
legislation), or in the interpretation thereof, in the jurisdictions in which we do business; decreases in the amount of earnings in
countries with low statutory tax rates; increases in the amount of earnings in countries with high statutory tax rates; or if we need to
make significant taxable distributions of foreign earnings for which foreign taxes have not been provided. An increase in our effective
tax rate could have a material adverse effect on our business, results of operations, financial position and cash flows.

Changes In Tax Laws Or 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 there may be unfavorable changes in tax laws in the United States or overseas,
additional customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions to prevent terrorism or other
trade restrictions imposed on the importation of our products in the future. Such actions could adversely affect our ability to produce
and market footwear at competitive prices and might have an adverse impact on the sales and profitability of Skechers.

Our International Sales And Manufacturing Operations Are Subject To The Risks Of Doing Business Abroad, Particularly In
China and Vietnam, 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, 2017 were derived from sales of footwear manufactured
in foreign countries, with most manufactured in China 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, financial condition and cash
flows.

In particular, because most of our products are manufactured in China and Vietnam, the possibility of adverse changes in trade
or political relations with China or Vietnam, political instability in China or Vietnam, increases in labor costs, the occurrence of
prolonged adverse weather conditions or a natural disaster such as an earthquake or typhoon in China or Vietnam, or the outbreak of a
pandemic disease in China or Vietnam could severely interfere with the manufacturing and/or shipment of our products and would
have a material adverse effect on our operations. Our business operations may be adversely affected by the current and future political
environment in the Communist Party of China (“PRC”). The government of the PRC has exercised and continues to exercise
substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate
in the PRC may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, import and
export tariffs, raw materials, environmental regulations, land use rights, property and other matters. Under its current leadership, the
government of the PRC has been pursuing economic reform policies that encourage private economic activity and greater economic

decentralization. There is no assurance, however, that the government of the PRC will continue to pursue these policies, or that it will
not significantly alter these policies from time to time without notice. A change in policies by the PRC government could adversely
affect our interests by, among other factors: changes in laws, regulations or the interpretation thereof, confiscatory taxation,
restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization of private enterprises. 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.

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 2017 and 2016, the top five
manufacturers of our products produced approximately 47.5% and 51.0% of our total purchases, respectively. One manufacturer
accounted for 17.9% and 22.9% of total purchases during 2017 and 2016, respectively. Another manufacturer accounted for 11.1%
and 10.1% of our total purchases during 2017 and 2016, 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 Ability To Deliver Our Products To The Market Could Be Disrupted If We Encounter Problems Affecting Our Logistics
And Distribution Systems.

We rely on owned or independently operated distribution facilities to transport, warehouse and ship products to our customers.
Our logistic and distribution systems include computer-controlled and automated equipment, which may be subject to a number of
risks related to security or computer viruses, the proper operation of software and hardware, power interruptions or other system
failures. Substantially all of our products are distributed from a few key locations. Therefore, our operations could be interrupted by
earthquakes, floods, fires or other natural disasters near our distribution centers. Our business interruption insurance may not
adequately protect us from the adverse effects that could be caused by significant disruptions affecting our distribution facilities, such
as the long-term loss of customers or an erosion of brand image. In addition, our distribution capacity is dependent on the timely
performance of services by third parties, including the transportation of products to and from our distribution facilities. If we
encounter problems affecting our distribution system, our ability to meet customer expectations, manage inventory, complete sales and
achieve operating efficiencies could be materially adversely affected.

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 The Successful Opening Of New Stores As Well As
Negatively Impact The Performance Of Our Existing Stores.

Our ability to successfully open and operate new stores 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 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, Financial Condition And Cash Flows.

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 or
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®, Skechers D’Lites®, Skechers Sport®, Skechers USA®, Skechers Performance™, Skechers GOrun®, Skechers

®,

GOwalk®, You by Skechers™,
®, Skechers Cali™, Relaxed Fit®, Skecher Street™, D’Lites®, Skechers Air-
Cooled Memory Foam™ and Skechers Memory Foam™, Skech-Air®, BOBS®, Energy Lights™, S-Lights® and Twinkle Toes®
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 in the past 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.

As a routine part of our business, 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, vendors and others.
A security breach of our network, hosted service providers, or vendor systems, may expose us to a risk of loss or misuse of this
information, litigation and potential liability. Hackers and data thieves are increasingly sophisticated and operate large-scale and
complex automated attacks, and the retail industry, in particular, has been the target of many recent cyber-attacks. Although we
believe that we take appropriate measures to safeguard this sensitive information, we may not have the resources or technical
sophistication to anticipate or prevent rapidly-evolving types of cyber-attacks 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.

We invest in industry standard security technology to protect personal information. Advances in computer capabilities, new
technological discoveries, or other developments may result in the technology used by us to protect against 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. Although we maintain insurance designed to provide coverage for cyber risks related to what we believe to
be adequate and collectible insurance in the event of theft, loss, fraudulent or unlawful use of customer, employee or company data,
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 result in damage to our brand and have an adverse effect on our business, financial condition and
reputation. In addition, we must comply with increasingly complex and rigorous regulatory standards enacted to protect business and
personal data. Compliance with existing and proposed laws and regulations can be costly, and any failure to comply with these
regulatory standards could subject us to legal and reputational risks. Misuse of or failure to secure personal information could also
result in violation of data privacy laws and regulations, proceedings against us by governmental entities or others, damage to our
reputation and credibility and could have a negative impact on revenues and profits.

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, 2017, a substantial portion of our operations are located in California, including 103 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 fire 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.

Two Principal Stockholders Are 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, 2017, our Chairman of the Board and Chief Executive Officer, Robert Greenberg, beneficially owned
75.2% of our outstanding Class B common shares, members of Mr. Greenberg’s immediate family beneficially owned an additional
10.9% 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 34.3% 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, 2017, Mr. Greenberg beneficially owned 35.1% 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,
Mr. Greenberg and his immediate family beneficially owned 42.7% of the aggregate number of votes eligible to be cast by our
stockholders, and Mr. Schwartzberg beneficially owned 22.2% of the aggregate number of votes eligible to be cast by our
stockholders. Therefore, Messrs. Greenberg and Schwartzberg are each 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 substantially control or significantly influence, 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 are located at several properties in or near Manhattan Beach, California, which consist of an

aggregate of approximately 181,000 square feet. We own and lease portions of 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
November 2031, with a base rent of $940,695 per month, or approximately $11.3 million per year. The JV is consolidated in our
financial statements.

Our European Distribution Center occupies approximately 1.3 million square feet in Liege, Belgium under five operating leases,
with base rents of approximately $5.8 million per year. These leases provide for original terms of 10-15 years, commencing between
January 2016 and June 2016, subject to automatic extensions for recurring periods of five years unless we or the landlord terminates
the lease in writing 12 months prior to the expiration of the original lease term or 12 months prior to the end of the then applicable
five-year extension.

All of our domestic retail stores and showrooms are leased with terms expiring between March 2018 and January 2033. 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 $92.9 million for the year ended December 31, 2017.

We also lease all of our international administrative offices, retail stores, showrooms and distribution facilities located in Asia,
Central America, Europe, North America and South America. The property leases expire at various dates between March 2018 and
December 2027. Total base rent for the leased properties aggregated approximately $95.1 million for the year ended
December 31, 2017.

ITEM 3.

LEGAL PROCEEDINGS

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 were defective and unreasonably dangerous, negligently designed and/or manufactured, and did not conform to
representations made by our company, and that we failed to provide adequate warnings of alleged risks associated with Shape-ups.
Other product liability lawsuits involving Shape-ups (some on behalf of multiple plaintiffs) subsequently were filed in various courts
alleging varying injuries but employing similar legal theories and asserting similar claims to those made in the first case, as well as
claims for breach of express and implied warranties, loss of consortium, and fraud. Although there are variations in the relief sought,
the plaintiffs generally sought compensatory and/or economic damages, exemplary and/or punitive damages, and attorneys’ fees and
costs. As detailed below, our company remains a defendant in only one currently active case.

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. Since 2011, a total of 1,235 personal injury cases have been filed in or
transferred to the MDL proceeding. Skechers has resolved 1,766 personal injury claims in the MDL proceedings, comprised of 1,154
that were filed as formal actions and 612 that were submitted by plaintiff fact sheets. Skechers has also settled another 13 claims in
principle—8 filed cases and 5 claims submitted by plaintiff fact sheets—either directly or pursuant to a global settlement program that
has been approved by the claimants’ attorneys (described in greater detail below). Further, 72 cases in the MDL proceeding have been
dismissed either voluntarily or on motions by Skechers and 40 unfiled claims submitted by plaintiff fact sheet have been abandoned.
Between the consummated settlements and cases subject to the settlement program, all but one of the personal injury cases pending in
the MDL have been or are expected to be resolved. Fact discovery in that case has been completed and a court-ordered mediation is
scheduled in March 2018. No trial date has been set.

Judicial Council of California granted a petition by our company to coordinate all personal injury actions filed in California that relate
to Shape-ups with the LASC cases (collectively, the “LASC Coordinated Cases”). On October 6, 2014, three cases that had been
pending in other counties were transferred to and coordinated with the LASC Coordinated Cases. On April 17, 2015, an additional
case was transferred to and coordinated with the LASC Coordinated Cases.

Fifty-seven actions brought on behalf of a total of 647 plaintiffs have been settled and dismissed in the LASC Coordinated
Cases. Twelve actions have been partially dismissed, with the claims of 224 plaintiffs in those actions having been fully resolved and
dismissed. The claims of one additional plaintiff from these partially settled multi-plaintiff lawsuits has been settled in principle and
should be dismissed in the short term. One single-plaintiff lawsuit and the claims of 28 additional plaintiffs in multi-plaintiff lawsuits
have been dismissed entirely, either voluntarily or on motion by us. The claims of 21 additional persons have been dismissed in part,
either voluntarily or on motions by us.

Fourteen cases—two single-plaintiff actions and 12 partially dismissed, multi-plaintiff actions—remain pending in the LASC
Coordinated Cases. The two single-plaintiff cases have been settled in principle and should be dismissed in the short term. With
respect to the 12 multi-plaintiff actions, the claims of only 17 individual plaintiffs remain. Skechers has moved to dismiss the claims
of 16 of those 17 individual plaintiffs for violation of court orders and failure to prosecute their claims, and anticipates bringing a
similar motion relating to the last individual plaintiff in the near future. No discovery has been taken in any of those actions and no
trial dates have been set. If the two settlements are consummated and the 17 individual plaintiffs’ claims are dismissed for failure to
prosecute, then there will be no more claims pending LASC Coordinated Cases.

In other state courts, a total of 12 personal injury actions (some on behalf of numerous plaintiffs) have been filed that have not

been removed to federal court and transferred to the MDL. All of those actions have been resolved and dismissed.

With respect to the global settlement programs referenced above, the personal injury cases in the MDL and LASC Coordinated
Cases and in other state courts were largely solicited and handled by the same plaintiffs law firms. Accordingly, mediations to discuss
potential resolution of the various lawsuits brought by these firms were held on May 18, June 18, and July 24, 2015. At the conclusion
of those mediations, the parties reached an agreement in principle on a global settlement program that is expected to resolve all or
substantially all of the claims by persons represented by those firms. A master settlement agreement was executed as of
March 24, 2016 and the parties are in the process of completing individual settlements. To the extent that the settlements with
individual claimants are not finalized or otherwise consummated such that the litigation proceeds, it is too early to predict the outcome
of any case, 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. The settlements have been reached for
business purposes in order to end the distraction of litigation, and we continue to believe we have meritorious defenses and intend to
defend any remaining cases vigorously. In addition, it is too early to predict whether there will be future personal injury cases filed
which are not covered by the global settlement program, 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 available and/or adequate to
cover any losses.

Converse, Inc. v. Skechers U.S.A., Inc. — On October 14, 2014, Converse filed an action against our company in the United
States District Court for the Eastern District of New York, Brooklyn Division, Case 1:14-cv-05977-DLI-MDG, alleging trademark
infringement, false designation of origin, unfair competition, trademark dilution and deceptive practices arising out of our alleged use
of certain design elements on footwear. The complaint seeks, among other things, injunctive relief, profits, actual damages, enhanced
damages, punitive damages, costs and attorneys’ fees. On October 14, 2014, Converse also filed a complaint naming 27 respondents
including our company with the U.S. International Trade Commission (the “ITC” or “Commission”), Federal Register Doc. 2014-
24890, alleging violations of federal law in the importation into and the sale within the United States of certain footwear. Converse
has requested that the Commission issue a general exclusion order, or in the alternative a limited exclusion order, and cease and desist
orders. On December 8, 2014, the District Court stayed the proceedings before it. On December 19, 2014, Skechers responded to the
ITC complaint, denying the material allegations and asserting affirmative defenses. A trial before an administrative law judge of the
ITC was held in August 2015. On November 15, 2015, the ITC judge issued his interim decision finding that certain discontinued
products (Daddy’$ Money and HyDee HyTops) infringed on Converse’s intellectual property, but that other, still active product lines
(Twinkle Toes and Bobs Utopia) did not. On February 3, 2016, the ITC decided that it would review in part certain matters that were
decided by the ITC judge. On June 28, 2016, the full ITC issued a ruling affirming that Skechers Twinkle Toes and Bobs canvas shoes
do not infringe Converse’s Chuck Taylor Midsole Trademark and affirming that Converse’s common law trademark was invalid. The
full ITC also invalidated Converse’s registered trademark. Converse appealed this decision to the United States Court of Appeals for
the Federal Circuit. On January 27, 2017, Converse filed its appellate brief but did not contest the portion of the decision that held that
Skechers Twinkle Toes and Bobs canvas shoes do not infringe. On June 26, 2017, we filed our responsive brief, and on February 8,
2018 the court heard oral argument. While it is too early to predict the outcome of these legal proceedings or whether an adverse result
in either or both of them would have a material adverse impact on our operations or financial position, we believe we have meritorious
defenses and intend to defend these legal matters vigorously.

adidas America, Inc., et. al v. Skechers USA, Inc. — On September 14, 2015, adidas filed an action against our company in the
United States District Court for the District of Oregon, Case No. 3:15-cv-1741, alleging that three Skechers shoe styles (Skechers
Onix, Skechers Relaxed Fit Cross Court TR, and Skechers Relaxed Fit – Supernova Style) infringe adidas’ trademarks and/or trade
dress rights. adidas asserts claims under federal and state law for trademark and trade dress infringement, unfair competition,
trademark and trade dress dilution, unfair and deceptive trade practices, and breach of a settlement agreement entered into between the
parties in 1995. adidas seeks injunctive relief, disgorgement of Skechers’ profits, damages (including treble, enhanced and punitive
damages), and attorneys’ fees. On September 14, 2015, adidas filed a motion for preliminary injunction in which it sought to
preliminarily restrain us from manufacturing, distributing, advertising, selling, or offering for sale any footwear (a) that is confusingly
similar to adidas’ STAN SMITH Trade Dress, (b) bearing stripes in a manner that is confusingly similar to adidas’ Three-Stripe Mark,
or (c) under adidas’ SUPERNOVA Mark. We opposed adidas’ motion. A hearing on adidas’ motion was held on December 15, 2015.
On February 12, 2016, the Court issued a preliminary injunction prohibiting us from selling two styles from our vast footwear
collection and from using the word “Supernova” in connection with a third style. We have appealed the Court’s order granting the
injunction to the United States Court of Appeals for the Ninth Circuit. Trial has been continued from April 3, 2018 until June 4, 2018.
While it is too early to predict the outcome of this legal proceeding or whether an adverse result in this case would have a material
adverse impact on our operations or financial position, we believe we have meritorious defenses and intend to defend this legal matter
vigorously.

Nike, Inc., v. Skechers USA, Inc.— On January 4, 2016, Nike filed an action against our company in the United States District
Court for the District of Oregon, Case No. 3:16-cv-0007, alleging that certain Skechers shoe designs (Men’s Burst, Women’s Burst,
Women’s Flex Appeal, Men’s Flex Advantage, Girls’ Skech Appeal, and Boys’ Flex Advantage) infringe the claims of eight design
patents. Nike seeks injunctive relief, disgorgement of Skechers’ profits, damages (including treble damages), pre-judgment and post-
judgment interest, attorneys’ fees, and costs. In April and May, 2016, we filed petitions with the United States Patent and Trademark
Office’s Patent Trial and Appeal Board (the “PTAB”) for inter partes review of all eight design patents, seeking to invalidate those
patents. In September and November 2016, the Patent Trial and Appeal Board denied each of our petitions. On January 6, 2017, we
filed several additional petitions for inter partes review with the PTAB, seeking to invalidate seven of the eight designs patents that
Nike is asserting. In July 2017, we were notified that the PTAB granted our petitions and instituted inter partes review proceedings
with respect to two of the seven design patents but denied our petitions as to the others. In June 2017, we filed a motion to transfer
venue from the District of Oregon to the Central District of California based on a recent United States Supreme Court decision and the
motion was granted in late 2017. While it is too early to predict the outcome of either the District Court or the PTAB proceedings or
whether an adverse result in the District Court case would have a material adverse impact on our operations or financial position, we
believe we have meritorious defenses and intend to defend this legal matter vigorously.

adidas America, Inc. and adidas AG v. Skechers USA, Inc.— On July 11, 2016, adidas filed an action against our company in
the United States District Court for the District of Oregon, Case No. 3:16-cv-01400-AC, alleging that certain of our children’s styles
(Boys’ Mega Blade 2.0 and 2.5) infringe two of adidas’ patents. The complaint seeks, among other things, injunctive relief and
damages (including treble damages). On July 28, 2016, adidas filed a motion for a preliminary injunction, asking the Court to
preliminarily restrain Skechers from importing, manufacturing, distributing, advertising, selling, or offering for sale any of the accused
styles. In related activity, on April 26, 2017, the United States Patent and Trial Appeal Board (the “PTAB”) granted petitions by
Skechers and instituted inter partes review proceedings as to certain claims under the two patents at issue in this litigation, finding that
Skechers had “establishe[d] a reasonable likelihood that [it] will prevail in showing the unpatentability of at least one of the claims” in
each patent. Trial on these issues before the PTAB has been set for January 8, 2018. The PTAB subsequently denied two other inter
partes review petitions filed by Skechers with respect to the same two adidas patents, and then granted a third petition for additional
claims in one of the same patents on August 15, 2017. On June 12, 2017, the Court denied adidas’ motion for a preliminary injunction
and stayed the lawsuit pending the outcome of the PTAB proceedings. On July 10, 2017, adidas filed a notice of appeal of the Court’s
denial of its motion for preliminary injunction, but subsequently abandoned that appeal. While it is too early to predict the outcome of
either the District Court or the PTAB proceedings or whether an adverse result in the District Court case would have a material
adverse impact on our operations or financial position, we believe we have meritorious defenses and intend to defend this legal matter
vigorously.

Steamfitters Local 449 Pension Plan v. Skechers USA, Inc., Robert Greenberg and David Weinberg. – On October 20, 2017, the
Steamfitters Local 449 Pension Plan filed a securities class action, on behalf of itself and purportedly on behalf of other shareholders
who purchased Skechers stock in a five-month period in 2015, against our company and certain of its officers in the United States
District Court for the Southern District of New York, case number 1:17-cv-08107. The lawsuit alleges that, between April 23 and
October 22, 2015, we made materially false statements or omissions of material fact about the anticipated performance of our
Domestic Wholesale segment and asserts claims for unspecified damages, attorneys' fees and equitable relief based on two counts for
alleged violations of federal securities laws. Given the early stage of this proceeding and the limited information available, we cannot
predict the outcome of this legal proceeding or whether an adverse result in this case would have a material adverse impact on our
operations or financial position. We believe we have meritorious defenses and intend to defend this matter vigorously.

Monique Cadle v. Skechers U.S.A., Inc., Robert Greenberg and David Weinberg. – On October 27, 2017, Monique Cadle filed a
securities class action, on behalf of herself and purportedly on behalf of other shareholders who purchased Skechers stock in a five-
month period in 2015, against our company and certain of its officers in the United States District Court for the Southern District of
New York, case number 1:17-cv-08305. The lawsuit alleges that, between April 23 and October 22, 2015, we made materially false
statements or omissions of material fact about the anticipated performance of our Domestic Wholesale segment and asserts claims for
unspecified damages, attorneys' fees and equitable relief based on two counts for alleged violations of federal securities laws. Given
the early stage of this proceeding and the limited information available, we cannot predict the outcome of this legal proceeding or
whether an adverse result in this case would have a material adverse impact on our operations or financial position. We believe we
have meritorious defenses and intend to defend this matter vigorously.

Yolanda Zuniga v. Team One Employment Specialists, LLC, Skechers USA, Inc., Dolores Carte et al. – On December 20, 2017,
our company was named as a defendant in an action filed by a former employee named Yolanda Zuniga in the Superior Court of
California, County of Riverside, Case No. RIC 1723878, alleging discrimination, harassment, retaliation, violation of the Family
Medical Leave Act/California Family Rights Act, breach of contract and wrongful termination, among other causes of action, and
seeking compensatory damages, punitive and exemplary damages, and attorneys’ fees. Skechers believes it has meritorious defenses,
vehemently denies the allegations and intends to defend this case vigorously. Notwithstanding, it is too early to predict the outcome of
this legal proceeding or whether an adverse result in this case would have a material adverse impact on our operations or financial
position.

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.

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.

Year Ended December 31, 2017
First Quarter ................................................................................ $
Second Quarter............................................................................
Third Quarter...............................................................................
Fourth Quarter .............................................................................

Year Ended December 31, 2016
First Quarter ................................................................................ $
Second Quarter............................................................................
Third Quarter...............................................................................
Fourth Quarter .............................................................................

LOW

HIGH

22.31 $
22.64
24.02
23.90

25.47 $
25.89
20.90
18.81

30.00
29.75
29.90
38.92

34.27
34.20
32.71
27.76

HOLDERS

As of February 1, 2018, there were 99 holders of record of our Class A Common Stock (including holders who are nominees for
an undetermined number of beneficial owners) and 34 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

Share Repurchase Program

On February 6, 2018, the Company's Board of Directors authorized a share repurchase program (the “Share Repurchase
Program”), pursuant to which the Company may, from time to time, purchase shares of its Class A common stock, par value $0.001
per share (“Class A common stock”), for an aggregate repurchase price not to exceed $150 million. The Share Repurchase Program
expires on February 6, 2021. Share repurchases may be executed through various means, including, without limitation, open market
transactions, privately negotiated transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of
the Securities and Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements and other relevant
factors. The Share Repurchase Program does not obligate the Company to acquire any particular amount of shares of Class A common
stock and the program may be suspended or discontinued at any time.

EQUITY COMPENSATION PLAN INFORMATION

Our equity compensation plan information is provided as set forth in Part III, Item 12 of this annual report on Form 10-K.

PERFORMANCE GRAPH

The following graph demonstrates the total return to stockholders of our company’s Class A Common Stock from
December 31, 2012 to December 31, 2017, relative to the performance of the Russell 2000 Index, which includes our Class A
Common Stock, and the peer group index, which is believed to include companies engaged in businesses similar to ours. The peer
group index consists of six companies: Nike, Inc., adidas AG, Steven Madden, Ltd., Wolverine World Wide, Inc., Crocs, Inc., and
Deckers Outdoor Corporation.

The graph assumes an investment of $100 on December 31, 2012 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 neither make nor endorse any predictions as to our future stock performance.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURNS

(in dollars)
Skechers U.S.A., Inc......................................................
Russell 2000 ..................................................................
Peer Group.....................................................................

12/12

12/13

12/14

12/15

12/16

12/17

100.00
100.00
100.00

179.08
138.82
152.19

298.65
145.62
152.92

489.89
139.19
194.05

398.59
168.85
192.22

613.62
193.58
243.63

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, 2017 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)

Statement of Earnings Data:
Net sales ................................................................
Gross profit............................................................
Earnings from operations ......................................
Earnings before income taxes................................
Net earnings attributable to Skechers U.S.A., Inc.

2017
4,164,160
1,938,889
382,880
384,260
179,190

Net earnings per share:(1)

2016
3,563,311
1,634,596
370,518
359,484
243,493

Years Ended December 31,
2015
3,147,323
1,424,008
350,824
333,497
231,912

2014
2,377,561
1,071,905
209,071
191,380
138,811

2013
1,846,361
818,792
93,609
82,215
54,788

Basic ...........................................................
Diluted ........................................................

1.15
1.14

1.58
1.57

1.52
1.50

0.91
0.91

0.36
0.36

Weighted average shares:(1)

Basic ...........................................................
Diluted ........................................................

155,651
156,523

154,169
155,084

152,847
154,200

151,839
153,079

151,090
151,690

Balance Sheet Data:
Working capital ..................................................... $
Total assets ............................................................
Long-term borrowings, excluding current
installments............................................................
Skechers U.S.A., Inc. equity .................................

2017
1,507,676
2,735,082

2016
1,206,036
2,393,670

As of December 31,
2015
971,179
2,039,878

2014
779,277
1,674,918

2013
704,506
1,408,570

71,103
1,829,064

67,159
1,603,633

68,942
1,327,556

15,081
1,075,249

116,488
930,322

(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. All share
and per share information has been retroactively adjusted for the three-for-one stock split that was effective on
October 16, 2015.

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 three reportable sales segments:
domestic wholesale sales, international wholesale sales, which include international direct subsidiary sales and international distributor
sales, and retail sales, which includes our e-commerce sales. We evaluate segment performance based primarily on net sales and gross
margins. See detailed segment information in Note 18 – Segment and Geographic Reporting in our Consolidated Financial Statements
included under Part II, Item 8 of this annual report.

FINANCIAL OVERVIEW

Our net sales for 2017 increased $600.9 million, or 16.9%, to $4.164 billion, compared to net sales of $3.563 billion in 2016.
The increase in net sales was broad based across all our segments with the largest increases coming from our international subsidiaries
and international retail businesses which with our international distributor business represented over 50% of our net sales. The largest
increases in our domestic wholesale segment came in our Men’s Sport, Men’s U.S.A., Cali, You and Kid’s divisions. During 2017,
earnings from operations increased $12.4 million, or 3.4%, to $382.9 million compared to $370.5 million in 2016. Net earnings
attributable to Skechers U.S.A., Inc. were $179.2 million for 2017, a decrease of $64.3 million, or 26.4%, compared to net earnings of
$243.5 million in 2016. Diluted earnings per share for 2017 were $1.14, which reflected a 27.4% decrease from the $1.57 diluted
earnings per share reported in the prior year. The decrease in net earnings attributable to Skechers U.S.A., Inc. for 2017 was primarily
the result of increased income tax expense of $99.9 million due to the enactment of the Tax Cuts and Jobs Act in December 2017
which was partially offset by increased net sales. Our working capital was $1.508 billion at December 31, 2017, which was an
increase of $301.6 million from working capital of $1.206 billion at December 31, 2016. Our cash and cash equivalents increased
$17.9 million to $736.4 million at December 31, 2017 from $718.5 million at December 31, 2016. The increase in cash and cash
equivalents was primarily the result of our increased net earnings, which were partially offset by increased inventories, accounts
receivable and increased capital investments.

2017 OVERVIEW

In 2017, we focused on product development, growing our position in our domestic wholesale accounts, growing our
international market share, opening retail stores in key locations worldwide, continuing to develop our global infrastructure, and
balance sheet and expense management.

New product design and delivery. Our success depends on our ability to design and deliver comfortable, stylish, affordable
products to consumers across a broad range of demographics. In 2017, we focused on innovation and comfort across all of our core
and existing styles, added fresh looks to our product lines, and developed new product lines that included lifestyle and performance
footwear. This included updates to our running and walking lines, an updated collection of D’lites®, You by Skechers™ and Skecher
Street™ and a broader offering of Kid’s lighted footwear.

Grow our domestic business. In 2017, our focus was on returning to growth domestically in our domestic wholesale accounts
by delivering the right product to accounts at the right time, while finding new opportunities to add shelf space and expand into new
locations with new Skechers categories. In 2017, we remained the number one walking, work, casual lifestyle, and casual dress
footwear brand, and the number two casual athletic footwear brand.

Further develop our international businesses. During 2017, we continued to focus on improving our international sales by
increasing our product offering to accounts around the world, delivering the right product to accounts at the right time, and increasing
our shelf space with new and updated products as well as increasing our customer base.

Expand Skechers global retail base. Believing that Skechers retail stores are effective brand building tools, we continued to
focus on opening Skechers stores around the world—both company-owned and third-party owned through our distributors, franchisees
or joint venture partners. In 2017, we opened 41 additional company-owned domestic stores and 39 additional company-owned
international stores. Additionally, we continued to expand our franchise retail base with more Skechers branded stores in countries
where we directly handle the distribution of our product.

Develop our global infrastructure. In 2017, through our joint-venture in China we purchased land to be used to construct our
new China distribution center to support our increased sales in the region. We are currently in the process of designing the building,
tenant improvements and equipment for this facility.

Balance sheet and expense management. During 2017, we continued to focus on managing our balance sheet and bringing our

marketing expenses and general and administrative expenses in line with expected sales.

OUTLOOK FOR 2018

During 2018, we will continue to innovate our lifestyle and performance product lines by developing new styles and expanding
into new categories. This includes increasing sales for our lifestyle and wellness line You by Skechers™ and the youthful lifestyle line
Skecher Street™. The global footwear market is competitive; however, we believe demand for the brand globally will remain strong
because our products are marketed at affordable prices and our styles resonate with consumers worldwide. We believe appeal for our
product is broad and demand will continue to grow due to a team of brand ambassadors—including sports icons Joe Montana, Tony
Romo, Sugar Ray Leonard and Howie Long for men; pop superstar Camila Cabello for women; actors and personalities Brooke
Burke-Charvet, and Kelly Brooke for men and women; elite athletes Meb and Kara Goucher; and professional golfers Matt Kuchar,
Belen Mozo, and Brooke Henderson. We expect to continue to broaden the targeted demographic profile of our consumer base,
increase our shelf space and to open another 75 to 85 company-owned retail locations worldwide. In addition, we expect to complete
the design and begin constructing of our China distribution center by the end of 2018, which will increase our capacity to support our
growth in the China market.

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 and administrative expenses

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 and expenses related to our distribution network for our Rancho Belago, European and other foreign
distribution centers, professional fees related to both legal and accounting services, insurance, depreciation and amortization, asset
impairment and legal settlements, among other expenses. Our distribution network-related costs are included in general and
administrative expenses and are not allocated to specific segments.

YEAR ENDED DECEMBER 31, 2017 COMPARED TO THE YEAR ENDED DECEMBER 31, 2016

Net sales

Net sales for 2017 were $4.164 billion, which was an increase of $600.9 million, or 16.9%, compared to net sales of
$3.563 billion for 2016. The increase in net sales was broad based across all our segments with the largest increases coming from our
international businesses.

Our domestic wholesale net sales increased $49.5 million, or 4.1%, to $1.249 billion for 2017 compared to $1.200 billion for
2016. The increase in our domestic wholesale segment’s net sales was primarily the result of a 7.8% unit sales volume increase to
56.5 million pairs in 2017 from 52.4 million pairs in 2016, which was partially offset by a decrease in average selling price per pair of
3.4%, to $22.11 per pair for 2017 from $22.89 in 2016. This net sales increase was attributable to higher sales in our Men’s Sport,
Men’s U.S.A., Cali, You, and Kid’s divisions during 2017. The average selling price per pair decrease within the domestic wholesale
segment was primarily the result of product sales mix with lower average selling prices.

Our international wholesale segment net sales increased $338.7 million, or 24.3%, to $1.730 billion for 2017 compared to sales
of $1.391 billion for 2016. 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, including our joint ventures, increased $311.3 million, or
28.6%, to $1.399 billion for 2017 compared to sales of $1.088 billion for 2016. The largest sales increases during the year came from
our subsidiaries in the United Kingdom, Germany and Spain, and our joint ventures in China and Korea. The increases are primarily
attributable to sales of our Women’s and Men’s Go, Women’s Active and Men’s and Women’s Sport lines. Our distributor sales
increased $27.4 million, or 9.0%, to $330.6 million for 2017, compared to sales of $303.2 million for 2016. This was primarily
attributable to increased sales to our distributors in Australia and New Zealand, Indonesia, and Turkey.

Our retail segment sales increased $212.8 million to $1.185 billion for the year ended December 31, 2017, a 21.9% increase
over sales of $972.2 million for 2016. The increase in retail sales was primarily attributable to increased comparable sales of 7.2%,
which included increased sales within our Men’s and Women’s Sport, Men’s U.S.A., Kid’s, and Work divisions and a net increase of
36 domestic and 39 international stores compared to 2016. For the year ended December 31, 2017, our domestic retail sales, which
includes e-commerce, increased 11.9% compared to 2016, which was primarily attributable to increased domestic store count and to
positive comparable domestic store sales of 6.4%, and our international retail store sales increased 50.3% compared to 2016, which
was attributable to increased international store count and positive comparable international store sales of 10.1%.

We believe that we have established our presence in most major domestic retail markets. We had 449 domestic stores and
196 international retail stores as of February 15, 2018, and we currently plan to open approximately 75 to 85 stores in 2018. During
2017, we opened five new domestic concept stores, seven domestic factory outlet stores, 29 domestic warehouse outlet stores,
19 international concept stores, 16 international factory outlet stores, and four international warehouse outlet stores During 2017, we
closed five domestic concept stores. We periodically review all of our stores for impairment. During 2017 and 2016, we did not record
an impairment charge related to our retail stores.

Gross profit

Gross profit for 2017 increased $304.3 million, or 18.6% to $1.939 billion from $1.635 billion for 2016. Gross profit, as a
percentage of net sales, or gross margin, increased slightly to 46.6% in 2017 from 45.9% for 2016. Our domestic wholesale segment
gross profit increased $10.5 million, or 2.3%, to $464.6 million for 2017 from $454.1 million for 2016, which was attributable to an
increase in pairs sold of 7.8%. Domestic wholesale margins decreased to 37.2% for 2017 from 37.8% for 2016. The decrease in
domestic wholesale margins was primarily attributable to a product sales mix with lower average selling prices.

Gross profit for our international wholesale segment increased $170.6 million, or 27.7%, to $786.7 million for 2017 compared
to $616.1 million for 2016. Gross margins for the international wholesale segment were 45.5% for 2017 compared to 44.3% for 2016.
Gross margins for our international direct subsidiary sales, including our joint ventures, were 50.0% for 2017 as compared to 49.3%
for 2016. The increase in gross margins for our international wholesale segment and international direct subsidiary sales were
primarily attributable to sales of products with higher average selling prices. Gross margins for our international distributor sales were
26.3% for 2017 as compared to 26.2% for 2016.

Gross profit for our retail segment increased $123.2 million, or 21.8%, to $687.6 million for 2017 as compared to $564.4 million
for 2016. Gross margins for all stores were 58.0% for 2017 compared to 58.1% for 2016. Gross margins for our domestic stores were
59.7% for 2017 as compared to 60.1% for 2016. Gross margins for our international stores were 54.5% for 2017 as compared to
52.3% for 2016. The decrease in our domestic retail margins were attributable to a product sales mix with lower average selling prices.

Selling expenses

Selling expenses increased by $70.1 million, or 27.3%, to $327.2 million for 2017 from $257.1 million for 2016. As a percentage
of net sales, selling expenses were 7.9% and 7.2% for 2017 and 2016, respectively. The increase in selling expenses was primarily the
result of increased sales commissions of $22.7 million due to increased sales worldwide and $13.2 million from our South Korean
joint-venture and $47.3 million in higher advertising expenses, which slightly increased as a percentage of net sales to 5.8% in 2017 from
5.5% in 2016.

General and administrative expenses

General and administrative expenses increased by $224.7 million, or 22.0%, to $1.245 billion for 2017 from $1.021 billion for
2016. As a percentage of sales, general and administrative expenses were 29.9% and 28.6% for 2017 and 2016, respectively. The
increase in general and administrative expenses was primarily attributable to $109.5 million related to supporting our growing
international operations in China, Japan, South Korea and Latin America, increased store operating costs of $73.8 million primarily
attributable to an additional 75 stores and increased domestic wholesale general and administrative expenses of $41.4 million
primarily due to increased headcount in the United States to support our brand worldwide. In addition, expenses related to our
distribution network, including the functions of purchasing, receiving, inspecting, allocating, warehousing and packaging of our
products increased $32.3 million, due to increased shipments, to $219.6 million from $187.3 million for 2017 and 2016, respectively.

Other income (expense)

Interest income was $2.4 million for 2017 compared to $1.2 million for 2016. Interest expense for 2017 increased $0.4 million
to $6.7 million compared to $6.3 million in 2016. Gain or loss on foreign currency transactions for 2017 increased $11.3 million to a
gain of $6.3 million compared to a $5.0 million loss in 2016. This increased foreign currency exchange gain was primarily attributable
to the impact of a weaker U.S. dollar on our intercompany balances in our foreign subsidiaries. Loss on disposal of assets for 2017
decreased $0.5 million to a loss of $0.6 million as compared to a loss of $1.1 million in 2016.

Income taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and
Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affected our financial results for
the year ended December 31, 2017, including, but not limited to: (1) requiring a one-time Transition Tax, payable over eight years, on
certain unrepatriated earnings of foreign subsidiaries; (2) a future reduction of the U.S. federal corporate tax rate from 35% to 21%
that affects the current value of our deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”); and (3) bonus depreciation that
allows for full expensing of qualified property placed in service after September 27, 2017. In addition, the Tax Act establishes new tax
laws that will affect our financial results for the year ending December 31, 2018, including, but not limited to: (1) a reduction of the
U.S. federal corporate tax rate from 35% to 21%; (2) a general elimination of U.S. federal income taxes on dividends from foreign
subsidiaries; (3) a new provision designed to tax global intangible low-taxed income (“GILTI”); (4) limitations on the deductibility of
certain executive compensation; and (5) limitations on the use of Federal Tax Credit (“FTC’s”) to reduce the U.S. income tax liability.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a
measurement period that should not extend beyond one year from the Tax Act enactment date for us to complete the accounting under
Accounting Standards Codification 740 (“ASC 740”). In accordance with SAB 118, we must reflect the income tax effects of those
aspects of the Act for which the accounting under ASC 740 is complete. To the extent that our accounting for certain income tax
effects of the Tax Act is incomplete but we are able to determine a reasonable estimate, we must record a provisional estimate in the
financial statements. If we cannot determine a provisional estimate to be included in the financial statements, we should continue to
apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In connection with our initial analysis of the impact of the Tax Act, we have recorded a provisional one-time net tax expense of
$99.9 million for the year-ended December 31, 2017. This net tax expense primarily consists of the $1.9 million net tax impact to our
DTA’s from the corporate rate reduction and a net expense for the Transition Tax of $98.0 million. For various reasons that are
discussed more fully below, we have not completed our accounting for the income tax effects of certain elements of the Tax Act. If we
were able to make reasonable estimates of the effects of elements for which our analysis is not yet complete, we recorded provisional
adjustments.

Our accounting for the following elements of the Tax Act is provisional. However, we were able to make reasonable estimates

of certain effects and, therefore, recorded the following provisional adjustments:

Transition Tax: The Transition Tax is a one-time tax on previously untaxed current and accumulated earnings and profits
(“E&P”) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other
factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such
earnings. We were able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax liability of

$98.0 million. However, during the measurement period, we are continuing to gather additional information to more precisely
compute the amount of the Transition Tax.

Reduction of U.S. federal corporate tax rate: The Tax Act reduces the corporate tax rate from 35% to 21%, effective
January 1, 2018. As a result, we have recorded a provisional decrease in value of our net DTAs of $1.9 million, with a corresponding
net adjustment to deferred income tax expense of $1.9 million for the year ended December 31, 2017. While we are able to make a
reasonable estimate of the impact of the reduction in the corporate tax rate, it may be affected by other analyses related to the Tax Act,
including, but not limited to, our calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments
made to federal temporary differences.

Cost recovery: While we have completed most of the computations necessary and are in the process of completing a final
inventory of our 2017 expenditures that qualify for immediate expensing, we have recorded a decrease in our current income tax
payable of approximately $5.9 million based on our provisional estimates related to the additional federal expense allowed as a result
of the Tax Act. In addition, we have recorded a corresponding increase in our DTLs of approximately $3.5 million, which is less than
the $5.9 million liability amount due to the reduction in the corporate tax rate from 35% to 21%, effective January 1, 2018. The $2.4
million net benefit from the reduction in the future tax rate is included in the $1.9 million decrease in value of the net DTAs discussed
above.

Our provision for income tax expense 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 34%. Our provision for income tax expense 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 by earnings (loss) before income taxes.

Our earnings (loss) before income taxes and income tax expense for 2017, 2016 and 2015 are as follows (in thousands):

2017

Years Ended December 31,
2016

2015

Income tax jurisdiction
United States (1) ............................................................ $
Peoples Republic of China (“China”) ..........................
Jersey (2)........................................................................
Non-benefited loss operations (3)..................................
Other jurisdictions (4) ....................................................
Earnings before income taxes ...................................... $
Effective tax rate (5) ......................................................

Earnings (loss)
before income
taxes

Income tax
expense
25,628 $ 113,607
95,668 12,971
—
198,048
(17,350)
3,306
82,266 19,272
384,260 $ 149,156

Income tax
expense

Earnings (loss)
before income
taxes
105,589 $ 44,654
72,584 11,720
—
146,880
(16,189)
12
50,620 17,739
359,484 $ 74,125

Income tax
expense

Earnings (loss)
before income
taxes
136,726 $ 52,173
49,027 11,084
—
123,721
(16,719)
164
40,742
9,029
333,497 $ 72,450

$
38.8%

$
20.6%

21.7%

(1)

(2)

(3)

(4)

(5)

United States income tax expense for 2017 includes a provisional one-time $99.9 million tax expense related to the enactment of
the Tax Act on December 22, 2017.
Jersey does not assess income tax on corporate net earnings.
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: Brazil, India, Israel, Japan, Macau, Panama, and South Korea.
Consists of entities in the following tax jurisdictions, each of which comprises not more than 5% of consolidated earnings (loss)
before taxes in the period being reported: Albania, Austria, Belgium, Bosnia & Herzegovina, Canada, Chile, Colombia, Costa
Rica, France, Germany, Hong Kong, Hungary, India, Italy, Kosovo, Macedonia, Malaysia, Montenegro, Netherlands, Panama,
Peru, Poland, Portugal, Romania, Serbia, Singapore, Spain, Switzerland, Thailand, Vietnam, and the United Kingdom,
The effective tax rate is calculated by dividing income tax expense by earnings before income taxes.

For 2017, the effective tax rate was lower than the U.S. federal and state combined statutory rate of approximately 39%,
primarily because of earnings from foreign operations in jurisdictions imposing either lower tax rates on corporate earnings or no
corporate income tax. During 2017, as reflected in the table above, earnings (loss) before income taxes in the U.S. were $25.6 million,
with income tax expense of $113.6 million, which is an average rate of 443%. The U.S. tax expense includes a provisional one-time
tax expense of $99.9 million related to the enactment of the Tax Act on December 22, 2017. Earnings (loss) before income taxes in
non-U.S. jurisdictions were $358.6 million, with an aggregate income tax expense of $35.5 million, which is an average rate of 9.9%.
Combined, this results in consolidated earnings before income taxes for the period of $384.3 million, and consolidated income tax
expense for the period of $149.2 million, resulting in an effective tax rate of 38.8%. For 2017, of our $358.6 million in earnings before
income tax earned outside the U.S., $198.0 million was earned in Jersey, which does not impose a tax on corporate earnings. In Jersey,

earnings before income taxes increased by $51.1 million, or 35%, to $198.0 million in 2017 from $146.9 million in 2016. This
increase was primarily attributable to an increase of $435.6 million in net sales in the “Other international” geographic area for 2017
(see Note 18 – Segment and Geographic Reporting in our consolidated financial statements included under Part II, Item 8 of this
annual report), which resulted in a significant increase in earnings before income taxes in Jersey from royalties and commissions
under the terms of inter-subsidiary agreements. Due to the scalability of our operations, increases in net sales in the “Other
international” geographic area from 2016 to 2017 resulted in a disproportionately greater increase in earnings before income taxes in
Jersey. In addition, there were foreign losses of $17.4 million for which no tax benefit was recognized during the year ended
December 31, 2017 because of the provision of offsetting valuation allowances, but in which $3.3 million in nonrefundable and other
withholding taxes were paid. Individually, none of the other foreign jurisdictions included in “Other jurisdictions” in the table above
had earnings greater than 5% of our consolidated earnings (loss) before taxes in any of the years shown.

As of December 31, 2017, we had approximately $736.4 million in cash and cash equivalents, of which $391.6 million, or
53.2%, was held outside the U.S. Of the $391.6 million held by our non-U.S. subsidiaries, approximately $227.5 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 consolidated financial statements as of December 31, 2017.

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 to repatriate any of the funds presently designated as indefinitely
reinvested outside the U.S. However, in anticipation of the needs of our share repurchase program and the need to provide payment of
our provisional Transition Tax liability, we plan to begin the repatriation of certain funds held outside the U.S. for which tax has been
fully provided as of December 31, 2017. Because of the need for cash for operating capital and continued overseas expansion, we also
do not foresee the need for any of our foreign subsidiaries to distribute funds up to an intermediate foreign parent company in any
form of taxable dividend. 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 not be subject to U.S. income taxes but may be subject to
applicable non-U.S. income and withholding taxes. As of December 31, 2017, U.S. income taxes have been provided but non-U.S.
income taxes have not been provided on cumulative total earnings of $178.8 million. As of December 31, 2016, U.S. and non-U.S.
income taxes have not been provided on cumulative total earnings of $699.6 million.

Non-controlling interest in net income and loss of consolidated subsidiaries

Net earnings attributable to non-controlling interest for 2017 increased $14.0 million to $55.9 million as compared to
$41.9 million for 2016 due to increased profitability of our joint ventures. Non-controlling interest represents the share of net earnings
or loss that is attributable to our joint venture partners.

YEAR ENDED DECEMBER 31, 2016 COMPARED TO THE YEAR ENDED DECEMBER 31, 2015

Net sales

Net sales for 2016 were $3.563 billion, which was an increase of $416.0 million, or 13.2%, compared to net sales of
$3.147 billion for 2015. The increase in net sales was primarily from our international wholesale and retail segments offset by a
decrease in our domestic wholesale segment.

Our domestic wholesale net sales decreased $20.0 million, or 1.6%, to $1.200 billion for 2016 compared to $1.220 billion for
2015. The decrease in our domestic wholesale segment’s net sales was primarily the result of average selling price per pair decreasing
2.7%, to $22.89 per pair for 2016 from $23.53 for 2015, which was partially offset by a 1.1% unit sales volume increase to
52.4 million pairs in 2016 from 51.8 million pairs in 2015. This net sales decrease was also attributable to lower sales in our Women’s
and Men’s Go, Women’s Active and Men’s USA divisions which was partially offset by increases in our Men’s and Women’s Sport
and Work divisions during 2016. The average selling price per pair decrease within the domestic wholesale segment was primarily the
result of decreased selling prices for our Women’s GO and Women’s Active divisions.

Our international wholesale segment net sales increased $296.8 million, or 27.1%, to $1.391 billion for 2016 compared to sales
of $1.094 billion for 2015. Direct sales by our foreign subsidiaries increased $319.8 million, or 41.6%, to $1.088 billion for 2016
compared to sales of $768.2 million for 2015. The largest sales increases during the year came from our subsidiaries in the United
Kingdom, Germany and Spain, and our joint ventures in China and Hong Kong. The increases are primarily attributable to sales of our
Women’s and Men’s Go, Women’s Active and Men’s and Women’s Sport lines. Our distributor sales decreased $23.0 million, or
7.0%, to $303.2 million for 2016, compared to sales of $326.2 million for 2015. This was primarily attributable to decreased sales to
our distributors in Australia and New Zealand, Turkey, the United Arab Emirates (“UAE”) and South Korea, which was transitioned
from a distributor to a joint-venture in 2016.

Our retail segment sales increased $139.1 million to $972.2 million for the year ended December 31, 2016, a 16.7% increase
over sales of $833.1 million for 2015. The increase in retail sales was primarily attributable to increased comparable sales of 4.1%,

which included increased sales within our Men’s and Women’s Go, Men’s and Women’s Sport, and Work divisions and a net increase
of 23 domestic and 30 international stores compared to 2015. For the year ended December 31, 2016, our domestic retail sales, which
includes e-commerce, increased 9.7% compared to 2015, which was primarily attributable to increased domestic store count and to
positive comparable domestic store sales of 2.2% and, and our international retail store sales increased 42.6% compared to 2015,
which was attributable to increased international store count and positive comparable international store sales of 11.8%.

During 2016, we opened four new domestic concept stores, eight domestic factory outlet stores, 18 domestic warehouse outlet
stores, 21 international concept stores, and 10 international factory outlet stores. We also took over the operations of three
international concept stores and 11 international outlet stores from our distributor in South Korea. During 2016, we closed six
domestic concept stores, one domestic warehouse store and one international concept store.

Gross profit

Gross profit for 2016 increased $210.6 million to $1.635 billion from $1.424 billion for 2015. Gross profit, as a percentage of
net sales, or gross margin, increased slightly to 45.9% in 2016 from 45.2% for 2015. Our domestic wholesale segment gross profit
decreased $17.0 million, or 3.6%, to $454.1 million for 2016 from $471.1 million for 2015, which was attributable to decreased sales
volumes and selling prices. Domestic wholesale margins decreased to 37.8% for 2016 from 38.6% for 2015. The decrease in domestic
wholesale margins was primarily attributable to lower margins in our Women’s GO and Women’s Active lines.

Gross profit for our international wholesale segment increased $161.4 million, or 35.5%, to $616.1 million for 2016 compared
to $454.7 million for 2015. Gross margins for the international wholesale segment were 44.3% for 2016 compared to 41.5% for 2015.
Gross margins for our international direct subsidiary sales were 49.3% for 2016 as compared to 47.2% for 2015. The increase in gross
margins for our international wholesale segment and international direct subsidiary sales were primarily attributable to sales of
products with higher average selling prices. Gross margins for our international distributor sales decreased to 26.2% for 2016 as
compared to 28.1% for 2015 primarily from sales of products with lower average selling prices.

Gross profit for our retail segment increased $66.2 million, or 13.3%, to $564.4 million for 2016 as compared to $498.2 million
for 2015. Gross margins for all stores were 58.1% for 2016 compared to 59.8% for 2015. Gross margins for our domestic stores were
60.1% for 2016 as compared to 61.5% for 2015. Gross margins for our international stores were 52.3% for 2016 as compared to
53.4% for 2015. The decrease in our retail margins were primarily attributable to lower margins in our Women’s GO, Women’s
Active and Women’s USA products.

Selling expenses

Selling expenses increased by $21.5 million, or 9.1%, to $257.1 million for 2016 from $235.6 million for 2015. As a percentage
of net sales, selling expenses were 7.2% and 7.5% for 2016 and 2015, respectively. The increase in selling expenses was primarily the
result of $26.3 million in higher advertising expenses, which slightly increased as a percentage of net sales to 5.5% in 2016 from 5.4%
in 2015.

General and administrative expenses

General and administrative expenses increased by $171.5 million, or 20.2%, to $1.021 billion for 2016 from $849.3 million for
2015. As a percentage of sales, general and administrative expenses were 28.6% and 27.0% for 2016 and 2015, respectively. The
increase in general and administrative expenses was primarily attributable to $81.9 million related to supporting our growing
international operations in China, Japan, South Korea and Latin America, increased store operating costs of $70.5 million primarily
attributable to an additional 53 stores and increased domestic wholesale general and administrative expenses of $19.1 million
primarily due to increased headcount in the United States to support our brand worldwide. In addition, expenses related to our
distribution network, including the functions of purchasing, receiving, inspecting, allocating, warehousing and packaging of our
products increased $20.0 million, due to increased shipments, to $187.3 million from $167.3 million for 2016 and 2015, respectively.

Other income (expense)

Interest income was $1.2 million for 2016 compared to $0.7 million for 2015. Interest expense for 2016 decreased $4.4 million
to $6.3 million compared to $10.7 million in 2015. The decrease was primarily due to decreased interest expense of $3.0 million
primarily attributable to our domestic distribution center equipment loans being paid in December 2015 and June 2016. Loss on
foreign currency transactions for 2016 decreased $1.6 million to $5.0 million compared to $6.6 million in 2015. This decreased
foreign currency exchange loss was primarily attributable to the impact of a stronger U.S. dollar on our intercompany balances in our

foreign subsidiaries. Loss on disposal of assets for 2016 increased $0.4 million to a loss of $1.1 million as compared to a loss of
$0.7 million in 2015.

Income taxes

Our earnings (loss) before income taxes and income tax expense for 2016, 2015 and 2014 are as follows (in thousands):

Income tax jurisdiction
United States ................................................................ $
Peoples Republic of China (“China”) ..........................
Jersey (1)........................................................................
Non-benefited loss operations (2)..................................
Other jurisdictions (3) ....................................................
Earnings before income taxes ...................................... $
Effective tax rate (4) ......................................................

2016

Years Ended December 31,
2015

Earnings (loss)
Income tax
before income
expense
taxes
105,589 $ 44,654
72,584 11,720
—
146,880
(16,189)
12
50,620 17,739
359,484 $ 74,125

Income tax
expense

Earnings (loss)
before income
taxes
136,726 $ 52,173
49,027 11,084
—
123,721
164
(16,719)
40,742
9,029
333,497 $ 72,450

$
20.6%

$
21.7%

2014

Earnings (loss)
before income
taxes

Income tax
expense
(benefit)

82,778 $ 32,500
1,179
15,201
—
77,555
(13,021)
—
28,867
5,505
191,380 $ 39,184

20.5%

(1)

(2)

(3)

(4)

Jersey does not assess income tax on corporate net earnings.
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: Brazil, India, Israel, Japan, Panama, Poland, Romania, and South Korea.
Consists of entities in the following tax jurisdictions, each of which comprises not more than 5% of consolidated earnings (loss)
before taxes in the period being reported: Albania, Austria, Belgium, Bosnia & Herzegovina, Canada, Chile, Colombia, Costa
Rica, France, Germany, Hong Kong, Hungary, India, Italy, Kosovo, Macedonia, Malaysia, Montenegro, Netherlands, Panama,
Peru, Poland, Portugal, Romania, Serbia, Singapore, Spain, Switzerland, Thailand, Vietnam, and the United Kingdom,
The effective tax rate is calculated by dividing income tax expense by earnings before income taxes.

For 2016, the effective tax rate was lower than the U.S. federal and state combined statutory rate of approximately 39%,
primarily because of earnings from foreign operations in jurisdictions imposing either lower tax rates on corporate earnings or no
corporate income tax. During 2016, as reflected in the table above, earnings (loss) before income taxes in the U.S. were
$105.6 million, with income tax expense of $44.7 million, which is an average rate of 42.3%. Earnings (loss) before income taxes in
non-U.S. jurisdictions were $253.9 million, with an aggregate income tax expense of $29.5 million, which is an average rate of 11.6%.
Combined, this results in consolidated earnings before income taxes for the period of $359.5 million, and consolidated income tax
expense for the period of $74.1 million, resulting in an effective tax rate of 20.6%. For 2016, of our $253.9 million in earnings before
income tax earned outside the U.S., $146.9 million was earned in Jersey, which does not impose a tax on corporate earnings. In Jersey,
earnings before income taxes increased by $23.2 million, or 18.7%, from $123.7 million in 2015 to $146.9 million in 2016. This
increase was primarily attributable to us experiencing an increase of $344.9 million in net sales in the “Other international” geographic
area for 2016 (see Note 18 – Segment and Geographic Reporting in our consolidated financial statements included under Part II, Item
8 of this annual report), which resulted in a significant increase in earnings before income taxes in Jersey from royalties and
commissions under the terms of inter-subsidiary agreements. Due to the scalability of our operations, increases in net sales in the
“Other international” geographic area from 2015 to 2016 resulted in a disproportionately greater increase in earnings before income
taxes in Jersey. In addition, there were foreign losses of $16.2 million for which no tax benefit was recognized during the year ended
December 31, 2016 because of the provision of offsetting valuation allowances, but in which $12 thousand in nonrefundable
withholding taxes were paid. Individually, none of the other foreign jurisdictions included in “Other jurisdictions” in the table above
had earnings greater than 5% of our consolidated earnings (loss) before taxes in any of the years shown. 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, 2016, we had approximately $718.5 million in cash and cash equivalents, of which $368.4 million, or
51.3%, was held outside the U.S. Of the $368.4 million held by our non-U.S. subsidiaries, approximately $33.4 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 consolidated financial statements as of December 31, 2016. 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, 2016 and 2015, U.S. income taxes have not been provided on cumulative total earnings of approximately
$699.6 million and $482.7 million, respectively.

Non-controlling interest in net income and loss of consolidated subsidiaries

Net earnings attributable to non-controlling interest for 2016 increased $12.8 million to $41.9 million as compared to
$29.1 million for 2015 due to increased profitability of our joint ventures. 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, 2017 was $1.508 billion, an increase of $301.6 million from working capital of
$1.206 billion at December 31, 2016. Our cash and cash equivalents at December 31, 2017 was $736.4 million, compared to
$718.5 million at December 31, 2016. This increase in cash and cash equivalents of $17.9 million, after consideration of the effect of
exchange rates, was the result of our net earnings of $235.1 million, increased accrued expenses and other long-term liabilities of
$86.0 million, reduced contributions from non-controlling interests and increased proceeds on long-term borrowings of $5.7 million,
which was partially offset by increased inventories of $158.6 million and increased receivables of $102.2 million, decreased payables
of $12.8 million and increased capital expenditures of $136.0 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 capital expenditures.

Operating Activities

Net cash provided by operating activities was $159.3 million for 2017 and $361.6 million for 2016. On a comparative
year-to-year basis, the $202.3 million decrease in cash flows from operating activities in 2017 from cash used in operating activities in
2016 primarily resulted from a larger increase in inventories of $100.5 million to support expected increased sales worldwide, a larger
increase in accounts receivable of $91.9 million from increased sales and a $51.1 million decrease in accounts payable from increased
factory payments, which were partially offset by a larger increase in accrued expenses and other long-term liabilities of $76.7 million,
primarily from increased income taxes due to the Tax Act as of December 31, 2017 when compared to December 31, 2016.

Investing Activities

Net cash used in investing activities was $138.3 million for 2017, as compared to $145.6 million in 2016. The decrease in cash
used in investing activities in 2017 as compared to 2016 was due to an increase in capital expenditures of $16.5 million partially offset
by a decrease in acquisitions of $22.5 million. Capital expenditures for 2017 were approximately $136.0 million, which primarily
consisted of $68.5 million for new store openings and remodels, and additional $19.9 million for land to be used for our China
distribution center, $12.0 million for new retail locations in our China joint venture, $15.4 million to support our international
wholesale operations and $5.3 million for corporate showroom and office upgrades. This was compared to capital expenditures of
$119.5 million in the prior year, which primarily consisted of $37.3 million for new store openings and remodels, $17.5 million for the
automation upgrades for our European Distribution Center equipment, $17.5 million for the improvement of our international
corporate offices and showrooms, $7.0 million related to property purchases for potential future corporate development. Excluding the
costs of building our China distribution center and new corporate office building we expect our ongoing capital expenditures for 2018
to be between $45.0 million and $50.0 million, which include opening 75 to 85 retail stores, store remodels, and for infrastructure in
our international joint ventures, corporate office and information technology upgrades. We believe our current cash, operating cash
flows, 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.

Financing Activities

Net cash used in financing activities was $14.5 million during 2017, compared to net cash used of $3.5 million during 2016. The
increase in cash used by financing activities was primarily attributable to the increase in distributions to non-controlling interests of
$8.2 million.

Capital Resources and Prospective Capital Requirements

Share Repurchase Program

On February 6, 2018, the Company's Board of Directors authorized a share repurchase program (the “Share Repurchase
Program”), pursuant to which the Company may, from time to time, purchase shares of its Class A common stock, par value
$0.001 per share (“Class A common stock”), for an aggregate repurchase price not to exceed $150.0 million. The Share Repurchase
Program expires on February 6, 2021. Share repurchases may be executed through various means, including, without limitation, open
market transactions, privately negotiated transactions or pursuant to any trading plan that may be adopted in accordance with Rule
10b5-1 of the Securities and Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements and other
relevant factors. The Share Repurchase Program does not obligate the Company to acquire any particular amount of shares of Class A
common stock and the program may be suspended or discontinued at any time.

Financing Arrangements

On June 30, 2015, we entered into a $250.0 million loan and security agreement, subject to increase by up to $100.0 million,
(the “Credit Agreement”), with the following lenders: Bank of America, N.A., MUFG Union Bank, N.A. and HSBC Bank USA,
National Association. The Credit Agreement matures on June 30, 2020. The Credit Agreement replaces the credit agreement dated
June 30, 2009, which expired on June 30, 2015. The Credit Agreement permits us and certain of our subsidiaries to borrow based on a
percentage of eligible accounts receivable plus the sum of (a) the lesser of (i) a percentage of eligible inventory to be sold at wholesale
and (ii) a percentage of net orderly liquidation value of eligible inventory to be sold at wholesale, plus (b) the lesser of (i) a percentage
of the value of eligible inventory to be sold at retail and (ii) a percentage of net orderly liquidation value of eligible inventory to be
sold at retail, plus (c) the lesser of (i) a percentage of the value of eligible in-transit inventory and (ii) a percentage of the net orderly
liquidation value of eligible in-transit inventory. Borrowings bear interest at our election based on (a) LIBOR or (b) the greater of
(i) the Prime Rate, (ii) the Federal Funds Rate plus 0.5% and (iii) LIBOR for a 30-day period plus 1.0%, in each case, plus an
applicable margin based on the average daily principal balance of revolving loans available under the Credit Agreement. We pay a
monthly unused line of credit fee of 0.25%, payable on the first day of each month in arrears, which is 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 $100.0 million. The Credit Agreement
contains customary affirmative and negative covenants for secured credit facilities of this type, including covenants that will limit the
ability of the Company and its subsidiaries to, among other things, incur debt, grant liens, make certain acquisitions, dispose assets,
effect a change of control of the Company, make certain restricted payments including certain dividends and stock redemptions, make
certain investments or loans, enter into certain transactions with affiliates and certain prohibited uses of proceeds. The Credit
Agreement also requires compliance with a minimum fixed-charge coverage ratio if Availability drops below 10% of the Revolver
Commitments (as such terms are defined in the Credit Agreement) until the date when no event of default has existed and Availability
has been over 10% for 30 consecutive days. We paid closing and arrangement fees of $1.1 million on this facility, which are being
amortized to interest expense over the five-year life of the facility. As of December 31, 2017, there was $0.1 million outstanding under
this credit facility, which is classified as short-term borrowings in our consolidated balance sheets.

On April 30, 2010, the JV, through HF Logistics-SKX T1, LLC, a Delaware limited liability company and a wholly-owned
subsidiary of the JV ("HF-T1"), entered into a construction loan agreement with Bank of America, N.A. as administrative agent and as
a lender, and Raymond James Bank, FSB, as a lender (collectively, the "Construction Loan Agreement"), pursuant to which the JV
obtained a loan of up to $55.0 million used for construction of the Project on the Property (the "Original Loan"). On
November 16, 2012, HF-T1 executed a modification to the Construction Loan Agreement (the "Modification"), which added OneWest
Bank, FSB as a lender, increased the borrowings under the Original Loan to $80.0 million and extended the maturity date of the
Original Loan to October 30, 2015. On August 11, 2015, the JV through HF-T1 entered into an amended and restated loan agreement
with Bank of America, N.A., as administrative agent and as a lender, and CIT Bank, N.A. (formerly known as OneWest Bank, FSB)
and Raymond James Bank, N.A., as lenders (collectively, the "Amended Loan Agreement"), which amends and restates in its entirety
the Construction Loan Agreement and the Modification.

equaled our 50% share of the outstanding principal balance of the Original Loan. Under the Amended Loan Agreement, the parties
agreed that the lenders would loan $70.0 million to HF-T1 (the "New Loan"). The New Loan is being used by the JV through HF-T1
to (i) refinance all amounts owed on the Original Loan after taking into account the payment described above, (ii) pay $0.9 million in
accrued interest, loan fees and other closing costs associated with the New Loan and (iii) make a distribution of $31.3 million less the
amounts described in clause (ii) to HF. Pursuant to the Amended Loan Agreement, the interest rate on the New Loan is the LIBOR
Daily Floating Rate (as defined in the Amended Loan Agreement) plus a margin of 2%. The maturity date of the New Loan is August
12, 2020, which HF-T1 has one option to extend by an additional 24 months, or until August 12, 2022, upon payment of a fee and
satisfaction of certain customary conditions. On August 11, 2015, HF-T1 and Bank of America, N.A. entered into an ISDA master
agreement (together with the schedule related thereto, the "Swap Agreement") to govern derivative and/or hedging transactions that
HF-T1 concurrently entered into with Bank of America, N.A. Pursuant to the Swap Agreement, on August 14, 2015, HF-T1 entered
into a confirmation of swap transactions (the "Interest Rate Swap") with Bank of America, N.A. The Interest Rate Swap has an
effective date of August 12, 2015 and a maturity date of August 12, 2022, subject to early termination at the option of HF-T1,
commencing on August 1, 2020. The Interest Rate Swap fixes the effective interest rate on the New Loan at 4.08% per annum.
Pursuant to the terms of the JV, HF Logistics is responsible for the related interest expense on the New Loan, and any amounts related
to the Swap Agreement. The full amount of interest expense related to the New Loan has been included in our consolidated statements
of equity within non-controlling interests. The Amended Loan Agreement and the Swap Agreement are subject to customary
covenants and events of default. Bank of America, N.A. also acts as a lender and syndication agent under our credit agreement dated
June 30, 2015. We had $66.6 million outstanding under the Amended Loan Agreement, which is included in long-term borrowings as
of December 31, 2017.

As of December 31, 2017, outstanding short-term and long-term borrowings were $80.9 million, of which $67.2 million relates
to loans for our domestic distribution center and the remaining relates to our international operations. Our long-term debt obligations
contain both financial and non-financial covenants, including cross-default provisions. We were in compliance with all debt covenants
under the Amended Loan Agreement and the Credit Agreement as of the date of this annual report.

We believe that anticipated cash flows from operations, available borrowings under our credit agreement, 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 at least through March 31, 2019. Our future capital requirements will depend on many factors, including, but
not limited to, the global economy and the outlook for and pace of sustainable growth in our markets, the levels at which we maintain
inventory, sale of excess inventory at discounted prices, the market acceptance of our footwear, the number and timing of new store
openings, the success of our international operations, costs associated with constructing our China distribution center and distribution
center equipment, 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, costs associated with constructing new corporate offices, any
potential acquisitions of other brands or companies and the amount of share repurchases. 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 have been successful in the past 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, 2017 (In

thousands):

Less than
One
Year

One to
Three
Years

Three to
Five
Years

More Than
Five
Years

Total

8,011
Short-term borrowings ............................................................ $
Long-term borrowings (1) ........................................................
74,225
Operating lease obligations (2)................................................. 1,549,108
Purchase obligations (3) ........................................................... 1,125,289
40,369
Minimum payments related to other arrangements ................
Total (4)............................................................................... $ 2,797,002

8,011
4,512
238,665
1,125,289
13,784
$ 1,390,261

—
69,713
396,689
—
17,197
483,599

—
—
327,691
—
9,388
337,079

—
—
586,063
—
—
586,063

(2)

Amounts include anticipated interest payments based on interest rates currently in effect.
Operating lease obligations consists primarily of real property leases for our retail stores, corporate offices, European and
other international distribution centers. 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)

(4)

Purchase obligations include the following: (i) accounts payable balances for the purchase of footwear of $177.4 million, (ii)
outstanding letters of credit of $4.4 million and (iii) open purchase commitments with our foreign manufacturers for $943.4
million. We currently expect to fund these commitments with cash flows from operations and existing cash balances.
Our consolidated balance sheet, as of December 31, 2017, included $7.4 million in unrecognized tax benefits. Future payments
related to these unrecognized tax benefits have not been presented in the table above, due to the uncertainty of the amounts, the
potential timing of cash settlements with the tax authorities, and uncertainty whether any settlement would occur. In addition,
the table above does not include payments of $99.9 million over the next eight years related to the provisional one-time tax
liability recorded due to the Tax Act.

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 U.S. GAAP. 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 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 judgments about
the carrying values of assets and liabilities. In determining whether an estimate is critical, we consider whether 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
whether the impact of the estimates and assumptions have a material impact on our financial condition or operating performance.
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 intangibles and long-lived assets, litigation reserves, and tax estimates 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 generate retail revenues
primarily from the sale of footwear to customers at retail locations or through our websites. For our in-store sales, we recognize
revenue at the point of sale. For sales made through our websites, we recognize revenue upon shipment to the customer which is when
the customer obtains control of the promised good. Sales and value added taxes collected from e-commerce or retail customers are
excluded from reported revenues.

Generally, wholesale customers do not have the right to return goods, however, 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 actual sales for the period, which 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 and adjusted periodically in accordance with external credit reporting services, financial statements

issued by the customer and our experience with the account. 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. Retail and e-commerce
receivables represent amounts due from credit card companies and are generally collected within a few days of the purchase. As such
we have determined that no allowance for doubtful accounts is necessary.

We also reserve for potential disputed amounts or chargebacks from our customers. Our chargeback reserve is based on a
collectability 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 $457.1 million and $368.5 million, and the allowance for bad debts, returns, sales
allowances and customer chargebacks were $51.2 million and $41.6 million, at December 31, 2017 and 2016, respectively. Our credit
losses charged to expense for the years ended December 31, 2017, 2016, and 2015 were $12.8 million, $12.7 million, and
$5.2 million, respectively. In addition, we recorded sales return and allowance expense for the years ended December 31, 2017, 2016
and 2015 of $5.6 million, $18.1 million, and $2.3 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 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 on 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 depends 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 $881.8 million and
$712.0 million, and our inventory reserve was $8.8 million and $11.5 million, at December 31, 2017 and 2016, 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 on 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, 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; and

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. 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. We review all of our stores for impairment annually or more

frequently if events or changes in circumstances require it. 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 which have been open in excess
of twenty-four months are then reviewed in detail to determine whether impairment exists. Management reviews both quantitative and
qualitative factors to assess whether a triggering event occurred. For the years ended December 31, 2017, 2016 and 2015, respectively
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 financial statements. The likelihood of a material change in these estimated reserves would depend on additional
information or new claims as they may arise as well as 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 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 potential liability could materially impact our results of operations and financial position.

Tax estimates and 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, 2017, we had net deferred tax
assets of $57.1 million reduced by a valuation allowance of $27.3 million primarily related to loss carry-forwards not expected to be
utilized by certain foreign subsidiaries.

On December 22, 2017, the SEC staff issued SAB 118 to address the accounting implications of the 2017 Tax Act. SAB 118
permits a company to recognize provisional amounts for the one-time tax effects of the Tax Act upon enactment when it does not have
the necessary information available, prepared or analyzed in reasonable detail to complete its accounting for the change in tax law.
The measurement period to finalize our calculations cannot extend beyond one year of the enactment date. Key provisions that have a
significant impact on our consolidated financial statements and where we have recognized estimated amounts include the recognition
of a tax liability for a one-time Transition Tax on the accumulated earnings of our foreign subsidiaries, and the remeasurement of
certain net deferred tax assets and liabilities as a result of the decrease in the U.S. corporate tax rate from 35% to 21%.

Due to the Transition Tax on the accumulated earnings of our foreign subsidiaries, previously unremitted earnings for which no
U.S. deferred tax liability had been provided have now been subject to U.S. tax. While we have provided U.S. tax on all our
unremitted foreign earnings, we have not provided for additional foreign taxes which may arise upon repatriation of those amounts of
unremitted foreign earnings which we believe are indefinitely reinvested outside the U.S.

INFLATION

We do not believe that the 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 2017 and 2016,
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

Refer to Note 1 — The Company and Summary of Significant Accounting Policies in the accompanying Notes to the

Consolidated Financial Statements for recently adopted and recently issued accounting standards.

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.

Interest rate fluctuations. As of December 31, 2017, we have $8.0 million and $66.6 million of outstanding short-term and
long-term borrowings, respectively, subject to changes in interest rates. A 200 basis point increase in interest rates would have
increased interest expense by less than $0.2 million for the year ended December 31, 2017. We do not expect any changes in interest
rates to have a material impact on our financial condition or results of operations during the remainder of 2018. The interest rate
charged on our domestic secured line of credit facility is based on the prime rate of interest and our domestic distribution center loan is
based on the one month LIBOR. Changes in the prime rate of interest or the LIBOR interest rate will have an effect on the interest
charged on outstanding balances. As of December 31, 2017, there was $0.1 million outstanding under this credit facility and
$66.6 million outstanding on our domestic distribution center loan.

We have entered into derivative financial instruments such as interest rate swaps in order to mitigate our interest rate risk on our
long-term debt. We will not enter into derivative transactions for speculative purposes. We had one derivative instrument in place as
of December 31, 2017 to hedge the cash flows on our $66.6 million variable rate debt on our domestic distribution center. This
instrument was a variable to fixed derivative with a notional amount of $66.6 million at December 31, 2017. Our average receive rate
was one month LIBOR and the average pay rate was 2.08%. The rate swap agreement utilized by us effectively modifies our exposure
to interest rate risk by converting our floating-rate debt to a fixed rate basis over the life of the loan, thus reducing the impact of
interest-rate changes on future interest expense.

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 subsidiaries’ 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.

Assets and liabilities outside the United States are located in regions where we have subsidiaries or joint ventures: Asia, Central
America, Europe, the Middle East, North America, and South America. Our investments in foreign subsidiaries and joint ventures with a
functional currency other than the U.S. dollar are generally considered long-term. Accordingly, we do not hedge these net investments.
The fluctuation of foreign currencies resulted in a cumulative foreign currency translation gain of $11.9 million and a cumulative foreign
currency translation loss of $0.3 million for the years ended December 31, 2017 and 2016, respectively, that are deferred and recorded as
a component of accumulated other comprehensive income in stockholders’ equity. A 200 basis point reduction in each of these exchange
rates at December 31, 2017 would have reduced the values of our net investments by approximately $24.8 million.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ........................................................................
CONSOLIDATED BALANCE SHEETS.......................................................................................................................................
CONSOLIDATED STATEMENTS OF EARNINGS....................................................................................................................
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME......................................................................................
CONSOLIDATED STATEMENTS OF EQUITY .........................................................................................................................
CONSOLIDATED STATEMENTS OF CASH FLOWS...............................................................................................................
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ....................................................................................................
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS .........................................................................................

Page
47
48
49
50
51
52
53
78

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
Skechers U.S.A., Inc.
Manhattan Beach, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Skechers U.S.A., Inc. (the “Company”) and subsidiaries as of
December 31, 2017 and 2016, the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each
of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the
accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2017 and
2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017, in
conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) and our report dated March 1, 2018 expressed an unqualified opinion thereon.

Change in Accounting Method related to Stock Compensation

As discussed in Note 12 to the consolidated financial statements, the Company has changed its method of accounting for stock
compensation on January 1, 2017 due to the adoption of Accounting Standards Update 2016-09.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to
error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2013.

Los Angeles, California
March 1, 2018

SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)

December 31,
2017

December 31,
2016

Current assets:

ASSETS

Cash and cash equivalents
Trade accounts receivable, less allowances of $51,180 in 2017 and $41,647 in 2016
Other receivables

Total receivables

Inventories
Prepaid expenses and other current assets

Total current assets
Property, plant and equipment, net
Deferred tax assets
Other assets, net

Total non-current assets

TOTAL ASSETS

LIABILITIES AND EQUITY

Current liabilities:

Current installments of long-term borrowings
Short-term borrowings
Accounts payable
Accrued expenses

Total current liabilities

Long-term borrowings, excluding current installments
Deferred tax liabilities
Other long-term liabilities

Total non-current liabilities

Total liabilities
Commitments and contingencies
Stockholders’ equity:

Preferred stock, $0.001 par value; 10,000 shares authorized; none issued
and outstanding
Class A common stock, $0.001 par value; 500,000 shares authorized;
131,784 and 130,386 shares issued and outstanding at December 31, 2017
and December 31, 2016, respectively
Class B convertible common stock, $0.001 par value; 75,000 shares
authorized; 24,545 shares issued and outstanding at
December 31, 2017 and December 31, 2016
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings

Skechers U.S.A., Inc. equity

Non-controlling interests
Total stockholders' equity

TOTAL LIABILITIES AND EQUITY

736,431 $
405,921
27,083
433,004
873,016
62,573
2,105,024
541,601
29,922
58,535
630,058
2,735,082 $

1,801 $
8,011
505,334
82,202
597,348
71,103
161
118,259
189,523
786,871

—

132

24
453,417
(14,744)
1,390,235
1,829,064
119,147
1,948,211
2,735,082 $

718,536
326,844
19,191
346,035
700,515
62,680
1,827,766
494,473
26,043
45,388
565,904
2,393,670

1,783
6,086
520,437
93,424
621,730
67,159
412
18,855
86,426
708,156

—

130

24
419,038
(26,604)
1,211,045
1,603,633
81,881
1,685,514
2,393,670

See accompanying notes to consolidated financial statements.

SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)

Net sales
Cost of sales

Gross profit

Royalty income

Operating expenses:

Selling
General and administrative

Earnings from operations

Other income (expense):
Interest income
Interest expense
Other, net

Total other income (expense)

Earnings before income tax expense

Income tax expense
Net earnings
Less: Net earnings attributable to non-controlling interests
Net earnings attributable to Skechers U.S.A., Inc.

Net earnings per share attributable to Skechers U.S.A., Inc.:

Basic
Diluted

Weighted average shares used in calculating net earnings per share
attributable to Skechers U.S.A, Inc.:

Basic
Diluted

$
$

2017
4,164,160
2,225,271
1,938,889
16,666
1,955,555

Years Ended December 31,
2016
3,563,311
1,928,715
1,634,596
13,885
1,648,481

327,201
1,245,474
1,572,675
382,880

257,129
1,020,834
1,277,963
370,518

2,420
(6,677)
5,637
1,380
384,260
149,156
235,104
55,914
179,190

1.15
1.14

$
$

1,186
(6,270)
(5,950)
(11,034)
359,484
74,125
285,359
41,866
243,493

1.58
1.57

$
$

2015
3,147,323
1,723,315
1,424,008
11,745
1,435,753

235,586
849,343
1,084,929
350,824

722
(10,728)
(7,321)
(17,327)
333,497
72,450
261,047
29,135
231,912

1.52
1.50

155,651
156,523

154,169
155,084

152,847
154,200

See accompanying notes to consolidated financial statements.

SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

Net earnings
Other comprehensive income:

2017

Years Ended December 31,
2016

2015

235,104

285,359

261,047

Gain (loss) on foreign currency translation adjustment

Comprehensive income

Less: Comprehensive income attributable to noncontrolling interests
$

Comprehensive income attributable to Skechers U.S.A., Inc.

19,119
254,223
63,173
191,050

(4,698)

280,661
37,467
243,194

(13,167)
247,880
26,196
221,684

See accompanying notes to consolidated financial statements.

SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)

AMOUNT

CLASS A
COMMON
STOCK
120,862
—
—

CLASS B
COMMON
STOCK
31,410
—
—

CLASS A
COMMON
STOCK
120
$
—
—

CLASS B
COMMON
STOCK
31
$
—
—

ADDITIONAL
PAID-IN
CAPITAL
355,535
$
—
—

ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)

SKECHERS

NON

RETAINED U.S.A., INC. CONTROLLING
INTERESTS
EARNINGS EQUITY
58,858
29,135
(2,939 )

735,640 $ 1,075,249 $
231,912
231,912
(10,228 )
—

(16,077 ) $
—
(10,228 )

TOTAL
STOCKHOLDERS'
EQUITY

Balance at January 1, 2015
Net earnings
Foreign currency translation adjustment
Contribution from noncontrolling interest of consolidated
entity
Distribution to noncontrolling interest of consolidated
entity
Stock compensation expense
Proceeds from issuance of common stock under the
employee stock purchase plan
Shares issued under the Incentive Award Plan
Tax benefit of stock options exercised
Conversion of Class B Common Stock into Class A
Common Stock
Balance at December 31, 2015
Net earnings
Foreign currency translation adjustment
Contribution from noncontrolling interest of consolidated
entity
Distribution to noncontrolling interest of consolidated
entity
Stock compensation expense
Proceeds from issuance of common stock under the
employee stock purchase plan
Shares issued under the Incentive Award Plan
Tax benefit of stock options exercised
Conversion of Class B Common Stock into Class A
Common Stock
Balance at December 31, 2016
Net earnings
Foreign currency translation adjustment
Contribution from noncontrolling interest of consolidated
entity
Distribution to noncontrolling interest of consolidated
entity
Stock compensation expense
Proceeds from issuance of common stock under the
employee stock purchase plan
Shares issued under the Incentive Award Plan
Balance at December 31, 2017

—

—
—

224
1,106
—

5,132
127,324
—
—

—

—
—

221
1,108
—

1,733
130,386
—
—

—

—
—

—

—
—

—
—
—

—

—
—

1
1
—

—

—
—

—
—
—

—

—
18,296

4,317

(1 )

8,009

—

—
—

—
—
—

—

—
—

—
—
—

—
18,296

4,318
—
8,009

—

2,272

(5,132 )
26,278
$
—
—

5
127
—
—

(5 )
26
$
—
—

—
386,156
—
—

—
(26,305 ) $
—
(299 )

—

—
967,552 $ 1,327,556 $
243,493
243,493
(299 )
—

—

13,980

—

—
—

—
—
—

(1,733 )
24,545
$
—
—

—

—
—

—

—
—

—
1
—

2
130
—
—

—

—
—

—

—
—

—
—
—

—

—
23,081

5,120

(1 )

4,682

(2 )
24
$
—
—

—
419,038
—
—

—

—
—

—
—
24

—

—
28,902

5,479
(2 )
453,417

240
1,158
131,784

—
—
24,545

—
2
132

—

—
—

—
—
—

—

—
—

—
—
—

—
23,081

5,120
—
4,682

—

—
(26,604 ) $ 1,211,045 $ 1,603,633 $

—

—
11,860

179,190
—

179,190
11,860

—

—
—

—

—
—

—

—
28,902

5,479
—

(14,744 ) $ 1,390,235 $ 1,829,064 $

1,134,107
261,047
(13,167 )

2,272

(39,148 )
18,296

4,318
—
8,009

—
1,375,734
285,359
(4,698 )

13,980

(17,744 )
23,081

5,120
—
4,682

—
1,685,514
235,104
19,119

(25,953 )
28,902

5,479
—
1,948,211

(39,148 )
—

—
—
—

—
48,178
41,866
(4,399 )

(17,744 )
—

—
—
—

—
81,881
55,914
7,259

(25,953 )
—

—
—
119,147

See accompanying notes to consolidated financial statements

SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

2017

Years Ended December 31,
2016

2015

235,104

285,359

261,047

Cash flows from operating activities:

Net earnings
Adjustments to reconcile net earnings to net cash provided by operating
activities:

Depreciation and amortization of property, plant and equipment
Amortization of other assets
Provision for bad debts and returns
Non-cash share-based compensation
Deferred income taxes
Gain (loss) on non-current assets
Net foreign currency adjustments
(Increase) decrease in assets:

Receivables
Inventories
Prepaid expenses and other current assets
Other assets

Increase (decrease) in liabilities:
Accounts payable
Accrued expenses and other long-term liabilities
Net cash provided by operating activities

Cash flows from investing activities:

Capital expenditures
Intangible asset additions
Purchases of investments
Proceeds from sales of investments
Acquisition of South Korea distributor

Net cash used in investing activities

Cash flows from financing activities:

Net proceeds from the issuances of common stock through employee
stock purchase plan
Payments on long-term debt
Proceeds from long-term debt
Proceeds (payments) on short-term borrowings
Excess tax benefits from share-based compensation
Contribution from non-controlling interests of consolidated entity
Distributions to non-controlling interests of consolidated entity

Net cash used in financing activities

Net increase in cash and cash equivalents
Effect of exchange rates on cash and cash equivalents

Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year

Supplemental disclosures of cash flow information:

Cash paid during the year for:

Interest
Income taxes, net

82,764
13,746
18,398
28,902
(3,947)
(2,187)
(7,749)

(102,222)
(158,628)
(9,145)
(8,916)

(12,806)
86,023
159,337

(135,976)
(214)
(2,344)
284
—
(138,250)

5,479
(1,783)
5,745
1,925
—
46
(25,953)
(14,541)
6,546
11,349
718,536
736,431

6,392
56,633

66,083
13,099
30,820
23,081
(11,936)
413
(3,949)

(10,350)
(58,152)
(15,343)
(5,056)

38,247
9,306
361,622

(119,471)
—
(3,810)
170
(22,534)
(145,645)

5,120
(15,653)
—
6,091
4,682
13,980
(17,744)
(3,524)
212,453
(1,908)
507,991
718,536

5,724
65,260

52,433
1,214
7,520
18,296
(4,844)
656
—

(100,032)
(176,062)
(2,082)
(6,423)

130,075
50,416
232,214

(118,144)
(55)
(8,428)
144
—
(126,483)

4,318
(32,656)
762
(1,733)
8,009
2,272
(39,148)
(58,176)
47,555
(6,249)
466,685
507,991

9,891
63,479

See accompanying notes to consolidated financial statements.

SKECHERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 and 2015

(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

operates 449 domestic and 196 international retail stores and an e-commerce business as of December 31, 2017.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) 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

The Company 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 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 materially
from those estimates.

(c)

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. Related costs paid to third-party shipping companies are recorded as
a cost of sales. Generally, wholesale customers do not have the right to return goods, however, the Company periodically decides 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. The Company generates retail revenues primarily from the sale of footwear to
customers at retail locations or through websites. For in-store sales, the Company recognizes revenue at the point of sale. For sales
made through websites, the Company recognizes revenue upon shipment to the customer which is when the customer obtains control
of the promised good. Sales and value added taxes collected from e-commerce or retail customers are excluded from reported
revenues.

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. 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, the Company receives correspondence from licensees indicating actual sales for the period,
which is used to calculate and accrue the related royalties currently receivable based on the terms of the agreement.

(d) Business Segment Information

The Company’s operations and segments are organized along its distribution channels and consist of the following: domestic
wholesale, international wholesale, and retail, which includes e-commerce sales. Information regarding these segments is summarized
in Note 18 – Segment and Geographic Reporting.

(e) Noncontrolling Interests

The Company has equity interests in several joint ventures that were established either to exclusively distribute the Company’s
products throughout Asia and the Middle East 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 that it is the primary beneficiary for these
VIE’s because the Company 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 2017 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 VIEs.

(f)

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, approximate 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 fair value,

based upon current rates and terms available to the Company for similar debt.

As of August 12, 2015, the Company entered into an interest rate swap agreement concurrent with refinancing its domestic
distribution center construction loan (see Note 6, Derivative Instruments). The fair value of the interest rate swap was determined
using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable
cash receipts. The variable cash receipt was based on an expectation of future interest rates (forward curves) derived from observable
market interest rate curves. To comply with U.S. GAAP, credit valuation adjustments were incorporated to appropriately reflect both
the Company’s nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. The
majority of the inputs used to value the interest rate swap were within Level 2 of the fair value hierarchy. As of December 31, 2017,
the interest rate swap was a Level 2 derivative and was classified as other long-term liabilities in the Company’s consolidated balance
sheets.

(g) Cash and Cash Equivalents

Cash and cash equivalents include deposits with initial terms 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) 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 uncollectability, customers’ credit-worthiness is reviewed and adjusted
periodically in accordance with external credit reporting services, financial statements issued by the customer and the Company’s
experience with the account. 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 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. Retail and e-commerce receivables represent
amounts due from credit card companies and are generally collected within a few days of the purchase. As such, the Company has
determined that no allowance for doubtful accounts is necessary.

The Company also reserves for potential disputed amounts or chargebacks from its customers. The Company’s chargeback
reserve is based on a collectability percentage calculated using 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 its historical loss rate as a
percentage of sales.

(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 on inventory on hand, historical sales activity, industry trends, the retail
environment, and the expected net realizable value. The net realizable value is determined using estimated sales prices of similar
inventory through off-price or discount store channels.

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No 2015-11,
“Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). ASU 2015-11 requires that inventory within
the scope of this standard be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price
in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments
apply to inventory that is measured using first-in, first-out or average cost. Effective January 1, 2017, the Company adopted
ASU 2015-11. The adoption of ASU 2015-11 did not have a material impact on the Company’s consolidated financial statements.

(j)

Property, Plant and Equipment

Depreciation and amortization of property, plant and equipment is computed using the straight-line method, which 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

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 or asset group may not be recoverable. The Company reviews both
quantitative and qualitative factors to assess whether a triggering event occurred. The Company reviews all stores for impairment
annually or more frequently if events or changes in circumstances require it. The Company prepares a summary of store cash flows
from its retail stores to assess potential impairment of the fixed assets and leasehold improvements. Stores with negative cash flows
which have been open in excess of 24 months are then reviewed in detail to determine whether impairment exists. Recoverability of
assets or asset group to be held and used is measured by a comparison of the carrying amount of an asset or asset group to the
estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or
asset group exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount
of the asset or asset group exceeds the fair value of the asset or asset group. The Company did not record impairment charges during
the years ended December 31, 2017, 2016 or 2015.

(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)

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
reporting currency. The Company operates internationally through several foreign subsidiaries. Skechers S.a.r.l. located in
Switzerland, operates with a functional currency of the U.S. dollar. Translation adjustments for subsidiaries where the functional
currency is its local currency are included in other comprehensive income. Foreign currency transaction gains (losses) resulting from
exchange rate fluctuation on transactions denominated in a currency other than the functional currency are reported in 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.

(m) Comprehensive Income

Comprehensive income is presented in the consolidated statements of comprehensive income. Comprehensive income consists

of net earnings, foreign currency translation adjustments, and income attributable to non-controlling interests.

(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, 2017, 2016 and 2015 was approximately $260.4 million,
$213.1 million and $188.1 million, respectively. Prepaid advertising costs were $8.6 million and $9.8 million at December 31, 2017,
and 2016, respectively. Prepaid amounts outstanding at December 31, 2017 and 2016 represent the unamortized portion of
endorsement contracts, advertising in trade publications and media productions created, but not run, as of December 31, 2017 and
2016, respectively.

(o)

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 $18.8 million, $13.6 million, and $11.2 million during the years ended
December 31, 2017, 2016 and 2015, respectively.

(p) Warehouse and Distribution Costs

The Company’s distribution network-related costs are included in general and administrative expenses and are not allocated to
specific segments. The expenses related to its distribution network, including the functions of purchasing, receiving, inspecting,
allocating, warehousing and packaging of its products totaled $219.6 million, $187.3 million and $167.3 million for 2017, 2016 and
2015, respectively.

(q) Recent Accounting Pronouncements

In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-16, “Accounting for Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory.” The standard requires that the
income tax impact of intra-entity sales and transfers of property, except for inventory, be recognized when the transfer occurs. The
standard will become effective for the Company’s annual and interim reporting periods beginning January 1, 2018 and will require
any deferred taxes not yet recognized on intra-entity transfers to be recorded to retained earnings under a modified retrospective
approach. Early adoption is permitted. The Company will adopt ASU 2016-16 in the first quarter of 2018 and does not expect that the
adoption of this ASU will have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The new standard requires
lessees to recognize most leases on the balance sheet, which will increase lessees’ reported assets and liabilities. ASU 2016-02 is
effective for the Company’s annual and interim reporting periods beginning January 1, 2019. ASU 2016-02 mandates a modified
retrospective transition method. The Company is currently assessing the impact of the new standard on its consolidated financial
statements, but anticipates an increase in assets and liabilities due to the recognition of the required right-of-use asset and
corresponding liability for all lease obligations that are currently classified as operating leases, such as real estate leases for corporate
headquarters, administrative offices, retail stores, showrooms, and distribution facilities, as well as additional disclosure on all our
lease obligations. The income statement recognition of lease expense is not expected to materially change from the current
methodology.

In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers,” which amended the FASB
Accounting Standards Codification (“ASC”) and created a new Topic ASC 606, “Revenue from Contracts with Customers”
(“ASC 606”). This amendment prescribes that an entity should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or
services. The amendment supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition,” and most
industry-specific guidance throughout the Industry Topics of the Codification. For the Company’s annual and interim reporting
periods the mandatory adoption date of ASC 606 is January 1, 2018, and there will be two methods of adoption allowed, either a full
retrospective adoption or a modified retrospective adoption. In August 2015, the FASB issued ASU 2015-14, which deferred the
effective date of ASU 2014-09 to the first quarter of 2018. In March 2016, April 2016, May 2016, and December 2016, the FASB
issued ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2016-20, respectively, as clarifications to ASU 2014-09. ASU 2016-08
clarifies how to identify the unit of accounting for the principal versus agent evaluation, how to apply the control principle to certain
types of arrangements, such as service transactions, and reframed the indicators in the guidance to focus on evidence that an entity is
acting as a principal rather than as an agent. ASU 2016-10 clarifies the existing guidance on identifying performance obligations and
licensing implementation. ASU 2016-12 adds practical expedients related to the transition for contract modifications and further
defines a completed contract, clarifies the objective of the collectability assessment and how revenue is recognized if collectability is
not probable, and when non-cash considerations should be measured. ASU 2016-20 corrects or improves guidance in thirteen narrow
focus aspects of the guidance. The effective dates for these ASUs are the same as the effective date for ASU No. 2014-09, for the
Company’s annual and interim periods beginning January 1, 2018. These ASU’s also require enhanced disclosures regarding the
nature, amount, timing, and uncertainty of revenue and cash flows. The Company will adopt the new revenue standards in the first
quarter of 2018 using the modified retrospective method. The Company has completed the assessment of the impact of these ASUs on
its consolidated financial statements and does not expect that the adoption of these ASUs will have a material impact on its
consolidated financial statements.

(2)

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2017 and 2016 is summarized as follows (in thousands):

2017

2016

Land............................................................................................. $
Buildings and improvements.......................................................
Furniture, fixtures and equipment ...............................................
Leasehold improvements.............................................................
Total property, plant and equipment......................................
Less accumulated depreciation and amortization........................
Property, plant and equipment, net ........................................ $

83,163 $
208,351
330,644
357,920
980,078
438,477
541,601 $

83,163
207,665
297,540
289,847
878,215
383,742
494,473

(3) ACCRUED EXPENSES

Accrued expenses at December 31, 2017 and 2016 are summarized as follows (in thousands):

Accrued inventory purchases ...................................................... $
Accrued payroll and taxes ...........................................................
Accrued expenses .................................................................. $

20,509 $
61,693
82,202 $

48,087
45,337
93,424

2017

2016

(4) LINE OF CREDIT AND SHORT-TERM BORROWINGS

On June 30, 2015, the Company entered into a $250.0 million loan and security agreement, subject to increase by up to
$100.0 million, (the “Credit Agreement”), with the following lenders: Bank of America, N.A., MUFG Union Bank, N.A. and HSBC
Bank USA, National Association. The Credit Agreement matures on June 30, 2020. The Credit Agreement replaces the credit
agreement dated June 30, 2009, which expired on June 30, 2015. The Credit Agreement permits the Company and certain of its
subsidiaries to borrow based on a percentage of eligible accounts receivable plus the sum of (a) the lesser of (i) a percentage of
eligible inventory to be sold at wholesale and (ii) a percentage of net orderly liquidation value of eligible inventory to be sold at
wholesale, plus (b) the lesser of (i) a percentage of the value of eligible inventory to be sold at retail and (ii) a percentage of net
orderly liquidation value of eligible inventory to be sold at retail, plus (c) the lesser of (i) a percentage of the value of eligible in-transit
inventory and (ii) a percentage of the net orderly liquidation value of eligible in-transit inventory. Borrowings bear interest at the
Company’s election based on (a) LIBOR or (b) the greater of (i) the Prime Rate, (ii) the Federal Funds Rate plus 0.5% and (iii)
LIBOR for a 30-day period plus 1.0%, in each case, plus an applicable margin based on the average daily principal balance of
revolving loans available under the Credit Agreement. The Company pays a monthly unused line of credit fee of 0.25%, payable on
the first day of each month in arrears, which is 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 $100.0 million. The Credit Agreement contains customary affirmative and negative covenants for
secured credit facilities of this type, including covenants that will limit the ability of the Company and its subsidiaries to, among other
things, incur debt, grant liens, make certain acquisitions, dispose of assets, effect a change of control of the Company, make certain
restricted payments including certain dividends and stock redemptions, make certain investments or loans, enter into certain
transactions with affiliates and certain prohibited uses of proceeds. The Credit Agreement also requires compliance with a minimum
fixed-charge coverage ratio if Availability drops below 10% of the Revolver Commitments (as such terms are defined in the Credit
Agreement) until the date when no event of default has existed and Availability has been over 10% for 30 consecutive days. The
Company paid closing and arrangement fees of $1.1 million on this facility, which are included in Other Assets in the consolidated
balance sheets, and are being amortized to interest expense over the five-year life of the facility. As of December 31, 2017 and
December 31, 2016, there was $0.1 million outstanding under the Company’s credit facilities, classified as short-term borrowings in
the Company’s consolidated balance sheets. The remaining balance in short-term borrowings as of December 31, 2017 is related to the
Company’s joint venture in India.

(5) LONG-TERM BORROWINGS

Long-term borrowings at December 31, 2017 and 2016 are as follows (in thousands):

Note payable to banks, due in monthly installments of $302.0
(includes principal and interest), variable-rate interest at
3.57% per annum, secured by property, balloon payment of
$62,843 due August 2020......................................................... $
Note payable to Luen Thai Enterprise, Ltd., balloon payment
of $5,745 due January 2021 .....................................................
Note payable to TCF Equipment Finance, Inc., due in monthly
installments of $30.5 (includes principal and interest), fixed-
rate interest at 5.24% per annum, due July 2019 .....................
Subtotal........................................................................................
Less current installments.............................................................
Total long-term borrowings ........................................................ $

2017

2016

66,604

68,059

5,745

—

555
72,904
1,801
71,103

883
68,942
1,783
67,159

The aggregate maturities of long-term borrowings at December 31, 2017 are as follows (in thousands):

2018 ............................................................................................... $
2019 ...............................................................................................
2020 ...............................................................................................
2021 ...............................................................................................
$

1,801
1,666
63,692
5,745
72,904

The Company’s long-term debt obligations contain both financial and non-financial covenants, including cross-default

provisions.

On April 30, 2010, HF Logistics-SKX, LLC (the “JV”), through a wholly-owned subsidiary of the JV (“HF-T1”), entered into a
construction loan agreement with Bank of America, N.A. as administrative agent and as a lender, and Raymond James Bank, FSB, as
a lender (collectively, the "Construction Loan Agreement"), pursuant to which the JV obtained a loan of up to $55.0 million used for
construction of the project on certain property (the "Original Loan"). On November 16, 2012, HF-T1 executed a modification to the
Construction Loan Agreement (the "Modification"), which added OneWest Bank, FSB as a lender, increased the borrowings under the
Original Loan to $80.0 million and extended the maturity date of the Original Loan to October 30, 2015. On August 11, 2015, the JV,
through HF-T1, entered into an amended and restated loan agreement with Bank of America, N.A., as administrative agent and as a
lender, and CIT Bank, N.A. (formerly known as OneWest Bank, FSB) and Raymond James Bank, N.A., as lenders (collectively, the
"Amended Loan Agreement"), which amends and restates in its entirety the Construction Loan Agreement and the Modification.

As of the date of the Amended Loan Agreement, the outstanding principal balance of the Original Loan was $77.3 million. In
connection with this refinancing of the Original Loan, the JV, the Company and HF Logistics (“HF”) agreed that the Company would
make an additional capital contribution of $38.7 million to the JV, through HF-T1, to make a payment on the Original Loan based on
the Company’s 50% equity interest in the JV. The payment equaled the Company’s 50% share of the outstanding principal balance of
the Original Loan. Under the Amended Loan Agreement, the parties agreed that the lenders would loan $70.0 million to HF-T1 (the
"New Loan"). The New Loan is being used by the JV, through HF-T1, to (i) refinance all amounts owed on the Original Loan after
taking into account the payment described above, (ii) pay $0.9 million in accrued interest, loan fees and other closing costs associated
with the New Loan and (iii) make a distribution of $31.3 million less the amounts described in clause (ii) to HF. Pursuant to the
Amended Loan Agreement, the interest rate on the New Loan is the LIBOR Daily Floating Rate (as defined in the Amended Loan
Agreement) plus a margin of 2%. The maturity date of the New Loan is August 12, 2020, which HF-T1 has one option to extend by an
additional 24 months, or until August 12, 2022, upon payment of a fee and satisfaction of certain customary conditions. On
August 11, 2015, HF-T1 and Bank of America, N.A. entered into an ISDA master agreement (together with the schedule related
thereto, the "Swap Agreement") to govern derivative and/or hedging transactions that HF-T1 concurrently entered into with Bank of
America, N.A. Pursuant to the Swap Agreement, on August 14, 2015, HF-T1 entered into a confirmation of swap transactions (the
"Interest Rate Swap") with Bank of America, N.A. The Interest Rate Swap has an effective date of August 12, 2015 and a maturity
date of August 12, 2022, subject to early termination at the option of HF-T1, commencing on August 1, 2020. The Interest Rate Swap
fixes the effective interest rate on the New Loan at 4.08% per annum. Pursuant to the terms of the JV, HF Logistics is responsible for
the related interest expense on the New Loan, and any amounts related to the Swap Agreement. The full amount of interest expense
related to the New Loan has been included in the Company’s consolidated statements of equity within non-controlling interests. The

Amended Loan Agreement and the Swap Agreement are subject to customary covenants and events of default. Bank of America, N.A.
also acts as a lender and syndication agent under the Credit Agreement dated June 30, 2015 (see Note 6, Derivative Instruments). The
Company is in compliance with its non-financial covenants, including any cross default provisions, and financial covenants of its
short-term and long-term borrowings as of December 31, 2017.

(6) DERIVATIVE INSTRUMENTS

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to
interest rate movements. To accomplish this objective, the Company used an interest rate swap as part of its interest rate risk
management strategy. The Company’s interest rate swap involves the receipt of variable amounts from a counterparty in exchange for
making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. On August 12, 2015,
in connection with refinancing its domestic distribution center loan, described in Note 5 above, the Company entered into a variable-
to-fixed interest rate swap agreement with Bank of America, N.A., to hedge the cash flows on the Company’s $70.0 million variable
rate debt. As of December 31, 2017, the swap agreement has an aggregate notional amount of $66.6 million and a maturity date of
August 12, 2022, subject to early termination commencing on August 1, 2020 at the option of HF Logistics-SKX T1, LLC (“HF-T1”),
a wholly-owned subsidiary of the Company’s joint venture HF Logistics-SKX, LLC (the “JV”). Under the terms of the swap
agreement, the Company will pay a weighted-average fixed rate of 2.08% on the $66.6 million notional amount and receive payments
from the counterparty based on the 30-day LIBOR rate. The rate swap agreement utilized by the Company effectively modifies its
exposure to interest rate risk by converting the Company’s floating-rate debt to a fixed-rate of 4.08% for the life of the loan thus
reducing the impact of interest-rate changes on future interest expense. Pursuant to the terms of the JV, HF Logistics is responsible
for any amounts related to the Swap Agreement.

By utilizing an interest rate swap, the Company is exposed to credit-related losses in the event that the counterparty fails to
perform under the terms of the derivative contract. To mitigate this risk, the Company enters into derivative contracts with major
financial institutions based upon credit ratings and other factors. The Company continually assesses the creditworthiness of its
counterparties. As of December 31, 2017, all counterparties to the interest rate swap had performed in accordance with their
contractual obligations.

(7) OTHER LONG-TERM LIABILITIES

Other long-term liabilities at December 31, 2017 and 2016 are as follows (in thousands):

Other long term liabilities
Income taxes payable

2017

2016

19,059
99,200
118,259

13,862
4,993
18,855

(8) COMMITMENTS AND CONTINGENCIES

(a)

Leases

The Company leases facilities under operating lease agreements expiring through November 1, 2031. The Company pays taxes,
maintenance and insurance in addition to the lease obligations. Leases may provide for renewal options and 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 gross sales in excess of a base annual rent. The Company also leases certain equipment and automobiles under operating
lease agreements expiring at various dates through May 1, 2021. Rent expense for the years ended December 31, 2017, 2016 and 2015
approximated $223.7 million, $171.0 million and $137.8 million, respectively.

Minimum lease payments, which take into account escalation clauses, are recognized on a straight-line basis over the minimum
lease term. Reimbursements for leasehold improvements are recorded as liabilities and are amortized as a reduction to rent expense
over the lease term. Lease concessions, usually a free rent period, are considered in the calculation of the minimum lease payments for
the minimum lease term.

Future minimum lease payments under noncancellable leases at December 31, 2017 are as follows (in thousands):

OPERATING
LEASES

Year ending December 31:
2018 ............................................................................................... $
2019 ...............................................................................................
2020 ...............................................................................................
2021 ...............................................................................................
2022 ...............................................................................................
Thereafter.......................................................................................
$

238,665
208,292
188,397
167,634
160,057
586,063
1,549,108

(b)

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 0.0% and 0.5% for 30- to 60-day
financing. The amounts outstanding under these arrangements at December 31, 2017 and 2016 were $177.4 million and $260.7
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 $4.8 million in 2017, $4.4 million in 2016, and $5.4 million in 2015.
The Company has open purchase commitments with its foreign manufacturers at December 31, 2017 of $943.4 million, which are not
included in the accompanying 2017 consolidated balance sheet.

(c)

Litigation

The Company recognizes legal expense in connection with loss contingencies as incurred.

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 were defective and unreasonably dangerous, negligently designed and/or manufactured, and did not conform to
representations made by the Company, and that the Company failed to provide adequate warnings of alleged risks associated with
Shape-ups. Other personal injury lawsuits involving Shape-ups (some on behalf of multiple plaintiffs) subsequently were filed in
various courts, alleging varying injuries but employing similar legal theories and asserting similar claims to those made in the first
case, as well as claims for breach of express and implied warranties, loss of consortium, and fraud. Although there are variations in the
relief sought, the plaintiffs generally seek compensatory and/or economic damages, exemplary and/or punitive damages, and
attorneys’ fees and costs. As detailed below, the Company is named as a defendant in one currently active, pending case.

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. Since 2011, a total of 1,235 personal injury cases have been filed in or
transferred to the MDL proceeding. The Company has resolved 1,766 personal injury claims in the MDL proceedings, comprised of
1,154 that were filed as formal actions and 612 that were submitted by plaintiff fact sheets. The Company has also settled another 13
claims in principle—8 filed cases and 5 claims submitted by plaintiff fact sheets—either directly or pursuant to a global settlement
program that has been approved by the claimants’ attorneys (described in greater detail below). Further, 72 cases in the MDL
proceeding have been dismissed either voluntarily or on motions by the Company and 40 unfiled claims submitted by plaintiff fact
sheet have been abandoned. Between the consummated settlements and cases subject to the settlement program, all but one of the
personal injury cases pending in the MDL have been or are expected to be resolved. Fact discovery in that case has been completed
and a court-ordered mediation is scheduled in March 2018. No trial date has been set.

Skechers U.S.A., Inc., Skechers U.S.A., Inc. II and Skechers Fitness Group also have been named as defendants in a total of
72 personal injury actions filed in various Superior Courts of the State of California that were brought on behalf of 920 individual
plaintiffs (360 of whom also submitted MDL court-approved questionnaires for mediation purposes in the MDL proceeding). Of those
cases, 68 were originally filed in the Superior Court for the County of Los Angeles (the “LASC cases”). On August 20, 2014, the
Judicial Council of California granted a petition by the Company to coordinate all personal injury actions filed in California that relate
to Shape-ups with the LASC cases (collectively, the “LASC Coordinated Cases”). On October 6, 2014, three cases that had been
pending in other counties were transferred to and coordinated with the LASC Coordinated Cases. On April 17, 2015, an additional
case was transferred to and coordinated with the LASC Coordinated Cases.

Fifty-seven actions brought on behalf of a total of 647 plaintiffs have been settled and fully dismissed in the LASC Coordinated
Cases. Twelve actions have been partially dismissed, with the claims of 224 plaintiffs in those actions having been fully resolved and
dismissed. The claim of one other plaintiff from these partially settled multi-plaintiff lawsuits has been settled in principle and should
be dismissed in the short term. One single-plaintiff lawsuit and the claims of 28 additional plaintiffs in multi-plaintiff lawsuits have
been dismissed entirely, either voluntarily or on motion by the Company. The claims of 21 additional persons have been dismissed in
part, either voluntarily or on motions by the Company.

In other state courts, a total of 12 personal injury actions (some on behalf of numerous plaintiffs) have been filed that have not

been removed to federal court and transferred to the MDL. All of those actions have been resolved and dismissed.

With respect to the global settlement programs referenced above, the personal injury cases in the MDL and LASC Coordinated
Cases and in other state courts were largely solicited and handled by the same plaintiffs law firms. Accordingly, mediations to discuss
potential resolution of the various lawsuits brought by these firms were held on May 18, June 18, and July 24, 2015. At the conclusion
of those mediations, the parties reached an agreement in principle on a global settlement program that is expected to resolve all or
substantially all of the claims by persons represented by those firms. A master settlement agreement was executed as of
March 24, 2016 and the parties are in the process of completing individual settlements. To the extent that the settlements with
individual claimants are not finalized or otherwise consummated such that the litigation proceeds, it is too early to predict the outcome
of any case, 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. The settlements have been reached for
business purposes in order to end the distraction of litigation, and the Company continues to believe it has meritorious defenses and
intends to defend any remaining cases vigorously. In addition, it is too early to predict whether there will be future personal injury
cases filed which are not covered by the global settlement program, whether adverse results in any single case or in the aggregate
would have a material adverse impact on the Company’s operations or financial position, and whether insurance coverage will be
available and/or adequate to cover any losses.

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. 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, 2017, nor is it possible to estimate what litigation-related costs will be in the future; however, the Company believes
that the likelihood that claims related to litigation would result in a material loss to the Company, either individually or in the
aggregate, is remote.

(9)

STOCKHOLDERS’ EQUITY

The authorized capital stock of the Company consists of 500 million shares of Class A Common Stock, par value
$.001 per share, 75 million shares of Class B Common Stock, par value $.001 per share, and 10 million shares of preferred stock,
par value $.001 per share.

During 2017, no Class B Common Stock was converted to Class A Common Stock. During 2016 and 2015, certain Class B
stockholders converted 1,733,270 shares and 5,131,296 shares, respectively, of Class B Common Stock to Class A Common Stock
(see Note 11 – Earnings Per Share).

(10) NONCONTROLLING INTERESTS

The following VIEs 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
Current assets............................................................... $
Non-current assets .......................................................
Total assets ............................................................. $

December 31, 2017
1,540
103,407
104,947

December 31, 2016
2,006
$
108,668
110,674

Current liabilities ......................................................... $
Non-current liabilities..................................................
Total liabilities........................................................ $

2,718
66,367
69,085

2,469
68,168
70,637

Distribution joint ventures (1)
Current assets............................................................... $
Non-current assets .......................................................
Total assets ............................................................. $

December 31, 2017
389,687
90,972
480,659

December 31, 2016
289,227
$
49,229
338,456

188,700
9,201
197,901

132,518
2,214
134,732

(1)

Distribution joint ventures include Skechers Limited (Israel), Skechers China Limited,
Skechers Korea Limited, Skechers Southeast Asia Limited, Skechers (Thailand) Limited,
Skechers Retail India Private Limited, and Skechers South Asia Private Limited.

The following is a summary of net earnings attributable to, distributions to and contributions from non-controlling interests (in

thousands):

Net earnings attributable to non-controlling
Interests .................................................................................. $
Distributions to:

Years Ended December 31,

2017

2016

2015

55,914

41,866

29,135

HF Logistics-SKX, LLC......................................................
Skechers China Limited.......................................................
Skechers Southeast Asia Limited ........................................
Skechers Hong Kong Limited .............................................

3,787
20,620
1,347
199

Contributions from:

India distribution joint ventures...........................................
Skechers Korea Co., Ltd. .....................................................
Skechers Footwear Ltd. (Israel)...........................................

—
—
46

4,091
11,922
1,280
451

2,943
8,273
2,764

38,092
450
—
—

2,273
—
—

(11) 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
dilutive common shares 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 transfer to
any person or entity who is not a permitted transferee.

The following is a reconciliation of net earnings and weighted average common shares outstanding for purposes of calculating

earnings per share (in thousands):

Basic earnings per share

Net earnings attributable to Skechers U.S.A., Inc..................... $
Weighted average common shares outstanding ........................
Basic earnings per share attributable to
Skechers U.S.A., Inc. ............................................................. $

2017
179,190
155,651

2016
243,493
154,169

2015
231,912
152,847

1.15

1.58

1.52

Net earnings attributable to Skechers U.S.A., Inc..................... $

Diluted earnings per share

2017
179,190

2016
243,493

2015
231,912

Weighted average common shares outstanding ........................
Dilutive effect of nonvested shares ...........................................
Weighted average common shares outstanding ........................

155,651
872
156,523

154,169
915
155,084

152,847
1,353
154,200

Diluted earnings per share attributable to
Skechers U.S.A., Inc. ............................................................. $

1.14

1.57

1.50

There were 116,762 and 346,912 shares excluded from the computation of diluted earnings per share for the year ended
December 31, 2017 and 2016, respectively because they are anti-dilutive. There were no shares excluded from the computation of
diluted earnings per share for the year ended December 31, 2015.

(12) STOCK COMPENSATION

(a)

Incentive Award Plan

On April 16, 2007, the Company’s Board of Directors adopted the 2007 Incentive Award Plan (the “2007 Plan”), which became

effective upon approval by the Company’s stockholders on May 24, 2007 and expired pursuant to its terms on May 24, 2017.

On April 17, 2017, the Company’s Board of Directors adopted the 2017 Incentive Award Plan (the “2017 Plan”), which became
effective upon approval by the Company’s stockholders on May 23, 2017. The 2017 Plan replaced and superseded in its entirety the
2007 Plan. A total of 10,000,000 shares of Class A Common Stock are reserved for issuance under the 2017 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 2017 Plan is administered by the Company’s Board of
Directors with respect to awards to non-employee directors and by the Company’s Compensation Committee with respect to other
eligible participants.

A summary of the status and changes of nonvested shares related to the 2007 Plan and the 2017 Plan, as of and for the year

ended December 31, 2017 is presented below:

WEIGHTED-
AVERAGE
GRANT-
DATE FAIR
VALUE

Nonvested at January 1, 2015 ..................................................... 3,791,499
40,500

Granted...................................................................................
Vested/Released..................................................................... (1,106,499)

Nonvested at December 31, 2015 ............................................... 2,725,500
Granted................................................................................... 1,444,000
Vested/Released..................................................................... (1,108,336)
(18,000)
Cancelled ...............................................................................

Nonvested at December 31, 2016 ............................................... 3,043,164
495,600

Granted...................................................................................
Vested/Released..................................................................... (1,157,207)
(78,000)
Cancelled ...............................................................................

Nonvested at December 31, 2017 ............................................... 2,303,557

14.46
29.83
11.81
15.77
31.69
12.32
17.81
24.57
24.69
20.73
32.62
26.25

As of December 31, 2017, a total of 9,888,500 shares remain available for grant as equity awards under the 2017 Plan.

The Company recognized in the consolidated statements of earnings compensation expense of $28.9 million, $23.1 million and
$18.3 million for grants under its stock compensation plans for the years ended December 31, 2017, 2016, and 2015. Related excess
income tax benefits of $4.7 million, and $8.0 million for grants under its stock compensation plans for the years ended December 31,
2016, and 2015, respectively, were recorded in additional paid-in capital and $2.6 million of excess tax benefits for the year ended
December 31, 2017 was recorded in the statement of earnings. Nonvested shares generally vest over a graded vesting schedule from
one to four years from the date of grant. There was $39.6 million of unrecognized compensation cost related to nonvested common
shares as of December 31, 2017, which is expected to be recognized over a weighted average period of 2.1 years. The total fair value
of shares vested during the year ended December 31, 2017 and 2016 was $24.0 million and $13.7 million, respectively.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting” (“ASU 2016-09”). The updated guidance changes how companies account for certain
aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax
withholding requirements, as well as classification in the statement of cash flows. As of January 1, 2017, the calculation of diluted
weighted average shares outstanding was changed prospectively to no longer include excess tax benefits as assumed proceeds. This
change did not have a material impact on the Company’s calculation of diluted earnings per share. Additionally, this ASU requires the
recognition of excess tax benefits and deficiencies as income tax benefits or expenses in the income statement rather than to
additional paid-in capital, which has been applied on a prospective basis to settlements of share-based payment awards occurring on or
after January 1, 2017. The Company adopted ASU 2016-09 effective January 1, 2017. The Company recorded a $2.6 million excess
tax benefit in the consolidated statement of earnings for the year ended December 31, 2017.

(b)

Stock Purchase Plan

On April 17, 2017, the Company’s Board of Directors adopted the 2018 Employee Stock Purchase Plan (the “2018 ESPP”),
which the Company’s stockholders approved on May 23, 2017. The 2018 ESPP will replace the Company’s current employee stock
purchase plan, the Skechers U.S.A., Inc. 2008 Employee Stock Purchase Plan (the “2008 ESPP”), which expired pursuant to its terms
on January 1, 2018. The 2018 Employee Stock Purchase Plan provides eligible employees of the Company and its subsidiaries with
the opportunity to purchase shares of the Company’s Class A Common Stock at a purchase price equal to 85% of the Class A
Common Stock’s fair market value on the first trading day or last trading day of each purchase period, whichever is lower. The
2018 ESPP generally provides for two six-month purchase periods every twelve months: June 1 through November 30 and
December 1 through May 31, except that the initial purchase period under the 2018 ESPP will have a duration of five months,
commencing on January 1, 2018 and ending on May 31, 2018. Eligible employees participating in the 2018 ESPP for a purchase
period will be able to invest up to 15% of their compensation through payroll deductions during each purchase period. A total of
5,000,000 shares of Class A Common Stock will be available for sale under the 2018 ESPP.

During 2017, 2016 and 2015, 240,000 shares, 220,844 shares and 223,892 shares were issued under the 2008 ESPP for which

the Company received approximately $5.5 million, $5.1 million and $4.3 million, respectively.

(13)

INCOME TAXES

The provisions for income tax expense (benefit) were as follows (in thousands):

2017

2016

2015

Federal:

Current .................................................................... $ 110,448 $
3,768
Deferred ..................................................................
Total federal....................................................... 114,216

45,258 $
(3,961)
41,297

45,095
2,774
47,869

State:

Current ....................................................................
Deferred ..................................................................
Total state ..........................................................

2,747
(3,356)
(609)

3,406
(49)
3,357

2,506
1,798
4,304

Foreign:

40,147
Current ....................................................................
(4,598)
Deferred ..................................................................
Total foreign ......................................................
35,549
Total income taxes (benefit) .............................. $ 149,156 $

31,046
(1,575)
29,471
74,125 $

21,204
(927)
20,277
72,450

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and
Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affected the Company’s financial
results for the year ended December 31, 2017, including, but not limited to: (1) requiring a one-time Transition Tax (payable over
eight years) on certain unrepatriated earnings of foreign subsidiaries; (2) a future reduction of the U.S. federal corporate tax rate from
35% to 21% that reduces the current value of the Company’s deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”); and
(3) bonus depreciation that allows for full expensing of qualified property place in service after September 27, 2017. In addition, the
Tax Act establishes new tax laws that will affect the Company’s financial results for the year ending December 31, 2018, including,
but not limited to: (1) a reduction of the U.S. federal corporate tax rate from 35% to 21%; (2) a general elimination of U.S. federal
income taxes on dividends from foreign subsidiaries; (3) a new provision designed to tax global intangible low-taxed income
(“GILTI”); (4) limitations on the deductibility of certain executive compensation; and (5) limitations on the use of Federal Tax Credit
(“FTC’s”) to reduce the U.S. income tax liability.

The SEC staff issued Staff Accounting Bulletin 118, (“SAB 118”), which provides guidance on accounting for the tax effects of
the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for
companies to complete the accounting under Accounting Standards Codification 740 (“ASC 740”). In accordance with SAB 118, a
company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the
extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable
estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be
included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in
effect immediately before the enactment of the Tax Act.

In connection with its initial analysis of the impact of the Tax Act, the Company recorded a provisional one-time net tax
expense of $99.9 million for the year-ended December 31, 2017. This net tax expense primarily consists of the $1.9 million net tax
impact to the Company’s DTA’s from the corporate rate reduction and a net expense for the Transition Tax of $98.0 million. For
various reasons that are discussed more fully below, the Company has not completed the accounting for the income tax effects of
certain elements of the Tax Act. If the Company were able to make reasonable estimates of the effects of elements for which the
analysis is not yet complete, the Company recorded provisional adjustments.

The Company’s accounting for the following elements of the Tax Act is provisional. However, the Company was able to make

reasonable estimates of certain effects and, therefore, recorded the following provisional adjustments:

Transition Tax: The Transition Tax is a one-time tax on previously untaxed current and accumulated earnings and profits
(“E&P”) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, in
addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes
paid on such earnings. The Company was able to make a reasonable estimate of the Transition Tax and recorded a provisional
Transition Tax liability of $98.0 million. However, during the measurement period the Company will continue to gather additional
information to more precisely compute the amount of the Transition Tax.

Reduction of U.S. federal corporate tax rate: The Tax Act reduces the corporate tax rate from 35% to 21%, effective
January 1, 2018. As a result, the Company recorded a provisional decrease in value of its net DTAs of $1.9 million, with a
corresponding net adjustment to deferred income tax expense of $1.9 million for the year ended December 31, 2017. While the
Company was able to make a reasonable estimate of the impact of the reduction in the corporate tax rate, it may be affected by other
analyses related to the Tax Act, including, but not limited to, the Company’s calculation of deemed repatriation of deferred foreign
income and the state tax effect of adjustments made to federal temporary differences.

Cost recovery: While the Company has completed most of the computations necessary and is in the process of completing a
final inventory of its 2017 expenditures that qualify for immediate expensing, the Company recorded a decrease in its current income
tax payable of approximately $5.9 million based on the Company’s provisional estimates related to the additional federal expense
allowed as a result of the Tax Act. In addition, the Company recorded a corresponding increase in its DTLs of approximately $3.5
million, which is less than the $5.9 million liability amount due to the reduction in the corporate tax rate from 35% to 21%, effective
January 1, 2018. The $2.4 million net benefit from the reduction in the future tax rate is included in the $1.9 million decrease in value
of the net DTAs discussed above.

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 34%. 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 before income taxes.

The Company’s earnings (loss) before income taxes and income tax expense (benefit) for 2017, 2016 and 2015 are as follows

(in thousands):

2017

Years Ended December 31,
2016

2015

Earnings (loss)
before income
taxes

Income tax
expense

25,628 $ 113,607
95,668 12,971
—
198,048
(17,350)
3,306
82,266 19,272
384,260 $ 149,156

$
38.8%

Income tax
expense

Earnings (loss)
before income
taxes
105,589 $ 44,654
72,584 11,720
—
146,880
(16,189)
12
50,620 17,739
359,484 $ 74,125

Income tax
expense

Earnings (loss)
before income
taxes
136,726 $ 52,173
49,027 11,084
—
164
9,029
333,497 $ 72,450

123,721
(16,719)
40,742

$
20.6%

21.7%

(1)

United States income tax expense for 2017 includes a provisional one-time $99.9 million tax expense related to the enactment of
the United States Tax Cuts & Jobs Act on December 22, 2017.

(2) Jersey does not assess income tax on corporate net earnings.

(3)

(4)

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: Brazil, India, Israel, Japan, Macau, Panama and South Korea.

Consists of entities in the following tax jurisdictions, each of which comprises not more than 5% of consolidated earnings (loss)
before taxes in the period being reported: Albania, Austria, Belgium, Bosnia & Herzegovina, Canada, Chile, Colombia, Costa
Rica, France, Germany, Hong Kong, Hungary, India, Italy, Kosovo, Macedonia, Malaysia, Montenegro, Netherlands, Panama,
Peru, Poland, Portugal, Romania, Serbia, Singapore, Spain, Switzerland, Thailand, Vietnam, and the United Kingdom.

(5)

The effective tax rate is calculated by dividing income tax expense by earnings before income taxes.

average rate of 9.9%. Combined, this results in consolidated earnings before income taxes for the year of $384.3 million, and
consolidated income tax expense for the period of $149.2 million, resulting in an effective tax rate of 38.8%. For 2017, of the
$358.6 million in earnings before income tax earned outside the U.S., $198.0 million was earned in Jersey, which does not impose a
tax on corporate earnings. In Jersey, earnings before income taxes increased by $51.1 million, or 35%, to $198.0 million in 2017 from
$146.9 million in 2016. This increase was primarily attributable to the Company experiencing an increase of $435.6 million in net
sales in the “Other international” geographic area for 2017 (see Note 18 – Segment and Geographic Reporting), which resulted in a
significant increase in earnings before income taxes in Jersey from royalties and commissions under the terms of inter-subsidiary
agreements. Due to the scalability of our operations, increases in net sales in the “Other international” geographic area from 2016 to
2017 resulted in a disproportionately greater increase in earnings before income taxes in Jersey. In addition, there were foreign losses
of $17.4 million for which no tax benefit was recognized during the year ended December 31, 2017 because of the provision of
offsetting valuation allowances, but in which $3.3 million in nonrefundable withholding and other taxes were paid. Individually, none
of the other foreign jurisdictions included in “Other jurisdictions” in the table above had earnings greater than 5% of the Company’s
consolidated earnings (loss) before taxes in any of the years shown. Unremitted earnings of non-U.S. subsidiaries for which no tax has
been provided are expected to be reinvested outside of the U.S. indefinitely. Such earnings could become taxable upon the sale or
liquidation of these subsidiaries or upon the remittance of dividends.

As of December 31, 2017, the Company had approximately $736.4 million in cash and cash equivalents, of which
$391.6 million, or 53.2%, was held outside the U.S. Of the $391.6 million held by the Company’s non-U.S. subsidiaries,
approximately $227.5 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 consolidated financial statements as of
December 31, 2017.

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. However, in anticipation of the needs of the Company’s share
repurchase program and the need to provide payment of the Company’s provisional Transition Tax liability, the Company plans to
begin the repatriation of certain funds held outside the U.S. for which tax has been fully provided as of December 31, 2017. Because
of the need for cash for operating capital and continued overseas expansion, the Company also does not foresee the need for any of its
foreign subsidiaries to distribute funds up to an intermediate foreign parent company in any form of taxable dividend. Under current
applicable tax laws, if the Company chooses to repatriate some or all of the funds the Company has designated as indefinitely
reinvested outside the U.S., the amount repatriated would not be subject to U.S. income taxes but may be subject to applicable
non-U.S. income and withholding taxes. As of December 31, 2017, U.S. income taxes have been provided but non-U.S. income taxes
have not been provided on cumulative total earnings of $178.8 million. As of December 31, 2016, U.S. and non-U.S. income taxes
have not been provided on cumulative total earnings of $699.6 million.

Income taxes differ from the statutory tax rates as applied to earnings before income taxes as follows (in thousands):

2017
134,491
297
(95,565)
1,449
4,451
(2,571)
1,923
98,015
(1,120)
7,786
149,156

2016
125,819
2,335
(58,508)
135
2,330
—
—
—
575
1,439
74,125

$
38.8%

$
20.6%

2015
116,724
2,011
(44,541)
(2,233)
(350)
—
—
—
285
554
72,450

21.7%

Expected income tax expense................................................... $
State income tax, net of federal benefit ....................................
Rate differential on foreign income..........................................
Change in unrecognized tax benefits........................................
Non-deductible expenses..........................................................
Excess tax benefit on share based compensation .....................
U.S. tax rate change..................................................................
U.S. transition tax.....................................................................
Other.........................................................................................
Change in valuation allowance.................................................
Total provision (benefit) for income taxes.......................... $
Effective tax rate .................................................................

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at

December 31, 2017 and 2016 are presented below (in thousands):

Deferred tax assets:

Inventory adjustments ........................................................... $
Accrued expenses ..................................................................
Allowances for bad debts and chargebacks...........................
Loss carryforwards ................................................................
Business credit carryforward.................................................
Share-based compensation ....................................................
Valuation allowance ..............................................................
Total deferred tax assets...................................................

Deferred tax liabilities:

Prepaid expenses ...................................................................
Depreciation on property, plant and equipment ....................
Total deferred tax liabilities .............................................
Net deferred tax assets........................................................... $

2017

2016

5,375
33,984
3,470
24,308
6,562
4,154
(27,313)
50,540

5,709
15,069
20,778
29,762

6,985
29,094
4,837
20,891
5,031
5,993
(19,527)
53,304

8,422
19,251
27,673
25,631

The $7.8 million increase in the valuation allowance primarily relates to current year net operating losses in certain foreign non-
benefited loss jurisdictions as discussed above. The Company believes it is more likely than not that the results of future operations in
the remaining jurisdictions will generate sufficient taxable income to realize its net deferred tax assets.

State tax credit and net operating loss carry-forward amounts remaining as of December 31, 2017 were $6.6 million and
$31.3 million, respectively. State tax credit and net operating loss carry-forward amounts remaining as of December 31, 2016 were
$5.0 million and $31.7 million, respectively. These tax credit and net operating loss carry-forward amounts do not begin to expire until
2032 and 2025, respectively. As of December 31, 2017 and 2016, no valuation allowance against the related deferred tax asset have
been recorded for these credit and loss and credit carry-forwards as it is believed the carry-forwards will be fully utilized in reducing
future taxable income.

As of December 31, 2017 and 2016, the Company had combined foreign net operating loss carry-forwards available to reduce
future taxable income of approximately $94.9 million and $69.4 million, respectively. Some of these net operating losses expire
beginning in 2018; however others can be carried forward indefinitely. As of December 31, 2017 and 2016, valuation allowances of
$21.4 million and $16.7 million, respectively, had been recorded against the related deferred tax assets for those loss carry-forwards
that are not more likely than not to be fully utilized in reducing future taxable income.

The balance of unrecognized tax benefits included in prepaid expenses in the consolidated balance sheets increased by
$0.8 million during the year. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in
thousands):

Beginning balance....................................................................... $
Additions for current year tax positions ................................
Additions for prior year tax positions....................................
Reductions for prior year tax positions .................................
Settlement of uncertain tax positions ....................................
Reductions related to lapse of statute of limitations..............
Ending balance............................................................................ $

2017

2016

6,608
1,154
—
(26)
—
(355)
$
7,381

6,143
1,069
138
—
(616)
(126)
6,608

If recognized, $1.6 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 $0.5 million, $0.4 million, and $0.6 million for the years ended December 31, 2017, 2016, and 2015, respectively.
Accrued interest and penalties were $1.5 million and $1.1 million as of December 31, 2017 and 2016, 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 its 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, 2017, the Company’s tax filings are generally subject to examination in the U.S. and most foreign
jurisdictions for years ending on or after December 31, 2013, and in several Asian and European tax jurisdictions for years ending on
or after December 31, 2007. During the year, the Company reduced the balance of 2017 and prior year unrecognized tax benefits by
$0.4 million as a result of expiring statutes. It is reasonably possible that certain domestic and foreign statutes will expire during the
next twelve months which would reduce the balance of 2017 and prior year unrecognized tax benefits by $0.5 million.

The Company is currently under examination by a number of states and certain foreign jurisdictions. During the year ended
December 31, 2017, there was no reduction in the balance of 2017 and prior year unrecognized tax benefits due to settlements of
examinations. It is reasonably possible that certain federal, state and foreign examinations could be settled during the next twelve
months which would reduce the balance of 2017 and prior year unrecognized tax benefits by $0.9 million.

(14) 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 made a contribution of $1.6 million to the plan for the year ended December 31, 2017. The
Company did not make a contribution to the plan for the years ended December 31, 2016 and 2015, 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 made a contribution of $0.2 million to the plan for the year ended December 31, 2017. The Company did
not make a contribution to the plan for the year ended December 31, 2016 or 2015, respectively. 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 consolidated balance sheets.

(15) BUSINESS AND CREDIT CONCENTRATIONS

The Company generates a significant portion 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 the Company’s estimates and its performance. The
Company 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
$206.1 million and $169.4 million before allowances for bad debts and sales returns, and chargebacks at December 31, 2017 and
2016, respectively. Foreign accounts receivable, which are generally collateralized by letters of credit, amounted to $251.0 million and
$199.1 million before allowance for bad debts, sales returns, and chargebacks at December 31, 2017 and 2016, respectively.
International net sales amounted to $2.109 billion, $1.643 billion and $1.271 billion for the years ended December 31, 2017, 2016 and
2015, respectively. The Company’s credit losses charged to expense for the years ended December 31, 2017, 2016 and 2015 were
$12.8 million, $12.7 million and $5.2 million, respectively. In addition, the Company recorded sales return expense for the years
ended December 31, 2017, 2016 and 2015 were $5.6 million, $16.9 million and $2.3 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 $1.273 billion and $1.060 billion at December 31, 2017
and 2016, respectively.

During 2017, 2016 and 2015, 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, 2017 or 2016. During 2017, 2016 and 2015, net sales to the five largest customers were
approximately 10.5%, 11.3% and 14.6%, respectively.

The Company’s top five manufacturers produced the following for the years ended December 31, 2017, 2016 and 2015,

respectively:

Manufacturer #1........................................................................
Manufacturer #2........................................................................
Manufacturer #3........................................................................
Manufacturer #4........................................................................
Manufacturer #5........................................................................

Percentage of Total Production
Years Ended December 31,
2016

2015

2017

17.9%
11.1%
8.8%
5.4%
4.3%
47.5%

22.9%
10.1%
8.8%
4.9%
4.3%
51.0%

31.5%
9.1%
7.3%
5.0%
3.6%
56.5%

The majority of the Company’s products are produced in China and Vietnam. 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.

(16) RELATED PARTY TRANSACTIONS

The Company paid approximately $172,000, $111,000, and $180,000 during 2017, 2016 and 2015, respectively, to the
Manhattan Inn Operating Company, LLC (“MIOC”) for lodging, food and events, including the Company’s 2015 holiday party at the
Shade Hotel in Manhattan Beach, 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 three 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, the Shade Hotel in Manhattan Beach at December 31, 2017 or 2016.

The Company paid approximately $201,000 and $110,000 during 2017 and 2016 to the Redondo Beach Hospitality Company,
LLC (“RBHC”) for lodging, food and events, including the Company’s 2017 and 2016 holiday party at the Shade Hotel in Redondo
Beach, which is owned and operated by RBHC. Michael Greenberg, President and a director of the Company, owns a 5% beneficial
ownership interest in RBHC, and three other officers, directors and senior vice presidents of the Company own in aggregate an
additional 3% beneficial ownership in RBHC. The Company had no outstanding accounts receivable or payable with RBHC or the
Shade Hotel in Redondo Beach, at December 31, 2017 or 2016.

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 are also officers and
directors of the Foundation. During the year ended December 31, 2017 and 2016, the Company made contributions of $1.0 million to
the Foundation in each period. During the year ended December 31, 2015 the Company did not make any contributions to the
Foundation.

The Company had receivables from officers and employees of $1.0 million and $0.8 million at December 31, 2017 and 2016,
respectively. These amounts relate to travel advances, incidental personal purchases on Company-issued credit cards and employee
loans. These receivables are short-term and are expected to be repaid within a reasonable period of time. The Company had no other
significant transactions with or payables to officers, directors or significant stockholders of the Company.

(17) SUBSEQUENT EVENTS

The Company has evaluated events subsequent to December 31, 2017, to assess the need for potential recognition or disclosure
in this filing. Based on this evaluation, it was determined that no subsequent events occurred that require recognition in the
consolidated financial statements.

(18) SEGMENT AND GEOGRAPHIC REPORTING

The Company has three reportable segments–domestic wholesale sales, international wholesale sales, and retail sales, which
includes 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, and retail segments on a combined
basis were as follows (in thousands):

Net sales

Domestic wholesale ............................................................. $ 1,249,287
International wholesale ........................................................ 1,729,906
Retail.................................................................................... 1,184,967
Total ..................................................................................... $ 4,164,160

$ 1,199,832
1,391,235
972,244
$ 3,563,311

$ 1,219,779
1,094,395
833,149
$ 3,147,323

2017

2016

2015

Gross profit

2017

2016

2015

Domestic wholesale ............................................................. $
471,104
International wholesale ........................................................
454,665
498,239
Retail....................................................................................
Total ..................................................................................... $ 1,938,889 $ 1,634,596 $ 1,424,008

454,088 $
616,110
564,398

464,609 $
786,675
687,605

Identifiable assets

Domestic wholesale ............................................................... $ 1,259,119 $ 1,161,719
954,874
International wholesale ..........................................................
Retail......................................................................................
277,077
Total ....................................................................................... $ 2,735,082 $ 2,393,670

1,116,928
359,035

2017

2016

Additions to property, plant and equipment

Domestic wholesale ............................................................. $
International wholesale ........................................................
Retail....................................................................................
Total ..................................................................................... $

20,055 $
47,410
68,511
135,976 $

33,677 $
44,286
41,508
119,471 $

38,080
37,909
42,155
118,144

2017

2016

2015

Geographic Information

The following summarizes the Company’s operations in different geographic areas as of and for the years ended December 31:

Net Sales (1)

2017

2016

2015

United States ........................................................................ $ 2,055,475 $ 1,920,051 $ 1,876,201
103,268
Canada .................................................................................
Other international (2) ........................................................... 1,948,318 1,512,705 1,167,854
Total ..................................................................................... $ 4,164,160 $ 3,563,311 $ 3,147,323

130,555

160,367

Property, plant and equipment, net

United States .......................................................................... $
Canada ...................................................................................
Other international (2) .............................................................
Total ....................................................................................... $

382,426
9,888
149,287
541,601

374,459
10,410
109,604
494,473

2017

2016

(1)

The Company has subsidiaries in Asia, Central America, Europe, the Middle East, North America, and South America that
generate net sales within those respective countries and in some cases the neighboring regions. The Company has joint ventures
in Asia 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 distributors located in numerous non-European countries. External net sales are
attributable to geographic regions based on the location of each of the Company’s subsidiaries. A subsidiary may earn revenue
from external net sales and external royalties, or from inter-subsidiary net sales, royalties, fees and commissions provided in
accordance with certain inter-subsidiary agreements. The resulting earnings of each subsidiary in its respective country are
recognized under each respective country’s tax code. Inter-subsidiary revenues and expenses subsequently are eliminated in the
Company’s consolidated financial statements and are not included as part of the external net sales reported in different
geographic areas.

(2)

Other international consists of Asia, Central America, Europe, the Middle East, and South America.

In response to the State Department’s trade restrictions with Sudan and Syria, we do not authorize or permit any distribution or
sales of our product in these countries, and we are not aware of any current or past distribution or sales of our product in Sudan or
Syria.

(19) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized unaudited financial data are as follows (in thousands, except per share data):

2017

MARCH 31

JUNE 30

Net sales ............................................................................ $
Gross profit .......................................................................
Net earnings (loss) ............................................................
Net earnings (loss) attributable to Skechers U.S.A., Inc.

1,072,808 $
476,498
106,635
93,995

Net earnings (loss) per share:

1,025,934 $
488,321
73,400
59,535

SEPTEMBER 30
1,094,829
519,987
106,830
92,310

DECEMBER 31(1)

970,589
454,083
(51,761)
(66,650)

Basic...............................................................................
Diluted............................................................................
(1)

(0.43)
0.61
(0.43)
0.60
Fourth quarter 2017 net earnings (loss) includes a provisional one-time tax expense of $99.9 million recorded for our initial
analysis of the impact of the Tax Act.

0.38
0.38

0.59
0.59

2016

MARCH 31

JUNE 30

Net sales ............................................................................ $
Gross profit .......................................................................
Net earnings ......................................................................
Net earnings attributable to Skechers U.S.A., Inc. ...........

978,794 $
432,152
109,639
97,612

SEPTEMBER 30 DECEMBER 31
764,290
356,212
15,169
6,664

942,417
429,978
76,542
65,110

877,810 $
416,254
84,009
74,107

Net earnings per share:

Basic...............................................................................
Diluted............................................................................

0.63
0.63

0.48
0.48

0.42
0.42

0.04
0.04

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)

(ii)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets;

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.

With the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our
internal control over financial reporting as of December 31, 2017, 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 (2013), our management has concluded that our internal control
over financial reporting is effective as of such time.

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, 2017, 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 or our internal control over financial reporting will prevent or detect all errors 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. Assessments 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 2017. The results of our evaluation are
discussed above in Management’s Report on Internal Control Over Financial Reporting.

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
Skechers U.S.A., Inc.
Manhattan Beach, California

Opinion on Internal Control over Financial Reporting

We have audited Skechers U.S.A., Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2017,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated balance sheets of the Company and subsidiaries as of December 31, 2017 and 2016, and the related
consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the three years in the period ended
December 31, 2017, and the related notes and schedule and our report dated March 1, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

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 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 are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. 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.

Definition and Limitations of Internal Control over Financial Reporting

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.

/s/ BDO USA, LLP

Los Angeles, California

March 1, 2018

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